diff --git a/raw/proxies/0000110471/0000950123-10-024134/proxy.txt b/raw/proxies/0000110471/0000950123-10-024134/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f82946a2dd930f2e09928dd6a5af4da44f16d29a --- /dev/null +++ b/raw/proxies/0000110471/0000950123-10-024134/proxy.txt @@ -0,0 +1,8307 @@ +DEF 14A +1 +k48947def14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to Section 240.14a-12 +WOLVERINE +WORLD WIDE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS FORM ARE +NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +Table of Contents +Notice +of 2010 +Annual +Meeting of Stockholders +and +Proxy +Statement +Table of Contents +Important Notice Regarding the Availability of Proxy +Materials for the Annual Meeting of Stockholders to be Held on +April 22, 2010. +Wolverine’s Proxy Statement for the 2010 Annual Meeting +of Stockholders and the Annual Report to Stockholders for the +fiscal year ended January 2, 2010, are available at +www.wolverineworldwide.com/2010annualmeeting.asp. +2 +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 12, 2010 +Dear Stockholder, +You are invited to attend the 2010 Annual Meeting of +Stockholders which will be held on Thursday, April 22, +2010, in Rockford, Michigan. +The annual meeting will begin with an introduction of management +attendees and directors, followed by voting on the matters set +forth in the accompanying notice of annual meeting and proxy +statement and any other business matters properly brought before +the meeting. The meeting will adjourn for a presentation on the +Company’s business operations, and then resume for a report +on the voting. +Whether or not you plan to attend, you can ensure that your +shares are represented at the meeting by promptly voting and +submitting your proxy by telephone or by Internet, or by +completing, signing, dating and returning your proxy form in the +enclosed envelope. +Sincerely, +Blake W. Krueger +Chairman of the Board +3 +CONTENTS +NOTICE OF 2010 ANNUAL MEETING OF +STOCKHOLDERS +5 +PROXY STATEMENT +5 +DIRECTORS +6 +n Item 1 – +Election of Directors +6 +CORPORATE GOVERNANCE +12 +EXECUTIVE COMPENSATION +23 +Compensation Discussion & +Analysis +23 +Compensation Committee Report +33 +Summary Compensation Table +34 +Grants of Plan-Based Awards +36 +Outstanding Equity Awards at Fiscal +Year-End +37 +Option Exercises and Stock Vested in Fiscal +2009 +39 +Pension Plans and 2009 Pension Benefits +39 +Potential Payments Upon Termination or Change +in Control +41 +AUDIT COMMITTEE REPORT +46 +INDEPENDENT AUDITOR +47 +Audit Committee Pre-Approval Policy +47 +Audit and Non-Audit Fees +47 +n Item 2 – +Ratification of Appointment of Independent Registered Public +Accounting Firm +48 +STOCK INCENTIVE PLAN OF 2010 +48 +n Item 3 – +Approval of Stock Incentive Plan of 2010 +48 +RELATED PARTY MATTERS +59 +ADDITIONAL INFORMATION +60 +APPENDIX A +64 +APPENDIX B +66 +4 +Table of Contents +NOTICE OF 2010 +ANNUAL MEETING OF STOCKHOLDERS +10:00 a.m., April 22, 2010 +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 12, 2010 +To our Stockholders: +We invite you to attend Wolverine’s Annual Meeting of +Stockholders at Wolverine’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 22, 2010, at 10 a.m. The annual meeting +will begin with an introduction of management attendees and +directors, after which stockholders will: +(1) vote on election of four directors for three-year terms +expiring in 2013; +(2) +vote on ratification of the Audit Committee’s appointment +of Ernst & Young LLP as the Company’s independent +auditor for the fiscal year 2010; +(3) vote on the proposed Stock Incentive Plan of +2010; and +(4) transact other business that may properly come before +the meeting. +The meeting will adjourn for a presentation on the +Company’s business operations, then resume for a report on +the voting. You can vote at the meeting and any adjournment of +the meeting if you were a stockholder of record on March 1, +2010. +By Order of the Board of Directors +Kenneth A. Grady, Secretary +PROXY +STATEMENT +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +We are furnishing you this proxy statement and enclosed proxy +card in connection with the solicitation of proxies by the Board +of Directors of Wolverine World Wide, Inc. to be used at the +Annual Meeting of Stockholders of the Company. Distribution of +this proxy statement and enclosed proxy card to stockholders is +scheduled to begin on or about March 12, 2010. +You can ensure that your shares are voted at the meeting by +submitting your instructions by telephone or by Internet, or by +completing, signing, dating and returning your proxy form in the +enclosed envelope. Submitting your instructions or proxy by any +of these methods will not affect your right to attend and vote +at the meeting. We encourage stockholders to submit proxies in +advance. A stockholder who gives a proxy may revoke it at any +time before it is exercised by voting in person at the annual +meeting, by delivering a subsequent proxy or by notifying the +inspectors of election in writing of such revocation. If your +Wolverine World Wide shares are held for you in a brokerage, +bank or other institutional account, you must obtain a Legal +Proxy from that entity and bring it with you to hand in with +your ballot, in order to be able to vote your shares at the +meeting. +5 +Table of Contents +DIRECTORS +ITEM 1: +ELECTION +OF DIRECTORS – TERMS EXPIRING IN 2013 +Our Board of Directors currently consists of 11 directors. +Wolverine’s Amended and Restated By-laws provide that the +Board of Directors is divided into three classes, with each +class to be as nearly equal in number as possible. Each class +serves a term of office of three years, with the term of one +class expiring at the annual meeting in each successive year. +As stated our Corporate Governance Guidelines, the Company seeks +to achieve an appropriate level of diversity in the +Company’s Board membership and to assemble a broad range of +skills, expertise, knowledge and contacts to benefit the +company’s business. The Governance Committee and the Board +annually assess the current +make-up of +the Board, considering diversity across many dimensions, +including gender, race, industry experience, functional areas +(e.g., manufacturing, marketing, and finance), geographic scope, +public and private company experience, and director experience +in the context of an assessment of the current and expected +needs of the Board, and the Governance Committee uses this +assessment when defining the criteria for a director search. The +Governance Committee and the Board assess the effectiveness of +the diversity objective when assessing the composition of the +Board. The Committee reviews director candidates based on the +Board’s needs as identified through the assessment, and +other factors, including their relative skills and +characteristics, their exemplification of the highest standards +of personal and professional integrity, their independence under +NYSE listing standards and the Company’s Director +Independence Standards, their potential contribution to the +composition and culture of the Board, and their ability and +willingness to actively participate in the Board and committee +meetings and to otherwise devote sufficient time to Board duties. +The Company’s business focuses on the international +marketing of footwear, apparel and accessories, both in the +wholesale and retail markets. The Company has identified +expanding its apparel and retail businesses as two important +growth initiatives. Given the nature of its business, the +Company believes it is important for members of the Board of +Directors collectively to have experience in the footwear, +retail and apparel industries, experience in branded marketing +and experience in international operations. The Company also +believes that it is important for members of the Board of +Directors collectively to have corporate or other relevant +leadership experience, public company officer and director +experience and public company finance and accounting experience, +including experience serving on other public company audit +committees and experience in senior finance roles at public +companies. The Company believes that its Board of Directors +collectively possesses these types of experience. Below is a +summary of each Director’s most relevant experience. +Four directors will be elected at the annual meeting on +April 22, 2010 for three-year terms expiring at the annual +meeting of stockholders to be held in 2013 or until their +respective successors, if any, have been elected and are +qualified. The Company’s nominees for the election of +directors at the annual meeting include three independent +directors, as defined in the applicable rules for companies +whose securities are traded on the New York Stock Exchange +(“NYSE”) and the Company’s independence +standards, and one outside, but not independent, director. +All director nominees currently serve on the Board. The Company +does not know of any reason why any nominee would be unable to +serve as a director. However, if a nominee is unable to serve or +is otherwise unavailable for election, the incumbent Board of +Directors may or may not select a substitute nominee. If a +substitute nominee is selected, your shares will be voted for +the substitute nominee (unless you give other instructions). +6 +Table of Contents +JEFFREY +M. BOROMISA +Director +since 2006 +Age +55 +Retired +Executive Vice President of Kellogg International, President of +Latin America; Senior Vice President of Kellogg Company, and +member of Kellogg Company’s Global Leadership +Team +Mr. Boromisa’s experience includes public company officer, +finance and accounting experience, corporate leadership +experience, branded marketing experience and international +operations experience. This experience includes service as Chief +Financial Officer and in other senior finance roles and in +senior roles involving executive management, brand management, +marketing and international operations, during his more than +25 year career at Kellogg Company, a publicly traded +company and leading global cereal, snack and specialty foods +company. Mr. Boromisa was Executive Vice President of Kellogg +International, President of Latin America; Senior Vice President +of Kellogg Company, and a member of Kellogg Company’s +Global Leadership Team from 2008 through March 2009. From 2006 +until 2008, Mr. Boromisa served as Executive Vice President of +Kellogg International, President of Asia Pacific and Senior Vice +President of the Kellogg Company, as well as serving as a member +of Kellogg Company’s Global Leadership Team. From 2004 +until 2006, he was Senior Vice President and Chief Financial +Officer of Kellogg Company. In 2002, Mr. Boromisa was promoted +to Senior Vice President, Corporate Controller and Chief +Financial Officer of Kellogg International. Mr. Boromisa served +as Vice President and Corporate Controller of Kellogg Company +from November 1999 until 2002. In 1997, he was promoted to Vice +President — Purchasing of Kellogg North America, and +from 1981 to 1997, served Kellogg Company in various financial +positions. +DAVID +T. KOLLAT +Director +since 1992 +Age +71 +President +and Chairman of 22, Inc. +Mr. Kollat’s experience includes apparel and retail +industry experience, branded marketing experience, corporate +leadership experience, public company officer and board +experience and public company finance and accounting experience +through audit committee service. Mr. Kollat has been President +and Chairman of 22, Inc., a company specializing in research and +management consulting for retailers and consumer goods +manufacturers, since 1987. In addition to his marketing and +management experience as President and Chairman of 22, Inc., Mr. +Kollat has 11 years of experience as Executive Vice +President, Marketing, and a member of the executive committee of +Limited Brands, Inc., a publicly traded company operating in the +apparel and retail industry, and three years at Limited Brands, +Inc. as President of Victoria’s Secret. Mr. Kollat has 80 +collective years of experience serving on public company boards, +including experience on audit (13 years), compensation +(11 years), governance (5 years) and finance +(7 years) committees of public company boards Mr. Kollat +is Lead Director of Wolverine and currently serves as a director +of Limited Brands, Inc.; Big Lots, Inc.; and Select Comfort +Corporation. +7 +Table of Contents +Mr. Kollat will reach age 72 in 2010 after the annual meeting on +April 22, 2010. Under the Company’s Corporate Governance +Guidelines, directors must retire and resign from the Board at +the annual meeting of stockholders following their 72nd +birthday. The Board of Directors has decided that if +Mr. Kollat is elected, it will waive the retirement and +resignation requirement so that he can complete his term +expiring in 2013. The Board believes that Mr. Kollat’s +extensive experience on the Company’s Board, including his +service as the Lead Director, his broad experience in the +apparel and retail industry and on other public company boards +all add significant value to the Company’s Board leadership +from which the Company continues to benefit. +DAVID +P. MEHNEY +Director +since 1977 +Age +70 +President +of The KMW Group, Inc. +Mr. Mehney’s experience includes corporate leadership +experience, branded marketing experience and international +operations experience. Mr. Mehney has been President of The KMW +Group, Inc. since 1966. The KMW Group, Inc. and its +subsidiaries import and distribute medical products in the +United States, Canada, Europe and Asia and distribute +marine products in Michigan. Mr. Mehney’s experience with +The KMW Group, Inc. includes establishing foreign-owned brands +in the United States market and the distribution of sourced +products in the United States, Canada, Europe and Asia. Mr. +Mehney has been associated with Wolverine’s business and +industry for more than 30 years as a member of +Wolverine’s Board of Directors. +TIMOTHY +J. O’DONOVAN +Director +since 1993 +Age +64 +Retired +Chairman of the Board and Chief Executive Officer of Wolverine +World Wide, Inc. +Mr. O’Donovan’s experience includes footwear, apparel +and retail industry experience, corporate leadership experience, +branded marketing experience, international operations +experience, public company officer and board experience and +public company finance and accounting experience through audit +committee service. Mr. O’Donovan has more than forty years +of experience with Wolverine, including two years as +non-executive Chairman of the Board and seven years as Chief +Executive Officer, with responsibility for all aspects of the +business, including international operations, brand management, +apparel and accessories and retail development, footwear +wholesale, manufacturing, sourcing, corporate governance, human +resources and mergers and acquisitions. Mr. O’Donovan is a +former Chairman of the Board of Wolverine, and served in that +position from April 2005 through December 2009. In April 2007, +Mr. O’Donovan retired as Chief Executive Officer of +Wolverine, a position which he held since April 2000. Mr. +O’Donovan served Wolverine as its Chief Executive Officer +and President from April 2000 until April 2005, and as Chief +Operating Officer and President from 1996 until April 2000. +Before 1996, Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan has more than 25 collective years +of experience on public company boards and service on both audit +(four years) and compensation (five years) committees of public +company boards. Mr. O’Donovan is currently a director of +Spartan Stores, Inc. and Kaydon Corporation. +Board +Recommendation +The Board +recommends that you vote “FOR” the election of the +above nominees for terms expiring in 2013. +8 +Table of Contents +CONTINUING +DIRECTORS – TERMS EXPIRING IN 2012 +ALBERTO +L. GRIMOLDI +Director +since 1994 +Age +68 +Chairman +of Grimoldi, S.A. +Mr. Grimoldi’s experience includes footwear, apparel and +retail industry experience, corporate leadership experience, +international operations experience and branded marketing +experience. Mr. Grimoldi has more than 25 years of +experience in the footwear and retail industries with Grimoldi, +S.A., a publicly traded company in Argentina that sells footwear +and apparel in both wholesale and retail markets. Mr. Grimoldi +has been Chairman of Grimoldi, S.A. since 1986. Mr. Grimoldi has +significant additional international operations and finance +experience in the private sector, including as a member of the +Advisory Board of Ford Motor Company and as Vice Chairman of +Banco Privado de Inversiones, S.A., an investment bank, as well +as leadership and finance experience earned while in government +service in Argentina as Undersecretary of Foreign Trade, +Undersecretary of Economics and Labor, Secretary of Industry and +a member of the board of the Central Bank of Argentina. +JOSEPH +R. GROMEK +Director +since 2008 +Age +63 +President, +Chief Executive Officer and a Director of The Warnaco Group, +Inc. +Mr. Gromek’s experience includes footwear, apparel and +retail industry experience, corporate leadership experience, +international operations experience, public company officer +experience and branded marketing experience. Mr. Gromek has more +than 30 years of experience managing and marketing brands +and 40 years of experience in the retail and apparel +industry, including 12 years as a chief executive officer. +Since 2003, Mr. Gromek has served as President, Chief Executive +Officer and a Director of The Warnaco Group, Inc., a publicly +traded company which designs, sources, manufactures, markets, +retails, licenses and distributes a broad line of intimate +apparel, sportswear and swimwear worldwide. As Chief Executive +Officer of The Warnaco Group, Inc., Mr. Gromek oversees +extensive U.S. and international branded operations and points +of distribution. Mr. Gromek also served as Chief Executive +Officer of Brooks Brothers, Inc. from 1996 until 2002. +BRENDA +J. LAUDERBACK +Director +since 2003 +Age +59 +Retired +President of the Wholesale and Retail Group of Nine West Group, +Inc. +Ms. Lauderback’s experience includes footwear, apparel and +retail industry experience, corporate leadership experience, +branded marketing experience, international operations +experience, public company board experience and public company +finance and accounting experience through audit committee +service. Ms. Lauderback has more than 25 years of +experience in the retail industry and more than 20 years of +footwear, apparel, and accessories industry experience. From +1995 until her retirement in 1998, Ms. Lauderback was president +of the Wholesale and Retail Group of Nine West Group, Inc., a +footwear wholesaler and distributor. She previously was the +President of the Wholesale Division of U.S. Shoe Corporation, a +footwear manufacturer and distributor, a position that included +responsibility for offices in China, Italy and Spain, and was a +Vice President/General Merchandise Manager of Dayton Hudson +Corporation, a retailer. Ms. Lauderback has more than 35 +collective years of experience on public company boards and +collective experience of more than 20 years on audit, +compensation and governance committees of public company boards +and is chair of three governance committees. Ms. Lauderback +is a director of Big Lots, Inc.; Denny’s Corporation and +Select Comfort Corporation. During the preceding five years, Ms. +Lauderback also was, but no longer is, a director of Irwin +Financial Corporation. +9 +Table of Contents +SHIRLEY +D. PETERSON +Director +since 2005 +Age +68 +Retired +President of Hood College of Frederick, Maryland +Ms. Peterson’s experience includes legal, financial and +executive management experience from both the public and private +sectors, public company board experience and public company +finance and accounting experience through audit committee +service. Ms. Peterson has diverse management experience in +various private and public sector roles, including President of +Hood College, Assistant Attorney General of the Tax Division for +the U.S. Department of Justice, Commissioner of the Internal +Revenue Service and more than 20 years in private law +practice as a tax attorney at the law firm Steptoe & +Johnson LLP. From 1995 until her retirement in 2000, Ms. +Peterson served as President of Hood College of Frederick, +Maryland. Ms. Peterson has more than 30 collective years of +experience on public company boards, including experience on +boards of companies with significant international, retail, +brand development, manufacturing and sourcing operations, as +well as more than 20 collective years of experience serving on +public company audit committees and 30 collective years of +experience serving on public company governance committees, with +an additional 13 years of experience serving on the +governance committee of the DWS Fund Complex. Ms. Peterson is +currently a director of The Goodyear Tire & Rubber Company; +AK Steel Holding Corporation; and Champion Enterprises Inc. +During the preceding five years, Ms. Peterson also was, but no +longer is, a director of Federal-Mogul Corporation and was a +director or trustee of various funds within the DWS Fund Complex. +CONTINUING +DIRECTORS – TERMS EXPIRING IN 2011 +WILLIAM +K. GERBER +Director +since 2008 +Age +56 +Managing +Director of Cabrillo Point Capital LLC +Mr. Gerber’s experience includes public company, finance +and accounting experience, apparel and retail industry +experience, corporate leadership experience, international +operations experience and public company officer and director +experience. Mr. Gerber is Managing Director of Cabrillo Point +Capital LLC, a private investment fund. He has held that +position since 2008. From 1998 to 2007, Mr. Gerber was Executive +Vice President and Chief Financial Officer of Kelley Services, +Inc., a publicly traded global staffing solutions company with +operations in more than 35 countries. In this role, Mr. Gerber +was responsible for investor relations, mergers and acquisitions +and purchasing in addition to core Chief Financial Officer +functions. In addition to Mr. Gerber’s 10 years of +experience as Chief Financial Officer of Kelley Services, Inc., +he has 15 years of experience in various finance roles, +including Vice President, Finance, and Vice President, Corporate +Controller, for Limited Brands, Inc., a publicly traded company +in the apparel and retail industry. Mr. Gerber is a director of +and Chairman of the Audit Committees of AK Steel Holding +Corporation and Kaydon Corporation. +10 +Table of Contents +BLAKE +W. KRUEGER +Director +since 2006 +Age +56 +Chairman +and Chief Executive Officer of Wolverine World Wide, +Inc. +Mr. Krueger’s experience includes footwear, apparel and +retail industry experience, corporate leadership experience, +branded marketing experience, international operations +experience, legal and executive management experience, and +public company officer and board experience. Mr. Krueger has +more than 15 years of experience as an executive officer of +Wolverine, including nearly three years as Chief Executive +Officer with responsibility for all aspects of the business, +including international operations, brand management, apparel +and accessories and retail development, footwear wholesale, +manufacturing, sourcing, corporate governance, human resources +and mergers and acquisitions. Mr. Krueger is currently +Chairman of Wolverine, a position he assumed in January 2010, +and Chief Executive Officer and President of Wolverine, +positions he assumed in April 2007. From October 2005 until +April 2007, Mr. Krueger served as President and Chief Operating +Officer of Wolverine. From 2004 to October 2005, he served as +Executive Vice President and Secretary of Wolverine and +President of the Heritage Brands Group. From 2003 to 2004, Mr. +Krueger served as Executive Vice President and Secretary of +Wolverine and President of the Caterpillar Footwear Group. He +has also previously served as Executive Vice President, General +Counsel and Secretary of Wolverine with various responsibilities +including the human resources, retail, business development, +accessory licensing, mergers and acquisitions, and legal areas. +During the preceding five years, Mr. Krueger was, but no longer +is, a director of Professionals Direct, Inc. +MICHAEL +A. VOLKEMA +Director +since 2005 +Age +54 +Chairman +of Herman Miller, Inc. +Mr. Volkema’s experience includes corporate leadership +experience, branded marketing experience, international +operations experience, public company officer and board +experience and public company finance and accounting experience +through audit committee service. Mr. Volkema has more than +20 years of experience as a senior executive in the home +and office furnishings industry, including nine years as Chief +Executive Officer of Herman Miller, Inc., a leading designer and +manufacturer of furnishings for the office and home, and a +publicly traded company with international, branded operations. +Mr. Volkema has been Chairman of Herman Miller, Inc. since 2000. +Mr. Volkema became President and Chief Executive Officer of +Herman Miller in 1995 and held those positions until 2003 and +2004, respectively. Mr. Volkema has more than 20 collective +years of experience on public company boards, including nine +years as Chairman of the Board at Herman Miller, Inc., and +including service on public company compensation and audit +committees. During the preceding five years, Mr. Volkema also +was, but no longer is, a director of Champion Enterprises, Inc. +and Applebee’s International, Inc. +11 +Table of Contents +CORPORATE +GOVERNANCE +CORPORATE +GOVERNANCE PRINCIPLES +The Company’s Corporate Governance Guidelines include the +following key elements: +• +Director Independence. The Board has adopted and +applied an independence standard for directors that meet the +listing standards of the NYSE. +• +Committee Independence. All committees are +constituted entirely of independent directors under the +Xompany’s Director Independence Standards and the listing +standards of the NYSE. +• +Board Leadership. As described in more detail under +“Board Leadership” below, the Board believes that +separation of the Chairman and Chief Executive Officer (or +“CEO”) positions is part of the succession planning +process and that it is in the best interests of the +Company’s stockholders for the Board to make a +determination regarding whether or not to separate the roles of +Chairman and CEO based upon the circumstances. The Board also +has an independent director who has been designated as the Lead +Director. +• +Board and Committee Evaluations. The Board conducts +an annual self-evaluation. The Lead Director, working in +conjunction with the Governance Committee, reports to the Board +annually following the end of each fiscal year regarding the +Board’s performance. Each of the Board committees also +performs an annual self-evaluation. The committees review the +assessments, and the committee Chairpersons discuss them with +the Board. +• +Individual Director Evaluations. The Lead Director, +in conjunction with the Governance Committee, develops and +implements guidelines for the evaluation of all directors +standing for nomination and re-election. Each director also +evaluates the performance of the other directors as part of the +Board annual self-evaluation. The Board also assesses individual +director performance issues as part of the Board’s annual +self-evaluation described above. +• +Director Stock Ownership. To more strongly align the +interests of the Company’s directors with its stockholders, +the Company includes stock options and deferred stock units that +vest over time as part of its directors’ compensation. The +Company requires its directors to maintain certain levels of +equity ownership (as described in more detail under “Stock +Ownership Guidelines” below). +Governance +Documents +The Company’s Corporate Governance Guidelines (including +the Director Independence Standards); Articles of Incorporation +and Amended and Restated By-laws; the Charter for each of the +Audit, Compensation and Governance Committees; the Code of +Conduct & Compliance; and the Accounting and Finance +Code of Ethics, are available on the Wolverine website at +http://www.wolverineworldwide.com/investors_governance.asp. +At least annually, the Board and committees review the +Guidelines, Charters and key governance documents and practices +and update those documents as appropriate. +Director +Independence +The Board annually assesses the independence of all directors. +No director qualifies as “independent” unless the +Board affirmatively determines that the director is independent +under the Company’s Director Independence Standards and the +listing standards of the NYSE. For over 15 years, Wolverine +has functioned with not more than two active or former +management employees as directors. When determining whether a +director is independent, the Board considers the factors +identified below and such other factors that the Board deems +relevant. An “Independent Director” is defined as a +director who: +• +Is not and has not been within the last three years an employee +of the Company; +• +Does not have and has not had within the last three years an +immediate family member employed as an executive officer of the +Company; +• +Has not received and has not had an immediate family member +receive during any twelve-month period within the last three +years any direct compensation from the Company in excess of +$120,000 +12 +Table of Contents +(other than compensation for Board service; compensation +received by the director for former service as an interim +Chairman, CEO or other executive officer; compensation received +by the director’s immediate family member for service as a +non-executive employee; or pension and other forms of deferred +compensation for prior service if such compensation is not +contingent in any way on continued service); +• +Is not a current employee or partner of a firm that is the +Company’s internal or external auditor (“Company +Auditor”); +• +Has not been and has not had an immediate family member who has +been within the last three years a partner or employee of a +Company Auditor and personally worked on the Company’s +audit within that time; +• +Has not had an immediate family member who is (i) a current +partner of a Company Auditor, or (ii) a current employee of +a Company Auditor who personally works on Wolverine’s audit; +• +Is not and has not been within the last three years part of an +interlocking directorate in which a current executive officer of +Wolverine serves or served on the compensation committee of +another company where the director or the director’s +immediate family member concurrently serves or served as an +executive officer; +• +Does not have and has not had within the last three years, an +immediate family member who is or has been part of an +interlocking directorate in which a current executive officer of +Wolverine serves or served on the compensation committee of +another company where the director or the director’s +immediate family member concurrently serves or served as an +executive officer; +• +Is not an employee, majority owner or person in control of +another company that has made payment to, or received payments +from, Wolverine for property or services in an amount which, in +any of the last three fiscal years, exceeds the lesser of +$250,000 or 10% of the other company’s consolidated gross +revenues; +• +Does not have an immediate family member who is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1,000,000 or 2% of the other company’s +consolidated gross revenues; +• +Is not an executive officer, trustee or board member of a tax +exempt organization to which Wolverine has made in the past +three fiscal years contributions that, in any single fiscal +year, exceeded the greater of $50,000 or 2% of the non-profit +organization’s, foundation’s or educational +institution’s consolidated gross revenues; and +• +Has not had any direct or indirect relationship with Wolverine +which the Board determines is material. +“Immediate Family Member” covers spouses, parents, +children, siblings, in-laws, and any person (other than a tenant +or employee) sharing the household of any director, nominee for +director, executive officer, or significant stockholder of a +company. +Under these standards, and in conformity with the listing +standards of the NYSE, the Board has determined the following +directors are independent: Jeffrey M. Boromisa, William K. +Gerber, Joseph R. Gromek, David T. Kollat, Brenda J. Lauderback, +David P. Mehney, Shirley D. Peterson, and Michael A. Volkema. +Mr. Mehney is independent even though there are indirect +related party transactions between the Company and +Mr. Mehney. Wolverine purchases promotional materials from +a company which is one-third owned by one of +Mr. Mehney’s sons, but the total annual purchases fall +substantially below the annual $1,000,000 threshold. +Mr. O’Donovan is not independent because he was the +Company’s CEO within the last three years. Mr. Krueger +is not independent because he currently is the Company’s +CEO and President. Mr. Grimoldi is not independent because +he is the Chairman and 35% owner of a company that made payments +to Wolverine in excess of $1,000,000 per year in the last three +years. +Independent directors continue to represent a substantial +majority (more than 70%) of the Board. These directors meet by +themselves periodically each year. All of the Board’s +committees are comprised entirely of independent directors. The +Board believes that this structure ensures that independent +directors provide meaningful and effective oversight of the +Company’s management. +13 +Table of Contents +Board +Leadership +The Board of Directors has the following leadership structure: +Position +Person +Role +in Board Leadership +Independent +Lead Director +David T. Kollat +Since 1993, the Board has operated with an independent Lead +Director who is selected by the independent directors. The +Corporate Governance Guidelines outline the duties of the Lead +Director as follows: +• working +closely with the Chairman regarding the agenda and scheduling +for Board and committee meetings; +• overseeing +information sent to the Board; +• presiding +over executive sessions; +• serving as +a liaison between the Chairman and the independent Directors; +• presiding +over Board meetings in the absence of the Chairman; and +• being +available for consultation and communications with stockholders +as appropriate. +Chairman +Blake W. Krueger +The Board, after consulting with the Governance Committee, has +determined that it is in the stockholders’ and the +Company’s best interests for Mr. Krueger, the +Company’s CEO, to also hold the Chairman position. The +Board believes that whether to separate the Chairman and CEO +roles is part of the succession planning process and that the +Board should decide whether to separate the roles of Chairman +and CEO based upon the circumstances. Since 1993, the Company +has had an independent Lead Director who functions in many ways +similar to how an independent Chairman would function. This +long-established structure provides the Board with oversight of +the CEO’s leadership. The Board believes that, at this +time, separating the Chairman and CEO roles would not add +materially to Board oversight of the CEO function but would add +unnecessary complexity to the organization structure. +Identification +and Evaluation of Director Candidates +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. +The Governance Committee of the Board acts as the Board’s +nominating committee. The Committee members all are independent +under the NYSE listing standards and the Company’s Director +Independence Standards. The Committee seeks individuals +qualified to become directors and recommends candidates for all +director openings to the full Board. For a discussion of the +Board’s membership criteria and how the Company seeks to +achieve diversity in the Company’s Board membership and to +attract directors with a broad range of skills, expertise, +knowledge and contacts to benefit the Company’s business, +see page 6. The Committee considers director candidates in +anticipation of upcoming director elections and other potential +or expected Board vacancies. +14 +Table of Contents +The Committee considers director candidates suggested by +directors, senior management and stockholders. The Committee +evaluates all nominees for director in the same manner. +Stockholders may recommend individual nominees for consideration +by the Committee by communicating with the Committee through one +of the Board communication mechanisms described under the +heading “Stockholders Communications Policy.” The +Board of Directors ultimately determines the individuals the +Company nominates at each annual meeting. Stockholders must +comply with the procedures set forth in the Company’s +by-laws, which are posted on the Company’s website. +The Committee from +time-to-time +retains, at the expense of the Company, a search firm to assist +in identifying potential director candidates and may retain +other external parties to assist with a search. The Committee +delegates responsibility for +day-to-day +management and oversight of the search firm engagement to the +CEO and the Company’s Senior Vice President of Human +Resources. +Board and +Committee Membership and Meetings +The stockholders elect the Board to oversee management of the +Company. The Board delegates authority to the CEO and senior +management to pursue the Company’s mission, and oversees +the CEO’s and senior management’s conduct of the +Company’s business. In addition to its general oversight +function, the Board reviews and assesses the Company’s +strategic and business planning, senior management’s +approach to addressing significant risks, and has additional +responsibilities including, but not limited to, the following: +• +Reviewing and approving the Company’s key objectives and +strategic business plans and monitoring implementation of those +plans and the Company’s success in meeting identified +objectives; +• +Reviewing the Company’s financial objectives and major +corporate plans, business strategies and actions; +• +Selecting, evaluating and compensating the CEO and overseeing +CEO succession planning; +• +Providing advice and oversight regarding the selection, +evaluation, development and compensation of senior management; +• +Reviewing significant risks confronting the Company and +alternatives for their mitigation; and +• +Assessing whether adequate policies and procedures are in place +to safeguard the integrity of the Company’s business +operations and financial reporting, and to promote compliance +with applicable laws and regulations, and monitoring +management’s administration of those policies and +procedures. +During 2009, the Board held eight meetings. We expect directors +to make every effort to attend every meeting of the Board and +the committees on which they serve and attend the annual meeting +of stockholders. In 2009, each director then serving on the +Board attended the 2009 Annual Meeting of Stockholders and all +directors attended at least 75% of the meetings of the Board and +the committees on which they served. The following table +identifies the current committee members of each of the +Board’s three standing committees (Audit, Compensation and +Governance) and the number of meetings each committee held in +2009. +Name +Audit +Compensation +Governance +Jeffrey M. Boromisa +X +* +William K. Gerber +X +X +Alberto Grimoldi +Joseph R. Gromek +X +David T. Kollat +X +Brenda J. Lauderback +X +X +* +Blake W. Krueger +Timothy J. O’Donovan +Shirley D. Peterson +X +X +Michael A. Volkema +X +* +X +Number of Meetings +12 +7 +4 +* Current +Committee Chairperson +15 +Table of Contents +Audit Committee. The current members of the Audit +Committee are Messrs. Boromisa and Gerber and Mmes. +Lauderback and Peterson, all of whom the Board has determined +are “independent” as defined by NYSE rules and the +Sarbanes-Oxley Act of 2002, as applicable to audit committee +members, and all of whom satisfy the NYSE “financial +literacy” requirement. Mr. Boromisa is the Chairperson +of the Audit Committee and he and Mr. Gerber are +“audit committee financial experts” under SEC rules. +The Audit Committee: +• +represents and assists the Board in fulfilling its oversight +responsibility regarding Wolverine’s financial reporting +and accounting process; +• +appoints, retains, compensates, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance, effectiveness, objectivity and +independence of the independent auditors and Wolverine’s +internal audit function; +• +obtains and reviews the independent auditors’ internal +quality control report and other reports required by applicable +rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention and treatment +of complaints regarding accounting and auditing matters; +• +meets to review with management and Wolverine’s independent +auditor Wolverine’s financial statements, including +disclosures in Management’s Discussion and Analysis of +Financial Condition and Results of Operations, that are included +in Wolverine’s reports on +Form 10-Q +and +Form 10-K; +• +reviews Wolverine’s policies and systems with respect to +risk assessment and risk management and discusses significant +risks or exposures with management and the independent auditors; +• +discusses with internal auditors and the independent auditors +the overall scope and plans for their respective audits; +• +oversees Wolverine’s legal and regulatory compliance +systems; +• +reviews and discusses the adequacy and effectiveness of +Wolverine’s internal control over financial reporting and +disclosure controls and procedures; and +• +establishes policies and procedures relating to the engagement +of the independent auditors, including pre-approval policies and +procedures. +Compensation Committee. The current members of the +Compensation Committee are Messrs. Gerber, Gromek, Kollat +and Volkema, all of whom the Board has determined to be +“independent” as defined by NYSE rules. +Mr. Volkema is the Chairperson of the Compensation +Committee. None of the members of the Compensation Committee +were, during the fiscal year, an officer or employee of +Wolverine or formerly an officer of Wolverine. None of our +executive officers served and currently none of them serves on +the board of directors or compensation committee of any other +entity with executive officers who have served or will serve on +our Board of Directors or Compensation Committee. The +Compensation Committee: +• +assists the Board of Directors in discharging its +responsibilities relating to executive compensation and +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +oversees the overall compensation structure, policies and +programs, and assesses whether the compensation structure +establishes appropriate incentives for management and employees; +• +administers and makes recommendations with respect to incentive +compensation plans, including stock option and other +equity-based incentive plans; +• +reviews and approves the compensation of elected corporate +officers and other executives, including bonuses and equity +compensation; +• +reviews and approves corporate and personal goals and objectives +relevant to CEO compensation, evaluates the performance of the +CEO in light of these goals and objectives, and, together with +the other independent directors, approves the compensation of +the CEO based on the evaluation; +• +reviews and discusses with management Wolverine’s +Compensation Discussion and Analysis and related disclosures +required by the rules of the SEC and recommends to the Board of +Directors whether such disclosures should be included in the +annual report and proxy statement; +• +reviews and approves the design of benefit plans pertaining to +executives; +16 +Table of Contents +• +reviews and recommends employment agreements and severance +arrangements for executives, including change in control +provisions, plans or agreements; and +• +establishes stock ownership guidelines for directors and +executive officers and monitors compliance with the guidelines. +See the “Compensation Discussion and Analysis” section +below for more information regarding the Compensation +Committee’s processes and procedures. +Governance Committee. The current members of +the Governance Committee are Mmes. Lauderback and Peterson and +Mr. Volkema, all of whom the Board has determined to be +“independent” as defined by NYSE rules. +Ms. Lauderback is the Chairperson of the Governance +Committee. The Governance Committee: +• +assists the Board of Directors in fulfilling its +responsibilities on matters and issues related to the +Company’s corporate governance practices; +• +in conjunction with the Board of Directors, establishes +qualification standards for membership on the Board of Directors +and its committees; +• +leads the search for individuals qualified to become members of +the Board of Directors, reviews the qualifications of candidates +for election to the Board of Directors and assesses the +contributions and independence of incumbent Directors eligible +to stand for reelection to the Board; +• +establishes procedures for the consideration of candidates for +the Board of Directors recommended for the Committee’s +consideration by the Company’s stockholders; +• +selects and recommends to the Board of Directors the +Company’s nominees for election or reelection by the +stockholders at the annual meeting, and to fill vacancies and +newly created directorships on the Board of Directors; +• +develops and recommends to the Board of Directors corporate +governance guidelines, reviews the guidelines on an annual +basis, and recommends any changes to the guidelines as necessary; +• +establishes and recommends to the Board guidelines, in +accordance with applicable rules and regulations, to be applied +when assessing the “independence” of Directors; +• +considers applicable rules, regulations and disclosure +obligations regarding the presence of an “audit committee +financial expert” on the Audit Committee and recommends to +the Board of Directors actions to address such requirements; +• +reviews and approves related person transactions, as defined in +applicable Securities and Exchange Commission rules, and +establishes policies and procedures for the review, approval and +ratification of related person transactions; +• +annually reviews the compensation of Directors for service on +the Board of Directors and committees and makes recommendations +to the Board of Directors regarding such compensation; +• +recommends to the Board of Directors key executives to serve as +corporate officers; +• +annually reviews and makes recommendations to the Board of +Directors concerning the structure, composition and functioning +of the Board of Directors and its committees and recommends to +the Board of Directors, directors to serve as committee members +and chairpersons; +• +reviews and recommends to the Board of Directors retirement and +other tenure policies for Directors; +• +reviews directorships in other public companies held by or +offered to directors and senior officers of the Company; +• +reviews and assesses channels through which the Board of +Directors receives information, and the quality and timeliness +of information received; and +• +develops and recommends to the Board of Directors for its +approval an annual self-evaluation process for the Board and its +committees, and oversees the evaluation process. +Risk +Oversight +The Board of Directors oversees the Company’s risk +management activities. The Board implements its risk oversight +function both as a whole and through delegation to various +committees. These committees meet regularly and report back to +the full Board. The Audit Committee has primary oversight +responsibility with respect to financial risks as well as +oversight responsibility for the Company’s overall risk +assessment and risk management policies and systems. The Audit +Committee oversees the Company’s procedures for the +receipt, +17 +Table of Contents +retention and treatment of complaints relating to accounting and +auditing matters and oversees the Company’s management of +legal and regulatory compliance systems. The Compensation +Committee also oversees risks relating to the Company’s +compensation plans and programs. +The Company’s Director of Internal Audit coordinates the +day-to-day +risk management process for the Company and reports directly to +the Chief Financial Officer and to the Audit Committee. The +Director of Internal Audit updates the Audit Committee at least +quarterly and updates the full Board at least annually regarding +the Company’s risk analyses and assessments and risk +mitigation strategies and activities. +Code of +Conduct & Compliance +The Company has a Code of Conduct & Compliance for its +directors, officers and employees. The Company will disclose, in +accordance with all applicable laws and regulations, amendments +to, or waivers from, its Code of Conduct & Compliance. +Accounting and +Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Accounting and Finance Code”). This Accounting and +Finance Code focuses on the financial reporting process and +applies to our CEO, Chief Financial Officer and Corporate +Controller. The Company will disclose, in accordance with all +applicable laws and regulations, amendments to, or waivers from, +its Accounting and Finance Code. +Stockholder +Communications Policy +Stockholders and interested parties may communicate with members +of Wolverine’s Board through various links provided on +Wolverine’s website at +http://www.wolverineworldwide.com/investors_governance.asp, +or by sending correspondence to the Board, a specific Board +committee or a director +c/o Corporate +Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, +N.E., Rockford, Michigan 49351. The Corporate Secretary reviews +all communications to determine whether the contents include a +message to a director and will provide a summary and copies of +all correspondence (other than solicitations for services, +products or publications) to the applicable directors at each +regularly scheduled meeting. The Corporate Secretary will alert +individual directors to items which warrant a prompt response +from the individual director prior to the next regularly +scheduled meeting. Items warranting prompt response, but not +addressed to a specific director, will be routed to the +applicable committee chairperson. +Any suggestions, concerns or reports of misconduct at Wolverine +or complaints or concerns regarding Wolverine’s financial +statements and accounting, auditing, internal control and +reporting practices can be reported by submitting a report on +www.WolverineReportLine.com (anonymously, if desired) or by +writing to the Audit Committee +c/o the +Corporate Secretary at the above address. +18 +Table of Contents +Non-Employee +Director Compensation +The following table provides information concerning the +compensation of our non-employee directors for our fiscal year +2009 ended January 2, 2010 (“fiscal year 2009” or +“2009”). +Fees +Earned +or Paid in +Option +Name +Cash 1 +Awards 2 +Total +Jeffrey M. Boromisa +$ +112,250 +$ +27,067 +$ +139,317 +William K. Gerber +$ +108,625 +$ +27,067 +$ +135,692 +Alberto L. Grimoldi +$ +92,750 +$ +27,067 +$ +119,817 +Joseph R. Gromek +$ +96,750 +$ +27,067 +$ +123,817 +David T. Kollat +$ +126,500 +$ +27,067 +$ +153,567 +Brenda J. Lauderback +$ +112,250 +$ +27,067 +$ +139,317 +David P. Mehney +$ +92,750 +$ +27,067 +$ +119,817 +Timothy J. +O’Donovan 3 +$ +237,750 +$ +27,067 +$ +264,817 +Shirley D. Peterson +$ +109,750 +$ +27,067 +$ +136,817 +Michael A. Volkema +$ +109,750 +$ +27,067 +$ +136,817 +1 +Represents cash payments received +or deferred by directors in fiscal 2009. Directors may defer +director fees and receive stock units pursuant to the Deferred +Compensation Plan. The following table shows the Fees Earned or +Paid in Cash separated into amounts received in cash, the cash +amounts Directors voluntarily deferred, and amounts required to +be deferred under the annual equity retainer that will be paid +out in stock: +Cash Amounts +Voluntarily +Annual Equity +Name +Fees Paid in +Cash +Deferred +Retainers +Jeffrey M. Boromisa +$ +- +$ +72,250 +$ +40,000 +William K. Gerber +$ +68,625 +$ +- +$ +40,000 +Alberto Grimoldi +$ +- +$ +52,750 +$ +40,000 +Joseph R. Gromek +$ +- +$ +56,750 +$ +40,000 +David T. Kollat +$ +86,500 +$ +- +$ +40,000 +Brenda J. Lauderback +$ +53,813 +$ +18,437 +$ +40,000 +David P. Mehney +$ +- +$ +52,750 +$ +40,000 +Timothy J. O’Donovan +$ +237,750 +$ +- +$ +- +Shirley D. Peterson +$ +69,750 +$ +- +$ +40,000 +Michael A. Volkema +$ +69,750 +$ +- +$ +40,000 +2 +Represents the full grant date fair +values of stock options granted to non-employee directors in +fiscal year 2009, calculated in accordance with FASB Accounting +Standard Codification (“ASC”) Topic 718. Listed below +are the aggregate outstanding option awards held by non-employee +directors at the end of fiscal year 2009. For valuation +assumptions, see the Stock-Based Compensation Note to +Wolverine’s Financial Statements for the fiscal year ended +January 2, 2010. +Option Awards +Outstanding at +Name +January 2, +2010 +Jeffrey M. Boromisa +18,826 +William K. Gerber +14,981 +Alberto Grimoldi +50,874 +Joseph R. Gromek +14,399 +David T. Kollat +50,874 +Brenda J. Lauderback +19,130 +David P. Mehney +50,874 +Timothy J. O’Donovan* +385,746 +Shirley D. Peterson +27,693 +Michael A. Volkema +22,993 +* Mr. O’Donovan +was granted most of the stock options when he was an executive +officer of the Company. +3 +Mr. O’Donovan received a +payment of $150,000 for his services as Chairman from April 2008 +to April 2009. +19 +Table of Contents +The Company compensates non-employee directors as follows: +Cash +Options +Stock +Units +Newly Appointed or Elected Director +$0 +Number of options equal to $180,000 divided by closing market +price of the Company’s common stock on date of initial +election or appointment +Annual Director Fee +$35,000 +Number of options equal to three times annual cash retainer +divided by closing market price of the Company’s common +stock on date of Annual +Meeting 1 +Stock Units equivalent to +$40,000 2 +Board Meeting Attendance +Fee 3 +$3,000 +Committee Meeting Attendance +Fee 3 +$1,000 +Audit Committee Chairperson Annual Fee +$7,500 +Compensation Committee Chairperson Annual Fee +$5,000 +Governance Committee Chairperson Annual Fee +$5,000 +Lead Director Annual +Fee 4 +$70,000 +Chairman Annual +Fee 5 +$105,000 +1 +For 2009, each non-employee +director received 4,935 options granted under the Amended and +Restated Stock Incentive Plan of 2005. These options were fully +vested on the grant date and have a term of 10 years. The +exercise price of options granted is equal to the closing market +price of Wolverine’s common stock on the date each option +is granted. +2 +The number of Stock Units is +determined by dividing $40,000 by the closing market price of +the Company’s common stock on the date of the +Company’s annual meeting. Stock units are credited under +the Amended and Restated Outside Directors’ Deferred +Compensation Plan (the “Deferred Compensation Plan”). +The terms of the Deferred Compensation Plan and stock units are +described below. For fiscal year 2009, non-employee directors +were each credited with 1,880 stock units. +3 +Including meetings by +teleconference. +4 +Lead Director Annual Fee is in lieu +of the $35,000 annual cash retainer. The Lead Director also +receives the standard director fee for attendance at Board +meetings and the annual grant of stock options, but does not +receive attendance fees for committee meetings. +5 +For the period from April 2009 to +December 31, 2009, Mr. O’Donovan received $87,750 +for his services as Chairman and also had office space and +received administrative assistance at Wolverine’s +headquarters. In addition, Mr. O’Donovan received +payment of $150,000 for his services as Chairman from April 2008 +to April 2009. He also received the standard annual non-employee +director stock option award for his services in 2009. +Wolverine also pays director expenses associated with attending +Board and committee meetings and other Wolverine functions, and +industry functions such as trade shows, and pays spouse travel +expenses in connection with Board international strategic +planning meetings, which typically happen every other year. In +addition, the Company provides office space and administrative +assistance to directors who visit the Company’s +headquarters or other locations. From +time-to-time, +Wolverine provides directors with samples of Wolverine products +of nominal value for review and assessment. Wolverine reimburses +directors for certain approved expenses relating to director +education. Directors who are also employees of Wolverine or any +of its subsidiaries do not receive an annual cash or equity +retainer and do not receive compensation for attendance at Board +or committee meetings. +Deferred Compensation Plan. In 2008, Wolverine +adopted the Deferred Compensation Plan, a supplemental +nonqualified deferred compensation plan for directors who are +not employees of Wolverine or its subsidiaries. Wolverine +continues to maintain a separate non-employee director deferred +compensation plan that applies to benefits accrued under that +plan before January 1, 2005. The Deferred Compensation Plan +permits all non-employee directors to defer 25%, 50%, 75% or +100% of their directors’ fees. Deferred compensation is +deemed to be invested in Wolverine common stock. If a director +elects to defer directors’ fees, Wolverine establishes an +account on its books for such director and credits to such +account a number of stock units equal to the amounts deferred +and annual equity retainer amounts described above divided by +the closing market +20 +Table of Contents +price of common stock on the payment date (“stock +units”). The Company also credits stock units with dividend +equivalents in the form of additional stock units. +Upon termination of service as a director or as of such later +date selected by a director, the Company distributes accumulated +stock units in the director’s account, in shares of +Wolverine common stock, in a single lump-sum payment or annual +installment payments over a period of up to 20 years +(10 years under the prior plan). The Company converts each +stock unit to one share of Wolverine common stock. +Upon a “change in control” as defined in the current +Deferred Compensation Plan, the Company distributes to the +director in a single lump sum payment, Wolverine shares of +common stock equal to the stock units credited to a +director’s account. For purposes of the Deferred +Compensation Plan, “change in control” is defined as: +• +the acquisition by any person, or by more than one person acting +as a group, of more than 50% of either (i) the then +outstanding shares of common stock of Wolverine or (ii) the +total fair market value of Wolverine; +• +the acquisition by any person, or more than one person acting as +a group, during the +12-month +period from and including the date of the most recent +acquisition, of ownership of 30% or more of the outstanding +common stock of Wolverine; +• +the replacement of a majority of the individuals who constitute +the Board during any +12-month +period by directors whose appointment or election is not +endorsed by a majority of the directors prior to the date of the +appointment or election; or +• +the acquisition, during any +12-month +period ending on the date of the most recent acquisition, by any +person of assets from Wolverine having a gross fair market value +of at least 40% of the gross fair market value of all the assets +of Wolverine immediately before the acquisition. +Non-Employee +Director Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that +each non-employee director maintain a stock ownership level +equal to five times the non-employee director cash retainer to +align further the interests of these individuals with the +stockholders. Each non-employee director must meet the ownership +requirement by the end of the fifth year after he or she becomes +subject to the guidelines. All non-employee directors who have +passed the end of their fifth year meet the ownership +requirement. +Securities +Ownership of Officers and Directors and Certain Beneficial +Owners +Five Percent +Stockholders +The following table sets forth information as to those holders +known to Wolverine to be the beneficial owners of more than five +percent of Wolverine’s outstanding shares of common stock +as of December 31, 2009: +Amount and Nature +of Beneficial Ownership of Common Stock +Sole +Shared Voting +Total +Name +and Address +Sole +Voting +Dispositive +or +Dispositive +Beneficial +Percent +of Beneficial +Owner +Power +Power +Power +Ownership +of +Class 4 +BlackRock, +Inc. 1 +3,647,025 +3,647,025 +0 +3,647,025 +7.32 +% +40 East +52 nd +Street +New York, NY 10022 +Royce & Associates +LLC 2 +3,057,338 +3,057,338 +0 +3,057,338 +6.14 +% +745 Fifth Avenue +New York, NY 10151 +NFJ Investment Group +LLC 3 +2,879,800 +2,879,800 +0 +2,879,800 +5.78 +% +2100 Ross Avenue, +Suite 700 Dallas, TX 75201 +1 +Based on information set forth in +Schedule 13G filed January 29, 2010. The +Schedule 13G indicates that BlackRock, Inc. beneficially +owns, in the aggregate, 3,647,025 shares of Wolverine +common stock. +21 +Table of Contents +2 +Based on information set forth in +Schedule 13G filed January 26, 2010. The Schedule 13G +indicates that Royce & Associates LLC beneficially +owns, in the aggregate, 3,057,338 shares of Wolverine +common stock. +3 +Based on information set forth in +Schedule 13G filed February 12, 2010. The Schedule 13G +indicates that NFJ Investment Group LLC, beneficially owns, in +the aggregate, 2,879,800 shares of Wolverine common stock. +4 +As of March 1, 2010, based on +49,802,008 shares outstanding on that date. +Stock +Ownership by Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 1, 2010, by each of +our directors and named executive officers and all of our +directors and named executive officers as a group. The address +of each of the persons in the table is +c/o of +Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, +Michigan 49351. +Amount and Nature +of Beneficial Ownership of Common +Stock 1 +Sole Voting +and/or +Shared Voting +Total +Dispositive +or Dispositive +Beneficial +Percent +Name +of Beneficial Owner +Power 2 +Power 3 +Stock +Options 4 +Ownership 4 +of +Class 5 +Jeffrey M. Boromisa +2,000 +- +18,826 +20,826 +* +William K. Gerber +1,000 +- +14,981 +15,981 +* +Donald T. Grimes +63,676 +15,334 +79,010 +* +Alberto L. Grimoldi +10,168 +- +50,874 +61,042 +* +Joseph R. Gromek +10,000 +14,399 +24,399 +* +David T. +Kollat 6 +94,324 +- +50,874 +145,198 +* +Blake W. Krueger +408,316 +322,844 +731,160 +1.4 +% +Brenda J. Lauderback +5,100 +- +19,130 +24,230 +* +Pamela L. Linton +41,168 +- +17,001 +58,169 +* +Michael F. McBreen +49,508 +12,334 +61,842 +* +David P. +Mehney 7 +79,024 +73,889 +50,874 +203,787 +* +Timothy J. O’Donovan +290,090 +85,831 +385,746 +761,667 +1.5 +% +Shirley D. Peterson +3,000 +- +27,693 +30,693 +* +Michael A. Volkema +5,000 +22,993 +27,993 +* +James D. Zwiers +77,753 +- +57,785 +135,538 +* +All directors and executive officers as a group +(18 people) +1,199,247 +159,720 +1,130,899 +2,489,866 +4.9 +% +* +Represents beneficial ownership of +less than 1%. +1 +The numbers of shares stated are +based on information provided by each person listed and include +shares personally owned of record and shares that, under +applicable regulations, are considered to be otherwise +beneficially owned. +2 +These numbers include restricted +shares and performance shares held, which are subject to +forfeiture if the terms of the grant are not satisfied. +3 +These numbers include shares over +which the listed person is legally entitled to share voting or +dispositive power by reason of joint ownership, trust or other +contract or property right and shares held by spouses, children +or other relatives over whom the listed person may have +influence by reason of relationship. +4 +The numbers represent shares that +may be acquired within 60 days after March 1, 2010, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +5 +As of March 1, 2010, based on +49,802,008 shares outstanding on that date plus 1,130,899 +stock options. +6 +Includes 56,356 shares pledged +by Mr. Kollat as security for a loan. +7 +Includes 23,000 shares pledge +by Mr. Mehney as security for a loan. +22 +Table of Contents +EXECUTIVE +COMPENSATION +COMPENSATION +DISCUSSION AND ANALYSIS +The Compensation Discussion and Analysis section of our proxy +statement provides an overview and analysis of Wolverine’s +executive compensation program and policies, the material +compensation decisions made about 2009 compensation and the +material factors considered in making those decisions. We have +divided it into four parts: +• +Compensation Philosophy and Objectives +• +Compensation Consultant and Market Comparisons +• +Overview of Compensation Components +• +2009 Compensation Decisions +This section refers only to the compensation of Wolverine’s +“named executive officers” (or “NEOs”) +unless we note otherwise: +• +Blake W. Krueger, Chairman, Chief Executive Officer and President +• +Donald T. Grimes, Senior Vice President, Chief Financial Officer +and Treasurer +• +Pamela L. Linton, Senior Vice President of Human Resources +• +Michael F. McBreen, President, Global Operating Group +• +James D. Zwiers, Senior Vice President and President, Outdoor +Group +Compensation +Philosophy and Objectives +The Compensation Committee of the Board of Directors oversees +Wolverine’s compensation program. The Compensation +Committee reviews and approves the compensation of the NEOs +other than the CEO, and together with the other independent +directors, approves the compensation of the CEO. +Wolverine’s executive compensation philosophy is to provide +competitive salaries and incentives to achieve superior +financial performance. Wolverine’s compensation program for +NEOs and other executives has four primary objectives: +• +attract and retain talented NEOs and other executives who will +lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achieving specific near-term individual, +business unit and corporate goals and reward attaining goals at +established levels; +• +provide incentives for achieving longer-term financial goals and +to reward attaining goals at established levels; and +• +align the interests of NEOs and other executives with those of +the stockholders to reward increasing stockholder value. +The program balances base salaries with performance-based +compensation, and rewards annual performance while maintaining +emphasis on longer-term objectives. The program also balances +the cash, non-cash, long-term, and short-term components and +current and future compensation. The Committee considers +qualitative and quantitative factors when setting compensation +for each NEO. Each NEO’s compensation mix and +cash-to-equity +ratio depends on his or her responsibilities, experience, +skills, and potential to affect Wolverine’s overall +performance. In general, an NEO’s compensation increases as +the NEO’s level of responsibilities increases. The +Committee believes the CEO has the broadest scope of +responsibilities and typically approves higher compensation for +the CEO than for any other NEO. +Compensation +Consultant and Market Comparisons +The Compensation Committee engaged Towers Perrin as an outside +compensation consultant to assist in reviewing Wolverine’s +2009 executive compensation program. Towers Perrin and its +affiliates did not provide any other services to Wolverine in +2009. Effective January 1, 2010, Towers Perrin and Watson +Wyatt +23 +Table of Contents +Worldwide, Inc. merged to form Towers Watson & +Co. Watson Wyatt also provided actuarial services to the Company +in 2009. Wolverine is using Towers Watson in 2010 for actuarial +and executive compensation services. +The Compensation Committee and management sought the views of +Towers Perrin about market intelligence on compensation trends, +and its views on specific compensation programs designed by +management with oversight from the Compensation Committee. In +addition, Towers Perrin provided survey information comparing +direct compensation for the NEOs to market data from two +databases. “Direct compensation” was defined as base +salary, annual bonus opportunities, long-term incentive +compensation and equity grants. Towers Perrin used the Towers +Perrin 2007 U.S. CDB General Industry Executive Database +(with more than 700 participants) and Mercer Human Resource +Consulting 2007 U.S. Benchmark Database (with over 2,000 +participants). Both are general industry, national compensation, +survey databases and include information from participants in a +broader range of industries other than solely the footwear, +apparel and retail industries. Towers Perrin also provided an +analysis of direct compensation for the CEO and Chief Financial +Officer (“CFO”) based on proxy statement disclosures +by companies in the footwear, apparel and retail industries +which are comparable to the Company (the “Peer Group”): +Brown Shoe Co. Inc. +Jones Apparel Group Inc. +Steven Madden, Ltd. +Collective Brands, Inc. +K-Swiss, Inc. +Timberland Co. +Columbia Sportswear Co. +Kenneth Cole Productions Inc. +Deckers Outdoor Corp. +Rocky Brands, Inc. +Genesco Inc. +Skechers USA Inc. +The Committee considered the survey information, information the +Company learned through recruiting NEOs, and the experience +levels and responsibilities of the NEOs prior to joining the +Company as reference points in evaluating the compensation types +and levels for the NEOs. +Overview of +Executive Compensation Components +The following table describes the Company’s compensation +program components for NEOs: +Pay +Element +What +the Pay Element Rewards +Purpose +of the Pay Element +Base Salary +Core responsibilities, years of service with the Company and +experience in similar positions at other companies, skills, and +knowledge +Provide a regular and stable source of income to NEOs +Annual Incentive +Compensation +• Achieving specific corporate business +objectives over which the NEO has reasonable control +• Achieving specific division business +objectives over which the NEO has reasonable control +• Achieving specific personal objectives +• Focus NEOs on specific annual goals that +contribute to Wolverine’s long-term success +• Provide annual performance-based cash +compensation +• Align participants on important annual +performance metrics +24 +Table of Contents +Pay +Element +What +the Pay Element Rewards +Purpose +of the Pay Element +Long Term Incentive +Compensation +Annual Stock Option Grants; Annual Restricted Stock Awards; +Three-Year Performance-Based Restricted Stock Awards +• Focusing on long-term corporate +business objectives +• Focusing on driving long-term +stockholder value +• Continuing employment with the Company +during the vesting period +All Components Combined +• More closely align NEOs’ +interests with stockholders’ interests +• Reward NEOs for building stockholder +value +• Encourage long-term investment in +Wolverine by participating NEOs +• Retain NEOs +Supplemental Employee Retirement +Plan +• Focusing on long-term corporate business +objectives +• Continuing long-term employment with the +Company during the five-year vesting period and long-term value +accumulation period +• Provide retirement benefits that NEO +participants would have received under the broad-based plan in +the absence of the IRS limits +• Provide retirement security +• Attract and retain NEOs +Retirement and Welfare +Benefits +The other retirement and welfare benefits are part of +Wolverine’s broad-based total compensation program +available to full-time employees of the Company. +Encourage long-term commitment to Wolverine by NEOs and assist +Wolverine in attracting and retaining talented NEOs. +2009 Compensation +Decisions +Base +Salary +As part of approving an NEO’s base salary, the Compensation +Committee considers the scope of the NEO’s +responsibilities, years of service with the Company and in +similar positions at other companies, skills, and knowledge; +market conditions; economic conditions; and Wolverine’s +compensation philosophy. For promotions from within Wolverine, +the Compensation Committee determines the NEO’s base salary +after considering the above factors. For NEOs hired from outside +the Company, the Compensation Committee sets the NEO’s base +salary after reaching a recommended base salary through +arms-length negotiation with the NEO. After hiring or promotion, +the Compensation Committee, approves changes to an NEO’s +base salary to reflect increased experience, changes in +responsibilities, years of service, and market information. +Management provides input to these decisions, except in the case +of the CEO’s compensation. NEO base salaries are reviewed +approximately every 12 months. +For 2009, management considered the current and projected +economic conditions , the Company’s cost structure, +and its estimated future financial performance in light of +economic conditions, and implemented a base salary freeze for +all employees not covered by a collective bargaining agreement. +Consistent with the freeze on employee base salaries, the +Compensation Committee decided in early 2009, based in part on +management’s recommendation, to implement a base salary +freeze for all NEOs. Accordingly, the base salary of +Wolverine’s CEO and other NEOs stayed the same for 2009 as +they were in 2008, except for Mr. Zwiers whose base salary +was increased to reflect additional responsibilities he assumed +when he was promoted to President, Outdoor Group. +Annual +Incentive Compensation +NEOs have the opportunity to earn annual bonuses (“Annual +Bonus”) under the Company’s Annual Bonus Plan, based +on achieving combinations of performance criteria the +Compensation Committee sets for the +25 +Table of Contents +Company and for individual business units. NEOs also can earn +discretionary bonuses (“Discretionary Bonus”) under +the Company’s Discretionary Bonus Plan, based on personal +objectives set for each NEO. In any given year, an NEO might +earn one, both, or neither of the bonuses. +For 2009, the Committee increased the Annual Bonus percentage +weight to 85% from 80%, and decreased the Discretionary Bonus +percentage weight to 15% from 20%, to place more emphasis on +objective performance criteria used to determine the Annual +Bonus. Each year, the Committee also sets for each NEO a bonus +goal, expressed as a percentage of the NEO’s base salary +(the “Target Percentage”). The 2009 Target Percentages +are shown in the table below. The Committee generally sets the +Target Percentages higher for NEOs who have greater influence on +profits and sales, which puts a larger percentage of their total +potential cash compensation “at risk.” At target +performance under both the Annual Bonus Plan and Discretionary +Bonus Plan, an NEO would receive 100% of his or her Target +Percentage bonus opportunity. The total annual incentive +compensation opportunity for each NEO in 2009 ranged from 0% to +200% of his or her Target Percentage, consistent with the +opportunity in 2008. +For 2009, the Annual Bonus for each NEO is based on the +Company’s or individual business unit’s performance on +the applicable performance criteria, weighted by the percentages +listed in the table below and then multiplied by the Target +Percentage, and the Discretionary Bonus is based on the +NEO’s performance on his or her personal objectives, +weighted by 15% and then multiplied by the Target Percentage. +Annual Incentive +Compensation +Component +Percentages at Target +Annual Bonus +Percentage By +Company or +Business Unit +Total +Discretionary +Global +Target +Bonus +Operations +Human +Outdoor +Retail +Name +Percentage +Percentage +Company 1 +Group 2 +Resources 3 +Group 4 +Group 4 +Krueger +75 +% +15 +% +85 +% +Grimes +45 +% +15 +% +85 +% +Linton +40 +% +15 +% +65 +% +20 +% +McBreen +40 +% +15 +% +20 +% +65 +% +Zwiers +40 +% +15 +% +20 +% +45 +% +20 +% +1 +The Company’s performance +criteria were revenue and pre-tax earnings, as described below +under “2009 Annual Bonuses.” +2 +The Global Operations Group +performance criterion was pre-tax earnings for the Group. +3 +The Human Resources Department +performance criterion was actual Department expenses compared to +projected expenses in the Department’s 2009 operating plan. +4 +The Outdoor Group performance +criteria and the Retail Group performance criteria were revenue +and pre-tax earnings for the respective Group. +The Compensation Committee believes the annual incentive +compensation opportunities for NEOs should stay competitive with +incentive compensation at companies of similar size to Wolverine +and companies with whom Wolverine competes to hire NEOs. The +Committee considered each NEO’s performance, experience +level, and potential to affect Wolverine’s short-term +performance when setting his or her annual incentive +compensation opportunity. The Committee also recognized that +Wolverine competes with footwear, apparel and retail companies +for hiring NEOs, and that it has been the Company’s +experience that the compensation levels in those industries +generally exceed the levels reported in general industry +surveys. The Committee evaluated the potential annual incentive +compensation each NEO could earn at the target payout level, +considering it in the context of the Towers Perrin general +industry survey information described above in +“Compensation Consultant and Market Comparisons,” the +Peer Group data, information provided by management from the +Company’s experience recruiting NEOs, and the experience +and responsibilities of the NEOs. Based on its review of this +26 +Table of Contents +information, the Committee decided to increase the Target +Percentage for each NEO’s 2009 Target Percentage for the +Annual Bonus and the Discretionary Bonus from the 2008 level as +follows: +Total 2009 +Annual +Incentive +General +Industry +2009 Target +2008 Target +Name +Compensation +Paid* +Survey +Median +Percentage +Percentage +Krueger +$ +775,096 +90 +% +75 +% +60 +% +Grimes +$ +243,602 +55 +% +45 +% +35 +% +Linton +$ +182,871 +45 +% +40 +% +30 +% +McBreen +$ +110,737 +50 +% +40 +% +35 +% +Zwiers +$ +207,291 +45 +% +40 +% +30 +% +* Includes the NEO’s Annual Bonus +payout and the Discretionary Bonus payout. +2009 +Annual Bonuses +The Compensation Committee sets performance criteria early each +year for Wolverine and major business units. Soon after the end +of each year, the Committee measures actual performance against +those criteria and then approves annual bonuses. The Committee +ties each NEO’s bonus to the performance of Wolverine, one +or more business units, or both based on the Committee’s +determination of the parts of the Company the NEO reasonably +influences. Management provides input to these decisions, except +in the case of the CEO’s compensation. The performance +criteria for the Company are revenue and pre-tax earnings, with +four performance levels: threshold (50% payout), target (100% +payout), goal (150% payout) and stretch (200% payout). Revenue +is weighted 30% and pre-tax earnings 55% of the total annual +incentive compensation opportunity, compared to 16% and 64%, +respectively, in 2008. The Committee changed the weights to more +closely align the Annual Bonus Plan with the Company’s +strategic objectives. These criteria were selected because the +Committee believes there is a strong relationship between +performance on these financial measures and stockholder value. +For 2009, the Committee set the following performance levels for +each of the Company’s Performance Criteria: +Performance +Level +(% of +Target +Payout) 1 +Revenue 2 +Pre-tax +Earnings 2 +Threshold +(50%) +$1,055.0 Billion +$100.0 Million +Target +(100%) +1,110.0 Billion +113.0 Million +Goal +(150%) +1,128.0 Billion +119.0 Million +Stretch +(200%) +1,146.0 Billion +127.0 Million +1 +The maximum payout an NEO can +receive is 200% of the payment earned at his or her target +level, even if performance is above the stretch level, and an +NEO would receive 0% of his or her Target Percentage if +performance is below the threshold level. +2 +Not including the effect of +acquisitions, divestitures, accounting changes, restructuring, +or other special charges or extraordinary items excluded by the +Compensation Committee. +The performance criteria for the individual business units, +which are listed above, also have four performance levels: +threshold (50% payout), target (100% payout), goal (150% payout) +and stretch (200% payout). Corporate performance goals are based +on business unit performance goals. The level of difficulty in +attaining threshold, target, goal and stretch performance goals +for a business unit is intended to be substantially similar to +the level of difficulty in attaining the Company’s +Performance Criteria. Performance goals for the Global +Operations Group, the Outdoor Group, the Retail Group and the +Human Resources Department, which determine a portion of the +bonus awarded to Messrs. McBreen and Zwiers and +Ms. Linton, were set using this +level-of-difficulty +standard. Target performance goals for the business units were +set at levels that the Compensation Committee believed were +achievable with strong management performance given the expected +challenging economic and market conditions, based on a review of +the business unit’s historical performance and its 2009 +operating plan. +Wolverine’s 2009 revenue was $1.101 billion, falling +between threshold and target, resulting in a payout of 91.87% of +target for this performance measure. Wolverine’s pre-tax +earnings for 2009 were $121.3 million +27 +Table of Contents +adjusted for non-recurring restructuring charges +($85.7 million before the adjustment), falling between the +goal and stretch performance levels, resulting in a payout of +164.30% of target for this performance measure. The Outdoor +Group’s revenue of $416.2 million was between goal and +stretch performance (which corresponds to a payout of 165.00% of +target), and its performance on pre-tax earnings was between +target and goal (which corresponds to a payout of 144% of +target), resulting in an overall payout of 151.20% of target. +The Global Operations Group’s performance was between +threshold and target on pre-tax earnings, resulting in an +overall payout of 53.68% of target. The Retail Group’s +performance was above stretch on both revenue and pre-tax +earnings, resulting in a payout of 200% of target. The Human +Resource Department’s performance was above stretch on +actual Department expenses compared to projected expenses in the +Department’s 2009 operating plan, resulting in an overall +payout of 200% of target. For fiscal 2009, the Company paid the +NEOs the following bonuses under the Annual Bonus Plan: +Annual Bonus +Annual Bonus +Percentage +Name +Opportunity +Earned +Annual +Bonus Paid* +Krueger +0 – 200% +139% +$651,065 +Grimes +0 – 200% +139% +$204,621 +Linton +0 – 200% +153% +$152,211 +McBreen +0 – 200% +74% +$81,487 +Zwiers +0 – 200% +160% +$177,833 +* Not including Discretionary Bonus. +2009 +Discretionary Bonuses +For 2009, the Committee changed the Discretionary Bonus payout +range, increasing the range to 0% to 200% of an NEO’s +Target Percentage to make the new range consistent with the +ranges set for performance on other incentive compensation +criteria. +Personal +Objectives Score +2009 +Payout Level +2008 +Payout Level +95-100% +200 +% +150 +% +90-95% +175 +% +150 +% +80-90% +150 +% +135 +% +70-80% +100 +% +100 +% +60-70% +50 +% +50 +% +Less than 60% +0 +% +0 +% +The Committee determines, each NEO’s Discretionary Bonus +based on the NEO’s individual performance measured against +his or her personal objectives. Management provides input to +these decisions, except in the case of the CEO’s +compensation. Those objectives may include elements such as +executing strategies supporting Wolverine’s vision, +developing people, supporting social and environmental +responsibility, growing new business initiatives and driving +operational excellence. Performance under the Discretionary +Bonus Plan is a subjective measurement, generally based on +qualitative factors. Early each year, the Compensation Committee +and the independent Directors of the Board meet with the CEO and +agree upon the CEO’s personal objectives for the year. +During the year, the Compensation Committee meets with the CEO +to evaluate his performance compared to his personal objectives +and at the end of the year, the Committee and the independent +Directors of the Board evaluate the CEO’s performance and +approve any Discretionary Bonus to the CEO. The Committee +determines the Discretionary Bonus for other NEOs based on +management’s recommendations and input from the CEO. For +2009, the Compensation Committee approved the following +Discretionary Bonuses for the NEOs: +28 +Table of Contents +Discretionary +Bonus +Discretionary +Bonus +Discretionary +Name +Opportunity +Percentage +Awarded +Bonus +Paid* +Krueger +0 – 200% +150 +% +$ +124,031 +Grimes +0 – 200% +150 +% +$ +38,981 +Linton +0 – 200% +175 +% +$ +30,660 +McBreen +0 – 200% +150 +% +$ +29,250 +Zwiers +0 – 200% +150 +% +$ +29,458 +* Not including Annual Bonus. +Long-Term +Incentive Compensation +Each NEO has the opportunity to earn long-term incentive +compensation in the form of: (1) cash or performance +shares, (2) stock option grants, and (3) restricted +stock awards. +Long-Term +Incentive Cash and Performance Share Bonuses +Each NEO has long-term incentive compensation opportunities +under the Company’s Long-Term Incentive Plan +(“LTIP”) and stock incentive plans based on +performance criteria covering three-year periods +(“3-Year +Bonus”). Early in the first year of each three-year period, +the Compensation Committee sets the performance criteria for the +three-year period. Soon after the period ends, the Committee +certifies actual performance compared to the criteria set at the +beginning of the period. The Company pays the NEOs bonuses based +on the certified performance level and payout schedule for the +three-year period. The Committee may adjust the bonuses within +the discretion the Committee is granted under the applicable +plan. +3-Year +Cash Bonus (Fiscal +2007-2009) +The Compensation Committee had established two performance +criteria for the +2007-2009 +performance period, each weighted 50%: (1) total +shareholder return ranking within Wolverine’s Peer Group +( defined on page 24 ) , and (2) fully +diluted earnings per share: +TSR Ranking +Against Peer +Percentage of +Target +Group +Payout +1 st +200 +% +2 nd +175 +% +3 rd +150 +% +4 th +125 +% +5 th +100 +% +6 th +75 +% +7 th +50 +% +8 th -14 th +0 +% +Aggregate +EPS for the +Performance +Level +2007-2009 +(Percentage of +Target Payout) +Period* +Threshold (50%) +$ +4.77 +Target (100%) +$ +4.96 +Goal (150%) +$ +5.15 +Maximum (200%) +$ +5.56 +* +Not including the effect of acquisitions, divestitures, +accounting changes, restructuring, or other special charges or +extraordinary items excluded by the Compensation Committee. +The Committee believed these criteria would balance the +NEOs’ focus on near-term profitability and longer-term +shareholder value. The Committee evaluated Wolverine’s +performance against these criteria and certified that +Wolverine’s performance on the earnings per share criterion +was $5.50 (adjusted to exclude restructuring and related costs +and other special charges), falling between goal and stretch +performance levels, and on the total shareholder return +criterion Wolverine’s performance rank was 4th, resulting +in a weighted average payout level of 158.8%. The NEOs received +the following cash +3-Year +Bonuses for the +2007-2009 +performance period: +29 +Table of Contents +Name +3-Year +Bonus +Krueger +$ +709,166 +Grimes* +$ +133,350 +Linton* +$ +98,954 +McBreen* +$ +98,945 +Zwiers +$ +153,898 +* +Ms. Linton’s and Messrs. Grimes’ and +McBreen’s +3-Year +Bonuses were prorated to reflect that they started employment +with the Company after the beginning of the performance period. +3-Year +Performance Share Bonus (Fiscal +2009-2011) +The Compensation Committee believes that long-term incentive +compensation opportunities for NEOs should be competitive with +long-term incentive compensation opportunities at companies of +similar size to Wolverine and companies with whom Wolverine +competes to hire NEOs. The Committee evaluated the potential +long-term incentive payout for each NEO, considering it in the +context of the Towers Perrin general industry survey information +described above in “Compensation Consultant and Market +Comparisons,” the Peer Group data, information provided by +management from the Company’s experience recruiting NEOs, +and the experience and responsibilities of the NEOs. The +Committee recognized that for positions other than CEO and CFO, +the general industry survey information covered positions with +narrower responsibilities than those of Messrs. McBreen and +Zwiers, and that Ms. Linton’s years of experience as +the leader of Human Resources functions for much larger +companies was not reflected in the survey data. The Committee +also understood that Wolverine competes with footwear, apparel +and retail companies for hiring NEOs, and that it has been the +Company’s experience that compensation levels in those +industries generally exceed the levels reported in general +industry surveys. In addition, the Committee recognized that +Mr. Zwiers’ promotion to President, Outdoor Group, had +significantly expanded his responsibilities. +Based on these considerations, the Committee decided to increase +the NEOs’ long-term incentive compensation opportunities at +the target performance level. The Committee increased the Target +Percentage levels for Messrs. Krueger, Grimes, McBreen and +Zwiers and Ms. Linton for the +3-Year Bonus +opportunity, as follows: +2009-2011 +2008-2010 +Name +Percent +Percent +Krueger +70 +% +60 +% +Grimes +45 +% +35 +% +Linton +35 +% +30 +% +McBreen +40 +% +35 +% +Zwiers +40 +% +30 +% +For the +2009-2011 +performance period, the Compensation Committee replaced cash +payouts with equity payouts for the +3-Year Bonus +opportunity (“performance shares”). The Committee +considered the relative contributions of cash and equity to each +NEO’s compensation package, the objectives of the long-term +incentive component of each NEO’s compensation package +(including more closely aligning NEOs’ interests with +stockholder interests), the Company’s strategic business +objectives, market information, and qualitative factors such as +responsibilities. No single factor drove the changes made to the +3-Year Bonus +program. +In addition, the Committee also replaced the total shareholder +return criterion with a business value added criterion +(“BVA”). BVA reflects changes in after-tax operating +profit and asset management. The Committee believed focusing +NEOs’ interests on increasing BVA would align their +interests more closely with stockholder interests, and that BVA +is superior to TSR in measuring management’s long-term +influence over company performance. The Committee defined BVA as +a measurement that equals the operating income for a fiscal year +reduced by (i) a provision for income taxes equal to the +operating income multiplied by the Company’s total +effective tax rate for the same fiscal year; and (ii) a +capital charge equal to a two-point average of “net +operating assets” at the beginning and end of a fiscal year +(with “net operating assets” defined as the net of +30 +Table of Contents +trade receivables (net of reserves), inventory (net of +reserves), other current assets, property, plant and equipment, +trade payables and accrued liabilities) multiplied by 10%. The +Committee increased the weight given to the earnings per share +performance criterion from 50% to 65% of the total performance, +and set the weight for the BVA performance criterion at 35%. The +Committee believed that earnings per share is an important +indicator of stockholder value and that increasing the weight +given to this criterion would further align NEOs’ interests +with stockholders’ interests. The Committee intended the +level of difficulty in attaining threshold, target, goal and +stretch performance goals it set for the +2009-2011 +performance period to be substantially similar to the level of +difficulty in attaining the performance goals for the +2007-2009 +performance period. +In February 2009, the Committee awarded performance shares to +each NEO with a fair market value at the time the award was made +equal to the maximum bonus payout the NEO could earn as the +3-Year Bonus +for the +2009-2011 +performance period. The Committee granted the awards under the +Company’s 2005 Stock Incentive Plan, and details of the +awards are included in the table “Grants of Plan-Based +Awards” on page 36. The Company accrues, but does not +pay, dividends on the performance shares during the performance +period. Following the end of the +2009-2011 +performance period, the Compensation Committee will certify the +Company’s performance compared to the performance criteria. +Depending on the Company’s performance, the restrictions on +none, some or all of the performance shares awarded to each NEO +will lapse. At that time, the Company will pay to the NEO the +accrued dividends on those shares on which the restrictions do +lapse. +Stock +Option Grants and Restricted Stock Awards +The Compensation Committee believes that NEO stock ownership +benefits stockholders and has approved stock option grants and +restricted stock awards to NEOs and other executives for many +decades. The Committee administers the stock incentive plans for +stock option grants and restricted stock awards, and approves +the amount of and terms applicable to all grants and awards. In +addition to annual grants and awards, the Compensation Committee +may approve special grants or awards to NEOs, such as a grant or +award to a new hire or for a promotion. +The Compensation Committee considers the NEO’s position, +responsibilities, years of service, performance, number of stock +options and amount of restricted stock previously granted, and +market information, when setting the amount of stock option +grants and restricted stock awards. Management provides input to +these decisions, except in the case of the CEO’s +compensation. The Committee compares NEO equity awards to the +market information as part of evaluating NEO total long-term +incentive compensation at target to broader compensation trends. +In general, position and responsibilities are the primary +factors. Based on these considerations, the Committee increased +the percent of Mr. Krueger’s base salary targeted for +the fair market value of the annual stock option grants and +restricted stock awards to him. +The Committee approves annual stock option grants and restricted +stock awards at its regularly scheduled meeting in February. The +exercise price of stock options is the fair market value of +Wolverine’s common stock on the grant date, and the fair +market value is the closing price of Wolverine’s stock on +that date. The stock option grants typically vest one-third each +year over three years. The restrictions on restricted stock +awards typically lapse 25% each on the third and fourth +anniversary and 50% on the fifth anniversary of the award. +The Committee targeted the following percentages of base salary +when determining the combined total grant date fair value for +the stock options and restricted stock (not including the +performance share awards) it awarded NEOs for 2009. The +“Grants of Plan-Based Awards” table on page 36 +shows the actual grants and awards for 2009. +2009 +2008 +Name +% +of Base Salary Targeted +% +of Base Salary Targeted +Krueger +154.2 +% +115 +% +Grimes +89.8 +% +* +Linton +81.4 +% +80 +% +McBreen +81.4 +% +* +Zwiers +81.4 +% +80 +% +31 +Table of Contents +* +Mr. Grimes and +Mr. McBreen started employment after the annual equity +award grant. Both received the same number of stock option and +restricted stock awards granted to other executives with similar +positions within Wolverine. +The restricted stock award, not including performance shares, +was approximately 60%, and the stock option grants were +approximately 40%, of the combined value of the equity awarded +to each NEO. The Committee believed this mix was appropriate +based on the retentive nature of restricted stock and the +incentive nature of stock options. +Equity Grant +Practices +The exercise price of each stock option granted is the closing +price of Wolverine’s stock on the date of the grant, which +is the date of the Compensation Committee meeting at which +equity awards for the NEOs are determined. The Company generally +schedules Board and Committee meetings at least one year in +advance. The Compensation Committee also has delegated to the +CEO the authority to award restricted stock to employees, other +than himself and other NEOs, during the Company’s 2010 +fiscal year to recognize outstanding performance by employees. +These awards may not exceed 20,000 shares in aggregate. +NEO Stock +Ownership Guidelines +Through stock ownership guidelines, the Company requires that +NEOs maintain a minimum stock ownership level to align further +the interests of these individuals with the stockholders. +Covered +Positions +Guideline +CEO +5x Annual Base Salary +Other NEOs +2x Annual Base Salary +Each NEO must meet the ownership requirement by the end of the +fifth year after he or she becomes subject to the guidelines. +All NEOs who have passed the end of their fifth year meet the +ownership requirement. +Retirement, +Welfare and Other Benefits +The NEOs participate in Wolverine’s medical and dental +plans and receive life and disability insurance. Subject to +variations to account for requirements in local jurisdictions, +variances in local compensation structure (for example, as +applicable to Wolverine’s employees in the United Sates +versus certain overseas offices), and to requirements under +collective bargaining agreements, all Wolverine employees +receive the same retirement, health and welfare benefit +opportunities. In addition, Wolverine provides some basic tax +and estate planning services for the NEOs. The NEOs also +participate in Wolverine’s Defined Benefit Pension Plan and +Supplemental Executive Retirement Plan. For a description of the +benefits under Wolverine’s retirement plans, see +“Pension Plans and 2009 Pension Benefits” below. +Impact of +Accounting and Tax Treatments on Compensation +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to the +CEO and the three next most highly-paid executive officers +(other than the CFO) in excess of $1,000,000 annually, with +certain exceptions for qualified “performance-based” +compensation. Wolverine has obtained stockholder approval of the +Annual Bonus Plan, the LTIP, and its stock incentive plans, and +is seeking stockholder approval of the Stock Incentive Plan of +2010, to permit certain amounts payable under these plans to +qualify as “performance-based” compensation for +purposes of Section 162(m). Incentives under these plans, +other than time-based restricted stock awards, were not included +in the $1,000,000 limit for purposes of calculating +Wolverine’s deduction for compensation paid to its NEOs. +Wolverine does not require all of its compensation programs to +be fully deductible under Section 162(m), because Wolverine +believes it is important to preserve flexibility in +administering compensation programs in a manner designed to +promote varying corporate goals. Wolverine may pay certain +compensation that does not qualify as performance-based +compensation and that is excluded from the limitation on +deductibility. +32 +Table of Contents +Post-Employment +Compensation +Each NEO is party to an Executive Severance Agreement that +provides for certain payments and benefits upon termination of +employment after a change in control of Wolverine. The Board +believes Executive Severance Agreements will promote management +stability during the transition period accompanying a change in +control. Each NEO is eligible to receive compensation if his or +her employment is terminated within two years +(Messrs. Grimes, McBreen and Zwiers and Ms. Linton) or +three years (Mr. Krueger) following a change in control of +Wolverine. The Compensation Committee believes this “double +trigger” requirement of change in control plus termination +of employment is appropriate, because each NEO is not materially +harmed by a change in control unless his or her employment is +terminated. Each Executive Severance Agreement does not require +an NEO to mitigate payments by seeking employment, but does +reduce compensation paid during the fourth and later months +after termination by an amount equal to any other compensation +earned by the NEO during that period. An NEO does not receive +payment under the Executive Severance Agreement if his or her +employment is terminated: +• +due to death or retirement in accordance with Wolverine’s +policy or as otherwise agreed; +• +by Wolverine for cause or disability; or +• +by resignation of the NEO for other than “good +reason,” which includes the assignment of duties +inconsistent with the NEO’s status as a senior executive +officer or the duties performed by the NEO immediately before a +change in control, a reduction in the NEO’s annual base +salary or relocation of the NEO. +All NEOs also may be eligible under Wolverine’s retirement +plans or equity plans to receive certain payments and benefits +upon termination of employment or in connection with a change in +control. The Compensation Committee believes that such +single-trigger accelerated vesting is appropriate because by +protecting a significant component of the NEOs total +compensation, the acceleration of equity vesting mitigates any +potential conflicts of interest that might otherwise arise +between the NEOs and the stockholders and serves as a +substantial incentive for those NEOs to obtain the highest +possible value for the stockholders, should the Company become +an acquisition target. The Compensation Committee also retains +the discretion to modify or eliminate the accelerated vesting. +Mr. Krueger also is party to a Separation Agreement that +provides he will receive certain payments and benefits upon +termination of his employment by Wolverine other than for +“cause” or by him for “good reason.” The +Compensation Committee determined upon appointing +Mr. Krueger as CEO, that given the Company’s strategic +initiatives the Board had asked him to lead, it was appropriate +for the Company to enter into a separation arrangement. You will +find information on benefits payable to Mr. Krueger and +each other NEO and the specific elements comprising the payment +under the Separation Agreement, Executive Severance Agreements, +and other retirement and equity plans of Wolverine, in the +“Potential Payments Upon Termination or Change in +Control” section of this proxy statement. +COMPENSATION +COMMITTEE REPORT +The Compensation Committee has reviewed and discussed with +management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this +review and discussion, the Compensation Committee recommended to +the Board of Directors that the Company include the Compensation +Discussion and Analysis section in this proxy statement and +incorporate it by reference into the Company’s Annual +Report on +Form 10-K. +Respectfully submitted, +Michael A. Volkema (Chairperson), William K. Gerber, Joseph R. +Gromek, David T. Kollat +33 +Table of Contents +SUMMARY +COMPENSATION TABLE +Change in +Pension Value +and +Nonqualified +Name and +Non-Equity +Deferred +Principal +Stock +Option +Incentive Plan +Compensation +All Other +Position +Year +Salary 1 +Bonus 1,2 +Awards 3,8 +Awards 4 +Compensation 1,5,8 +Earnings 6 +Compensation 7 +Total 8 +Blake W. +2009 +$735,000 +$124,031 +$1,591,179 +$409,584 +$1,360,231 +$1,568,139 +$12,792 +$5,800,956 +Krueger, +2008 +$728,269 +$117,980 +$501,000 +$335,736 +$1,144,545 +$537,240 +$11,592 +$3,376,362 +CEO and +President +2007 +$646,539 +$104,739 +$488,395 +$321,366 +$831,345 +$389,885 +$11,592 +$2,793,861 +Donald T. +2009 +$385,000 +$38,981 +$510,665 +$127,995 +$337,971 +$43,539 +$45,970 +$1,490,121 +Grimes, Senior +2008 +$222,115 +$20,990 +$155,540 +$107,819 +$156,322 +$11,392 +$138,943 +$813,121 +Vice +President, +CFO, +Treasurer and +Chief +Accounting +Officer 9,10 +Pamela L. +2009 +$292,000 +$30,660 +$309,588 +$81,064 +$251,165 +$82,369 +$9,776 +$1,056,622 +Linton, Senior +2008 +$282,308 +$22,867 +$137,775 +$89,530 +$170,301 +$39,409 +$7,750 +$749,937 +Vice President, +Human +Resources 10,11 +Michael F. +2009 +$325,000 +$29,250 +$383,110 +$89,597 +$180,432 +$27,476 +$21,549 +$1,056,414 +McBreen, +President, +Global +Operations +Group 10,12 +James D. +2009 +$327,308 +$29,458 +$382,708 +$92,290 +$331,731 +$111,020 +$14,066 +$1,288,581 +Zwiers, Senior +2008 +$283,462 +$50,512 +$137,775 +$89,530 +$179,259 +$10,896 +$10,395 +$761,829 +Vice President +2007 +$242,115 +$20,000 +$81,702 +$52,332 +$101,350 +$18,162 +$10,106 +$525,767 +1 +Includes any amounts deferred under +the Company’s qualified 401(k) plan. +2 +Includes amounts earned under the +Discretionary Bonus Plan. +3 +Represents the full grant date fair +value of restricted stock awards granted in the years shown and +performance shares granted in 2009, calculated in accordance +with FASB ASC Topic 718. Restricted stock was valued using the +closing market price of Wolverine common stock on the NYSE on +the date of grant. Performance shares were valued using the +closing market price of Wolverine common stock on the NYSE on +the date of grant assuming payout between goal and stretch +performance. The full grant date fair value of performance +shares granted in 2009, assuming payout at maximum performance, +for each NEO would have been: $1,091,977 for Mr. Krueger; +$367,711 for Mr. Grimes; $207,989 for Ms. Linton; +$275,916 for Mr. McBreen; and $269,790 for Mr. Zwiers. +For additional valuation assumptions, see the “Stock-Based +Compensation” heading under Note 1 to Wolverine’s +Financial Statements for the fiscal years ended +December 29, 2007, January 3, 2009 and January 2, +2010. +4 +Represents the full grant date fair +value of stock options granted in the years shown, calculated in +accordance with FASB ASC Topic 718. Stock options were valued +using the Black-Scholes model. For additional valuation +assumptions, see the Stock-Based Compensation heading under +Note 1 to Wolverine’s Financial Statements for the +fiscal years ended December 29, 2007, January 3, 2009 +and January 2, 2010. +5 +Includes the amounts, listed in the +table below, which the NEOs earned in 2009 and the Company paid +in February 2010 for the +3-Year Bonus +with a performance period ending in 2009, and amounts the NEOs +earned in 2009 and the Company paid in February 2010 under the +Annual Bonus Plan. +Total +Non-Equity +3-Year Bonus +2009 Annual Bonus +Plan +Incentive Plan +Name +(2007-2009) +Payout +Compensation +Krueger +$ +709,166 +$ +651,065 +$ +1,360,231 +Grimes +$ +133,350 +$ +204,621 +$ +337,971 +Linton +$ +98,954 +$ +152,211 +$ +251,165 +McBreen +$ +98,945 +$ +81,487 +$ +180,432 +Zwiers +$ +153,898 +$ +177,833 +$ +331,731 +6 +All amounts in this column reflect +the aggregate change in the actuarial present value of the +NEOs’ accumulated benefits under Wolverine’s pension +plan and SERP. The amounts in the table were determined using +assumptions consistent with those used in Wolverine’s +Financial Statements for the fiscal year ended January 2, +2010. See the “Pension Plan and 2009 Pension Benefits” +section on page 39. +34 +Table of Contents +7 +The amounts listed in this column +include Wolverine’s matching contributions to the accounts +of the NEOs under Wolverine’s 401(k) Savings Plan, payments +made by Wolverine for the premiums on certain life insurance +policies, moving expenses, and tax and estate planning services +in the amounts listed in the table below. +Life Insurance +Moving +Tax and Estate +Name +401(k) +Match +Premiums +Expenses +Planning +Krueger +$ +8,250 +$ +3,842 +- +$ +700 +Grimes +$ +8,250 +- +$ +31,387 +$ +6,333 +Linton +$ +8,250 +- +- +$ +1,526 +McBreen +$ +8,250 +$ +2,403 +$ +6,256 +$ +4,640 +Zwiers +$ +8,250 +$ +2,851 +- +$ +2,965 +8 +The Company changed its +3-Year Bonus +program from a cash-based program to a performance share-based +program in 2009. Because of this change, the amounts reported as +compensation for each NEO in 2009 include awards for two, +three-year periods: +2007-2009 +awards, which were earned in 2009 and paid in cash (reported in +the “Non-Equity Incentive Plan Compensation” column); +and +2009-2011 +awards, which were issued as performance share grants in 2009 +(reported in the “Stock Awards” column). Restrictions +on the shares issued under the 2009 performance share grant will +lapse in 2012, if at all, based on the Company’s +performance in the +2009-2011 +period. Excluding the grant date fair market value of the 2009 +performance share grant, total compensation for 2009 for each +NEO would be as follows: $4,894,177 for Mr. Krueger; +$1,185,146 for Mr. Grimes; $883,914 for Ms. Linton; +$827,294 for Mr. McBreen; and $1,064,543 for +Mr. Zwiers. +9 +Effective May 27, 2008, the +Board of Directors appointed Donald T. Grimes as Senior Vice +President, Chief Financial Officer, Treasurer and Chief +Accounting Officer. +10 +Mr. Grimes, Ms. Linton +and Mr. McBreen are not yet vested in their benefits under +the pension plan or the SERP, but the amount reflected assumes +that each is fully vested. +11 +Ms. Linton’s employment +with Wolverine was effective December 2007. +12 +Mr. McBreen’s employment +with Wolverine was effective June 2008. +35 +Table of Contents +GRANTS OF +PLAN-BASED AWARDS +The following table provides information concerning each grant +of an award made to the NEOs in the last completed fiscal year: +All Other +All Other +Stock +Option +Awards: +Awards: +Number +Number +Exercise +Estimated +Possible Payouts +Estimated +Possible +of +of +or Base +Grant +Under Non-Equity +Incentive +Payouts under +Equity +Shares +Securities +Price of +Date +Plan +Awards 1 +Incentive Plan +Awards 2 +of Stock +Underlying +Option +Fair +Award +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Units 3 +Options 4 +Awards 5 +Value 6 +Name +Type +Date +($) +($) +($) +(Number) +(Number) +(Number) +(Number) +(Number) +($/Share) +($) +Krueger +Annual Bonus +2/10/09 +234,281 +468,563 +937,125 +FY09-FY11 Performance Shares +2/10/09 +15,955 +31,911 +63,821 +906,779 +Stock Option +2/10/09 +96,000 +17.11 +409,584 +Restricted Stock +2/10/09 +40,000 +684,400 +Grimes +Annual Bonus +2/10/09 +73,631 +147,263 +294,525 +FY09-FY11 Performance Shares +2/10/09 +5,373 +10,746 +21,491 +305,345 +Stock Option +2/10/09 +30,000 +17.11 +127,995 +Restricted Stock +2/10/09 +12,000 +205,320 +Linton +Annual Bonus +2/10/09 +49,640 +99,280 +198,560 +FY09-FY11 Performance Shares +2/10/09 +3,039 +6,078 +12,156 +172,708 +Stock Option +2/10/09 +19,000 +17.11 +81,064 +Restricted Stock +2/10/09 +8,000 +136,880 +McBreen +Annual Bonus +2/10/09 +55,250 +110,500 +221,000 +FY09-FY11 Performance Shares +2/10/09 +4,032 +8,063 +16,126 +229,120 +Stock Option +2/10/09 +21,000 +17.11 +89,597 +Restricted Stock +2/10/09 +9,000 +153,990 +Zwiers 7 +Annual Bonus +2/10/09 +55,642 +111,285 +222,569 +FY09-FY11 +2/10/09 +3,077 +6,154 +12,307 +174,864 +Performance Shares +4/22/09 +865 +1,731 +3,461 +49,174 +Stock Option +2/10/09 +19,000 +17.11 +81,064 +4/22/09 +2,000 +21.79 +11,226 +Restricted Stock +2/10/09 +8,000 +136,880 +4/22/09 +1,000 +21,790 +1 +Estimated payout levels relating to +each NEO’s participation in the Annual Bonus Plan. For a +description of this plan and the payout under it, see +pages 25-28. +2 +Estimated payout levels of +performance shares granted under the Amended and Restated Stock +Incentive Plan of 2005 relating to each NEO’s participation +in the +3-Year Bonus +(Fiscal +2009-2011). +Following the end of the +2009-2011 +performance period, restrictions may lapse on some, all or none +of the performance shares depending upon the Company’s +achievement of the relevant performance criteria. The Company +accrues, but does not pay, dividends on the performance shares +during the performance period. At the end of the performance +period, the Company will pay to the NEO the accrued dividends +(if any) on the performance shares for which the restrictions +lapse. For a description of this plan and the payout under it, +see pages 30-31. +3 +The Company granted restricted +stock awards under the Amended and Restated 2001 Stock Incentive +Plan for all NEOs. The restrictions on 25% of the shares +received under the awards reflected in this table normally lapse +on the third anniversary of the date of grant, with the +restrictions on an additional 25% of the shares lapsing on the +fourth anniversary and the restrictions with respect to the +remaining 50% of the shares lapsing on the fifth anniversary. +All restrictions on shares of restricted stock lapse upon an +NEO’s death, disability or voluntary termination after +attaining age 62 or age 50 with seven years of +service. In the event of a change in control, as defined on +page 43, restrictions lapse on all shares. Holders of +restricted stock are entitled to receive dividends and to vote. +4 +The Company granted stock options +under the Amended and Restated Stock Incentive Plan of 2005 for +all NEOs. Stock options granted to NEOs vest ratably over three +years beginning on the first anniversary of the grant date and +have a term of ten years. Stock option vesting may accelerate +upon certain events, including retirement, death, disability or +a change in control of Wolverine. +5 +The Exercise Price is equal to the +closing market price of shares of Wolverine common stock on the +date of grant. +6 +Represents the full grant date fair +value for stock options, performance shares and restricted stock +awards granted in fiscal year 2009, computed in accordance with +FASB ASC Topic 718. The applicable assumptions for determining +the grant date fair value of these awards are described in +footnotes 3 and 4 to the Summary Compensation Table. +7 +Mr. Zwiers received additional +stock options, performance shares and restricted stock awards in +connection with his promotion to President, Outdoor Group in +addition to his role as Senior Vice President of the Company. +36 +Table of Contents +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning unexercised +options and stock awards that have not vested for each NEO +outstanding as of January 2, 2010: +Option +Awards +Stock +Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market +Awards: +or Payout +Number +Value of +of Unearned +Unearned +Market +Shares, +Shares, +Number of +Number of +Number of +Value of +Units +Units or +Securities +Securities +Shares or +Shares or +or Other +Other +Underlying +Underlying +Units of +Units of +Rights +rights +Unexercised +Unexercised +Option +Stock +Stock That +That Have +That +Options +Options +Exercise +Option +That Have +Have Not +Not +Have +Exercisable +Unexercisable 1 +Price +Expiration +Not +Vested 2 +Vested 3 +Vested 4 +Not Vested +Name +Grant +Date +(#) +(#) +($) +Date +(#) +($) +(#) +($) +Krueger +Various +92,750 +$ +2,524,655 +2/10/2009 +63,821 +$ +1,737,208 +12/27/2004 +6,448 +- +$ +20.73 +2/23/2010 +12/27/2004 +6,010 +- +$ +20.73 +3/4/2011 +12/14/2004 +1,081 +- +$ +20.50 +2/13/2012 +12/14/2004 +2,277 +- +$ +20.50 +2/23/2010 +4/22/2004 +682 +- +$ +17.91 +4/16/2010 +4/22/2004 +1,342 +- +$ +17.91 +3/8/2010 +4/22/2004 +418 +- +$ +17.91 +2/24/2010 +4/22/2004 +9,245 +- +$ +17.91 +2/23/2010 +4/22/2004 +1,590 +- +$ +17.91 +2/22/2010 +10/25/2004 +15,413 +- +$ +20.08 +2/24/2010 +10/25/2004 +1,441 +- +$ +20.08 +2/23/2010 +2/12/2003 +22,500 +- +$ +10.51 +2/12/2013 +2/14/2002 +12,188 +- +$ +10.29 +2/14/2012 +2/18/2004 +23,063 +- +$ +15.37 +2/18/2014 +4/22/2004 +24,180 +- +$ +17.91 +3/4/2011 +10/25/2004 +15,030 +- +$ +20.08 +2/11/2013 +10/25/2004 +24,153 +- +$ +20.08 +2/13/2012 +2/9/2005 +26,200 +- +$ +23.04 +2/8/2015 +12/14/2004 +967 +- +$ +20.50 +3/4/2011 +12/27/2004 +6,303 +- +$ +20.73 +2/17/2014 +12/27/2004 +2,269 +- +$ +20.73 +2/18/2014 +2/15/2006 +40,000 +- +$ +22.47 +2/14/2016 +2/7/2007 +26,800 +13,400 +$ +30.26 +2/6/2017 +4/19/2007 +4,467 +2,233 +$ +29.47 +4/18/2017 +2/6/2008 +20,000 +40,000 +$ +25.05 +2/5/2018 +2/10/2009 +- +96,000 +$ +17.11 +2/9/2019 +Grimes +Various +17,500 +$ +476,350 +2/10/2009 +21,491 +$ +584,985 +5/27/2008 +5,334 +10,666 +$ +28.28 +5/26/2018 +Linton +Various +13,500 +$ +367,470 +2/10/2009 +12,156 +$ +330,886 +2/6/2008 +5,334 +10,666 +$ +25.05 +2/5/2018 +2/10/2009 +- +19,000 +$ +17.11 +2/9/2019 +McBreen +Various +14,500 +$ +394,690 +2/10/2009 +16,126 +$ +438,950 +7/9/2008 +5,334 +10,666 +$ +23.04 +7/8/2018 +2/10/2009 +- +21,000 +$ +17.11 +2/9/2019 +37 +Table of Contents +Option +Awards +Stock +Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market +Awards: +or Payout +Number +Value of +of Unearned +Unearned +Market +Shares, +Shares, +Number of +Number of +Number of +Value of +Units +Units or +Securities +Securities +Shares or +Shares or +or Other +Other +Underlying +Underlying +Units of +Units of +Rights +rights +Unexercised +Unexercised +Option +Stock +Stock That +That Have +That +Options +Options +Exercise +Option +That Have +Have Not +Not +Have +Exercisable +Unexercisable 1 +Price +Expiration +Not +Vested 2 +Vested 3 +Vested 4 +Not Vested +Name +Grant +Date +(#) +(#) +($) +Date +(#) +($) +(#) +($) +Zwiers +Various +21,450 +$ +583,869 +2/10/2009 +12,307 +$ +334,997 +4/22/2009 +3,461 +$ +94,208 +2/12/2003 +6,750 +- +$ +10.51 +2/11/2013 +2/18/2004 +6,525 +- +$ +15.37 +2/18/2014 +12/20/2004 +94 +- +$ +20.80 +3/4/2011 +12/20/2004 +156 +- +$ +20.80 +2/23/2010 +12/20/2004 +228 +- +$ +20.50 +2/13/2012 +12/20/2004 +1,606 +- +$ +20.80 +2/17/2014 +12/14/2004 +228 +- +$ +20.80 +3/2/2009 +12/14/2004 +114 +- +$ +20.50 +3/4/2011 +12/14/2004 +273 +- +$ +20.50 +2/23/2010 +12/9/2005 +8,600 +- +$ +23.04 +2/8/2015 +2/15/2006 +8,600 +- +$ +22.47 +2/14/2016 +2/7/2007 +5,067 +2,533 +$ +30.26 +2/6/2017 +2/6/2008 +5,334 +10,666 +$ +25.05 +2/5/2018 +2/10/2009 +- +19,000 +$ +17.11 +2/9/2019 +4/22/2009 +- +2,000 +$ +21.79 +4/21/2019 +1 +All unexercisable options become +exercisable on the vesting date. The normal vesting period for +options is one-third of the shares on each of the first three +anniversaries of the date of the grant. Full vesting occurs on +the third anniversary date of the grant. Stock option vesting +may accelerate upon certain events, including retirement, death, +disability or a change in control of Wolverine, as further +described in the “Grants of Plan Based Awards” section. +2 +The following table sets forth the +vesting dates for the unvested restricted stock awards of each +NEO as of January 2, 2010: +Named +Executive +Number of Shares +to +Officer +Vesting +Date +Vest +Krueger +2/7/2010 +3,475 +2/9/2010 +5,300 +2/15/2010 +3,750 +4/19/2010 +575 +2/6/2011 +5,000 +2/7/2011 +3,475 +2/15/2011 +7,500 +4/19/2011 +575 +2/6/2012 +5,000 +2/7/2012 +6,950 +2/10/2012 +10,000 +4/19/2012 +1,150 +2/6/2013 +10,000 +2/10/2013 +10,000 +2/10/2014 +20,000 +Grimes +5/27/2011 +1,375 +2/10/2012 +3,000 +5/27/2012 +1,375 +2/10/2013 +3,000 +5/27/2013 +2,750 +2/10/2014 +6,000 +38 +Table of Contents +Named +Executive +Number of Shares +to +Officer +Vesting +Date +Vest +Linton +2/6/2011 +1,375 +2/6/2012 +1,375 +2/10/2012 +2,000 +2/6/2013 +2,750 +2/10/2013 +2,000 +2/10/2014 +4,000 +McBreen +7/9/2011 +1,375 +2/10/2012 +2,250 +7/9/2012 +1,375 +2/10/2013 +2,250 +7/9/2013 +2,750 +2/10/2014 +4,500 +Zwiers +2/7/2010 +675 +2/9/2010 +1,700 +2/15/2010 +850 +2/6/2011 +1,375 +2/7/2011 +675 +2/15/2011 +1,700 +2/6/2012 +1,375 +2/7/2012 +1,350 +2/10/2012 +2,000 +4/22/2012 +250 +2/6/2013 +2,750 +2/10/2013 +2,000 +4/22/2013 +250 +2/10/2014 +4,000 +4/22/2014 +500 +3 +The dollar values are calculated +using a per share stock price of $27.22, the closing price of +Wolverine common stock as of the end of the fiscal year. +4 +Following the end of the +2009-2011 +performance period, restrictions may lapse on some, all or none +of the performance shares depending upon the Company’s +achievement of the relevant performance criteria. +OPTION EXERCISES +AND STOCK VESTED IN FISCAL 2009 +Option +Awards +Stock +Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired +Realized +Acquired +Realized +on +on +on +on +Exercise +Exercise +Vesting +Vesting* +(#) +($) +(#) +($) +Krueger +- +- +12,775 +$ +211,697 +Grimes +- +- +- +$ +- +Linton +- +- +1,500 +$ +29,490 +McBreen +- +- +- +$ +- +Zwiers +- +- +3,950 +$ +65,390 +* The dollar values are calculated using the closing +price of Wolverine common stock on the date of vesting. +PENSION PLANS AND +2009 PENSION BENEFITS +Wolverine maintains the following defined benefit retirement +plans which cover NEOs: (1) the Wolverine Employees’ +Pension Plan, which is a funded and tax-qualified defined +benefit plan under the Internal Revenue Code that covers +eligible employees and (2) the Wolverine World Wide, Inc. +409A Supplemental Executive Retirement Plan, which is an +unfunded non-qualified plan. The following describes the +material features of the pensions plans presented in the +“Pension Benefits” table. +39 +Table of Contents +Qualified Pension +Plan +NEOs vest in the Wolverine Employees’ Pension Plan (the +“Pension Plan”) after five years of qualifying +service. Subject to the limitations imposed by the Internal +Revenue Code, the Pension Plan generally pays an NEO a monthly +benefit in an amount equal to a percentage of the NEO’s +final average monthly earnings multiplied by his or her number +of years of service, up to 25 years. The percentages are +2.4% for Mr. Krueger and 2.0% for Messrs. Grimes, +McBreen and Zwiers and Ms. Linton. “Earnings” as +used in this formula generally includes base salary and annual +bonus, less social security allowance, and is capped at +$245,000, the IRS limit applicable to tax-qualified plans for +2009. +Upon retirement, an NEO participant may elect to receive the +benefit in the form of a life annuity, 5- and +10-year +certain annuities and joint and 50% and 100% survivor annuities +and such payments are actuarially adjusted based on the +election. Any election other than an election to receive +benefits in the form of a life annuity reduces the monthly +benefit payable. The “normal” retirement age under the +plan is age 65. None of the NEOs are eligible to begin +drawing early retirement benefits under the Pension Plan. +Supplemental +Executive Retirement Plan +Wolverine offers NEOs the Supplemental Executive Retirement Plan +(the “SERP”) to provide retirement benefits above +amounts available under the Company’s tax-qualified pension +programs. The SERP is unfunded and not qualified for tax +purposes. An NEO’s SERP benefit generally equals the +difference between the NEO’s retirement benefit under +Pension Plan and the benefits the NEO would have received if +there were no cap on earnings when calculating the pension plan +benefit. The SERP caps years of service at 25. The SERP also +allows a retired NEO to draw earlier (beginning at +age 55) and on different terms than under the Pension +Plan. The percentage multiplier for earnings is the same for +NEOs under the SERP as it is under the Pension Plan. The +Compensation Committee may grant additional deemed years of +service to an NEO, subject to the overall limit of 25 years +of service. Under Mr. Krueger’s compensation +arrangement as CEO, he is credited with an additional deemed +year of service under the SERP for each year he serves as CEO. +The full benefit of any additional years of deemed service is +paid under the SERP. +If a retired NEO draws the SERP benefit prior to age 65, +the reduction factor is 0.333% for each month prior to +age 60, and 0.1666% for each month between age 60 and +age 65. As of the end of 2009, Mr. Krueger was the +only NEO eligible to retire and begin drawing early retirement +benefits under the SERP. +SERP benefits are paid monthly, and the SERP has a lump sum +payment option in the event of death or termination of +employment after a change in control. The SERP also includes a +disability benefit and a death benefit payable to the NEO’s +designated beneficiary, if the NEO dies before retiring. The +SERP provides for lump sum payments to participating NEOs if, +within two years (Messrs. Grimes, McBreen and Zwiers and +Ms. Linton) or three years (Mr. Krueger) after a +change in control the NEO resigns for good reason or is +terminated by Wolverine other than for cause or due to death or +disability. +The SERP also contains non-competition, confidentiality and +employee non-solicitation provisions in favor of Wolverine. +Under the SERP non-competition provisions, an NEO is not +entitled to any benefit payment if, prior to the date on which +such benefit payment is due, the participant enters into certain +relationships with a competing business. If the NEO’s +employment is terminated for serious misconduct or if Wolverine +cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons, the Company may +terminate an NEO’s benefits under the SERP. Wolverine may +terminate the SERP or stop further accrual of SERP benefits for +a participating NEO at any time, but termination will not affect +previously accrued benefits. +40 +Table of Contents +Pension Benefits +in 2009 +The following table provides for each NEO certain information +concerning each plan that provides for payments or other +benefits at, following, or in connection with retirement: +Payments +Number +Present +During +of Years +Value of +Last +Credited +Accumulated +Fiscal +Plan +Service +Benefit 1 +Year +Name +Name +(#) +($) +($) +Krueger +Pension Plan +14 +514,210 +- +SERP 2 +20 +3,081,710 +- +Grimes +Pension +Plan 3 +2 +36,301 +- +SERP 3 +2 +18,696 +- +Linton +Pension +Plan 3 +2 +82,688 +- +SERP 3 +2 +39,090 +- +McBreen +Pension +Plan 3 +2 +31,109 +- +SERP 3 +2 +3,324 +- +Zwiers +Pension Plan +12 +156,739 +- +SERP +12 +78,386 +- +1 +These values are as of +January 2, 2010, and are calculated assuming the +participants will commence their benefits at age 65 (in the +form of the annuity elected by the NEO) and use the 2009 PPA +static mortality tables and a 6.17% interest rate. +2 +The present value of +Mr. Krueger’s accumulated benefit under the SERP has +increased by $1,078,776 as a result of three additional service +years that were granted to him under the SERP in 1996 in +recognition of his service as a member of Wolverine’s +executive team for three years before becoming a participant in +the SERP, and three additional deemed years of service granted +as part of Mr. Krueger’s CEO compensation. The present +value of Mr. Krueger’s SERP benefit would be +$2,002,934 if 14 service years was used to calculate his benefit. +3 +Messrs. Grimes and McBreen and +Ms. Linton are not yet vested in the pension plan or the +SERP, but the amount in the table was calculated using the +assumption that each of them was fully vested. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +Wolverine has entered into an Executive Severance Agreement with +each of the NEOs that provides certain rights including the +right to receive payments in the event of the termination of +employment in connection with a change in control. The Company +also has entered into an agreement with Mr. Krueger +regarding certain termination benefits in the event of +termination of his employment under certain circumstances. +Benefits +Triggered by Termination for Cause or Voluntary +Termination +An NEO is not entitled to receive any additional forms of +severance payments or benefits upon termination for cause or +upon the NEO’s voluntary decision to terminate employment +with Wolverine prior to being eligible for retirement. +Benefits +Triggered by Termination Other Than for Cause or by the NEO for +Good Reason +Mr. Krueger entered into a Separation Agreement on +March 13, 2008, which states that upon termination of his +employment other than termination by Wolverine for Cause or +termination by Mr. Krueger without Good Reason, as such +terms are defined in the Separation Agreement, Wolverine will +pay Mr. Krueger the following payments in exchange for a +general release in favor of Wolverine: (1) continued base +salary for 18 months (reduced by payments he receives if he +is employed by a Competing Business, as defined in the +Separation Agreement); (2) a lump sum pro rata portion of +the annual incentive bonus and the long-term bonus for all +uncompleted performance periods based on actual corporate +performance for the applicable performance periods; (3) a +lump sum pro rata portion of the annual discretionary bonus +relating to personal performance objectives; (4) retiree +medical benefits for Mr. Krueger, his spouse and dependents +for a period starting on the +41 +Table of Contents +day after the termination date and ending on the last day of the +18th month following the month in which the termination +date falls; and (5) with respect to any triggering +termination occurring before Mr. Krueger’s +60th birthday, either a waiver of the three-year +non-competition clause in the SERP or a lump sum payment of +36 months’ base salary. Mr. Krueger also will be +paid any annual incentive bonus and long-term incentive bonus +earned but not paid prior to his termination. +“Cause” is defined generally in +Mr. Krueger’s Separation Agreement to mean: +(1) any act or omission knowingly undertaken or omitted +with the intent of causing material damage to Wolverine; +(2) any intentional act involving fraud, misappropriation +or embezzlement, that causes material damage to Wolverine; +(3) repeated willful failure to substantially perform any +of his significant duties as reasonably directed by the Board of +Directors of Wolverine; (4) a conviction (including any +plea of guilty or nolo contendere) of any criminal act that +(a) results in the executive serving prison time and not +being able to perform the normal duties of his position for more +than thirty (30) days; or (b) causes material damage +to Wolverine; or (5) chronic or habitual use or consumption +of drugs or alcohol that causes material damage to Wolverine. +“Good Reason” is generally defined under +Mr. Krueger’s Separation Agreement to mean: (1) a +material reduction in base compensation, including a reduction +in base salary or opportunities under Wolverine’s bonus +plans or equity plans (other than those implemented for the +executive team as a whole); (2) a material reduction in +authority, duties, or responsibilities; (3) a requirement +to report to a Company officer or employee instead of reporting +directly to the Board of Directors; or (4) certain +relocations, other than those related to a change in the +location of Wolverine’s headquarters affecting a majority +of the executive team. +Benefits +Triggered Upon a Change in Control +Benefits Upon Termination Following a Change in +Control. Under the Executive Severance Agreements +entered into with the NEOs, payments and benefits under the +Change in Control Arrangements are triggered when Wolverine +terminates employment without “cause” or when an +executive terminates employment for “good reason” +within two years (Messrs. Grimes, McBreen and Zwiers and +Ms. Linton) or three years (Mr. Krueger) following a +change in control of Wolverine. +Wolverine pays the lump sum payment under the Executive +Severance Agreement, and the payment is composed of the +following: (1) unpaid base salary, benefit awards +(including both cash and stock) and bonus payments that have +been earned; (2) in lieu of a bonus payment under the +Annual Bonus Plan, an amount equal to the number of days the NEO +was employed by Wolverine in the year of termination divided by +the number of days in the year multiplied by 100% of the greater +of either (a) the bonus awarded to the NEO under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the NEO over the preceding two-year period under an Annual +Bonus Plan; (3) in lieu of payments under the various +three-year performance periods, an amount equal to the bonus the +NEO would have received based on actual and assumed performance +measures, multiplied by the number of days the NEO participated +in the performance period prior to the termination, divided by +the total number of days in the performance period (in +determining the earnings per share or other performance measures +that can be determined annually for any year subsequent to the +year of termination, performance will equal the level required +to attain the maximum goal under the three year plan for that +year); (4) either two (Messrs. Grimes, McBreen and +Zwiers and Ms. Linton) or three (Mr. Krueger) times +the sum of (a) the NEO’s highest annual rate of base +salary during the +12-month +period prior to termination; and (b) the greater of the +average amount earned by the NEO during the previous two years +or the previous year under the Annual Bonus Plan; (5) 100% +of the positive spread for any options held by the NEO whether +or not vested; (6) an excise tax +gross-up +adjustment; and (7) the present value of an additional +three years of deemed service under the retirement plans. Upon a +termination of employment in connection with a change of +control, Wolverine will maintain for up to six months the +employee benefit plans, programs or arrangements that the NEO +was entitled to participate in immediately prior to the +termination date. Wolverine will provide outplacement services +through the last day of the second calendar year following the +42 +Table of Contents +calendar year of termination. The Compensation Committee has +determined that Wolverine will not provide excise tax +gross-up +payments in future employment agreements. +“Change in control” under the Executive Severance +Agreements generally means certain changes in composition of the +Board of Directors, certain acquisitions of 20% or more of +Wolverine’s common stock or combined outstanding voting +power of Wolverine, and other specified reorganizations, +mergers, consolidations, liquidations, dissolutions or +disposition of substantial assets (unless such transactions +result in the creation of an entity in which at least 50% of the +common stock and combined voting power is owned by the owners of +record prior to the transaction, no single stockholder owns more +than 20% of the combined voting power and a majority of the +board remains unchanged). +“Cause” is defined under the Executive Severance +Agreements to generally mean the willful and continued failure +to substantially perform duties or willfully engaging in gross +misconduct that is injurious to Wolverine. +“Good Reason” is defined under the Executive Severance +Agreements generally to mean: (1) any materially adverse +change in position, duties, responsibilities or title or any +removal, involuntary termination or failure to re-elect an +officer; (2) a reduction in annual base salary; +(3) any relocation or requirement to substantially increase +business travel; (4) the failure to continue providing any +executive incentive plans or bonus plans; (5) the failure +to continue any employee benefit plan or compensation plan +unless a comparable plan is available; (6) the failure to +pay any salary, bonus, deferred compensation or other +compensation; (7) the failure to obtain an assumption +agreement from any successor; (8) any purported termination +of the employment which is not effected in a manner prescribed +by the Executive Severance Agreement; or (9) any other +material breach by Wolverine or a successor of its obligations +under the Executive Severance Agreement. +Benefits Upon a Change in Control Only. Upon a +change in control of Wolverine, all of each NEO’s +outstanding stock options become immediately exercisable in full +and shall remain exercisable during the remaining term, +regardless of whether the NEO remains in the employ or service +of Wolverine. The Compensation Committee may determine that one +or all of the NEOs shall receive cash in an amount equal to the +positive spread amount. All other outstanding incentive awards +of the NEOs, including shares of restricted stock, become +immediately and fully vested and nonforfeitable upon a change in +control of Wolverine. Change in control for this purpose +generally means certain changes in the composition of the Board +of Directors, certain acquisitions of 20% of Wolverine’s +common stock and other specified reorganizations, mergers, +consolidations, liquidations, dissolutions or disposition of +substantial assets. +Benefits +Triggered by Retirement, Death or Permanent Disability +Pension Plan. In the event of death before +retirement, the Pension Plan provides the surviving spouse of a +vested NEO participant a death benefit equal to the qualified +pre-retirement survivor annuity as defined in the Internal +Revenue Code (generally 50% of the participant’s accrued +normal retirement benefit). This benefit is paid annually to the +surviving spouse beginning when the NEO participant would have +turned 60 and continues for the life of the surviving spouse. +For NEO participants with at least three years of service as of +December 31, 2003, and who have at least 10 years of +service and are employed by Wolverine at the time of death, the +amount of the survivor benefit under the Pension Plan is +calculated as though the NEO participant had continued as an +employee of Wolverine until age 65 at the compensation +level as of the date of death and the benefit begins upon the +date of death, unreduced for early commencement. The survivor +benefit for NEO participants who meet all the criteria set forth +in the preceding sentence, but who die when they are not +employed by Wolverine are entitled to a joint and survivor +benefit commencing upon the date of death, unreduced for early +commencement. +SERP. If an NEO dies before beginning to receive +benefits under the SERP, Wolverine must (based on the current +elections by all of the NEOs) pay the beneficiary a lump sum +death benefit equal to the present value of the benefit computed +as if the NEO participant had retired on the date of death, had +begun receiving benefits at age 55 and had continued to +receive benefits for the remainder of the participant’s +life expectancy. If the participant dies after beginning to +receive benefit payments, benefits cease unless the NEO +participant was receiving benefits in the form of one of the +joint and survivor annuity optional elections under the plan or +had elected benefits in a form that provides for a continuation +of benefits. +43 +Table of Contents +If an NEO becomes totally and permanently disabled, the SERP +provides a disability benefit equal to 60% of the normal +retirement accrued benefit based upon years of service up to the +date that the NEO participant became disabled through the date +the NEO participant reaches age 65 (at which point, the NEO +participant would begin drawing full SERP benefits) or is no +longer disabled. +Incentive Compensation Plans. Upon termination of +employment at least six months after the beginning of a fiscal +year due to death, disability or early or normal retirement, an +NEO is entitled to receive a pro rata portion of any Annual +Bonus award earned under the Annual Bonus Plan based on the +NEO’s service during such fiscal year. The Annual Bonus is +payable at the same time and in the same manner as awards are +paid to other NEOs for the fiscal year. Under the LTIP and for +performance shares, upon death, disability or early or normal +retirement, an NEO will be eligible to receive a pro rata +portion of any award payable under each open performance cycle +for which the NEO served at least 12 months. If an award is +payable at the end of the performance period, the award is +prorated for service during the applicable performance cycle. +Any prorated award is payable at the time awards are paid to +other NEOs. +Stock Incentive Plans. Upon death, disability or +early or normal retirement of the NEO, the restrictions +applicable to his or her shares of restricted stock (excluding +performance shares) terminate automatically and stock options +vest in full if held for more than one year or, if employed for +less than one year after the grant, on a percentage basis based +on months employed after the grant divided by 12. An NEO is +eligible for early retirement under the stock incentive plans +upon voluntarily terminating employment after attaining +age 50 with seven years of service. Upon death, disability +or normal retirement of the NEO, the restrictions on performance +shares lapse on a prorated basis, based on months employed in +the performance period and actual Company performance during the +performance period. +Description of +Restrictive Covenants that Apply During and After Termination of +Employment +The SERP contains non-competition, confidentiality and employee +non-solicitation provisions in favor of Wolverine. Under the +non-competition provisions of the SERP, the NEO participant +shall not be entitled to any benefit payment if, prior to the +date on which such benefit payment is due, the NEO participant +enters into certain relationships with a competing business. +Estimated +Payments on Termination or Change in Control +The following table summarizes the potential payments and +benefits payable to each of Wolverine’s NEOs upon a change +in control or termination of employment in connection with each +of the triggering events set forth in the table, assuming in +each situation that the termination of employment or change in +control of Wolverine took place on January 2, 2010. The +amounts described below are in addition to benefits that are +generally available to the Company’s employees such as +distributions under the Company’s 401(k) savings plan, +disability or life insurance benefits and accrued vacation. Due +to the many factors that affect the nature and amount of any +benefits provided upon the termination events discussed below, +any actual amounts paid or distributed to NEOs may be different. +Factors that may affect these amounts include timing during the +year of the occurrence of the event, Wolverine’s stock +price and the NEO’s age. +The value of the accelerated vesting of unvested equity-based +compensation awards was computed using the closing market price +of Wolverine’s common stock on December 31, 2009, the +last business day in the fiscal year ($27.22). The value for +unvested restricted stock is computed by multiplying $27.22 by +the number of unvested shares of restricted stock held by the +NEO. The value of unvested stock options equals the difference +between the exercise price of each option and $27.22. No value +was attributed to accelerated vesting of a stock option if its +exercise price was greater than $27.22. +44 +Table of Contents +Termination +Event and Payments/Benefits +Krueger +Grimes +Linton +McBreen +Zwiers +Termination by Company for Cause or Voluntary +Termination +- +- +- +- +- +Termination by Company Other Than for Cause or by Executive +for Good Reason +$ +3,217,629 1 +- +- +- +- +Change in Control +Termination 2 +Executive Severance +Agreement 3 +$ +19,544,385 +$ +3,408,513 +$ +2,820,490 +$ +2,287,278 +$ +3,572,475 +Benefits under Executive Severance +Agreement 4 +$ +49,845 +$ +46,036 +$ +46,850 +$ +47,569 +$ +48,520 +Stock Incentive +Plans 5 +$ +3,582,015 +$ +779,650 +$ +582,705 +$ +651,584 +$ +809,964 +Lump sum payment under the +SERP 6 +$ +8,949,756 +$ +181,790 +$ +242,595 +$ +115,746 +$ +268,225 +Death +SERP 7 +$ +5,307,887 +$ +127,257 +$ +175,962 +$ +83,958 +- +Pension +Plan 8 +$ +844,554 +- +- +- +$ +864,195 +Stock Incentive +Plans 5 +$ +3,238,806 +$ +674,660 +$ +514,413 +$ +575,369 +$ +732,607 +Earned Incentive +Compensation 9 +$ +2,090,950 +$ +558,401 +$ +399,270 +$ +345,132 +$ +509,435 +Disability +SERP 10 +$ +4,987,633 +$ +147,025 +$ +154,220 +$ +107,217 +$ +290,255 +Stock Incentive +Plans 5 +$ +3,238,806 +$ +674,660 +$ +514,413 +$ +575,369 +$ +732,607 +Earned Incentive +Compensation 9 +$ +2,090,950 +$ +558,401 +$ +399,270 +$ +345,132 +$ +509,435 +Retirement +SERP 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Pension +Plan 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Stock Incentive +Plans 5, 12 +$ +3,238,806 +- +- +- +- +Earned Incentive +Compensation 12 +$ +2,090,950 +- +- +- +- +Change in Control Only +Stock Incentive +Plans 5 +$ +3,582,015 +$ +779,650 +$ +582,705 +$ +651,584 +$ +809,964 +1 +The estimate for Mr. Krueger +assumes that the Company waives the non-competition clause in +Mr. Krueger’s SERP and assumes target performance +under the 2008 — 2010 performance period and +2009 — 2011 performance period. Actual payout or +vesting, if any, would be determined and made at the end of the +period. Performance shares assumed to vest for purposes of the +estimate for the 2009 — 2011 period were valued at +$27.22, the closing price of the Company’s stock on the +last business day of 2009. The amount reflected in the table +also includes an estimated cost of $11,582 for retiree medical +benefits for 18 months and the estimated cost of $25,000 +for out-placement services. +2 +Payments would be triggered after +termination of employment under certain circumstances within two +years (Messrs. Grimes, McBreen and Zwiers and +Ms. Linton) or three years (Mr. Krueger) following a +change in control. The timing of the payment would be delayed to +the extent earlier payment would trigger Section 409A of +the Tax Code. +3 +Includes amounts payable in cash +under the terms of the Executive Severance Agreement, excluding +the value of the cash payout to each NEO of the option spread +for already vested options. See the “Outstanding Equity +Awards at Fiscal Year-End” table above for more information +regarding each NEO’s vested options as of January 2, +2010. The value of unvested options and time-vested restricted +shares that vest upon a change in control under the terms of the +Company’s stock incentive plans are included above in the +Stock Incentive Plans row. +4 +These estimates assume that +Wolverine maintains the benefit plans for a period of one year +after termination and the out-placement services for a period +beginning with the date of termination and ending on the last +day of the second calendar year following the calendar year in +which the date of termination occurred. +5 +Reflects the value of unvested +stock options and shares of restricted stock that would vest as +a result of the event. Restricted shares are valued and the +option spread determined using a value of $27.22 per share, the +closing price of the Company’s stock on the last business +day of 2009. +6 +Amounts in this row reflect the +entire lump sum benefit payable to each NEO, including any +accumulated benefit. For a description of the SERP, see +“Supplemental Executive Retirement Plan” under the +heading “Pension Plans and 2009 Pension Benefits.” The +timing of the payment would be delayed to the extent earlier +payment would trigger Section 409A of the Tax Code. +7 +Amounts in this row reflect the +entire lump sum death benefit payable to a participating +NEO’s beneficiary, including any accumulated benefit. +8 +Amounts reflect the net present +value of the annuity paid to the surviving spouse calculated +using the same discount rate and mortality assumptions used in +the Pension Benefits table. In accordance with the terms of the +Pension Plan, the death benefit for Messrs. Krueger and +Zwiers was calculated as though the NEO had continued as an +employee of Wolverine until age 65 at the +45 +Table of Contents +compensation level as of the date +of death. Mr. Grimes, Mr. McBreen and Ms. Linton +were not vested in the Pension Plan as of January 2, 2010, +so no death benefit would be payable to any surviving spouse. +9 +Under the Annual Bonus Plan, the +LTIP and the terms of performance share awards, each NEO may be +eligible to receive a pro rata portion of any award if +employment is terminated as a result of the event. The amount +reported represents actual payout under the Annual Bonus Plan +for fiscal year 2009, actual payout under the +2007-2009 +performance cycle of the LTIP, an estimated pro rata award that +may be payable under the +2008-2010 +performance cycle based on target level performance, and for the +2009-2011 +performance cycle, an estimated value of performance shares that +would vest at the end of the performance period. Performance +shares would vest on a prorated basis based on actual Company +performance. For purposes of this estimate, we assumed target +performance and a $27.22 stock price, the closing stock price at +the end of 2009. +10 +Amounts in this row reflect the net +present value of the annuity using the same discount rate and +mortality assumptions used in the Pension Benefits table and +assuming the NEO drew the disability benefit until age 65 +and then the normal retirement benefit. +11 +See the Pension Benefits table and +associated footnotes. The Pension Benefits table describes the +general terms of each pension plan in which the NEOs +participate, the years of credited service and the present value +of each NEO’s accumulated pension benefit assuming payment +begins at age 65. +12 +Mr. Krueger is the only NEO +who was retirement eligible at fiscal year end. +AUDIT COMMITTEE +REPORT +The Audit Committee of the Board of Directors consists of four +directors who are independent under the Company’s Director +Independence Standards, the NYSE listed company standards, and +applicable SEC standards. The Audit Committee represents and +assists the Board in fulfilling its oversight responsibility +regarding the integrity of Wolverine’s financial statements +and the financial reporting and accounting process, the systems +of internal accounting and financial controls, the performance +of the internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements, and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the financial reporting process, +including the application of accounting and financial +principles, the preparation, presentation and integrity of the +financial statements, and the systems of internal controls and +other procedures designed to promote compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and for auditing the +effectiveness of Wolverine’s internal control over +financial reporting. +The Audit Committee has taken steps to provide assurances +regarding Audit Committee composition and procedures, the +independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) reviewing the Audit +Committee Charter; (ii) reviewing the Accounting and +Finance Code; (iii) maintaining an Accounting and Auditing +Complaint Procedure to allow employees, stockholders and the +public to report concerns regarding Wolverine’s financial +statements, internal controls and disclosures; and +(iv) reviewing procedures for the Audit Committee to +pre-approve all audit and non-audit services provided by +Wolverine’s independent auditors. +As part of its supervisory duties, the Audit Committee has +reviewed Wolverine’s audited financial statements for the +fiscal year ended January 2, 2010, and has discussed those +financial statements with Wolverine’s management, internal +financial staff, and the internal auditors and independent +auditors with and without management present. The Audit +Committee has also reviewed and discussed the following with +Wolverine’s management, the financial staff, and the +internal auditors and independent auditors with and without +management present: +• +accounting and financial principles and significant assumptions, +estimates and matters of judgment used in preparing the +financial statements; +• +allowances and reserves for accounts receivable, inventories and +taxes; +• +accounting for acquisitions, pension plans and equity-based +compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and practices. +46 +Table of Contents +The Audit Committee has discussed with Wolverine’s +independent auditors the results of the independent +auditors’ examinations and the judgments of the independent +auditors concerning the quality, as well as the acceptability, +of Wolverine’s accounting principles and such other matters +that it is required to discuss with the independent auditors +under applicable rules, regulations or generally accepted +auditing standards, including the matters required to be +discussed by the rules of the Public Company Accounting +Oversight Board (“PCAOB”). The Audit Committee has +discussed with the independent auditors the matters required to +be discussed by the Statement on Auditing Standards No. 61, +as amended (AICPA, Professional Standards, Vol. 1, AU +section 380), as adopted by the PCAOB in Rule 3200T. +In addition, the Audit Committee has received from the +independent auditors the written disclosures and the letter +required by the applicable requirements of the PCAOB regarding +the independent auditor’s communications with the Audit +Committee concerning independence rules and has discussed their +independence from Wolverine and Wolverine’s management with +them, including a consideration of the compatibility of nonaudit +services with their independence, the scope of the audit and the +scope of all fees paid to the independent auditors during the +year. After and in reliance upon the reviews and discussions +described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended January 2, 2010, be +included in Wolverine’s Annual Report on +Form 10-K +for the year then ended to be filed with the Securities and +Exchange Commission. +Respectfully submitted, +Jeffrey M. Boromisa (Chairperson), William K. Gerber, Brenda J. +Lauderback, Shirley D. Peterson +INDEPENDENT +AUDITOR +Wolverine’s Audit Committee has adopted a policy under +which the Audit Committee must approve all audit and non-audit +services provided by Ernst & Young LLP and which +prohibits Ernst & Young LLP from providing any +non-audit services that are prohibited by the SEC or the PCAOB. +The Company’s Audit Committee provides categorical +pre-approval before the beginning of each fiscal year for +routine and recurring services, with specific service +descriptions and budgets. All audit services, internal +control-related services, and other services not within the +specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions (such as pre-approval of audit services), the Audit +Committee may delegate engagement-specific pre-approval to one +or more Committee members. Management must communicate to the +Audit Committee at its next regularly-scheduled meeting any +services approved by a Committee member. Wolverine’s Audit +Committee pre-approved all fees paid to Ernst & Young +LLP for services performed in 2009 and 2008. +The aggregate fees billed by Ernst & Young LLP for +audit and non-audit services were: +2009 +2008 +Audit +Fees 1 +$ +991,075 +$ +1,004,540 +Audit Related +Fees 2 +- +- +Total Audit and Audit Related +$ +991,075 +$ +1,004,540 +Tax +Fees 3 +Tax Compliance +$ +506,520 +$ +503,534 +Tax Planning & Advisory +$ +430,240 +$ +302,235 +Total Tax Fees +$ +936,760 +$ +805,769 +All Other +Fees 4 +- +- +Total Fees +$ +1,927,835 +$ +1,810,309 +1 +“Audit Fees” are +comprised of fees for the annual audit, reviews of the financial +statements included in Wolverine’s +Form 10-Q +filings, audit of internal control over financial reporting, +foreign statutory audits and consultations concerning accounting +matters associated with the annual audit. +47 +Table of Contents +2 +“Audit Related Fees” are +comprised of fees for assurance and related services that were +reasonably related to the performance of the audit or a review +of the financial statements and that are not reported as Audit +Fees above, including accounting research, and employee benefit +plan audits. +3 +“Tax Fees” are fees for +tax compliance, tax advice and tax planning. +4 +“All Other Fees” are fees +for any services not included in the first three categories. +Wolverine’s Audit Committee has adopted a policy +restricting the Company’s hiring of current or former +partners or employees of the Company’s independent auditors. +ITEM 2: +RATIFICATION +OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +The Audit Committee has reappointed Ernst & Young LLP +as independent auditors for the current fiscal year. As a matter +of good corporate governance, the Audit Committee has determined +to submit its appointment of Ernst & Young LLP to the +Company’s stockholders for ratification. If this +appointment is not ratified by the holders of a majority of +shares present or represented at the annual meeting and entitled +to vote on the matter, the Audit Committee will review its +future selection of an independent registered public accounting +firm. +The Audit Committee reviewed Ernst & Young LLP’s +performance prior to appointing them as the independent +auditors, and considered the: +• +historical and recent performance of Ernst & Young LLP +on the Company’s audit, including the quality of the +engagement team and Ernst & Young LLP’s +experience, client service, responsiveness and technical +expertise; +• +PCAOB report of selected Ernst & Young LLP audits; +• +Ernst & Young LLP’s financial strength and +performance; +• +appropriateness of fees charged; and +• +Ernst & Young LLP’s familiarity with the +Company’s accounting policies and practices and internal +control over financial reporting. +Ernst & Young LLP, a registered public accounting +firm, was the Company’s independent auditor for the year +ended January 2, 2010. Representatives of Ernst & +Young LLP are expected to be present at the annual meeting, will +have an opportunity to make a statement if they desire to do so, +and are expected to be available to respond to appropriate +questions from stockholders. +Board +Recommendation +The Board recommends that you vote “FOR” +ratification of the Audit Committee’s selection of the firm +of Ernst & Young LLP, Grand Rapids, Michigan, as +independent auditor for the Company for the fiscal year 2010. +STOCK INCENTIVE +PLAN OF 2010 +ITEM 3: +APPROVAL +OF STOCK INCENTIVE PLAN OF 2010 +Overview +On February 11, 2010, the Board of Directors unanimously +adopted and approved the Wolverine World Wide, Inc. Stock +Incentive Plan of 2010 (the “Plan”), subject to +stockholder approval. The Board of Directors adopted and +approved the Plan to stimulate the efforts of non-employee +directors, officers, employees and other service providers, in +each case who are selected to be participants in the Plan, by +heightening the desire of such persons to continue working +toward and contributing to the success and progress of the +Company. The Plan allows grants of stock options, stock +appreciation rights, restricted stock, restricted stock units +and stock awards, any of which may be performance-based, and for +incentive bonuses. +The Company has historically granted stock incentive awards +under the Company’s Amended and Restated Stock Incentive +Plan of 2005, Amended and Restated Stock Incentive Plan of 2003 +and Amended and Restated +48 +Table of Contents +Stock Incentive Plan of 2001 (defined in the Plan as the +“Prior Plans”). If the Plan is approved by the +Company’s stockholders as proposed, no further awards will +be made under the Prior Plans, and the Plan will become the +primary equity compensation plan for the Company. +Why You +Should Vote For the Plan +The Board of Directors recommends that the Company’s +stockholders approve the Plan because it believes the +Company’s ability to grant equity-based awards continues to +be crucial in allowing the Company to effectively compete for +and appropriately motivate and reward key talent. It is in the +long-term interests of both the Company and its stockholders to +strengthen the Company’s ability to attract, motivate and +retain employees, officers, non-employee directors and certain +other service providers and to provide additional incentive for +those persons through stock ownership and other incentives to +improve financial performance, increase profits and strengthen +the mutuality of interest between those persons and the +Company’s stockholders. +Promotion +of Good Corporate Governance Practices +The Company and the Board of Directors have designed the Plan to +include a number of provisions that we believe promote best +practices by reinforcing the alignment between equity +compensation arrangements for non-employee directors, officers, +employees and other service providers and stockholders’ +interests. These provisions include, but are not limited to: +• +stock options and stock appreciation rights may not be granted +with exercise prices lower than the fair market value of the +underlying shares on the grant date; +• +at any time when the exercise price of a stock option or stock +appreciation right is above the market value of the +Company’s common stock, the Company cannot, without +stockholder approval, “reprice” those awards by +reducing the exercise price of such stock option or stock +appreciation right or exchanging such stock option or stock +appreciation right for a new award with a lower exercise price; +• +awards generally may not be transferred except by will or the +laws of descent and distribution or, if approved by the +administrator, to certain family members, family trusts, or +family partnerships pursuant to a gift or domestic relations +order; and +• +the Company has the authority under the Plan to cancel +outstanding awards (vested or unvested) in the event the +applicable plan participant engages in an “act of +misconduct” (as such term is defined in the Plan). +Key +Data +The following table includes information regarding all of the +Company’s outstanding equity awards and shares available +for future awards under the Company’s equity plans as of +March 1, 2010 (and without giving effect to approval of the +Plan under this Item 3): +Total shares underlying all outstanding stock options +4,928,621 +Weighted average exercise price of outstanding stock +options +$ +20.40515 +Weighted average remaining contractual life of outstanding +stock options +6.16 years +Total shares underlying all outstanding and unvested +performance shares +472,920 +Total shares underlying all outstanding and unvested +restricted stock +(excluding performance shares) +777,591 +Shares available for future awards that could be issued under +Prior Plans* +533,359 +Shares available for future issuance under the Outside +Directors’ Deferred Compensation Plan +450,312 +* +No shares will be issued under +Prior Plans upon the approval of the Plan. +49 +Table of Contents +Section 162(m) +of the Code +The Board of Directors believes that it is in the best interests +of the Company and its stockholders to continue to provide for +an equity incentive plan under which compensation awards made to +the Company’s executive officers can qualify for +deductibility by the Company for federal income tax purposes. +Accordingly, the Plan has been structured in a manner such that +awards granted under it can satisfy the requirements for +“performance-based” compensation within the meaning of +Section 162(m) of the Internal Revenue Code of 1986 (the +“Code”). In general, under Section 162(m), in +order for the Company to be able to deduct compensation in +excess of $1,000,000 paid in any one year to the Company’s +chief executive officer or any of the Company’s three other +most highly compensated executive officers (other than the +Company’s chief financial officer), such compensation must +qualify as “performance-based.” One of the +requirements of “performance-based” compensation for +purposes of Section 162(m) is that the material terms of +the performance goals under which compensation may be paid be +disclosed to and approved by the Company’s stockholders. +For purposes of Section 162(m), the material terms include +(i) the employees eligible to receive compensation, +(ii) a description of the business criteria on which the +performance goal is based, and (iii) the maximum amount of +compensation that can be paid to an employee under the +performance goal. With respect to the various types of awards +under the Plan, each of these aspects is discussed below, and +stockholder approval of the Plan will be deemed to constitute +approval of each of these aspects of the Plan for purposes of +the approval requirements of Section 162(m). +Plan +Summary +The following summary of the material terms of the Plan are +qualified in their entirety by reference to the complete +statement of the Plan, which is set forth in Appendix B to +this proxy statement. +Administration +The Plan will be administered by the Compensation Committee. +Subject to the express provisions of the Plan, the administrator +is authorized and empowered to do all things that it determines +to be necessary or appropriate in connection with the +administration of the Plan. All decisions, determinations and +interpretations by the Compensation Committee regarding the Plan +and awards granted under the Plan will be final and binding on +all participants and other persons holding or claiming rights +under the Plan or an award under the Plan. The Compensation +Committee may authorize one or more officers of the Company to +perform any or all things that the administrator is authorized +and empowered to do or perform under the Plan. The Compensation +Committee has designated the Company’s CEO, CFO, secretary +and head of the human resource function to assist in +administering the Plan and executing award agreements and other +documents entered into under the Plan. In addition, the +Compensation Committee may delegate any or all aspects of the +day-to-day +administration of the Plan to one or more officers or employees +of the Company or any subsidiary, +and/or to +one or more agents. +Participants +Any person who is a current or prospective officer or employee +of the Company or of any subsidiary will be eligible for +selection by the administrator for the grant of awards under the +Plan. In addition, non-employee directors and any service +providers who have been retained to provide consulting, advisory +or other services to the Company or to any subsidiary will be +eligible for the grant of awards under the Plan. Options +intended to qualify as “incentive stock options” +(“ISOs”) within the meaning of Section 422 of the +Code only may be granted to employees of the Company or any +subsidiary. Approximately 8 officers, 245 employees and +nine non-employee directors currently qualify to participate in +the Plan. +Shares Subject +to the Plan and to Awards +Subject to changes in the Company’s capitalization, the +aggregate number of shares of Wolverine’s common stock, +$1.00 par value, issuable pursuant to all awards under the +Plan will not exceed 4,600,000; provided that any shares granted +under options or stock appreciation rights will be counted +against this limit on a +50 +Table of Contents +one-for-one +basis and any shares granted as awards other than options or +stock appreciation rights will be counted against this limit as +two (2) shares for every one (1) share subject to such +award. The shares issued pursuant to awards granted under the +Plan may be shares that are authorized and unissued or issued +shares that were reacquired by the Company, including shares +purchased in the open market. +For purposes of determining the share limits described in the +paragraph above, the aggregate number of shares issued under the +Plan at any time will equal only the number of shares actually +issued upon exercise or settlement of an award. Notwithstanding +the foregoing, shares subject to an award under the Plan may not +again be made available for issuance under the Plan if such +shares are: (i) shares that were subject to a stock-settled +stock appreciation right and were not issued upon the net +settlement or net exercise of such stock appreciation right, +(ii) shares used to pay the exercise price of an option, +(iii) shares delivered to or withheld by the Company to pay +the withholding taxes related to an award, or (iv) shares +repurchased on the open market with the proceeds of an option +exercise. Shares subject to awards that have been canceled, +expired, forfeited or otherwise not issued under an award and +shares subject to awards settled in cash will not count as +shares issued under the Plan. +Subject to certain adjustments, the aggregate number of shares +subject to awards granted under the Plan during any calendar +year to any one participant will not exceed 3,000,000, and the +aggregate number of shares that may be issued pursuant to the +exercise of ISOs granted under the Plan will not exceed +4,600,000. The maximum amount payable pursuant to that portion +of an incentive bonus granted in any calendar year to any +participant under the Plan that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code will not exceed twenty +million dollars ($20,000,000). +Option +Awards +The administrator will establish the exercise price per share +under each option, which, other than in the event of options +granted in connection with a merger or other acquisition, will +not be less than the fair market value (or 110% of the fair +market value in the case of ISOs granted to individuals who own +more than 10% of the Company’s common stock) of a share on +the date the option is granted. The administrator will establish +the term of each option, which in no case may exceed a period of +ten (10) years from the date of grant (or five +(5) years in the case of ISOs granted to individuals who +own more than 10% of the Company’s common stock). Options +granted under the Plan may either be ISOs or options which are +not intended to qualify as ISOs, or nonqualified stock options +(“NQSOs”). Unless the administrator determines +otherwise, (i) upon termination of employment other than +due to death, disability, retirement or termination for cause, +participants may continue to exercise their options for three +(3) months (or until the expiration date of the option, if +earlier) to the extent that they were exercisable upon the date +of termination, (ii) upon death or disability, options +become fully vested and remain exercisable for one (1) year +(or until the expiration date of the option, if earlier) +following such event, (iii) upon retirement, options become +fully vested and remain exercisable until their expiration date, +and (iv) upon termination of employment for cause, all +options are forfeited. +Unless such action is approved by stockholders, the Plan +prohibits repricing +out-of-the-money +options and stock appreciation right (that is, reducing the +exercise price of an option or stock appreciation right with an +exercise price above the market value of the Company’s +common stock or exchanging any such option or stock appreciation +right for a new award with a lower exercise price). +Stock +Appreciation Rights +A stock appreciation right provides the right to receive the +monetary equivalent of the increase in value of a specified +number of the shares over a specified period of time after the +right is granted. Stock appreciation rights may be granted to +participants either in tandem with or as a component of other +awards granted under the Plan (“tandem SARs”) or not +in conjunction with other awards (“freestanding +SARs”). All freestanding SARs will be granted subject to +the same terms and conditions applicable to options as set forth +above and in the Plan, and all tandem SARs will have the same +exercise price, vesting, exercisability, forfeiture and +termination provisions as the award to which they relate. +51 +Table of Contents +Restricted +Stock and Restricted Stock Units +Restricted stock is an award or issuance of shares the grant, +issuance, retention, vesting +and/or +transferability of which is subject during specified periods of +time to such conditions (including continued employment or +performance conditions) and terms as the administrator deems +appropriate. Restricted stock units are awards denominated in +units of shares under which the issuance of shares is subject to +such conditions (including continued employment or performance +conditions) and terms as the administrator deems appropriate. +Notwithstanding the satisfaction of any performance goals, the +number of shares granted, issued, retainable +and/or +vested under a restricted stock award or restricted stock units +on account of either financial performance or personal +performance evaluations may be reduced, but not increased, by +the administrator on the basis of such further consideration as +the administrator may determine. +Unless the administrator determines otherwise, (i) upon +termination of employment for any reason other than death, +disability or retirement, all restricted stock and restricted +stock units still subject to restrictions as of the date of +termination will be forfeited, and (ii) upon death, +disability or retirement, the restrictions remaining on a +participant’s restricted stock and restricted stock units +will lapse. +Unless otherwise determined by the administrator, participants +holding shares of restricted stock granted under the Plan may +exercise full voting rights with respect to those shares during +the period of restriction, and participants will have no voting +rights with respect to shares underlying restricted stock units +unless and until such shares are reflected as issued and +outstanding shares on the Company’s stock ledger. +Participants in whose name restricted stock is granted will be +entitled to receive all dividends and other distributions paid +with respect to those shares, unless determined otherwise by the +administrator. Participants will be entitled to receive +dividends or dividend equivalents with respect to shares +underlying restricted stock units only to the extent provided by +the administrator. +Stock +Awards +The administrator may grant stock awards under the Plan, which +will be subject to the terms and conditions determined by the +administrator. Participants will have all voting, dividend, +liquidation and other rights with respect to shares underlying a +stock award, subject to any restrictions on transfer determined +by the administrator. +Incentive +Bonuses +Each incentive bonus will confer upon the participant the +opportunity to earn a future payment tied to the level of +achievement with respect to one or more performance criteria +established for a performance period of not less than one +(1) year. The administrator will establish the performance +criteria and level of achievement of these criteria that will +determine the target and maximum amount payable under an +incentive bonus, which criteria may be based on financial +performance +and/or +personal performance evaluations. Notwithstanding the +satisfaction of any performance goals, the amount paid under an +incentive bonus on account of either financial performance or +personal performance evaluations may be reduced, but not +increased, by the administrator on the basis of such further +consideration as the administrator may determine. +Deferral +of Gains +The administrator may, in an award agreement or otherwise, +provide for the deferred delivery of shares upon settlement, +vesting or other events with respect to restricted stock or +restricted stock units, or in payment or satisfaction of an +incentive bonus. All deferrals must comply with +Section 409A of the Code. +Qualifying +Performance Criteria +The administrator may establish performance criteria and level +of achievement of such criteria that will determine the number +of shares to be granted, retained, vested, issued or issuable +under or in settlement of or the amount payable pursuant to an +award, which criteria may be based on “qualifying +performance criteria” (as described below) or other +standards of financial performance +and/or +personal performance evaluations. In +52 +Table of Contents +addition, the administrator may specify that an award or a +portion of an award is intended to satisfy the requirements for +“performance-based compensation” under +Section 162(m) of the Code, provided that the performance +criteria for such award or portion of an award that is intended +by the administrator to satisfy the requirements for +“performance-based compensation” under +Section 162(m) of the Code will be a measure based on one +or more qualifying performance criteria selected by the +administrator and specified at the time the award is granted. +The administrator will certify the extent to which any +qualifying performance criteria has been satisfied, and the +amount payable as a result thereof, prior to payment, settlement +or vesting of any award that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code. +For purposes of the Plan, the term “qualifying performance +criteria” means any one or more of the following +performance criteria, or derivations of such performance +criteria, either individually, alternatively or in any +combination, applied to either the Company as a whole or to a +business unit or subsidiary, either individually, alternatively +or in any combination, and measured either annually or +cumulatively over a period of years, on an absolute basis or +relative to a pre-established target, to previous years’ +results or to a designated comparison group, in each case as +specified by the administrator: (i) net earnings or +earnings per share (including earnings before interest, taxes, +depreciation +and/or +amortization), (ii) income, net income or operating income, +(iii) revenues, (iv) net sales, (v) return on +sales, (vi) return on equity, (vii) return on capital +(including return on total capital or return on invested +capital), (viii) return on assets or net assets, +(ix) earnings per share, (x) economic value added +measurements, including BVA, (xi) return on invested +capital, (xii) return on operating revenue, +(xiii) cash flow (before or after dividends), +(xiv) stock price, (xv) total stockholder return, +(xvi) market capitalization, (xvii) economic value +added, (xviii) debt leverage (debt to capital), +(xix) operating profit or net operating profit, +(xx) operating margin or profit margin, (xxi) cash +from operations, (xxii) market share, (xxiii) product +development or release schedules, (xxiv) new product +innovation, (xxv) cost reductions, (xxvi) customer +service, or (xxvii) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, +the administrator (i) may appropriately adjust any +evaluation of performance under qualifying performance criteria +to eliminate the effects of charges for restructurings, +discontinued operations, extraordinary items and all items of +gain, loss or expense determined to be extraordinary or unusual +in nature or related to the disposal of a segment of a business +or related to a change in accounting principle, all as +determined in accordance with standards established by opinion +No. 30 of the Accounting Principles Board (APB Opinion +No. 30) or other applicable or successor accounting +provisions, as well as the cumulative effect of accounting +changes, in each case as determined in accordance with generally +accepted accounting principles or identified in the +Company’s financial statements or notes to the financial +statements, and (ii) may appropriately adjust any +evaluation of performance under qualifying performance criteria +to exclude any of the following events that occurs during a +performance period: (a) asset write-downs, +(b) litigation, claims, judgments or settlements, +(c) the effect of changes in tax law or other such laws or +provisions affecting reported results, and (d) accruals of +any amounts for payment under the Plan or any other compensation +arrangement maintained by the Company. +Suspension +or Termination of Awards +Unless otherwise determined by the administrator, (i) if +the Company’s chief executive officer or any other person +designated by the administrator reasonably believes that a +participant may have committed an act of misconduct (as defined +in the Plan), then the participant’s rights to exercise any +option, vest in any award +and/or +receive payment for or shares in settlement of an award may be +suspended pending a determination of whether an act of +misconduct has been committed, and (ii) if the +administrator, the Company’s chief executive officer or any +other person designated by the administrator determines that a +participant has committed an act of misconduct, then the +participant (a) may not exercise any option or stock +appreciation right, vest in, have restrictions on an award lapse +or otherwise receive payment of an award, (b) will forfeit +all outstanding awards, and (c) may be required, at the +discretion of the committee, to return or repay to the Company +any then unvested shares previously issued under the Plan. +53 +Table of Contents +Settlement +of Awards +Awards (other than stock awards), may be settled in shares, cash +or a combination thereof, as determined by the administrator. +Amendment +and Termination +The Board of Directors may amend, alter or discontinue the Plan, +and the administrator may amend or alter any agreement or other +document evidencing an award made under the Plan, except no such +amendment may, without the approval of the stockholders of the +Company: (i) increase the maximum number of shares for +which awards may be granted under the Plan, (ii) reduce the +minimum price set forth in the Plan at which options or stock +appreciation rights may be granted, (iii) reduce the +exercise price of outstanding options or stock appreciation +rights, (iv) extend the term of the Plan, (v) change +the class of persons eligible to be participants, +(vi) otherwise amend the Plan in any manner requiring +stockholder approval by law or under the New York Stock Exchange +listing requirements, or (vii) increase the individual +maximum limits set forth in the Plan. +No amendment or alteration to the Plan or an award or award +agreement may be made that would impair the rights of the holder +of an award without such holder’s consent, provided that no +such consent will be required if the administrator determines in +its sole discretion and prior to the date of any change in +control that such amendment or alteration either is required or +advisable in order for the Company, the Plan or the award to +satisfy any law or regulation or to meet the requirements of or +avoid adverse financial accounting consequences under any +accounting standard. In addition, the Plan may not be amended in +any way that causes the Plan to fail to comply with or be exempt +from Section 409A of the Code, unless the Board expressly +determines to amend the Plan to be subject to Section 409A +of the Code. +Change in +Control +The administrator may determine the effect of a change in +control (as defined in the Plan) on outstanding awards in a +manner that is fair and equitable to participants (as determined +by the administrator in its reasonable discretion). These +effects, which need not be the same for all participants, may +include, but are not limited to (i) substituting for the +shares subject to an outstanding award or portion thereof the +stock or securities of the surviving corporation or any +successor corporation, in which event the aggregate exercise +price of the award will remain the same, +and/or +(ii) converting any outstanding award or portion thereof +into a right to receive cash or other property following the +consummation of the change in control in an amount equal to the +value of consideration to be received for one share of the +Company’s common stock in connection with such transaction +less the purchase or exercise price of the shares subject to the +award, multiplied by the number of shares subject to the award +or portion thereof. +In addition, unless otherwise determined by the administrator, +upon a change in control all outstanding options and stock +appreciation rights immediately will become exercisable and +remain exercisable through their terms and all other outstanding +awards immediately will become vested. Also, the administrator +may determine that participants holding stock options or stock +appreciation rights will receive with respect to some or all of +the shares subject to such awards cash in an amount equal to the +excess of (i) the greater of (a) the highest sales +price of the shares on the New York Stock Exchange on the date +immediately prior to the change in control and (b) the +highest price per share actually paid in connection with the +change in control, over (ii) the exercise price of the +award. +Adjustments +The number and kind of shares available for issuance under the +Plan, and the number and kind of shares subject to the +individual and ISO limits set forth under the Plan, will be +equitably adjusted by the administrator to reflect any +reorganization, reclassification, combination of shares, stock +split, reverse stock split, spin-off, dividend or distribution +of securities, property or cash (other than regular, quarterly +cash dividends), or any other event or transaction that affects +the number or kind of shares of the Company outstanding. The +terms of any outstanding award will also be equitably adjusted +by the administrator as to price, number or kind of +54 +Table of Contents +shares subject to such award and other terms to reflect the +foregoing events, which adjustments need not be uniform as +between different awards or different types of awards. +In the event there is a change in the number or kind of +outstanding shares under the Plan as a result of a change of +control, other merger, consolidation or otherwise, then the +administrator will determine the appropriate and equitable +adjustment to be effected. In addition, in the event of such a +change, the administrator may accelerate the time or times at +which any award may be exercised and may provide for +cancellation of such accelerated awards that are not exercised +within a time prescribed by the administrator in its sole +discretion. +Transferability +Unless the administrator determines otherwise, awards may not be +sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated by a participant other than by will or the laws of +descent and distribution, and each option or stock appreciation +right may be exercisable only by the participant during his or +her lifetime. To the extent permitted by the administrator, the +person to whom an award is initially granted may make certain +limited transfers to certain family members, family trusts, or +family partnerships. +No Right +to Company Employment +Nothing in the Plan or an award agreement will interfere with or +limit in any way the right of the Company, its subsidiaries +and/or its +affiliates to terminate any participant’s employment, +service on the Board or service for the Company at any time or +for any reason not prohibited by law, nor will the Plan or an +award itself confer upon any participant any right to continue +his or her employment or service for any specified period of +time. Neither an award nor any benefits arising under the Plan +will constitute an employment contract with the Company, any +subsidiary +and/or its +affiliates. +Compliance +with Law +The Plan, the grant, issuance, vesting, exercise and settlement +of awards thereunder, and the obligation of the Company to sell, +issue or deliver shares under such awards, will be subject to +all applicable foreign, federal, state and local laws, rules and +regulations, stock exchange rules and regulations, and to such +approvals by any governmental or regulatory agency as may be +required. The Company will not be required to register in a +participant’s name or deliver any shares prior to the +completion of any registration or qualification of such shares +under any foreign, federal, state or local law or any ruling or +regulation of any government body that the administrator +determines to be necessary or advisable. No option will be +exercisable and no shares will be issued +and/or +transferable under any other award unless a registration +statement with respect to the shares underlying the option or +other award is effective and current or the Company has +determined that such registration is unnecessary. The +administrator may, in its sole and absolute discretion, modify +the provisions of the Plan or an award as they pertain to a +participant who is employed or providing services outside the +United States in order to comply with applicable foreign law or +to recognize differences in local law, currency or tax policy. +Effective +Date and Termination of the Plan +The Plan was adopted by the Board on February 11, 2010. Any +awards granted under the Plan prior to the date the Plan is +approved by the Company’s stockholders are subject to such +approval. The Plan will remain available for the grant of awards +until February 11, 2020. +Federal +Income Tax Treatment +The following tax discussion is a general summary as of the date +of this Proxy Statement of the U.S. federal income tax +consequences to the Company and the participants in the Plan. +The discussion is intended solely for general information and +does not make specific representations to any participant. The +discussion does not address state, local or foreign income tax +rules or other U.S. tax provisions, such as estate or gift +taxes. A recipient’s particular situation may be such that +some variation of the basic rules is applicable to him or her. +In +55 +Table of Contents +addition, the federal income tax laws and regulations frequently +have been revised and may be changed again at any time. +Therefore, each recipient is urged to consult a tax advisor +before exercising any award or before disposing of any shares +acquired under the plan both with respect to federal income tax +consequences as well as any foreign, state or local tax +consequences. +Stock +Options +ISOs and NQSOs are treated differently for federal income tax +purposes. ISOs are intended to comply with the requirements of +Section 422 of the Code. NQSOs do not comply with such +requirements. +An optionee is not taxed on the grant or exercise of an ISO. The +difference between the exercise price and the fair market value +of the shares on the exercise date will, however, be a +preference item for purposes of the alternative minimum tax. If +an optionee holds the shares acquired upon exercise of an ISO +until the later of two years following the option grant date and +one year following exercise, the optionee’s gain, if any, +upon a subsequent disposition of such shares is long term +capital gain. The measure of the gain is the difference between +the proceeds received on disposition and the optionee’s +basis in the shares (which generally equals the exercise price). +If an optionee disposes of stock acquired pursuant to exercise +of an ISO before satisfying these holding periods, the optionee +will recognize ordinary income in the year of disposition an +amount equal to the excess of the fair market value of the +shares at the time of exercise (or, if less, the amount realized +on the disposition of the shares), over the exercise price paid +for the shares, and capital gain or loss for any other +difference between the sale price and the exercise price. The +Company is not entitled to an income tax deduction on the grant +or exercise of an ISO or on the optionee’s disposition of +the shares after satisfying the holding period requirement +described above. If the holding periods are not satisfied, the +Company will be entitled to a deduction in the year the optionee +disposes of the shares in an amount equal to the ordinary income +recognized by the optionee. +In order for an option to qualify for ISO tax treatment, the +grant of the option must satisfy various other conditions more +fully described in the Code. The Company does not guarantee that +any option will qualify for ISO tax treatment even if the option +is intended to qualify for such treatment. In the event an +option intended to be an ISO fails to so qualify, it will be +taxed as an NQSO described below. +An optionee is not taxed on the grant of an NQSO. On exercise, +the optionee recognizes ordinary income equal to the difference +between the exercise price and the fair market value of the +shares acquired on the date of exercise. The Company is entitled +to an income tax deduction in the year of exercise in the amount +recognized by the optionee as ordinary income. The +optionee’s gain (or loss) on subsequent disposition of the +shares is long-term capital gain (or loss) if the shares are +held for at least one year following exercise, and otherwise is +short-term capital gain (or loss). The Company does not receive +a deduction for any such capital gain. +Stock +Appreciation Rights +Generally, the recipient of a freestanding SAR will not +recognize any taxable income at the time the freestanding SAR is +granted. If the freestanding SAR is settled in cash, the cash +will be taxable as ordinary income to the recipient at the time +that it is received. If the freestanding SAR is settled in +shares, the recipient will recognize ordinary income equal to +the excess of the fair market value of the shares on the day +they are received over any amounts paid by the recipient for the +shares. +With respect to tandem SARs, if a holder elects to surrender the +underlying option in exchange for cash or stock equal to the +appreciation inherent in the underlying option, the tax +consequences to the employee will be the same as discussed above +relating to freestanding SARs. If the employee elects to +exercise the underlying option, the holder will be taxed at the +time of exercise as if he or she had exercised an NQSO +(discussed above). +56 +Table of Contents +Restricted +Stock and Restricted Stock Units +Grantees of restricted stock or restricted stock units do not +recognize income at the time of the grant. When the award vests +or is paid, grantees generally recognize ordinary income in an +amount equal to the fair market value of the stock or units at +such time, and the Company will receive a corresponding +deduction. However, no later than 30 days after a +participant receives an award of restricted stock, pursuant to +Section 83(b) of the Code, the participant may elect to +recognize taxable ordinary income in an amount equal to the fair +market value of the shares at the time of receipt. Provided that +the election is made in a timely manner, when the restrictions +on the shares lapse, the participant will not recognize any +additional income. If the participant forfeits the shares to the +Company (e.g., upon the participant’s termination prior to +vesting), the participant may not claim a deduction with respect +to the income recognized as a result of the election. Dividends +(if any) paid with respect to unvested shares of restricted +stock generally will be taxable as ordinary income to the +participant at the time the dividends are received. +Stock +Awards +Grantees of stock awards generally are required to recognize +ordinary income in an amount equal to the excess of the fair +market value of the shares on the date the shares are granted +over the purchase price (if any) paid for the shares. +Incentive +Bonuses +A participant will have taxable income at the time an incentive +bonus award is paid or, if the participant has timely elected +deferral to a later date, such later date. At that time, the +participant will recognize ordinary income equal to the value of +the amount then payable. +Company +Deduction and Section 162(m) +The Company generally will be entitled to a deduction for +federal income tax purposes as described above with respect to +each type of award. For the individual serving as the chief +executive officer of the Company at the end of the taxable year +and for the individuals serving as officers of the Company or a +subsidiary at the end of such year who are among the three +highest compensated officers (other than the chief executive +officer and chief financial officer) for proxy reporting +purposes, Section 162(m) limits the amount of compensation +otherwise deductible by the Company and its subsidiaries for +such year to $1,000,000 for each such individual except to the +extent that such compensation is “performance-based +compensation.” The Company expects that NQSOs, ISOs and +stock appreciation rights should qualify as performance-based +compensation. The compensation committee may establish +performance conditions and other terms with respect to grants of +restricted stock, restricted stock units and incentive bonuses +in order to qualify such grants as performance-based +compensation for purposes of Section 162(m). +New Plan Benefits. +The benefits that will be awarded or paid under the Plan are not +currently determinable. Awards granted under the Plan are within +the discretion of the Compensation Committee, and the +Compensation Committee has not determined future awards or who +might receive them. Information about awards granted in fiscal +year 2009 under the Company’s prior plans to the +Company’s named executive officers can be found in the +table under the heading “Grants of Plan-Based Awards” +on page 36 of this proxy statement. As of March 1, +2010, the closing price of a share of Wolverine common stock on +the NYSE was $28.05. +57 +Table of Contents +Equity +Compensation Plan Information +The following table provides information about the +Company’s equity compensation plans as of January 2, +2010: +Number of +Securities +Remaining +Available for +Future Issuance +under +Number of +Securities to be +Weighted +Average +Equity +Compensation +Issued Upon +Exercise of +Exercise Price +of +Plans +(Excluding +Outstanding +Options, +Outstanding +Options, +Securities +Reflected in +Warrants and +Rights +Warrants and +Rights +Column (a)) +Plan +Category 1 +(a) +(b) +(c) +Equity compensation plans +approved by security holders +4,619,346 +2,3 +$ +19.75 +2,420,567 +4 +Equity compensation plans not approved by security holders +- +N/A +- +Total +4,619,346 +$ +19.75 +2,420,567 +1 +Each plan for which aggregated +information is provided contains customary anti-dilution +provisions that are applicable in the event of a stock split, +stock dividend or certain other changes in the Company’s +capitalization. +2 +Includes: (i) 4,146,840 stock +options awarded to employees under the 1993 Stock Incentive +Plan, the 1995 Stock Incentive Plan, the 1997 Stock Incentive +Plan, the Amended and Restated Stock Incentive Plan of 1999, the +Amended and Restated Stock Incentive Plan of 2001, the Amended +and Restated Stock Incentive Plan of 2003 and the Amended and +Restated Stock Incentive Plan of 2005; and (ii) and 472,506 +stock options awarded to non-employee directors under the +Amended and Restated Stock Incentive Plan of 2005, the Amended +and Restated Directors’ Stock Option Plan approved by +stockholders in 2002 and the previous Amended and Restated +Directors’ Stock Option Plan initially adopted in 1988. +Column (a) does not include stock units credited to outside +directors’ fee accounts or retirement accounts under the +Outside Directors’ Deferred Compensation Plan. Stock units +do not have an exercise price. Each stock unit credited to a +director’s fee account and retirement account under the +Outside Directors’ Deferred Compensation Plan will be +converted into one share of common stock upon distribution. +Column (a) also does not include shares of restricted or +unrestricted common stock previously issued under the +Company’s equity compensation plans. +3 +Of this amount, 1,244,785 options +were not exercisable as of January 2, 2010, due to vesting +restrictions. +4 +Comprised of: +(i) 453,273 shares available for issuance under the +Outside Directors’ Deferred Compensation Plan upon the +retirement of the current directors or upon a change in control; +and (ii) 1,967,294 shares issuable under the various +employee stock incentive plans. Of these total amounts +available, the number of shares with respect to the following +plans may be issued other than upon the exercise of an option, +warrant or right outstanding as of January 2, 2010: +• +Outside Directors’ Deferred Compensation Plan: +453,273 +• +Amended and Restated Stock Incentive Plan of 2001: +133,506 +• +Amended and Restated Stock Incentive Plan of 2003: +121,732 +• +Amended and Restated Stock Incentive Plan of 2005: +856,028 +The Outside Directors’ Deferred Compensation Plan is a +supplemental, unfunded, nonqualified deferred compensation plan +for non-employee directors. Beginning in 2006, the Company began +paying an annual equity retainer to non-management directors in +the form of a contribution under the Outside Directors’ +Deferred Compensation Plan. Participation in the plan in +addition to the annual equity retainer is voluntary. The plan +allows participating directors to receive, in lieu of some or +all directors’ fees, a number of stock units equal to the +amount of the deferred directors’ fees divided by the fair +market value of the Company’s common stock on the date of +payment of the next cash dividend on the Company’s common +stock. These stock units are increased by a dividend equivalent +based on dividends paid by the Company and the amount of stock +units credited to the participating director’s fee account +and retirement account. Upon distribution, the participating +directors receive a number of shares of the Company’s +common stock equal to the number of stock units to be +distributed at that time. Distribution is triggered by +termination of service as a director or by a change in control +of the Company and can occur in a lump sum, in installments or +on another deferred basis. Of the 453,273 shares issuable +under the Outside Directors’ Deferred Compensation Plan, +197,506 shares have been issued to a trust to satisfy the +Company’s obligations when distribution is triggered and +are included in shares reported as issued and outstanding as of +the record date. +The employee stock incentive plans listed above are equity-based +incentive plans for officers, key employees, and, under the +Amended and Restated Stock Incentive Plan of 2005, directors. +Those plans authorize awards of stock options, restricted common +stock, common stock and, under certain plans, tax benefit +rights, restricted stock units, deferred stock units, +and/or stock +appreciation rights. The Amended and Restated Stock Incentive +Plans of 2001 and 2003 specifically limit the number of shares +that can be awarded as restricted or unrestricted common stock +to 40% and 15%, respectively, of the shares authorized for +issuance under the applicable plan. The Stock Incentive Plan of +2005 provides that each share of restricted or unrestricted +common stock, each restricted stock unit and each stock +appreciation right is counted as two shares against the total +number of shares authorized for issuance under the plan. The +number of +58 +Table of Contents +securities listed as remaining +available in column (c) of the table assumes the grant of +all stock options, which count as only one share against the +total number of shares authorized for issuance under the Amended +and Restated Stock Incentive Plan of 2005. Actual shares +available under the Amended and Restated Stock Incentive Plan of +2005 will be less to the extent that awards of restricted or +unrestricted common stock, restricted stock units or stock +appreciation rights are issued from that plan. The numbers +provided in this footnote and in column (c) will increase +to the extent that options relating to the number of shares +listed in column (a) of the table or other outstanding +awards (e.g., shares of restricted or unrestricted stock, +restricted stock units or stock appreciation rights) previously +issued under a plan are canceled, surrendered, modified, +exchanged for substitutes or expire or terminate prior to +exercise or vesting because the number of shares underlying any +such awards will again become available for issuance under the +plan under which the award was granted. +Vote +Required and Board Recommendation +Approval of the Stock Incentive Plan of 2010 requires the +favorable vote of a majority of shares present or represented at +the meeting and entitled to vote on the proposal. In addition, +NYSE rules require that the total votes cast on this proposal +represent a majority of all shares entitled to vote on this +proposal. +Your Board of Directors recommends that you vote FOR approval +of the Stock Incentive Plan of 2010. +RELATED PARTY +MATTERS +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is chairman and a 35% shareholder. The +agreements grant Grimoldi, S.A. the exclusive rights to +distribute and sell footwear products in Argentina under the +Hush +Puppies ® , +Caterpillar ® , +and +Patagonia ® +brand names, and footwear and apparel under the +Merrell ® +brand name. Grimoldi, S.A. or its subsidiary purchases products, +samples, footwear components, advertising materials and +miscellaneous items from Wolverine or pays Wolverine royalties +and certain sublicense fees based on sales or purchases of +products in Argentina. Grimoldi, S.A. was obligated to pay +Wolverine purchase prices, royalties, sublicense fees, service +fees and interest relating to purchases made or royalties and +fees incurred in 2009 totaling $2,707,566. All of the +transactions described above occurred pursuant to continuing +contractual arrangements between Wolverine and Grimoldi, S.A. +Wolverine expects similar transactions to occur between +Grimoldi, S.A. and Wolverine and its subsidiaries during 2010. +In the ordinary course of its business, Wolverine purchases +promotional merchandise for use in connection with the sale of +its products. In 2009, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $134,084. +One-third of Bullseye Group, LLC is owned by Daniel Mehney, the +son of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2010. +The Governance Committee reviewed and approved or ratified each +of these transactions in accordance with Wolverine’s +related person transactions policy (described below under +“Related Person Transactions Policy”). +RELATED PERSON +TRANSACTIONS POLICY +Wolverine’s Board of Directors has adopted written policies +and procedures regarding related person transactions. They +require the Governance Committee to review and either approve or +disapprove the Company entering into any Interested Transactions +(defined below). If advance approval is not feasible, then the +Governance Committee must review the Interested Transaction at +its next meeting. +59 +Table of Contents +Interested +Transaction +Any transaction, arrangement or relationship or series of +similar transactions, arrangements or relationships (including +any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed +$100,000 since the beginning of Wolverine’s last completed +fiscal year; +(2) +Wolverine is a participant; and +(3) +any Related Person (defined below) has or will have a direct or +indirect interest (other than solely as a result of being a +director or less than ten percent beneficial owner of another +entity). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year +for which Wolverine filed a +Form 10-K +and proxy statement, an executive officer, director or nominee +for election as a director; +(b) +greater than five percent beneficial owner of Wolverine’s +common stock; or +(c) +immediate family +member * +of any of the foregoing. +* +Immediate family member includes a +person’s spouse, parents, stepparents, children, +stepchildren, siblings, mothers- and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +The Governance Committee considers whether the Interested +Transaction is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or +similar circumstances, the extent of the Related Person’s +interest in the transaction, and other factors that it deems +relevant. No director participates in any discussion or approval +of an Interested Transaction for which he or she is a Related +Person, except to provide all material information to the +Governance Committee. +The following Interested Transactions are pre-approved under the +policies and procedures: +(a) +any transaction with another company at which a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +(b) +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +ADDITIONAL +INFORMATION +Stockholders +List +A list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, +during ordinary business hours for the +10-day +period before the meeting. +Director and +Officer Indemnification +The Company indemnifies its directors and NEOs to the fullest +extent permitted by law so that they will be free from undue +concern about personal liability in connection with their +service to the Company. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires its directors and NEOs, and persons who beneficially +own more than 10% of the outstanding shares of our common stock, +to file reports of ownership +60 +Table of Contents +and changes in ownership of shares of common stock with the +Securities and Exchange Commission. Directors, NEOs and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2009 +fiscal year, except as set forth below, the Company believes +that its officers and directors complied with all applicable +reporting requirements during the Company’s last fiscal +year. On April 13, 2009, Mr. Mehney amended a +Form 4 filed on April 28, 2008. The Form 4/A +reported four acquisitions of Wolverine stock through dividend +reinvestments made between November 2003 and August 2004 by a +trust for which Mr. Mehney was co-trustee. The +Form 4/A also amended the original Form 4 to adjust +the number of shares beneficially owned to account for the +shares acquired through dividend reinvestment, the effect of a +3-for-2 +stock split distribution on February 1, 2005, and the +acquisition of 10 shares of Wolverine stock acquired in +connection with the stock split due to a broker error. +Stockholder +Proposals for Inclusion in Next Year’s Proxy +Statement +Pursuant to SEC +Rule 14a-8, +some stockholder proposals may be eligible for inclusion in +Wolverine’s 2011 proxy statement and proxy card. Any such +stockholder proposals must be submitted in writing to the +Secretary of Wolverine no later than the close of business on +November 12, 2010. +You should address all stockholder proposals to the attention of +Kenneth A. Grady, Secretary of Wolverine, 9341 Courtland Drive, +N.E., Rockford, Michigan 49351. +Other Stockholder +Proposals for Presentation at Next Year’s Annual +Meeting +The Company’s Our by-laws require that any stockholder +proposal that is not submitted for inclusion in next year’s +proxy statement under SEC +Rule 14a-8, +but is instead sought to be presented directly at the 2011 +Annual Meeting, must be received at the Company’s principal +executive offices not less than 90 days nor more than +120 days prior to the first anniversary of the 2010 Annual +meeting. As a result, proposals, including director nominations, +submitted pursuant to these provisions of the Company’s +by-laws must be received between December 23, 2010 and the +close of business on January 21, 2010. Proposals should be +addressed to Kenneth A. Grady, Secretary, Wolverine World Wide, +Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351 and +include the information and comply with the requirements set +forth in those by-laws, which are posted on the Company’s +website. SEC rules permit management to vote proxies in its +discretion in certain cases if the stockholder does not comply +with this deadline, and in certain other cases notwithstanding +the stockholder’s compliance with this deadline. +Voting +Securities +Stockholders of record at the close of business on March 1, +2010, will be eligible to vote at the meeting. The +Company’s voting securities consist of its $1.00 par +value common stock, and it estimates that there were +49,802,008 shares outstanding on the record date. Each +share outstanding on the record date will be entitled to one +vote. Treasury shares are not voted. Individual votes of +stockholders are kept private, except as appropriate to meet +legal requirements. Access to proxies and other individual +stockholder voting records is limited to the independent +inspectors of election and certain employees of the Company and +its agents who acknowledge in writing their responsibility to +comply with this policy of confidentiality. +Vote Required for +Election and Approval +A plurality of the shares voted is required to elect directors. +This means that the nominees who receive the most votes will be +elected. In counting votes on the election of directors, only +votes cast “for” or “withheld” affect the +outcome. All other matters require for approval the favorable +vote of a majority of shares present or represented at the +meeting and entitled to vote on the applicable matter, except +that with respect to the approval of the Stock Incentive Plan of +2010, the total votes cast on the proposal must represent more +than 50% of all shares entitled to vote on the proposal. +61 +Table of Contents +Abstentions will be counted as votes “against” the +matter and broker non-votes, if any, will not be counted as +votes cast and therefore will have no effect. Generally, broker +non-votes occur when shares held by a broker in “street +name” for a beneficial owner are not voted with respect to +a particular proposal because (1) the broker has not +received voting instructions from the beneficial owner and +(2) the broker lacks discretionary voting power to vote +those shares. +Voting Results of +the Annual Meeting +The Company will announce preliminary voting results at the +annual meeting and publish final results in a +Form 8-K +within four business days following the meeting. If final +results are not known within four business days of the annual +meeting, then the Company will file a +Form 8-K +with the preliminary results and file an amended +Form 8-K +within four business days of the availability of the final +results. +Attending the +Annual Meeting +You may vote shares held directly in your name as the +stockholder of record in person at the annual meeting. If you +choose to vote in person, please bring the enclosed proxy card +and proof of identification. Even if you plan to attend the +annual meeting in person, Wolverine recommends that you vote +your shares in advance as described below so that your vote will +be counted if you later decide not to attend the annual meeting. +You may vote shares held in “street name” through a +brokerage account or by a bank or other nominee in person if you +obtain a signed proxy from the record holder giving you the +right to vote the shares. +Manner for Voting +Proxies +The shares represented by all valid proxies received by +telephone, by Internet or by mail will be voted in the manner +specified. Where specific choices are not indicated, the shares +represented by all valid proxies received will be voted: +(1) for the nominees for directors named earlier in this +proxy statement, (2) for ratification of the appointment of +the independent auditor, and (3) for approval of the Stock +Incentive Plan of 2010. The Board of Directors has not received +timely notice of any matter that may come before the annual +meeting. +Revocation of +Proxies +A stockholder who gives a proxy may revoke it at any time before +it is exercised by voting in person at the annual meeting, by +delivering a subsequent proxy or by notifying the inspectors of +election in writing of such revocation. If your Wolverine World +Wide shares are held for you in a brokerage, bank or other +institutional account, you must obtain a Legal Proxy from that +entity and bring it with you to hand in with your ballot, in +order to be able to vote your shares at the meeting. +Solicitation of +Proxies +The Company will pay the expenses of solicitation of proxies for +the annual meeting. Solicitations may be made in person or by +telephone, by officers and employees of the Company, or by +nominees or other fiduciaries who may mail materials to or +otherwise communicate with the beneficial owners of shares held +by the nominees or other fiduciaries. Upon request, the Company +will reimburse brokers, dealers, banks and trustees, or their +nominees, for reasonable expenses incurred by them in forwarding +material to beneficial owners of the Company’s common +stock. The Company has engaged Georgeson Inc. at an estimated +cost of $8,000, plus expenses and disbursements, to assist in +solicitation of proxies. +Delivery of +Documents to Stockholders Sharing an Address +If you are the beneficial owner, but not the record holder, of +shares of Wolverine stock, your broker, bank or other nominee +may only deliver one copy of this proxy statement and the +Company’s 2009 Annual Report to multiple stockholders who +share an address, unless that nominee has received contrary +instructions from one or more of the stockholders. The company +will deliver promptly, upon written or oral request, a separate +copy of this proxy statement and its 2009 Annual Report to a +stockholder at a shared address to which a single copy of the +documents was delivered. A stockholder who wishes to receive a +separate copy of the proxy +62 +Table of Contents +statement and annual report, now or in the future, should submit +this request by writing to Wolverine World Wide, Inc., 9341 +Courtland Drive N.E., Rockford, Michigan 49351, Attn: Investor +Relations or by calling +(616) 866-5500 +and asking for Investor Relations. Beneficial owners sharing an +address who are receiving multiple copies of proxy materials and +who wish to receive a single copy of such materials in the +future should make a request directly to their broker, bank or +other nominee. +Electronic Access +to Proxy Statement and Annual Report +Wolverine’s Proxy Statement for the 2010 Annual Meeting of +Stockholders and the Annual Report to Stockholders for the +fiscal year ended January 2, 2010, are available at +www.wolverineworldwide.com/2010annualmeeting.asp. +63 +Table of Contents +Appendix A +WOLVERINE WORLD +WIDE, INC. +DIRECTOR INDEPENDENCE STANDARDS +The Board of Directors annually makes an affirmative +determination of the independence of each Director, based upon +the recommendation of the Governance Committee. A Director is +independent if the Director meets each of the following +standards and the Board determines that the Director otherwise +has no material relationship with Wolverine (either directly or +as a partner, shareholder or officer of an organization that has +a relationship with Wolverine). For purposes of these standards, +(a) “Wolverine” means Wolverine World Wide, Inc. +and its consolidated subsidiaries and (b) “immediate +family member” means a person’s spouse, parents, +children, siblings, mother and +father-in-law, +sons and +daughters-in-law, +brothers and +sisters-in-law, +and anyone (other than domestic employees) who shares such +person’s home. +General +Standards +1. +The Director is not, and in the past three years has not been, +an employee of Wolverine. +2. +An immediate family member of the Director is not, and in the +past three years has not been, employed as an executive officer +of Wolverine. +3. +Neither the Director nor an immediate family member of the +Director has received, during any twelve-month period within the +last three years, any direct compensation from Wolverine in +excess of $120,000, other than compensation for Board service, +compensation received by the Director for former service as an +interim Chairman, CEO or other executive officer, compensation +received by the Director’s immediate family member for +service as a non-executive employee of Wolverine, and pension +and other forms of deferred compensation for prior service +(provided that such compensation is not contingent in any way on +continued service). +4. +(a) The Director is not a +current employee or partner of a firm that is Wolverine’s +internal or external auditor (“Company Auditor”). +(b) +Neither the Director nor an immediate family member of the +Director in the past three years has been a partner or employee +of a Company Auditor and personally worked on Wolverine’s +audit within that time. +(c) +No immediate family member of the Director is (i) a current +partner of a Company Auditor or (ii) a current employee of +a Company Auditor who personally works on Wolverine’s audit. +5. +Neither the Director nor an immediate family member of the +Director is, or in the past three years has been, part of an +interlocking directorate in which a current executive officer of +Wolverine serves or served on the compensation committee of +another company where the Director or the Director’s +immediate family member concurrently serves or served as an +executive officer. +6. +(a) The Director is not an +employee, majority owner or person in control of another company +that has made payments to, or received payments from, Wolverine +for property or services in an amount which, in any of the last +three fiscal years, exceeds the lesser of $250,000 or 10% +of the other company’s consolidated gross revenues. +(b) +No immediate family member of the Director is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1 million or 2% of the other +company’s consolidated gross revenues. +7. +The Director is not an executive officer, trustee or board +member of a tax exempt organization to which Wolverine has made +in the past three fiscal years contributions that, in any single +fiscal year, exceeded the greater of $50,000 or 2% of the +non-profit organization’s, foundation’s or educational +institution’s consolidated gross revenues. +64 +Table of Contents +Any direct or indirect relationship between a Director and +Wolverine that is not of a nature addressed by these standards +will be reviewed by the Board on a +case-by-case +basis and any such relationship that is found to be material +will preclude the Director from being independent. In no event +may a Director be determined to be independent under these +standards if such Director does not qualify as independent under +the applicable standards of the New York Stock Exchange. +Audit +Committee Standards +In addition to meeting the General Standards set forth above, a +Director is not considered independent for purposes of serving +on the Audit Committee, and may not serve on that committee, if +the Director: (1) receives, either directly or indirectly, +any consulting, advisory or other compensatory fee from +Wolverine World Wide, Inc. or any of its subsidiaries other than +fees for service as a Director and fixed amounts of compensation +under a retirement plan (including deferred compensation) for +prior service with Wolverine or its subsidiaries (provided that +such compensation is not contingent in any way on continued +service); or (2) is an “affiliated person” of +Wolverine World Wide, Inc. or any of its subsidiaries; each as +determined in accordance with Securities and Exchange Commission +regulations. +65 +Table of Contents +Appendix B +WOLVERINE WORLD +WIDE, INC. +STOCK INCENTIVE PLAN OF 2010 +1. +PURPOSE +The purpose of the Wolverine World Wide, Inc. Stock Incentive +Plan of 2010 (the “Plan”) is to advance the interests +of the Wolverine World Wide, Inc. (the “Company”) by +stimulating the efforts of employees, officers, non-employee +directors and other service providers, in each case who are +selected to be Participants, by heightening the desire of such +persons to continue working toward and contributing to the +success and progress of the Company. The Plan supersedes the +Company’s Amended and Restated Stock Incentive Plan of +2005, Amended and Restated Stock Incentive Plan of 2003 and +Amended and Restated Stock Incentive Plan of 2001 (the +“Prior Plans”) with respect to future awards, and +provides for the grant of Incentive and Nonqualified Stock +Options, Stock Appreciation Rights, Restricted Stock, Restricted +Stock Units and Stock Awards, any of which may be +performance-based, and for Incentive Bonuses, which may be paid +in cash or stock or a combination thereof, as determined by the +Administrator. No new awards shall be issued under the Prior +Plans after the approval of this Plan by the Company’s +stockholders. +2. +DEFINITIONS +As used in the Plan, the following terms shall have the meanings +set forth below: +(a) +“Act” means the Securities Exchange Act of 1934, as +amended. +(b) +“Administrator” means the Administrator of the Plan in +accordance with Section 19. +(c) “Award” means +an Incentive Stock Option, Nonqualified Stock Option, Stock +Appreciation Right, Restricted Stock, Restricted Stock Unit, +Stock Award or Incentive Bonus granted to a Participant pursuant +to the provisions of the Plan, any of which the Administrator +may structure to qualify in whole or in part as a Performance +Award. +(d) “Award +Agreement” means a written agreement or other instrument as +may be approved from time to time by the Administrator +implementing the grant of each Award. An Agreement may be in the +form of an agreement to be executed by both the Participant and +the Company (or an authorized representative of the Company) or +certificates, notices or similar instruments as approved by the +Administrator. +(e) “Board” means +the board of directors of the Company. +(f) “Change in +Control” unless otherwise defined in an Award, means +(i) the failure of the Continuing Directors at any time to +constitute at least a majority of the members of the Board; +(ii) the acquisition by any Person other than an Excluded +Holder of beneficial ownership (within the meaning of +Rule 13d-3 +issued under the Act) of 20% or more of the outstanding Shares +or the combined voting power of the Company’s outstanding +securities entitled to vote generally in the election of +directors; (iii) the consummation of a reorganization, +merger or consolidation of the Company, unless such +reorganization, merger or consolidation is with or into a +Permitted Successor; or (iv) a complete liquidation or +dissolution of the Company or the sale or disposition of all or +substantially all of the assets of the Company other than to a +Permitted Successor. +(g) “Code” means +the Internal Revenue Code of 1986, as amended from time to time, +and the rulings and regulations issued thereunder. +(h) “Continuing +Directors” mean the individuals constituting the Board as +of the date this Plan was adopted and any subsequent directors +whose election or nomination for election by the Company’s +stockholders was approved by a vote of three-quarters (3/4) of +the individuals who are then Continuing Directors, but +specifically excluding any individual whose initial assumption +of office occurs as a result of either an actual or threatened +solicitation subject to +Rule 14a-12(c) +of Regulation 14A issued under the Act or other actual or +threatened solicitation of proxies or consents by or on behalf +of a Person other than the Board. +66 +Table of Contents +(i) “Company” means +Wolverine World Wide, Inc., a Delaware corporation. +(j) “Disability” +has the meaning set forth in the Company’s long-term +disability plan. The determination of the Administrator as to an +individual’s Disability shall be conclusive on all parties. +(k) “Employee Benefit +Plan” means any plan or program established by the Company +or a Subsidiary for the compensation or benefit of employees of +the Company or any of its Subsidiaries. +(l) “Excluded +Holder” means (i) any Person who at the time this Plan +was adopted was the beneficial owner of 20% or more of the +outstanding Shares; or (ii) the Company, a Subsidiary or +any Employee Benefit Plan of the Company or a Subsidiary or any +trust holding Shares or other securities pursuant to the terms +of an Employee Benefit Plan. +(m) “Fair Market +Value” means, as of any date, the closing price per share +at which the Shares are sold in the regular way on the New York +Stock Exchange (or any successor exchange that is the primary +stock exchange for trading of Shares) or, if no Shares are +traded on the New York Stock Exchange (or any successor exchange +that is the primary stock exchange for trading of Shares) on the +date in question, then for the next preceding date for which +Shares were traded on the New York Stock Exchange (or any +successor exchange that is the primary stock exchange for +trading of Shares). +(n) “Incentive +Bonus” means a bonus opportunity awarded under +Section 10 pursuant to which a Participant may become +entitled to receive an amount based on satisfaction of such +performance criteria as are specified in the Award Agreement or +otherwise. +(o) “Incentive Stock +Option” means a stock option that is intended to qualify as +an “incentive stock option” within the meaning of +Section 422 of the Code. +(p) “Nonemployee +Director” means each person who is, or is elected to be, a +member of the Board and who is not an employee of the Company or +any Subsidiary. +(q) “Nonqualified Stock +Option” means a stock option that is not intended to +qualify as an “incentive stock option” within the +meaning of Section 422 of the Code. +(r) “Option” means +an Incentive Stock Option +and/or a +Nonqualified Stock Option granted pursuant to Section 6 of +the Plan. +(s) “Participant” +means any individual described in Section 3 to whom Awards +have been granted from time to time by the Administrator and any +authorized transferee of such individual. +(t) “Permitted +Successor” means a company that, immediately following the +consummation of a transaction specified in clauses (iii) +and (iv) of the definition of “Change in Control” +above, satisfies each of the following criteria: (i) 50% or +more of the outstanding common stock of the company and the +combined voting power of the outstanding securities of the +company entitled to vote generally in the election of directors +(in each case determined immediately following the consummation +of the applicable transaction) is beneficially owned, directly +or indirectly, by all or substantially all of the Persons who +were the beneficial owners of the Company’s outstanding +Shares and outstanding securities entitled to vote generally in +the election of directors (respectively) immediately prior to +the applicable transaction; (ii) no Person other than an +Excluded Holder beneficially owns, directly or indirectly, 20% +or more of the outstanding common stock of the company or the +combined voting power of the outstanding securities of the +company entitled to vote generally in the election of directors +(for these purposes the term Excluded Holder shall include the +company, any subsidiary of the company and any employee benefit +plan of the company or any such subsidiary or any trust holding +common stock or other securities of the company pursuant to the +terms of any such employee benefit plan); and (iii) at +least a majority of the Board of the Company is comprised of +Continuing Directors. +(u) “Person” has +the same meaning as set forth in Sections 13(d) and +14(d)(2) of the Act. +(v) “Performance +Award” means an Award, the grant, issuance, retention, +vesting or settlement of which is subject to satisfaction of one +or more Qualifying Performance Criteria established pursuant to +Section 14. +67 +Table of Contents +(w) “Plan” means +the Wolverine World Wide, Inc. Stock Incentive Plan of 2010 as +set forth herein and as amended from time to time. +(x) “Qualifying +Performance Criteria” has the meaning set forth in +Section 14(b). +(y) “Restricted +Stock” means Shares granted pursuant to Section 8 of +the Plan. +(z) “Restricted Stock +Unit” means an Award granted to a Participant pursuant to +Section 8 pursuant to which Shares or cash in lieu thereof +may be issued in the future. +(aa) “Retirement” +means the voluntary Termination of Employment by a Participant +after the Participant has attained (i) 50 years of age +and seven years of service (as a Director +and/or an +employee +and/or +officer of the Company or a Subsidiary), (ii) 62 years +of age, or (iii) such other age or years of service as +shall be determined by the Administrator or as otherwise may be +set forth in the Award agreement or other grant document with +respect to a Participant and a particular Award. +(bb) “Share” +means a share of the Company’s common stock, par value +$1.00, subject to adjustment as provided in Section 13. +(cc) “Stock +Appreciation Right” means a right granted pursuant to +Section 7 of the Plan that entitles the Participant to +receive, in cash or Shares or a combination thereof, as +determined by the Administrator, value equal to or otherwise +based on the excess of (i) the Fair Market Value of a +specified number of Shares at the time of exercise over +(ii) the exercise price of the right, as established by the +Administrator on the date of grant. +(dd) “Stock +Award” means an award of Shares to a Participant pursuant +to Section 9 of the Plan. +(ee) “Subsidiary” +means any corporation (other than the Company) in an unbroken +chain of corporations beginning with the Company where each of +the corporations in the unbroken chain other than the last +corporation owns stock possessing at least 50 percent or +more of the total combined voting power of all classes of stock +in one of the other corporations in the chain, and if +specifically determined by the Administrator in the context +other than with respect to Incentive Stock Options, may include +an entity in which the Company has a significant ownership +interest or that is directly or indirectly controlled by the +Company. +(ff) “Termination +of Employment” means ceasing to serve as a full-time +employee of the Company and its Subsidiaries or, with respect to +a Nonemployee Director or other service provider, ceasing to +serve as such for the Company, except that with respect to all +or any Awards held by a Participant (i) the Administrator +may determine, subject to Section 6(d), that an approved +leave of absence or approved employment on a less than full-time +basis is not considered a Termination of Employment, +(ii) the Administrator may determine that a transition of +employment to service with a partnership, joint venture or +corporation not meeting the requirements of a Subsidiary in +which the Company or a Subsidiary is a party is not considered a +Termination of Employment, (iii) unless otherwise +determined by the Administrator, service as a member of the +Board or other service provider shall not constitute continued +employment with respect to Awards granted to a Participant while +he or she served as an employee and (iv) service as an +employee of the Company or a Subsidiary shall constitute +continued employment with respect to Awards granted to a +Participant while he or she served as a member of the Board or +other service provider. The Administrator shall determine +whether any corporate transaction, such as a sale or spin-off of +a division or subsidiary that employs a Participant, shall be +deemed to result in a Termination of Employment with the Company +and its Subsidiaries for purposes of any affected +Participant’s Options, and the Administrator’s +decision shall be final and binding. +3. +ELIGIBILITY +Any Person who is a current or prospective officer or employee +of the Company or of any Subsidiary shall be eligible for +selection by the Administrator for the grant of Awards +hereunder. In addition, Nonemployee Directors and any other +service providers who have been retained to provide consulting, +advisory or other services to the Company or to any Subsidiary +shall be eligible for the grant of Awards hereunder as +determined by the Administrator. Options intending to qualify as +Incentive Stock Options may only be granted to +68 +Table of Contents +employees of the Company or any Subsidiary within the meaning of +the Code, as selected by the Administrator. +4. +EFFECTIVE DATE +AND TERMINATION OF PLAN +This Plan was adopted by the Board as of February 11, 2010 +(the “Effective Date”), provided that any grants made +prior to the approval of the Plan by the Company’s +stockholders shall be subject to such approval. All Awards +granted under this Plan are subject to, and may not be exercised +before, the approval of this Plan by the stockholders prior to +the first anniversary of the date the Board adopts the Plan, by +the affirmative vote of the holders of a majority of the +outstanding Shares of the Company present, or represented by +proxy, and entitled to vote, at a meeting of the Company’s +stockholders or by written consent in accordance with the laws +of the State of Delaware; provided that if such approval by the +stockholders of the Company is not forthcoming, all Awards +previously granted under this Plan shall be void. The Plan shall +remain available for the grant of Awards until the tenth (10th) +anniversary of the Effective Date. Notwithstanding the +foregoing, the Plan may be terminated at such earlier time as +the Board may determine. Termination of the Plan will not affect +the rights and obligations of the Participants and the Company +arising under Awards theretofore granted and then in effect. +5. +SHARES SUBJECT +TO THE PLAN AND TO AWARDS +(a) Aggregate +Limits. The aggregate number of Shares issuable +pursuant to all Awards shall not exceed 4,600,000; provided that +any Shares granted under Options or Stock Appreciation Rights +shall be counted against this limit on a +one-for-one +basis and any Shares granted as Awards other than Options or +Stock Appreciation Rights shall be counted against this limit as +two (2) Shares for every one (1) Share subject to such +Award. The aggregate number of Shares available for grant under +this Plan and the number of Shares subject to outstanding Awards +shall be subject to adjustment as provided in Section 13. +The Shares issued pursuant to Awards granted under this Plan may +be shares that are authorized and unissued or shares that were +reacquired by the Company, including shares purchased in the +open market. +(b) Issuance of +Shares. For purposes of Section 5(a), the +aggregate number of Shares issued under this Plan at any time +shall equal only the number of Shares actually issued upon +exercise or settlement of an Award. Notwithstanding the +foregoing, Shares subject to an Award under the Plan may not +again be made available for issuance under the Plan if such +Shares are: (i) Shares that were subject to a stock-settled +Stock Appreciation Right and were not issued upon the net +settlement or net exercise of such Stock Appreciation Right, +(ii) Shares used to pay the exercise price of an Option, +(iii) Shares delivered to or withheld by the Company to pay +the withholding taxes related an Award, or (iv) Shares +repurchased on the open market with the proceeds of an Option +exercise. Shares subject to Awards that have been canceled, +expired, forfeited or otherwise not issued under an Award and +Shares subject to Awards settled in cash shall not count as +Shares issued under this Plan. +(c) Tax Code +Limits. The aggregate number of Shares subject to +Awards granted under this Plan during any calendar year to any +one Participant shall not exceed 3,000,000, which number shall +be calculated and adjusted pursuant to Section 13 only to +the extent that such calculation or adjustment will not affect +the status of any Award intended to qualify as +“performance-based compensation” under +Section 162(m) of the Code but which number shall not count +any tandem SARs (as defined in Section 7). The aggregate +number of Shares that may be issued pursuant to the exercise of +Incentive Stock Options granted under this Plan shall not exceed +4,600,000, which number shall be calculated and adjusted +pursuant to Section 13 only to the extent that such +calculation or adjustment will not affect the status of any +option intended to qualify as an Incentive Stock Option under +Section 422 of the Code. The maximum cash amount payable +pursuant to that portion of an Incentive Bonus granted in any +calendar year to any Participant under this Plan that is +intended to satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code shall +not exceed $20 million. +69 +Table of Contents +6. +OPTIONS +(a) Option +Awards. Options may be granted at any time and from +time to time prior to the termination of the Plan to +Participants as determined by the Administrator. No Participant +shall have any rights as a stockholder with respect to any +Shares subject to Option hereunder until said Shares have been +issued. Each Option shall be evidenced by an Award Agreement. +Options granted pursuant to the Plan need not be identical but +each Option must contain and be subject to the terms and +conditions set forth below. +(b) Price. The +Administrator will establish the exercise price per Share under +each Option, which, in no event will be less than the Fair +Market Value of the Shares on the date of grant; provided, +however, that the exercise price per Share with respect to an +Option that is granted in connection with a merger or other +acquisition as a substitute or replacement award for options +held by optionees of the acquired entity may be less than 100% +of the Fair Market Value of the Shares on the date such Option +is granted if such exercise price is based on a formula set +forth in the terms of the options held by such optionees or in +the terms of the agreement providing for such merger or other +acquisition. The exercise price of any Option may be paid in +Shares, cash or a combination thereof, as determined by the +Administrator, including an irrevocable commitment by a broker +to pay over such amount from a sale of the Shares issuable under +an Option, the delivery of previously owned Shares and +withholding of Shares deliverable upon exercise, or in such +other form as is acceptable to the Administrator. +(c) No Repricing without +Stockholder Approval. Other than in connection with a +change in the Company’s capitalization (as described in +Section 13) the exercise price of an Option may not be +reduced without stockholder approval (including canceling +previously awarded Options and regranting them with a lower +exercise price). +(d) Provisions Applicable +to Options. The date on which Options become +exercisable shall be determined at the sole and absolute +discretion of the Administrator and set forth in an Award +Agreement. Unless provided otherwise in the applicable Award +Agreement, to the extent that the Administrator determines that +an approved leave of absence or employment on a less than +full-time basis is not a Termination of Employment, the vesting +period +and/or +exercisability of an Option shall be adjusted by the +Administrator during or to reflect the effects of any period +during which the Participant is on an approved leave of absence +or is employed on a less than full-time basis. +(e) Term of Options and +Termination of Employment: The Administrator shall +establish the term of each Option, which in no case shall exceed +a period of ten (10) years from the date of grant. Unless +an Option earlier expires upon the expiration date established +pursuant to the foregoing sentence, upon the termination of the +Participant’s employment, his or her rights to exercise an +Option then held shall be only as follows, unless the +Administrator specifies otherwise: +(1) General . If a +Participant’s Termination of Employment is for any reason +other than the Participant’s death, Disability, Retirement +or termination for cause, Options granted to the Participant may +continue to be exercised in accordance with their terms for a +period of three (3) months after such Termination of +Employment, but only to the extent the Participant was entitled +to exercise the Options on the date of such termination. +(2) Death . If a +Participant dies either while an employee or officer of the +Company or a Subsidiary or member of the Board, or after the +Termination of Employment other than for cause but during the +time when the Participant could have exercised an Option, the +Options issued to such Participant shall become fully vested and +exercisable by the personal representative of such Participant +or other successor to the interest of the Participant for one +year after the Participant’s death. +(3) Disability . If a +Participant’s Termination of Employment is due to +Disability, then all of the Participant’s Options shall +immediately fully vest, and the Options held by the Participant +at the time of such termination of employment or service shall +be exercisable by the Participant or the personal representative +of such Participant for one year following such Termination of +Employment. +70 +Table of Contents +(4) Participant +Retirement . Upon a Participant’s Retirement as an +employee or officer of the Company and its Subsidiaries or +Retirement from service as a member of the Board, then all of +the Participant’s Options shall immediately fully vest, and +the Options held by the Participant at the time of such +Retirement shall be exercisable by the Participant or the +personal representative of such Participant during the remaining +term of the Options. +(5) Termination for +Cause . If a Participant is terminated for cause, the +Participant shall have no further right to exercise any Options +previously granted. The Administrator or officers designated by +the Administrator shall determine whether a termination is for +cause. +(f) Incentive Stock +Options. Notwithstanding anything to the contrary in +this Section 6, in the case of the grant of an Option +intending to qualify as an Incentive Stock Option: (i) if +the Participant owns stock possessing more than 10 percent +of the combined voting power of all classes of stock of the +Company, the exercise price of such Option must be at least +110 percent of the Fair Market Value of the Shares on the +date of grant and the Option must expire within a period of not +more than five (5) years from the date of grant, and +(ii) Termination of Employment will occur when the person +to whom an Award was granted ceases to be an employee (as +determined in accordance with Section 3401(c) of the Code +and the regulations promulgated thereunder) of the Company and +its Subsidiaries. Notwithstanding anything in this +Section 6 to the contrary, options designated as Incentive +Stock Options shall not be eligible for treatment under the Code +as Incentive Stock Options (and will be deemed to be +Nonqualified Stock Options) to the extent that either +(a) the aggregate Fair Market Value of Shares (determined +as of the time of grant) with respect to which such Options are +exercisable for the first time by the Participant during any +calendar year (under all plans of the Company and any +Subsidiary) exceeds $100,000, taking Options into account in the +order in which they were granted, or (b) such Options +otherwise remain exercisable but are not exercised within three +(3) months of Termination of Employment (or such other +period of time provided in Section 422 of the Code). +7. +STOCK +APPRECIATION RIGHTS +Stock Appreciation Rights may be granted to Participants from +time to time either in tandem with or as a component of other +Awards granted under the Plan (“tandem SARs”) or not +in conjunction with other Awards (“freestanding SARs”) +and may, but need not, relate to a specific Option granted under +Section 6. The provisions of Stock Appreciation Rights need +not be the same with respect to each grant or each recipient. +Any Stock Appreciation Right granted in tandem with an Award may +be granted at the same time such Award is granted or at any time +thereafter before exercise or expiration of such Award. All +freestanding SARs shall be granted subject to the same terms and +conditions applicable to Options as set forth in Section 6 +and all tandem SARs shall have the same exercise price, vesting, +exercisability, forfeiture and termination provisions as the +Award to which they relate. Subject to the provisions of +Section 6 and the immediately preceding sentence, the +Administrator may impose such other conditions or restrictions +on any Stock Appreciation Right as it shall deem appropriate. +Stock Appreciation Rights may be settled in Shares, cash or a +combination thereof, as determined by the Administrator and set +forth in the applicable Award Agreement. Other than in +connection with a change in the Company’s capitalization +(as described in Section 13) the exercise price of +Stock Appreciation Rights may not be reduced without stockholder +approval (including canceling previously awarded Stock +Appreciation Rights and regranting them with a lower exercise +price). +8. +RESTRICTED STOCK +AND RESTRICTED STOCK UNITS +(a) Restricted Stock and +Restricted Stock Unit Awards. Restricted Stock and +Restricted Stock Units may be granted at any time and from time +to time prior to the termination of the Plan to Participants as +determined by the Administrator. Restricted Stock is an award or +issuance of Shares the grant, issuance, retention, vesting +and/or +transferability of which is subject during specified periods of +time to such conditions (including continued employment or +performance conditions) and terms as the Administrator deems +appropriate. Restricted Stock Units are Awards denominated in +units of Shares under which the issuance of Shares is subject to +such conditions (including continued employment or performance +conditions) and terms as the Administrator deems appropriate. +Each grant of Restricted Stock and Restricted Stock Units shall +be evidenced by an Award Agreement. Unless determined otherwise +by the Administrator, each Restricted Stock Unit will +71 +Table of Contents +be equal to one Share and will entitle a Participant to either +the issuance of Shares or payment of an amount of cash +determined with reference to the value of Shares. To the extent +determined by the Administrator, Restricted Stock and Restricted +Stock Units may be satisfied or settled in Shares, cash or a +combination thereof. Restricted Stock and Restricted Stock Units +granted pursuant to the Plan need not be identical but each +grant of Restricted Stock and Restricted Stock Units must +contain and be subject to the terms and conditions set forth +below. +(b) Contents of +Agreement. Each Award Agreement shall contain +provisions regarding (i) the number of Shares or Restricted +Stock Units subject to such Award or a formula for determining +such number, (ii) the purchase price of the Shares, if any, +and the means of payment, (iii) the performance criteria, +if any, and level of achievement versus these criteria that +shall determine the number of Shares or Restricted Stock Units +granted, issued, retainable +and/or +vested, (iv) such terms and conditions on the grant, +issuance, vesting +and/or +forfeiture of the Shares or Restricted Stock Units as may be +determined from time to time by the Administrator, (v) the +term of the performance period, if any, as to which performance +will be measured for determining the number of such Shares or +Restricted Stock Units, and (vi) restrictions on the +transferability of the Shares or Restricted Stock Units. Shares +issued under a Restricted Stock Award may be issued in the name +of the Participant and held by the Participant or held by the +Company, in each case as the Administrator may provide. +(c) Vesting and +Performance Criteria. The grant, issuance, retention, +vesting +and/or +settlement of shares of Restricted Stock and Restricted Stock +Units will occur when and in such installments as the +Administrator determines or under criteria the Administrator +establishes, which may include Qualifying Performance Criteria. +Notwithstanding anything in this Plan to the contrary, the +performance criteria for any Restricted Stock or Restricted +Stock Unit that is intended to satisfy the requirements for +“performance-based compensation” under +Section 162(m) of the Code will be a measure based on one +or more Qualifying Performance Criteria selected by the +Administrator and specified when the Award is granted. +(d) Termination of +Employment. Unless the Administrator provides otherwise: +(i) General. In +the event of Termination of Employment for any reason other than +death, Disability or Retirement, any Restricted Stock or +Restricted Stock Units still subject in full or in part to +restrictions at the date of such Termination of Employment shall +automatically be forfeited and returned to the Company. +(ii) Death, +Retirement or Disability . In the event a Participant’s +Termination of Employment is because of death, Disability or +Retirement, the restrictions remaining on any or all Shares +remaining subject to a Restricted Stock or Restricted Stock Unit +Award shall lapse. +(e) Discretionary +Adjustments and Limits. Subject to the limits imposed +under Section 162(m) of the Code for Awards that are +intended to qualify as “performance-based +compensation,” notwithstanding the satisfaction of any +performance goals, the number of Shares granted, issued, +retainable +and/or +vested under an Award of Restricted Stock or Restricted Stock +Units on account of either financial performance or personal +performance evaluations may, to the extent specified in the +Award Agreement, be reduced, but not increased, by the +Administrator on the basis of such further considerations as the +Administrator shall determine. +(f) Voting +Rights. Unless otherwise determined by the +Administrator, Participants holding shares of Restricted Stock +granted hereunder may exercise full voting rights with respect +to those shares during the period of restriction. Participants +shall have no voting rights with respect to Shares underlying +Restricted Stock Units unless and until such Shares are +reflected as issued and outstanding shares on the Company’s +stock ledger. +(g) Dividends and +Distributions. Participants in whose name Restricted +Stock is granted shall be entitled to receive all dividends and +other distributions paid with respect to those Shares, unless +determined otherwise by the Administrator. The Administrator +will determine whether any such dividends or distributions will +be automatically reinvested in additional shares of Restricted +Stock and subject to the same restrictions on transferability as +the Restricted Stock with respect to which they were distributed +or whether such dividends or +72 +Table of Contents +distributions will be paid in cash. Shares underlying Restricted +Stock Units shall be entitled to dividends or dividend +equivalents only to the extent provided by the Administrator. +(h) Payment of Restricted +Stock Units. In all events, unless payment with respect +to a Restricted Stock Unit is deferred in a manner consistent +with Section 409A of the Code, the Shares +and/or cash +underlying such Restricted Stock Unit shall be paid to the +Participant no later than two and one-half months following the +end of the year in which the Restricted Stock Unit is no longer +subject to a substantial risk of forfeiture. +(i) Legending of +Restricted Stock. The Administrator may also require +that certificates representing shares of Restricted Stock be +retained and held in escrow by a designated employee or agent of +the Company or any Subsidiary until any restrictions applicable +to shares of Restricted Stock so retained have been satisfied or +lapsed. Any certificates evidencing shares of Restricted Stock +awarded pursuant to the Plan shall bear the following legend: +The shares represented by this certificate were issued subject +to certain restrictions under the Wolverine World Wide, Inc. +Stock Incentive Plan of 2010 (the “Plan”). This +certificate is held subject to the terms and conditions +contained in a restricted stock agreement that includes a +prohibition against the sale or transfer of the stock +represented by this certificate except in compliance with that +agreement and that provides for forfeiture upon certain events. +Copies of the Plan and the restricted stock agreement are on +file in the office of the Secretary of the Company. +9. +STOCK +AWARDS +(a) Grant. Stock +Awards may be granted at any time and from time to time prior to +the termination of the Plan to Participants as determined by the +Administrator. Stock Awards shall be subject to such terms and +conditions, consistent with the other provisions of the Plan, as +may be determined by the Administrator. +(b) Rights as a +Stockholder. A Participant shall have all voting, +dividend, liquidation and other rights with respect to Shares +issued to the Participant as a Stock Award under this +Section 9 upon the Participant becoming the holder of +record of the Shares granted pursuant to such Stock Award; +provided, that the Administrator may impose such restrictions on +the assignment or transfer of Shares awarded pursuant to a Stock +Award as it considers appropriate. +10. +INCENTIVE +BONUSES +(a) General. Each +Incentive Bonus Award will confer upon the Participant the +opportunity to earn a future payment tied to the level of +achievement with respect to one or more performance criteria +established for a performance period of not less than one year. +(b) Incentive Bonus +Document. Unless otherwise determined by the +Administrator, the terms of any Incentive Bonus will be set +forth in an Award Agreement. Each Award Agreement evidencing an +Incentive Bonus shall contain provisions regarding (i) the +target and maximum amount payable to the Participant as an +Incentive Bonus, (ii) the performance criteria and level of +achievement versus these criteria that shall determine the +amount of such payment, (iii) the term of the performance +period as to which performance shall be measured for determining +the amount of any payment, (iv) the timing of any payment +earned by virtue of performance, (v) restrictions on the +alienation or transfer of the Incentive Bonus prior to actual +payment, (vi) forfeiture provisions and (vii) such +further terms and conditions, in each case not inconsistent with +this Plan as may be determined from time to time by the +Administrator. +(c) Performance +Criteria. The Administrator shall establish the +performance criteria and level of achievement versus these +criteria that shall determine the target and maximum amount +payable under an Incentive Bonus, which criteria may be based on +financial performance +and/or +personal performance evaluations. The Administrator may specify +the percentage of the target Incentive Bonus that is intended to +satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code. +Notwithstanding anything to the contrary herein, the performance +criteria for any portion of an Incentive Bonus that is +73 +Table of Contents +intended by the Administrator to satisfy the requirements for +“performance-based compensation” under +Section 162(m) of the Code shall be a measure based on one +or more Qualifying Performance Criteria (as defined in +Section 14(b)) selected by the Administrator and specified +at the time the Incentive Bonus is granted. The Administrator +shall certify the extent to which any Qualifying Performance +Criteria has been satisfied, and the amount payable as a result +thereof, prior to payment of any Incentive Bonus that is +intended to satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code. +(d) Timing and Form of +Payment. The Administrator shall determine the timing +of payment of any Incentive Bonus. Payment of the amount due +under an Incentive Bonus may be made in cash or in Shares, as +determined by the Administrator. The Administrator may provide +for or, subject to such terms and conditions as the +Administrator may specify, may permit a Participant to elect for +the payment of any Incentive Bonus to be deferred to a specified +date or event. In all events, unless payment of an Incentive +Bonus is deferred in a manner consistent with Section 409A +of the Code, any Incentive Bonus shall be paid to the +Participant no later than two and one-half months following the +end of the year in which the Incentive Bonus is no longer +subject to a substantial risk of forfeiture. +(e) Discretionary +Adjustments. Notwithstanding satisfaction of any +performance goals, the amount paid under an Incentive Bonus on +account of either financial performance or personal performance +evaluations may, to the extent specified in the Award Agreement +or other document evidencing the Award, be reduced, but not +increased, by the Administrator on the basis of such further +considerations as the Administrator shall determine. +11. +DEFERRAL OF +GAINS +The Administrator may, in an Award Agreement or otherwise, +provide for the deferred delivery of Shares upon settlement, +vesting or other events with respect to Restricted Stock or +Restricted Stock Units, or in payment or satisfaction of an +Incentive Bonus. Notwithstanding anything herein to the +contrary, in no event will any deferral of the delivery of +Shares or any other payment with respect to any Award be allowed +if the Administrator determines, in its sole and absolute +discretion, that the deferral would result in the imposition of +the additional tax under Section 409A(a)(1)(B) of the Code. +No award shall provide for deferral of compensation that does +not comply with Section 409A of the Code, unless the Board, +at the time of grant, specifically provides that the Award is +not intended to comply with Section 409A of the Code. The +Company shall have no liability to a Participant, or any other +party, if an Award that is intended to be exempt from, or +compliant with, Section 409A of the Code is not so exempt +or compliant or for any action taken by the Board. +12. +CONDITIONS AND +RESTRICTIONS UPON SECURITIES SUBJECT TO AWARDS +The Administrator may provide that the Shares issued upon +exercise of an Option or Stock Appreciation Right or otherwise +subject to or issued under an Award shall be subject to such +further agreements, restrictions, conditions or limitations as +the Administrator in its sole and absolute discretion may +specify prior to the exercise of such Option or Stock +Appreciation Right or the grant, vesting or settlement of such +Award, including without limitation, conditions on vesting or +transferability, forfeiture or repurchase provisions and method +of payment for the Shares issued upon exercise, vesting or +settlement of such Award (including the actual or constructive +surrender of Shares already owned by the Participant) or payment +of taxes arising in connection with an Award. Without limiting +the foregoing, such restrictions may address the timing and +manner of any resales by the Participant or other subsequent +transfers by the Participant of any Shares issued under an +Award, including without limitation (i) restrictions under +an insider trading policy or pursuant to applicable law, +(ii) restrictions designed to delay +and/or +coordinate the timing and manner of sales by Participant and +holders of other Company equity compensation arrangements, +(iii) restrictions as to the use of a specified brokerage +firm for such resales or other transfers and +(iv) provisions requiring Shares to be sold on the open +market or to the Company in order to satisfy tax withholding or +other obligations. +74 +Table of Contents +13. +ADJUSTMENT OF AND +CHANGES IN THE STOCK +(a) General. The +number and kind of Shares available for issuance under this Plan +(including under any Awards then outstanding), and the number +and kind of Shares subject to the limits set forth in +Section 5 of this Plan, shall be equitably adjusted by the +Administrator to reflect any reorganization, reclassification, +combination of shares, stock split, reverse stock split, +spin-off, dividend or distribution of securities, property or +cash (other than regular, quarterly cash dividends), or any +other event or transaction that affects the number or kind of +Shares outstanding. Such adjustment may be designed to comply +with Section 425 of the Code or may be designed to treat +the Shares available under the Plan and subject to Awards as if +they were all outstanding on the record date for such event or +transaction or to increase the number of such Shares to reflect +a deemed reinvestment in Shares of the amount distributed to the +Company’s securityholders. The terms of any outstanding +Award shall also be equitably adjusted by the Administrator as +to price, number or kind of Shares subject to such Award, +vesting, and other terms to reflect the foregoing events, which +adjustments need not be uniform as between different Awards or +different types of Awards. +In the event there shall be any other change in the number or +kind of outstanding Shares, or any stock or other securities +into which such Shares shall have been changed, or for which it +shall have been exchanged, by reason of a change of control, +other merger, consolidation or otherwise, then the Administrator +shall determine the appropriate and equitable adjustment to be +effected. In addition, in the event of such change described in +this paragraph, the Administrator may accelerate the time or +times at which any Award may be exercised and may provide for +cancellation of such accelerated Awards that are not exercised +within a time prescribed by the Administrator in its sole and +absolute discretion. +No right to purchase fractional shares shall result from any +adjustment in Awards pursuant to this Section 13. In case +of any such adjustment, the Shares subject to the Award shall be +rounded down to the nearest whole Share with respect to Options +and Stock Appreciation Rights. The Company shall notify +Participants holding Awards subject to any adjustments pursuant +to this Section 13 of such adjustment, but (whether or not +notice is given) such adjustment shall be effective and binding +for all purposes of the Plan. +(b) Change in +Control. The Administrator may determine the effect of +a Change in Control on outstanding Awards in a manner that, in +the Administrator’s reasonable discretion, is fair and +equitable to Participants. Such effects, which need not be the +same for every Participant, may include, without limitation: +(x) the substitution for the Shares subject to any +outstanding Award, or portion thereof, stock or other securities +of the surviving corporation or any successor corporation to the +Company, or a parent or subsidiary thereof, in which event the +aggregate purchase or exercise price, if any, of such Award, or +portion thereof, shall remain the same, +and/or +(y) the conversion of any outstanding Award, or portion +thereof, into a right to receive cash or other property upon or +following the consummation of the Change in Control in an amount +equal to the value of the consideration to be received by +holders of Shares in connection with such transaction for one +Share, less the per share purchase or exercise price of such +Award, if any, multiplied by the number of Shares subject to +such Award, or a portion thereof. Notwithstanding the foregoing, +unless otherwise determined by the Administrator, Awards shall +be treated as follows in connection with a Change in Control: +(i) Acceleration of +Vesting. Without action by the Administrator or the +Board: (a) all outstanding Options and Stock Appreciation +Rights shall become immediately exercisable in full and shall +remain exercisable during the remaining terms thereof, +regardless of whether the Participants to whom such Options and +Stock Appreciation Rights have been granted remain in the employ +or service of the Company or any Subsidiary; and (b) all +other outstanding Awards shall become immediately fully vested +and exercisable and nonforfeitable; and +(ii) Cash Payment for +Stock Options/Stock Appreciation Rights . Without the +consent of any Participant affected thereby, the Administrator +may determine that some or all Participants holding outstanding +Options +and/or Stock +Appreciation Rights shall receive, with respect to some or all +of the Shares subject to such Options +and/or Stock +Appreciation Rights, as of the effective date of any such Change +in Control of the Company, cash in an amount equal to the +greater of the excess of (A) the highest sales price of the +shares on the New York Stock Exchange on the date immediately +prior to the effective date of such Change in Control +75 +Table of Contents +of the Company or (B) the highest price per share actually +paid in connection with any Change in Control of the Company +over the exercise price per share of such Options +and/or Stock +Appreciation Rights. +14. +QUALIFYING +PERFORMANCE-BASED COMPENSATION +(a) General. The +Administrator may establish performance criteria and level of +achievement versus such criteria that shall determine the number +of Shares to be granted, retained, vested, issued or issuable +under or in settlement of or the amount payable pursuant to an +Award, which criteria may be based on Qualifying Performance +Criteria or other standards of financial performance +and/or +personal performance evaluations. In addition, the Administrator +may specify that an Award or a portion of an Award is intended +to satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code, +provided that the performance criteria for such Award or portion +of an Award that is intended by the Administrator to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code shall be a measure based +on one or more Qualifying Performance Criteria selected by the +Administrator and specified at the time the Award is granted. +The Administrator shall certify the extent to which any +Qualifying Performance Criteria has been satisfied, and the +amount payable as a result thereof, prior to payment, settlement +or vesting of any Award that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code. +(b) Qualifying Performance +Criteria. For purposes of this Plan, the term +“Qualifying Performance Criteria” shall mean any one +or more of the following performance criteria, or derivations of +such performance criteria, either individually, alternatively or +in any combination, applied to either the Company as a whole or +to a business unit or Subsidiary, either individually, +alternatively or in any combination, and measured either +annually or cumulatively over a period of years, on an absolute +basis or relative to a pre-established target, to previous +years’ results or to a designated comparison group, in each +case as specified by the Administrator: (i) net earnings or +earnings per share (including earnings before interest, taxes, +depreciation +and/or +amortization), (ii) income, net income or operating income, +(iii) revenues, (iv) net sales, (v) return on +sales, (vi) return on equity, (vii) return on capital +(including return on total capital or return on invested +capital), (viii) return on assets or net assets, +(ix) earnings per share, (x) economic value added +measurements, including BVA, (xi) return on invested +capital, (xii) return on operating revenue, +(xiii) cash flow (before or after dividends), +(xiv) stock price, (xv) total stockholder return, +(xvi) market capitalization, (xvii) economic value +added, (xviii) debt leverage (debt to capital), +(xix) operating profit or net operating profit, +(xx) operating margin or profit margin, (xxi) cash +from operations, (xxii) market share, (xxiii) product +development or release schedules, (xxiv) new product +innovation, (xxv) cost reductions, (xxvi) customer +service, or (xxvii) customer satisfaction. To the extent +consistent with Section 162(m) of the Code, the +Administrator (A) may appropriately adjust any evaluation +of performance under a Qualifying Performance Criteria to +eliminate the effects of charges for restructurings, +discontinued operations, extraordinary items and all items of +gain, loss or expense determined to be extraordinary or unusual +in nature or related to the disposal of a segment of a business +or related to a change in accounting principle all as determined +in accordance with standards established by opinion No. 30 +of the Accounting Principles Board (APB Opinion +No. 30) or other applicable or successor accounting +provisions, as well as the cumulative effect of accounting +changes, in each case as determined in accordance with generally +accepted accounting principles or identified in the +Company’s financial statements or notes to the financial +statements, and (B) may appropriately adjust any evaluation +of performance under a Qualifying Performance Criteria to +exclude any of the following events that occurs during a +performance period: (i) asset write-downs, +(ii) litigation, claims, judgments or settlements, +(iii) the effect of changes in tax law or other such laws +or provisions affecting reported results, and (iv) accruals +of any amounts for payment under this Plan or any other +compensation arrangement maintained by the Company. +15. +TRANSFERABILITY +Unless the Administrator determines otherwise, each Award may +not be sold, transferred, pledged, assigned, or otherwise +alienated or hypothecated by a Participant other than by will or +the laws of descent and distribution, and each Option or Stock +Appreciation Right shall be exercisable only by the Participant +during his or her lifetime. To the extent permitted by the +Administrator, the person to whom an Award is initially +76 +Table of Contents +granted (the “Grantee”) may transfer an Award to any +“family member” of the Grantee (as such term is +defined in Section 1(a)(5) of the General Instructions to +Form S-8 +under the Securities Act of 1933, as amended +(“Form S-8”)), +to trusts solely for the benefit of such family members and to +partnerships in which such family members +and/or +trusts are the only partners; provided that, (i) as a +condition thereof, the transferor and the transferee must +execute a written agreement containing such terms as specified +by the Administrator, and (ii) the transfer is pursuant to +a gift or a domestic relations order to the extent permitted +under the General Instructions to +Form S-8. +Except to the extent specified otherwise in the agreement the +Administrator provides for the Grantee and transferee to +execute, all vesting, exercisability and forfeiture provisions +that are conditioned on the Grantee’s continued employment +or service shall continue to be determined with reference to the +Grantee’s employment or service (and not to the status of +the transferee) after any transfer of an Award pursuant to this +Section 15, and the responsibility to pay any taxes in +connection with an Award shall remain with the Grantee +notwithstanding any transfer other than by will or intestate +succession. +16. +SUSPENSION OR +TERMINATION OF AWARDS +Except as otherwise provided by the Administrator, if at any +time (including after a notice of exercise has been delivered or +an award has vested) the Company’s chief executive officer +or any other person designated by the Administrator (each such +person, an “Authorized Officer”) reasonably believes +that a Participant may have committed an Act of Misconduct as +described in this Section 16, the Authorized Officer, +Administrator or the Board may suspend the Participant’s +rights to exercise any Option, to vest in an Award, +and/or to +receive payment for or receive Shares in settlement of an Award +pending a determination of whether an Act of Misconduct has been +committed. +If the Administrator or an Authorized Officer determines a +Participant has committed an act of embezzlement, fraud, +dishonesty, nonpayment of any obligation owed to the Company or +any Subsidiary, breach of fiduciary duty or deliberate disregard +of the Company or Subsidiary rules resulting in loss, damage or +injury to the Company or any Subsidiary, or if a Participant +makes an unauthorized disclosure of any Company or Subsidiary +trade secret or confidential information, solicits any employee +or service provider to leave the employ or cease providing +services to the Company or any Subsidiary, breaches any +intellectual property or assignment of inventions covenant, +engages in any conduct constituting unfair competition, breaches +any non-competition agreement, induces any Company or Subsidiary +customer to breach a contract with the Company or any Subsidiary +or to cease doing business with the Company or any Subsidiary, +or induces any principal for whom the Company or any Subsidiary +acts as agent to terminate such agency relationship (any of the +foregoing acts, an “Act of Misconduct”), then except +as otherwise provided by the Administrator, including through +any agreement approved by the Administrator, (i) neither +the Participant nor his or her estate nor transferee shall be +entitled to exercise any Option or Stock Appreciation Right +whatsoever, vest in or have the restrictions on an Award lapse, +or otherwise receive payment of an Award, (ii) the +Participant will forfeit all outstanding Awards and +(iii) the Participant may be required, at the +Administrator’s sole and absolute discretion, to return +and/or repay +to the Company any then unvested Shares previously issued under +the Plan. In making such determination, the Administrator or an +Authorized Officer shall give the Participant an opportunity to +appear and present evidence on his or her behalf at a hearing +before the Administrator or its designee or an opportunity to +submit written comments, documents, information and arguments to +be considered by the Administrator. +17. +COMPLIANCE WITH +LAWS AND REGULATIONS +This Plan, the grant, issuance, vesting, exercise and settlement +of Awards thereunder, and the obligation of the Company to sell, +issue or deliver Shares under such Awards, shall be subject to +all applicable foreign, federal, state and local laws, rules and +regulations, stock exchange rules and regulations, and to such +approvals by any governmental or regulatory agency as may be +required. The Company shall not be required to register in a +Participant’s name or deliver any Shares prior to the +completion of any registration or qualification of such shares +under any foreign, federal, state or local law or any ruling or +regulation of any government body which the Administrator shall +determine to be necessary or advisable. To the extent the +Company is unable to or the Administrator deems it infeasible to +obtain authority from any regulatory body having jurisdiction, +77 +Table of Contents +which authority is deemed by the Company’s counsel to be +necessary to the lawful issuance and sale of any Shares +hereunder, the Company and its Subsidiaries shall be relieved of +any liability with respect to the failure to issue or sell such +Shares as to which such requisite authority shall not have been +obtained. No Option shall be exercisable and no Shares shall be +issued +and/or +transferable under any other Award unless a registration +statement with respect to the Shares underlying such Option is +effective and current or the Company has determined that such +registration is unnecessary. +In the event an Award is granted to or held by a Participant who +is employed or providing services outside the United States, the +Administrator may, in its sole and absolute discretion, modify +the provisions of the Plan or of such Award as they pertain to +such individual to comply with applicable foreign law or to +recognize differences in local law, currency or tax policy. The +Administrator may also impose conditions on the grant, issuance, +exercise, vesting, settlement or retention of Awards in order to +comply with such foreign law +and/or to +minimize the Company’s obligations with respect to tax +equalization for Participants employed outside their home +country. +18. +WITHHOLDING +To the extent required by applicable federal, state, local or +foreign law, a Participant shall be required to satisfy, in a +manner satisfactory to the Company, any withholding tax +obligations that arise by reason of an Option exercise, +disposition of Shares issued under an Incentive Stock Option, +the vesting of or settlement of an Award, an election pursuant +to Section 83(b) of the Code or otherwise with respect to +an Award. To the extent a Participant makes an election under +Section 83(b) of the Code, within ten days of filing such +election with the Internal Revenue Service, the Participant must +notify the Company in writing of such election. The Company and +its Subsidiaries shall not be required to issue Shares, make any +payment or to recognize the transfer or disposition of Shares +until all such obligations are satisfied. The Administrator may +provide for or permit these obligations to be satisfied through +the mandatory or elective sale of Shares +and/or by +having the Company withhold a portion of the Shares that +otherwise would be issued to him or her upon exercise of the +Option or the vesting or settlement of an Award, or by tendering +Shares previously acquired. +19. +ADMINISTRATION OF +THE PLAN +(a) Administrator of the +Plan. The Plan shall be administered by the +Administrator who shall be the Compensation Committee of the +Board or, in the absence of a Compensation Committee, the Board +itself. Any power of the Administrator may also be exercised by +the Board, except to the extent that the grant or exercise of +such authority would cause any Award or transaction to become +subject to (or lose an exemption under) the short-swing profit +recovery provisions of Section 16 of the Act or cause an +Award designated as a Performance Award not to qualify for +treatment as performance-based compensation under +Section 162(m) of the Code. To the extent that any +permitted action taken by the Board conflicts with action taken +by the Administrator, the Board action shall control. The +Compensation Committee may by resolution authorize one or more +officers of the Company to perform any or all things that the +Administrator is authorized and empowered to do or perform under +the Plan, and for all purposes under this Plan, such officer or +officers shall be treated as the Administrator; provided, +however, that no such officer shall designate himself or herself +as a recipient of any Awards granted under authority delegated +to such officer. The Compensation Committee hereby designates +the Company’s chief executive officer, the Company’s +chief financial officer, the Secretary of the Company, and the +head of the Company’s human resource function to assist the +Administrator in the administration of the Plan and execute +agreements evidencing Awards made under this Plan or other +documents entered into under this Plan on behalf of the +Administrator or the Company. In addition, the Compensation +Committee may delegate any or all aspects of the +day-to-day +administration of the Plan to one or more officers or employees +of the Company or any Subsidiary, +and/or to +one or more agents. +(b) Powers of +Administrator. Subject to the express provisions of +this Plan, the Administrator shall be authorized and empowered +to do all things that it determines to be necessary or +appropriate in connection with the administration of this Plan, +including, without limitation: (i) to prescribe, amend and +rescind rules and regulations relating to this Plan and to +define terms not otherwise defined herein; (ii) to +determine which persons are Participants, to which of such +Participants, if any, Awards shall be granted hereunder and the +78 +Table of Contents +timing of any such Awards; (iii) to grant Awards to +Participants and determine the terms and conditions thereof, +including the number of Shares subject to Awards and the +exercise or purchase price of such Shares and the circumstances +under which Awards become exercisable or vested or are forfeited +or expire, which terms may but need not be conditioned upon the +passage of time, continued employment, the satisfaction of +performance criteria, the occurrence of certain events +(including a Change in Control), or other factors; (iv) to +establish and verify the extent of satisfaction of any +performance goals or other conditions applicable to the grant, +issuance, exercisability, vesting +and/or +ability to retain any Award; (v) to prescribe and amend the +terms of the agreements or other documents evidencing Awards +made under this Plan (which need not be identical) and the terms +of or form of any document or notice required to be delivered to +the Company by Participants under this Plan; (vi) to +determine the extent to which adjustments are required pursuant +to Section 13; (vii) to interpret and construe this +Plan, any rules and regulations under this Plan and the terms +and conditions of any Award granted hereunder, and to make +exceptions to any such provisions if the Administrator, in good +faith, determines that it is necessary to do so in light of +extraordinary circumstances and for the benefit of the Company; +(viii) to approve corrections in the documentation or +administration of any Award; and (ix) to make all other +determinations deemed necessary or advisable for the +administration of this Plan. The Administrator may, in its sole +and absolute discretion, without amendment to the Plan, waive or +amend the operation of Plan provisions respecting exercise after +termination of employment or service to the Company or an +Affiliate and, except as otherwise provided herein, adjust any +of the terms of any Award. The Administrator may also +(A) accelerate the date on which any Award granted under +the Plan becomes exercisable or (B) accelerate the vesting +date or waive or adjust any condition imposed hereunder with +respect to the vesting or exercisability of an Award, provided +that the Administrator, in good faith, determines that such +acceleration, waiver or other adjustment is necessary or +desirable in light of extraordinary circumstances. +Notwithstanding anything in the Plan to the contrary, no Award +outstanding under the Plan may be repriced, regranted through +cancellation or otherwise amended to reduce the exercise price +applicable thereto (other than with respect to adjustments made +in connection with a transaction or other change in the +Company’s capitalization as described in +Section 13) without the approval of the Company’s +stockholders. +(c) Determinations by the +Administrator. All decisions, determinations and +interpretations by the Administrator regarding the Plan, any +rules and regulations under the Plan and the terms and +conditions of or operation of any Award granted hereunder, shall +be final and binding on all Participants, beneficiaries, heirs, +assigns or other persons holding or claiming rights under the +Plan or any Award. The Administrator shall consider such factors +as it deems relevant, in its sole and absolute discretion, to +making such decisions, determinations and interpretations +including, without limitation, the recommendations or advice of +any officer or other employee of the Company and such attorneys, +consultants and accountants as it may select. +(d) Subsidiary +Awards. In the case of a grant of an Award to any +Participant employed by a Subsidiary, such grant may, if the +Administrator so directs, be implemented by the Company issuing +any subject Shares to the Subsidiary, for such lawful +consideration as the Administrator may determine, upon the +condition or understanding that the Subsidiary will transfer the +Shares to the Participant in accordance with the terms of the +Award specified by the Administrator pursuant to the provisions +of the Plan. Notwithstanding any other provision hereof, such +Award may be issued by and in the name of the Subsidiary and +shall be deemed granted on such date as the Administrator shall +determine. +(e) Indemnification of +Administrator. Neither any member nor former member of +the Administrator nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each person who +is or shall have been a member of the Administrator shall be +indemnified and held harmless by the Company from and against +any cost, liability or expense imposed or incurred in connection +with such person’s or the Administrator’s taking or +failing to take any action under the Plan. Each such person +shall be justified in relying on information furnished in +connection with the Plan’s administration by any employee, +officer, agent or expert employed or retained by the +Administrator or the Company. +79 +Table of Contents +20. +AMENDMENT OF THE +PLAN OR AWARDS +The Board may amend, alter or discontinue this Plan and the +Administrator may amend or alter any agreement or other document +evidencing an Award made under this Plan but, except as provided +pursuant to the provisions of Section 13, no such amendment +shall, without the approval of the stockholders of the Company: +(a) increase the maximum +number of Shares for which Awards may be granted under this Plan; +(b) reduce the price at which +Options or Stock Appreciation Rights may be granted below the +price provided for in Section 6(a); +(c) reduce the exercise price +of outstanding Options or Stock Appreciation Rights; +(d) extend the term of this +Plan; +(e) change the class of +persons eligible to be Participants; +(f) otherwise amend the Plan +in any manner requiring stockholder approval by law or under the +New York Stock Exchange listing requirements; or +(g) increase the individual +maximum limits in Sections 5(c). +No amendment or alteration to the Plan or an Award or Award +Agreement shall be made which would impair the rights of the +holder of an Award, without such holder’s consent, provided +that no such consent shall be required if the Administrator +determines in its sole and absolute discretion and prior to the +date of any Change in Control that such amendment or alteration +either is required or advisable in order for the Company, the +Plan or the Award to satisfy any law or regulation or to meet +the requirements of or avoid adverse financial accounting +consequences under any accounting standard. In addition, the +Plan may not be amended in any way that causes the Plan to fail +to comply with or be exempt from Section 409A of the Code, +unless the Board expressly determines to amend the Plan to be +subject to Section 409A of the Code. +21. +NO LIABILITY OF +COMPANY +The Company and any Subsidiary or affiliate which is in +existence or hereafter comes into existence shall not be liable +to a Participant or any other person as to: (a) the +non-issuance or sale of Shares as to which the Company has been +unable to obtain from any regulatory body having jurisdiction +the authority deemed by the Company’s counsel to be +necessary to the lawful issuance and sale of any Shares +hereunder; and (b) any tax consequence expected, but not +realized, by any Participant or other person due to the receipt, +exercise or settlement of any Award granted hereunder. +22. +NON-EXCLUSIVITY +OF PLAN +Neither the adoption of this Plan by the Board nor the +submission of this Plan to the stockholders of the Company for +approval shall be construed as creating any limitations on the +power of the Board or the Administrator to adopt such other +incentive arrangements as either may deem desirable, including +without limitation, the granting of restricted stock or stock +options otherwise than under this Plan or an arrangement not +intended to qualify under Code Section 162(m), and such +arrangements may be either generally applicable or applicable +only in specific cases. +23. +GOVERNING +LAW +This Plan and any agreements or other documents hereunder shall +be interpreted and construed in accordance with the laws of +Delaware and applicable federal law. Any reference in this Plan +or in the agreement or other document evidencing any Awards to a +provision of law or to a rule or regulation shall be deemed to +include any successor law, rule or regulation of similar effect +or applicability. +80 +Table of Contents +24. +NO RIGHT TO +EMPLOYMENT, REELECTION OR CONTINUED SERVICE +Nothing in this Plan or an Award Agreement shall interfere with +or limit in any way the right of the Company, its Subsidiaries +and/or its +affiliates to terminate any Participant’s employment, +service on the Board or service for the Company at any time or +for any reason not prohibited by law, nor shall this Plan or an +Award itself confer upon any Participant any right to continue +his or her employment or service for any specified period of +time. Neither an Award nor any benefits arising under this Plan +shall constitute an employment contract with the Company, any +Subsidiary +and/or its +affiliates. Subject to Sections 4 and 20, this Plan and the +benefits hereunder may be terminated at any time in the sole and +exclusive discretion of the Board without giving rise to any +liability on the part of the Company, its Subsidiaries +and/or its +affiliates. +25. +UNFUNDED +PLAN +The Plan is intended to be an unfunded plan. Participants are +and shall at all times be general creditors of the Company with +respect to their Awards. If the Administrator or the Company +chooses to set aside funds in a trust or otherwise for the +payment of Awards under the Plan, such funds shall at all times +be subject to the claims of the creditors of the Company in the +event of its bankruptcy or insolvency. +81 +Table of Contents +Electronic Voting Instructions +You can vote by Internet or telephone! +Available 24 hours a day, 7 days a +week! +Instead of mailing your proxy, you may choose one of the two voting +methods outlined below to vote your proxy. +VALIDATION +DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by +11:59 p.m., Eastern Daylight Time, on April 21, 2010. +Vote by +Internet +· Log +on to the Internet and go +to +www.investorvote.com/www +· Follow the steps outlined on +the secured website. +Vote by +telephone +· Call toll free 1-800-652-VOTE (8683) within the USA, +US territories & Canada any time on a touch tone +telephone. There is NO CHARGE to you for the call. +Using a black ink pen, mark your votes with an X as +shown in this example. Please do not write outside the designated areas. +x +· Follow the instructions provided by the recorded message. +Annual Meeting Proxy Card +▼ +IF YOU HAVE NOT VOTED VIA THE INTERNET +OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +▼ +A +Proposals — The Board of Directors recommends a vote FOR +all the nominees listed and FOR Proposals 2 and 3. +1. +Election of Directors: +For +Withhold +For +Withhold +For +Withhold ++ +01 - Jeffrey M. Boromisa +o +o +02 - David T. Kollat +o +o +03 - David P. Mehney +o +o +04 - Timothy J. O’Donovan +o +o +For +Against +Abstain +For +Against +Abstain +2. +Proposal to ratify the appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +o +o +o +3. +Proposal to approve the Stock Incentive Plan of 2010. +o +o +o +B Non-Voting +Items +Change of Address — +Please print new address below. +C +Authorized +Signatures — +This section must be completed for your vote to be counted. — +Date and Sign Below +IMPORTANT - Please sign exactly as your name(s) appears on this Proxy. +When signing on behalf of a corporation, partnership, estate or +trust, indicate title or capacity of person signing. If shares +are held jointly, each holder must sign. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on April 22, +2010. The enclosed Notice of 2010 Annual Meeting of Stockholders provides information regarding the +matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you +plan to attend the meeting, please read the enclosed materials and vote through the Internet, by +telephone or by mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by +telephone. Please consider voting through one of these methods. Your vote is recorded as if you +mailed in your Proxy. We believe voting through the Internet or by +telephone is convenient, and it also saves money. +Thank +you in advance for your participation in our 2010 Annual Meeting. +Wolverine World Wide, Inc. +▼ IF +YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ +Proxy — WOLVERINE WORLD WIDE, INC. +This proxy is solicited on behalf of the Board of Directors +The undersigned stockholder hereby appoints Blake W. Krueger and Donald T. Grimes, and each of +them, each with full power of substitution, proxies to represent the undersigned stockholder and to +vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would be +entitled to vote on all matters that properly come before the Annual Meeting of Stockholders to +be held at the Company’s headquarters located at 9341 Courtland Drive N.E., Rockford, Michigan, on +Thursday, April 22, 2010, at 10 a.m. local time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be voted as +specified. If no specification is made, the shares represented by this Proxy will be voted for the +election of all nominees named on this Proxy as directors and for approval of the proposals +identified on this Proxy. The shares represented by this Proxy will be voted in the discretion of +the proxies on any other matters that may properly come before the meeting. +PLEASE +DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. +DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950123-10-024134/proxy_rpt.txt b/raw/proxies/0000110471/0000950123-10-024134/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0887346785857a2ae9354150f6e837960fbacde3 --- /dev/null +++ b/raw/proxies/0000110471/0000950123-10-024134/proxy_rpt.txt @@ -0,0 +1,33 @@ +related party transactions between the Company and +Mr. Mehney. Wolverine purchases promotional materials from +a company which is one-third owned by one of +Mr. Mehney’s sons, but the total annual purchases fall +substantially below the annual $1,000,000 threshold. +Mr. O’Donovan is not independent because he was the +Company’s CEO within the last three years. Mr. Krueger +is not independent because he currently is the Company’s +CEO and President. Mr. Grimoldi is not independent because +he is the Chairman and 35% owner of a company that made payments +to Wolverine in excess of $1,000,000 per year in the last three +years. +Independent directors continue to represent a substantial +majority (more than 70%) of the Board. These directors meet by +themselves periodically each year. All of the Board’s +committees are comprised entirely of independent directors. The +Board believes that this structure ensures that independent +directors provide meaningful and effective oversight of the +Company’s management. +13 +Table of Contents +Board +Leadership +The Board of Directors has the following leadership structure: +Position +Person +Role +in Board Leadership +Independent +Lead Director +David T. Kollat +Since 1993, the Board has operated with an independent Lead +Director who is selected by the independent directors. The \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950123-11-024605/proxy.txt b/raw/proxies/0000110471/0000950123-11-024605/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..4e0a29028c9c2aa23f983899d17c49d427c239e1 --- /dev/null +++ b/raw/proxies/0000110471/0000950123-11-024605/proxy.txt @@ -0,0 +1,6004 @@ +DEF 14A +1 +k50159def14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to Section 240.14a-12 +WOLVERINE +WORLD WIDE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS FORM ARE +NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +Table of Contents +Notice of 2011 +Annual Meeting of Stockholders +and +Proxy Statement +Table of Contents +Important Notice Regarding the Availability of Proxy +Materials for the Annual Meeting of Stockholders to be held on +April 21, 2011. +Wolverine’s Proxy Statement for the 2011 Annual Meeting +of Stockholders and the Annual Report to Stockholders for the +fiscal year ended January 1, 2011, are available at +www.wolverineworldwide.com/2011annualmeeting. +2 +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 11, 2011 +Dear Stockholder, +You are invited to attend the 2011 Annual Meeting of +Stockholders which will be held on Thursday, April 21, +2011, at the Company’s headquarters in Rockford, Michigan. +The annual meeting will begin with an introduction of management +attendees and directors, followed by voting on the matters set +forth in the accompanying notice of annual meeting and proxy +statement and any other business matters properly brought before +the meeting. The meeting will adjourn for a presentation on the +Company’s business operations, and then resume for a report +on the voting. +Whether or not you plan to attend, you can ensure that your +shares are represented at the meeting by promptly voting and +submitting your proxy by telephone or by Internet, or by +completing, signing, dating and returning your proxy form in the +enclosed envelope. +Sincerely, +Blake W. Krueger +Chairman +3 +CONTENTS +NOTICE OF 2011 ANNUAL MEETING OF +STOCKHOLDERS +5 +PROXY STATEMENT +5 +DIRECTORS +6 +n Item 1 – +Election of Directors +7 +CONTINUING DIRECTORS – TERMS +EXPIRING IN 2013 +9 +CONTINUING DIRECTORS – TERMS +EXPIRING IN 2012 +10 +CORPORATE GOVERNANCE +13 +NON-EMPLOYEE DIRECTOR COMPENSATION IN FISCAL +YEAR 2010 +19 +SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS +AND CERTAIN BENEFICIAL OWNERS +23 +COMPENSATION DISCUSSION AND ANALYSIS +25 +COMPENSATION COMMITTEE REPORT +38 +2010 SUMMARY COMPENSATION TABLE +39 +GRANTS OF PLAN-BASED AWARDS IN FISCAL +2010 +41 +OUTSTANDING EQUITY AWARDS AT 2010 FISCAL +YEAR-END +42 +OPTION EXERCISES AND STOCK VESTED IN FISCAL +2010 +44 +PENSION PLANS AND 2010 PENSION BENEFITS +44 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE +IN CONTROL +46 +AUDIT COMMITTEE REPORT +51 +INDEPENDENT AUDITOR +52 +Audit Committee Pre-Approval Policy +Audit and Non-Audit Fees +n Item 2 – +Ratification of Appointment of Independent Registered Public +Accounting Firm +53 +n Item 3 – +Advisory Resolution on Executive Compensation +53 +n Item 4 – +Advisory Vote on the Frequency of Future Advisory Votes on +Executive Compensation +54 +RELATED PARTY MATTERS +55 +ADDITIONAL INFORMATION +56 +4 +Table of Contents +NOTICE +OF 2011 ANNUAL MEETING OF STOCKHOLDERS +10:00 a.m., April 21, 2011 +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 11, 2011 +To our Stockholders: +We invite you to attend Wolverine’s Annual Meeting of +Stockholders at Wolverine’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 21, 2011, at 10:00 a.m. Eastern Daylight +Time. The annual meeting will begin with an introduction of +management attendees and directors, after which stockholders +will: +(1) +vote on the election of the three director nominees named in the +proxy statement for three-year terms expiring in 2014; +(2) +vote on the ratification of the Audit Committee’s +appointment of Ernst & Young LLP as the Company’s +independent auditor for the fiscal year 2011; +(3) +vote on an advisory resolution approving compensation for the +Company’s named executive officers; +(4) +vote on how frequently the Company should seek future advisory +votes on compensation of its named executive officers; and +(5) +transact other business that may properly come before the +meeting. +The meeting will adjourn for a presentation on the +Company’s business operations, then resume for a report on +the voting results. You can vote at the meeting and any +adjournment of the meeting if you were a stockholder of record +on March 1, 2011. +By Order of the Board of Directors +Kenneth A. Grady, Secretary +PROXY +STATEMENT +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +We are furnishing you this proxy statement and enclosed proxy +card in connection with the solicitation of proxies by the Board +of Directors of Wolverine World Wide, Inc. to be used at the +Annual Meeting of Stockholders of the Company. Distribution of +this proxy statement and enclosed proxy card to stockholders is +scheduled to begin on or about March 11, 2011. +You can ensure that your shares are voted at the meeting by +submitting your instructions by telephone or by Internet, or by +completing, signing, dating and returning your proxy form in the +enclosed envelope. Submitting your instructions or proxy by any +of these methods will not affect your right to attend and vote +at the meeting. We encourage stockholders to submit proxies in +advance. A stockholder who gives a proxy may revoke it at any +time before it is exercised by voting in person at the annual +meeting, by delivering a subsequent proxy or by notifying the +inspectors of election in writing of such revocation. In order +to vote any shares at that meeting that are held for you in a +brokerage, bank or other institutional account, you must obtain +a proxy from that entity and bring it with you to hand in with +your ballot. +5 +Table of Contents +DIRECTORS +The Company’s Board of Directors (the “Board” or +“Board of Directors”) consists of 11 directors. +Wolverine’s Amended and Restated By-laws +(“By-laws”) divide the Board into three classes as +nearly equal in number as possible. Each class serves a +three-year term of office. At each annual meeting, the term of +one class expires. Subject to exceptions approved by the Board, +directors must retire and resign from the Board at the Annual +Meeting of Stockholders following their 72nd birthday. The Board +prides itself on its ability to recruit and retain directors who +have the highest personal and professional integrity, have +demonstrated exceptional ability and judgment and are effective +in serving the stockholders’ long-term interests. The +Board’s Governance Committee acts as the nominating +committee. The Committee, in anticipation of upcoming director +elections and other potential or expected Board vacancies, +searches for qualified individuals and recommends candidates for +director openings to the full Board. At the Company’s +expense, the Committee may retain a search firm or other +external parties to assist it in identifying candidates. The +Committee delegates +day-to-day +management and oversight of the external parties to the Chief +Executive Officer (“CEO”) and the Company’s +Senior Vice President of Human Resources. The Committee +considers candidates suggested by directors, senior management +and stockholders, and evaluates all candidates in the same +manner. Stockholders may recommend individuals as potential +director candidates by communicating with the Committee through +one of the Board communication mechanisms described under the +heading “Stockholders Communications Policy.” +Stockholders that wish to recommend a director candidate must +comply with the procedures set forth in the By-laws, posted on +the Company’s website. Ultimately, the Board selects the +Company nominees for election at each annual meeting. +Board +Composition +As stated in the Company’s Corporate Governance Guidelines, +Wolverine seeks to achieve diversity in its Board membership by +assembling a group of directors that have a broad range of +skills, expertise, knowledge and contacts to benefit the +Company’s business. The Governance Committee and the Board +annually assess the current +make-up of +the Board, considering diversity across many dimensions, and the +Committee uses this assessment when defining the criteria for a +director search. The Committee, along with the Board, assesses +the effectiveness of the diversity objective when reviewing +Board composition. Among other things, the Board has determined +that it is important to have individuals with the following +skills and experiences on the Board: +» +Footwear, apparel and retail experience . The +Company’s business focuses on the international marketing +and sale of footwear and apparel, both in wholesale and retail +markets. The Company has identified expanding its apparel and +retail businesses as two important growth initiatives. The Board +believes it is important to have directors with experience in +the footwear, apparel and retail industries to provide insights +into these and other areas that are critical to the +Company’s success. +» +Leadership experience . The Board believes that directors +with significant leadership experience, including CEO +experience, provide it with special insights, including +organization development and leadership practices, and those +individuals with this experience help the Company in identifying +and developing its own leadership talent. They demonstrate a +practical understanding of organizations, process, strategy, +risk management and the methods to drive change and growth. +These individuals also provide the Company with a valuable +network of contacts and relationships. +» +Global experience . The Company’s products are sold +in more than 190 countries and territories, reflecting the +global nature of its business. In fiscal year 2010, +approximately 38% of the Company’s revenues came from +outside the U.S. and more than 90% of the Company’s +products were sourced from outside the U.S. The Board +believes it is important to have directors who are familiar with +the challenges and opportunities faced by a global business. +» +Finance experience . The Company uses various financial +metrics in managing its overall operations and the operations of +its business units. Accurate financial tracking and reporting is +critical to the Company and its stockholders. Experience as +members of audit committees of other boards of +6 +Table of Contents +directors also gives directors insight into best audit committee +practices. The Board believes that understanding finance and +financial reporting processes is important for all directors, +and that several should qualify as audit committee financial +experts. +» +Public and private company experience . The Company has +been publicly traded since 1965. Although operating as part of a +public company, brand leaders also are expected to bring the +entrepreneurial spirit of private company leadership to drive +growth in their business units. The Board believes it is +important to have directors who are familiar with the regulatory +requirements and environment for publicly held corporations, and +to have directors who have experience applying an +entrepreneurial focus to building a company or business unit. +» +Government experience . A portion of the Company’s +business involves government contracting, and the Company +interacts with domestic and foreign governments routinely. The +Board recognizes the importance of working constructively with +governments around the world, and believes it is helpful to have +directors who have experience in or working with government. +The specific qualifications and experience of the individual +director nominees and directors are set forth below under +“Item 1: Election of Directors.” The Committee +also considers an individual’s relative skills, background +and characteristics, their exemplification of the highest +standards of personal and professional integrity, independence +under New York Stock Exchange (“NYSE”) listing +standards and the Company’s Director Independence +Standards, potential contribution to the composition and culture +of the Board, and ability and willingness to actively +participate in the Board and committee meetings and to otherwise +devote sufficient time to Board duties. +ITEM 1: +ELECTION +OF DIRECTORS – TERMS EXPIRING IN 2014 +Three directors will be elected at the annual meeting on +April 21, 2011, for three-year terms expiring at the annual +meeting of stockholders to be held in 2014 or until their +respective successors, if any, have been elected and are +qualified. The Company’s nominees include two independent +directors, as determined by the Board under the applicable rules +for companies whose securities are traded on NYSE and the +Company’s independence standards, and the Company’s +CEO, who is not an independent director. All director nominees +currently serve on the Board and were elected by the +stockholders at the Company’s 2008 annual meeting. The +Company does not know of any reason why any nominee would be +unable to serve as a director. However, if a nominee is unable +to serve or is otherwise unavailable for election, the incumbent +directors may or may not select a substitute nominee. If the +directors select a substitute nominee, the Company will vote the +shares represented by all valid proxies for the substitute +nominee (unless you give other instructions). +WILLIAM K. GERBER +Director since 2008 +Age 57 +Managing Director of Cabrillo Point Capital LLC +Mr. Gerber’s experience includes public company, +finance and accounting, apparel and retail industry, corporate +leadership, international operations and public company officer +and director experience. Mr. Gerber is Managing Director of +Cabrillo Point Capital LLC, a private investment fund. He has +held that position since 2008. From 1998 to 2007, +Mr. Gerber was Executive Vice President and Chief Financial +Officer of Kelly Services, Inc., a publicly traded global +staffing solutions company with operations in more than 35 +countries. In this role, Mr. Gerber was responsible for +investor relations, mergers and acquisitions and purchasing in +addition to core Chief Financial Officer functions. In addition +to Mr. Gerber’s 10 years of experience as Chief +Financial Officer of Kelly Services, Inc., he has 15 years +of experience in various finance roles, including Vice +President, Finance, and Vice President, Corporate Controller, +for Limited Brands, Inc., a publicly traded company in the +apparel and retail industry. Mr. Gerber is a director of +and Chairman of the Audit Committees of AK Steel Holding +Corporation and Kaydon Corporation. +7 +Table of Contents +BLAKE W. KRUEGER +Director since 2006 +Age 57 +Chairman, Chief Executive Officer and President of Wolverine +World Wide, Inc. +Mr. Krueger’s experience includes footwear, apparel +and retail industry, corporate leadership, branded marketing, +international operations, legal, and public company officer and +board experience. Mr. Krueger has more than 15 years +of experience as an executive officer of Wolverine, including +nearly four years as Chief Executive Officer with responsibility +for all aspects of the business, including international +operations, brand management, apparel and accessories and retail +development, footwear wholesale, manufacturing, sourcing, +corporate governance, human resources and mergers and +acquisitions. Mr. Krueger is currently Chairman of +Wolverine, a position he assumed in January 2010, and Chief +Executive Officer and President of Wolverine, positions he +assumed in April 2007. From October 2005 until April 2007, +Mr. Krueger served as President and Chief Operating Officer +of Wolverine. From 2004 to October 2005, he served as Executive +Vice President and Secretary of Wolverine and President of the +Heritage Brands Group. From 2003 to 2004, Mr. Krueger +served as Executive Vice President and Secretary of Wolverine +and President of the Caterpillar Footwear Group. He has also +previously served as Executive Vice President, General Counsel +and Secretary of Wolverine with various responsibilities +including the human resources, retail, business development, +accessory licensing, mergers and acquisitions, and legal areas. +During the preceding five years, Mr. Krueger was, but no +longer is, a director of Professionals Direct, Inc. +MICHAEL A. VOLKEMA +Director since 2005 +Age 55 +Chairman of Herman Miller, Inc. +Mr. Volkema’s experience includes corporate +leadership, branded marketing, international operations, public +company officer and board experience and public company finance +and accounting experience through audit committee service. +Mr. Volkema has more than 20 years of experience as a +senior executive in the home and office furnishings industry, +including nine years as Chief Executive Officer of Herman +Miller, Inc., a leading designer and manufacturer of furnishings +for the office and home, and a publicly traded company with +international, branded operations. Mr. Volkema has been +Chairman of Herman Miller, Inc. since 2000. Mr. Volkema +became President and Chief Executive Officer of Herman Miller in +1995 and held those positions until 2003 and 2004, respectively. +Mr. Volkema has more than 20 collective years of experience +on public company boards, including nine years as Chairman of +the Board at Herman Miller, Inc., and including service on +public company compensation and audit committees. During the +preceding five years, Mr. Volkema was, but no longer is, a +director of Champion Enterprises, Inc. and Applebee’s +International, Inc. +Board +Recommendation +The Board recommends that you vote “FOR” the +election of the above nominees for terms expiring in 2014. +8 +Table of Contents +CONTINUING +DIRECTORS – ELECTED IN 2010 WITH TERMS EXPIRING IN +2013 +JEFFREY M. BOROMISA +Director since 2006 +Age 56 +Retired Executive Vice President of Kellogg International, +President of Latin America; Senior Vice President of Kellogg +Company, and member of Kellogg Company’s Global Leadership +Team +Mr. Boromisa’s experience includes public company +officer, finance and accounting, corporate leadership, branded +marketing and international operations experience. This +experience includes service as Chief Financial Officer and in +other senior finance roles and in senior roles involving +executive management, brand management, marketing and +international operations, during his more than 25 year +career at Kellogg Company, a publicly traded, multinational +company and leading global cereal, snack and specialty foods +company. Mr. Boromisa was Executive Vice President of +Kellogg International, President of Latin America; Senior Vice +President of Kellogg Company, and a member of Kellogg +Company’s Global Leadership Team from 2008 through March +2009. From 2006 until 2008, Mr. Boromisa served as +Executive Vice President of Kellogg International, President of +Asia Pacific and Senior Vice President of the Kellogg Company, +as well as serving as a member of Kellogg Company’s Global +Leadership Team. From 2004 until 2006, he was Senior Vice +President and Chief Financial Officer of Kellogg Company. In +2002, Mr. Boromisa was promoted to Senior Vice President, +Corporate Controller and Chief Financial Officer of Kellogg +International. Mr. Boromisa served as Vice President and +Corporate Controller of Kellogg Company from November 1999 until +2002. In 1997, he was promoted to Vice President — +Purchasing of Kellogg North America, and from 1981 to 1997, +served Kellogg Company in various financial positions. +Mr. Boromisa also is a director at Haworth, Inc., a +privately held, international, office furniture design and +manufacturing company. +DAVID T. KOLLAT +Director since 1992 +Age 72 +President and Chairman of 22, Inc. +Mr. Kollat’s experience includes apparel and retail +industry, branded marketing, corporate leadership, public +company officer and board experience and public company finance +and accounting experience through audit committee service. +Mr. Kollat has been President and Chairman of 22, Inc., a +company specializing in research and management consulting for +retailers and consumer goods manufacturers, since 1987. In +addition to his marketing and management experience as President +and Chairman of 22, Inc., Mr. Kollat has 11 years of +experience as Executive Vice President, Marketing, and a member +of the executive committee of Limited Brands, Inc., a publicly +traded company operating in the apparel and retail industry, and +three years at Limited Brands, Inc. as President of +Victoria’s Secret Direct. Mr. Kollat has 80 collective +years of experience serving on public company boards, including +experience on audit (13 years), compensation +(14 years), governance (7 years) and finance +(8 years) committees of public company boards. +Mr. Kollat is Lead Director of Wolverine and currently +serves as a director of Limited Brands, Inc.; Big Lots, Inc.; +and Select Comfort Corporation. In 2009, prior to +Mr. Kollat’s re-election as a director, the Board +decided to waive the Company’s age 72 resignation +requirement for Mr. Kollat, allowing him to serve an +additional term ending in 2013. +9 +Table of Contents +DAVID P. MEHNEY +Director since 1977 +Age 71 +President of The KMW Group, Inc. +Mr. Mehney’s experience includes corporate leadership, +branded marketing and international operations experience. +Mr. Mehney has been President of The KMW Group, Inc. since +1966. The KMW Group, Inc. and its subsidiaries import and +distribute medical products in the United States, Canada, Europe +and Asia and distribute marine products in Michigan. +Mr. Mehney’s experience with The KMW Group, Inc. +includes establishing foreign-owned brands in the United States +market and the distribution of sourced products in the United +States, Canada, Europe and Asia. Mr. Mehney has been +associated with Wolverine’s business and industry for more +than 30 years as a member of Wolverine’s Board of +Directors. +TIMOTHY J. O’DONOVAN +Director since 1993 +Age 65 +Retired Chairman of the Board and Chief Executive Officer of +Wolverine World Wide, Inc. +Mr. O’Donovan’s experience includes footwear, +apparel and retail industry, corporate leadership, branded +marketing, international operations, public company officer and +board experience and public company finance and accounting +experience through audit committee service. +Mr. O’Donovan has more than forty years of experience +with Wolverine, including two years as non-executive Chairman of +the Board and seven years as Chief Executive Officer, with +responsibility for all aspects of the business, including +international operations, brand management, apparel and +accessories and retail development, footwear wholesale, +manufacturing, sourcing, corporate governance, human resources +and mergers and acquisitions. Mr. O’Donovan is a +former Chairman of the Board of Wolverine, and served in that +position from April 2005 through December 2009. In April 2007, +Mr. O’Donovan retired as Chief Executive Officer of +Wolverine, a position which he held since April 2000. +Mr. O’Donovan served Wolverine as its Chief Executive +Officer and President from April 2000 until April 2005, and as +Chief Operating Officer and President from 1996 until April +2000. Before 1996, Mr. O’Donovan was Executive Vice +President of Wolverine. Mr. O’Donovan has more than 25 +collective years of experience on public company boards and +service on both audit (four years) and compensation (five years) +committees of public company boards. Mr. O’Donovan is +currently a director of Spartan Stores, Inc. and Kaydon +Corporation. +CONTINUING +DIRECTORS – ELECTED IN 2009 WITH TERMS EXPIRING IN +2012 +ALBERTO L. GRIMOLDI +Director since 1994 +Age 69 +Chairman of Grimoldi, S.A. +Mr. Grimoldi’s experience includes footwear, apparel +and retail industry experience, corporate leadership, +international operations, government and branded marketing +experience. Mr. Grimoldi has more than 25 years of +experience in the footwear and retail industries with Grimoldi, +S.A., a publicly traded company in Argentina that sells footwear +and apparel in both wholesale and retail markets. +Mr. Grimoldi has been Chairman of Grimoldi, S.A. since +1986. Mr. Grimoldi has significant additional international +10 +Table of Contents +operations and finance experience in the private sector, including as a member +of the Advisory Board of Ford Motor Company and as Vice Chairman +of Banco Privado de Inversiones, S.A., an investment bank, as +well as leadership and finance experience earned while in +government service in Argentina as Undersecretary of Foreign +Trade, Undersecretary of Economics and Labor, Secretary of +Industry and a member of the board of the Central Bank of +Argentina. +JOSEPH R. GROMEK +Director since 2008 +Age 64 +President, Chief Executive Officer and a Director of The +Warnaco Group, Inc. +Mr. Gromek’s experience includes footwear, apparel and +retail industry, corporate leadership, international operations, +public company officer and branded marketing experience. +Mr. Gromek has more than 30 years of experience +managing and marketing brands and 40 years of experience in +the retail and apparel industry, including 14 years as a +chief executive officer. Since 2003, Mr. Gromek has served +as President, Chief Executive Officer and a Director of The +Warnaco Group, Inc., a publicly traded company which designs, +sources, manufactures, markets, retails, licenses and +distributes a broad line of intimate apparel, sportswear and +swimwear worldwide. As Chief Executive Officer of The Warnaco +Group, Inc., Mr. Gromek oversees extensive U.S. and +international branded operations and points of distribution. +Mr. Gromek also served as Chief Executive Officer of Brooks +Brothers, Inc. from 1996 until 2002. +BRENDA J. LAUDERBACK +Director since 2003 +Age 60 +Retired President of the Wholesale and Retail Group of Nine +West Group, Inc. +Ms. Lauderback’s experience includes footwear, apparel +and retail industry, corporate leadership, branded marketing, +international operations, public company board and public +company finance and accounting experience through audit +committee service. Ms. Lauderback has more than +25 years of experience in the retail industry and more than +20 years of footwear, apparel, and accessories industry +experience. From 1995 until her retirement in 1998, +Ms. Lauderback was president of the Wholesale and Retail +Group of Nine West Group, Inc., a footwear wholesaler and +distributor. She previously was the President of the Wholesale +Division of U.S. Shoe Corporation, a footwear manufacturer and +distributor, a position that included responsibility for offices +in China, Italy and Spain, and was a Vice President/General +Merchandise Manager of Dayton Hudson Corporation, a retailer. +Ms. Lauderback has more than 35 collective years of +experience on public company boards and collective experience of +more than 20 years on audit, compensation and governance +committees of public company boards and is chair of three +governance committees. Ms. Lauderback is a director of Big +Lots, Inc.; Denny’s Corporation and Select Comfort +Corporation. During the preceding five years, +Ms. Lauderback also was, but no longer is, a director of +Irwin Financial Corporation. +SHIRLEY D. PETERSON +Director since 2005 +Age 69 +Retired Partner of Steptoe & Johnson LLP +Ms. Peterson’s experience includes legal, financial +and executive management experience from both the public and +private sectors, public company board, government and public +company finance and accounting experience through +11 +Table of Contents +audit +committee service. Ms. Peterson has diverse management +experience in various private and public sector roles, including President of +Hood College, Assistant Attorney General of the Tax Division for +the U.S. Department of Justice, Commissioner of the Internal +Revenue Service and more than 20 years in private law +practice as a tax attorney at the law firm Steptoe & +Johnson LLP. From 1995 until her retirement in 2000, +Ms. Peterson served as President of Hood College of +Frederick, Maryland. Ms. Peterson has more than 30 +collective years of experience on public company boards, +including experience on boards of companies with significant +international, retail, brand development, manufacturing and +sourcing operations, as well as more than 20 collective years of +experience serving on public company audit committees and more +than 30 collective years of experience serving on public company +governance committees, with an additional 13 years of +experience serving on the governance committee of the DWS +Fund Complex. Ms. Peterson is currently a director of +The Goodyear Tire & Rubber Company and of AK Steel +Holding Corporation. During the preceding five years, +Ms. Peterson also was, but no longer is, a director of +Federal-Mogul Corporation and Champion Enterprises, Inc., and +was a director or trustee of various funds within the DWS +Fund Complex. +12 +Table of Contents +CORPORATE +GOVERNANCE +GOVERNANCE +PRINCIPLES +The Board’s Corporate Governance Guidelines (including the +Director Independence Standards) and the Charter for each Board +standing committee (Audit, Compensation and Governance); the +Company’s Certificate of Incorporation; By-laws; Code of +Conduct & Compliance and its Accounting and Finance +Code of Ethics all are available on the Wolverine website at +http://www.wolverineworldwide.com/investor-relations/corporate-governance/. +The Board and committees annually review and update these and +other key governance documents. +The Board and each standing committee conduct an annual +self-assessment. Each director also evaluates the performance of +the other directors as part of the Board self-assessment. The +Lead Director, working with the Governance Committee, reviews +the Board self-assessment with directors following the end of +each fiscal year. The committee Chairpersons review the +committee self-assessments with their respective committee +members and discuss them with the Board. The Lead Director, also +with the Governance Committee, develops and implements +guidelines evaluating all directors standing for nomination and +re-election. +Risk +Oversight +The Board oversees the Company’s risk management and +mitigation activities directly through presentations by and +discussions with the CEO, Chief Financial Officer +(“CFO”), General Counsel, brand and department +leaders, and other members of management. The Company’s +management Risk Advisory Committee, consisting of the CFO and +other senior level functional executives, meets periodically and +leads management’s risk management and mitigation +processes, which include reviews of long-term strategic and +operational planning; executive development and evaluation; +regulatory and litigation compliance; financial reporting and +control; and information technology and security. The Director +of Internal Audit coordinates management’s +day-to-day +risk management and mitigation processes and reports directly to +the CFO and to the Audit Committee. The Director of Internal +Audit also reviews with the Audit Committee quarterly and the +full Board annually management’s risk assessments and +mitigation strategies for significant risks. The Board also has +delegated the following risk management and mitigation oversight +responsibilities to its standing committees, which meet +regularly to review and discuss risk topics and then report to +the full Board: +» +The Audit Committee oversees the Company’s risk policies +and processes relating to its financial statements and financial +reporting processes, credit risks, and liquidity risks; and +reviews the Company’s policies and systems with respect to +risk assessment and risk management. The Committee discusses +with management and the independent auditors significant risks +or exposures and the steps taken by management to resolve them. +The Committee also oversees the Company’s procedures for +the receipt, retention and treatment of complaints relating to +accounting and auditing matters and oversees the Company’s +management of legal and regulatory compliance systems. +» +The Compensation Committee monitors the risks associated with +management resources; organization structure; succession +planning, hiring, development and retention processes; and +reviews and evaluates the effects the Company’s +compensation structure may have on risk decisions. +» +The Governance Committee oversees risks related to the +Company’s governance structure and processes and risks +arising from related person transactions. +Risk +Considerations in Compensation Programs +The Company reviewed its employee compensation programs to +assess whether any of those programs included incentives that +created risks likely to have a material adverse impact on the +Company. As part of this review, the Company compiled +comprehensive information about the Company’s incentive +plans, +13 +Table of Contents +including identifying all incentive plans, reviewing the +Company’s compensation philosophy, evaluating key incentive +plan design features, and reviewing historic payout levels and +pay mix. The Compensation Committee reviewed the executive +compensation programs, with management’s assistance, and +managers from the Company’s human resources and legal +departments reviewed the non-executive compensation programs. +Board +Leadership +The Company’s CEO currently also serves as the Chairman of +the Board and, since 1993, the Company has had an independent +Lead Director who functions in many ways similar to how an +independent Chairman would function. This long-established +structure provides the Board with independent oversight of the +CEO’s leadership. The Board believes that it should decide +whether to separate the roles of Chairman and CEO based upon the +Company’s circumstances at the time and considers the +Board’s leadership structure as part of the succession +planning process. The Company’s business currently focuses +on the development of footwear and apparel, and its retail +business. Because the Company does not operate multiple, +unrelated business segments and given the size of the Company, +the Board believes that separating the Chairman and CEO roles at +this time would add unnecessary complexity to the organization +structure without adding materially to Board oversight of the +CEO function. The Company’s independent directors annually +select an independent Lead Director. As outlined in the +Corporate Governance Guidelines, the duties of the Lead Director +include: +» +reviewing and approving the agenda and scheduling for Board and +committee meetings; +» +overseeing and approving information sent to the Board; +» +presiding over executive sessions of the independent directors +and having the authority to call executive sessions; +» +serving as a liaison between the Chairman and the independent +directors; +» +presiding over Board meetings in the absence of the +Chairman; and +» +consulting and communicating with stockholders, as appropriate. +Director +Independence +The Board annually assesses the independence of all directors. +The Board currently has eight independent directors out of +eleven directors, representing a substantial majority (more than +72%) of the Board. These independent directors meet periodically +each year in executive session. All of the Board’s +committees are comprised entirely of independent directors. The +Board believes that this structure provides for meaningful and +effective oversight of management by the independent directors. +No director qualifies as “independent” unless the +Board affirmatively determines that the director is independent +under the Company’s Director Independence Standards and the +listing standards of the NYSE. For over 15 years, Wolverine +has not had more than two active or former management employees +as directors. When determining whether a director is +independent, the Board considers the factors identified below +and such other factors that the Board deems relevant. The +Director Independence Standards define an “Independent +Director” as a director who: +» +is not, and has not been within the last three years, an +employee of the Company; +» +does not have, and has not had within the last three years, an +immediate family member employed as an executive officer of the +Company; +» +has not received, and has not had an immediate family member +receive during any twelve-month period within the last three +years, any direct compensation from the Company in excess of +$120,000 (other than compensation for Board service; +compensation received by the director for former service as an +interim Chairman, CEO or other executive officer; compensation +received by the director’s immediate family member for +service as a non-executive employee; or pension and +14 +Table of Contents +other forms of deferred compensation for prior service if such +compensation is not contingent in any way on continued service); +» +is not a current employee or partner of a firm that is the +Company’s internal or external auditor (“Company +Auditor”); +» +has not been, and has not had an immediate family member who has +been within the last three years, a partner or employee of a +Company Auditor and personally worked on the Company’s +audit within that time; +» +has not had an immediate family member who is (i) a current +partner of a Company Auditor, or (ii) a current employee of +a Company Auditor who personally works on Wolverine’s audit; +» +is not, and has not been within the last three years, part of an +interlocking directorate in which a current executive officer of +Wolverine serves or served on the compensation committee of +another company where the director or the director’s +immediate family member concurrently serves or served as an +executive officer; +» +does not have, and has not had within the last three years, an +immediate family member who is or has been part of an +interlocking directorate in which a current executive officer of +Wolverine serves or served on the compensation committee of +another company where the director or the director’s +immediate family member concurrently serves or served as an +executive officer; +» +is not an employee, majority owner or person in control of +another company that has made payments to, or received payments +from, Wolverine for property or services in an amount which, in +any of the last three fiscal years, exceeds the lesser of +$250,000 or 10% of the other company’s consolidated gross +revenues; +» +does not have an immediate family member who is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1,000,000 or 2% of the other company’s +consolidated gross revenues; +» +is not an executive officer, trustee or board member of a tax +exempt organization to which Wolverine has made in the past +three fiscal years contributions that, in any single fiscal +year, exceeded the greater of $50,000 or 2% of the non-profit +organization’s, foundation’s or educational +institution’s consolidated gross revenues; and +» +has not had any other direct or indirect relationship with +Wolverine, which the Board determines is material. +“Immediate Family Member” covers spouses, parents, +children, siblings, in-laws, and any person (other than domestic +employees) sharing the household of any director, nominee for +director, executive officer, or significant stockholder of a +company. +Under these standards, and in conformity with the listing +standards of the NYSE, the Board has determined that the +following directors are independent: Jeffrey M. Boromisa, +William K. Gerber, Joseph R. Gromek, David T. Kollat, Brenda J. +Lauderback, David P. Mehney, Shirley D. Peterson, and Michael A. +Volkema. Mr. Krueger is not independent because he +currently is the Company’s CEO and President. +Mr. Grimoldi is not independent because he is the Chairman +and 35% owner of a company that made payments to Wolverine in +excess of $1,000,000 per year in the last three years. +Mr. O’Donovan is not independent because he serves as +a director of a foundation board and the Company contributes to +the foundation. In evaluating Mr. Mehney’s +independence, the Board considered the transactions between a +company partly owned by Mr. Mehney’s son and the +Company, as set forth in the “Certain Relationships and +Related Transactions” section. +15 +Table of Contents +Board of +Directors and Committees +The stockholders elect the Board to oversee Company management. +The Board delegates authority to the CEO and senior management +to pursue the Company’s mission, and oversees the +CEO’s and senior management’s conduct of the +Company’s business. In addition to its general oversight +function, the Board reviews and assesses the Company’s +strategic and business planning, senior management’s +approach to addressing significant risks, and has additional +responsibilities including, but not limited to, the following: +» +reviewing and approving the Company’s key objectives and +strategic business plans and monitoring implementation of those +plans and the Company’s success in meeting identified +objectives; +» +reviewing the Company’s financial objectives and major +corporate plans, business strategies and actions; +» +selecting, evaluating and compensating the CEO and overseeing +CEO succession planning; +» +providing advice and oversight regarding the selection, +evaluation, development and compensation of senior management; +» +reviewing significant risks confronting the Company and +alternatives for their mitigation; and +» +assessing whether adequate policies and procedures are in place +to safeguard the integrity of the Company’s business +operations and financial reporting, and to promote compliance +with applicable laws and regulations, and monitoring +management’s administration of those policies and +procedures. +During 2010, the Board held eight meetings. The Company expects +directors to attend every meeting of the Board and the +committees on which they serve and attend the annual meeting of +stockholders. In 2010, each director then serving on the Board +attended the 2010 Annual Meeting of Stockholders and all +directors attended at least 75% of the meetings of the Board and +the committees on which they served. The following table +identifies the current committee members of each of the +Board’s three standing committees and the number of +meetings each committee held in 2010. +Name +Audit +Compensation +Governance +Jeffrey M. Boromisa +X +* +William K. Gerber +X +X +Alberto L. Grimoldi +Joseph R. Gromek +X +X +David T. Kollat +X +Blake W. Krueger +Brenda J. Lauderback +X +X +* +David P. Mehney +Timothy J. O’Donovan +Shirley D. Peterson +X +X +Michael A. Volkema +X +* +X +Number of Meetings +12 +7 +5 +* Current +Committee Chairperson +Audit Committee. The Board has determined that each +Audit Committee member is “independent” as defined by +NYSE rules and the Sarbanes-Oxley Act of 2002, as applicable to +audit committee members, and that all satisfy the NYSE +“financial literacy” requirement. Mr. Boromisa +and Mr. Gerber are “audit committee financial +experts” under SEC rules. The Audit Committee: +» +represents and assists the Board in fulfilling its oversight +responsibility regarding Wolverine’s financial reporting +and accounting process; +» +appoints, retains, compensates, oversees, evaluates and, if +appropriate, terminates the independent auditors; +16 +Table of Contents +» +annually reviews the performance, effectiveness, objectivity and +independence of the independent auditors and Wolverine’s +internal audit function; +» +obtains and reviews the independent auditors’ internal +quality control report and other reports required by applicable +rules, regulations and standards; +» +assesses auditor independence; +» +establishes procedures for the receipt, retention and treatment +of complaints regarding accounting and auditing matters; +» +meets to review with management and Wolverine’s independent +auditor Wolverine’s financial statements, including +disclosures in Management’s Discussion and Analysis of +Financial Condition and Results of Operations, that are included +in Wolverine’s reports on +Form 10-Q +and +Form 10-K; +» +reviews Wolverine’s policies and systems with respect to +risk assessment and risk management and discusses significant +risks or exposures with management and the independent auditors; +» +discusses with internal auditors and the independent auditors +the overall scope and plans for their respective audits; +» +oversees Wolverine’s legal and regulatory compliance +systems; +» +reviews and discusses the adequacy and effectiveness of +Wolverine’s internal control over financial reporting and +disclosure controls and procedures; and +» +establishes policies and procedures relating to the engagement +of the independent auditors, including pre-approval policies and +procedures. +Compensation Committee. The Board has determined +that each Compensation Committee member is +“independent” as defined by NYSE rules. None of the +members of the Compensation Committee was, during the 2010 +fiscal year, an officer or employee of Wolverine or formerly an +officer of Wolverine. No executive officer has served or +currently serves on the board of directors or compensation +committee of any other entity with executive officers who have +served or will serve on the Company’s Board or Compensation +Committee. The Compensation Committee: +» +assists the Board of Directors in discharging its +responsibilities relating to executive compensation and +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +» +oversees the overall compensation structure, policies and +programs, and assesses whether the compensation structure +establishes appropriate incentives for management and employees; +» +administers and makes recommendations with respect to incentive +compensation plans, including stock option and other +equity-based incentive plans; +» +reviews and approves the compensation of elected corporate +officers and other executives, including bonuses and equity +compensation; +» +oversees the Company’s management of any material risk +associated with its compensation structure, policies and +programs; +» +reviews and approves corporate and personal goals and objectives +relevant to CEO compensation, evaluates the performance of the +CEO in light of these goals and objectives, and, together with +the other independent directors, approves the compensation of +the CEO based on the evaluation; +» +reviews and discusses with management Wolverine’s +Compensation Discussion and Analysis and related disclosures +required by the rules of the SEC and recommends to the Board of +Directors whether such disclosures should be included in the +annual report and proxy statement; +» +reviews and approves the design of benefit plans pertaining to +executives; +17 +Table of Contents +» +reviews and recommends employment agreements and severance +arrangements for executives, including change in control +provisions, plans or agreements; and +» +establishes stock ownership guidelines for directors and +executive officers and monitors compliance with the guidelines. +See the “Compensation Discussion and Analysis” section +below for more information regarding the Compensation +Committee’s processes and procedures. +Governance Committee. The Board has determined that +each Governance Committee member is “independent” as +defined by NYSE rules. The Governance Committee: +» +assists the Board of Directors in fulfilling its +responsibilities on matters and issues related to the +Company’s corporate governance practices; +» +in conjunction with the Board of Directors, establishes +qualification standards for membership on the Board of Directors +and its committees; +» +leads the search for individuals qualified to become members of +the Board of Directors, reviews the qualifications of candidates +for election to the Board of Directors and assesses the +contributions and independence of incumbent directors eligible +to stand for reelection to the Board; +» +establishes procedures for the consideration of candidates for +the Board of Directors recommended for the Committee’s +consideration by the Company’s stockholders; +» +selects and recommends to the Board of Directors the +Company’s nominees for election or reelection by the +stockholders at the annual meeting, and to fill vacancies and +newly created directorships on the Board of Directors; +» +develops and recommends to the Board of Directors corporate +governance guidelines, reviews the guidelines on an annual +basis, and recommends any changes to the guidelines as necessary; +» +establishes and recommends to the Board guidelines, in +accordance with applicable rules and regulations, to be applied +when assessing the “independence” of directors; +» +considers applicable rules, regulations and disclosure +obligations regarding the presence of an “audit committee +financial expert” on the Audit Committee and recommends to +the Board of Directors actions to address such requirements; +» +reviews and approves related person transactions, as defined in +applicable SEC rules, and establishes policies and procedures +for the review, approval and ratification of related person +transactions; +» +annually reviews the compensation of directors for service on +the Board of Directors and committees and makes recommendations +to the Board of Directors regarding such compensation; +» +recommends to the Board of Directors key executives to serve as +corporate officers; +» +annually reviews and makes recommendations to the Board of +Directors concerning the structure, composition and functioning +of the Board of Directors and its committees and recommends to +the Board of Directors, directors to serve as committee members +and chairpersons; +» +reviews and recommends to the Board of Directors retirement and +other tenure policies for directors; +» +reviews directorships in other public companies held by or +offered to directors and senior officers of the Company; +» +reviews and assesses channels through which the Board of +Directors receives information, and the quality and timeliness +of information received; and +» +develops and recommends to the Board of Directors for its +approval an annual self-evaluation process for the Board and its +committees, and oversees the evaluation process. +18 +Table of Contents +Code of +Conduct & Compliance and Accounting and Finance Code +of Ethics +The Board has adopted a Code of Conduct & Compliance +for the Company’s directors, officers and employees. The +Board also has adopted an Accounting and Finance Code of Ethics +(“Accounting and Finance Code”). This Accounting and +Finance Code focuses on the financial reporting process and +applies to the Company’s CEO, CFO and Corporate Controller. +The Company will disclose, in accordance with all applicable +laws and regulations, amendments to, or waivers from, its Code +of Conduct & Compliance or its Accounting and Finance +Code. +Stockholder +Communications Policy +Stockholders and other interested parties may communicate with +members of Wolverine’s Board through various links provided +on Wolverine’s website at +www.wolverineworldwide.com/investor-relations/corporate-governance/, +or by sending correspondence to the Board, a specific Board +committee or a director (including the Lead Director) +c/o Secretary, +Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. The Secretary reviews all +communications to determine whether the contents include a +message to a specific director and will provide a summary and +copies of all correspondence (other than solicitations for +services, products or publications) to the applicable directors +at each regularly scheduled meeting. The Secretary will alert +individual directors to items that warrant a prompt response +from the individual director prior to the next regularly +scheduled meeting. The Secretary will route items warranting +prompt response, but not addressed to a specific director, to +the applicable committee chairperson. You may submit any +suggestions, concerns or reports of misconduct at Wolverine or +complaints or concerns regarding Wolverine’s financial +statements and accounting, auditing, internal control and +reporting practices on www.WolverineReportLine.com (anonymously, +if desired) or by writing to the Audit Committee +c/o the +Secretary at the above address. +NON-EMPLOYEE +DIRECTOR COMPENSATION IN FISCAL YEAR 2010 +Wolverine’s director compensation philosophy is to pay +compensation competitive with compensation paid by companies of +similar size in the same industries, same region and with whom +Wolverine competes for director candidates. Each year, the +Governance Committee, with input from management, reviews +director compensation and compares it to market data for +companies of similar size in the same industries, and companies +of similar size in the geographic region of Wolverine’s +headquarters. The following table provides information +concerning the compensation of the Company’s non-employee +directors for its fiscal year ended January 1, 2011 +(“fiscal year 2010”). Mr. Krueger does not +receive any compensation for his services as a director in +addition to his compensation as CEO. +Fees +Earned +or Paid in +Option +Cash 1 +Awards 2 +Total +Name +($) +($) +($) +Jeffrey M. Boromisa +$ +122,500 +$ +28,916 +$ +151,416 +William K. Gerber +$ +122,125 +$ +28,916 +$ +151,041 +Alberto L. Grimoldi +$ +102,000 +$ +28,916 +$ +130,916 +Joseph R. Gromek +$ +114,000 +$ +28,916 +$ +142,916 +David T. Kollat +$ +137,000 +$ +28,916 +$ +165,916 +Brenda J. Lauderback +$ +127,000 +$ +28,916 +$ +155,916 +David P. Mehney +$ +102,000 +$ +28,916 +$ +130,916 +Timothy J. O’Donovan +$ +99,000 +$ +28,916 +$ +127,916 +Shirley D. Peterson +$ +122,000 +$ +28,916 +$ +150,916 +Michael A. Volkema +$ +122,000 +$ +28,916 +$ +150,916 +1 +Represents cash payments received +or deferred by directors in fiscal year 2010. Directors may +defer director fees and receive stock units pursuant to the +Deferred Compensation Plan. The following table shows the Fees +19 +Table of Contents +Earned or Paid in Cash separated +into amounts received in cash, the cash amounts Directors +voluntarily deferred, and amounts required to be deferred under +the annual equity retainer that will be paid out in stock: +Cash Amounts +Cash Amounts +Deferred Through +Voluntarily +Annual Equity +Name +Fees Paid in Cash +Deferred +Retainers +Jeffrey M. Boromisa +— +$ +82,500 +$ +40,000 +William K. Gerber +$ +82,125 +— +$ +40,000 +Alberto Grimoldi +— +$ +62,000 +$ +40,000 +Joseph R. Gromek +— +$ +74,000 +$ +40,000 +David T. Kollat +$ +97,000 +— +$ +40,000 +Brenda J. Lauderback +$ +65,250 +$ +21,750 +$ +40,000 +David P. Mehney +— +$ +62,000 +$ +40,000 +Timothy J. O’Donovan +$ +59,000 +— +$ +40,000 +Shirley D. Peterson +$ +82,000 +— +$ +40,000 +Michael A. Volkema +$ +82,000 +— +$ +40,000 +2 +Represents the aggregate grant date +fair value of stock options granted to non-employee directors in +fiscal year 2010, calculated in accordance with FASB Accounting +Standard Codification (“ASC”) Topic 718. Listed below +are the aggregate outstanding option awards held by non-employee +directors at the end of fiscal year 2010. For valuation +assumptions, see the Stock-Based Compensation footnote to +Wolverine’s Consolidated Financial Statements for fiscal +year 2010. +Option Awards +Outstanding at +January 1, 2011 +Name +(#) +Jeffrey M. Boromisa +22,160 +William K. Gerber +18,315 +Alberto Grimoldi +46,248 +Joseph R. Gromek +17,733 +David T. Kollat +46,428 +Brenda J. Lauderback +22,464 +David P. Mehney +46,428 +Timothy J. O’Donovan* +329,020 +Shirley D. Peterson +31,027 +Michael A. Volkema +26,327 +* +The Company granted +Mr. O’Donovan 317,596 of these stock +options when he was an executive officer of the Company. +20 +Table of Contents +For fiscal year 2010, the Company compensated non-employee +directors as follows: +Cash +Options +Stock Units +Newly Appointed or Elected Director +$0 +Number of options equal to $180,000 divided by closing market +price of the Company’s common stock on date of initial +election or +appointment 1 +Annual Director Fee +$35,000 +Number of options equal to three times annual cash retainer +divided by closing market price of the Company’s common +stock on date of Annual +Meeting 2 +Number of stock units equivalent to $40,000 determined by +dividing the dollar grant amount by the closing market price of +the Company’s common stock on the date of the +grant 2 +Board Meeting Attendance +Fee 4 +$3,000 +Committee Meeting Attendance +Fee 4 +$1,000 +Audit Committee Chairperson Annual +Fee 5 +$7,500 +Compensation Committee Chairperson Annual +Fee 5 +$5,000 +Governance Committee Chairperson Annual +Fee 5 +$5,000 +Lead Director Annual +Fee 6 +$70,000 +1 +For fiscal year 2011, the Company +increased the number of new director stock options to an amount +equal to $210,000. +2 +For fiscal year 2010, each +non-employee director received 3,334 options granted under the +Stock Incentive Plan of 2010. These options were fully vested on +the grant date and have a term of 10 years. The exercise +price of options granted is equal to the closing market price of +Wolverine’s common stock on the date each option is granted. +3 +For fiscal year 2010, one grant was +made in April 2010, at the time of the Company’s Annual +Stockholder Meeting. Stock units are fully vested on the grant +date and are credited under the Amended and Restated Outside +Directors’ Deferred Compensation Plan (the “Deferred +Compensation Plan”). The terms of the Deferred Compensation +Plan and stock units are described below. For fiscal year 2010, +the Company credited each non-employee director with an +aggregate of 1,270 stock units. For fiscal year 2011, the +Company increased the number of stock units to an amount equal +to $50,000. +4 +The fees include teleconference +meetings. Beginning in 2011, directors will receive an annual +meeting fee for Board meetings ($15,000), annual meeting fees +for Committees ($10,000 Audit, $7,000 each for Compensation and +Governance). Directors also will receive, for each meeting +during the year in excess of the trigger listed below, an +additional per-meeting fee: +Meeting +Trigger +Fee +Board +10 +$ +3,000 +Audit +15 +$ +1,000 +Compensation +10 +$ +1,000 +Governance +10 +$ +1,000 +5 +Beginning in 2011, the Audit +Committee Chairperson and Compensation Committee Chairperson +annual fees each increase to $15,000 and the Governance +Committee Chairperson annual fee increases to $10,000. +6 +Lead Director Annual Fee is in lieu +of the annual cash retainer. The Lead Director also receives the +standard director fee for attendance at Board meetings and the +annual grant of stock options, but does not receive attendance +fees for committee meetings. +Wolverine also pays director expenses associated with attending +Board and committee meetings and other Wolverine functions, and +industry functions such as trade shows. It also pays spouse +travel expenses in connection with international Board strategic +planning meetings, which typically happen every other year, but +did not pay any such expenses in 2010. In addition, the Company +provides office space and administrative assistance to directors +who visit the Company’s headquarters or other locations. +From +time-to-time, +Wolverine provides directors with samples of Wolverine products +of nominal value for review and assessment. Wolverine reimburses +directors for some approved expenses relating to director +education. Directors who are also employees of Wolverine or any +of its subsidiaries do not receive an annual cash or equity +retainer and do not receive compensation for attendance at Board +or committee meetings. +21 +Table of Contents +Deferred Compensation Plan. In 2008, Wolverine +adopted the Deferred Compensation Plan, a supplemental +nonqualified deferred compensation plan for directors who are +not employees of Wolverine or its subsidiaries. Wolverine +continues to maintain a separate non-employee director deferred +compensation plan that applies to benefits accrued under that +plan before January 1, 2005. The Deferred Compensation Plan +permits all non-employee directors to defer 25%, 50%, 75% or +100% of their director fees. Deferred compensation is deemed to +be invested in Wolverine common stock. If a director elects to +defer director fees, Wolverine establishes an account on its +books for such director. Wolverine credits such account with a +number of stock units equal to the amounts deferred and annual +equity retainer amounts described above, divided by the closing +market price of common stock on the payment date. The Company +also credits director accounts with dividend equivalents in the +form of additional stock units. +Upon a director’s termination of service or such later date +as a director selects, the Company distributes accumulated stock +units in the director’s account in shares of Wolverine +common stock. The distribution is a single, lump-sum payment, or +is annual installment payments over a period of up to +20 years (10 years under the prior plan). The Company +converts each stock unit to one share of Wolverine common stock. +Upon a “change in control”, the Company distributes to +the director, in a single lump sum payment, Wolverine common +stock in a number of shares equal to the stock units credited to +a director’s account. The Deferred Compensation Plan +defines “change in control” as: +» +the acquisition by any person, or by more than one person acting +as a group, of more than 50% of either (i) the then +outstanding shares of common stock of Wolverine or (ii) the +total fair market value of Wolverine; +» +the acquisition by any person, or more than one person acting as +a group, during the +12-month +period from and including the date of the most recent +acquisition, of ownership of 30% or more of the outstanding +common stock of Wolverine; +» +the replacement of a majority of the individuals who constitute +the Board during any +12-month +period by directors whose appointment or election is not +endorsed by a majority of the directors prior to the date of the +appointment or election; or +» +the acquisition, during any +12-month +period ending on the date of the most recent acquisition, by any +person of assets from Wolverine having a gross fair market value +of at least 40% of the gross fair market value of all the assets +of Wolverine immediately before the acquisition. +Non-Employee +Director Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that +each non-employee director maintain a stock ownership level +(including stock units under the Deferred Compensation Plan, but +excluding stock options) equal to five times the non-employee +director cash retainer to align further the interests of these +individuals with the stockholders. Each non-employee director +must meet the ownership requirement by the end of the fifth year +after he or she becomes subject to the guidelines. All +non-employee directors who have been Wolverine directors for at +least five years meet the ownership requirement. +22 +Table of Contents +SECURITIES +OWNERSHIP OF OFFICERS AND DIRECTORS AND CERTAIN BENEFICIAL +OWNERS +Five Percent +Stockholders +The following table sets forth information as to those holders +known to Wolverine to be the beneficial owners of more than five +percent of Wolverine’s outstanding shares of common stock +as of December 31, 2010: +Amount and Nature of Beneficial Ownership of Common Stock +Shared Voting +Sole +and +Total +Name and Address +Sole Voting +Investment +Investment +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class 5 +BlackRock, +Inc. 1 +3,733,991 +3,733,991 +0 +3,733,991 +7.5 +% +40 East +52 nd +Street +New York, NY 10022 +Royce & Associates +LLC 2 +3,660,024 +3,660,024 +0 +3,660,024 +7.4 +% +745 Fifth Avenue +New York, NY 10151 +NFJ Investment Group +LLC 3 +2,766,600 +2,793,700 +0 +2,793,700 +5.6 +% +2100 Ross Avenue, +Suite 700 Dallas, TX 75201 +The Vanguard Group, +Inc. 4 +64,174 +2,452,867 +64,174 +2,517,041 +5.1 +% +100 Vanguard boulevard +Malvern, PA 19355 +1 +Based on information set forth in +a Schedule 13G filed on February 9, 2011. The +Schedule 13G indicates that BlackRock, Inc. beneficially +owns, in the aggregate, 3,733,991 shares of Wolverine +common stock. +2 +Based on information set forth in a +Schedule 13G/A filed on January 26, 2011. The +Schedule 13G/A indicates that Royce & Associates +LLC beneficially owns, in the aggregate, 3,660,024 shares +of Wolverine common stock. +3 +Based on information set forth in a +Schedule 13G/A filed on February 14, 2011, filed +jointly by NFJ Investment Group LLC and Allianz Global Investors +Capital LLC. The Schedule 13G/A indicates that NFJ Investment +Group and Allianz Global Investors Capital beneficially own, in +the aggregate, 2,793,700 shares of Wolverine common stock. +4 +Based on information set forth in a +Schedule 13G filed on February 10, 2011. The +Schedule 13G indicates that The Vanguard Group, Inc., +beneficially owns, in the aggregate, 2,517,041 shares of +Wolverine common stock. The Schedule 13G also indicates +that The Vanguard Group, Inc. has shared dispositive power over +the 64,174 shares listed in the Sole Voting Power column. +5 +As of March 1, 2011, based on +49,628,313 shares outstanding on that date. +23 +Table of Contents +Stock +Ownership by Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 1, 2011, by each of +the Company’s director nominees, directors and named +executive officers and all of the Company’s directors and +executive officers as a group. +Amount and Nature of Beneficial Ownership of Common +Stock 1 +Sole Voting +and/or +Shared Voting +Total +Investment +or Investment +Beneficial +Percent +Name of Beneficial +Owner +Power 2 +Power 3 +Stock +Options 4 +Ownership 4 +of +Class 5 +Jeffrey M. Boromisa +2,000 +- +22,160 +24,160 +* +William K. Gerber +1,000 +- +18,315 +19,315 +* +Donald T. Grimes +82,754 +37,434 +120,188 +* +Alberto L. Grimoldi +18,077 +- +40,749 +58,826 +* +Joseph R. Gromek +10,000 +17,733 +27,733 +* +David T. +Kollat 6 +98,851 +- +46,428 +146,279 +* +Blake W. Krueger +476,732 +339,453 +816,185 +1.6 +% +Brenda J. Lauderback +5,100 +- +22,464 +27,564 +* +Pamela L. Linton +50,926 +- +33,167 +84,093 +* +Michael F. McBreen +64,043 +29,734 +93,777 +* +David P. +Mehney 7 +67,009 +73,889 +46,428 +187,326 +* +Timothy J. O’Donovan +323,523 +52,668 +329,020 +704,941 +1.4 +% +Shirley D. Peterson +3,000 +- +18,219 +21,219 +* +Michael A. Volkema +5,000 +26,327 +31,327 +* +James D. Zwiers +96,663 +- +75,602 +172,265 +* +All directors and executive officers as a group +(18 people) +1,377,524 +126,557 +1,177,242 +2,681,323 +5.3 +% +* +Represents beneficial ownership of +less than 1%. +1 +The numbers of shares stated are +based on information provided by each person listed and include +shares personally owned of record and shares that, under +applicable regulations, are considered to be otherwise +beneficially owned. +2 +These numbers include restricted +shares and performance shares held, which are subject to +forfeiture if the terms of the award are not satisfied. +3 +These numbers include shares over +which the listed person is legally entitled to share voting or +investment power by reason of joint ownership, trust or other +contract or property right and shares held by spouses, children +or other relatives over whom the listed person may have +influence by reason of such relationship. +4 +The numbers represent shares that +may be acquired within 60 days after March 1, 2011, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +5 +As of March 1, 2011, based on +49,628,313 shares outstanding on that date plus the number +of stock options exercisable by the specified person(s) within +60 days of March 1, 2011, as indicated in the +“Stock Options” column. +6 +Includes 61,883 shares pledged +by Mr. Kollat as security for a loan. +7 +Includes 23,000 shares pledged +by Mr. Mehney as security for a loan. +24 +Table of Contents +COMPENSATION +DISCUSSION AND ANALYSIS +This section of the proxy statement provides an overview and +analysis of Wolverine’s executive compensation program and +policies, the material compensation decisions made about fiscal +year 2010 compensation, and the material factors considered in +making those decisions. It is divided into six parts: +» +Executive Summary +» +Compensation Philosophy and Objectives +» +NEO Compensation Program Components +» +2010 Compensation Decisions +» +Compensation Consultant and Market Comparisons +» +Other Compensation Policies and Practices +This section refers only to the compensation of Wolverine’s +“named executive officers” (“NEOs”) unless +noted otherwise: +» +Blake W. Krueger, Chairman, Chief Executive Officer and President +» +Donald T. Grimes, Senior Vice President, Chief Financial Officer +and Treasurer +» +Pamela L. Linton, Senior Vice President of Global Human Resources +» +Michael F. McBreen, President, Global Operating Group +» +James D. Zwiers, Senior Vice President and President, Outdoor +Group +Executive +Summary +Operating performance of footwear, apparel and retail businesses +generally improved in fiscal year 2010 over fiscal year 2009, +but the Company still faced a challenging global business +environment. The Board and the Company’s Chairman, CEO and +President, Blake W. Krueger, addressed the challenges by +establishing a structure to encourage continued improvement in +the Company’s performance and the performance of individual +business units. Under Mr. Krueger’s leadership, +management acted on that initiative and delivered the following +results: +» +revenue for fiscal year 2010 was $1.249 billion, 13.4% +above fiscal year 2009 revenue of $1.101 billion, +reflecting strong organic growth from all of the operating +divisions; +» +the Company ended fiscal year 2010 with $150.4 million of +cash and cash equivalents and interest-bearing debt of only +$1.0 million; +» +diluted earnings per share for fiscal year 2010 were $2.11 per +share compared to $1.24 per share for fiscal year 2009; +» +the Company declared cash dividends of $0.44 per share in fiscal +year 2010, equal to the total dividends declared in fiscal year +2009; and +» +the Company repurchased approximately 1,795,000 shares of +common stock in fiscal year 2010 for approximately +$51.2 million and repurchased approximately +406,000 shares in fiscal year 2009 for approximately +$5.6 million. +25 +Table of Contents +For fiscal year 2010, the Company achieved record performances +in annual revenue and earnings per share. In addition, over the +past five years, the Company’s performance, based on +cumulative total stockholder return, has exceeded the S&P +SmallCap Index and the S&P Footwear Index, as shown in the +following table. +Five Year Cumulative Total Return Summary +NEO compensation for fiscal year 2010, and in the case of the +long-term incentive bonuses for the three year period ending +fiscal year 2010, reflected the Company’s strong fiscal +year 2010 financial performance and cumulative return to +stockholders over the past three years despite the global +economic challenges: +» +each NEO received more than 55% of his or her compensation in +performance-based compensation; +» +approximately 15%-20% of each NEO’s compensation was tied +to long-term performance, more closely aligning those NEOs’ +interests with those of stockholders; +» +each NEO’s bonus opportunity was capped at 200% of his or +her Target Percentage for that opportunity, limiting the +incentive to take risks that could have a material adverse +impact on the Company; and +» +each NEO’s Annual Bonus and +3-Year Bonus +was linked to performance metrics established at the beginning +of the bonus period and not changed. +Compensation +Philosophy and Objectives +Wolverine’s compensation philosophy is to provide +competitive salaries and incentives to achieve superior +financial performance. The Board’s Compensation Committee +oversees the Company’s executive compensation program. The +Committee reviews and approves NEO compensation, other than the +CEO’s compensation, which it approves together with the +Board’s other independent directors. The NEO compensation +program has four primary objectives: +» +attract and retain talented NEOs who will lead Wolverine and +achieve and inspire superior performance; +» +provide incentives for achieving specific near-term individual, +business unit and corporate goals and reward the attainment of +those goals at pre-established levels; +» +provide incentives for achieving longer-term financial goals and +to reward attaining those goals at pre-established +levels; and +» +align the interests of NEOs with those of the stockholders +through incentives based on increasing stockholder value. +26 +Table of Contents +The program balances fixed compensation (base salaries) with +performance-based compensation (annual bonuses and long-term +incentives), and rewards annual performance while maintaining +emphasis on longer-term objectives. The program also blends +cash, non-cash, long- and short-term compensation components, +and current and future compensation components. The Committee +considers qualitative and quantitative factors when setting +compensation. Each NEO’s compensation mix and +cash-to-equity +ratio depends on his or her responsibilities, experience, +skills, and potential to affect Wolverine’s overall +performance. In general, an NEO’s compensation and the +proportion of compensation that is variable increases as the +NEO’s level of responsibilities increases. The Committee +believes the CEO has the broadest scope of responsibilities and +typically approves higher compensation for the CEO than for any +other NEO. The Board believes this executive compensation +philosophy has successfully generated sustained superior +performance over the long term. The mix of compensation +components for 2010 did not change significantly from the mix +for 2009. The following table shows for fiscal year 2010 each +NEO’s base salary, annual bonus and cash payout under the +2008-2010 +period for the +3-Year Bonus +Plan as a percentage of the total of those three components: +2010 +2010 +Annual Bonus +2010 Long-Term +Name +Base Salary +Paid* +Incentive Bonus Paid +Krueger +27.3 +% +52.5 +% +20.2 +% +Grimes +40.0 +% +43.2 +% +16.8 +% +Linton +45.1 +% +38.6 +% +16.3 +% +McBreen +45.1 +% +38.3 +% +16.6 +% +Zwiers +42.2 +% +40.7 +% +17.1 +% +* Includes +Individual Performance Bonus. +NEO Compensation +Program Components +Pay Element +What the Pay Element +Rewards +Purpose of the Pay +Element +Base Salary +» Core responsibilities, years of service with +the Company and experience in similar positions at other +companies, skills, and knowledge +» Provide a regular and stable source of income +to NEOs +Annual Incentive +Compensation +» Achieving specific corporate business +objectives over which the NEO has reasonable control +» Achieving specific division business +objectives over which the NEO has reasonable control +» Achieving specific personal objectives +» Focus NEOs on specific annual goals that +contribute to Wolverine’s long-term success +» Provide annual performance-based cash +compensation +» Align participants on important annual +performance metrics +Long Term Incentive +Compensation +» Focusing on long-term corporate business +objectives +» Focusing on driving long-term stockholder +value +» Continuing employment with the Company during +the vesting period +» More closely align NEOs’ interests with +stockholders’ interests +» Reward NEOs for building stockholder value +» Encourage long-term investment in Wolverine by +participating NEOs +» Retain NEOs +27 +Table of Contents +Pay Element +What the Pay Element +Rewards +Purpose of the Pay +Element +Supplemental Employee Retirement +Plan +» Focusing on long-term corporate business +objectives +» Continuing long-term employment with the +Company during the five-year vesting period and long-term value +accumulation period +» Provide retirement benefits that NEO +participants would have received under the broad-based plan in +the absence of the IRS limits +» Provide retirement security +» Attract and retain NEOs +Retirement and Welfare +Benefits +» The other retirement and welfare benefits are +part of Wolverine’s broad-based total compensation program +available to full-time employees of the Company. +» Encourage long-term commitment to Wolverine by +NEOs and assist Wolverine in attracting and retaining talented +NEOs. +2010 Compensation +Actions +Base +Salary +As part of approving an NEO’s base salary, the Compensation +Committee considers the scope of his or her responsibilities, +years of service with the Company and in similar positions at +other companies, skills, and knowledge. The Committee also +considers market conditions, economic conditions, and +Wolverine’s compensation philosophy. For NEOs who are +promoted and Wolverine employees who are promoted to NEO +positions, the Committee approves the NEO’s base salary +after considering the above factors. For NEOs hired from outside +the Company, the Committee sets the NEO’s base salary, +based on management’s arms-length negotiation with the NEO. +After hiring or promotion, the Committee approves changes to an +NEO’s base salary to reflect increased experience, changes +in responsibilities, years of service, and market information. +The CEO provides input to all these decisions, except in the +case of his own compensation. The Committee, with +management’s assistance, reviews NEO base salaries +approximately every 12 months. In setting each NEO’s +base salary for 2010, the Committee considered, in addition to +the factors listed above, the NEO’s current base salary, +total direct compensation, target percent increases for the +Company’s employees as a group, and market data. These +factors are considered by the Committee subjectively, and no +single factor or combination of factors was determinative in +setting each NEO’s base salary. Base salary increases for +the other NEOs were consistent with base salary increases for +the Company’s employees generally. Mr. Zwiers’ +and Mr. McBreen’s base salary increases also reflected +the Committee’s evaluation of their respective +responsibility levels compared to their base salary levels. For +2010, the Committee approved base salary increases for the NEOs +as follows: +Name +2010 Base Salary +2009 Base Salary +Krueger +$ +775,000 +$ +735,000 +Grimes +$ +400,000 +$ +385,000 +Linton +$ +302,000 +$ +292,000 +McBreen +$ +350,000 +$ +325,000 +Zwiers +$ +400,000 +$ +340,000 +Annual +Incentive Compensation +Each NEO has the opportunity to earn an annual bonus +(“Annual Bonus”) under the Annual Bonus Plan and a +discretionary bonus (“Individual Performance Bonus”) +under the Individual Performance Bonus Plan. The Committee +believes these annual incentive compensation opportunities +should stay competitive with comparable opportunities at +companies of similar size to Wolverine and companies with whom +Wolverine competes to hire NEOs. +28 +Table of Contents +Early each year, the Committee sets Annual Bonus performance +criteria, with input from the CEO, based on performance criteria +for the Company, a business unit, or a combination. The specific +criteria for each NEO depend on which parts of the business the +NEO reasonably influences and his or her experience level. Early +each year, the Committee certifies actual performance achieved +with respect to the prior year criteria. The Annual Bonus Plan +authorizes the Committee to adjust downwards Annual Bonuses +determined according to the performance criteria. The Committee +did not make any such adjustments to the NEO 2010 Annual +Bonuses. In addition, the CEO recommends, and the Committee +approves, an Individual Performance Bonus for each NEO other +than the CEO. The Committee determines the CEO’s Individual +Performance Bonus. In any given year, an NEO might earn one, +both, or neither of the bonuses. +Also early each year, the Committee sets the CEO’s +Individual Performance Bonus personal objectives and the CEO +sets the other NEOs’ personal objectives. Personal +objectives may include elements such as executing strategies +supporting Wolverine’s vision, developing employees, +supporting social and environmental responsibility, growing new +business initiatives and driving operational excellence. +Performance under the Individual Performance Bonus Plan is +evaluated subjectively, generally based on qualitative factors. +At the same time, the Committee sets an annual incentive +compensation target percentage for each NEO, expressed as a +percentage of the NEO’s base salary (the “Target +Percentage”). It considers market data regarding annual +bonus levels and annual bonuses as a percentage of total direct +compensation, experiences with job candidates during +compensation negotiations, and each NEO’s experience level +and responsibilities compared to other NEOs. The Committee +considers these factors subjectively, and no single factor or +combination of factors was determinative in setting each +NEO’s Target Percentage. In 2010, the Committee increased +each NEO’s Target Percentage following this review. The +Committee increased Mr. Krueger’s target percentage to +100% for fiscal year 2010 from 75% from fiscal year 2009 because +it believed it was appropriate to compensate Mr. Krueger at +a higher level given his responsibilities as CEO. +Generally, the Committee sets higher Target Percentages for +individuals with greater influence on profits and sales. This +puts a larger percentage of NEOs total potential cash +compensation “at risk.” At “target” +performance under both Plans, an NEO could receive 100% of his +or her Target Percentage bonus opportunity. For 2010, each +NEO’s total bonus opportunity under the Plans ranged from +0% to 200% of his or her Target Percentage. This range was +consistent with the 2009 opportunity. +The Committee based the 2010 Annual Bonus for each NEO on actual +performance on the criteria, weighted the criteria by the +applicable percentages, and then multiplied the result by the +Target Percentage. The Committee based the 2010 Individual +Performance Bonus on each NEO’s performance compared to his +or her personal objectives, weighted by the applicable +percentage, and then multiplied the result by the Target +Percentage. +Annual Incentive Compensation +Component as a Percentage of Target Percentage +Annual Bonus Percentage By +Company or Business Unit as a Percentage of Target Percentage +Total +Individual +Performance +Total 2010 +Bonus as a +Actual Annual +2010 +2009 +Percentage of +Global +Incentive +Target +Target +Target +Operations +Human +Outdoor +Retail +Name +Compensation 1 +Percentage +Percentage +Percentage +Company 2 +Group 3 +Resources 4 +Group 5 +Group 5 +Krueger +$ +1,477,067 +100 +% +75 +% +15 +% +85 +% +Grimes +$ +428,647 +55 +% +45 +% +15 +% +85 +% +Linton +$ +256,353 +45 +% +40 +% +15 +% +65 +% +20 +% +McBreen +$ +292,634 +50 +% +40 +% +15 +% +20 +% +65 +% +Zwiers +$ +373,894 +50 +% +40 +% +15 +% +20 +% +50 +% +15 +% +1 +Includes the NEO’s Annual +Bonus payout and the Individual Performance Bonus payout. +29 +Table of Contents +2 +The Committee approved revenue and +pre-tax earnings performance criteria for the Company, as +described below under “2010 Annual Bonuses.” +3 +The Committee approved a +combination of metrics as performance criteria for the Global +Operations Group: actual expenses compared to 2010 planned +targets (Distribution, 10%); pre-tax profit and net sales +(Leathers, 10%); cost variances compared to the 2010 planned +targets (Owned Manufacturing, 10%); and actual expenses, +speed-to-market, +and product costs compared to 2010 planned targets (Sourcing, +35%). +4 +The Committee approved actual +Department expenses compared to projected expenses in the Human +Resources Department’s fiscal year 2010 operating plan as +the 2010 performance criterion for the Human Resources +Department. +5 +The Committee approved revenue and +pre-tax earnings as the performance criteria for each of the +Outdoor Group and the Retail Group. +2010 Annual +Bonuses +The Compensation Committee set fiscal year 2010 revenue and +pre-tax earnings as the Company’s 2010 performance +criteria, using four performance levels: threshold (50% payout), +target (100% payout), goal (150% payout) and stretch (200% +payout). Revenue is weighted 35% and pre-tax earnings 65% of the +Company component (as shown in the above table) of the annual +incentive compensation opportunity. The Committee selected these +criteria, with input from management, because it believed there +is a strong relationship between performance on these financial +measures and stockholder value. The Committee set the 2010 +performance levels following discussion with management and a +review of the Company’s operating plan, historical +performance, and economic conditions facing the Company. +Performance Level +(% of Target +Payout) 1 +Revenue 2 +Pre-tax +Earnings 2 +Threshold (50%) +$1,117.0 Million +$ +124 Million +Target (100%) +$1,157.0 Million +$ +134 Million +Goal (150%) +$1,175.0 Million +$ +140 Million +Stretch (200%) +$1,193.0 Million +$ +146 Million +1 +The maximum payout an NEO can receive is 200% of the payment +earned at his or her Target Percentage, even if performance is +above stretch, and an NEO would receive 0% of his or her Target +Percentage if performance is below threshold. +2 +Not including the effect of acquisitions, divestitures, +accounting changes, restructuring, or other special charges or +extraordinary items excluded by the Compensation Committee. +The Committee also approved performance criteria based on +revenue and pre-tax earnings for the Outdoor Group, and the +Retail Group, and actual Department expenses compared to +projected expenses in the Human Resources Department’s +fiscal year 2010 operating plan for the Human Resources +Department. The Committee approved a combination of metrics as +performance criteria for the Global Operations Group: actual +expenses compared to 2010 planned targets (Distribution, 10%); +pre-tax profit and net sales (Leathers, 10%); cost variances +compared to the 2010 planned targets (Owned Manufacturing, 10%); +and actual expenses, +speed-to-market, +and product costs compared to 2010 planned targets (Sourcing, +35%). The Committee also approved four performance levels for +each business unit performance criteria: threshold (50% payout), +target (100% payout), goal (150% payout) and stretch (200% +payout). These metrics are used to determine a portion of the +bonus awarded to Messrs. McBreen and Zwiers and +Ms. Linton. The performance levels for the business unit +performance criteria were set at substantially similar +difficulty levels as the levels set for the Company performance +criteria. The Committee approved target performance goals for +the business units at levels that it believed the units could +achieve under strong management performance, based on a review +of each business unit’s historical performance and its +fiscal year 2010 +30 +Table of Contents +operating plan. The following table shows historical achievement +levels for the business unit performance criteria, for those +years when the performance criteria were the same as the 2010 +performance criteria: +2010 +2009 +2008 +2007 +2006 +Global Operations Group +Between +goal and +stretch +N/A +N/A +N/A +N/A +Human Resources Department +Between +goal and +stretch +Above +stretch +N/A +N/A +N/A +Outdoor Group +Above +stretch +Between +goal and +stretch +Between +goal and +stretch +Between +goal and +stretch +Above +stretch +Retail Group +Above +stretch +Above +stretch +Between +threshold +and target +Below +threshold +Between +target and +goal +Wolverine’s fiscal year 2010 revenue was +$1.249 billion which exceeded the stretch performance +level, resulting in a payout of 200% of target for this +performance measure. Wolverine’s pre-tax earnings for +fiscal year 2010 were $146.3 million adjusted for +restructuring and other transition costs and the one-time gain +on the sale of Wolverine Procurement, Inc. assets +($143.2 million before the adjustments), which exceeded the +stretch performance level, resulting in a payout of 200% of +target for this performance measure. The Outdoor Group’s +revenue of $491.1 million exceeded stretch (which +corresponds to a payout of 200% of target), and its performance +on pre-tax earnings exceeded stretch (which corresponds to a +payout of 200% of target), resulting in an overall payout of +200% of target. The Global Operations Group’s performance +was above stretch for Distribution, between goal and stretch for +Leathers, above stretch for Owned Manufacturing, and between +target and goal for Sourcing, resulting in an overall payout of +164% of target. The Retail Group’s performance was above +stretch on both revenue and pre-tax earnings, resulting in a +payout of 200% of target. The Human Resource Department’s +performance was between goal and stretch on actual Department +expenses compared to projected expenses in the Department’s +2010 operating plan, resulting in an overall payout of 186% of +target. For 2010, the Company paid the NEOs the following +bonuses under the Annual Bonus Plan: +Annual Bonus +Opportunity +Annual Bonus +(as a % of an NEO’s +Percentage +Name +Target Percentage) +Earned +Annual Bonus Paid* +Krueger +0 – 200% +200% +$1,304,423 +Grimes +0 – 200% +200% +$371,303 +Linton +0 – 200% +197% +$225,970 +McBreen +0 – 200% +173% +$253,800 +Zwiers +0 – 200% +200% +$330,192 +* +Not including Individual Performance Bonus. +2010 +Individual Performance Bonuses +The Individual Performance Bonus payout ranges from 0% to 200% +of an NEO’s Target Percentage: +Personal Objectives +Score +2010 Payout +Level +95-100% +200% +90-95% +175% +80-90% +150% +70-80% +100% +60-70% +50% +Less than 60% +0% +The Committee approves Individual Performance Bonuses for NEOs +other than the CEO, based on the CEO’s recommendation, and +the Committee and the independent directors of the Board approve +the Individual +31 +Table of Contents +Performance Bonus for the CEO. The Committee and the independent +directors of the Board met with the CEO at the end of the year +to evaluate his performance compared to his personal objectives +set at the beginning of the year. At the end of the year, NEOs +other than the CEO provide to the CEO self-evaluations of their +performance against their personal objectives for the year. The +CEO evaluates NEOs’ performance against their personal +objectives and recommends to the Compensation Committee an +Individual Performance Bonus award for each NEO. The CEO +provides his self-evaluation to the Compensation Committee and +the other independent directors of the Board, and the +Compensation Committee and other independent directors approve +an Individual Performance Bonus for the CEO. The personal +objectives are specific to each NEO and are subjective. The +personal objectives for the NEOs were: Mr. Krueger +(employee development, revenue growth, new business development, +consumer-direct business expansion, and apparel and accessories +business expansion); Mr. Grimes (employee development, +investor relations, new business development, and information +systems enhancement); Ms. Linton (employee development, +enhancing organization structure, process improvements); +Mr. McBreen (operations performance, streamlining supply +chain management, employee development); and Mr. Zwiers +(revenue growth, retail business expansion). For 2010, the +Compensation Committee (and the independent directors, as +applicable) approved the following NEO Individual Performance +Bonuses: +2010 +Individual +Performance Bonus +2010 +Opportunity +Individual Performance +2010 +(as a % of an NEO’s +Bonus Percentage +Discretionary +Name +Target Percentage) +Awarded +Bonus Paid* +Krueger +0 – 200 +% +150 +% +$172,644 +Grimes +0 – 200 +% +175 +% +$57,344 +Linton +0 – 200 +% +150 +% +$30,383 +McBreen +0 – 200 +% +150 +% +$38,834 +Zwiers +0 – 200 +% +150 +% +$43,702 +* Does not include Annual Bonus. +Long-Term +Incentive Compensation +Each NEO has the opportunity to earn long-term incentive +compensation in the form of (1) cash or performance shares, +(2) stock option grants, and (3) restricted stock +awards. +Long-Term +Incentive Cash and Performance Share Bonuses +Each NEO has the opportunity to earn long-term incentive +compensation under the Company’s Long-Term Incentive Plan +(“LTIP”), stock incentive plans, or both based on +performance criteria covering three-year periods +(“3-Year +Bonus”). The Compensation Committee believes that NEO +long-term incentive compensation opportunities should stay +competitive with comparable opportunities at companies of +similar size to Wolverine and companies with whom Wolverine +competes to hire NEOs. Early in the first year of each +three-year period, the Committee approves the three-year period +performance criteria. Early in the year following the end of the +three-year period, the Committee certifies actual performance +compared to the period performance criteria, and makes any +adjustments it feels are appropriate as permitted by the +applicable plans. Under the LTIP and the stock incentive plans, +the Committee may adjust the bonuses downward. +32 +Table of Contents +3-Year +Cash Bonus (Fiscal +2008-2010) +The Committee established two performance criteria for the +2008-2010 +performance period: (1) total shareholder return ranking +within Wolverine’s Peer Group (as defined on page 36), +and (2) fully diluted earnings per share: +TSR Ranking +Against Peer +Percentage of Target +Group +Payout +1 st +200 +% +2 nd +175 +% +3 rd +150 +% +4 th +125 +% +5 th +100 +% +6 th +75 +% +7 th +50 +% +8 th -14 th +0 +% +Aggregate +Performance Level +EPS for the +(Percentage of Target +2008-2010 +Payout) +Period* +Threshold (50%) +$ +5.52 +Target (100%) +$ +5.73 +Goal (150%) +$ +5.96 +Maximum (200%) +$ +6.42 +* +Not including the effect of acquisitions, divestitures, +accounting changes, restructuring, or other special charges or +extraordinary items excluded by the Compensation Committee. +The Committee believed these criteria would balance the +NEOs’ focus on near-term profitability with longer-term +shareholder value. The Committee evaluated Wolverine’s +performance against these criteria and certified that +Wolverine’s performance on the earnings per share criterion +was $5.95 (adjusted to exclude restructuring and other +transition and non-recurring costs and the one-time gain on the +sale of the Wolverine Procurement, Inc. assets), falling between +target and goal performance levels, and on the total shareholder +return criterion Wolverine’s performance rank was 6th, +resulting in a weighted average payout level of 111.4%. The NEOs +received the following cash +3-Year +Bonuses for the +2008-2010 +performance period: +Name +3-Year Bonus +Krueger +$567,071 +Grimes* +$167,273 +Linton +$108,412 +McBreen* +$127,089 +Zwiers +$157,599 +* +Messrs. Grimes’ and +McBreen’s +3-Year +Bonuses were prorated to reflect that they started employment +with the Company after the beginning of the performance period. +3-Year +Performance Share Bonus (Fiscal +2010-2012) +The Committee evaluated each NEO’s long-term incentive +payout opportunity. It considered market data; the +Company’s recruiting experiences; each NEO’s +experience and responsibilities; and competition with other +footwear, apparel and retail companies for candidates. The +Committee considers these factors subjectively, and no single +factor or combination of factors was determinative for any NEO. +The Committee decided to set the NEOs’ Target Percentage +(expressed as a percentage of the NEO’s base salary, +similar to the Annual Bonus) for the +3-Year Bonus +opportunity, as follows: +2010-2012 +2009-2011 +Name +Percent +Percent +Krueger +75 +% +70 +% +Grimes +50 +% +45 +% +Linton +35 +% +35 +% +McBreen +45 +% +40 +% +Zwiers +50 +% +40 +% +33 +Table of Contents +In 2009, the Compensation Committee replaced cash payouts with +equity payouts for the +3-Year Bonus +opportunity (“performance shares”). In the Summary +Compensation Table, this change affects the amounts reported in +the Stock Awards and Non-Equity Incentive Plan Compensation +columns for 2009 and 2010. The Stock Awards column includes, for +2009 and 2010, the full grant date fair value of the performance +share awards at expected payout levels for the +2009-2011 +and +2010-2012 +performance periods, respectively. In addition, the Non-Equity +Incentive Plan Compensation column includes, for 2009 and 2010, +the cash payouts for the +2007-2009 +and +2008-2010 +performance periods, respectively. As a result, those columns +show for 2009 the actual payouts received by the NEO for the +2007-2009 +performance period and the grant date fair value of the +performance share awards granted for the +2009-2011 +performance period. The columns show for 2010 the actual payouts +received by the NEO for the +2008-2010 +performance period and the grant date fair value of the +performance share awards for the +2010-2012 +performance period. After 2010, this reporting of two +3-Year Bonus +awards for each year is expected to end. The following table is +an alternate form of presentation of NEO total compensation that +shows the difference between the 2010 total compensation for +each NEO as reported in the Summary Compensation Table (which +includes the grant date fair value of the 2010 performance share +grants) and the 2010 total compensation for each NEO as reported +in the Summary Compensation Table adjusted to exclude the grant +date fair value of the 2010 performance share grants. This table +is not required by the rules relating to executive compensation +disclosures and is not a substitute for information required by +Item 402 of SEC +Regulation S-K, +but rather it is intended to provide additional information that +stockholders may find useful: +2010 +2010 Total +Total Compensation +Compensation +With Performance +Without Performance +Name +Share +Grants 1 +Share +Grants 2 +Difference 3 +Krueger +$6,323,366 +$5,560,691 +$ +762,675 +Grimes +$1,673,986 +$1,411,561 +$ +262,425 +Linton +$1,135,724 +$997,024 +$ +138,700 +McBreen +$1,270,950 +$1,064,275 +$ +206,675 +Zwiers +$1,657,163 +$1,394,738 +$ +262,425 +1 +Represents the 2010 total +compensation for each NEO as reported in the Summary +Compensation Table (which includes the grant date fair value of +performance share grants awarded in 2010). +2 +Represents the 2010 total +compensation for each NEO as reported in the Summary +Compensation Table, adjusted to exclude the grant date fair +value of performance share grants awarded in 2010. +3 +Represents the difference between +the amounts reported in the second and third columns. +In addition, in 2009 starting with the +2009-2011 +performance period, the Committee also replaced the total +shareholder return criterion with a business value added +criterion (“BVA”). +In 2010, the Committee granted performance shares and weighted +the earnings per share criterion at 65% of the total payout and +weighted the BVA performance criterion at 35% of the payout of +the three-year performance share bonus for the +2010-2012 +performance period, which was consistent with the 2009 +performance share grant. +BVA reflects changes in after-tax operating profit and asset +management. The Committee believed focusing NEOs’ interests +on increasing BVA would align their interests more closely with +stockholder interests, and that BVA is superior to TSR in +measuring management’s long-term influence over the +Company’s performance. The Committee defined BVA as a +measurement that equals the operating income for a fiscal year +reduced by (i) a provision for income taxes equal to the +operating income multiplied by the Company’s total +effective tax rate for the same fiscal year; and (ii) a +capital charge equal to a two-point average of “net +operating assets” at the beginning and end of a fiscal year +(with “net operating assets” defined as the net of +trade receivables (net of reserves), inventory (net of +reserves), other current assets, property, plant and equipment, +trade payables and accrued liabilities), multiplied by 10%. The +Committee intended the level of difficulty in attaining +threshold, target, goal and stretch performance levels it set +for the +2010-2012 +performance period to be substantially similar to the level of +difficulty in attaining the performance levels for the +2009-2011 +performance period. +34 +Table of Contents +In February 2010, the Committee awarded performance shares to +each NEO with a value equal to the maximum bonus payout the NEO +could earn as the +3-Year Bonus +for the +2010-2012 +performance period. The Committee granted the awards under the +Company’s Amended and Restated 2005 Stock Incentive Plan. +The award details are in the table “Grants of Plan-Based +Awards” on page 41. The Company accrues, but does not +pay, dividends on the performance shares during the performance +period. Early in the year following the end of the +2010-2012 +performance period, the Committee will certify the +Company’s performance compared to the performance criteria, +and make any adjustments it feels are appropriate as permitted +by the applicable plans. The restrictions on none, some or all +of the performance shares awarded to each NEO will lapse at that +time, and the NEO will receive accrued dividends only on the +shares actually earned. The Committee retains the discretion to +pay bonus amounts in excess of the 200% level if the performance +of any one or more NEOs justifies a higher bonus level. +Stock Option +Grants and Restricted Stock Awards +The Compensation Committee believes that NEO stock ownership +benefits stockholders. The Company has granted stock options and +awarded restricted stock to NEOs and other executives for many +decades. The Committee administers the stock incentive plans for +stock option grants and restricted stock awards. It approves the +amount of and terms applicable to all grants and awards (except +for grants to the CEO, which the Committee approves together +with the other independent directors). In addition to annual +grants and awards, the Committee may approve special grants or +awards to NEOs, such as a grant or award to a new hire or for a +promotion. +When granting equity awards, the Committee considers the +NEO’s position, responsibilities, service years, +performance, previous equity grants, and market information. +Management provides input to the Committee regarding equity +award decisions. The Committee compares NEO equity awards to +market information as part of evaluating NEO total long-term +incentive compensation at target to broader compensation trends. +In general, the Committee gives more weight to position and +responsibilities. +A stock option’s exercise price is the fair market value of +the Company’s common stock, and the fair market value is +the closing price of the Company’s common stock on the +grant date. The Committee grants annual equity awards at its +regularly scheduled February meeting. The independent directors +of the Board approve equity grants to the CEO at the same time. +A stock option grant typically vests one-third each year over +three years. The restrictions on restricted stock awards +typically lapse 25% on each of the third and fourth anniversary +and 50% on the fifth anniversary of the award. +The total value of the equity award to each NEO (the combined +total grant date fair value for the stock options and restricted +stock (not including the performance share awards) is based on +the total value of the prior year’s equity award at the +time of the award, increased by a percentage determined by the +Committee. In 2010, the Committee used the percentage ranges of +base salary set out in the table below as guidelines for the +total value of the equity award as a percentage of each +NEO’s base salary. The ranges used as guidelines did not +change from 2009. The actual total value of the equity award was +determined using a percentage increase over the prior +year’s award. When setting the percentage increase, the +Committee considered the amount of the prior year’s total +equity award to each NEO, the percentage of the NEO’s total +compensation that would be reflected by the equity award, the +change in total compensation for the NEO compared to the prior +year, and equity awards to each NEO in recent years, and whether +the total value of the equity award fell within the guidelines, +but no single factor or combination of factors was determinative +in setting the percentage increase. For 2010, the Committee used +a 3% increase in the total +35 +Table of Contents +value of the equity award for each of the NEOs. The “Grants +of Plan-Based Awards” table on page 41 shows the +actual grants and awards for 2010. +2010 +2010 +Actual % of Base +% of Base Salary +Name +Salary Awarded +Guideline Range +Krueger +148.9 +% +130-170% +Grimes +86.6 +% +80-110% +Linton +74.6 +% +50-80% +McBreen +81.9 +% +50-80% +Zwiers +81.9 +% +50-80% +The restricted stock award, not including performance shares, +was approximately 60%, and the stock option grants were +approximately 40%, of the combined value of the equity awarded +to each NEO. These were the same approximate percentages as in +2009 and in the past five years. The Committee believed this mix +was appropriate based on the fact that restricted stock promotes +retention and stock options incentivize stock price performance. +Compensation +Consultant and Market Comparisons +In 2009, the Compensation Committee engaged Towers +Watson & Co. (“Towers Watson”) to provide +general market data that management and the Compensation +Committee used in evaluating 2010 compensation levels. Towers +Watson provided general market data and did not advise or make +recommendations with respect to the amount or form of executive +or director compensation for 2010. The Company retained Towers +Watson in 2010 to provide advice and recommendations with +respect to the amount and form of executive compensation for +2011. The Company also retained Towers Watson to provide +actuarial services in 2010. +For 2010, the Company used the following peer group (the +“Peer Group”): +Brown Shoe Co. Inc. +Jones Apparel Group Inc. +Steven Madden, Ltd. +Collective Brands, Inc. +K-Swiss, Inc. +Timberland Co. +Columbia Sportswear Co. +Kenneth Cole Productions Inc. +Deckers Outdoor Corp. +Rocky Brands, Inc. +Genesco Inc. +Skechers USA Inc. +The Committee uses survey and Peer Group information as a market +check, but survey and Peer Group information are not material +factors in setting NEO compensation. The Committee believes that +compensation levels in the footwear, apparel and retail +industries typically exceed levels reported in general industry +surveys. The Committee also considers information the Company +learns through recruiting NEOs and the experience levels and +responsibilities of NEOs prior to joining the Company, as +reference points in setting NEO compensation. +Other +Compensation Policies and Practices +Equity Grant +Practices +The dates of the Compensation Committee’s and Board’s +February meetings, at which annual grants are made, generally +are scheduled at least one year in advance. The Compensation +Committee also has delegated to the CEO the authority to award +restricted stock and grant stock options to employees, other +than himself and other NEOs, during the Company’s 2011 +fiscal year to recognize outstanding performance by employees. +The restricted stock awards may not exceed 17,000 shares in +aggregate and the stock options 10,580 options in aggregate. +36 +Table of Contents +NEO Stock +Ownership Guidelines +Through stock ownership guidelines, the Company requires that +NEOs maintain a minimum stock ownership level (including, for up +to 50% of the applicable ownership requirement, restricted stock +awards and performance shares but not stock options) to align +further the interests of these individuals with the stockholders. +Covered +Positions +Guideline +CEO +5x Annual Base Salary +Other NEOs +2x Annual Base Salary +Each NEO must meet the ownership requirement by the end of the +fifth year after he or she becomes subject to the guidelines. +All NEOs who have been with Wolverine for at least five years +meet the ownership requirement. +Perquisites +The Company provides limited perquisites to NEOs in order to +provide a competitive total compensation package. These include +reimbursement for basic tax, financial planning and estate +planning services. The Company does not provide gross ups to the +NEOs for the taxes due on the value of the perquisites. +Retirement and +Welfare Benefits +The NEOs participate in Wolverine’s medical and dental +plans and receive life and disability insurance. Subject to +variations to account for requirements in local jurisdictions, +variances in local compensation structure (for example, as +applicable to Wolverine’s employees in the United Sates +versus certain overseas offices), and to requirements under +collective bargaining agreements, all Wolverine employees +receive the same health and welfare benefit opportunities. The +NEOs also participate in the Wolverine Employees’ Pension +Plan (a defined benefit plan) and the Wolverine World Wide, Inc. +409A Supplemental Executive Retirement Plan (an unfunded, +non-qualified plan). For a description of the benefits under +Wolverine’s retirement plans, see “Pension Plans and +2010 Pension Benefits” below. +Impact of +Accounting and Tax Treatments on Compensation +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to the +CEO and the three next most highly-paid executive officers +(other than the CFO) in excess of $1,000,000 annually, with +certain exceptions for qualified “performance-based” +compensation. Wolverine has obtained stockholder approval of the +Annual Bonus Plan, the LTIP, and its stock incentive plans, to +permit certain amounts payable under these plans to qualify as +“performance-based” compensation for purposes of +Section 162(m). Incentives under these plans, other than +time-based restricted stock awards, were not included in the +$1,000,000 limit for purposes of calculating Wolverine’s +deduction for compensation paid to its NEOs for 2010. Wolverine +does not require all of its compensation programs to be fully +deductible under Section 162(m) because Wolverine believes +it is important to preserve flexibility in administering +compensation programs in a manner designed to promote varying +corporate goals. Wolverine may pay certain compensation that +does not qualify as performance-based compensation. +Post-Employment +Compensation +Each NEO is party to an Executive Severance Agreement that +provides for certain payments and benefits upon termination of +employment after a change in control of Wolverine. The Board +believes Executive Severance Agreements will promote management +stability during the transition period accompanying a change in +control. Each NEO is eligible to receive compensation if his or +her employment is terminated within two years +(Messrs. Grimes, McBreen, Zwiers and Ms. Linton) or +three years (Mr. Krueger) following a change in control of +Wolverine. The Compensation Committee believes this “double +trigger” requirement of (1) change in control, and +(2) termination of employment, is appropriate because a +change in control does not materially harm an NEO unless the +Company also terminates his or her employment. None of the +37 +Table of Contents +Executive Severance Agreements requires an NEO to mitigate +payments by seeking employment, but they do reduce compensation +paid during the fourth and later months after termination by an +amount equal to any other compensation earned by the NEO during +that period. An NEO does not receive payment under the Executive +Severance Agreement if his or her employment terminates: +• +due to death or retirement in accordance with Wolverine’s +policy or as otherwise agreed; +• +for cause or disability; or +• +by resignation of the NEO for other than “good +reason,” which includes the assignment of duties +inconsistent with the NEO’s status as a senior executive +officer or the duties performed by the NEO immediately before a +change in control, a reduction in the NEO’s annual base +salary or relocation of the NEO. +All NEOs also may be eligible under Wolverine’s retirement +plans or equity plans to receive certain payments and benefits +upon termination of employment or in connection with a change in +control. The Compensation Committee believes that such +single-trigger accelerated vesting is appropriate, because by +protecting a significant component of the NEO’s total +compensation the acceleration of equity vesting +(1) mitigates potential conflicts of interest that might +arise between the NEOs and the stockholders, and (2) serves +as a substantial incentive for those NEOs to obtain the highest +possible value for the stockholders if the Company becomes an +acquisition target. The Compensation Committee also retains the +discretion to modify or eliminate the accelerated vesting. +Mr. Krueger also is party to a Separation Agreement under +which he receives certain payments and benefits if the Company +terminates his employment other than for “cause” or if +he terminates his employment for “good reason.” The +Compensation Committee determined upon appointing +Mr. Krueger as CEO that given the Company’s strategic +initiatives the Board had asked him to lead, it was appropriate +for the Company to enter into a separation arrangement. You will +find information on benefits payable to Mr. Krueger and +each other NEO and the specific elements comprising the payment +under the Separation Agreement, Executive Severance Agreements, +and other retirement and equity plans of Wolverine, in the +“Potential Payments Upon Termination or Change in +Control” section of this proxy statement. +COMPENSATION +COMMITTEE REPORT +The Compensation Committee has reviewed and discussed with +management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this +review and discussion, the Compensation Committee recommended to +the Board of Directors that the Company include the Compensation +Discussion and Analysis section in this proxy statement and +incorporate it by reference into the Company’s Annual +Report on +Form 10-K. +Respectfully submitted, +Michael A. Volkema (Chairperson), William K. Gerber, Joseph R. +Gromek, David T. Kollat +38 +Table of Contents +2010 SUMMARY +COMPENSATION TABLE +Change in +Pension Value +and +Nonqualified +Name and +Non-Equity +Deferred +Principal +Stock +Option +Incentive Plan +Compensation +All Other +Position +Year +Salary 1 +Bonus 1,2 +Awards 3,8 +Awards 4 +Compensation 1,5,8 +Earnings 6 +Compensation 7 +Total 8 +Blake W. +2010 +$767,308 +$172,644 +$1,437,675 +$452,264 +$1,871,494 +$1,605,769 +$16,212 +$6,323,366 +Krueger, +2009 +$735,000 +$124,031 +$1,591,179 +$409,584 +$1,360,231 +$1,568,139 +$12,792 +$5,800,596 +Chairman, CEO +and President +2008 +$728,269 +$117,980 +$501,000 +$335,736 +$1,144,545 +$537,240 +$11,592 +$3,376,362 +Donald T. +2010 +$397,115 +$57,344 +$467,425 +$138,267 +$538,576 +$61,859 +$13,400 +$1,673,986 +Grimes, Senior +2009 +$385,000 +$38,981 +$510,665 +$127,995 +$337,971 +$43,539 +$45,970 +$1,490,121 +Vice President, +CFO, Treasurer +and Chief +2008 +$222,115 +$20,990 +$155,540 +$107,819 +$156,322 +$11,392 +$138,943 +$813,121 +Accounting +Officer 9,10 +Pamela L. Linton, +2010 +$300,077 +$30,383 +$271,200 +$91,951 +$334,382 +$100,096 +$7,635 +$1,135,724 +Senior Vice +2009 +$292,000 +$30,660 +$309,588 +$81,064 +$251,165 +$82,369 +$9,776 +$1,056,622 +President, Global +Human +2008 +$282,308 +$22,867 +$137,775 +$89,530 +$170,301 +$39,409 +$7,750 +$749,937 +Resources 10 +Michael F. +2010 +$345,192 +$38,834 +$354,175 +$103,530 +$380,889 +$38,577 +$9,753 +$1,270,950 +McBreen, +President, Global +2009 +$325,000 +$29,250 +$383,110 +$89,567 +$180,432 +$27,476 +$21,549 +$1,056,414 +Operations +Group 10,11 +James D. Zwiers, +2010 +$388,462 +$43,702 +$467,425 +$138,267 +$487,791 +$112,175 +$19,341 +$1,657,163 +Senior Vice +2009 +$327,308 +$29,458 +$382,708 +$92,290 +$331,731 +$111,020 +$14,066 +$1,288,581 +President and +President, +Outdoor Group +2008 +$283,462 +$50,512 +$137,775 +$89,530 +$179,259 +$10,896 +$10,395 +$761,829 +1 +Includes any amounts deferred under +the Company’s qualified 401(k) plan. +2 +Includes amounts earned under the +Individual Performance Bonus Plan. +3 +Includes restricted stock grants +and performance share grants. Restricted stock was valued in the +table above using the closing market price of Wolverine common +stock on the NYSE on the date of grant. Performance shares +granted in 2010 were valued in the table above using the closing +market price of Wolverine common stock on the NYSE on the date +of grant assuming performance between target (100% payout) and +goal (150% payout) level. Under FASB ASC Topic 718, the +Company used target (100% payout) performance level assumptions +for financial reporting purposes at the time of the 2010 +performance share grant. The aggregate grant date fair value of +performance shares granted in 2010, assuming payout at maximum +(stretch) performance, for each NEO (and, in parenthesis, the +grant date fair value of performance share grants for 2010 using +maximum (stretch) performance assumptions plus grant date fair +value of restricted stock grants for 2010) would have been: +$1,197,725 ($1,872,725) for Mr. Krueger; $412,125 +($617,125) for Mr. Grimes; $217,800 ($350,300) for +Ms. Linton; $324,550 ($472,050) for Mr. McBreen; and +$412,125 ($617,125) for Mr. Zwiers. For additional +valuation assumptions, see the “Stock-Based +Compensation” heading under Note 1 to Wolverine’s +Financial Statements for the fiscal year ended January 1, +2011. +4 +Represents the aggregate grant date +fair value of stock options granted in the years shown, +calculated in accordance with FASB ASC Topic 718. Stock options +were valued using the Black-Scholes model. For additional +valuation assumptions, see the Stock-Based Compensation heading +under Note 1 to Wolverine’s Consolidated Financial +Statements for the fiscal year ended January 1, 2011. +5 +Includes the amounts, listed in the +table below, which the NEOs earned in 2010 and the Company paid +in February 2011 for the +3-Year Bonus +with a performance period ending in 2010, and amounts the NEOs +earned in 2010 and the Company paid in February 2011 under the +Annual Bonus Plan. +39 +Table of Contents +Total Non-Equity +3-Year Bonus +2010 Annual Bonus Plan +Incentive Plan +Name +(2008-2010) +Payout +Compensation +Krueger +$567,071 +$1,304,423 +$1,871,494 +Grimes +$167,273 +$371,303 +$538,576 +Linton +$108,412 +$225,970 +$334,382 +McBreen +$127,089 +$253,800 +$380,889 +Zwiers +$157,599 +$330,192 +$487,791 +6 +All amounts in this column reflect +the aggregate change in the actuarial present value of the +NEOs’ accumulated benefits under the Wolverine +Employees’ Pension Plan and Wolverine World Wide, Inc. 409A +Supplemental Executive Retirement Plan. The amounts in the table +were determined using assumptions consistent with those used in +Wolverine’s Consolidated Financial Statements for fiscal +year 2010. See the “Pension Plan and 2010 Pension +Benefits” section starting on page 44. The changes in +the pension and SERP amounts from 2009 to 2010 are the result of +changes in the NEOs’ years of service and various +accounting assumptions, and are unrelated to any compensation +decision by the Compensation Committee in 2010. +7 +The amounts listed in this column +for 2010 include Wolverine’s matching contributions to the +accounts of the NEOs under Wolverine’s 401(k) Money +Accumulation Plan, payments made by Wolverine for the premiums +on certain life insurance policies, and tax and estate planning +services in the amounts listed in the table below. +Life Insurance +Tax and Estate +Name +401(k) Match +Premiums +Planning +Krueger +$7,350 +$3,842 +$5,020 +Grimes +$7,350 +- +$6,050 +Linton +$7,350 +- +$285 +McBreen +$7,350 +$2,403 +- +Zwiers +$7,350 +$2,851 +$9,140 +8 +The Company changed its +3-Year Bonus +program from a cash-based program to a performance share-based +program in 2009. Because of this change, the amounts reported as +compensation for each NEO in 2009 and 2010 include awards for +two three-year periods. Each NEO’s 2010 compensation +includes his or her: +2008-2010 +awards, which were earned in 2010 and paid in cash (reported in +the “Non-Equity Incentive Plan Compensation” column); +and +2010-2012 +awards, which were issued as performance share grants in 2010 +(reported in the “Stock Awards” column). Restrictions +on the shares issued under the 2010 performance share grant will +lapse in 2013, if at all, based on the Company’s +performance in the +2010-2012 +period. Excluding the grant date fair market value of the 2010 +performance share grant, total compensation for 2010 for each +NEO would be as follows: $5,560,691 for Mr. Krueger; +$1,411,561 for Mr. Grimes; $997,024 for Ms. Linton; +$1,064,275 for Mr. McBreen; and $1,394,738 for +Mr. Zwiers. +9 +Effective May 27, 2008, the +Board of Directors appointed Donald T. Grimes as Senior Vice +President, Chief Financial Officer, Treasurer and Chief +Accounting Officer. +10 +Mr. Grimes, Ms. Linton +and Mr. McBreen are not yet vested in their benefits under +the Wolverine Employees’ Pension Plan or Wolverine World +Wide, Inc. 409A Supplemental Executive Retirement Plan, but the +amount reported under “Change in Pension Value and +Nonqualified Deferred Compensation Earnings” assumes that +each is fully vested. +11 +Mr. McBreen’s employment +with Wolverine began in June 2008. +40 +Table of Contents +GRANTS OF +PLAN-BASED AWARDS IN FISCAL 2010 +The following table provides information concerning each grant +of an award made to the NEOs in fiscal year 2010: +All Other +All Other +Stock +Option +Awards: +Awards: +Number +Number +Exercise +Estimated Possible Payouts +Estimated Possible +of +of +or Base +Grant +Under Non-Equity Incentive +Payouts under Equity +Shares +Securities +Price of +Date +Plan +Awards 1 +Incentive Plan +Awards 2 +of Stock +Underlying +Option +Fair +Award +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Units 3 +Options 4 +Awards 5 +Value 6 +Name +Type +Date +($) +($) +($) +(Number) +(Number) +(Number) +(Number) +(Number) +($/Share) +($) +Krueger +Annual Bonus +$329,375 +$658,750 +$1,317,500 +FY10-FY12 Performance Shares +2/10/10 +11,977 +23,955 +47,909 +$762,675 +Stock Option +2/10/10 +66,400 +$25.00 +$452,264 +Restricted Stock +2/10/10 +27,000 +$675,000 +Grimes +Annual Bonus +$93,500 +$187,000 +$374,000 +FY10-FY12 Performance Shares +2/10/10 +4,212 +8,243 +16,485 +$262,425 +Stock Option +2/10/10 +20,300 +$25.00 +$138,267 +Restricted Stock +2/10/10 +8,200 +$205,000 +Linton +Annual Bonus +$57,758 +$115,515 +$231,030 +FY10-FY12 Performance Shares +2/10/10 +2,178 +4,356 +8,712 +$138,700 +Stock Option +2/10/10 +13,500 +$25.00 +$91,951 +Restricted Stock +2/10/10 +5,300 +$132,500 +McBreen +Annual Bonus +$74,375 +$148,750 +$297,500 +FY10-FY12 Performance Shares +2/10/10 +3,246 +6,491 +12,982 +$206,675 +Stock Option +2/10/10 +15,200 +$25.00 +$103,530 +Restricted Stock +2/10/10 +5,900 +$147,500 +Zwiers +Annual Bonus +$85,000 +$170,000 +$340,000 +FY10-FY12 Performance Shares +2/10/10 +4,121 +8,243 +16,485 +$262,425 +Stock Option +2/10/10 +20,300 +$25.00 +$138,267 +Restricted Stock +2/10/10 +8,200 +$205,000 +1 +Estimated payout levels relating to +each NEO’s participation in the Annual Bonus Plan. For a +description of this Plan and the payout under it, see +pages 28-32. +2 +Estimated payout levels of +performance shares granted under the Amended and Restated Stock +Incentive Plan of 2005 relating to each NEO’s participation +in the +3-Year Bonus +(Fiscal +2010-2012). +Following the end of the +2010-2012 +performance period, restrictions may lapse on some, all or none +of the performance shares depending upon the Company’s +achievement of the relevant performance criteria. The Company +accrues, but does not pay, dividends on the performance shares +during the performance period. At the end of the performance +period, the Company will pay to the NEO the accrued dividends +(if any) on the performance shares for which the restrictions +lapse. For a description of this Plan and the payout under it, +see pages 32-35. +3 +The Company awarded restricted +stock awards under the stockholder-approved stock incentive +plans for all NEOs. The restrictions on 25% of the shares +received under the awards reflected in this column normally +lapse on the third anniversary of the date of the award, with +the restrictions on an additional 25% of the shares lapsing on +the fourth anniversary and the restrictions with respect to the +remaining 50% of the shares lapsing on the fifth anniversary. +All restrictions on shares of restricted stock lapse upon an +NEO’s death, disability or voluntary termination after +attaining age 62 or age 50 with seven years of +service. In the event of a change in control, as described under +the “Benefits Upon a Change in Control Only” heading +on page 48, restrictions lapse on all shares. Holders of +restricted stock are entitled to receive dividends and to vote. +41 +Table of Contents +4 +The Company granted stock options +under the Amended and Restated Stock Incentive Plan of 2005 for +all NEOs. Stock options granted to NEOs vest ratably over three +years beginning on the first anniversary of the grant date and +have a term of ten years. Stock option vesting may accelerate +upon certain events, including retirement, death, disability or +a change in control of Wolverine. +5 +The exercise price is equal to the +closing market price of shares of Wolverine common stock on the +date of grant. +6 +Represents the grant date fair +value for stock options, and award date fair value for +performance share and restricted stock awards, made in fiscal +year 2010, computed as described in footnotes 3 and 4 to +the Summary Compensation Table. +OUTSTANDING +EQUITY AWARDS AT 2010 FISCAL YEAR-END +The following table provides information concerning unexercised +options and stock awards that have not vested for each NEO +outstanding as of January 1, 2011: +Option Awards +Stock Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market +Awards: +or Payout +Number +Value of +of Unearned +Unearned +Market +Shares, +Shares, +Number of +Number of +Number of +Value of +Units +Units or +Securities +Securities +Shares or +Shares or +or Other +Other +Underlying +Underlying +Units of +Units of +Rights +rights +Unexercised +Unexercised +Option +Stock +Stock That +That Have +That +Options +Options +Exercise +Option +That Have +Have Not +Not +Have +Exercisable +Unexercisable 1 +Price +Expiration +Not +Vested 2 +Vested 3 +Vested 4 +Not Vested +Name +Grant Date +(#) +(#) +($) +Date +(#) +($) +(#) +($) +Krueger +Various +106,650 +$3,400,002 +Various +111,730 +$3,561,952 +12/27/2004 +6,010 +- +$20.73 +3/4/2011 +12/14/2004 +1,081 +- +$20.50 +2/13/2012 +2/12/2003 +22,500 +- +$10.51 +2/12/2013 +2/14/2002 +2,474 +- +$10.29 +2/14/2012 +2/18/2004 +23,063 +- +$15.37 +2/18/2014 +4/22/2004 +24,180 +- +$17.91 +3/4/2011 +10/25/2004 +15,030 +- +$20.08 +2/11/2013 +10/25/2004 +24,153 +- +$20.08 +2/13/2012 +2/9/2005 +26,200 +- +$23.04 +2/8/2015 +12/14/2004 +967 +- +$20.50 +3/4/2011 +12/27/2004 +6,303 +- +$20.73 +2/17/2014 +12/27/2004 +2,269 +- +$20.73 +2/18/2014 +2/15/2006 +26,650 +- +$22.47 +2/14/2016 +2/7/2007 +36,896 +- +$30.26 +2/6/2017 +4/19/2007 +6,700 +- +$29.47 +4/18/2017 +2/6/2008 +40,000 +20,000 +$25.05 +2/5/2018 +2/10/2009 +32,000 +64,000 +$17.11 +2/9/2019 +2/10/2010 +- +66,400 +$25.00 +2/9/2020 +Grimes +Various +25,700 +$819,316 +Various +37,976 +$1,210,675 +5/27/2008 +10,667 +5,333 +$28.28 +5/26/2018 +2/10/2009 +10,000 +20,000 +$17.11 +2/9/2019 +2/10/2010 +- +20,300 +$25.00 +2/9/2020 +Linton +Various +18,800 +$599,344 +Various +20,868 +$665,272 +2/6/2008 +10,667 +5,333 +$25.05 +2/5/2018 +2/10/2009 +6,334 +12,666 +$17.11 +2/9/2019 +2/10/2010 +- +13,500 +$25.00 +2/9/2020 +McBreen +Various +20,400 +$650,352 +Various +29,108 +$927,963 +7/9/2008 +10,667 +5,333 +$23.04 +7/8/2018 +2/10/2009 +7,000 +14,000 +$17.11 +2/9/2019 +2/10/2010 +- +15,200 +$25.00 +2/9/2020 +42 +Table of Contents +Option Awards +Stock Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market +Awards: +or Payout +Number +Value of +of Unearned +Unearned +Market +Shares, +Shares, +Number of +Number of +Number of +Value of +Units +Units or +Securities +Securities +Shares or +Shares or +or Other +Other +Underlying +Underlying +Units of +Units of +Rights +rights +Unexercised +Unexercised +Option +Stock +Stock That +That Have +That +Options +Options +Exercise +Option +That Have +Have Not +Not +Have +Exercisable +Unexercisable 1 +Price +Expiration +Not +Vested 2 +Vested 3 +Vested 4 +Not Vested +Name +Grant Date +(#) +(#) +($) +Date +(#) +($) +(#) +($) +Zwiers +Various +26,425 +$842,429 +Various +32,253 +$1,028.226 +2/12/2003 +5,675 +- +$10.51 +2/11/2013 +2/18/2004 +6,525 +- +$15.37 +2/18/2014 +12/20/2004 +94 +- +$20.80 +3/4/2011 +12/20/2004 +228 +- +$20.50 +2/13/2012 +12/20/2004 +1,606 +- +$20.80 +2/17/2014 +12/14/2004 +114 +- +$20.50 +3/4/2011 +12/9/2005 +8,600 +- +$23.04 +2/8/2015 +2/15/2006 +8,600 +- +$22.47 +2/14/2016 +2/7/2007 +7,600 +- +$30.26 +2/6/2017 +2/6/2008 +10,667 +5,333 +$25.05 +2/5/2018 +2/10/2009 +6,334 +12,666 +$17.11 +2/9/2019 +4/22/2009 +667 +1,333 +$21.79 +4/21/2019 +2/10/2010 +- +20,300 +$25.00 +2/9/2020 +1 +All unexercisable options become +exercisable on the vesting date. The normal vesting period for +options is one-third of the shares on each of the first three +anniversaries of the date of the grant. Full vesting occurs on +the third anniversary date of the grant. Stock option vesting +may accelerate upon certain events, including retirement, death, +disability or a change in control of Wolverine, as further +described in the “Grants of Plan Based Awards” section. +2 +The following table sets forth the +vesting dates for the unvested restricted stock awards of each +NEO as of January 1, 2011: +Named +Executive +Number of Shares to +Officer +Vesting Date +Vest +Krueger +2/6/2011 +5,000 +2/7/2011 +3,475 +2/15/2011 +7,500 +4/19/2011 +575 +2/6/2012 +5,000 +2/7/2012 +6,950 +2/10/2012 +10,000 +4/19/2012 +1,150 +2/6/2013 +10,000 +2/10/2013 +16,750 +2/10/2014 +26,750 +2/10/2015 +13,500 +Grimes +5/27/2011 +1,375 +2/10/2012 +3,000 +5/27/2012 +1,375 +2/10/2013 +5,050 +5/27/2013 +2,750 +2/10/2014 +8,050 +2/10/2015 +4,100 +43 +Table of Contents +Named +Executive +Number of Shares to +Officer +Vesting Date +Vest +Linton +2/6/2011 +1,375 +2/6/2012 +1,375 +2/10/2012 +2,000 +2/6/2013 +2,750 +2/10/2013 +3,325 +2/10/2014 +5,325 +2/10/2015 +2,650 +McBreen +7/9/2011 +1,375 +2/10/2012 +2,250 +7/9/2012 +1,375 +2/10/2013 +3,725 +7/9/2013 +2,750 +2/10/2014 +5,975 +2/10/2015 +2,950 +Zwiers +2/6/2011 +1,375 +2/7/2011 +675 +2/15/2011 +1,700 +2/6/2012 +1,375 +2/7/2012 +1,350 +2/10/2012 +2,000 +4/22/2012 +250 +2/6/2013 +2,750 +2/10/2013 +4,050 +4/22/2013 +250 +2/10/2014 +6,050 +4/22/2014 +500 +2/10/2015 +4,100 +3 +The dollar values are calculated +using a per share stock price of $31.88, the closing price of +Wolverine common stock as of the end of fiscal year 2010. +4 +Following the end of the applicable +three year performance period, restrictions may lapse on some, +all or none of the performance shares depending upon the +Company’s achievement of the relevant performance criteria. +OPTION EXERCISES +AND STOCK VESTED IN FISCAL 2010 +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired +Realized +Acquired +Realized +on +on +on +on +Exercise +Exercise +Vesting +Vesting* +(#) +($) +(#) +($) +Krueger +38,856 +$265,857 +13,100 +$331,598 +Grimes +- +- +- +- +Linton +- +- +- +- +McBreen +- +- +- +- +Zwiers +429 +$2,728 +3,225 +$80,844 +* +The Company calculates the dollar values using the closing price +of Wolverine common stock on the date of vesting. +PENSION PLANS AND +2010 PENSION BENEFITS +Wolverine maintains the following defined benefit retirement +plans covering NEOs: (1) the Wolverine Employees’ +Pension Plan (“Pension Plan”), which is a funded and +tax-qualified defined benefit plan under the Internal Revenue +Code that covers eligible employees, and (2) the Wolverine +World Wide, Inc. 409A Supplemental Executive Retirement Plan +(“SERP”), which is an unfunded non-qualified plan that +covers individuals recommended by the CEO and approved by the +Compensation Committee for participation in the +44 +Table of Contents +SERP. The following describes the material features of the +pensions plans presented in the “Pension Benefits” +table. +Qualified Pension +Plan +NEOs vest in the Pension Plan after five years of qualifying +service. Subject to the limitations imposed by the Internal +Revenue Code, the Pension Plan generally pays an NEO a monthly +benefit in an amount equal to a percentage of the NEO’s +final average monthly earnings multiplied by his or her number +of years of service. The Pension Plan caps years of service at +25. The percentages are 2.4% for Mr. Krueger and 2.0% for +Messrs. Grimes, McBreen and Zwiers and Ms. Linton. +“Earnings” as used in this formula generally includes +base salary and annual bonus, less social security allowance, +and is capped at $245,000, the IRS limit applicable to +tax-qualified plans for 2010. +Upon retirement, an NEO participant may elect to receive the +benefit in the form of a life annuity, 5- or +10-year +certain annuities, or joint and 50% or joint and 100% survivor +annuities. The payments are actuarially adjusted based on the +election. Any election, other than an election to receive life +annuity benefits, reduces the monthly benefit payable. The +“normal” retirement age under the plan is age 65. +None of the NEOs are eligible to begin drawing early retirement +benefits under the Pension Plan. +Supplemental +Executive Retirement Plan +Wolverine offers NEOs the opportunity to participate in the +SERP, which provides retirement benefits above amounts available +under the Company’s tax-qualified pension programs. An +NEO’s SERP benefit generally equals the difference between +the NEO’s retirement benefit under Pension Plan and the +benefits the NEO would have received if there were no cap on +earnings when calculating the pension plan benefit. The SERP +caps years of service at 25. The SERP also allows a retired NEO +who has five years of service to draw earlier (beginning at +age 55) and on different terms than under the Pension +Plan. An NEO’s earnings percentage multiplier is the same +under the SERP as it is under the Pension Plan. The Compensation +Committee may grant additional deemed years of service to an +NEO, subject to the cap of 25 years. Under +Mr. Krueger’s compensation arrangement as CEO, he is +credited with an additional deemed year of service under the +SERP for each year he serves as CEO until he reaches the +25-year cap. +The full benefit of any additional years of deemed service is +paid under the SERP. +If a retired NEO draws the SERP benefit prior to age 65, +the reduction factor is 0.333% for each month prior to +age 60, and 0.1666% for each month between age 60 and +age 65. As of the end of fiscal year 2010, Mr. Krueger +was the only NEO eligible to retire and begin drawing early +retirement benefits under the SERP. +SERP benefits are paid monthly, and the SERP has a lump sum +payment option in the event of death or termination of +employment after a change in control. The SERP also includes a +disability benefit and a death benefit payable to the NEO’s +designated beneficiary if the NEO dies before retiring. The SERP +provides for lump sum payments to participating NEOs if, within +two years (Messrs. Grimes, McBreen, Zwiers and +Ms. Linton) or three years (Mr. Krueger) after a +change in control the NEO resigns for good reason or is +terminated by Wolverine other than for cause or due to death or +disability. +The SERP also contains non-competition, confidentiality and +employee non-solicitation provisions in favor of Wolverine. +Under the SERP non-competition provisions, an NEO is not +entitled to any benefit payment if, prior to the date on which +such benefit payment is due, the participant enters into certain +relationships with a competing business. If the NEO’s +employment is terminated for serious misconduct or if Wolverine +cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons, the Company may +terminate an NEO’s benefits under the SERP. Wolverine may +terminate the SERP or stop further accrual of SERP benefits for +a participating NEO at any time, but termination will not affect +previously accrued benefits. +45 +Table of Contents +Pension Benefits +in Fiscal Year 2010 +The following table provides for each NEO certain information +concerning each plan that provides for payments or other +benefits at, following, or in connection with retirement: +Payments +Number +Present +During +of Years +Value of +Last +Credited +Accumulated +Fiscal +Plan +Service +Benefit 1 +Year +Name +Name +(#) +($) +($) +Krueger +Pension Plan +15 +$624,324 +- +SERP 2 +22 +$4,577,365 +- +Grimes +Pension +Plan 3 +3 +$62,100 +- +SERP 3 +3 +$54,756 +- +Linton +Pension +Plan 3 +3 +$135,380 +- +SERP 3 +3 +$86,495 +- +McBreen +Pension +Plan 3 +3 +$53,755 +- +SERP 3 +3 +$19,255 +- +Zwiers +Pension Plan +13 +$195,712 +- +SERP +13 +$151,588 +- +1 +These values are as of +January 1, 2011, and are calculated assuming the +participants will commence their benefits at age 65 (in the +form of the annuity elected by the NEO) and use the 2010 PPA +static mortality tables and a 5.94% interest rate. +2 +The present value of +Mr. Krueger’s accumulated benefit under the SERP has +increased by $1,655,081 as a result of three additional service +years that were granted to him under the SERP in 1996 in +recognition of his service as a member of Wolverine’s +executive team for three years before becoming a participant in +the SERP, and four additional deemed years of service granted as +part of Mr. Krueger’s CEO compensation. The present +value of Mr. Krueger’s SERP benefit would be $2,922,284 if +15 service years was used to calculate his benefit. +3 +Messrs. Grimes, McBreen and +Ms. Linton are not vested in the pension plan or the SERP. +The amount in the table was calculated using the assumption that +each of them was fully vested. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +Wolverine has entered into an Executive Severance Agreement with +each of the NEOs that provides certain rights including the +right to receive payments in the event of a termination of +employment in connection with a change in control. The Company +also has entered into an agreement with Mr. Krueger +regarding certain termination benefits in the event of +termination of his employment under certain circumstances. +Benefits +Triggered by Termination for Cause or Voluntary +Termination +An NEO is not entitled to receive any additional forms of +severance payments or benefits upon termination for cause or +upon the NEO’s voluntary decision to terminate employment +with Wolverine prior to being eligible for retirement. +Benefits +Triggered by Termination Other Than for Cause or by the NEO for +Good Reason +Mr. Krueger entered into a Separation Agreement on +March 13, 2008, which states that upon termination of his +employment other than termination by Wolverine for Cause or +termination by Mr. Krueger without Good Reason, as such +terms are defined in the Separation Agreement, Wolverine will +pay Mr. Krueger the following payments in exchange for a +general release in favor of Wolverine: (1) continued base +salary for 18 months (reduced by payments he receives if he +is employed by a Competing Business, as defined in the +Separation Agreement); (2) a lump sum pro rata portion of +the annual incentive bonus and the long-term bonus for all +uncompleted performance periods based on actual corporate +performance for the applicable +46 +Table of Contents +performance periods; (3) a lump sum pro rata portion of the +annual discretionary bonus relating to personal performance +objectives; (4) retiree medical benefits for +Mr. Krueger, his spouse and dependents for a period +starting on the day after the termination date and ending on the +last day of the 18th month following the month in which the +termination date falls; and (5) with respect to any +triggering termination occurring before Mr. Krueger’s +60th birthday, either a waiver of the three-year +non-competition clause in the SERP or a lump sum payment of +36 months’ base salary. Mr. Krueger also will be +paid any annual incentive bonus and long-term incentive bonus +earned but not paid prior to his termination. +“Cause” generally is defined in +Mr. Krueger’s Separation Agreement to mean: +(1) any act or omission knowingly undertaken or omitted +with the intent of causing material damage to Wolverine; +(2) any intentional act involving fraud, misappropriation +or embezzlement, that causes material damage to Wolverine; +(3) repeated willful failure to substantially perform any +of his significant duties as reasonably directed by the Board of +Directors of Wolverine; (4) a conviction (including any +plea of guilty or nolo contendere) of any criminal act that +(a) results in the executive serving prison time and not +being able to perform the normal duties of his position for more +than thirty (30) days; or (b) causes material damage +to Wolverine; or (5) chronic or habitual use or consumption +of drugs or alcohol that causes material damage to Wolverine. +“Good Reason” generally is defined in +Mr. Krueger’s Separation Agreement to mean: (1) a +material reduction in base compensation, including a reduction +in base salary or opportunities under Wolverine’s bonus +plans or equity plans (other than those implemented for the +executive team as a whole); (2) a material reduction in +authority, duties, or responsibilities; (3) a requirement +to report to a Company officer or employee instead of reporting +directly to the Board of Directors; or (4) certain +relocations, other than those related to a change in the +location of Wolverine’s headquarters affecting a majority +of the executive team. +Benefits +Triggered Upon a Change in Control +Benefits Upon Termination Following a Change in +Control. Under the Executive Severance Agreements +entered into with the NEOs, payments and benefits are triggered +when Wolverine terminates employment without “cause” +or when an executive terminates employment for “good +reason” within two years (Messrs. Grimes, McBreen, +Zwiers and Ms. Linton) or three years (Mr. Krueger) +following a change in control of Wolverine. +Wolverine pays the lump sum severance payment under the +Executive Severance Agreement, and the payment is composed of +the following: (1) unpaid base salary, benefit awards +(including both cash and stock) and bonus payments that have +been earned; (2) in lieu of a bonus payment under the +Annual Bonus Plan, an amount equal to the number of days the NEO +was employed by Wolverine in the year of termination divided by +the number of days in the year multiplied by 100% of the greater +of either (a) the bonus awarded to the NEO under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the NEO over the preceding two-year period under an Annual +Bonus Plan; (3) in lieu of payments under the various +three-year performance periods, an amount equal to the bonus the +NEO would have received based on actual and assumed performance +measures, multiplied by the number of days the NEO participated +in the performance period prior to the termination, divided by +the total number of days in the performance period (in +determining the earnings per share or other performance measures +that can be determined annually for any year subsequent to the +year of termination, performance will equal the level required +to attain the maximum goal under the three year plan for that +year); (4) either two (Messrs. Grimes, McBreen, Zwiers +and Ms. Linton) or three (Mr. Krueger) times the sum +of (a) the NEO’s highest annual rate of base salary +during the +12-month +period prior to termination; and (b) the greater of the +average amount earned by the NEO during the previous two years +or the previous year under the Annual Bonus Plan; (5) 100% +of the positive spread for any options held by the NEO whether +or not vested; (6) an excise tax +gross-up +adjustment; and (7) the present value of an additional +three years of deemed service under the retirement plans. Upon a +termination of employment in connection with a change of +control, Wolverine will maintain for up to six months the +employee benefit plans, programs or arrangements that the NEO +was entitled to participate in immediately prior to the +termination date. Wolverine will provide outplacement services +through the last day of the second calendar year following the +calendar year of termination. The +47 +Table of Contents +Compensation Committee has determined that Wolverine will not +provide excise tax +gross-up +payments in future employment agreements. +“Change in control” under the Executive Severance +Agreements generally means certain changes in composition of the +Board of Directors, certain acquisitions of 20% or more of +Wolverine’s common stock or combined outstanding voting +power of Wolverine, and other specified reorganizations, +mergers, consolidations, liquidations, dissolutions or +distributions of substantial assets (unless such transactions +result in the creation of an entity in which at least 50% of the +common stock and combined voting power is owned by the owners of +record prior to the transaction, no single stockholder owns more +than 20% of the combined voting power and a majority of the +board remains unchanged). +“Cause” is defined under the Executive Severance +Agreements to generally mean the willful and continued failure +to substantially perform duties or willfully engaging in gross +misconduct that is injurious to Wolverine. +“Good Reason” is defined under the Executive Severance +Agreements generally to mean: (1) any materially adverse +change in position, duties, responsibilities or title or any +removal, involuntary termination or failure to re-elect an +officer; (2) a reduction in annual base salary; +(3) any relocation or requirement to substantially increase +business travel; (4) the failure to continue providing any +executive incentive plans or bonus plans; (5) the failure +to continue any employee benefit plan or compensation plan +unless a comparable plan is available; (6) the failure to +pay any salary, bonus, deferred compensation or other +compensation; (7) the failure to obtain an assumption +agreement from any successor; (8) any purported termination +of the employment which is not effected in a manner prescribed +by the Executive Severance Agreement; or (9) any other +material breach by Wolverine or a successor of its obligations +under the Executive Severance Agreement. +Benefits Upon a Change in Control Only. Under the +stockholder-approved equity plans, upon a change in control of +Wolverine, all of each NEO’s outstanding stock options +become immediately exercisable in full and will remain +exercisable during their remaining term, regardless of whether +the NEO remains in the employ or service of Wolverine. The +Compensation Committee may determine that one or all of the NEOs +shall receive cash in an amount equal to the positive spread +amount. In addition, all other outstanding incentive awards of +the NEOs, including shares of restricted stock, become +immediately and fully vested and non-forfeitable upon a change +in control of Wolverine. Change in control for this purpose +generally means certain changes in the composition of the Board +of Directors, certain acquisitions of 20% of Wolverine’s +common stock and other specified reorganizations, mergers, +consolidations, liquidations, dissolutions or dispositions of +substantial assets. +Benefits +Triggered by Retirement, Death or Permanent Disability +Pension Plan. In the event of death before +retirement, the Pension Plan provides the surviving spouse of a +vested NEO participant a death benefit equal to the qualified +pre-retirement survivor annuity as defined in the Internal +Revenue Code (generally 50% of the participant’s accrued +normal retirement benefit). This benefit is paid annually to the +surviving spouse beginning when the NEO participant would have +turned 60 and continues for the life of the surviving spouse. +For NEO participants with at least three years of service as of +December 31, 2003, and who have at least 10 years of +service and are employed by Wolverine at the time of death, the +amount of the survivor benefit under the Pension Plan is +calculated as though the NEO participant had continued as an +employee of Wolverine until age 65 at the compensation +level as of the date of death and the benefit begins upon the +date of death, unreduced for early commencement. The survivor +benefit for NEO participants who meet all the criteria set forth +in the preceding sentence, but who die when they are not +employed by Wolverine are entitled to a joint and survivor +benefit commencing upon the date of death, unreduced for early +commencement. +SERP. If an NEO dies before beginning to receive +benefits under the SERP, Wolverine must (based on the current +elections by all of the NEOs) pay the beneficiary a lump sum +death benefit equal to the present value of the benefit computed +as if the NEO participant had retired on the date of death, had +begun receiving benefits at age 55 and had continued to +receive benefits for the remainder of the participant’s +life expectancy. If the participant dies after beginning to +receive benefit payments, benefits cease unless the +48 +Table of Contents +NEO participant was receiving benefits in the form of one of the +joint and survivor annuity optional elections under the plan or +had elected benefits in a form that provides for a continuation +of benefits. +If an NEO becomes totally and permanently disabled, the SERP +provides a disability benefit equal to 60% of the normal +retirement accrued benefit based upon years of service up to the +date that the NEO participant became disabled through the date +the NEO participant reaches age 65 (at which point, the NEO +participant would begin drawing full SERP benefits) or is no +longer disabled. +Incentive Compensation Plans. Upon termination of +employment at least six months after the beginning of a fiscal +year due to death, disability or early or normal retirement, an +NEO is entitled to receive a pro rata portion of any Annual +Bonus award earned under the Annual Bonus Plan based on the +NEO’s service during such fiscal year. The Annual Bonus is +payable at the same time and in the same manner as awards are +paid to other NEOs for the fiscal year. Under the LTIP and for +performance shares, upon death, disability or early or normal +retirement, an NEO will be eligible to receive a pro rata +portion of any award payable under each open performance cycle +for which the NEO served at least 12 months. If an award is +payable at the end of the performance period, the award is +prorated for service during the applicable performance cycle. +Any prorated award is payable at the time awards are paid to +other NEOs. +Stock Incentive Plans. Upon death, disability or +early or normal retirement of the NEO, the restrictions +applicable to his or her shares of restricted stock (excluding +performance shares) terminate automatically and stock options +vest in full if held for more than one year or, if employed for +less than one year after the grant, on a percentage basis based +on months employed after the grant divided by 12. An NEO is +eligible for early retirement under the stock incentive plans +upon voluntarily terminating employment after attaining +age 50 with seven years of service. Upon death, disability +or early or normal retirement of the NEO, the restrictions on +performance shares lapse on a prorated basis, based on months +employed in the performance period and actual Company +performance during the performance period. +Description of +Restrictive Covenants that Apply During and After Termination of +Employment +The SERP contains non-competition, confidentiality and employee +non-solicitation provisions in favor of Wolverine. Under the +non-competition provisions of the SERP, the NEO participant will +not be entitled to any benefit payment if, prior to the date on +which such benefit payment is due, the NEO participant enters +into certain relationships with a competing business. +Estimated +Payments on Termination or Change in Control +The following table summarizes the potential payments and +benefits payable to each of Wolverine’s NEOs upon a change +in control or termination of employment in connection with each +of the triggering events set forth in the table, assuming in +each situation that the termination of employment or change in +control of Wolverine took place on January 1, 2011. The +amounts described below are in addition to benefits that are +generally available to the Company’s employees such as +distributions under the Company’s 401(k) savings plan, +disability or life insurance benefits and accrued vacation. Due +to the many factors that affect the nature and amount of any +benefits provided upon the termination events discussed below, +any actual amounts paid or distributed to NEOs may be different. +Factors that may affect these amounts include timing during the +year of the occurrence of the event, Wolverine’s stock +price and the NEO’s age. +The value of the accelerated vesting of unvested equity-based +compensation awards was computed using the closing market price +($31.88) of Wolverine’s common stock on December 31, +2010, the last business day in the fiscal year. The value for +unvested restricted stock is computed by multiplying $31.88 by +the number of unvested shares of restricted stock held by the +NEO. The value of unvested stock options equals the difference +between the exercise price of each option and $31.88. No value +was attributed to accelerated vesting of a stock option if its +exercise price was greater than $31.88. +49 +Table of Contents +Termination Event and +Payments/Benefits +Krueger +Grimes +Linton +McBreen +Zwiers +Termination by Company for Cause or Voluntary Termination +- +- +- +- +- +Termination by Company Other Than for Cause or by Executive +for Good Reason +$4,159,006 1 +- +- +- +- +Change in Control +Termination 2 +Executive Severance +Agreement 3 +$20,367,655 +$4,548,405 +$3,370,076 +$3,191,004 +$4,797,853 +Benefits under Executive Severance +Agreement 4 +$48,836 +$46,891 +$46,736 +$46,390 +$48,772 +Stock Incentive +Plans 5 +$4,938,714 +$1,273,579 +$915,725 +$1,008,852 +$1,219,044 +Lump sum payment under the +SERP 6 +$11,782,099 +$357,702 +$407,126 +$222,607 +$461,827 +Death +SERP 7 +$7,492,387 +$266,265 +$301,827 +$175,290 +- +Pension +Plan 8 +$852,778 +- +- +- +$882,081 +Stock Incentive +Plans 5 +$4,719,115 +$1,206,753 +$872,095 +$960,084 +$1,152,219 +Earned Incentive +Compensation 9 +$2,804,255 +$854.544 +$509,840 +$621,232 +$742,943 +Disability +SERP 10 +$6,738,727 +$282,942 +$265,677 +$203,841 +$503,609 +Stock Incentive +Plans 5 +$4,719,115 +$1,206,753 +$872,095 +$960,084 +$1,152,219 +Earned Incentive +Compensation 9 +$2,804,255 +$854,544 +$509,840 +$621,232 +$742,943 +Retirement +SERP 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Pension +Plan 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Stock Incentive +Plans 5, 12 +$4,719,115 +- +- +- +- +Earned Incentive +Compensation 12 +$2,804,255 +- +- +- +- +Change in Control Only +Stock Incentive +Plans 5 +$4,938,714 +$1,273,579 +$915,725 +$1,008,852 +$1,219,044 +1 +The estimate for Mr. Krueger +assumes that the Company waives the non-compete clause in +Mr. Krueger’s SERP and assumes target performance +under the 2009-2011 performance period and 2010-2012 performance +period. Actual payout or vesting, if any, would be determined +and made at the end of the period. Performance shares assumed to +vest for purposes of the estimate for the 2009-2011 and +2010-2012 periods were valued at $31.88, the closing price of +the Company’s stock on the last business day of 2010. The +amount reflected in the table also includes an estimated cost of +$10,313 for retiree medical benefits for 18 months and the +estimated cost of $25,000 for out-placement services. +2 +Payments would be triggered after +termination of employment under certain circumstances within two +years (Messrs. Grimes, McBreen, Zwiers and Ms. Linton) +or three years (Mr. Krueger) following a change in control. +The timing of the payment would be delayed to the extent earlier +payment would trigger Section 409A of the Tax Code. +3 +Includes amounts payable in cash +under the terms of the Executive Severance Agreement, excluding +the value of the cash payout to each NEO of the option spread +for already vested options. See the “Outstanding Equity +Awards at Fiscal Year-End” table above for more information +regarding each NEO’s vested options as of January 1, +2011. The value of unvested options and time-vested restricted +shares that vest upon a change in control under the terms of the +Company’s stock incentive plans are included in the Stock +Incentive Plans row. +4 +These estimates assume that +Wolverine maintains the benefit plans for a period of one year +after termination and the out-placement services for a period +beginning with the date of termination and ending on the last +day of the second calendar year following the calendar year in +which the date of termination occurred. +5 +Reflects the value of unvested +stock options and shares of restricted stock that would vest +because of the event. Restricted shares are valued and the +option spread determined using a value of $31.88 per share, the +closing price of the Company’s stock on the last business +day of fiscal year 2010. +6 +Amounts in this row reflect the +entire lump sum benefit payable to each NEO, including any +accumulated benefit. For a description of the SERP, see +“Supplemental Executive Retirement Plan” under the +heading “Pension Plans and 2010 Pension Benefits.” The +timing of the payment would be delayed to the extent earlier +payment would trigger Section 409A of the Tax Code. +7 +Amounts in this row reflect the +entire lump sum death benefit payable to a participating +NEO’s beneficiary, including any accumulated benefit. +50 +Table of Contents +8 +Amounts reflect the net present +value of the annuity paid to the surviving spouse calculated +using the same discount rate and mortality assumptions used in +the Pension Benefits table. In accordance with the terms of the +Pension Plan, the death benefit for Messrs. Krueger and +Zwiers was calculated as though the NEO had continued as an +employee of Wolverine until age 65 at the compensation +level as of the date of death. Mr. Grimes, Mr. McBreen +and Ms. Linton were not vested in the Pension Plan as of +January 1, 2011, so no death benefit would be payable to +any surviving spouse. +9 +Under the Annual Bonus Plan, the +LTIP and the terms of performance share awards, each NEO may be +eligible to receive a pro rata portion of any award if +employment is terminated as a result of the event. The amount +reported represents actual payout under the Annual Bonus Plan +for fiscal year 2010, actual payout under the +2008-2010 +performance cycle of the LTIP, and for the +2009-2011 +and +2010-2012 +performance cycles, an estimated value of performance shares +that would vest at the end of the performance period. +Performance shares would vest on a prorated basis based on +actual Company performance. For purposes of this estimate, the +calculation uses target performance and a $31.88 stock price, +the closing stock price at the end of fiscal year 2010. +10 +Amounts in this row reflect the net +present value of the annuity using the same discount rate and +mortality assumptions used in the Pension Benefits table and +assuming the NEO drew the disability benefit until age 65 +and then the normal retirement benefit. +11 +See the Pension Benefits table and +associated footnotes. The Pension Benefits table describes the +general terms of each pension plan in which the NEOs +participate, the years of credited service and the present value +of each NEO’s accumulated pension benefit assuming payment +begins at age 65. +12 +Mr. Krueger is the only NEO +who was retirement eligible at fiscal year end. +AUDIT COMMITTEE +REPORT +The Audit Committee of the Board of Directors consists of four +directors who are independent under the Company’s Director +Independence Standards, the NYSE listed company standards, and +applicable SEC standards. The Audit Committee represents and +assists the Board in fulfilling its oversight responsibility +regarding the integrity of Wolverine’s financial statements +and the financial reporting and accounting process, the systems +of internal accounting and financial controls, the performance +of the internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements, and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the financial reporting process, +including the application of accounting and financial +principles, the preparation, presentation and integrity of the +financial statements, and the systems of internal controls and +other procedures designed to promote compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and for auditing the +effectiveness of Wolverine’s internal control over +financial reporting. +The Audit Committee has taken steps to provide assurances +regarding Audit Committee composition and procedures, the +independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) reviewing the Audit +Committee Charter; (ii) reviewing the Accounting and +Finance Code; (iii) maintaining an Accounting and Auditing +Complaint Procedure to allow employees, stockholders and the +public to report concerns regarding Wolverine’s financial +statements, internal controls and disclosures; and +(iv) reviewing procedures for the Audit Committee to +pre-approve all audit and non-audit services provided by +Wolverine’s independent auditors. +As part of its supervisory duties, the Audit Committee has +reviewed Wolverine’s audited financial statements for the +fiscal year ended January 1, 2011, and has discussed those +financial statements with Wolverine’s management, internal +financial staff, and the internal auditors and independent +auditors with and without management present. The Audit +Committee has also reviewed and discussed the following with +Wolverine’s management, the financial staff, and the +internal auditors and independent auditors with and without +management present: +• +accounting and financial principles and significant assumptions, +estimates and matters of judgment used in preparing the +financial statements; +• +allowances and reserves for accounts receivable, inventories and +taxes; +51 +Table of Contents +• +accounting for acquisitions, pension plans and equity-based +compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine’s +independent auditors the results of the independent +auditors’ examinations and the judgments of the independent +auditors concerning the quality, as well as the acceptability, +of Wolverine’s accounting principles and such other matters +that it is required to discuss with the independent auditors +under applicable rules, regulations or generally accepted +auditing standards, including the matters required to be +discussed by applicable rules of the Public Company Accounting +Oversight Board (“PCAOB”). In addition, the Audit +Committee has received from the independent auditors the written +disclosures and the letter required by the applicable +requirements of the PCAOB regarding the independent +auditor’s communications with the Audit Committee +concerning independence rules and has discussed their +independence from Wolverine and Wolverine’s management with +them, including a consideration of the compatibility of +non-audit services with their independence, the scope of the +audit and the scope of all fees paid to the independent auditors +during the year. After and in reliance upon the reviews and +discussions described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended January 1, 2011, be +included in Wolverine’s Annual Report on +Form 10-K +for the year then ended to be filed with the Securities and +Exchange Commission. +Respectfully submitted, +Jeffrey M. Boromisa (Chairperson), William K. Gerber, Brenda J. +Lauderback, Shirley D. Peterson +INDEPENDENT +AUDITOR +Wolverine’s Audit Committee has adopted a policy under +which the Audit Committee must approve all audit and non-audit +services provided by Ernst & Young LLP and which +prohibits Ernst & Young LLP from providing any +non-audit services that are prohibited by the SEC or the PCAOB. +The Company’s Audit Committee provides categorical +pre-approval before the beginning of each fiscal year for +routine and recurring services, with specific service +descriptions and budgets. All audit services, internal +control-related services, and other services not within the +specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions (such as pre-approval of audit services), the Audit +Committee may delegate engagement-specific pre-approval to one +or more Committee members. Management must communicate to the +Audit Committee at its next regularly scheduled meeting any +services approved by a Committee member. Wolverine’s Audit +Committee pre-approved all fees paid to Ernst & Young +LLP for services performed in 2010 and 2009. +The aggregate fees billed by Ernst & Young LLP for +audit and non-audit services were: +2010 +2009 +Audit +Fees 1 +$1,011,100 +$991,075 +Audit Related +Fees 2 +- +- +Total Audit and Audit Related +$1,011,100 +$991,075 +Tax +Fees 3 +Tax Compliance +$383,819 +$506,520 +Tax Planning & Advisory +$82,090 +$430,240 +Total Tax Fees +$465,909 +$936,760 +All Other +Fees 4 +- +- +Total Fees +$1,477,009 +$1,927,835 +1 +“Audit Fees” are +comprised of fees for the annual audit, reviews of the financial +statements included in Wolverine’s +Form 10-Q +filings, audit of internal control over financial reporting, +foreign statutory audits and consultations concerning accounting +matters associated with the annual audit. +52 +Table of Contents +2 +“Audit Related Fees” are +comprised of fees for assurance and related services that were +reasonably related to the performance of the audit or a review +of the financial statements and that are not reported as Audit +Fees above, including accounting research, and employee benefit +plan audits. +3 +“Tax Fees” are fees for +tax compliance, tax advice and tax planning. +4 +“All Other Fees” are fees +for any services not included in the first three categories. +Wolverine’s Audit Committee has adopted a policy +restricting the Company’s hiring of current or former +partners or employees of the Company’s independent auditors. +ITEM 2: RATIFICATION +OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +The Audit Committee has reappointed Ernst & Young LLP +as independent auditors for the current fiscal year. As a matter +of good corporate governance, the Audit Committee has determined +to submit its appointment of Ernst & Young LLP to the +Company’s stockholders for ratification. If this +appointment is not ratified by the holders of a majority of +shares present or represented at the annual meeting and entitled +to vote on the matter, the Audit Committee will review its +future selection of an independent registered public accounting +firm. Even if the appointment is ratified, the Audit Committee +in its discretion may select different independent auditors any +time during the year if it determines that such a change would +be in the best interests of the Company and the Company’s +stockholders. +The Audit Committee reviewed Ernst & Young LLP’s +performance prior to appointing them as the independent +auditors, and considered the: +• +historical and recent performance of Ernst & Young LLP +on the Company’s audit, including the quality of the +engagement team and Ernst & Young LLP’s +experience, client service, responsiveness and technical +expertise; +• +PCAOB report of selected Ernst & Young LLP audits; +• +Ernst & Young LLP’s financial strength and +performance; +• +appropriateness of fees charged; and +• +Ernst & Young LLP’s familiarity with the +Company’s accounting policies and practices and internal +control over financial reporting. +Ernst & Young LLP, a registered public accounting +firm, was the Company’s independent auditor for the year +ended January 1, 2011. Representatives of Ernst & +Young LLP are expected to be present at the annual meeting, will +have an opportunity to make a statement if they desire to do so, +and are expected to be available to respond to appropriate +questions from stockholders. +Board +Recommendation +The Board recommends that you vote “FOR” +ratification of the Audit Committee’s selection of the firm +of Ernst & Young LLP, Grand Rapids, Michigan, as +independent auditor for the Company for the fiscal year 2011. +ITEM 3: ADVISORY +RESOLUTION ON EXECUTIVE COMPENSATION +The Company is asking its stockholders to indicate their support +for Wolverine’s NEO compensation, as described in this +proxy statement. This proposal, commonly known as a +“say-on-pay” +proposal, gives the Company’s stockholders the opportunity +to express their view on compensation for the Company’s +NEOs. The +say-on-pay +vote is advisory and, therefore, not binding on the Company, the +Compensation Committee or the Board. The Board and Compensation +Committee value the opinions of Wolverine’s stockholders +and will review and consider the voting results when making +future decisions regarding the Company’s executive +compensation program. +53 +Table of Contents +As described above in the “Compensation Discussion and +Analysis” section of this proxy statement, the Compensation +Committee has structured the executive compensation program to +achieve the following key objectives: +» +attract and retain talented NEOs who will lead Wolverine and +achieve and inspire superior performance; +» +provide incentives for achieving specific near-term individual, +business unit and corporate goals and reward the attainment of +those goals at pre-established levels; +» +provide incentives for achieving longer-term financial goals and +to reward attaining those goals at pre-established +levels; and +» +align the interests of NEOs with those of the stockholders +through incentives based on increasing stockholder value. +The executive compensation program achieves these objectives, in +part, by: +» +balancing fixed compensation (base salaries) with +performance-based compensation (annual bonuses and long-term +incentives); +» +rewarding annual performance while maintaining emphasis on +longer-term objectives; and +» +blending cash, non-cash, long- and short-term compensation +components, and current and future compensation components. +In 2010, the Company performed strongly, achieving record +performances in annual revenue and earnings per share. The stock +price increased to $31.88 at the end of fiscal 2010 from $27.22 +at the end of fiscal 2009. Over the past five years, the +Company’s performance, based on cumulative total +stockholder return, has outperformed the S&P SmallCap 600 +Index and S&P 600 Footwear Index. +The Company urges stockholders to read the “Compensation +Discussion and Analysis” beginning on page 25 of this +proxy statement, which describes in more detail how the +Company’s executive compensation policies and procedures +operate and are designed to achieve the Company’s +compensation objectives. The Company also encourages +stockholders to read the Summary Compensation Table and other +related compensation tables and narrative, appearing on pages 39 +through 44, which provide detailed information on the +compensation of the Company’s NEOs. The Compensation +Committee and the Board of Directors believe that the policies +and procedures articulated in the “Compensation Discussion +and Analysis” are effective in achieving the Company’s +goals and that the compensation of the Company’s NEOs +reported in this proxy statement has supported and contributed +to the Company’s recent and long-term success. +In accordance with recently adopted Section 14A of the +Exchange Act, and as a matter of good corporate governance, the +Company asks stockholders to approve the following advisory +resolution at the 2011 Annual Meeting of Stockholders: +RESOLVED, that the stockholders of Wolverine World Wide, +Inc. (the “Company”) approve, on an advisory basis, +the compensation of the Company’s named executive officers +disclosed in the Compensation Discussion and Analysis, the +Summary Compensation Table and the related compensation tables, +notes and narrative in the Proxy Statement for the +Company’s 2011 Annual Meeting of Stockholders. +Board +Recommendation +The Board recommends that you vote “FOR” approval +of the advisory resolution on executive compensation. +ITEM 4: ADVISORY +VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE +COMPENSATION +Pursuant to recently adopted Section 14A of the Exchange +Act, the Company is asking its stockholders to vote on whether +future advisory votes on executive compensation of the nature +reflected in Item 3 above +54 +Table of Contents +should occur every year, every two years or every three years. +You may cast your vote on your preferred voting frequency by +choosing the option of one year, two years, three years or +abstain from voting when you vote. Stockholders are not voting +to approve or disapprove the Board’s recommendation. This +advisory vote on the frequency of future advisory votes on +executive compensation is non-binding on the Board of Directors. +The Board may decide that it is in the best interests of the +Company’s stockholders and the Company to hold an advisory +vote on executive compensation on a more or less frequent basis +and may vary its practice based on factors such as discussions +with stockholders and the adoption of material changes to +compensation programs. +Board +Recommendation +The Board recommends that you vote for conducting future +advisory votes on executive compensation once “EVERY THREE +YEARS.” +RELATED PARTY +MATTERS +Certain +Relationships and Related Transactions +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto L. Grimoldi, a +director of Wolverine, is chairman and a 35% shareholder. The +agreements grant Grimoldi, S.A. the exclusive rights to +distribute and sell footwear products in Argentina under the +Hush +Puppies ® , +Caterpillar ® , +and +Patagonia ® +brand names, and footwear and apparel under the +Merrell ® +brand name. Grimoldi, S.A. or its subsidiary purchases products, +samples, footwear components, advertising materials and +miscellaneous items from Wolverine or pays Wolverine royalties +and certain sublicense fees based on sales or purchases of +products in Argentina. Grimoldi, S.A. was obligated to pay +Wolverine purchase prices, royalties, sublicense fees, service +fees and interest relating to purchases made or royalties and +fees incurred in fiscal year 2010 totaling $3,748,208. All of +the transactions described above occurred pursuant to continuing +contractual arrangements between Wolverine and Grimoldi, S.A. +Wolverine expects similar transactions to occur between +Grimoldi, S.A. and Wolverine and its subsidiaries during 2011. +The Governance Committee reviewed and approved or ratified this +transaction in accordance with Wolverine’s related person +transactions policy (described below under “Related Person +Transactions Policy”). +In the ordinary course of its business, Wolverine purchases +promotional merchandise for use in connection with the sale of +its products. In fiscal year 2010, Wolverine purchased +promotional merchandise from Bullseye Group, LLC totaling +$161,136. One-third of Bullseye Group, LLC is owned by Daniel +Mehney, the son of David P. Mehney, a director of Wolverine. +Wolverine anticipates purchasing promotional materials from +Bullseye Group, LLC in 2011. +The Governance Committee reviewed and approved or ratified each +of these transactions in accordance with Wolverine’s +related person transactions policy, as described below. +Related Person +Transactions Policy +Wolverine’s Board adopted written policies and procedures +regarding related person transactions. They require the +Governance Committee to review and either approve or disapprove +the Company entering into +55 +Table of Contents +any Interested Transactions (defined below). If advance approval +is not feasible, then the Governance Committee must review and +ratify the Interested Transaction at its next meeting. +Interested +Transaction +Any transaction, arrangement or relationship or series of +similar transactions, arrangements or relationships (including +any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed +$100,000 since the beginning of Wolverine’s last completed +fiscal year; +(2) +Wolverine is a participant; and +(3) +any Related Person (defined below) has or will have a direct or +indirect interest (other than solely as a result of being a +director or less than ten percent beneficial owner of another +entity). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year +for which Wolverine filed a Form 10-K and proxy statement, an +executive officer, director or nominee for election as a +director; +(b) +greater than five percent beneficial owner of Wolverine’s +common stock; or +(c) +immediate family +member * +of any of the foregoing. +* +Immediate family member includes a +person’s spouse, parents, stepparents, children, +stepchildren, siblings, mothers- and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +The Governance Committee considers whether the Interested +Transaction is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or +similar circumstances, the extent of the Related Person’s +interest in the transaction, and other factors that it deems +relevant. No director participates in any discussion or approval +of an Interested Transaction for which he or she is a Related +Person, except to provide all material information to the +Governance Committee. +The following Interested Transactions are pre-approved under the +policies and procedures: +(a) +any transaction with another company where a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +(b) +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +ADDITIONAL +INFORMATION +Stockholders +List +A list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, +during ordinary business hours for the +10-day +period before the meeting. +56 +Table of Contents +Director and +Officer Indemnification +The Company indemnifies its directors and NEOs to the fullest +extent permitted by law so that they will be free from undue +concern about personal liability in connection with their +service to the Company. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires its directors and NEOs, and persons who beneficially +own more than 10% of the outstanding shares of the +Company’s common stock, to file reports of ownership and +changes in ownership of shares of common stock with the +Securities and Exchange Commission. Directors, NEOs and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for fiscal year +2010, except as set forth below, the Company believes that +during fiscal year 2010 its officers and directors filed the +required reports under Section 16(a) on a timely basis. On +June 21, 2010, Ms. Pamela L. Linton filed a +Form 4 reporting her surrender of 556 shares of +Wolverine common stock on January 15, 2009, to pay taxes +due upon the vesting of restricted shares owned by +Ms. Linton. The Form 4 also adjusts the total number +of shares beneficially owned to account for this transaction. +Stockholder +Proposals for Inclusion in Next Year’s Proxy +Statement +Pursuant to SEC +Rule 14a-8, +some stockholder proposals may be eligible for inclusion in +Wolverine’s 2012 proxy statement and proxy card. Any such +stockholder proposals must be submitted in writing to the +Secretary of Wolverine no later than the close of business on +November 12, 2011. You should address all stockholder +proposals to the attention of Kenneth A. Grady, Secretary, +Wolverine, 9341 Courtland Drive, N.E., Rockford, Michigan 49351. +Other Stockholder +Proposals for Presentation at Next Year’s Annual +Meeting +The By-laws require that any stockholder proposal that is not +submitted for inclusion in next year’s proxy statement +under SEC +Rule 14a-8, +but is instead sought to be presented directly at the 2012 +Annual Meeting of Stockholders, must be received at the +Company’s principal executive offices by the close of +business not less than 90 days nor more than 120 days +prior to the first anniversary of the 2011 Annual Meeting. As a +result, proposals, including director nominations, submitted +pursuant to these provisions of the By-laws must be received +between December 23, 2011, and the close of business on +January 22, 2012. You should address a proposal to Kenneth +A. Grady, Secretary, Wolverine World Wide, Inc., 9341 Courtland +Drive N.E., Rockford, Michigan 49351, and include the +information and comply with the requirements set forth in those +By-laws, which the Company has posted on its website. SEC rules +permit management to vote proxies in its discretion in certain +cases if the stockholder does not comply with this deadline, and +in certain other cases notwithstanding the stockholder’s +compliance with this deadline. +Voting +Securities +Stockholders of record at the close of business on March 1, +2011, will be eligible to vote at the meeting. The +Company’s voting securities consist of its $1.00 par +value common stock, and there were 49,628,313 shares +outstanding and entitled to vote on the record date. Each share +outstanding on the record date will be entitled to one vote on +each director nominee and one vote on each other matter. +Treasury shares are not voted. Individual votes of stockholders +are kept private, except as appropriate to meet legal +requirements. Access to proxies and other individual stockholder +voting records is limited to the independent inspectors of +election and certain employees of the Company and its agents who +acknowledge in writing their responsibility to comply with this +policy of confidentiality. +57 +Table of Contents +Vote Required for +Election and Approval +A plurality of the shares voted is required to elect directors. +This means that the nominees who receive the most votes will be +elected. In counting votes on the election of directors, only +votes cast “for” or “withheld” affect the +outcome. All other matters require for approval the favorable +vote of a majority of shares present or represented at the +meeting and entitled to vote on the applicable matter. +With respect to the election of directors, abstentions and +broker non-votes will not be counted as votes cast and therefore +will have no effect. With respect to all other matters to be +voted on at the annual meeting, abstentions will have the same +effect as votes “against” the matter, and broker +non-votes, if any, will have no effect. Generally, broker +non-votes occur when shares held by a broker in “street +name” for a beneficial owner are not voted with respect to +a particular proposal because (1) the broker has not +received voting instructions from the beneficial owner, and +(2) the broker lacks discretionary voting power to vote +those shares. Brokers do not have discretionary authority with +respect to any of the proposals except for the ratification of +the independent registered public accounting firm. +Voting Results of +the Annual Meeting +The Company will announce preliminary voting results at the +annual meeting and publish final results in a +Form 8-K +within four business days following the meeting. If final +results are not known within four business days of the annual +meeting, then the Company will file a +Form 8-K +with the preliminary results and file an amended +Form 8-K +within four business days of the availability of the final +results. +Attending the +Annual Meeting +You may vote shares held directly in your name as the +stockholder of record in person at the annual meeting. If you +choose to vote in person, please bring the enclosed proxy card +and proof of identification. Even if you plan to attend the +annual meeting in person, Wolverine recommends that you vote +your shares in advance as described below so that your vote will +be counted if you later decide not to attend the annual meeting. +You may vote shares held in “street name” through a +brokerage account or by a bank or other nominee in person if you +obtain a proxy from the record holder giving you the right to +vote the shares. +Manner for Voting +Proxies +The shares represented by all valid proxies received by +telephone, by Internet or by mail will be voted in the manner +specified. Where the shareholder has not indicated a specific +choice, the shares represented by all valid proxies received +will be voted in accordance with the Board’s +recommendations as follows: (1) for each of the nominees +for directors named earlier in this proxy statement, +(2) for ratification of the appointment of the independent +auditor, (3) for the advisory vote on executive +compensation, and (4) every three years with respect to the +advisory vote on the frequency of an advisory vote on executive +compensation. The Board has not received timely notice of any +matter that may come before the annual meeting. However, should +any matter not described above be properly presented at the +annual meeting, the persons named in the proxy form will vote in +accordance with their judgment as permitted. +Revocation of +Proxies +A stockholder who gives a proxy may revoke it at any time before +it is exercised by voting in person at the annual meeting, by +delivering a subsequent proxy or by notifying the inspectors of +election in writing of such revocation. If your Wolverine shares +are held for you in a brokerage, bank or other institutional +account, you must obtain a proxy from that entity and bring it +with you to hand in with your ballot, in order to be able to +vote your shares at the meeting. +Solicitation of +Proxies +The Company will pay the expenses of solicitation of proxies for +the annual meeting. Solicitations may be made in person or by +telephone, by officers and employees of the Company, or by +nominees or other +58 +Table of Contents +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by the nominees or +other fiduciaries. Upon request, the Company will reimburse +brokers, dealers, banks and trustees, or their nominees, for +reasonable expenses incurred by them in forwarding material to +beneficial owners of the Company’s common stock. The +Company has engaged Georgeson Inc. at an estimated cost of +$8,000, plus expenses and disbursements, to assist in +solicitation of proxies. +Delivery of +Documents to Stockholders Sharing an Address +If you are the beneficial owner, but not the record holder, of +shares of Wolverine stock, your broker, bank or other nominee +may only deliver one copy of this proxy statement and the +Company’s 2010 Annual Report to multiple stockholders who +share an address, unless that nominee has received contrary +instructions from one or more of the stockholders. The Company +will deliver promptly, upon written or oral request, a separate +copy of this proxy statement and its 2010 Annual Report to a +stockholder at a shared address to which a single copy of the +documents was delivered. A stockholder who wishes to receive a +separate copy of the proxy statement and annual report, now or +in the future, should submit this request by writing to +Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, +Michigan 49351, Attn: Investor Relations or by calling +(616) 866-5500 +and asking for Investor Relations. Beneficial owners sharing an +address who are receiving multiple copies of proxy materials and +who wish to receive a single copy of such materials in the +future should make a request directly to their broker, bank or +other nominee. +Access to Proxy +Statement and Annual Report +Wolverine’s financial statements for the fiscal year ended +January 1, 2011, are included in the Company’s 2010 +Annual Report, which the Company is providing to stockholders at +the same time as this proxy statement. Wolverine’s Proxy +Statement for the 2011 Annual Meeting of Stockholders and the +Annual Report to Stockholders for the fiscal year ended +January 1, 2011, are available at +www.wolverineworldwide.com/2011annualmeeting. If you have not +received or do not have access to the 2010 Annual Report, write +to Wolverine World Wide, Inc., 9341 Courtland Drive N.E., +Rockford, Michigan 49351, Attn: Investor Relations or call +(616) 866-5500 +and ask for Investor Relations, and the Company will send a copy +to you without charge. +59 +Table of Contents +IMPORTANT ANNUAL MEETING INFORMATION +Electronic Voting Instructions +You can vote by Internet or +telephone! +Available 24 hours a day, 7 +days a week! +Instead of mailing your proxy, you may choose +one of the two voting methods outlined below to +vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must +be received by 11:59 p.m., Eastern Daylight Time, on +April 20, 2011. +Vote by Internet +• +Log on to the Internet and go to +www.investorvote.com/www +• Follow the steps outlined on the secured website. +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, +US territories & Canada any time on a touch tone +telephone. There is NO CHARGE to you for the call. +• +Follow the instructions provided by the recorded message. +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not +write outside the designated areas. +x +▼ +IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals +2 and 3 and FOR 3 YRS on Proposal 4. ++ +1. +Election of Directors: +For +Withhold +For +Withhold +For +Withhold +01 - William K. Gerber +o +o +02 - Blake W. Krueger +o +o +03 - Michael A. Volkema +o +o +For +Against +Abstain +For +Against +Abstain +2. +Proposal to ratify the appointment of Ernst +& Young LLP as independent auditors for fiscal year 2011. +o +o +o +3. +An advisory +resolution on executive compensation. +o +o +o +3 Yrs +2 Yrs +1 Yr +Abstain +4. +An advisory vote on the frequency of future advisory votes on +executive compensation. +o +o +o +o +B Non-Voting Items +Change of Address — Please print new address below. +C +Authorized +Signatures — +This section must be completed for your vote to be counted. — +Date and Sign Below +IMPORTANT - Please sign exactly as your name(s) appears on this Proxy. When signing on behalf +of a corporation, partnership, estate or trust, indicate title or capacity of person signing. If +shares are held jointly, each holder must sign. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +n +1 U P X ++ +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on April 21, 2011. +The enclosed Notice of 2011 Annual Meeting of Stockholders provides information regarding the +matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you +plan to attend the meeting, please read the enclosed materials and vote through the Internet, by +telephone or by mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by +telephone. Please consider voting through one of these methods. Your vote is recorded as if you +mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it +also saves money. +Thank you in advance for your participation in our 2011 Annual Meeting. +Wolverine World Wide, Inc. +6 +IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +6 +Proxy — WOLVERINE WORLD WIDE, INC. +This proxy is solicited on behalf of the Board of Directors +The undersigned stockholder hereby appoints Blake W. Krueger and Donald T. Grimes, and each +of them, each with full power of substitution, as proxies to represent the undersigned stockholder +and to vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would be +entitled to vote on all matters that properly come before the Annual Meeting of Stockholders to be +held at the Company’s headquarters located at 9341 Courtland Drive N.E., Rockford, Michigan, +49351, on Thursday, April 21, 2011, at 10 a.m. Eastern Daylight Time, and any adjournment of that +meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be voted as +specified. If no specification is made, the shares represented by this Proxy will be voted for +the election of all nominees named on this Proxy as directors, for approval of Proposals 2 and 3 +identified on this Proxy and for three years with respect to Proposal 4 identified on this Proxy. +The shares represented by this Proxy will be voted in the discretion of the proxies on any other +matters that may properly come before the meeting. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. +DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950123-11-024605/proxy_rpt.txt b/raw/proxies/0000110471/0000950123-11-024605/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c0c32d9f4a9f9adb71f38855de1e84d4cca0d783 --- /dev/null +++ b/raw/proxies/0000110471/0000950123-11-024605/proxy_rpt.txt @@ -0,0 +1,96 @@ +related person transactions policy, as described below. +Related Person +Transactions Policy +Wolverine’s Board adopted written policies and procedures +regarding related person transactions. They require the +Governance Committee to review and either approve or disapprove +the Company entering into +55 +Table of Contents +any Interested Transactions (defined below). If advance approval +is not feasible, then the Governance Committee must review and +ratify the Interested Transaction at its next meeting. +Interested +Transaction +Any transaction, arrangement or relationship or series of +similar transactions, arrangements or relationships (including +any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed +$100,000 since the beginning of Wolverine’s last completed +fiscal year; +(2) +Wolverine is a participant; and +(3) +any Related Person (defined below) has or will have a direct or +indirect interest (other than solely as a result of being a +director or less than ten percent beneficial owner of another +entity). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year +for which Wolverine filed a Form 10-K and proxy statement, an +executive officer, director or nominee for election as a +director; +(b) +greater than five percent beneficial owner of Wolverine’s +common stock; or +(c) +immediate family +member * +of any of the foregoing. +* +Immediate family member includes a +person’s spouse, parents, stepparents, children, +stepchildren, siblings, mothers- and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +The Governance Committee considers whether the Interested +Transaction is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or +similar circumstances, the extent of the Related Person’s +interest in the transaction, and other factors that it deems +relevant. No director participates in any discussion or approval +of an Interested Transaction for which he or she is a Related +Person, except to provide all material information to the +Governance Committee. +The following Interested Transactions are pre-approved under the +policies and procedures: +(a) +any transaction with another company where a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +(b) +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +ADDITIONAL +INFORMATION +Stockholders +List +A list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, +during ordinary business hours for the +10-day +period before the meeting. +56 +Table of Contents +Director and +Officer Indemnification +The Company indemnifies its directors and NEOs to the fullest +extent permitted by law so that they will be free from undue +concern about personal liability in connection with their +service to the Company. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-01-001382/proxy.txt b/raw/proxies/0000110471/0000950124-01-001382/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a715e5fafc9d95a277f04d001bf62d0ababa112b --- /dev/null +++ b/raw/proxies/0000110471/0000950124-01-001382/proxy.txt @@ -0,0 +1,4310 @@ +DEF 14A +1 +k60725def14a.htm +SCHEDULE 14A +def14a +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Stock Incentive Plan of 2001 +Ownership of Wolverine Stock +Wolverine’s Stock Price Performance +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +AUDIT COMMITTEE CHARTER +STOCK INCENTIVE PLAN OF 2001 +Schedule 14A +SCHEDULE 14A +(Rule 14A-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the +registrant +Filed by a party +other than the registrant +Check the appropriate box: +Preliminary proxy statement +Confidential, for use of the +Commission only (as permitted by +Rule 14a-6(e)(2). +Definitive proxy statement. +Definitive additional materials. +Soliciting material pursuant to Rule 14a-12. +Wolverine Worldwide +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of filing fee (check the appropriate box): +No fee required. +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +Fee paid previously with preliminary materials. +Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the form or schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual meeting of +stockholders at Wolverine’s headquarters located at +9341 Courtland Drive, N.E., Rockford, Michigan, on +Thursday, April 26, 2001, at 10 a.m. local time. At the +meeting, we will: +(1) +Elect four directors for three-year terms expiring in 2004. +(2) +Vote on the proposed Stock Incentive Plan of 2001. +(3) +Vote on ratification of the Board of Directors’ appointment +of Ernst & Young LLP as independent auditors for the current +fiscal year. +(4) +Conduct such other business as may properly come before the +meeting. +You can vote at the meeting and any adjournment of the meeting +if you were a stockholder of record on March 1, 2001. A +list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Blake W. Krueger, Executive Vice President, General Counsel +and Secretary of Wolverine, located at 9341 Courtland +Drive, N.E., Rockford, Michigan, during ordinary business +hours for the 10-day period before the meeting. +A copy of the Annual Report to Stockholders for the year ended +December 30, 2000, is enclosed with this Notice. The +following proxy statement and enclosed proxy card are being sent +to stockholders on and after March 16, 2001. +By Order of the Board of Directors +Blake W. Krueger, Executive Vice President, +General Counsel and Secretary +March 16, 2001 +Your Vote is Important to Us. Even if You Plan to Attend the +Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR +VOTE ON THE INTERNET. +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 26, 2001 +Proxy Statement +Time and Place +You are invited to attend the annual meeting of stockholders of +Wolverine World Wide, Inc. that will be held on April 26, +2001, at Wolverine’s headquarters located at 9341 Courtland +Drive, N.E., Rockford, Michigan, at 10:00 a.m. local time. +This proxy statement and enclosed proxy card are being furnished +to you in connection with the solicitation of proxies by the +Wolverine Board of Directors for use at the annual meeting. In +this proxy statement, “we,” “us,” +“our” and “Wolverine” refer to Wolverine +World Wide, Inc. and “you” and “your” refer +to Wolverine stockholders. +Purpose of the Meeting +The purpose of the annual meeting is to consider and vote upon: +• +election of four directors for three-year terms expiring in 2004; +• +approval of the Stock Incentive Plan of 2001; +• +ratification of the appointment of Ernst & Young LLP as +independent auditors for Wolverine for its current fiscal year; +and +• +such other business as may properly come before the meeting. +Your Board of Directors recommends that you vote FOR each +nominee and each proposal discussed in this proxy +statement. +How to Vote Your Shares +You may vote at the meeting or by proxy if you were a +stockholder of record of Wolverine on March 1, 2001. +Wolverine now offers the convenience of voting by mail-in proxy +or via the internet. See the enclosed proxy for voting +instructions. Each stockholder is entitled to one vote per share +on each matter presented. +As of March 1, 2001, there were 41,678,839 shares of +Wolverine common stock issued and outstanding (excluding +3,236,756 shares of treasury stock). +If you properly sign and return the proxy in the form we have +provided or properly vote via the internet, your shares will be +voted at the annual meeting and at any adjournment of that +meeting. +If you specify a choice, your shares will be voted as specified. +If you do not specify a choice, your shares will be voted for +the election of all nominees named in this proxy statement, for +the proposals set forth in this proxy statement and, with +respect to any other matter that may come before the meeting, in +the discretion of the individuals named as proxies on the proxy +card. We are not currently aware of any other matters to be +presented at the meeting. +You may revoke your proxy at any time before it is exercised by +delivering written notice of revocation to the Secretary of +Wolverine or by attending and voting at the annual meeting. +Quorum and Required Vote +The presence in person or by proxy of the holders of a majority +of the shares entitled to vote at the meeting is necessary to +constitute a quorum. In determining the presence or absence of a +quorum for the meeting, we will count as present and represented +at the meeting all shares for which we receive a proxy or vote, +including abstentions and shares represented by a broker vote on +any matter. +A plurality of the shares voting is required to elect directors. +This means that if there are more nominees than positions to be +filled, the nominees who receive the most votes will be elected. +In counting votes on the election of directors, abstentions, +broker non-votes and other shares not voted will be counted as +not voted. These shares will be deducted from the total shares +of which a plurality is required. +Each other matter to be voted upon at the meeting will be +approved if a majority of the shares present or represented at +the meeting and entitled to vote on the proposal are voted in +favor of such matter. In counting votes on each matter, +abstentions will be counted as voted against the matter and +broker non-votes will be counted as not voted on the matter. +Shares that are not voted will be deducted from the total shares +of which a majority is required. +Election of Directors +As recommended by the Governance Committee, the Board of +Directors proposes that the following nominees be elected as +directors for terms expiring at the 2004 annual meeting: +Geoffrey B. Bloom +David T. Kollat +David P. Mehney +Timothy J. O’Donovan +All of the nominees are currently directors of Wolverine whose +terms will expire at the annual meeting. Each proposed nominee +is willing to be elected and serve as a director. However, if a +nominee is unable to serve or is otherwise unavailable for +election, which we do not contemplate, the incumbent Wolverine +Board of Directors may or may not select a substitute nominee. +If a substitute nominee is selected, your shares will be voted +for the substitute nominee (unless you give other instructions). +If a substitute nominee is not selected, your shares will be +voted for the remaining nominees. Proxies will not be voted for +more than four nominees. +Wolverine’s Board of Directors currently consists of 12 +directors. Wolverine’s Amended and Restated Bylaws provide +that the Board of Directors is divided into three classes, with +each class to be as nearly equal in number as possible. Each +class serves a term of office of three years, with the term of +one class expiring at the annual meeting in each successive +year. +Biographical information as of December 31, 2000, for each +nominee and each current director who will continue to serve +after the annual meeting is presented below. Except as otherwise +indicated, all have had the same principal positions and +employment for over five years. +Your Board of Directors recommends that you vote FOR each +nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2004 +GEOFFREY B. BLOOM (age 59) has been a director since 1987. +Mr. Bloom is Chairman of the Board of Wolverine and has +served in that capacity since 1996. Until his retirement in +April 2000, Mr. Bloom was also Chief Executive Officer of +Wolverine. Mr. Bloom was previously President and Chief +Executive Officer from 1993 until 1996 and Chief Operating +Officer from 1987 until 1993. Mr. Bloom is also a director +of Coachmen Industries, Inc. and Comshare, Inc. +DAVID T. KOLLAT (age 62) has been a director since 1992. +Mr. Kollat is President and Chairman of 22, Inc., a +company specializing in research and management consulting for +retailers and consumer goods manufacturers. Mr. Kollat is +also a director of The Limited, Inc.; Cooker Restaurant +Corporation, Inc.; Cone Mills Corporation; Consolidated Stores, +Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 61) has been a director since 1977. +Mr. Mehney is President of The KMW Group, Inc., a +distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 55) has been a director +since 1993. Mr. O’Donovan is Chief Executive Officer +and President of Wolverine and has served in that capacity since +April 2000. Before April 2000, Mr. O’Donovan was Chief +Operating Officer and President since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. +2 +Continuing Directors — Terms Expiring in 2003 +ALBERTO L. GRIMOLDI (age 59) has been a director since +1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a shoe +manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi is also a founding member +and has been Vice Chairman of Banco Privado de Inversiones, +S.A., an Argentinean investment adviser, since 1994. +Mr. Grimoldi was previously a member of the Advisory Board +of Ford Motor Company in Argentina. Mr. Grimoldi has also +held various positions in the Argentinean government. +JOSEPH A. PARINI (age 69) has been a director since 1987. +He is Chairman of the Board and an officer of EFW, Inc., a +designer and manufacturer of avionics systems for global +markets, and has held that position since January 1997. He +is also President of Intermet Systems, Inc., a manufacturer of +weather instrumentation systems, and has held that position +since January 1997. Mr. Parini was previously President and +Chief Executive Officer of Elbit Systems, Inc., a designer, +manufacturer and marketer of infrared, telecommunications and +medical instrumentation, as well as defense products, from 1990 +until 1996. +JOAN PARKER (age 65) has been a director since 1981. +Ms. Parker is a Senior Partner with J. Walter +Thompson, an international advertising firm. Ms. Parker has +held that position since September 1995. From September 1995 +until December 1995, Ms. Parker was also the sole +proprietor of Parker & Associates, a public relations firm. +From 1994 until September 1995, she was Executive Vice +President and a director of N. W. Ayer & +Partners, an international advertising firm, and Executive Vice +President and Managing Director of the Ayer Public Relations +Division of N. W. Ayer & Partners. Formerly, +Ms. Parker was Senior Vice President and Managing Director +of the Ayer Public Relations Division. +ELIZABETH A. SANDERS (age 55) has been a director since +1994. Ms. Sanders is the principal of The Sanders +Partnership, a management consulting practice. Ms. Sanders +has held that position since 1990. Ms. Sanders was +previously Vice President of Nordstrom, Inc., a retailer. +Ms. Sanders is also a director of Wal-Mart Stores, Inc.; +Washington Mutual, Inc.; Advantica Restaurant Group, Inc.; and +Wellpoint Health Networks, Inc. +Continuing Directors — Terms Expiring in 2002 +DANIEL T. CARROLL (age 74) has been a director since 1979. +Mr. Carroll is Chairman of The Carroll Group, a management +consulting firm. He has held that position since 1982. +Mr. Carroll is Chairman of the Board of Directors of +Comshare, Inc. Mr. Carroll is also a director of Diversa, +Inc.; American Woodmark Corp.; A.M. Castle & Co.; +Aon Corporation; Woodhead Industries, Inc.; and Oshkosh Truck +Corporation. +DONALD V. FITES (age 67) has been a director since 1999. +From 1990 until 1999, Mr. Fites was Chairman and Chief +Executive Officer of Caterpillar Inc., a manufacturer of +construction, mining and agricultural machinery and engines. +Mr. Fites also is a director of AK Steel Holding +Corporation; AT&T Corporation; ExxonMobil Corporation; +Oshkosh Truck Corporation; and Georgia-Pacific Corporation. +PHILLIP D. MATTHEWS (age 62) has been a director since +1981. Mr. Matthews is Lead Director of Wolverine and was +formerly Chairman of the Board of Wolverine from 1993 until +1996. Mr. Matthews is Chairman of the Board of Sizzler +International, Inc., a national restaurant chain. +Mr. Matthews is also a general partner in Hayden Capital +Investments LLC, a private investment firm. From 1991 until +1997, Mr. Matthews was Chairman of Reliable Company, a +coin-operated laundry equipment company servicing the multi-unit +housing industry. Mr. Matthews is also a director of +Washington Mutual, Inc. +PAUL D. SCHRAGE (age 65) has been a director since 1997. +Mr. Schrage was Senior Executive Vice President and Chief +Marketing Officer of McDonald’s Corporation, a worldwide +restaurant franchisor and operator, and was employed at that +company from 1967 until 1997. Mr. Schrage is also a +director of Lands’ End, Inc.; Aid Association for +Lutherans; Compact Industries, Inc.; and Foodland Supermarket +Ltd. +3 +Board Committees and Meetings +The Board of Directors has four standing committees: the Audit +Committee, the Compensation Committee, the Executive Committee +and the Governance Committee. +Audit Committee. The Audit Committee: +• +recommends the selection of independent accountants; +• +approves the nature and scope of services to be performed by the +independent accountants and reviews the range of their fees for +such services; and +• +reviews Wolverine’s internal accounting controls, the +results of the annual audit, and policies and practices +regarding compliance with laws and conflicts of interest. +Directors who are employees of Wolverine or its subsidiaries may +not serve on the Audit Committee. Messrs. Carroll, +Grimoldi, Kollat and Parini currently serve on the Audit +Committee. Mr. Parini is Chairman of this committee. It met +four times in 2000. +Wolverine’s Board of Directors has adopted a written +charter for the Audit Committee. The written charter is attached +as Appendix A to this proxy statement. All members of the +Audit Committee are “independent” from Wolverine and +its management under the rules and standards of the +New York Stock Exchange. +Compensation Committee. The Compensation Committee: +• +reviews and recommends the timing and amount of compensation for +the Chief Executive Officer and other key employees, including +salaries, bonuses and other benefits; +• +administers Wolverine’s stock option and other equity-based +incentive plans; +• +recommends retainer and attendance fees for directors who are +not employees of Wolverine or any of its subsidiaries +(“outside directors”); and +• +reviews for adequacy and competitiveness the compensation plans +and awards as they relate to the Chief Executive Officer and +other key employees. +Messrs. Fites, Matthews, Mehney and Schrage and +Ms. Sanders currently serve on the Compensation Committee. +Mr. Matthews is Chairman of this committee. It met five +times during 2000. +Executive Committee. The Executive Committee exercises +all powers and authority of the Board of Directors during +periods between board meetings. Messrs. Bloom, Fites, +Grimoldi, Matthews, O’Donovan and Parini currently serve on +the Executive Committee. Mr. Matthews is Chairman of this +committee. It did not meet during 2000. +Governance Committee. The Governance Committee: +• +interviews each potential nominee and recommends suitable +candidates for nomination to the Board of Directors; +• +reviews the appropriate skills and characteristics of Board +members; +• +reviews and evaluates the performance of the Board and the +directors; +• +reviews and reports on all matters generally relating to +corporate governance; and +• +recommends the officers of Wolverine for election by the Board. +Messrs. Kollat, Mehney and Schrage and Mses. Parker +and Sanders currently serve on the Governance Committee. +Mr. Mehney is Chairman of this committee. It met three +times during 2000. +During the 2000 fiscal year, the Board of Directors held +five regular and no special meetings. Each of the directors +attended at least 75% or more of the aggregate of the total +number of full Board meetings and the total number of meetings +of committees on which he or she served (during the periods that +he or she served). +Stockholder Nominations +The Governance Committee will consider nominees for election to +the Board of Directors submitted by stockholders. Nominations +may be made by a stockholder entitled to vote for the election +of directors if, and only if, the stockholder submits advance +notice of the proposed nomination and the notice is received by +the Secretary of Wolverine not less than 50 nor more than +75 days before the annual meeting. However, if fewer than +65 days’ notice of the meeting or prior public +disclosure is given to stockholders, the notice of the proposed +nomination must be received not later than the close of business +on the 15th day after the day on which the notice of the date of +the meeting was mailed or the public disclosure was made, +whichever occurs first. Each notice submitted by a stockholder +must set forth each nominee’s name, age, business address, +residence address and principal occupation and employment, the +class and number of shares of common stock +4 +beneficially owned by each nominee, and any other information +concerning each nominee required to be included in a proxy +statement soliciting proxies for the election of the nominee +under the rules of the Securities and Exchange Commission. In +addition, the notice must state the name, record address and the +class and number of shares of common stock beneficially owned by +the stockholder submitting the notice. If the chairman of the +meeting determines that a nomination was not made in accordance +with these procedures, he or she must announce that +determination at the meeting and the nomination will be +disregarded. +Compensation of Directors +Wolverine paid each outside director an annual retainer of +$21,000 plus $1,000 per day for attendance at each regular +meeting of the Board of Directors and $1,000 per day for +attendance at each committee meeting. In addition, Wolverine +paid the chairmen of the Audit, Compensation and Governance +Committees annual fees of $3,500. Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual retainer and are not compensated for attendance at board +or committee meetings. Wolverine also reimburses directors for +expenses associated with attending board and committee meetings. +Under the Directors’ Stock Option Plan approved by +stockholders in 1994 (the “Directors’ Stock Option +Plan”), each newly appointed or elected outside director is +granted an option to purchase shares of common stock with a +market value on the date of his or her initial election or +appointment of $250,000. On the date of each annual meeting +after his or her initial appointment or election, each outside +director is granted an option to purchase shares with a market +value on the annual meeting date of $65,000. The exercise price +of options granted under this plan is 100% of the market value +of common stock on the date each option is granted. The term of +each option may not exceed 10 years. Options were granted +under this plan to all outside directors on April 13, 2000. +Options to purchase a maximum of 405,000 shares of common stock +may be granted under the plan. +In 1996, Wolverine adopted the Outside Directors’ Deferred +Compensation Plan (the “Outside Directors’ +Plan”), a supplemental nonqualified deferred compensation +plan for the outside directors. The plan permits all outside +directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred are credited on the books +of Wolverine to an account established for that director as if +the amounts had been invested to purchase shares of common stock +using the market price of common stock on the date such fees +would have been payable (“phantom stock”). The value +of the account will increase or decrease during the deferral +period corresponding to changes in the market value of common +stock. The accumulated value of a director’s account under +the plan is paid in cash upon termination of service as a +director in a single lump-sum or annual installments over a +period of up to 10 years. +Upon adoption of the Outside Directors’ Plan, Wolverine +terminated its previously existing Director Retirement Plan and +provided for the conversion of the expected benefits payable +under the Director Retirement Plan. Only outside directors who +continued to serve as directors at the close of the annual +meeting of stockholders on April 17, 1996 (“continuing +directors”), received an award of phantom stock units +representing additional retirement income under the Outside +Directors’ Plan. Except for the continuing directors, no +future outside director will receive retirement awards under the +Outside Directors’ Plan. To approximate as nearly as +possible the expected benefits that otherwise would have been +payable to continuing directors under the Director Retirement +Plan if it had remained in effect, on April 17, 1996, +Wolverine awarded to each continuing director a number of +phantom stock units having a market value equal to the present +value (determined by an actuary) of the expected benefits +payable under the Director Retirement Plan. In addition, to +approximate as nearly as possible the minimum service +requirements imposed under the Director Retirement Plan, phantom +stock units that represent awards of retirement income are +subject to delayed vesting provisions. Cash equal to the +accumulated value of all phantom stock units representing +retirement awards credited to a director’s account will be +payable upon termination of service as a director. Payments will +be made in 10 annual installments beginning the month following +termination of service as a director. +Upon a “change in control” as defined in the Outside +Directors’ Plan, all amounts credited to a director’s +account (both for deferred fees and retirement income) will be +distributed to the director in a single lump-sum. For purposes +of the Outside Directors’ Plan, “change in +control” is defined as: +• +failure of the individuals who were directors at the time the +Outside Directors’ Plan was adopted and those whose +election or nomination to the Board of Directors was approved by +a three-quarters vote of the directors then still in office who +were directors at the time the Outside Directors’ Plan was +adopted, or +5 +whose election or nomination was so approved, to constitute a +majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% or more of the +common stock or combined outstanding voting power (excluding +certain transactions); +• +approval by the stockholders of a reorganization, merger or +consolidation (excluding certain permitted transactions); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (excluding certain +permitted transactions). +Mr. Matthews serves as Lead Director of Wolverine. +Wolverine paid Mr. Matthews a fee of $60,000 for his +service as Lead Director. +In April 2000, Mr. Bloom relinquished his role as +Chief Executive Officer of Wolverine but continues to serve as +Chairman of the Board of Directors. In addition to his duties as +Chairman, Mr. Bloom has also agreed to provide consulting +services to Wolverine regarding its operations and strategic +direction during a transition period. For the period from May +2000 through April 2001, Mr. Bloom will receive $250,000 +for these services. This payment is in lieu of all other +director compensation and Mr. Bloom will not participate in +the Directors’ Stock Option Plan or the Outside +Directors’ Plan and will receive no annual retainer, fees +for Board or Committee meeting attendance or other compensation. +The scope of Mr. Bloom’s services and his compensation +will be reviewed annually by the Board of Directors. +Stock Incentive Plan of 2001 +The Board of Directors firmly believes that Wolverine’s +long-term interests are best advanced by aligning the interests +of its key employees with the interests of its stockholders. +Therefore, to attract, retain and motivate officers and key +management employees of exceptional abilities, and in +recognition of the significant and extraordinary contributions +to the long-term performance and growth of Wolverine and its +subsidiaries made by these individuals, on March 6, 2001, +the Board of Directors adopted, subject to stockholder approval, +the Stock Incentive Plan of 2001 (the “Plan”). The +Plan is intended to supplement and continue the compensation +policy and practice of other stock incentive plans of Wolverine, +which Wolverine has utilized for these purposes for several +decades, including the 1999 Stock Incentive Plan, the 1997 +Stock Incentive Plan, the 1995 Stock Incentive Plan and the 1993 +Stock Incentive Plan. Because the current plans have limited +authorized shares remaining for future awards and stock options +to employees (approximately 12,548 shares in total), the Board +of Directors believes that adoption of the Plan is now advisable +to make additional shares available for awards and stock options. +The following summarizes information as of March 12, 2001, +with respect to available shares and outstanding awards under +Wolverine’s existing equity-based incentive plans: +• +110,885 shares of common stock are currently available for new +awards under all of Wolverine’s existing +equity-based compensation plans (of which 98,337 shares are +reserved for issuance to outside directors under the +Directors’ Stock Option Plan); +• +options for 4,260,714 shares of common stock are currently +outstanding and unexercised under all of Wolverine’s +existing stock option plans; +• +the weighted-average exercise price of all currently outstanding +stock options is $13.755; and +• +the weighted-average term until expiration of all currently +outstanding stock options is 7.26 years. +The following summarizes certain important information about the +proposed Plan: +• +2,000,000 shares of common stock would be available for awards +under the Plan, subject to certain anti-dilution and other +adjustments; +• +a maximum of 40% of the shares available for issuance under the +Plan could be awarded in the form of restricted stock and stock +awards, combined; +• +the exercise price for all stock options issuable under the Plan +must be at least 100% of the market value of common stock on the +date of grant; and +• +the Plan prohibits repricing, replacement, or modification of +any award under the Plan without stockholder approval if the +effect of the action would be to reduce the exercise price of +the outstanding award. +Section 162(m) of the Internal Revenue Code of 1986, as +amended, limits to $1,000,000 the annual income tax deduction +that may be claimed by a publicly held corporation for +compensation paid to its chief executive officer and to the four +most highly compensated officers other than the chief executive +officer. Qualified “performance-based” compensation is +exempt from the $1,000,000 limit and may be deducted even if +other +6 +compensation exceeds $1,000,000. The proposed Plan is intended +to provide performance-based compensation under +Section 162(m) to permit compensation associated with stock +options awarded under the Plan to be tax deductible to Wolverine +while allowing, as nearly as practicable, the continuation of +Wolverine’s preexisting practices with respect to the award +of stock options. As required by the regulations issued under +Section 162(m), no participant in the Plan may be granted, +with respect to any calendar year, awards representing more than +25% of the total number of shares of Wolverine common stock +available for awards under the Plan. +The Plan is intended to grant stock options and restricted stock +consistent with the past practice of Wolverine. Most of the +options granted under the current plans have been incentive +stock options within the meaning of the Internal Revenue Code +with an exercise price equal to the market price of the stock on +the date of grant. However, the Plan would also permit the grant +of other forms of long-term incentive compensation if determined +to be desirable to advance the purposes of the Plan. These other +forms of long-term incentive compensation include tax benefit +rights and stock awards (together with stock options and +restricted stock, collectively referred to as “Incentive +Awards”). By combining in a single plan many types of +incentives commonly used in long-term incentive compensation +programs, the Plan is intended to provide significant +flexibility for Wolverine to design specific long-term +incentives to best promote Plan objectives and in turn promote +the interests of Wolverine’s stockholders. +The following is a summary of the principal features of the Plan +and is qualified in its entirety by reference to the terms of +the Plan attached as Appendix B to this proxy statement. +Subject to certain anti-dilution and other adjustments, the +total number of shares available for Incentive Awards under the +Plan would be 2,000,000 shares of Wolverine’s common stock, +$1.00 par value. Persons eligible to receive Incentive Awards +under the Plan (with certain limitations discussed below) +include corporate executive officers (currently 11 persons) +and other officers and key employees (currently approximately +200 persons) of Wolverine and its subsidiaries in +consideration of their abilities to contribute to increased +stockholder value. Additional individuals may become executive +officers, officers or key employees in the future and could +participate in the Plan. Executive officers, officers and key +employees of Wolverine and its subsidiaries may be considered to +have an interest in the Plan because they may receive Incentive +Awards under the Plan. The benefits payable under the Plan are +presently not determinable and the benefits that would have been +payable had the Plan been in effect during the most recent +fiscal year are similarly not determinable. The Plan would not +be qualified under Section 401(a) of the Internal Revenue +Code and would not be subject to the Employee Retirement Income +Security Act of 1974. +The Plan would be administered by the Compensation Committee of +the Board of Directors. The Compensation Committee would +determine, subject to the terms of the Plan, the persons to +receive Incentive Awards, the amount of Incentive Awards to be +granted to each person (subject to the limit specified in the +Plan), the time of each grant, the terms and duration of each +grant and all other determinations necessary or advisable for +administration of the Plan. No participant may be granted, +during any calendar year, Incentive Awards representing more +than 25% of the total number of shares of Wolverine common stock +available for Incentive Awards under the Plan, subject to +certain anti-dilution and other adjustments. In addition, not +more than 40% of the total number of shares available for awards +under the Plan could be granted in the form of restricted stock +and stock awards, combined. The Compensation Committee could +amend the terms of Incentive Awards granted under the Plan from +time to time in a manner consistent with the Plan. +The principal stock option features of the Plan permit Wolverine +to grant to participants’ options to purchase shares of +Wolverine common stock at stated prices for specific periods of +time. Certain stock options that could be granted to employees +under the Plan may qualify as incentive stock options as defined +in Section 422 of the Internal Revenue Code. Wolverine has +traditionally granted incentive stock options to its officers +and key employees as the primary form of long-term, equity-based +incentive compensation. Other stock options would not be +incentive stock options within the meaning of the Internal +Revenue Code. Stock options could be granted at any time prior +to the termination of the Plan according to its terms or +termination of the Plan by action of the Compensation Committee +or the Board of Directors. The Compensation Committee could +award options for any amount of consideration, or no +consideration, as determined by the Compensation Committee. +The Compensation Committee would establish the terms of +individual stock option grants in stock option agreements. The +stock option agreements would contain +7 +terms, conditions and restrictions that the Compensation +Committee determines to be appropriate and consistent with the +provisions of the Plan. These restrictions could include vesting +requirements to encourage long-term ownership of shares. Stock +options granted by the Compensation Committee under the stock +incentive plans currently in place generally vest in four +installments over a three-year period subject to, among other +things, the participant’s continued employment with +Wolverine or the applicable subsidiary. The terms could also +provide for automatic regrants of options for a small group of +senior managers with respect to shares surrendered to Wolverine +in connection with the exercise of an outstanding stock option +or payment of taxes in connection with the vesting of restricted +stock or the exercise of a stock option. The exercise price per +share would be determined by the Compensation Committee and +would be a price equal to or greater than the market value of +common stock on the date of grant. No Incentive Award could be +repriced, replaced, regranted through cancellation or modified +without stockholder approval if the effect of such repricing, +replacement, regrant or modification would be to reduce the +exercise price of then outstanding Incentive Awards to the same +participants. On March 7, 2001, the closing price of +Wolverine common stock on the New York Stock Exchange was $14.90 +per share. When exercising all or a portion of a stock option, a +participant could pay the exercise price with cash or, if +permitted by the Compensation Committee, shares of Wolverine +common stock or other consideration substantially equal to cash. +If shares of Wolverine common stock are used to pay the exercise +price and the Compensation Committee permits, a participant +could use the value of shares received upon exercise for further +exercises in a single transaction. The Compensation Committee +could also authorize payment of all or a portion of the exercise +price in the form of a promissory note or installments on terms +approved by the Compensation Committee. The Board of Directors +could restrict or suspend the power of the Compensation +Committee to permit such loans and could require that adequate +security be provided. +Although the term of each stock option would be determined by +the Compensation Committee, no stock option would be exercisable +under the Plan after the expiration of 10 years from the +date it was granted. Stock options generally would be +exercisable for limited periods of time in the event a stock +option holder dies, becomes disabled or is terminated without +cause. If a stock option holder is terminated for cause, the +stock option holder would forfeit all rights to exercise any +outstanding stock options unless the Compensation Committee +determines otherwise. If a stock option holder retires after +age 55 or upon any other age determined by the Compensation +Committee, the option holder could exercise options for the +remainder of the terms of the options unless the terms of the +option agreement or grant provide otherwise. Stock options +granted to participants under the Plan generally could not be +transferred except by will or by the laws of descent and +distribution, unless the Compensation Committee otherwise +consents or transfer is permitted by the terms of the grant or +the applicable stock option agreement. +For federal income tax purposes, the participant would not +recognize income and Wolverine would not receive a deduction at +the time an incentive stock option is granted. A participant +exercising an incentive stock option would not recognize income +at the time of the exercise. The difference between the market +value and the exercise price would, however, be a tax preference +item for purposes of calculating alternative minimum tax. Upon +sale of the stock, as long as the participant held the stock for +at least one year after the exercise of the stock option and at +least two years after the grant of the stock option, the +participant’s basis would equal the exercise price and the +participant would pay tax on the difference between the sale +proceeds and the exercise price as capital gain. Wolverine would +receive no deduction for federal income tax purposes. If, before +the expiration of either of the above holding periods, the +participant sold shares acquired under an incentive stock +option, the tax deferral would be lost and the participant +generally would recognize taxable compensation income equal to +the difference between the exercise price and the fair market +value of the stock at the time of exercise. Wolverine would then +receive a corresponding deduction for federal income tax +purposes. Additional gains, if any, recognized by the +participant would result in the recognition of short- or +long-term capital gain. +Federal income tax laws provide different rules for nonqualified +options that do not meet the Internal Revenue Code’s +definition of an incentive stock option. Under current federal +income tax laws, a participant would not recognize any income +and Wolverine would not receive a deduction at the time a +nonqualified option is granted. If a nonqualified option is +exercised, the participant would recognize compensation income +in the year of exercise equal to the difference between the +exercise price and the fair market value of the stock on the +date of exercise. Wolverine would receive a corresponding +deduction for federal income tax purposes. +8 +The participant’s tax basis in the shares acquired would be +increased over the exercise price by the amount of compensation +income recognized. Sale of the stock after exercise would result +in recognition of short- or long-term capital gain or loss. +In addition to the authority to grant stock options under the +Plan, the Compensation Committee could also grant tax benefit +rights, subject to such terms and conditions as the Compensation +Committee determines to be appropriate. Although permitted by +the current plans, Wolverine has never granted any such rights +and presently has no intention to do so. A tax benefit right is +a cash payment to a participant upon exercise of a stock option. +The amount of the payment would not exceed the amount determined +by multiplying the ordinary income realized by the participant +(and deductible by Wolverine) upon exercise of a nonqualified +option, or upon a disqualifying disposition of an incentive +stock option, by the maximum federal income tax rate (including +any surtax or similar charge or assessment) for corporations +plus the applicable state and local tax imposed on the exercise +of the stock option or disqualifying disposition. Unless the +Compensation Committee provides otherwise, the net amount of a +tax benefit right, subject to withholding, could be used to pay +a portion of the exercise price. Tax benefit rights could be +issued under the Plan with respect to stock options granted not +only under the Plan but also with respect to existing or future +stock options awarded under any other plan of Wolverine that has +been approved by the stockholders as of the date of the Plan. +The Plan also permits the Compensation Committee to make stock +awards. A stock award of Wolverine’s common stock would be +subject to terms and conditions set by the Compensation +Committee at the time of the award. Stock award recipients would +generally have all voting, dividend, liquidation and other +rights with respect to awarded shares of Wolverine common stock. +However, the Compensation Committee could impose restrictions on +the assignment or transfer of Wolverine common stock awarded +under a stock award. Wolverine has previously granted stock +awards for minimal numbers of shares to a limited number of +persons in connection with short-term programs targeted at +specific locations or profit centers as rewards for achieving +pre-established sales or similar goals. Wolverine presently +expects any future awards would be for similar numbers of shares +and purposes. +Finally, the Plan permits the Compensation Committee to award +restricted stock, subject to such terms and conditions set by +the Compensation Committee. Only 40% of the shares authorized +under the Plan may be issued as restricted stock or stock +awards, combined. As with stock option grants, the Compensation +Committee would establish the terms of individual awards of +restricted stock in restricted stock agreements. Restricted +stock granted by the Compensation Committee, other than stock +associated with payouts under Wolverine’s Executive +Long-Term Incentive Plan, generally vests in three installments +over a five-year period, with 25% of the shares subject to an +award vesting on the third anniversary of the date of the award, +25% of the shares vesting on the fourth anniversary and the +remaining shares vesting on the fifth anniversary. Restricted +stock awarded in connection with the Executive Long-Term +Incentive Plan (approved by the stockholders in 1997) generally +vests in three equal installments over a three-year period on +each anniversary of the date of grant. Unless the Compensation +Committee consents or provides otherwise in a restricted stock +agreement, if a participant’s employment is terminated +during the restricted period for any reason other than death, +disability or retirement (as defined in the Plan), the +participant’s restricted stock would be entirely forfeited. +If the participant’s employment terminates during the +restricted period by reason of death, disability or retirement, +the restrictions on the participant’s shares would +terminate automatically with respect to that number of shares +(rounded to the nearest whole number) equal to the total number +of shares of restricted stock awarded to the participant +multiplied by the number of full months that have elapsed since +the date of grant divided by the total number of full months in +the restricted period. All remaining shares would be forfeited +and returned to Wolverine, unless the Compensation Committee +consents or provides otherwise. Wolverine has previously granted +restricted stock awards pursuant to the current stock incentive +plans. +Without Compensation Committee authorization, a recipient of +restricted stock would not be allowed to sell, exchange, +transfer, pledge, assign or otherwise dispose of the stock other +than to Wolverine or by will or the laws of descent and +distribution. In addition, the Compensation Committee could +impose other restrictions on shares of restricted stock. Holders +of restricted stock would enjoy all other rights of a +stockholder with respect to restricted stock, including the +right to vote restricted shares at stockholders’ meetings +and the right to receive all dividends paid with respect to +shares of Wolverine common stock. Any securities received by a +holder of restricted stock pursuant to a stock dividend, stock +split, recapitalization, merger, consolidation, combination or +exchange of shares would be subject to the +9 +same terms, conditions and restrictions that are applicable to +the restricted stock for which the shares are received. +Generally, a participant would not recognize income upon the +award of restricted stock. However, a participant would be +required to recognize compensation income on the value of +restricted stock at the time the restricted stock vests (when +the restrictions lapse). At the time the participant recognizes +compensation income, Wolverine would be entitled to a +corresponding deduction for federal income tax purposes. If +restricted stock is forfeited by a participant, the participant +would not recognize income and Wolverine would not receive a +deduction. Prior to the lapse of restrictions, dividends paid on +restricted stock would be reported as compensation income to the +participant and Wolverine would receive a corresponding +deduction. +A participant could, within 30 days after the date of an +award of restricted stock, elect to report compensation income +for the tax year in which the award of restricted stock occurs. +If the participant makes such an election, the amount of +compensation income would be the value of the restricted stock +at the time of the award. Any later appreciation in the value of +the restricted stock would be treated as capital gain and +realized only upon the sale of the restricted stock. Dividends +received after such an election would be taxable as dividends +and not treated as additional compensation income. If, however, +restricted stock is forfeited after the participant makes such +an election, the participant would not be allowed any deduction +for the amount earlier taken into income. Upon the sale of +restricted stock, a participant would realize capital gain (or +loss) in the amount of the difference between the sale price and +the value of the stock previously reported by the participant as +compensation income. +Compensation associated with awards of restricted stock under +the Plan not associated with payouts under the Executive +Long-Term Incentive Plan would not, based upon Wolverine’s +past practices, qualify as performance-based compensation for +purposes of Section 162(m) and would be subject to the +$1,000,000 deductibility limit. Wolverine believes that awards +of restricted stock in connection with the Executive Long-Term +Incentive Plan would constitute performance-based compensation +and would be exempt from the $1,000,000 deductibility limit +imposed by Section 162(m). +Upon the occurrence of a “change in control” of +Wolverine (as defined in the Plan), all outstanding stock +options would become immediately exercisable in full and would +remain exercisable in accordance with their terms and all other +outstanding Incentive Awards under the Plan would immediately +become fully vested and nonforfeitable. In addition, the +Compensation Committee, without the consent of any affected +participant, could determine that some or all participants +holding outstanding stock options would receive cash in an +amount equal to the greater of the excess over the exercise +price per share of each stock option of: (i) the highest +sale price of the shares on the New York Stock Exchange +immediately before the effective date of the change in control; +or (ii) the price per share actually paid in connection with any +change in control of Wolverine. +If Incentive Awards are made under the Plan, Wolverine could +withhold from any cash otherwise payable to a participant or +require a participant to remit to Wolverine an amount sufficient +to satisfy federal, state, local and foreign withholding taxes. +Tax withholding obligations could be satisfied by withholding +Wolverine common stock to be received upon exercise of an option +or the vesting of restricted stock or by delivery to Wolverine +of previously owned shares of common stock. +The Board of Directors could, on the recommendation of the +Compensation Committee, terminate the Plan at any time and could +from time to time amend the Plan as it considered proper and in +the best interests of Wolverine, provided that no amendment +could impair any outstanding Incentive Award without the consent +of the participant except according to the terms of the Plan or +Incentive Award. No termination, amendment or modification could +become effective with respect to any Incentive Award outstanding +under the Plan without the prior written consent of the +participant holding the award unless the amendment or +modification operated to the benefit of the participant. Subject +to stockholder approval, the Plan would take effect on +March 6, 2001, and, unless terminated earlier by the Board +of Directors, no awards could be made under the Plan after +March 5, 2011. +Wolverine intends to register shares covered by the Plan under +the Securities Act of 1933 before any Incentive Award could be +exercised. +If the Plan is not approved by the stockholders, no Incentive +Awards will be made under the Plan to any employee of Wolverine, +including the Chief Executive Officer or any of the four most +highly compensated executive officers (other than the Chief +Executive Officer). +Your Board of Directors recommends that you vote FOR +approval of the Stock Incentive Plan of 2001. +10 +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information concerning the number +of shares of Wolverine stock held by each entity known to +Wolverine to have been the beneficial owner of more than five +percent of Wolverine’s outstanding shares of common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Sole Voting +Shared Voting +Total +Name and Address +or Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Ownership +of Class +Berger Small Cap Value Fund(1) +— +3,300,000 +(2) +3,300,000 +(2) +7.37% +210 University Boulevard +Denver, Colorado 80206 +Perkins, Wolf, McDonnell & Company(3) +170,200 +4,441,800 +(2) +4,612,000 +(2) +11.1% +53 N. Jackson Boulevard +Chicago, Illinois 60604 +Gabelli Entities(4) +2,405,300 +— +2,405,300 +5.4% +One Corporate Center +Rye, New York 10580-1435 +(1) +Based on information set forth in Schedule 13G dated +February 14, 2001. The Schedule 13G indicates that the +Berger Small Cap Value Fund and its sub-investment adviser, +Perkins, Wolf, McDonnell & Company, have investment and +voting authority with respect to 3,300,000 shares of +Wolverine’s common stock. Documents filed with the +Securities and Exchange Commission indicate that the Berger +Small Cap Value Fund is a portfolio series established under the +Berger Omni Trust Fund, an open-ended management investment +company registered under the Investment Company Act of 1940, as +amended. +(2) +According to a letter dated February 21, 2001, sent by the +Berger Small Cap Value Fund to Wolverine, all 3,300,000 shares +of Wolverine common stock considered to be beneficially owned by +the Berger Small Cap Value Fund are also considered to be +beneficially owned by Perkins, Wolf, McDonnell & +Company. The first footnote describes the relationship between +the Berger Small Cap Value Fund and Perkins, Wolf, +McDonnell & Company. Because both the Berger Small Cap +Value Fund and Perkins, Wolf, McDonnell & Company are +considered beneficial owners of the 3,300,000 shares of +Wolverine common stock, these shares are counted twice in the +table. +(3) +Based on information set forth in Schedule 13G dated +September 1, 2000. The Schedule 13G indicates that +Perkins, Wolf, McDonnell & Company, identified as an +investment adviser, is considered the beneficial owner of +4,612,000 shares of Wolverine common stock. As discussed in +Note 2, the Berger Small Cap Value Fund is also considered +to beneficially own 3,300,000 of these 4,612,000 shares of +Wolverine common stock. +(4) +Based on information set forth in Schedule 13D dated +February 5, 2001. The Schedule 13D indicates that: +(i) Gabelli Funds, LLC (an investment adviser) has the sole +power to vote and dispose of 903,600 shares of common stock; +(ii) GAMCO Investors, Inc. (an investment adviser) has the +sole power to vote 1,441,700 shares of common stock and the sole +power to dispose of 1,471,700 shares of common stock; and +(iii) Gabelli International Limited (a corporation) has the +sole power to vote 30,000 shares of common stock. +11 +Stock Ownership By Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 1, 2001, by each of +Wolverine’s directors and nominees for director, each of +the named executive officers and all of Wolverine’s +directors, nominees for director and executive officers as a +group. An asterisk in the column for “Percent of +Class” means the individual owns less than one percent of +the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Geoffrey B. Bloom +376,987 +80,483 +375,241 +832,711 +1.98 +% +Daniel T. Carroll +25,311 +— +37,220 +62,531 +* +Steven M. Duffy +56,963 +— +124,449 +181,412 +* +V. Dean Estes +95,434 +— +144,124 +239,558 +* +Donald V. Fites +10,000 +— +34,963 +44,963 +* +Alberto L. Grimoldi +15,184 +— +25,830 +41,014 +* +Stephen L. Gulis, Jr. +96,924 +— +130,538 +227,462 +* +David T. Kollat +25,312 +— +47,345 +72,657 +* +Blake W. Krueger +65,019 +— +110,145 +175,164 +* +Phillip D. Matthews +— +17,531 +52,407 +69,938 +* +David P. Mehney +85,217 +— +29,627 +114,844 +* +Timothy J. O’Donovan +355,515 +18,983 +251,747 +626,245 +1.49 +% +Joseph A. Parini +11,185 +— +25,830 +37,015 +* +Joan Parker +23,019 +— +25,831 +48,850 +* +Elizabeth A. Sanders +7,000 +3,375 +41,017 +51,392 +* +Paul D. Schrage +5,000 +— +29,629 +34,629 +* +All directors and executive +officers as a group +1,357,660 +123,119 +1,653,932 +3,134,711 +7.23 +% +(1) +The numbers of shares stated are based on information provided +by each person listed and include shares personally owned of +record by the person and shares that, under applicable +regulations, are considered to be otherwise beneficially owned +by the person. +(2) +These numbers include shares over which the listed person is +legally entitled to share voting or dispositive power by reason +of joint ownership, trust or other contract or property right, +and shares held by spouses, children or other relatives over +whom the listed person may have influence by reason of +relationship. +(3) +These numbers include shares that may be acquired by the +exercise of stock options granted under Wolverine’s various +stock option plans within 60 days after March 1, 2001. +12 +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total stockholder +return on Wolverine common stock to the Standard & +Poor’s 500 Stock Index, the Standard & Poor’s 600 +Small Cap Index, the Standard & Poor’s 600 Footwear +Index and an index of peer companies that produce non-athletic +footwear, assuming an investment of $100.00 at the beginning of +the period indicated. Note 3 below describes the various +indices. The index of peer companies consists of the companies +listed in Note 1 to the graph. In the Peer Group index, the +return of each Peer Group company is weighted according to its +respective stock market capitalization at the beginning of each +period indicated. Cumulative total stockholder return is +measured by dividing: (i) the sum of the cumulative amount +of dividends for the measurement period, assuming dividend +reinvestment, and the difference between the share price at the +end and the beginning of the measurement period; by +(ii) the share price at the beginning of the measurement +period. +Five Year Cumulative Total Return Summary +(1) +The Peer Group companies consist of J. Baker, Inc.; +R.G. Barry Corporation; Brown Shoe Company, Inc.; +Candie’s, Inc.; Daniel Green Company; Genesco Inc.; Kenneth +Cole Productions, Inc.; Lacrosse Footwear, Inc.; Rocky +Shoes & Boots, Inc.; The Stride Rite Corporation; The +Timberland Company; Wellco Enterprises, Inc.; and Weyco Group, +Inc. +(2) +In 1999, the Peer Group included Justin Industries, Inc., which +was acquired in 2000 by Berkshire Hathaway, Inc., and Penobscot +Shoe Company, which was acquired in 1999 by Riedman Corporation. +Neither of these companies are quoted on an exchange or +quotation system, and therefore have been omitted from the Peer +Group for fiscal 2000. +(3) +Wolverine has elected to use the Standard & Poor’s 600 +Small Cap Index and the Standard & Poor’s 600 Footwear +Index for fiscal 2000 and future years as its comparative broad +market index and industry index, respectively. Wolverine is part +of the Standard & Poor’s 600 Small Cap Index and +considers this index to be more suitable than the previously +used Standard & Poor’s 500 Stock Index because the +Standard & Poor’s 600 Small Cap Index is limited +to companies with a market capitalization more similar to +Wolverine’s capitalization. Wolverine has elected to change +from the Peer Group used in prior years to the Standard & +Poor’s 600 Footwear Index because the Standard & +Poor’s 600 Footwear Index (i) reflects companies in +Wolverine’s industry with similar market capitalization; +(ii) is established and maintained by an independent third +party; and (iii) is readily accessible to shareholders. +Wolverine is part of the Standard & Poor’s 600 Footwear +Index. +13 +The dollar values for total stockholder return plotted in the +graph are shown in the table below: +Fiscal +S&P 500 +S&P 600 +Peer +S&P 600 +Year-End +Wolverine +Stock Index +Small Cap Index +Group +Footwear Index +1995 +$ +100.00 +$ +100.00 +$ +100.00 +$ +100.00 +$ +100.00 +1996 +138.73 +122.96 +121.32 +132.64 +123.65 +1997 +162.92 +163.98 +152.36 +164.33 +149.22 +1998 +96.08 +210.84 +150.37 +135.38 +120.72 +1999 +80.16 +255.22 +169.02 +194.61 +154.85 +2000 +113.20 +231.98 +188.97 +334.87 +299.58 +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows selected +information concerning the compensation earned during each of +the three fiscal years in the period ended December 30, +2000, by all individuals who served as Chief Executive Officer +during the last fiscal year and each of Wolverine’s four +most highly compensated executive officers who served in +positions other than Chief Executive Officer at the end of the +last completed fiscal year. The numbers of shares subject to +awards of stock options have been adjusted to reflect stock +splits. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Name and +Other +Restricted +Shares +Principal +Annual +Stock +Underlying +LTIP +Position +Year +Salary +Bonus +Compensation +Awards(1) +Options +Payouts(2) +Geoffrey B. Bloom +2000 +$ +250,288 +(4) +$ +— +$ +— +$ +199,134 +17,685 +$ +— +Chairman and +1999 +677,308 +539,326 +— +192,500 +113,321 +364,130 +Director, former Chief +1998 +641,539 +194,458 +(5) +850 +(6) +973,065 +(7) +60,148 +673,550 +Executive Officer +Steven M. Duffy +2000 +$ +298,462 +$ +— +$ +— +$ +110,630 +40,230 +$ +— +Executive Vice +1999 +278,846 +148,026 +— +96,250 +43,979 +105,984 +President +1998 +270,385 +83,327 +— +139,845 +34,851 +204,538 +V. Dean Estes +2000 +$ +276,250 +$ +— +$ +— +$ +55,315 +20,703 +$ +— +Vice President +1999 +264,115 +89,354 +— +48,125 +20,135 +102,106 +1998 +253,096 +41,102 +— +69,923 +11,975 +200,040 +Stephen L. Gulis, Jr. +2000 +$ +268,462 +$ +— +$ +— +$ +110,630 +40,087 +$ +— +Executive Vice +1999 +253,462 +134,550 +— +96,250 +43,770 +98,654 +President, Chief +1998 +245,385 +45,543 +— +139,845 +23,271 +193,222 +Financial Officer +and Treasurer +Blake W. Krueger +2000 +$ +304,519 +$ +— +$ +— +$ +110,630 +40,555 +$ +— +Executive Vice +1999 +288,846 +139,470 +— +96,250 +42,329 +108,000 +President, General +1998 +266,346 +49,434 +— +139,845 +21,088 +208,925 +Counsel and Secretary +Timothy J. O’Donovan +2000 +$ +517,308 +$ +— +$ +— +$ +221,260 +84,623 +$ +— +Chief Executive +1999 +434,615 +288,396 +— +154,000 +68,347 +178,022 +Officer, President +1998 +384,616 +89,230 +— +223,752 +37,078 +321,876 +and Director +[Additional columns below] +[Continued from above table, first column(s) repeated] +Name and +Principal +All Other +Position +Compensation(3) +Geoffrey B. Bloom +$ +10,453 +Chairman and +10,203 +Director, former Chief +10,203 +Executive Officer +Steven M. Duffy +$ +9,204 +Executive Vice +8,129 +President +7,854 +V. Dean Estes +$ +6,216 +Vice President +6,491 +6,218 +Stephen L. Gulis, Jr. +$ +7,196 +Executive Vice +6,946 +President, Chief +6,696 +Financial Officer +and Treasurer +Blake W. Krueger +$ +9,092 +Executive Vice +7,912 +President, General +7,602 +Counsel and Secretary +Timothy J. O’Donovan +$ +10,184 +Chief Executive +8,764 +Officer, President +8,373 +and Director +(1) +The values of restricted stock awards reported in this column +are calculated using the closing market price of common stock on +the date of grant. As of the end of Wolverine’s 2000 fiscal +year, each of the named executive officers held shares of +restricted stock. Dividends will be paid on shares of restricted +stock at the same rate +14 +dividends are paid on common stock. The number of shares of +restricted stock held by each named individual and the aggregate +value of those shares (as represented by the closing price of +common stock on December 29, 2000) at the end of +Wolverine’s 2000 fiscal year, without giving effect to the +reduction in value attributable to the restrictions on the +stock, are set forth below: +Number +Aggregate +of Shares +Value +Mr. Bloom +129,063 +$ +1,968,203 +Mr. Duffy +32,313 +492,766 +Mr. Estes +18,125 +276,406 +Mr. Gulis +32,313 +492,766 +Mr. Krueger +32,875 +501,344 +Mr. O’Donovan +56,375 +859,719 +These numbers do not include the number or value of shares of +restricted stock awarded during the years presented in +connection with the Company’s Executive Long-Term Incentive +Plan (Three-Year Bonus Plan) (the “Long-Term Plan”), +the values of which are included in the amounts reported in the +“LTIP Payouts” column in this table for the applicable +year for each listed individual. +(2) +Under Wolverine’s Long-Term Plan, amounts payable are paid +(i) in cash equal to 50% of the amount payable, and +(ii) in shares of restricted stock that have a market +value, on the date the cash payment is made, equal to 140% of +the remaining 50% payable under the plan (i.e. 70% of the +calculated bonus amount). The dollar amounts reported in this +column reflect the cash payment and the market value of the +shares of restricted stock on the date of payment. Shares of +restricted stock are granted under existing plans that provide +for such awards. The restrictions lapse with respect to +one-third of the shares on each of the first three anniversaries +of the date of grant. Pursuant to these plans, Wolverine did not +grant any shares of restricted stock to key management employees +with respect to amounts payable for the three-year performance +period ended December 30, 2000. +(3) +The compensation listed in this column for 2000 consisted of: +(i) Wolverine’s contributions to the accounts of the +named executive officers under Wolverine’s 401(k) Savings +Plan as follows: $5,250 for Mr. Bloom; $5,250 for +Mr. Duffy; $5,250 for Mr. Estes; $5,250 for +Mr. Gulis; $5,250 for Mr. Krueger; and $5,250 for +Mr. O’Donovan; and (ii) payments made by +Wolverine for the premiums on certain life insurance policies as +follows: $5,203 for Mr. Bloom; $3,954 for Mr. Duffy; +$966 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +(4) +The salary stated for Mr. Bloom does not include +compensation he receives as a director of Wolverine detailed +under the section of this Proxy Statement entitled +“Wolverine’s Board of Directors — +Compensation of Directors.” +(5) +Includes one-third of the outstanding principal balance +($34,330) of a three-year, interest-free loan made to +Mr. Bloom which was forgiven because Wolverine achieved its +targeted performance goals under the annual bonus plan for the +most recently completed fiscal year. +(6) +This compensation consisted of imputed income from a three-year, +interest-free loan made to Mr. Bloom. +(7) +Includes the value of 62,500 shares of restricted stock subject +to performance-based vesting conditions awarded to +Mr. Bloom pursuant to his amended and restated employment +agreement. +Stock Options +The Compensation Committee administers Wolverine’s stock +option plans and also has authority to determine the individuals +to whom and the terms upon which options are granted, the number +of shares subject to each option and the form of consideration +payable upon the exercise of an option. The Chief Executive +Officer makes recommendations of stock option grants (other than +for himself), which the Compensation Committee then considers. +15 +The following tables set forth information regarding stock +options granted to and exercised by the named executive officers +during the fiscal year ended December 30, 2000, and the +number of shares of common stock subject to and values of +options at that date: +Option Grants In Last Fiscal Year +Individual Grants +Percent of +Number of +Total +Securities +Options +Underlying +Granted to +Exercise +Grant Date +Options +Employees in +Price +Expiration +Present +Name +Granted(1) +Fiscal Year +Per Share +Date +Value(2) +Geoffrey B. Bloom +5,759 +0.7101 +% +$ +11.15650 +02/23/10 +$ +27,786.60 +2,917 +0.3597 +10.96900 +02/24/10 +13,837.66 +1,357 +0.1673 +11.03150 +02/25/10 +6,473.98 +1,913 +0.2359 +10.90650 +02/28/10 +9,023.24 +5,739 +0.7076 +10.81250 +03/09/10 +6,836.14 +Steven M. Duffy +35,000 +4.3155 +% +$ +10.96900 +02/24/10 +$ +166,033.00 +1,749 +0.2157 +11.15650 +02/23/10 +8,438.75 +1,001 +0.1234 +10.96900 +02/24/10 +4,748.54 +312 +0.0385 +11.03150 +02/25/10 +1,488.49 +638 +0.0787 +10.90650 +02/28/10 +3,009.32 +1,530 +0.1886 +10.81250 +03/09/10 +7,154.43 +V. Dean Estes +15,000 +1.8495 +% +$ +10.96900 +02/24/10 +$ +71,157.00 +1,710 +0.2108 +11.15650 +02/23/10 +8,250.58 +752 +0.0927 +10.96900 +02/24/10 +3,567.34 +307 +0.0379 +11.03150 +02/25/10 +1,464.64 +638 +0.0787 +10.90650 +02/28/10 +3,009.32 +2,296 +0.2831 +10.81250 +03/09/10 +10,736.33 +Stephen L. Gulis, Jr. +35,000 +4.3155 +% +$ +10.96900 +02/24/10 +$ +166,033.00 +1,652 +0.2037 +11.15650 +02/23/10 +7,970.73 +975 +0.1202 +10.96900 +02/24/10 +4,625.21 +291 +0.0359 +11.03150 +02/25/10 +1,388.30 +638 +0.0787 +10.90650 +02/28/10 +3,009.32 +1,531 +0.1888 +10.81250 +03/09/10 +7,159.11 +Blake W. Krueger +35,000 +4.3155 +% +$ +10.96900 +02/24/10 +$ +166,033.00 +1,786 +0.2202 +11.15650 +02/23/10 +8,617.27 +1,000 +0.1233 +10.96900 +02/24/10 +4,743.80 +473 +0.0583 +11.03150 +02/25/10 +2,256.59 +1,531 +0.1888 +10.81250 +03/09/10 +7,159.11 +765 +0.0943 +11.21900 +04/17/10 +3,711.70 +Timothy J. O’Donovan +75,000 +9.2475 +% +$ +10.96900 +02/24/10 +$ +355,785.00 +2,752 +0.3393 +11.15650 +02/23/10 +13,278.12 +1,586 +0.1956 +10.96900 +02/24/10 +7,523.67 +566 +0.0698 +11.03150 +02/25/10 +2,700.27 +1,275 +0.1572 +10.90650 +02/28/10 +6,013.92 +3,444 +0.4246 +10.81250 +03/09/10 +16,104.49 +(1) +All options indicated in boldface text above are exercisable +with respect to 25% of the shares on the date of grant and +become exercisable with respect to 25% of the shares on each +following anniversary date with full vesting occurring on the +third anniversary date of the grant. Vesting may be accelerated +upon certain events relating to a change in control of +Wolverine. All options in boldface text were granted in +February 2000. All such options were granted for a term of +10 years. In 1997, the Compensation Committee adopted a +program to automatically +16 +award “reload options” to a limited group of senior +executives if those executives surrender shares of common stock +to pay the exercise price or tax withholding obligations +associated with the exercise of a then outstanding nonqualified +stock option or the vesting of restricted stock. New stock +options (both stock options that may qualify as incentive stock +options as defined in Section 422 of the Internal Revenue +Code and other stock options that would not be incentive stock +options within the meaning of the Internal Revenue Code) and +restricted stock awards under Wolverine’s plans provide for +automatic awards of reload options to such executives. All +options not shown in boldface text in the table are reload +options granted in 2000. +Reload options to purchase the number of shares surrendered by +an executive are awarded at the market price on the date of +grant. Reload options granted in connection with the exercise of +another stock option have the same term as the term remaining +under the underlying option that was exercised. Reload options +granted upon the vesting of restricted stock before October 2000 +have 10-year terms from the date the reload was granted. Reload +options granted upon vesting of restricted stock after October +2000 have 10-year terms from the date of the underlying +restricted stock award. Reload options are fully vested on the +date of grant. Certain senior executives are permitted to +transfer nonqualified stock options to a limited group of +permissible transferees primarily for estate planning purposes. +Options terminate, with certain limited exercise provisions, in +the event of death, retirement or other termination of +employment. All options permit the option price to be paid by +delivery of cash or, if permitted by the Compensation Committee, +shares of common stock. +(2) +Based on the Black-Scholes option pricing model. The actual +value, if any, an option holder may realize will depend on the +excess of the stock price over the exercise price on the date +the option is exercised. There is no assurance the value +realized by an option holder will be at or near the value +estimated by the Black-Scholes model. The estimated values in +the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .495%, calculated using +monthly stock prices for the three years prior to the grant +date; +• +a risk free rate of return of 6.1%; +• +an expected average dividend yield of .5% (the dividend yield at +the date of the grant); and +• +an expected average option holding period of 4 years, which +approximates Wolverine’s historical experience. +No adjustments were made for the general non-transferability of +the options or to reflect any risk of forfeiture before vesting. +Disclosure of grant date present value is presented pursuant to +Securities and Exchange Commission regulations. Wolverine’s +use of the Black-Scholes model to indicate the present value of +each grant is not an endorsement of this valuation method. +Aggregated Option Exercises In Last Fiscal Year +And Fiscal Year-End Option Values +Number of +Value of +Shares Underlying +Unexercised +Unexercised +In-the-Money +Number of +Options at +Options at +Shares +Fiscal Year-End +Fiscal Year-End +Acquired on +Value +Name +Exercise +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Geoffrey B. Bloom +0 +$ +0 +325,960 +56,250 +$ +554,465 +$ +275,603 +Steven M. Duffy +0 +0 +113,743 +51,250 +395,312 +249,632 +V. Dean Estes +0 +0 +129,824 +20,625 +659,038 +100,423 +Stephen L. Gulis, Jr. +0 +0 +101,423 +51,250 +265,794 +249,632 +Blake W. Krueger +0 +0 +81,940 +51,250 +214,526 +249,632 +Timothy J. O’Donovan +0 +0 +201,290 +93,750 +550,153 +456,182 +Wolverine’s employee loan program allows an employee (or +outside director) to borrow from Wolverine up to 95% of the +exercise price to exercise options acquired under +Wolverine’s stock option plans. These loans bear interest +at a rate equal to the greater of 6.5% per annum or the interest +rate imputed by the Internal Revenue Service with interest +17 +payable quarterly. Principal is payable quarterly at the rate of +15% per annum beginning five years after the date on which +the option to which the loan relates is exercised. Participants +may pay principal and/or accrued interest on these loans in +shares of Wolverine common stock. All loans are secured by a +pledge of the stock obtained upon exercise of the applicable +option. Outstanding loan balances as of March 1, 2001 (and, +if higher, the largest balance outstanding during the last +fiscal year) for each director and executive officer were as +follows: Mr. Bloom, $0 ($189,988); Mr. Duffy, +$109,818; Mr. Gulis, $285,042; Mr. Krueger, $160,989; +Mr. O’Donovan, $188,739; Ms. Parker, $86,272 +($87,289); and Mr. Sedrowski, $82,002. +Long-Term Incentive Awards +Wolverine’s Long-Term Plan permits Wolverine to award cash +and shares of restricted stock to plan participants conditioned +upon the achievement of certain corporate performance goals over +a three-year performance period. +The following table sets forth certain information concerning +awards of long-term incentive compensation to the named +individuals during the last fiscal year: +Long-Term Incentive Plans — Awards in Last Fiscal +Year +Performance +or Other +Estimated Future Payouts +Number of +Period +Under Non-Stock-Price-Based +Shares, +Until +Plans(2) +Units or +Maturation +Name +Other Rights(1) +or Payout +Threshold +Target +Maximum +Geoffrey B. Bloom +— +— +— +— +— +Steven M. Duffy +40 +% +3 years +$ +75,272 +$ +150,544 +$ +301,088 +V. Dean Estes +35 +3 years +60,961 +121,922 +243,844 +Stephen L. Gulis, Jr. +40 +3 years +67,706 +135,412 +270,824 +Blake W. Krueger +40 +3 years +76,800 +153,600 +307,200 +Timothy J. O’Donovan +60 +3 years +195,697 +391,394 +782,788 +(1) +Under Wolverine’s Long-Term Plan, key management employees +may earn incentive compensation based upon achievement of +specified fully-diluted earnings per share (“EPS”) +goals over a three-year performance period. The numbers reported +in the column under the heading “Number of Shares, Units or +Other Rights” represent the percentage of each +officer’s average earned salary during the three-year +period that the officer will receive as bonus compensation under +the plan if the specified EPS targets are achieved. The +Compensation Committee determined these amounts. If higher or +lower actual EPS levels are attained during the three-year +performance period, the percentage of base salary to be received +as bonus compensation by each officer will be correspondingly +higher, lower or zero. Bonuses are conditioned upon achieving a +minimum or “threshold” EPS level. The Compensation +Committee established the EPS goals at the beginning of 2000 for +the period ending on the last day of Wolverine’s +2002 fiscal year. EPS goals are expressed as net earnings +per share after taxes, excluding one-time charges. +(2) +Under the Long-Term Plan, amounts earned as bonus compensation +are calculated based on each participant’s average annual +earned salary during the three-year performance period. For +purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2000 as reported in the Summary Compensation Table, +adjusted for 5% annual cost of living increases. Amounts payable +under the Long-Term Plan are paid: (i) in cash equal to 50% +of the amount payable; and (ii) in shares of restricted +stock that have a market value, on the date the cash payment is +made, equal to 140% of the remaining 50% payable under the +Long-Term Plan (i.e. 70% of the calculated bonus amount). +The dollar amounts reported under the headings +“Threshold,” “Target” and +“Maximum” reflect the value of the cash payment and +the market value of restricted stock to be received on the date +of payment. Shares of restricted stock are granted under +existing plans that provide for such awards. The restrictions +lapse with respect to one-third of the shares on each +anniversary of the date of grant. +18 +Pension Plan +Wolverine has a qualified pension plan covering most of its +salaried employees. The Internal Revenue Code imposes +limitations on the maximum amount of pension benefits payable +under qualified plans. It also imposes a cap currently equal to +$170,000 (subject to grandfather provisions for earnings accrued +before January 1, 1994) on the amount of earnings that may +be taken into account in determining benefits payable under +qualified plans. +The following table illustrates the estimated annual benefits +payable under the pension plan for Wolverine’s named +executive officers if they retire at age 65 at the annual +levels of average remuneration and years of service indicated +(computed on a straight life annuity basis without the reduction +required by the plan for the Social Security allowance received +by participants in the plan and without regard to any accrued +grandfathered benefit for earnings before January 1, 1994): +Pension Plan Table +Years of Service +Average Remuneration +10 +15 +20 +25 +30 or more +$ +170,000 +$ +40,800 +$ +61,200 +$ +81,600 +$ +102,000 +$ +122,400 +Subject to the limitations imposed by the Internal Revenue Code, +the pension plan provides monthly benefits at normal retirement +in an amount equal to the greater of: (i) $22.00 multiplied +by the participant’s number of years of service up to +30 years; or (ii) 1.6% of final average earnings +multiplied by the participant’s number of years of service +up to 30 years reduced by the participant’s Social +Security allowance as defined in the pension plan. Certain +designated executives have a percentage benefit multiplier of +2.4% or 2.0% in lieu of the 1.6% of final average earnings +benefit multiplier. “Final average earnings” are +defined as the average of the participant’s annual earnings +for the four consecutive highest compensation calendar years out +of the last 10 calendar years of the participant’s +employment (with earnings for the last year of employment +annualized based on a participant’s then rate of pay). +Except for the compensation cap imposed by the Internal Revenue +Code, the remuneration covered by the plan for an employee would +be essentially equivalent to the sum of the amounts reported +under the heading “Annual Compensation” in the Summary +Compensation Table above, except for the forgiveness of +Mr. Bloom’s interest-free loan. +If the pension plan is terminated during any period beginning on +a “restricted date” (defined below) and ending two +years later, the plan requires that surplus plan assets be used +to purchase retiree medical and life insurance in satisfaction +of Wolverine’s then outstanding obligations, if any, and be +paid pro rata to increase the benefits of plan participants, +subject to legal limitations. If the pension plan is merged +with, or the assets of the plan are transferred to, another +plan, then: (i) benefits will be fully vested; +(ii) benefits will be increased as if the plan had been +terminated; and (iii) benefits will be satisfied through +the purchase of a guaranteed annuity contract. A restricted date +is defined as the date any person or group acquires more than +50% of the voting stock of Wolverine in a transaction not +approved by the Board of Directors or the date during any +two-year period on which individuals who at the beginning of the +period constituted the Board of Directors (including any new +director whose nomination or election was approved by two-thirds +of the directors who were directors at the beginning of the +period or whose election or nomination was so approved) cease +for any reason to constitute a majority of the Board. +As of December 30, 2000, the persons listed in the Summary +Compensation Table had the following years of credited service +under the plan: Mr. Bloom, 14 years; Mr. Duffy, +12 years; Mr. Estes, 26 years; Mr. Gulis, +16 years; Mr. Krueger, five years; and +Mr. O’Donovan, 30 years. +Supplemental Executive Retirement Plan +In 1995, Wolverine adopted a Supplemental Executive Retirement +Plan (“SERP”) to replace the deferred compensation +agreements entered into with certain key employees, including +those listed in the Summary Compensation Table, except that an +executive covered by a deferred compensation agreement will +always be entitled to a benefit under the SERP at least equal to +what he or she would have received under the deferred +compensation agreement. The SERP became effective +January 1, 1996. +19 +Under the SERP, a participating executive will be eligible for +an annual supplemental benefit once he or she has completed five +years of service after having been approved as a participant in +the SERP (or, for those executives already covered by a deferred +compensation agreement, five years after entering into the +deferred compensation agreement). Alternatively, a participating +executive will be eligible for a benefit with less than five +years of service if he or she retires at or after age 65. The +supplemental benefit is equal to the difference between the +executive’s retirement benefit under Wolverine’s +qualified pension plan and an amount equal to a designated +percentage of the executive’s average earnings multiplied +by the executive’s years of service under the pension plan, +except that the plan counts years during which the executive +received a disability benefit under the SERP (except in +computing the SERP’s disability benefit); excludes years +that an executive is designated as an inactive participant; and +may count deemed years of service granted by the Board of +Directors (up to a maximum of 25 years). The designated +percentage is either 2.4% for each year of service (including +all of the individuals listed in Summary Compensation Table) or +2% per year of service. “Annual earnings” is defined +as the average of the executive’s annual earnings for the +four consecutive highest compensation years out of the last +10 years of the executive’s employment (excluding +years during which the executive receives a disability benefit +if the exclusion would produce a higher average; yearly +compensation is not restricted by the $170,000 compensation cap +under the pension plan and for the last year of employment is +annualized). Average earnings do not include payments under the +Long-Term Plan or severance payments. For this purpose, average +earnings do not vary significantly from the amounts shown under +the caption “Annual Compensation” in the Summary +Compensation Table above, except for the forgiveness of +Mr. Bloom’s interest-free loan. +A retired participating executive may draw the full benefit +beginning at age 65. A participating executive may elect to +begin receiving a reduced benefit at or after age 55. The +reduction factor is 0.333% for each month prior to age 60, +and 0.1666% for each month between age 60 and age 65. +The SERP provides for a disability benefit equal to 60% of the +supplemental retirement benefit (based on the executive’s +years of service at the date of disability). A disabled +executive is still eligible for a supplemental retirement +benefit beginning at age 65 based on all years of service +(including years during which the executive was receiving a +disability benefit). The SERP also provides for a death benefit +to the executive’s designated beneficiary if the executive +dies before retiring. The death benefit is a lump-sum equal to +the present value of the benefit the executive could have +received beginning at age 65, based on his or her years of +service up to the date of death. Executives covered by a +pre-existing deferred compensation agreement are provided a +minimum benefit equal to the amount payable under the deferred +compensation agreement and the pension plan under the formula in +effect on December 31, 1994. +Benefits under the SERP are subject to forfeiture if the +executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund plan benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control,” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his or her actual age, if greater than +age 55), without applying the monthly early retirement +reduction factor, but based on years of service at the actual +date of termination. For purposes of the SERP, “change in +control” is defined as: +• +failure of the individuals who were directors at the time the +SERP was adopted and those whose election or nomination to the +Board of Directors was approved by a three-quarters vote of the +directors then still in office who were directors at the time +the SERP was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% or more of the +common stock or combined outstanding voting power (excluding +certain transactions); +• +approval by the stockholders of a reorganization, merger or +consolidation (excluding certain permitted transactions); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (excluding certain +permitted transactions). +Wolverine may terminate the SERP or stop further accrual of plan +benefits for a participating executive at any time, but +termination will not affect previously accrued benefits. +20 +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Mr. Bloom’s Agreement. On April 27, +1998, Wolverine entered into an amended and restated employment +agreement with Mr. Bloom to employ him as Chief Executive +Officer until the 2000 annual meeting of stockholders and as an +executive officer through April 30, 2000. The employment +agreement prohibits Mr. Bloom from competing with Wolverine +during his employment and for an additional period of five years +following termination of his employment. Mr. Bloom received +a salary of not less than $600,000 per year, a leased vehicle, +the benefits of a term life insurance policy in the amount of +$500,000 and other benefits normally provided to top-level +executives. In consideration for entering into the employment +agreement, Mr. Bloom received two years of additional +“deemed service” under the SERP. Since Mr. Bloom +remained employed by Wolverine through April 30, 2000, he +received, in addition to his actual service, four additional +years of “deemed service” under the SERP. Because the +Board of Directors determined that the planning and execution of +the transition from Mr. Bloom to Mr. O’Donovan +had been carried out successfully, Mr. Bloom received an +additional four years of “deemed service” under the +SERP. The employment agreement provides that +Mr. Bloom’s SERP benefit will be calculated based upon +his “average earnings” for 1997, 1998 and 1999 rather +than his average earnings for the four consecutive highest +compensation years out of the 10 years preceding +retirement. Pursuant to the employment agreement, in +September 1998 Mr. Bloom received 62,500 shares of +unvested restricted stock. Vesting of 40,000 shares of the +restricted stock will occur in 2002, if at all, depending on +improvement of Wolverine’s net earnings in the 2001 fiscal +year, and 22,500 shares of the restricted stock will vest, if at +all, depending on improvement of Wolverine’s per share +price on the New York Stock Exchange for the +10 trading days preceding April 30, 2001, when +compared to the price for the 10 trading days preceding +April 30, 2000. +Severance Agreements. Under individual agreements, +Messrs. Duffy, Estes, Gulis, Krueger and O’Donovan, +and certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or retirement in +accordance with Wolverine’s policy or as otherwise agreed; +• +the termination is by Wolverine for cause or disability; or +• +the termination is by resignation of the officer for other than +“good reason.” +Good reason is defined in the agreements to include, among other +things, the assignment of duties inconsistent with the +officer’s status as a senior executive officer or the +duties performed by the officer immediately before a change in +control, a reduction in the officer’s annual base salary or +relocation of the officer. +The compensation payable if such a termination occurs after a +change in control includes: +• +cash equal to two or three times the officer’s annual +salary, including target bonus; +• +cash equal to 100% of the difference between the market price of +common stock (or, if higher, the highest price paid in +connection with any change in control of Wolverine) and the +exercise prices of unexercised stock options granted to the +officer (other than incentive stock options granted after the +date of the officer’s agreement), and 100% of the +difference between the market price and exercise prices of +incentive stock options granted to the officer after the date of +the agreement which are then exercisable; +• +relocation expenses, legal fees and indemnity against loss in +the sale of the officer’s principal residence; +• +up to two or three years’ benefits under all employee +benefit programs; +• +a cash payment at the officer’s retirement age equal to the +actuarial value of the retirement pension and SERP to which the +officer would have been entitled (without regard to vesting +requirements) had he or she accrued three additional years of +service with Wolverine, plus the amount awarded to the officer +during the year most recently ended reduced by the single sum +actuarial equivalent of any amounts to which the officer is +entitled under Wolverine’s normal retirement plans and +programs; and +• +outplacement services paid for by Wolverine. +21 +In all of the severance agreements, the officer has no +requirement to mitigate the payments by seeking employment, but +the compensation to be paid during the fourth and later months +after termination will be reduced to the extent of any +compensation earned by the officer during the applicable period. +A change in control is defined in the agreements to include the +acquisition of 20% or more of the common stock by any person or +group of persons acting together or a change in a majority of +the Board of Directors unless each new director was approved by +a vote of at least three-quarters of the directors then still in +office who were directors as of the date of the agreements, or +whose election or nomination was so approved. +Stock Plan Provisions. Wolverine has granted +certain stock options and awarded shares of restricted stock +that are subject to accelerated vesting upon a change in control +of Wolverine. The options include options issued under plans +adopted by Wolverine in 1988, 1993, 1995, 1997 and 1999 and the +shares of restricted stock include shares awarded under plans +adopted by Wolverine in 1993, 1995, 1997 and 1999. +Under the stock option agreements entered into between Wolverine +and participants in the 1988, 1993, 1995, 1997 and 1999 plans, +other than the agreements applicable to reload options, 25% of +each option generally becomes exercisable on the date of grant +and 25% of the shares becomes exercisable on each of the next +three anniversary dates following the date of grant. The stock +option agreements also provide that all options granted under +the 1988 plan become immediately exercisable in the event of a +change in control of Wolverine. The terms of the 1993, 1995, +1997 and 1999 plans provide for such acceleration upon a change +in control of Wolverine. +The 1993, 1995, 1997 and 1999 plans provide for restricted stock +awards. Except for shares awarded in connection with the payment +of bonuses under the Long-Term Plan, the restrictions on 25% of +the shares received under an award normally lapse on the third +anniversary of the date of the award, with the restrictions on +an additional 25% of the shares lapsing on the fourth +anniversary and the restrictions with respect to the remaining +shares lapsing on the fifth anniversary. With respect to shares +awarded in connection with the Long-Term Plan, the restrictions +on one-third of the shares received under an award lapse on each +anniversary of the date of the award. The restricted stock +agreements entered into with employees under these plans provide +that all restrictions on restricted stock will lapse upon +certain terminations of employment within a five-year period +after a change in control. +A change in control is defined in the agreements under the 1988 +plan to include a change of control as set forth in the proxy +rules issued by the Securities and Exchange Commission, the +acquisition of 25% or more of the common stock by any person or +group of persons acting together or a change during any two-year +period in a majority of the Board of Directors unless each new +director was approved by a vote of at least two-thirds of the +directors then still in office who were directors at the +beginning of the period, or whose election or nomination was so +approved. The definition of change in control under the 1993 +plan differs from the definition of that term in the agreements +under the 1988 plan in that a change in control is considered to +occur upon the acquisition of 20% or more (rather than 25%) of +the common stock and the definition includes the sale, lease, +exchange or other transfer of substantially all of +Wolverine’s assets to, or the merger or consolidation of +Wolverine with, a corporation that is not controlled by +Wolverine. Under the 1995, 1997 and 1999 plans, a change in +control is defined as: +• +failure of the individuals who were directors at the time such +plan was adopted and those whose election or nomination to the +Board of Directors was approved by a two-thirds vote of the +directors then still in office who were directors at the time +such plan was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% or more of the +common stock; +• +approval by the stockholders of a reorganization, merger or +consolidation (except with certain permitted entities); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (other than to +certain permitted entities). +Other Plans and Agreements. Severance agreements +with various executive officers (described above) provide for +cash payments in lieu of outstanding options if a change in +control of Wolverine and a subsequent triggering event occur. In +addition, the SERP (described above) and the Outside +Directors’ Plan (described above) provide for certain +benefits and payments if a change in control of Wolverine occurs. +22 +Benefit Trust Agreement. In May 1987, +Wolverine established a Benefit Trust (“trust”) to +ensure that payments to employees under the employment +agreements, severance agreements, the SERP and deferred +compensation agreements (collectively, the +“agreements”) will not be improperly withheld after a +change in control of Wolverine as defined in the agreement +establishing the trust. Under the trust, upon the occurrence of +a “potential change in control,” Wolverine will +deliver to the trustee, to be held in trust, cash, marketable +securities or insurance corresponding to an amount determined by +Wolverine to have a fair market value, together with any +existing amounts in the trust, equal to the value of the +benefits due to employees under the agreements given certain +assumptions set forth in the trust. Additional terms of the +trust provide for the return of the property to Wolverine upon +written request before a change in control or automatically if +no change in control has occurred within six months after +funding upon a potential change in control. Wolverine has +transferred to the trust insurance policies on the lives of +certain key employees. +Indemnity Agreements. Wolverine has entered into +indemnity agreements with Messrs. Bloom, Duffy, Estes, +Gulis, Krueger and O’Donovan and with each director and +executive officer. The indemnity agreements indemnify each +director and officer against all expenses incurred in connection +with any action or investigation involving the director or +officer by reason of his or her position with Wolverine (or with +another entity at the Wolverine’s request). The directors +and officers will also be indemnified for costs, including +judgments, fines and penalties, indemnifiable under Delaware law +or under the terms of any current or future liability insurance +policy maintained by Wolverine that covers the directors and +officers. A director or officer involved in a derivative suit +will be indemnified for expenses and amounts paid in settlement. +Indemnification is dependent in every instance on the director +or officer meeting the standards of conduct set forth in the +indemnity agreements. If a potential change in control occurs, +Wolverine will fund a trust to satisfy its anticipated +indemnification obligations. +Compensation Committee Report on Executive +Compensation +The Compensation Committee develops and recommends to the Board +of Directors the compensation policies of Wolverine. The +Compensation Committee also administers Wolverine’s +compensation plans and recommends for approval by the Board of +Directors the compensation to be paid to the Chief Executive +Officer and, with the advice of the Chief Executive Officer, the +other executive officers and senior managers of Wolverine. The +Compensation Committee consists of five directors, none of whom +is a current or former employee of Wolverine or its subsidiaries. +The Compensation Committee continues to engage an independent +compensation consulting firm to assist the Compensation +Committee in formulating Wolverine’s compensation policies, +provide advice to the Compensation Committee concerning specific +compensation packages and appropriate levels of executive +compensation, provide advice about competitive levels of +compensation and review and recommend changes in the +compensation system of Wolverine. The firm was also retained to +provide specific advice concerning the compensation arrangements +for Mr. Bloom and Mr. O’Donovan and the +compensation to be paid to the Board’s Lead Director. +The basic compensation philosophy of the Compensation Committee +and Wolverine is to provide competitive salaries as well as +competitive incentives to achieve superior financial +performance. Wolverine’s executive compensation policies +are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who will lead +Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific short-term +individual, business unit and corporate goals; +• +provide incentives for achievement of longer-term financial +goals; and +• +align the interests of management with those of the stockholders +to encourage achievement of continuing increases in stockholder +value. +Executive compensation at Wolverine consists primarily of the +following components: +• +base salary and benefits; +• +amounts paid, if any, under the Annual Bonus Plan (defined +below); +23 +• +amounts paid, if any, under the Long-Term Plan; +• +amounts paid, if any, as individual-specific bonuses designed to +encourage achievement of individual goals; and +• +participation in Wolverine’s stock option and equity-based +incentive plans. +Each component of compensation is designed to accomplish one or +more of the four compensation objectives described above. +Management recommends the participation of specific executive +officers and other key employees in the Annual Bonus Plan, the +Long-Term Plan and Wolverine’s stock option and +equity-based incentive plans. All such recommendations +(including the level of participation) are reviewed, modified +(to the extent appropriate) and approved by the Compensation +Committee. Senior executive officers are normally eligible to +receive a greater percentage of their potential compensation in +the form of awards under these incentive plans to reflect the +Compensation Committee’s belief that the percentage of an +executive’s total compensation that is “at risk” +should increase as the executive’s responsibilities and +ability to influence profits increase. +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to +certain executive officers in excess of $1,000,000 annually, +with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +Long-Term Plan, and the 1997 and 1999 stock incentive plans to +permit amounts payable under the Annual Bonus Plan and the +Long-Term Plan and awards of stock options granted under the +1997 and 1999 plans to qualify as “performance-based” +compensation for purposes of Section 162(m). Because +incentives under these plans are not included in the $1,000,000 +limit for purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers, Wolverine believes +its compensation policies reflect due consideration of +Section 162(m). +Base Salary +To attract and retain well-qualified executives, the +Compensation Committee seeks to establish base salaries at +levels and provide benefit packages that have been confirmed to +be competitive. The Compensation Committee determines the base +salaries of executives by comparing each executive’s +position with similar positions in companies of similar type, +size and financial performance. The Compensation Committee uses +surveys provided by the independent compensation consulting firm +in making that comparison. Although some of the companies +included in the Peer Group used in the graph of cumulative total +stockholder return are among the companies included in the +surveys, the surveys are not limited to those companies because +Wolverine competes for talent with a wide range of corporations. +In general, the Compensation Committee has targeted salaries to +be at the median to slightly below the median percentile of base +salaries paid for comparable positions by companies included in +the surveys provided by the independent compensation consulting +firm. Other factors considered by the Compensation Committee are +the executive’s performance, the executive’s current +compensation and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give specific +weight to any particular factor, the most weight is given to the +executive’s performance (in determining whether to adjust +above or below the current salary level), and a significant but +lesser weight is generally given to the comparative survey data. +In general, base salaries for Wolverine’s executive +officers during 2000 were near the median of salaries paid by +companies included in the surveys. The 2000 average base salary +of executive officers increased over the previous year’s +level as a result of a combination of factors, including +improved individual performance, improved or continued excellent +performance by the applicable business unit (and Wolverine), +promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement of short-term +business unit goals, the existing Executive Short-Term Incentive +Plan (the “Annual Bonus Plan”) was designed to provide +key employees with the opportunity for bonuses based on the +performance of Wolverine and/or the performance of its operating +divisions or profit-centers. The Annual Bonus Plan was approved +by the stockholders at the April 16, 1997, annual meeting +of stockholders. The Annual Bonus Plan continues the annual +bonus policy that Wolverine has used for many years. A target +bonus goal (the “target bonus”), expressed as a +percentage of the participant’s base salary, is established +by the Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance by Wolverine, the +24 +division or profit-center. “Incentive bonus” as used +in the Annual Bonus Plan means an annual bonus awarded and paid +to a participant for services to Wolverine during a fiscal year +that is based upon achievement of pre-established financial +objectives of Wolverine. The incentive bonus levels may be +expressed as either: (i) a matrix of percentages of the +target bonus that would be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that would be paid at varying +levels of performance. Performance is determined by reference to +pre-tax profit and sales of Wolverine and/or its operating +divisions or profit-centers. Payment of an incentive bonus to a +participant for a fiscal year under the Annual Bonus Plan is +entirely contingent upon achievement of the performance levels +established by the Compensation Committee. All determinations to +be made by the Compensation Committee for a fiscal year are made +by the Compensation Committee during the first 90 days of +each fiscal year. +The two primary measures of corporate performance, pre-tax +levels of profit (excluding one-time charges) and levels of +sales, did not meet the pre-established threshold performance +levels for 2000. During fiscal 2000, executive officers were +generally targeted to receive from 16% to 48% of their annual +salaries in bonus compensation. In determining these +percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and to put a larger percentage of their total potential +cash compensation “at risk.” Because the two primary +measures of corporate performance did not meet the +pre-established performance levels for 2000, executive officers +did not receive any payments under the Annual Bonus Plan. +Long-Term Plan +To provide incentives and rewards for longer-term planning and +decision-making and the achievement of longer-term corporate +performance goals, the Long-Term Plan provides the opportunity +for additional compensation based upon the achievement of +company financial performance goals over a three-year period. +The stockholders approved the Long-Term Plan at the +April 16, 1997, annual meeting of stockholders. The +Long-Term Plan continues the long-term incentive bonus policy +that Wolverine has used for many years. The primary purposes of +the Long-Term Plan and prior long-term bonus plans are to +provide significant incentive and to foster cooperation among +all business units such that the long-term earnings performance +of Wolverine is substantially improved. The primary concept of +the Long-Term Plan is to establish financial performance goals +for each three-year time period for Wolverine. New performance +periods begin each fiscal year and end three full fiscal years +later. The Compensation Committee establishes the goals during +the first 90 days of each three-year performance period. +Awards under the Long-Term Plan are based on a percentage of +average annual earned salary during the three-year period. For +each participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the Long-Term Plan means a bonus awarded +and paid to a participant for services to Wolverine during a +three-year period, which bonus is based upon achievement of +previously established financial objectives by Wolverine. The +incentive bonus levels may be expressed as either: (i) a +matrix of multiples of the target bonus that will be paid at +specified levels of performance; or (ii) a mathematical +formula that determines the percentage of the target bonus that +will be paid at varying levels of performance. Performance is +determined by reference to the fully-diluted earnings per share +(“EPS”) of Wolverine. If the minimum three-year +targeted EPS goal is not achieved, no bonus will be paid. For +purposes of the Long-Term Plan, the definition of “earnings +per share” means Wolverine’s net after-tax earnings +per share of common stock after all expenses and taxes, except +for any special one-time charges. For the 2000-2002 performance +period, executive officers are targeted to receive long-term +bonus compensation in amounts that range from 20% to 60% of +their average annual earned salaries. In determining the +percentages, the Compensation Committee considered the factors +discussed above in connection with the Annual Bonus Plan and +each executive’s capacity to affect the long-term +performance of Wolverine. EPS was below the pre-established +threshold performance level for the 1998-2000 performance period +under the Long-Term Plan, and executive officers did not receive +any bonuses under the Long-Term Plan for this period. +25 +Under the Long-Term Plan, amounts payable are paid: +• +in cash equal to 50% of the calculated bonus; and +• +in shares of restricted stock under existing +stockholder-approved plans that have a market value, on the date +the cash payment is made, equal to 140% of the remaining 50% +payable under the plan (i.e. 70% of the calculated bonus +amount). +The restrictions lapse with respect to one-third of the shares +of restricted stock on each anniversary of the date of grant. +Wolverine did not grant any shares of restricted stock to +executive officers with respect to amounts payable under the +Long-Term Plan for the three-year performance period ended +December 30, 2000. +Discretionary Bonuses +In addition to bonuses based on corporate performance pursuant +to the Annual Bonus Plan, Wolverine generally pays annual +incentive bonuses to employees based on individual performance +goals. Bonuses based on individual performance are paid on a +discretionary basis and the performance bonuses for the Chief +Executive Officer are paid only after the review and approval of +the Compensation Committee. Because Wolverine did not meet the +corporate threshold earnings goals under the Annual Bonus Plan +for fiscal 2000, no discretionary bonus payments were made to +Wolverine’s executive officers for this period based upon +individual performance goals. +Stock Options and Equity-Based Incentive Plans +Awards under Wolverine’s stock option and equity-based +incentive plans are designed to: +• +encourage long-term investment in Wolverine by participating +executives; +• +more closely align executive and stockholder interests; and +• +reward executives and other key employees for building +stockholder value. +The Compensation Committee believes stock ownership by +management has been demonstrated to be beneficial to all +stockholders and stock awards have been granted by Wolverine to +executives and other key employees pursuant to various +equity-based plans for several decades. The Compensation +Committee administers all aspects of these plans and reviews, +modifies (to the extent appropriate) and takes final action on +any such awards. +Under Wolverine’s plans that provide for awards of +restricted stock, all of which have been previously approved by +the stockholders, the Compensation Committee may grant to +executives and other key employee’s shares of restricted +stock. These shares are subject to certain restrictions that, +except for shares awarded in connection with the Long-Term Plan +described above, generally lapse over a period of five years +from the date of grant. +Under Wolverine’s stock option plans, all of which have +been previously approved by the stockholders, the Compensation +Committee may grant to executives and other key employees +options to purchase shares of stock, as well as tax benefit +rights. Wolverine has never granted tax benefit rights under its +existing plans and has no present intention to do so. The +Compensation Committee reviews, modifies (to the extent +appropriate) and takes final action on the amount, timing, price +and other terms of all options granted to employees of +Wolverine. The Compensation Committee grants both incentive +stock options and nonqualified options within the meaning of the +Internal Revenue Code. Under the terms and conditions of the +plans, the Compensation Committee may grant nonqualified options +with an exercise price above or below the market price on the +date of grant. Virtually all stock options granted (both +incentive and nonqualified) have an exercise price equal to the +market price of common stock on the date of grant. +In determining the number of shares of restricted stock and/or +the number of options to be awarded to an executive, the +Compensation Committee generally adheres to a formula which +takes into consideration the executive’s level of +responsibility and compensation practices of similar companies. +The Compensation Committee also considers the recommendations of +management (except for awards to the Chief Executive Officer), +the individual performance of the executive and the number of +shares previously awarded to the executive. As a general +practice, both the number of shares granted and their proportion +relative to the total number of shares granted increase in some +proportion to increases in each executive’s +responsibilities. +Chief Executive Officer +The Chief Executive Officer’s compensation is based upon +the policies and objectives discussed above. The Chief Executive +Officer, however, has a higher percentage of total compensation +“at risk” because a larger +26 +percentage of potential compensation is based upon the Annual +Bonus Plan and the Long-Term Plan described above. In +April 2000, Mr. Bloom relinquished his duties as Chief +Executive Officer and the Board of Directors appointed +Mr. O’Donovan as Chief Executive Officer and President. +Mr. Bloom’s Compensation. Mr. Bloom’s +base salary was established consistent with his employment +agreement. In setting Mr. Bloom’s base salary and +total annual cash compensation, the Compensation Committee was +advised by the independent compensation consulting firm and +compared Mr. Bloom’s cash compensation with that of +chief executive officers in a survey group of companies of +similar general type and size. Mr. Bloom’s base salary +was targeted by the Compensation Committee at or near the median +of salaries paid to chief executive officers by companies +included in the survey group. Mr. Bloom’s base salary +for 2000 was not changed from the prior year. +Mr. Bloom’s annual incentive bonus under the Annual +Bonus Plan was based upon corporate performance goals (100% +weighting). The target annual bonus award for Mr. Bloom +under the Annual Bonus Plan was 48% of earned salary. +Mr. Bloom’s annual bonus was subject to achievement of +minimum goals and his threshold bonus at this level would have +been 24% of earned salary. Mr. Bloom’s annual bonus +was capped at 96% of earned salary under the Annual Bonus Plan. +Corporate performance goals in 2000 were based on +Wolverine’s achievement of predetermined pre-tax levels of +profit (approximately 80% weighting) and sales (20% weighting), +both of which were set above the prior year’s actual +results. Since Wolverine’s profit and sales performance did +not meet the pre-established performance levels, Mr. Bloom +did not receive a payment under the Annual Bonus Plan or any +discretionary bonus for fiscal 2000. +Wolverine did not make any payment to Mr. Bloom pursuant to +the 1998-2000 Long-Term Plan since Wolverine did not meet the +pre-established level of financial performance for the bonus +period. +In 2000, Mr. Bloom was awarded 18,000 shares of restricted +stock. The amount of this award was determined by the +Compensation Committee considering the factors discussed above. +Due to Wolverine’s 2000 results, Mr. Bloom’s +salary, bonus and total compensation was below the median for +chief executive officers paid by companies included in the +previously described survey group. +Mr. O’Donovan’s Compensation. In setting +Mr. O’Donovan’s base salary and total annual cash +compensation, the Compensation Committee was advised by the +independent compensation consulting firm and compared +Mr. O’Donovan’s cash compensation with that of +chief executive officers in a survey group of companies of +similar general type and size. Mr. O’Donovan’s +base salary was targeted by the Compensation Committee slightly +below the median of salaries paid to chief executive officers by +companies included in the survey group. +Mr. O’Donovan’s base salary for 2000 increased +22.2% above his 1999 level, primarily due to his increased +responsibilities correspondent with his promotion to Chief +Executive Officer and his prior individual performance. +Following the 2000 increase, Mr. O’Donovan’s +salary was below the competitive median. At his request, +Wolverine does not have an employment agreement with +Mr. O’Donovan. +Mr. O’Donovan’s annual incentive bonus under the +Annual Bonus Plan was based upon corporate performance goals +(100% weighting). The target annual bonus award for +Mr. O’Donovan under the Annual Bonus Plan was 48% of +earned salary. Mr. O’Donovan’s annual bonus was +subject to achievement of minimum goals and his threshold bonus +at this level would have been 24% of earned salary. +Mr. O’Donovan’s annual bonus was capped at 96% of +earned salary under the Annual Bonus Plan. Corporate performance +goals in 2000 were based on Wolverine’s achievement of +predetermined pre-tax levels of profit (approximately 80% +weighting) and sales (20% weighting), both of which were set +above the prior year’s actual results. Since +Wolverine’s profit and sales performance did not meet the +pre-established performance levels, Mr. O’Donovan did +not receive a payment under the Annual Bonus Plan or a +discretionary bonus for fiscal 2000. +Mr. O’Donovan’s Long-Term Plan bonus award was +based upon financial performance goals for Wolverine expressed +in terms of targeted EPS that were above budget and prior +year’s results. The target bonus for +Mr. O’Donovan was 60% of average annual earned salary +for the 2000-2002 plan period. The bonus payout for +Mr. O’Donovan can range from 0%-200% of the target +bonus. Wolverine did not make any payment to +Mr. O’Donovan pursuant to the 1998-2000 Long-Term Plan +since Wolverine did not meet the pre-established level of +financial performance for the bonus period. +In 2000, Mr. O’Donovan was awarded 20,000 shares of +restricted stock and stock options to purchase 75,000 shares of +common stock. The amount of these awards +27 +were determined by the Compensation Committee considering the +factors discussed above. +Due to Wolverine’s 2000 results, +Mr. O’Donovan’s salary, bonus and total +compensation was below the median for chief executive officers +paid by companies included in the previously described survey +group. +All actions and recommendations of the Compensation Committee +attributable to 2000 compensation were unanimous and all +recommendations were approved and adopted by the Board of +Directors without modification. +Respectfully submitted, +Phillip D. Matthews, Chairman, Donald V. Fites, +David P. Mehney, Elizabeth A. Sanders, +Paul D. Schrage +Selection of Auditors +Subject to the approval of stockholders, the Board of Directors +has reappointed the firm of Ernst & Young LLP as independent +auditors for the current fiscal year. +Ernst & Young LLP, certified public accountants, has audited +the financial statements of Wolverine and its subsidiaries for +the fiscal year ended December 30, 2000. Representatives of +Ernst & Young LLP are expected to be present at the annual +meeting, will have an opportunity to make a statement if they +desire to do so and are expected to be available to respond to +appropriate questions from stockholders. +Audit Fees. Wolverine paid to Ernst & Young LLP +$413,000 during fiscal year 2000 for the last annual audit. +All Other Fees. Wolverine paid to Ernst & Young LLP +$691,926 during fiscal year 2000 for services other than the +last annual audit, including audit-related services of $217,948 +and nonaudit services of $473,978. Audit-related services +generally include fees for pension audits, potential business +acquisitions and accounting consultations. +Your Board of Directors recommends that you vote FOR +ratification of the reappointment of Ernst & Young +LLP. +Audit Committee Report +The Audit Committee reviews and supervises Wolverine’s +procedures for recording and reporting the financial results of +its operations on behalf of the Board of Directors. +Wolverine’s management has primary responsibility for the +financial statements and the reporting process, including the +systems of internal controls. As part of its supervisory duties, +the Audit Committee has reviewed Wolverine’s audited +financial statements for the fiscal year ended December 30, +2000, and has discussed those financial statements with +Wolverine’s management. +The Audit Committee has also discussed with Wolverine’s +independent auditors, who are responsible for expressing an +opinion on the conformity of those financial statements with +generally accepted accounting principles, the judgments of the +independent auditors concerning the quality of Wolverine’s +accounting principles and such other matters that are required +under generally accepted accounting principles to be discussed +with the independent auditors. In addition, the Audit Committee +has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services with their independence. +After and in reliance upon the reviews and discussions described +above, the Audit Committee recommended to Wolverine’s Board +of Directors that the audited financial statements for the +fiscal year ended December 30, 2000, be included in +Wolverine’s Annual Report on Form 10-K for the year +then ended to be filed with the Securities and Exchange +Commission. +Respectfully submitted, +Joseph A. Parini, Chairman, Daniel T. Carroll, +Alberto L. Grimoldi, David T. Kollat +28 +Related Matters +Certain Relationships and Related Transactions +During 2000, Wolverine engaged J. Walter Thompson, an +international advertising firm, to perform public relations and +marketing services. Wolverine paid $200,214 in fees and expenses +to J. Walter Thompson. Ms. Joan Parker, a director of +Wolverine, is a Senior Partner with J. Walter Thompson. +Wolverine anticipates continuing its relationship with +J. Walter Thompson during the current year. +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is a large shareholder, granting to +Grimoldi, S.A. the exclusive rights to distribute and sell +footwear products in Argentina under the Hush Puppies®, +Wolverine®, Caterpillar®, Harley-Davidson®, +and Merrell® trademarks. Wolverine and Grimoldi, +S.A. have executed a similar agreement that grants similar +rights with respect to Brazil, which was subsequently assigned +to a wholly-owned subsidiary of Grimoldi, S.A. Under these +agreements, Grimoldi, S.A., or its subsidiary, pays Wolverine +royalties and certain sublicense fees based on sales or +purchases of footwear products in Argentina and Brazil. +Under the agreements described above, Grimoldi, S.A. was +obligated to pay to Wolverine royalties, sublicense fees and +service fees in 2000 totaling $1,144,463. These agreements were +made under terms and conditions customary for other +international licensees and distributors, and all payments due +under these agreements were invoiced or paid in accordance with +Wolverine’s customary terms and practices. +In the ordinary course of their business, Wolverine and its +subsidiaries sell footwear for resale, samples, components of +footwear products (such as leather and shoe soles), advertising +materials and miscellaneous items to licensees, distributors and +customers. In 2000, purchases of such items by Grimoldi, S.A. +totaled $402,157 (including any applicable sublicense fees for +products containing licensed proprietary technology). All of +these purchases were made pursuant to Wolverine’s customary +trade terms and were invoiced or paid in accordance with +Wolverine’s customary payment terms and schedules +applicable to all licensees, distributors and customers. +All of the transactions described above occurred pursuant to +continuing contractual arrangements between Wolverine and +Grimoldi, S.A. Wolverine expects similar transactions to occur +between Grimoldi, S.A. and Wolverine and its subsidiaries during +2001. +Compensation Committee Interlocks and Insider +Participation +Wolverine’s Compensation Committee consists of +Donald V. Fites, Phillip D. Matthews, David P. +Mehney, Elizabeth A. Sanders, and Paul D. Schrage. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. Daniel T. Carroll, +a current director of Wolverine, was Chairman of +Wolverine’s Compensation Committee until April 13, +2000. Mr. Carroll no longer serves on Wolverine’s +Compensation Committee. Mr. Carroll is also Chairman of the +Board of Comshare, Inc. and receives compensation from Comshare +in that capacity. Geoffrey B. Bloom, Wolverine’s +Chairman of the Board and former Chief Executive Officer, is a +director of Comshare and serves as Chairman of Comshare’s +Compensation Committee. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Securities Exchange Act requires +Wolverine’s directors and officers, and persons who +beneficially own more than 10% of the outstanding shares of +common stock, to file reports of ownership and changes in +ownership of shares of common stock with the Securities and +Exchange Commission. Directors, officers and greater than 10% +beneficial owners are required by Securities and Exchange +Commission regulations to furnish Wolverine with copies of all +Section 16(a) reports they file. Based on its review of the +copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2000 +fiscal year, except as described below, Wolverine believes that +its officers and directors complied with all applicable filing +requirements during Wolverine’s last fiscal year. +On the Form 5 filed for Steven M. Duffy for fiscal +2000, one exempt transaction was inadvertently omitted. In 1998, +Thomas P. Mundt failed to file a Form 4 to report one +transaction involving the purchase of 220 shares of Wolverine +common stock by his wife (this transaction was also not reported +on a Form 5 for that fiscal year). Under the revised +Section 16(a) rules, +29 +beginning in 1991, David P. Mehney was required to report +shares acquired prior to 1991 by a retirement plan of The KMW +Group, Inc. Mr. Mehney has not reported the retirement plan +shares on his Section 16(a) reports. Corrective amendments +or reports for the above holdings were filed promptly upon +discovery. +Stockholder Proposals +To be considered timely, any stockholder proposal intended to be +presented at the annual meeting of stockholders in 2002 (whether +or not intended for inclusion in our proxy statement and proxy +card relating to that meeting) must be received by us not later +than November 16, 2001. Stockholder proposals intended for +inclusion in our proxy statement and proxy card relating to that +meeting should be made as described in Securities and Exchange +Commission Rule 14a-8. You should address all stockholder +proposals to the attention of the Secretary of the Company, +9341 Courtland Drive, N.E., Rockford, Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine directors, +officers and employees may also solicit proxies by telephone or +facsimile or personally without additional compensation. Proxies +may be solicited by nominees and other fiduciaries who may mail +materials to or otherwise communicate with the beneficial owners +of shares held by them. Wolverine will pay all costs of +solicitation of proxies, including the charges and expenses of +brokerage firms, banks, trustees or other nominees for +forwarding proxy materials to beneficial owners. We have engaged +Corporate Investor Communications, Inc. at an estimated cost of +$9,000, plus expenses and disbursements, to assist in +solicitation of proxies. +30 +Appendix A +WOLVERINE WORLD WIDE, INC. +AUDIT COMMITTEE CHARTER +I. GOVERNANCE +This Charter sets forth the organization and operation of the +Audit Committee (the “Committee”) for Wolverine World +Wide, Inc. (the “Company”) and has been approved by +the Company’s Board of Directors. The Committee shall +review and reassess the Charter from time to time, at least +annually. Amendments to this Charter shall be approved by the +Board of Directors. +II. ORGANIZATION +The Board of Directors shall appoint the members of the +Committee. The Committee shall consist of at least three +directors, each of whom are independent of management and the +Company. Members of the Committee shall be considered +independent if they have no relationship to the Company that may +interfere with the exercise of their independence from +management and the Company. All Committee members shall be +financially literate or shall become financially literate within +a reasonable period of time after appointment to the Committee. +At least one member shall have accounting or related financial +management experience. Any questions concerning a +director’s independence or qualification to serve on the +Committee will be determined by the Board of Directors in its +business judgment. +III. STATEMENT OF POLICY +The Committee shall provide assistance to the Board of Directors +in fulfilling its oversight responsibility relating to the +Company’s financial statements and the financial reporting +process, the systems of internal accounting and financial +controls, the internal audit function, and the annual +independent audit of the Company’s financial statements. In +so doing, it is the responsibility of the Committee to maintain +open communication between the Committee, the independent +auditors, internal auditors and management of the Company. In +discharging its oversight role, the Committee may investigate +any matter brought to its attention with full access to all +books, records, facilities, and personnel of the Company and +may, if necessary with approval of the Board of Directors, +retain outside counsel or other experts for this purpose. +IV. RESPONSIBILITIES AND PROCESSES +The Committee’s primary responsibility is to oversee the +Company’s financial reporting process on behalf of the +Board of Directors and report the results of the +Committee’s activities to the Board. Management is +responsible for preparing the Company’s financial +statements, and the independent auditors are responsible for +auditing those financial statements. The Committee’s +policies and procedures should remain flexible, in order to best +react to changing conditions and circumstances. +The following shall be the principal recurring processes of the +Committee in carrying out its oversight responsibilities. The +processes are set forth as a guide with the understanding that +the Committee may modify or supplement them as appropriate. +• +The Committee shall communicate to management and the +independent auditors that the independent auditors are +ultimately accountable to the Committee and the Board of +Directors, as representatives of the Company’s stockholders. +• +The Committee shall assist the Board of Directors in its +responsibility to select, evaluate and, if appropriate, replace +the independent auditors. Annually, the Committee shall review +and recommend to the Board the selection of the Company’s +independent auditors, subject to stockholder approval. The +Committee shall +A-1 +annually review the performance (effectiveness, objectivity, and +independence) of the independent and internal auditors and shall +report its conclusions to the Board of Directors. The Committee +shall ensure receipt of a formal written statement from the +independent auditors consistent with standards set by the +Independence Standards Board. The Committee shall review the +statement on independence and shall discuss with the independent +auditors any relationships that may adversely affect the +independent auditors’ objectivity or independence, and +shall consider the compatibility of nonaudit services with the +auditors’ independence. If the Committee is not satisfied +with the auditors’ assurances of independence, it shall +recommend to the full Board appropriate action to ensure the +independence of the independent auditors. +• +The Committee shall discuss with the internal and independent +auditors the overall scope and plans for their respective audits +including the adequacy of staffing and compensation. The +Committee shall review with management and the internal and +independent auditors the adequacy and effectiveness of the +Company’s accounting and financial controls, including the +Company’s systems to monitor and manage business risks. The +Committee shall also meet separately with the internal auditors +and the independent auditors, with and without management +present, to discuss the results of the Committee’s +examinations. +• +The Committee shall review the Company’s interim financial +statements with management and the independent auditors prior to +the filing of Quarterly Reports on Form 10-Q. The Committee +shall review the results of the quarterly reviews with the +independent auditors and any other matters required to be +communicated to the Committee by the independent auditors under +generally accepted auditing standards. The Chairperson of the +Committee may represent the entire Committee for the purposes of +quarterly reviews. +• +The Committee shall review with management and the independent +auditors the Company’s financial statements to be included +in Annual Reports on Form 10-K (or annual reports to +stockholders if distributed prior to the filing of +Form 10-K). The Committee shall review the results of the +annual audit with the independent auditors and any other matters +required to be communicated to the Committee by the independent +auditors under generally accepted auditing standards. +Although the Committee has the responsibilities and powers set +forth in this Charter, it is not the duty of the Committee to +plan or conduct audits or to determine that the Company’s +financial statements are complete, accurate and in accordance +with generally accepted accounting principles. These tasks are +the responsibility of management and the independent auditors. +It is not the duty of the Committee to conduct investigations, +to resolve disagreements between management and the independent +auditors, or to assure compliance with laws and regulations. +A-2 +Appendix B +WOLVERINE WORLD WIDE, INC. +STOCK INCENTIVE PLAN OF 2001 +SECTION 1 +Establishment of Plan; Purpose of Plan +1.1 Establishment of Plan. The Company hereby +establishes the STOCK INCENTIVE PLAN OF 2001 (the +“Plan”) for its corporate, divisional and Subsidiary +officers and other key employees. The Plan permits the grant and +award of Stock Options, Restricted Stock, Stock Awards and Tax +Benefit Rights. +1.2 Purpose of Plan. The purpose of the Plan is to +provide officers and key management employees of the Company, +its divisions and its Subsidiaries with an increased incentive +to contribute to the long-term performance and growth of the +Company and its Subsidiaries, to join the interests of officers +and key employees with the interests of the Company’s +stockholders through the opportunity for increased stock +ownership and to attract and retain officers and key employees. +The Plan is further intended to provide flexibility to the +Company in structuring long-term incentive compensation to best +promote the foregoing objectives. Within that context, it is +intended that most awards of Stock Options under the Plan are to +provide performance-based compensation under Section 162(m) +of the Code and the Plan shall be interpreted, administered and +amended if necessary to achieve that purpose. +SECTION 2 +Definitions +The following words have the following meanings unless a +different meaning plainly is required by the context: +2.1 “Act” means the Securities Exchange Act of +1934, as amended. +2.2 “Board” means the Board of Directors of the +Company. +2.3 “Change in Control,” unless otherwise +defined in an Incentive Award, means (a) the failure of the +Continuing Directors at any time to constitute at least a +majority of the members of the Board; (b) the acquisition +by any Person other than an Excluded Holder of beneficial +ownership (within the meaning of Rule 13d-3 issued under +the Act) of 20% or more of the outstanding Common Stock or the +combined voting power of the Company’s outstanding +securities entitled to vote generally in the election of +directors; (c) the approval by the stockholders of the +Company of a reorganization, merger or consolidation, unless +with or into a Permitted Successor; or (d) the approval by +the stockholders of the Company of a complete liquidation or +dissolution of the Company or the sale or disposition of all or +substantially all of the assets of the Company other than to a +Permitted Successor. +2.4 “Code” means the Internal Revenue Code of +1986, as amended. +2.5 “Committee” means the Compensation Committee +of the Board. The Committee shall consist of at least 2 members +of the Board and all of its members shall be “non-employee +directors” as defined in Rule 16b-3 issued under the +Act and “outside directors” as defined in the +regulations issued under Section 162(m) of the Code. +2.6 “Common Stock” means the Common Stock, $1 +par value, of the Company. +2.7 “Company” means Wolverine World Wide, Inc., +a Delaware corporation, and its successors and assigns. +2.8 “Continuing Directors” mean the individuals +constituting the Board as of the date this Plan was adopted and +any subsequent directors whose election or nomination for +election by the Company’s stockholders was approved by a +vote of three-quarters (3/4) of the individuals who are then +Continuing Directors, but specifically excluding any individual +whose initial assumption of office occurs as a result of either +an actual or threatened solicitation subject to +Rule 14a-12(c) of Regulation 14A issued under the Act +or other actual or threatened solicitation of proxies or +consents by or on behalf of a Person other than the Board. +B-1 +2.9 “Employee Benefit Plan” means any plan or +program established by the Company or a Subsidiary for the +compensation or benefit of employees of the Company or any of +its Subsidiaries. +2.10 “Excluded Holder” means (a) any Person +who at the time this Plan was adopted was the beneficial owner +of 20% or more of the outstanding Common Stock; or (b) the +Company, a Subsidiary or any Employee Benefit Plan of the +Company or a Subsidiary or any trust holding Common Stock or +other securities pursuant to the terms of an Employee Benefit +Plan. +2.11 “Incentive Award” means the award or grant +of a Stock Option, Restricted Stock, Stock Award or Tax Benefit +Right to a Participant pursuant to the Plan. +2.12 “Market Value” shall equal the mean of the +highest and lowest sale prices of shares of Common Stock +reported on the New York Stock Exchange (or any successor +exchange that is the primary stock exchange for trading of +Common Stock) on the date of grant, exercise or vesting, as +applicable, or if the New York Stock Exchange (or any such +successor) is closed on that date, the last preceding date on +which the New York Stock Exchange (or any such successor) was +open for trading and on which shares of Common Stock were traded. +2.13 “Participant” means a corporate officer, +divisional officer or any key employee of the Company, its +divisions or its Subsidiaries who is granted an Incentive Award +under the Plan. +2.14 “Permitted Successor” means a company that, +immediately following the consummation of a transaction +specified in clauses (c) and (d) of the definition of +“Change in Control” above, satisfies each of the +following criteria: (a) 50% or more of the outstanding +common stock of the company and the combined voting power of the +outstanding securities of the company entitled to vote generally +in the election of directors (in each case determined +immediately following the consummation of the applicable +transaction) is beneficially owned, directly or indirectly, by +all or substantially all of the Persons who were the beneficial +owners of the Company’s outstanding Common Stock and +outstanding securities entitled to vote generally in the +election of directors (respectively) immediately prior to +the applicable transaction; (b) no Person other than an +Excluded Holder beneficially owns, directly or indirectly, 20% +or more of the outstanding common stock of the company or the +combined voting power of the outstanding securities of the +company entitled to vote generally in the election of directors +(for these purposes the term Excluded Holder shall include the +company, any subsidiary of the company and any employee benefit +plan of the company or any such subsidiary or any trust holding +common stock or other securities of the company pursuant to the +terms of any such employee benefit plan); and (c) at least +a majority of the board of directors of the company is comprised +of Continuing Directors. +2.15 “Person” has the same meaning as set forth +in Sections 13(d) and 14(d)(2) of the Act. +2.16 “Restricted Period” means the period of +time during which Restricted Stock awarded under the Plan is +subject to restrictions. The Restricted Period may differ among +Participants and may have different expiration dates with +respect to shares of Common Stock covered by the same Incentive +Award. +2.17 “Restricted Stock” means Common Stock +awarded to a Participant pursuant to Section 6 of the Plan. +2.18 “Retirement” means the voluntary +termination of all employment by a Participant after the +Participant has attained 55 years of age, or such other age +as shall be determined by the Committee in its sole discretion +or as otherwise may be set forth in the Incentive Award +agreement or other grant document with respect to a Participant +and a particular Incentive Award. +2.19 “Stock Award” means an award of Common +Stock awarded to a Participant pursuant to Section 7 of the +Plan. +2.20 “Stock Option” means the right to purchase +Common Stock at a stated price for a specified period of time. +For purposes of the Plan, a Stock Option may be either an +incentive stock option within the meaning of Section 422(b) +of the Code or a nonqualified stock option. +2.21 “Subsidiary” means any corporation or other +entity of which 50% or more of the outstanding voting stock or +voting ownership interest is directly or indirectly owned or +controlled by the Company or by one or more Subsidiaries of the +Company. +B-2 +2.22 “Tax Benefit Right” means any right granted +to a Participant pursuant to Section 8 of the Plan. +SECTION 3 +Administration +3.1 Power and Authority. The Committee shall +administer the Plan. The Committee may delegate record keeping, +calculation, payment and other ministerial administrative +functions to individuals designated by the Committee, who may be +officers or employees of the Company or its Subsidiaries. Except +as limited in this Plan or as may be necessary to ensure that +this Plan provides performance-based compensation under +Section 162(m) of the Code, the Committee shall have all of +the express and implied powers and duties set forth in the +Bylaws of the Company and this Plan, shall have full power and +authority to interpret the provisions of the Plan and Incentive +Awards granted under the Plan and shall have full power and +authority to supervise the administration of the Plan and +Incentive Awards granted under the Plan and to make all other +determinations considered necessary or advisable for the +administration of the Plan. All determinations, interpretations +and selections made by the Committee regarding the Plan shall be +final and conclusive. The Committee shall hold its meetings at +such times and places as it considers advisable. Action may be +taken by a written instrument signed by a majority of the +members of the Committee and any action so taken shall be fully +as effective as if it had been taken at a meeting duly called +and held. The Committee shall make such rules and regulations +for the conduct of its business as it considers advisable. +3.2 Grants or Awards to Participants. In +accordance with and subject to the provisions of the Plan, the +Committee shall have the authority to determine all provisions +of Incentive Awards as the Committee may consider necessary or +desirable and as are consistent with the terms of the Plan, +including, without limitation, the following: (a) the +persons who shall be selected as Participants; (b) the +nature and, subject to the limitations set forth in +Sections 4.1 and 4.2 of the Plan, extent of the Incentive +Awards to be made to each Participant (including the number of +shares of Common Stock to be subject to each Incentive Award, +any exercise price, the manner in which an Incentive Award will +vest or become exercisable and the form of payment for the +Incentive Award); (c) the time or times when Incentive +Awards will be granted; (d) the duration of each Incentive +Award; and (e) the restrictions and other conditions to +which payment or vesting of Incentive Awards may be subject. +3.3 Amendments or Modifications of Awards. +The Committee shall have the authority to amend or modify +the terms of any outstanding Incentive Award in any manner, +provided that the amended or modified terms are not prohibited +by the Plan as then in effect, including, without limitation, +the authority to: (a) modify the number of shares or other +terms and conditions of an Incentive Award; (b) extend the +term of an Incentive Award; (c) accelerate the +exercisability or vesting or otherwise terminate, waive or +modify any restrictions relating to an Incentive Award; +(d) accept the surrender of any outstanding Incentive +Award; and (e) to the extent not previously exercised or +vested, authorize the grant of new Incentive Awards in +substitution for surrendered Incentive Awards; provided, +that Incentive Awards issued under the Plan may not be repriced, +replaced, regranted through cancellation or modified without +stockholder approval if the effect of such repricing, +replacement, regrant or modification would be to reduce the +exercise price of then outstanding Incentive Awards to the same +Participants. +3.4 Indemnification of Committee Members. +Neither any member or former member of the Committee nor any +individual to whom authority is or has been delegated shall be +personally responsible or liable for any act or omission in +connection with the performance of powers or duties or the +exercise of discretion or judgment in the administration and +implementation of the Plan. Each person who is or shall have +been a member of the Committee shall be indemnified and held +harmless by the Company from and against any cost, liability or +expense imposed or incurred in connection with such +person’s or the Committee’s taking or failing to take +any action under the Plan. Each such person shall be justified +in relying on information furnished in connection with the +Plan’s administration by any appropriate person or persons. +B-3 +SECTION 4 +Shares Subject to the Plan +4.1 Number of Shares. Subject to adjustment +as provided in Section 4.3 of the Plan, the total number of +shares of Common Stock available for Incentive Awards under the +Plan shall be 2,000,000 shares of Common Stock; plus shares +subject to Incentive Awards that are canceled, surrendered, +modified, exchanged for substitute Incentive Awards or expire or +terminate prior to the exercise or vesting of the Incentive +Award in full and shares that are surrendered to the Company in +connection with the exercise or vesting of an Incentive Award, +whether previously owned or otherwise subject to such Incentive +Award; provided , that not more than 40% of the shares +authorized for issuance under the Plan pursuant to this +Section 4.1 may be issued as Restricted Stock or Stock +Awards, combined. Such shares shall be authorized and may be +either unissued or treasury shares or shares repurchased by the +Company, including shares purchased on the open market. +4.2 Limitation Upon Incentive Awards. No +Participant shall be granted, during any calendar year, +Incentive Awards with respect to more than 25% of the total +number of shares of Common Stock available for Incentive Awards +under the Plan set forth in Section 4.1 of the Plan for the +Plan Year that includes the greatest number of days contained in +such calendar year, subject to adjustment as provided in +Section 4.3 of the Plan. The purpose of this +Section 4.2 is to ensure that the Plan may provide +performance-based compensation under Section 162(m) of the +Code and this Section 4.2 shall be interpreted, +administered and amended if necessary to achieve that purpose. +4.3 Adjustments. +(a) Stock Dividends and Distributions. If the +number of shares of Common Stock outstanding changes by reason +of a stock dividend, stock split, recapitalization or other +general distribution of Common Stock or other securities to +holders of Common Stock, the number and kind of securities +subject to Incentive Awards and reserved for issuance under the +Plan, together with applicable exercise prices, as well as the +number of shares available for issuance under the Plan, shall be +adjusted appropriately. No fractional shares shall be issued +pursuant to the Plan and any fractional shares resulting from +such adjustments shall be eliminated from the respective +Incentive Awards. +(b) Other Actions Affecting Common Stock. If +there occurs, other than as described in the preceding +subsection, any merger, business combination, recapitalization, +reclassification, subdivision or combination approved by the +Board that would result in the Persons who were stockholders of +the Company immediately prior to the effective time of any such +transaction owning or holding, in lieu of or in addition to +shares of Common Stock, other securities, money and/ or property +(or the right to receive other securities, money and/ or +property) immediately after the effective time of such +transaction, then the outstanding Incentive Awards (including +exercise prices) and reserves for Incentive Awards under this +Plan shall be adjusted in such manner and at such time as shall +be equitable under the circumstances. It is intended that in the +event of any such transaction, Incentive Awards under this Plan +shall entitle the holder of each Incentive Award to receive +(upon exercise in the case of Stock Options), in lieu of or in +addition to shares of Common Stock, any other securities, money +and/ or property receivable upon consummation of any such +transaction by holders of Common Stock with respect to each +share of Common Stock outstanding immediately prior to the +effective time of such transaction; upon any such adjustment, +holders of Incentive Awards under this Plan shall have only the +right to receive in lieu of or in addition to shares of Common +Stock such other securities, money and/ or other property as +provided by the adjustment. If the agreement, resolution or +other document approved by the Board to effect any such +transaction provides for the adjustment of Incentive Awards +under the Plan in connection with such transaction, then the +adjustment provisions contained in such agreement, resolution or +other document shall be final and conclusive. +SECTION 5 +Stock Options +5.1 Grant. A Participant may be granted one +or more Stock Options under the Plan. The Committee, in its +discretion, may provide in the initial grant of a Stock Option +or other Incentive Award for the subsequent automatic +B-4 +grant of additional Stock Options for the number of shares, if +any, that are surrendered to the Company in connection with the +exercise or vesting of the initial or any subsequently granted +Stock Option or other Incentive Award. Stock Options shall be +subject to such terms and conditions, consistent with the other +provisions of the Plan, as may be determined by the Committee in +its sole discretion. In addition, the Committee may vary, among +Participants and among Stock Options granted to the same +Participant, any and all of the terms and conditions of the +Stock Options granted under the Plan. Subject to the limitation +imposed by Section 4.2 of the Plan, the Committee shall +have complete discretion in determining the number of Stock +Options granted to each Participant. The Committee may designate +whether or not a Stock Option is to be considered an incentive +stock option as defined in Section 422(b) of the Code; +provided , that the number of shares of Common Stock that +may be designated as subject to incentive stock options for any +given Participant shall be limited to that number of shares that +become exercisable for the first time by the Participant during +any calendar year (under all plans of the Company and its +Subsidiaries) and have an aggregate Market Value less than or +equal to $100,000 (or such other amount as may be set forth in +the Code) and all shares subject to an Incentive Award that have +a Market Value in excess of such aggregate amount shall +automatically be subject to Stock Options that are not incentive +stock options. +5.2 Stock Option Agreements. Stock Options +shall be evidenced by stock option agreements and/ or +certificates of award containing the terms and conditions +applicable to such Stock Options. To the extent not covered by +the stock option agreement, the terms and conditions of this +Section 5 shall govern. +5.3 Stock Option Price. The per share Stock +Option price shall be determined by the Committee, but shall be +a price that is equal to or greater than 100% of the Market +Value of the Company’s Common Stock on the date of grant. +5.4 Medium and Time of Payment. The exercise +price for each share purchased pursuant to a Stock Option +granted under the Plan shall be payable in cash or, if the +Committee consents or provides in the applicable stock option +agreement or grant, in shares of Common Stock (including Common +Stock to be received upon a simultaneous exercise of that or any +other Incentive Award) or other consideration substantially +equivalent to cash. The time and terms of payment may be amended +with the consent of a Participant before or after exercise of a +Stock Option. The Committee may from time to time authorize +payment of all or a portion of the Stock Option price in the +form of a promissory note or other deferred payment installments +according to such terms as the Committee may approve. The Board +may restrict or suspend the power of the Committee to permit +such loans and may require that adequate security be provided. +5.5 Stock Options Granted to 10% Stockholders. +No Stock Option granted to any Participant who at the time +of such grant owns, together with stock attributed to such +Participant under Section 424(d) of the Code, more than 10% +of the total combined voting power of all classes of stock of +the Company or any of its Subsidiaries may be designated as an +incentive stock option, unless such Stock Option provides an +exercise price equal to at least 110% of the Market Value of the +Common Stock on the date of grant and the exercise of the Stock +Option after the expiration of 5 years from the date of +grant of the Stock Option is prohibited by its terms. +5.6 Limits on Exercisability. Except as set +forth in Section 5.5, Stock Options shall be exercisable +for such periods, not to exceed 10 years from the date of +grant, as may be fixed by the Committee. At the time of exercise +of a Stock Option, the holder of the Stock Option, if requested +by the Committee, must represent to the Company that the shares +are being acquired for investment and not with a view to the +distribution thereof. The Committee may in its discretion +require a Participant to continue the Participant’s service +with the Company and its Subsidiaries for a certain length of +time prior to a Stock Option becoming exercisable and may +eliminate such delayed vesting provisions. +5.7 Restrictions on Transferability. +(a) General. Unless the Committee otherwise +consents or permits (before or after the option grant) or unless +the stock option agreement or grant provides otherwise, Stock +Options granted under the Plan may not be sold, exchanged, +transferred, pledged, assigned or otherwise alienated or +hypothecated except by will or the laws of descent and +distribution, and, as a condition to any transfer permitted by +the Committee or the terms of the stock option agreement or +grant, the transferee must execute a written agreement +permitting the Company to withhold from the shares subject to +the Stock Option a number of shares having a Market Value at +least equal +B-5 +to the amount of any federal, state or local withholding or +other taxes associated with or resulting from the exercise of a +Stock Option. All provisions of a Stock Option that are +determined with reference to the Participant, including without +limitation those that refer to the Participant’s employment +with the Company or its Subsidiaries, shall continue to be +determined with reference to the Participant after any transfer +of a Stock Option. +(b) Other Restrictions. The Committee may +impose other restrictions on any shares of Common Stock acquired +pursuant to the exercise of a Stock Option under the Plan as the +Committee deems advisable, including, without limitation, +restrictions under applicable federal or state securities laws. +5.8 Termination of Employment or Officer Status. +Unless the Committee otherwise consents or permits (before +or after the option grant) or unless the stock option agreement +or grant provides otherwise: +(a) General. If a Participant ceases to be +employed by or an officer of the Company or one of its +Subsidiaries for any reason other than the Participant’s +death, disability, Retirement or termination for cause, the +Participant may exercise his or her Stock Options in accordance +with their terms for a period of 3 months after such +termination of employment or officer status, but only to the +extent the Participant was entitled to exercise the Stock +Options on the date of termination. For purposes of the Plan, +the following shall not be considered a termination of +employment or officer status: (i) a transfer of an employee +from the Company to any Subsidiary; (ii) a leave of +absence, duly authorized in writing by the Company, for military +service or for any other purpose approved by the Company if the +period of such leave does not exceed 90 days; (iii) a +leave of absence in excess of 90 days, duly authorized in +writing by the Company, provided that the employee’s right +to re-employment is guaranteed by statute, contract or written +policy of the Company; or (iv) a termination of employment +with continued service as an officer. For purposes of the Plan, +termination of employment shall be considered to occur on the +date on which the employee is no longer obligated to perform +services for the Company or any of its Subsidiaries and the +employee’s right to re-employment is not guaranteed by +statute, contract or written policy of the Company, regardless +of whether the employee continues to receive compensation from +the Company or any of its Subsidiaries after such date. +(b) Death. If a Participant dies either while +an employee or officer of the Company or one of its Subsidiaries +or after the termination of employment other than for cause but +during the time when the Participant could have exercised a +Stock Option, the Stock Options issued to such Participant shall +be exercisable in accordance with their terms by the personal +representative of such Participant or other successor to the +interest of the Participant for one year after the +Participant’s death, but only to the extent that the +Participant was entitled to exercise the Stock Options on the +date of death or termination of employment, whichever first +occurred, and not beyond the original terms of the Stock Options. +(c) Disability. If a Participant ceases to be +an employee or officer of the Company or one of its Subsidiaries +due to the Participant’s disability, the Participant may +exercise his or her Stock Options in accordance with their terms +for one year following such termination of employment, but +only to the extent that the Participant was entitled to exercise +the Stock Options on the date of such event and not beyond the +original terms of the Stock Options. +(d) Participant Retirement. If a Participant +Retires as an employee or officer of the Company or one of its +Subsidiaries, Stock Options granted under the Plan may be +exercised in accordance with their terms during the remaining +terms of the Stock Options. +(e) Termination for Cause. If a Participant +is terminated for cause, the Participant shall have no further +right to exercise any Stock Options previously granted. The +Committee or officers designated by the Committee shall have +absolute discretion to determine whether a termination is for +cause. +SECTION 6 +Restricted Stock +6.1 Grant. Subject to the limitations set +forth in Sections 4.1 and 4.2 of the Plan, a Participant +may be granted Restricted Stock under the Plan. Restricted Stock +shall be subject to such terms and conditions, consistent with +the +B-6 +other provisions of the Plan, as shall be determined by the +Committee in its sole discretion. The Committee may impose such +restrictions or conditions, consistent with the provisions of +the Plan, to the vesting of Restricted Stock as it considers +appropriate. The Committee may also require that certificates +representing shares of Restricted Stock be retained and held in +escrow by a designated employee or agent of the Company or any +Subsidiary until any restrictions applicable to shares of +Restricted Stock so retained have been satisfied or lapsed. +6.2 Restricted Stock Agreements. Awards of +Restricted Stock shall be evidenced by restricted stock +agreements or certificates of award containing such terms and +conditions, consistent with the provisions of the Plan, as the +Committee shall from time to time determine. Unless a restricted +stock agreement or certificate provides otherwise, Restricted +Stock awards shall be subject to the terms and conditions set +forth in this Section 6. +6.3 Termination of Employment or Officer Status. +Unless the Committee otherwise consents or permits (before +or after the grant of Restricted Stock) or unless the restricted +stock agreement or grant provides otherwise: +(a) General. In the event of termination of +employment or officer status during the Restricted Period for +any reason other than death, disability, Retirement or +termination for cause, any shares of Restricted Stock still +subject to restrictions at the date of such termination shall +automatically be forfeited and returned to the Company. For +purposes of the Plan, the following shall not be considered a +termination of employment or officer status: (i) a transfer +of an employee from the Company to any Subsidiary; (ii) a +leave of absence, duly authorized in writing by the Company, for +military service or for any other purpose approved by the +Company if the period of such leave does not exceed +90 days; (iii) a leave of absence in excess of +90 days duly authorized in writing by the Company, provided +that the employee’s right to re-employment is guaranteed by +statute, contract or written policy of the Company; and +(iv) a termination of employment with continued service as +an officer. For purposes of the Plan, termination of employment +shall be considered to occur on the date on which the employee +is no longer obligated to perform services for the Company or +any of its Subsidiaries and the employee’s right to +re-employment is not guaranteed by statute, contract or written +policy of the Company, regardless of whether the employee +continues to receive compensation from the Company or any of its +Subsidiaries after such date. +(b) Death, Retirement or Disability. In the +event a Participant terminates his or her employment with the +Company because of death, disability or Retirement during the +Restricted Period, the restrictions applicable to the shares of +Restricted Stock shall terminate automatically with respect to +that number of shares (rounded to the nearest whole number) +equal to the total number of shares of Restricted Stock granted +to such Participant multiplied by the number of full months that +have elapsed since the date of grant divided by the total number +of full months in the Restricted Period. All remaining shares +shall be forfeited and returned to the Company; provided, +that the Committee may, in its sole discretion, waive the +restrictions remaining on any or all such remaining shares of +Restricted Stock either before or after the death, disability or +Retirement of the Participant. +(c) Termination for Cause. If a +Participant’s employment is terminated for cause, the +Participant shall have no further right to exercise or receive +any Restricted Stock and all Restricted Stock still subject to +restrictions at the date of such termination shall automatically +be forfeited and returned to the Company. The Committee or +officers designated by the Committee shall have absolute +discretion to determine whether a termination is for cause. +6.4 Restrictions on Transferability. +(a) General. Unless the Committee otherwise +consents or permits or unless the terms of the restricted stock +agreement or grant provide otherwise: (i) shares of +Restricted Stock shall not be sold, exchanged, transferred, +pledged, assigned or otherwise alienated or hypothecated during +the Restricted Period except by will or the laws of descent and +distribution; and (ii) all rights with respect to +Restricted Stock granted to a Participant under the Plan shall +be exercisable during the Participant’s lifetime only by +such Participant, his or her guardian or legal representative. +(b) Other Restrictions. The Committee may +impose other restrictions on any shares of Common Stock acquired +pursuant to an award of Restricted Stock under the Plan as the +Committee considers advisable, including, without limitation, +restrictions under applicable federal or state securities laws. +B-7 +6.5 Legending of Restricted Stock. Any +certificates evidencing shares of Restricted Stock awarded +pursuant to the Plan shall bear the following legend: +The shares represented by this certificate were issued subject +to certain restrictions under the Wolverine World Wide, Inc. +Stock Incentive Plan of 2001 (the “Plan”). This +certificate is held subject to the terms and conditions +contained in a restricted stock agreement that includes a +prohibition against the sale or transfer of the stock +represented by this certificate except in compliance with that +agreement and that provides for forfeiture upon certain events. +Copies of the Plan and the restricted stock agreement are on +file in the office of the Secretary of the Company. +6.6 Rights as a Stockholder. A Participant +shall have all voting, dividend, liquidation and other rights +with respect to Restricted Stock held of record by such +Participant as if the Participant held unrestricted Common +Stock; provided, that the unvested portion of any award +of Restricted Stock shall be subject to any restrictions on +transferability or risks of forfeiture imposed pursuant to +Sections 6.1, 6.3 and 6.4 of the Plan. Unless the Committee +otherwise determines or unless the terms of the restricted stock +agreement or grant provide otherwise, any noncash dividends or +distributions paid with respect to shares of unvested Restricted +Stock shall be subject to the same restrictions as the shares to +which such dividends or distributions relate. +SECTION 7 +Stock Awards +7.1 Grant. Subject to the limitations set +forth in Sections 4.1 and 4.2 of the Plan, a Participant +may be granted one or more Stock Awards under the Plan. Stock +Awards shall be subject to such terms and conditions, consistent +with the other provisions of the Plan, as may be determined by +the Committee in its sole discretion. +7.2 Rights as a Stockholder. A Participant +shall have all voting, dividend, liquidation and other rights +with respect to shares of Common Stock issued to the Participant +as a Stock Award under this Section 7 upon the Participant +becoming the holder of record of the Common Stock granted +pursuant to such Stock Award; provided , that the +Committee may impose such restrictions on the assignment or +transfer of Common Stock awarded pursuant to a Stock Award as it +considers appropriate. +SECTION 8 +Tax Benefit Rights +8.1 Grant. Subject to the limitation set +forth in Section 4.2 of the Plan, a Participant may be +granted Tax Benefit Rights under the Plan to encourage a +Participant to exercise Stock Options and provide certain tax +benefits to the Company. A Tax Benefit Right entitles a +Participant to receive from the Company or a Subsidiary a cash +payment not to exceed the amount calculated by multiplying the +ordinary income, if any, realized by the Participant for federal +tax purposes as a result of the exercise of a nonqualified stock +option, or the disqualifying disposition of shares acquired +under an incentive stock option, by the maximum federal income +tax rate (including any surtax or similar charge or assessment) +for corporations, plus the applicable state and local tax +imposed on the exercise of the Stock Option or the disqualifying +disposition. +8.2 Restrictions. A Tax Benefit Right may be +granted only with respect to a Stock Option issued and +outstanding or to be issued under the Plan or any other plan of +the Company or its Subsidiaries that has been approved by the +stockholders as of the date of the Plan and may be granted +concurrently with or after the grant of the Stock Option. Such +rights with respect to outstanding Stock Options shall be issued +only with the consent of the Participant if the effect would be +to disqualify an incentive stock option, change the date of +grant or the exercise price or otherwise impair the +Participant’s existing Stock Options. +8.3 Terms and Conditions. The Committee shall +determine the terms and conditions of any Tax Benefit Rights +granted and the Participants to whom such rights will be granted +with respect to Stock Options under the Plan or any other plan +of the Company. The Committee may amend, cancel, limit the term +of or limit the amount payable under a Tax Benefit Right at any +time prior to the exercise of the related Stock Option, unless +otherwise provided under the +B-8 +terms of the Tax Benefit Right. The net amount of a Tax Benefit +Right, subject to withholding, may be used to pay a portion of +the Stock Option price, unless otherwise provided by the +Committee. +SECTION 9 +Change in Control +9.1 Acceleration of Vesting. If a Change in +Control of the Company shall occur, then, unless the Committee +or the Board otherwise determines with respect to one or more +Incentive Awards, without action by the Committee or the Board: +(a) all outstanding Stock Options shall become immediately +exercisable in full and shall remain exercisable during the +remaining terms thereof, regardless of whether the Participants +to whom such Stock Options have been granted remain in the +employ or service of the Company or any Subsidiary; and +(b) all other outstanding Incentive Awards shall become +immediately fully vested and exercisable and nonforfeitable. +9.2 Cash Payment for Stock Options. If a +Change in Control of the Company shall occur, then the +Committee, in its sole discretion, and without the consent of +any Participant affected thereby, may determine that some or all +Participants holding outstanding Stock Options shall receive, +with respect to some or all of the shares of Common Stock +subject to such Stock Options, as of the effective date of any +such Change in Control of the Company, cash in an amount equal +to the greater of the excess of (a) the highest sales price +of the shares on the New York Stock Exchange on the date +immediately prior to the effective date of such Change in +Control of the Company or (b) the highest price per share +actually paid in connection with any Change in Control of the +Company over the exercise price per share of such Stock Options. +SECTION 10 +General Provisions +10.1 No Rights to Awards. No Participant or +other person shall have any claim to be granted any Incentive +Award under the Plan and there is no obligation of uniformity of +treatment of Participants or holders or beneficiaries of +Incentive Awards under the Plan. The terms and conditions of +Incentive Awards of the same type and the determination of the +Committee to grant a waiver or modification of any Incentive +Award and the terms and conditions thereof need not be the same +with respect to each Participant or the same Participant. +10.2 Withholding. The Company or a Subsidiary +shall be entitled to: (a) withhold and deduct from future +wages of a Participant (or from other amounts that may be due +and owing to a Participant from the Company or a Subsidiary), or +make other arrangements for the collection of, all legally +required amounts necessary to satisfy any and all federal, +state, local and foreign withholding and employment-related tax +requirements attributable to an Incentive Award, including, +without limitation, the grant, exercise or vesting of, or +payment of dividends with respect to, an Incentive Award or a +disqualifying disposition of Common Stock received upon exercise +of an incentive stock option; or (b) require a Participant +promptly to remit the amount of such withholding to the Company +before taking any action with respect to an Incentive Award. +Unless the Committee determines otherwise, withholding may be +satisfied by withholding Common Stock to be received upon +exercise or vesting of an Incentive Award or by delivery to the +Company of previously owned Common Stock. +10.3 Compliance With Laws; Listing and Registration of +Shares. All Incentive Awards granted under the Plan +(and all issuances of Common Stock or other securities under the +Plan) shall be subject to all applicable laws, rules and +regulations, and to the requirement that if at any time the +Committee shall determine, in its discretion, that the listing, +registration or qualification of the shares covered thereby upon +any securities exchange or under any state or federal law, or +the consent or approval of any governmental regulatory body, is +necessary or desirable as a condition of, or in connection with, +the grant of such Incentive Award or the issue or purchase of +shares thereunder, such Incentive Award may not be exercised in +whole or in part, or the restrictions on such Incentive Award +shall not lapse, unless and until such listing, registration, +qualification, consent or approval shall have been effected or +obtained free of any conditions not acceptable to the Committee. +10.4 No Limit on Other Compensation Arrangements. +Nothing contained in the Plan shall prevent the Company or +any Subsidiary from adopting or continuing in effect other or +additional compensation arrangements, including the +B-9 +grant of stock options and other stock-based awards, and such +arrangements may be either generally applicable or applicable +only in specific cases. +10.5 No Right to Employment. The grant of an +Incentive Award shall not be construed as giving a Participant +the right to be retained in the employ of the Company or any +Subsidiary. The Company or any Subsidiary may at any time +dismiss a Participant from employment, free from any liability +or any claim under the Plan, unless otherwise expressly provided +in the Plan or in any written agreement with a Participant. +10.6 Suspension of Rights under Incentive Awards. +The Company, by written notice to a Participant, may suspend +a Participant’s and any transferee’s rights under any +Incentive Award for a period not to exceed 30 days while +the termination for cause of that Participant’s employment +with the Company and its Subsidiaries is under consideration. +10.7 Governing Law. The validity, +construction and effect of the Plan and any rules and +regulations relating to the Plan shall be determined in +accordance with the laws of the State of Delaware and applicable +federal law. +10.8 Severability. In the event any provision +of the Plan shall be held illegal or invalid for any reason, the +illegality or invalidity shall not affect the remaining +provisions of the Plan and the Plan shall be construed and +enforced as if the illegal or invalid provision had not been +included, unless such construction would cause the Plan to fail +in its essential purposes. +SECTION 11 +Termination and Amendment +The Board may terminate the Plan at any time or may from time to +time amend the Plan as it considers proper and in the best +interests of the Company, provided that no such amendment may +impair any outstanding Incentive Award without the consent of +the Participant, except according to the terms of the Plan or +the Incentive Award. No termination, amendment or modification +of the Plan shall become effective with respect to any Incentive +Award previously granted under the Plan without the prior +written consent of the Participant holding such Incentive Award +unless such amendment or modification operates solely to the +benefit of the Participant. +SECTION 12 +Effective Date and Duration of the Plan +This Plan shall take effect March 6, 2001, subject to +approval by the stockholders at the 2001 Annual Meeting of +Stockholders or any adjournment thereof or at a Special Meeting +of Stockholders. Unless earlier terminated by the Board of +Directors, no Incentive Award shall be granted under the Plan +after March 5, 2011. +B-10 +PROXY +PROXY +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +This Proxy is Solicited on Behalf of the Board of Directors +The undersigned stockholder hereby appoints Geoffrey B. Bloom, Phillip D. +Matthews and Timothy J. O’Donovan, and each of them, each with full power of +substitution, proxies to represent the stockholder listed on the reverse side of +this Proxy and to vote all shares of Common Stock of Wolverine World Wide, Inc. +that the stockholder would be entitled to vote on all matters which come before +the Annual Meeting of Stockholders to be held at the Company’s headquarters +located at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, April +26, 2001, at 10 a.m. local time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy +will be voted as specified. If no specification is made, the shares represented +by this Proxy will be voted for the election of all nominees named on this Proxy +as directors and for approval of the proposals identified on this Proxy. The +shares represented by this Proxy will be voted in the discretion of the proxies +on any other matters that may come before the meeting. +(Continued and to be signed on reverse side.) +Internet Voting. +On the reverse side of this card are instructions on how to vote +through the Internet. Please consider voting through this new method. Your +vote is recorded as if you mailed in your Proxy. We believe voting this +way is convenient, and it also saves money. +Electronic Delivery of Proxy Statement and Annual Report. +You may also elect to receive your annual report and proxy statement +online. Selecting this option means that you will no longer receive a +printed copy of the Wolverine World Wide, Inc. annual report and proxy +statement unless you request one. Beginning next year and continuing until +you tell us otherwise, you will receive your printed Proxy with +information regarding the internet website containing the annual report +and proxy statement. We anticipate that you will need a utility such as +Adobe® Acrobat® Reader to read the annual report and proxy +statement, which will be in PDF file format. We plan to provide +information on obtaining free access to a utility necessary for reading +PDF files. You may incur costs such as on-line charges or printing costs +and face possible risks such as systems outages in accessing Wolverine +World Wide, Inc.’s proxy statement and annual report via the internet +website. You may cancel your enrollment in this process at any time or may +request a paper copy of the annual report and/or proxy statement in any +given year while continuing your long-term enrollment in this process by +written notification to Computershare Investor Services, LLC, ATTN: Proxy +Unit, P.O. Box 1878, Chicago, IL 60690-1878. The telephone number is +312-360-5285. +Thank you in advance for your participation in our 2001 Annual +Meeting. +Wolverine World Wide, Inc. +WOLVERINE WORLD WIDE, INC. +PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. +[ +] +1. +ELECTION OF DIRECTORS — +For +Withhold +For All +Nominees: 01 -Geoffrey B. Bloom, 02 -David T. Kollat, +All +All +Except* +03 -David P. Mehney, 04 -Timothy J. O’Donovan +*(INSTRUCTION: To withhold authority to vote for any individual +nominee, strike through that nominee's name in the list above.) +Your Board of Directors Recommends that You Vote +FOR ALL NOMINEES +2. +Proposal to approve the Stock Incentive Plan of 2001. +For +Against +Abstain +Your Board of Directors Recommends that +You Vote FOR this Proposal +3. +Proposal to ratify the appointment of Ernst & Young LLP +For +Against +Abstain +as independent auditors for the +current fiscal year. +Your Board of Directors Recommends that +You Vote FOR this Proposal +To CONSENT to electronic delivery of future +Yes +annual reports and proxy statements, select YES +(see front for details). +Dated: +, 2001 +Signature of Stockholder(s) +IMPORTANT — Please sign exactly as your name(s) appears on this +Proxy. When signing on +behalf of a corporation, partnership, estate or +trust, indicate title or capacity of person signing. If +shares are held +jointly, each holder should sign. +CONTROL +NUMBER +/\ FOLD AND DETACH HERE /\ +TO VOTE BY INTERNET: +1. +Go to the following website prior to 11:59 p.m. Eastern Daylight Time, +April 24, 2001: +(www.computershare.com/us/proxy) +2. +Enter the information requested on your computer screen, including +your 6-digit Control Number located above left. +3. +Follow the instructions on the screen to vote your Proxy. +This method is quick, easy and available 24 hours per day, 7 +days a week through 11:59 p.m. Eastern Daylight Time, April 24, 2001. +TO VOTE BY PROXY CARD: +1. +Complete and sign the Proxy printed above. +2. +Return this Proxy using the enclosed envelope. +Mailed Proxies must be received no later than April 26, 2001 at +10:00 a.m. Eastern Daylight Time. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE +THE +OFFICIAL VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY INTERNET. +WOLVERINE WORLD WIDE INC. +Online Proxy +PROXY FOR ANNUAL MEETING TO BE HELD APRIL 26, 2001 +This Proxy is solicited on behalf of the Board of Directors. +The stockholder identified by the control number entered to access this +electronic proxy hereby appoints Geoffrey B. Bloom, Phillip D. Matthews and +Timothy J. O’Donovan, and each of them, each with full power of substitution, +proxies to represent the stockholder and to vote all shares of Common Stock of +Wolverine World Wide, Inc. that the stockholder would be entitled to vote on all +matters which come before the Annual Meeting of Stockholders to be held at the +Company’s headquarters located at 9341 Courtland Drive, N.E., Rockford, +Michigan, on Thursday, April 26, 2001, at 10 a.m. local time, and any +adjournment of that meeting. +You may also elect to receive your annual report and proxy statement online. +Selecting this option means that you will no longer receive a printed copy of +the Wolverine World Wide, Inc. annual report and proxy statement unless you +request one. Beginning next year and continuing until you tell us otherwise, you +will receive your printed Proxy with information regarding the internet website +containing the annual report and proxy statement. We anticipate that you will +need a utility such as Adobe Acrobat Reader to read the annual report and proxy +statement, which will be in PDF file format. We plan to provide information on +obtaining free access to a utility necessary for reading PDF files. You may +incur costs such as on-line charges or printing costs and face possible risks +such as systems outages in accessing Wolverine World Wide, Inc.’s proxy +statement and annual report via the internet website. You may cancel your +enrollment in this process at any time or may request a paper copy of the annual +report and/or proxy statement in any given year while continuing your long-term +enrollment in this process by written notification to Computershare Investor +Services, LLC, ATTN: Proxy Unit, P.O. Box 1878, Chicago, IL 60690-1878. The +telephone number is 312-360-5285. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES +NAMED ON THIS PROXY AS DIRECTORS AND FOR APPROVAL OF THE PROPOSALS +IDENTIFIED ON THIS PROXY. +1. ELECTION OF DIRECTORS +01- Geoffrey B. Bloom +FOR WITHHOLD +02- David T. Kollat +FOR WITHHOLD +03- David P. Mehney +FOR WITHHOLD +04- Timothy J. O’Donovan +FOR WITHHOLD +2. Proposal to approve the Stock Incentive Plan of 2001. +FOR AGAINST ABSTAIN +3. Proposal to ratify the appointment of Ernst and Young LLP as independent +auditors for the current fiscal year. +FOR AGAINST ABSTAIN +To CONSENT to electronic delivery of future annual reports and proxy +statements, select YES +YES NO +In their discretion the named proxies are authorized to vote upon such other +matters as may come before the meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be +voted as specified. If no specification is made, the shares represented by this +Proxy will be voted for the election of all nominees named on this Proxy as +directors and for approval of the proposals identified on this Proxy. The shares +represented by this Proxy will be voted in the discretion of the proxies on any +other matters that may come before the meeting. +If you wish to proceed with the completion and to submit your Proxy Form +On-line, please press ‘submit’ to continue. This Proxy will be automatically +dated and deemed submitted as of the date and time that you confirm your proxy +on the following screen. +submit \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-01-001382/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-01-001382/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7e1e1da0a2d895190db9935fda3a62c0202ab086 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-01-001382/proxy_rpt.txt @@ -0,0 +1,61 @@ +Certain Relationships and Related Transactions +During 2000, Wolverine engaged J. Walter Thompson, an +international advertising firm, to perform public relations and +marketing services. Wolverine paid $200,214 in fees and expenses +to J. Walter Thompson. Ms. Joan Parker, a director of +Wolverine, is a Senior Partner with J. Walter Thompson. +Wolverine anticipates continuing its relationship with +J. Walter Thompson during the current year. +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is a large shareholder, granting to +Grimoldi, S.A. the exclusive rights to distribute and sell +footwear products in Argentina under the Hush Puppies®, +Wolverine®, Caterpillar®, Harley-Davidson®, +and Merrell® trademarks. Wolverine and Grimoldi, +S.A. have executed a similar agreement that grants similar +rights with respect to Brazil, which was subsequently assigned +to a wholly-owned subsidiary of Grimoldi, S.A. Under these +agreements, Grimoldi, S.A., or its subsidiary, pays Wolverine +royalties and certain sublicense fees based on sales or +purchases of footwear products in Argentina and Brazil. +Under the agreements described above, Grimoldi, S.A. was +obligated to pay to Wolverine royalties, sublicense fees and +service fees in 2000 totaling $1,144,463. These agreements were +made under terms and conditions customary for other +international licensees and distributors, and all payments due +under these agreements were invoiced or paid in accordance with +Wolverine’s customary terms and practices. +In the ordinary course of their business, Wolverine and its +subsidiaries sell footwear for resale, samples, components of +footwear products (such as leather and shoe soles), advertising +materials and miscellaneous items to licensees, distributors and +customers. In 2000, purchases of such items by Grimoldi, S.A. +totaled $402,157 (including any applicable sublicense fees for +products containing licensed proprietary technology). All of +these purchases were made pursuant to Wolverine’s customary +trade terms and were invoiced or paid in accordance with +Wolverine’s customary payment terms and schedules +applicable to all licensees, distributors and customers. +All of the transactions described above occurred pursuant to +continuing contractual arrangements between Wolverine and +Grimoldi, S.A. Wolverine expects similar transactions to occur +between Grimoldi, S.A. and Wolverine and its subsidiaries during +2001. +Compensation Committee Interlocks and Insider +Participation +Wolverine’s Compensation Committee consists of +Donald V. Fites, Phillip D. Matthews, David P. +Mehney, Elizabeth A. Sanders, and Paul D. Schrage. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. Daniel T. Carroll, +a current director of Wolverine, was Chairman of +Wolverine’s Compensation Committee until April 13, +2000. Mr. Carroll no longer serves on Wolverine’s +Compensation Committee. Mr. Carroll is also Chairman of the +Board of Comshare, Inc. and receives compensation from Comshare +in that capacity. Geoffrey B. Bloom, Wolverine’s +Chairman of the Board and former Chief Executive Officer, is a +director of Comshare and serves as Chairman of Comshare’s +Compensation Committee. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-02-000877/proxy.txt b/raw/proxies/0000110471/0000950124-02-000877/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..82959d54873fd1d24fc8f788be0a0c9f0836ad25 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-02-000877/proxy.txt @@ -0,0 +1,6373 @@ +DEF 14A +1 +k68014def14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the +registrant +Filed by a party +other than the registrant +Check the appropriate box: +Preliminary proxy statement +Confidential, For Use of the +Commission Only (as permitted by +Rule 14a-6(e)(2). +Definitive proxy statement. +Definitive additional materials. +Soliciting material pursuant to Rule 14a-12. +Wolverine World Wide, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of filing fee (check the appropriate box): +No fee required. +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +Fee paid previously with preliminary materials. +Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the form or schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual +meeting of stockholders at Wolverine’s headquarters located +at 9341 Courtland Drive, N.E., Rockford, Michigan, on +Thursday, April 25, 2002, at 10 a.m. local time. At +the meeting, we will: +(1) Elect three directors for three-year +terms expiring in 2005. +(2) Vote on the proposed Amended and +Restated Executive Short-Term Incentive Plan (Annual Bonus Plan). +(3) Vote on the proposed Amended and +Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan). +(4) Vote on the proposed Amended and +Restated Directors’ Stock Option Plan. +(5) Vote on the proposed Amended and +Restated Outside Directors’ Deferred Compensation Plan. +(6) +Vote on ratification of the Board of +Directors’ appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +(7) Conduct such other business as may +properly come before the meeting. +You can vote at the meeting and any adjournment +of the meeting if you were a stockholder of record on +March 1, 2002. A list of stockholders entitled to vote at +the meeting will be available for review by Wolverine +stockholders at the office of Blake W. Krueger, Executive Vice +President, General Counsel and Secretary of Wolverine, located +at 9341 Courtland Drive, N.E., Rockford, Michigan, during +ordinary business hours for the 10-day period before the meeting. +A copy of the Annual Report to Stockholders for +the year ended December 29, 2001, is enclosed with this Notice. +The following proxy statement and enclosed proxy card are being +sent to stockholders on and after March 15, 2002. +By Order of the Board of Directors +Blake W. Krueger, Executive Vice President, +General Counsel and Secretary +March 15, 2002 +Your Vote is Important to Us. Even if You Plan +to Attend the Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED +PROXY PROMPTLY OR VOTE BY TELEPHONE OR ON THE +INTERNET. +TABLE OF CONTENTS +Proxy Statement +Wolverine’s Board of Directors +Amended And Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) +Amended and Restated Directors’ Stock Option Plan +Amended and Restated Outside Directors’ Deferred Compensation Plan +Ownership of Wolverine Stock +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +AUDIT COMMITTEE CHARTER +Appendix B +AMENDED AND RESTATED EXECUTIVE SHORT-TERM INCENTIVE PLAN +Appendix C +AMENDED AND RESTATED EXECUTIVE LONG-TERM INCENTIVE PLAN +Appendix D +AMENDED AND RESTATED DIRECTORS’ STOCK OPTION PLAN +Definitive Proxy Statement +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 25, 2002 +Proxy Statement +Time and Place +You are invited to attend the annual meeting of +stockholders of Wolverine World Wide, Inc. that will be held on +April 25, 2002, at Wolverine’s headquarters located at +9341 Courtland Drive, N.E., Rockford, Michigan, at +10:00 a.m. local time. +This proxy statement and enclosed proxy card are +being furnished to you in connection with the solicitation of +proxies by the Wolverine Board of Directors for use at the +annual meeting. In this proxy statement, “we,” +“us,” “our” and “Wolverine” refer +to Wolverine World Wide, Inc. and “you” and +“your” refer to Wolverine stockholders. +Purpose of the Meeting +The purpose of the annual meeting is to consider +and vote upon: +• +election of three directors for three-year terms +expiring in 2005; +• +approval of the Amended and Restated Executive +Short-Term Incentive Plan (Annual Bonus Plan); +• +approval of the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan); +• +approval of the Amended and Restated +Directors’ Stock Option Plan; +• +approval of the Amended and Restated Outside +Directors’ Deferred Compensation Plan; +• +ratification of the appointment of +Ernst & Young LLP as independent auditors for Wolverine +for its current fiscal year; and +• +such other business as may properly come before +the meeting. +Your Board of Directors recommends that you +vote FOR each nominee and each proposal discussed in this proxy +statement. +How to Vote Your Shares +You may vote at the meeting or by proxy if you +were a stockholder of record of Wolverine at the close of +business on March 1, 2002. Wolverine now offers the +convenience of voting by mail-in proxy, by telephone or by the +Internet. See the enclosed proxy for voting instructions. Each +stockholder is entitled to one vote per share on each +matter presented. +As of March 1, 2002, there were +41,537,669 shares of Wolverine common stock issued and +outstanding (excluding 4,021,919 shares of treasury stock). +If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or by the +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +If you specify a choice, the proxy will be voted +as specified. If you do not specify a choice, your shares will +be voted for the election of all nominees named in this proxy +statement, for the proposals set forth in this proxy statement +and, with respect to any other matter that may come before the +meeting, in the discretion of the individuals named as proxies +on the proxy card. We are not currently aware of any other +matters to be presented at the meeting. +You may revoke your proxy at any time before it +is exercised by delivering written notice of revocation to the +Secretary of Wolverine or by attending and voting at the annual +meeting. +Quorum and Required Vote +The presence in person or by proxy of the holders +of a majority of the shares entitled to vote at the meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the meeting, we will count as present +and represented at the meeting all shares for which we receive a +proxy or vote, including abstentions and shares represented by a +broker vote on any matter. +Table of Contents +A plurality of the shares voting is required to +elect directors. This means that if there are more nominees than +positions to be filled, the nominees who receive the most votes +will be elected. In counting votes on the election of directors, +abstentions, broker non-votes and other shares not voted will be +counted as not voted. These shares will be deducted from the +total shares of which a plurality is required. +Each other matter to be voted upon at the meeting +will be approved if a majority of the shares present or +represented at the meeting and entitled to vote on the proposal +are voted in favor of such matter. In counting votes on each +matter, abstentions will be counted as voted against the matter +and broker non-votes will be counted as not voted on the matter. +Shares that are not voted will be deducted from the total shares +of which a majority is required. +Election of Directors +As recommended by the Governance Committee, the +Board of Directors proposes that the following nominees be +elected as directors for terms expiring at the 2005 annual +meeting: +Donald V. Fites +Phillip D. Matthews +Paul D. Schrage +All of the nominees are currently directors of +Wolverine whose terms will expire at the annual meeting. Each +proposed nominee is willing to be elected and serve as a +director. However, if a nominee is unable to serve or is +otherwise unavailable for election, which we do not contemplate, +the incumbent Wolverine Board of Directors may or may not select +a substitute nominee. If a substitute nominee is selected, your +shares will be voted for the substitute nominee (unless you give +other instructions). If a substitute nominee is not selected, +your shares will be voted for the remaining nominees. Proxies +will not be voted for more than three nominees. +Wolverine’s Board of Directors currently +consists of 12 directors. Daniel T. Carroll, whose +term expires at this year’s annual meeting, is retiring +after 23 years of service as a director. After this +year’s annual meeting the Board of Directors will consist +of 11 directors. +Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into +three classes, with each class to be as nearly equal in +number as possible. Each class serves a term of office of +three years, with the term of one class expiring at +the annual meeting in each successive year. +Biographical information as of December 31, +2001, for each nominee and each current director who will +continue to serve after the annual meeting is presented below. +Except as otherwise indicated, all have had the same principal +positions and employment for over five years. +Your Board of Directors recommends that you +vote FOR each nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2005 +DONALD V. FITES (age 68) has been a +director since 1999. From 1990 until 1999, Mr. Fites was +Chairman and Chief Executive Officer of Caterpillar Inc., a +manufacturer of construction, mining and agricultural machinery +and engines. Mr. Fites also is a director of AK Steel +Holding Corporation; AT&T Wireless Services; ExxonMobil +Corporation; Oshkosh Truck Corporation; and Georgia-Pacific +Corporation. +PHILLIP D. MATTHEWS (age 63) has been a +director since 1981. Mr. Matthews is Lead Director of +Wolverine and was formerly Chairman of the Board of Wolverine +from 1993 until 1996. Mr. Matthews is Chairman of the Board +of Worldwide Restaurant Concepts, Inc., a national restaurant +chain. Mr. Matthews is also a general partner in Hayden +Capital Investments LLC, a private investment firm. From 1991 +until 1997, Mr. Matthews was Chairman of Reliable Company, +a coin-operated laundry +2 +Table of Contents +equipment company servicing the multi-unit +housing industry. Mr. Matthews is also a director of +Washington Mutual, Inc. and Worldwide Restaurant Concepts, Inc. +PAUL D. SCHRAGE (age 66) has been a +director since 1997. Mr. Schrage was Senior Executive Vice +President and Chief Marketing Officer of McDonald’s +Corporation, a worldwide restaurant franchisor and operator and +was employed at that company from 1967 until 1997. +Mr. Schrage is also a director of Lands’ End, Inc.; +Aid Association for Lutherans; Compact Industries, Inc.; and +Foodland Supermarket Ltd. +Continuing Directors — Terms Expiring in 2004 +GEOFFREY B. BLOOM (age 60) has been a director +since 1987. Mr. Bloom is Chairman of the Board of Wolverine +and has served in that capacity since 1996. Until his retirement +in April 2000, Mr. Bloom was also Chief Executive +Officer of Wolverine. Mr. Bloom was previously President +and Chief Executive Officer from 1993 until 1996 and Chief +Operating Officer from 1987 until 1993. Mr. Bloom is also a +director of Coachmen Industries, Inc. and Comshare, Inc. +DAVID T. KOLLAT (age 63) has been a director +since 1992. Mr. Kollat is President and Chairman of 22, +Inc., a company specializing in research and management +consulting for retailers and consumer goods manufacturers. +Mr. Kollat is also a director of The Limited, Inc.; Cooker +Restaurant Corporation, Inc.; Cone Mills Corporation; Big Lots, +Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 62) has been a director +since 1977. Mr. Mehney is President of The KMW Group, Inc., +a distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 56) has been a +director since 1993. Mr. O’Donovan is Chief Executive +Officer and President of Wolverine and has served in that +capacity since April 2000. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President since 1996. Before 1996, Mr. O’Donovan was +Executive Vice President of Wolverine. +Continuing Directors — Terms Expiring in 2003 +ALBERTO L. GRIMOLDI (age 60) has been a director +since 1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a +shoe manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi is also a founding member +and has been Vice Chairman of Banco Privado de Inversiones, +S.A., an Argentinean investment bank, since 1994. +Mr. Grimoldi was previously a member of the Advisory Board +of Ford Motor Company in Argentina. Mr. Grimoldi has also +held various positions in the Argentinean government. +JOSEPH A. PARINI (age 70) has been a director +since 1987. He is Chairman of the Board and an officer of EFW, +Inc., a designer and manufacturer of avionics systems for global +markets, and has held that position since January 1997. He +is also President of Intermet Systems, Inc., a manufacturer of +weather instrumentation systems, and has held that position +since January 1997. Mr. Parini was previously +President and Chief Executive Officer of Elbit Systems, Inc., a +designer, manufacturer and marketer of infrared, +telecommunications and medical instrumentation, as well as +defense products, from 1990 until 1996. +JOAN PARKER (age 66) has been a director since +1981. Ms. Parker is a Senior Partner with J. Walter +Thompson, an international advertising firm. Ms. Parker has +held that position since September 1995. From +September 1995 until December 1995, Ms. Parker +was also the sole proprietor of Parker & Associates, a +public relations firm. From 1994 until September 1995, she +was Executive Vice President and a director of N. W. +Ayer & Partners, an international advertising firm, and +Executive Vice President and Managing Director of the Ayer +Public Relations Division of N. W. Ayer & Partners. +ELIZABETH A. SANDERS (age 56) has been a director +since 1994. Ms. Sanders is the principal of The Sanders +Partnership, a management consulting practice. Ms. Sanders +has held that position since +3 +Table of Contents +1990. Ms. Sanders was previously Vice +President of Nordstrom, Inc., a retailer. Ms. Sanders is +also a director of Wal-Mart Stores, Inc.; Washington Mutual, +Inc.; Advantica Restaurant Group, Inc.; and Wellpoint Health +Networks, Inc. +Board Committees and Meetings +The Board of Directors has four standing +committees: the Audit Committee, the Compensation Committee, the +Executive Committee and the Governance Committee. +Audit Committee. The +Audit Committee: +• +oversees Wolverine’s financial reporting +process on behalf of the Board; +• +recommends the selection of independent auditors; +• +approves the nature and scope of services to be +performed by the independent auditors and reviews the range of +their fees for such services; and +• +reviews Wolverine’s internal accounting +controls, the results of the annual audit, and policies and +practices regarding compliance with laws and conflicts of +interest. +Directors who are employees of Wolverine or its +subsidiaries may not serve on the Audit Committee. +Messrs. Carroll (until this year’s annual meeting), +Grimoldi, Kollat and Parini currently serve on the Audit +Committee. Mr. Parini is Chairman of this committee. It met +three times in 2001. +Wolverine’s Board of Directors has adopted a +written charter for the Audit Committee. The written charter is +attached as Appendix A to this proxy statement. All members +of the Audit Committee are “independent” from +Wolverine and its management under the rules and standards of +the New York Stock Exchange. +Compensation Committee. +The Compensation Committee: +• +reviews and recommends the timing and amount of +compensation for the Chief Executive Officer and other key +employees, including salaries, bonuses and other benefits; +• +administers Wolverine’s stock option and +other equity-based incentive plans; +• +recommends retainer and attendance fees for +directors who are not employees of Wolverine or any of its +subsidiaries (“outside directors”); and +• +reviews for adequacy and competitiveness the +compensation plans and awards as they relate to the Chief +Executive Officer and other key employees. +Messrs. Fites, Matthews, Mehney and Schrage +and Ms. Sanders currently serve on the Compensation +Committee. Mr. Matthews is Chairman of this committee. It +met three times during 2001. +Executive Committee. +The Executive Committee exercises all +powers and authority of the Board of Directors during periods +between board meetings. Messrs. Bloom, Fites, Grimoldi, +Matthews, O’Donovan and Parini currently serve on the +Executive Committee. Mr. Matthews is Chairman of this +committee. It did not meet during 2001. +Governance Committee. +The Governance Committee: +• +interviews each potential nominee and recommends +suitable candidates for nomination to the Board of Directors; +• +reviews the appropriate skills and +characteristics of Board members; +• +reviews and evaluates the performance of the +Board and the directors; +• +reviews and reports on all matters generally +relating to corporate governance; and +• +recommends the officers of Wolverine for election +by the Board. +Messrs. Kollat, Mehney and Schrage and +Mses. Parker and Sanders currently serve on the Governance +Committee. Mr. Mehney is Chairman of this committee. It met +two times during 2001. +During the 2001 fiscal year, the Board of +Directors held five regular and no special meetings. Each of the +directors attended at least 75% or more of the aggregate of the +total number of full Board meetings and the total number of +meetings of committees on which he or she served (during the +periods that he or she served). +Stockholder Nominations +The Governance Committee will consider nominees +for election to the Board of Directors submitted by +stockholders. Nominations may be made by a stockholder entitled +to vote for the election of directors if, and only if, the +stockholder submits advance notice of the proposed nomination +and the notice is received by the Secretary of Wolverine not +less than 50 nor more than 75 days before the annual +meeting. However, if the first to occur of the notice of the +meeting or public disclosure is given or made to stockholders +less than 65 days before the annual meeting, the notice of +the proposed nomination must be received not later than the +close of business on the 15th day after the day on which +the notice of the date +4 +Table of Contents +of the meeting was mailed or the public +disclosure was made, whichever occurs first. Each notice +submitted by a stockholder must set forth each nominee’s +name, age, business address, residence address and principal +occupation and employment, the class and number of shares of +common stock beneficially owned by each nominee, and any other +information concerning each nominee required to be included in a +proxy statement soliciting proxies for the election of the +nominee under the rules of the Securities and Exchange +Commission. In addition, the notice must state the name, record +address and the class and number of shares of common stock +beneficially owned by the stockholder submitting the notice. If +the chairman of the meeting determines that a nomination was not +made in accordance with these procedures, he or she must +announce that determination at the meeting and the nomination +will be disregarded. +Compensation of Directors +Wolverine paid each outside director an annual +retainer of $23,000 plus $1,000 per day for attendance at each +regular meeting of the Board of Directors and $1,000 per day for +attendance at each committee meeting. In addition, Wolverine +paid the chairmen of the Audit, Compensation and Governance +Committees annual fees of $3,500. Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual retainer and are not compensated for attendance at Board +or committee meetings. Wolverine also reimburses directors for +expenses associated with attending Board and committee meetings. +Under the Directors’ Stock Option Plan +approved by stockholders in 1994, as amended, each newly +appointed or elected outside director is granted an option to +purchase shares of common stock with a market value on the date +of his or her initial election or appointment of $250,000. On +the date of each annual meeting after his or her initial +appointment or election, each outside director is granted an +option to purchase shares with a market value on the annual +meeting date of $65,000. The exercise price of options granted +under this plan is 100% of the market value of common stock on +the date each option is granted. The term of each option may not +exceed 10 years. Options were granted under this plan to +all outside directors on April 26, 2001. Of the amount +initially authorized, options to purchase 60,478 shares of +common stock remain and may be granted under the plan. +The Board of Directors has adopted, subject to +stockholder approval at this year’s annual meeting, the +Amended and Restated Directors’ Stock Option Plan. This +amended and restated plan would extend the term of the plan, +replenish the number of shares of Wolverine common stock +available for stock options under the Plan and adjust the method +of calculating the number of stock options to be distributed. A +more detailed description of the Amended and Restated +Directors’ Stock Option Plan is provided below under a +separate heading. +In 1996, Wolverine adopted the Outside +Directors’ Deferred Compensation Plan (the “1996 +Deferred Compensation Plan”), a supplemental nonqualified +deferred compensation plan for directors who are not employees +of Wolverine or its subsidiaries. The plan permits all outside +directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred are credited on the books +of Wolverine to an account established for that director as if +the amounts had been invested to purchase shares of common stock +using the market price of common stock on the date such fees +would have been payable (“phantom stock”). The value +of the account will increase or decrease during the deferral +period corresponding to changes in the market value of common +stock. The accumulated value of a director’s account under +the plan is paid in cash upon termination of service as a +director in a single lump-sum or annual installments over a +period of up to 10 years. +Upon adoption of the 1996 Deferred Compensation +Plan, Wolverine terminated its previously existing Director +Retirement Plan (“Director Retirement Plan”) and +provided for the conversion of the expected benefits payable +under the Director Retirement Plan. Only outside directors who +continued to serve as directors at the close of the annual +meeting of stockholders on April 17, 1996 (“continuing +directors”), received an award of phantom stock units +representing additional retirement income under the 1996 +Deferred Compensation Plan. Except for the continuing directors, +no future outside director will receive retirement awards under +the 1996 Deferred Compensation Plan. To approximate as nearly as +possible the expected benefits that otherwise would have been +payable to continuing directors under the Director Retirement +Plan if it had remained in effect, on April 17, 1996, +Wolverine awarded to each continuing director a number of +phantom stock units having a market value equal to the present +value (determined by an actuary) of the expected benefits +payable under the Director Retirement Plan. In +5 +Table of Contents +addition, to approximate as nearly as possible +the minimum service requirements imposed under the Director +Retirement Plan, phantom stock units that represent awards of +retirement income are subject to delayed vesting provisions. +Cash equal to the accumulated value of all phantom stock units +representing retirement awards credited to a director’s +account will be payable upon termination of service as a +director. Payments will be made in 10 annual installments +beginning the month following termination of service as a +director. +Upon a “change in control” as defined +in the 1996 Deferred Compensation Plan, all amounts credited to +a director’s account (both for deferred fees and retirement +income) will be distributed to the director in a single +lump-sum. For purposes of the 1996 Deferred Compensation Plan, +“change in control” is defined as: +• +failure of the individuals who were directors at +the time the 1996 Deferred Compensation Plan was adopted and +those whose election or nomination to the Board of Directors was +approved by a three-quarters vote of the directors then still in +office who were directors at the time the 1996 Deferred +Compensation Plan was adopted, or whose election or nomination +was so approved, to constitute a majority of the Board of +Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +The Board of Directors has adopted, subject to +stockholder approval at this year’s annual meeting, the +Amended and Restated Outside Directors’ Deferred +Compensation Plan (the “Restated Deferred Compensation +Plan”). The only significant change in the Restated +Deferred Compensation Plan is that all future payouts would be +made in Wolverine’s common stock rather than cash. Subject +to appropriate adjustments for future stock splits and other +similar capital adjustments, phantom stock units would be +converted to Wolverine’s common stock at a one-to-one ratio +on each distribution date. Under the 1996 Deferred Compensation +Plan, phantom stock units are converted to cash based on a +formula that takes into account the average market value of +Wolverine common stock over the one-year period preceding the +payout. +Mr. Matthews serves as Lead Director of +Wolverine. For his service as Lead Director, Mr. Matthews +received $60,000 for the period from May 2000 through April +2001, and $46,000 for the period from May 2001 through April +2002. These payments were in lieu of the annual director +retainer fee of $23,000. +In April 2000, Mr. Bloom relinquished +his role as Chief Executive Officer of Wolverine but continues +to serve as Chairman of the Board of Directors. In addition to +his duties as Chairman, Mr. Bloom also agreed to provide +consulting services to Wolverine regarding its operations and +strategic direction during a transition period. For these +services, Mr. Bloom received $250,000 for the period from +May 2000 through April 2001, and $175,000 for the +period from May 2001 through April 2002. These payments +were in lieu of all other director compensation and +Mr. Bloom did not participate in the Directors’ Stock +Option Plan or the 1996 Deferred Compensation Plan and did not +receive an annual retainer, fees for Board or Committee meeting +attendance or other compensation. The scope of +Mr. Bloom’s services and his compensation will be +reviewed annually by the Board of Directors. +Amended and Restated Executive Short-Term +Incentive Plan (Annual Bonus Plan) +The Board of Directors believes that +Wolverine’s short-term interests are best advanced by +aligning the interests of its key employees with the interests +of its stockholders. Therefore, to provide incentives and +rewards for achievement of short-term business unit goals, on +February 15, 2002, the Board of Directors adopted, subject +to stockholder approval, the Amended and Restated Executive +Short-Term Incentive Plan (Annual Bonus Plan) (the +“Restated Annual Bonus Plan”). The Restated Annual +Bonus Plan would amend and restate the existing Executive +Short-Term Incentive Plan (Annual Bonus Plan), which was +approved by the stockholders at the 1997 Annual Meeting of +Stockholders (the “1997 Annual Plan”). +6 +Table of Contents +The Restated Annual Bonus Plan differs from the +1997 Annual Plan in two significant ways: it would extend the +term of the 1997 Annual Plan to the first meeting of +stockholders in 2007, and provide greater flexibility to the +Compensation Committee in establishing performance goals. Under +the Restated Annual Bonus Plan, the Compensation Committee would +have a greater ability to link performance goals to more +specific corporate performance criteria using one or more of the +objective factors listed in the plan. The term of the 1997 +Annual Plan expires at this year’s Annual Meeting of +Stockholders unless extended by the Restated Annual Bonus Plan. +The Restated Annual Bonus Plan is designed to +provide executive officers, senior corporate and divisional +officers and other key employees with the opportunity for +bonuses based on the performance of the business unit or units +to which the employee is assigned. The Restated Annual Bonus +Plan is intended to provide performance-based compensation under +Section 162(m) of the Internal Revenue Code of 1986, as +amended, and would be interpreted and administered to achieve +that purpose. Wolverine intends to continue its established +practice of paying annual incentive bonuses to officers and key +management employees based on individual performance goals. +Participants in the Restated Annual Bonus Plan may also receive +cash or other bonuses from Wolverine under other bonus programs. +No payment under any such other arrangement may be contingent +upon failure to satisfy the criteria for payment of an incentive +bonus under the Restated Annual Bonus Plan. +The following is a summary of the principal +features of the Restated Annual Bonus Plan and is qualified in +its entirety by reference to the terms of the Restated Annual +Bonus Plan set forth in Appendix B to this proxy statement. +The Restated Annual Bonus Plan is effective as of +February 15, 2002. Adoption of the Restated Annual Bonus +Plan by the Board of Directors and payment of bonuses pursuant +to the Restated Annual Bonus Plan for 2002 are contingent upon +stockholder approval. In the absence of such approval, the +Restated Annual Bonus Plan would be void. +The Restated Annual Bonus Plan would be +administered by the Compensation Committee of the Board of +Directors (the “Compensation Committee”) or such other +committee as the Board designates to administer the Restated +Annual Bonus Plan. The Compensation Committee would consist of +at least two members and all of its members would be +“non-employee directors” as defined in Rule 16b-3 +issued under the Securities Exchange Act of 1934 and +“outside directors” as defined in the regulations +issued under Section 162(m) of the Internal Revenue Code. +Except as limited by the Restated Annual Bonus Plan, the +Compensation Committee would have all of the express and implied +powers and duties set forth in the Restated Annual Bonus Plan +and would have full authority and discretion to interpret the +Restated Annual Bonus Plan and to make all other determinations +considered necessary or advisable for the administration of the +Restated Annual Bonus Plan. The Compensation Committee could +adopt such other rules, policies and forms for the +administration, interpretation and implementation of the +Restated Annual Bonus Plan as it considered advisable. All +determinations, interpretations and selections made by the +Compensation Committee regarding the Restated Annual Bonus Plan +would be final and conclusive. +For each fiscal year, the Compensation Committee +would select the executive officers (currently eight persons), +senior corporate and divisional officers and other key employees +(currently approximately 253 persons) who would be +participants for the year. The Compensation Committee could +limit the number of executive officers and senior corporate and +divisional officers and other key employees who would be +participants for a fiscal year. Selection as a participant for a +fiscal year by the Compensation Committee would be limited to +that fiscal year. An eligible executive officer, senior +corporate or divisional officer or other key employee would be a +participant for a fiscal year only if designated as a +participant by the Compensation Committee for such fiscal year. +The amount of bonus any individual would receive under the +Restated Annual Bonus Plan would depend upon corporate and/or +business unit performance for each fiscal year and is not +presently determinable. If the Restated Annual Bonus Plan had +been in effect for Wolverine’s 2001 fiscal year and each +individual named below had been designated to participate in the +Restated Annual Bonus Plan at the level at which each such +person has been designated to participate for Wolverine’s +2001 fiscal year, and assuming that the Compensation Committee +used the same performance criteria, the following benefits would +have been paid under the Restated Annual Bonus Plan in 2001. +7 +Table of Contents +New Plan Benefits +Amended and Restated Executive Short-Term +Incentive Plan (Annual Bonus Plan) +Name and Position +Dollar Value +Steven M. Duffy, Executive Vice President +$ +58,867 +V. Dean Estes, Vice President +141,893 +Stephen L. Gulis, Jr., Executive Vice +President, +Chief Financial Officer and Treasurer +68,322 +Blake W. Krueger, Executive Vice President, +General Counsel and Secretary +83,090 +Timothy J. O’Donovan, Chief Executive +Officer +and President +204,965 +Executive Group +619,321 +Non-Executive Director Group +0 +Non-Executive Officer Employee Group +2,204,983 +Executive officers, senior corporate and +divisional officers and other key employees of Wolverine may be +considered to have an interest in the Restated Annual Bonus Plan +because they may be designated as participants in the Restated +Annual Bonus Plan. +The Compensation Committee would preestablish +performance goals for each participant in the manner and within +the time limits specified below. A target bonus goal would be +established by the Compensation Committee, expressed as a +percentage of the participant’s base salary or a specified +dollar amount. The Compensation Committee would then establish +incentive bonus levels, expressed as a percentage of the target +bonus, that would be paid to the participant at specified levels +of performance by Wolverine, a subsidiary, division, or profit +center. The term “incentive bonus,” as used in the +Restated Annual Bonus Plan, would mean an annual bonus awarded +and paid to a participant for services to Wolverine during a +fiscal year that is based upon achievement of pre-established +financial objectives by Wolverine. The Compensation Committee +would also establish any specific conditions under which an +incentive bonus could be reduced or forfeited (but not +increased). +The incentive bonus levels described above could +be expressed as either: (i) a matrix of percentages of the +target bonus that would be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that would be paid at varying +levels of performance. +Under the 1997 Annual Plan, performance is +determined by reference to profits and sales of Wolverine and/or +its operating divisions or profit centers. Performance of +Wolverine under the 1997 Annual Plan could be measured by: +(i) achievement by Wolverine of specified, absolute levels +of company-wide profit before taxes, provided that such levels +were greater than zero and substantially uncertain when +specified; (ii) achievement by Wolverine of specified +absolute levels of company-wide sales, provided that such levels +were greater than zero and substantially uncertain when +specified; (iii) achievement by a Wolverine operating +division or profit center of specified, absolute levels of +profit before taxes, provided that such levels were greater than +zero and substantially uncertain when specified; (iv) +achievement by a Wolverine operating division or profit center +of specified, absolute levels of sales, provided that such +levels were greater than zero and substantially uncertain when +specified; or (v) any combination of the performance +measures described above. +Under the Restated Annual Bonus Plan, performance +of Wolverine and/or its subsidiaries, operating divisions or +profit centers would be determined by reference to one or more +of the following objectively determinable factors, as selected +by the Compensation Committee: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before the effect of acquisitions, +divestitures, accounting changes, restructuring or other special +charges. These factors could be measured against pre-determined +levels or Wolverine’s relative performance +8 +Table of Contents +when compared to a pre-established peer group. +Wolverine believes that the list of factors that would be used +to measure performance under the Restated Annual Bonus Plan +provides more flexibility to the Compensation Committee to +establish relevant, objective factors for measuring short-term +performance than the list contained in the 1997 Annual Plan. +Payment of an incentive bonus to a participant +for a fiscal year under the Restated Annual Bonus Plan would be +entirely contingent upon achievement of the performance levels +established by the Compensation Committee. All determinations to +be made by the Compensation Committee for a fiscal year would be +made by the Committee during the first 90 days of each +fiscal year. An incentive bonus would be based solely upon +objective criteria, from which an independent third party with +knowledge of the facts could determine whether the performance +goal or range of goals were met and from that determination +could calculate the incentive bonus to be paid. Although the +Compensation Committee would have authority to exercise +reasonable discretion to interpret the Restated Annual Bonus +Plan and the criteria it would specify pursuant to the Restated +Annual Bonus Plan, it could not amend or waive such criteria +after the 90th day of a fiscal year. The Compensation Committee +would have no authority or discretion to increase any incentive +bonus or to construct, modify or apply the measurement of +performance in a manner that would directly or indirectly +increase the incentive bonus for any participant for any fiscal +year above the amount determined by the applicable objective +standards established within the first 90 days of the +fiscal year. +The incentive bonus for each eligible participant +for a fiscal year would be determined on the basis of the target +bonus and performance criteria established by the Compensation +Committee for the fiscal year. The Compensation Committee would +determine, and would certify in writing prior to payment of the +incentive bonus, that performance for the fiscal year satisfied +the criteria established by the Compensation Committee for the +year. The incentive bonus for any participant for a fiscal year +would not, in any event, exceed $1,500,000. The incentive bonus +of each participant would be paid to the participant by +Wolverine as soon as feasible following the final determination +and certification by the Compensation Committee of the amount +payable. +The incentive bonus otherwise payable to a +participant for a fiscal year would be adjusted as follows. If a +participant ceased to be a participant before the end of any +fiscal year and more than six months after the beginning of such +fiscal year because of death, normal or early retirement under +Wolverine’s retirement plan, as then in effect, or total +disability under Wolverine’s long-term disability plan, an +award would be paid to the participant or the participant’s +beneficiary after the end of such fiscal year prorated as +follows: the award, if any, for such fiscal year would be equal +to 100% of the incentive bonus that the participant would have +received if the participant had been a participant during the +entire fiscal year, multiplied by the ratio of the +participant’s full months as a participant during that +fiscal year to the 12 months in that fiscal year. Despite +the above, the Compensation Committee would have discretion to +reduce or eliminate any incentive bonus otherwise payable +pursuant to the Restated Annual Bonus Plan. If an employee +ceased to be a participant during any fiscal year, or prior to +actual receipt of the award for a previous fiscal year, because +of the participant’s termination of employment for any +reason other than described above, the participant would not be +entitled to any award for such fiscal year. +The Board of Directors could terminate the +Restated Annual Bonus Plan at any time or could from time to +time amend the Restated Annual Bonus Plan as it considered +proper and in the best interests of Wolverine. No termination or +amendment could impair the validity of, or the obligation of +Wolverine to pay, any incentive bonus awarded for any fiscal +year prior to the year in which the termination or amendment was +adopted or, if later, was effective. No amendment adopted after +the first 90 days of a fiscal year could directly or +indirectly increase any incentive bonus for that fiscal year. +Except as otherwise provided in the Restated Annual Bonus Plan +and the applicable objective criteria established pursuant to +the Restated Annual Bonus Plan for determining the amount of any +incentive bonus for a fiscal year, no incentive bonuses would be +payable for the fiscal year in which the Restated Annual Bonus +Plan was terminated, or, if later, in which the termination was +effective. +Subject to earlier termination by the Board of +Directors, the Restated Annual Bonus Plan would terminate +without action by the Board of Directors as of the date of the +first meeting of stockholders held in 2007, unless reapproved by +the stockholders. If reapproval occurred, the Restated Annual +Bonus Plan would terminate as of the date of the first meeting +of stockholders occurring in the fifth year following +9 +Table of Contents +reapproval or any subsequent reapproval. If the +Restated Annual Bonus Plan terminates due to lack of reapproval +by the stockholders, no incentive bonuses would be awarded for +the fiscal year in which the plan terminates. +A vote of the stockholders holding a majority of +the shares present in person or represented by proxy and +entitled to vote on this proposal is required to approve the +Restated Annual Bonus Plan. For purposes of counting votes on +this proposal, abstentions will be counted as voted against the +proposal. Broker non-votes will not be counted as voted on the +proposal, and the number of shares of which a majority is +required will be reduced by the number of shares not voted. The +New York Stock Exchange has advised Wolverine that this proposal +is considered to be a routine matter. Therefore, shares of +common stock held by New York Stock Exchange member +organizations, or their nominees, may be voted without specific +instructions from the beneficial owners of such shares. If the +Restated Annual Bonus Plan is not approved by the stockholders, +no incentive bonuses will be paid under the Restated Annual +Bonus Plan to the Chief Executive Officer or any of the four +most highly compensated executive officers (other than the Chief +Executive Officer). +Your Board of Directors recommends that you +vote FOR approval of the Amended and Restated Executive +Short-Term Incentive Plan (Annual Bonus Plan). +Amended And Restated Executive Long-Term +Incentive Plan +(3-Year Bonus Plan) +The Board of Directors believes that +Wolverine’s long-term interests are best advanced by +aligning the interests of its key employees with the interests +of its stockholders. Therefore, to provide incentives and +rewards for longer-term planning and decision-making and the +achievement of longer-term corporate performance goals, on +February 15, 2002, the Board of Directors adopted, subject +to stockholder approval, the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the “Restated +Long-Term Plan”). The Restated Long-Term Plan would amend +and restate the existing Long-Term Incentive Plan (3-Year Bonus +Plan) that was approved by the stockholders at the 1997 Annual +Meeting of Stockholders (the “1997 Long-Term Plan”). +The Restated Long-Term Plan differs from the 1997 Long-Term Plan +in three significant ways: it would extend the term of the 1997 +Long-Term Plan to the first meeting of stockholders in 2007; it +would provide more flexibility to the Compensation Committee in +establishing performance goals; and it would raise the maximum +amount payable to any participant with respect to any three-year +period from $1,000,000 (excluding the 20% increase in the +incentive bonus payable in restricted stock) to $1,500,000. +Under the Restated Long-Term Plan, the Compensation Committee +would have a greater ability to link performance goals to more +specific corporate performance criteria using one or more of the +objective factors listed in the plan. The 1997 Long-Term Plan +expires at this year’s Annual Meeting of Stockholders +unless extended by the Restated Long-Term Plan. +The Restated Long-Term Plan is designed to +provide executive officers and key management employees the +opportunity for additional compensation based upon the +achievement of corporate financial performance goals over a +three-year period. The primary purposes of the Restated +Long-Term Plan are to provide a significant incentive to +substantially improve the longer-term performance of Wolverine +and to foster cooperation among all business units. The target +financial performance goals are ambitious in nature and +generally require achievements which provide a significant +challenge to management. The Restated Long-Term Plan is intended +to provide performance-based compensation under +Section 162(m) of the Internal Revenue Code and would be +interpreted and administered to achieve that purpose. Wolverine +intends to continue its established practice of paying incentive +bonuses to officers and key management employees based on +individual performance goals. Participants in the Restated +Long-Term Plan may also receive cash or other bonuses from +Wolverine under other bonus programs. No payment under any such +other arrangement may be contingent upon failure to satisfy the +criteria for payment of an incentive bonus under the Restated +Long-Term Plan. +The following is a summary of the principal +features of the Restated Long-Term Plan and is qualified in its +entirety by reference to the terms of the Restated +10 +Table of Contents +Long-Term Plan as set forth in Appendix C to +this proxy statement. +The Restated Long-Term Plan is initially +effective as of February 15, 2002. Adoption of the Restated +Long-Term Plan by the Board of Directors and payment of bonuses +pursuant to the Restated Long-Term Plan are contingent upon +stockholder approval. In the absence of such approval, the +Restated Long-Term Plan would be void. +The Restated Long-Term Plan would be administered +by the Compensation Committee, or such other committee as the +Board designates to administer the Restated Long-Term Plan. The +Compensation Committee would consist of at least two members and +all of its members would be “non-employee directors” +as defined in Rule 16b-3 issued under the Securities +Exchange Act and “outside directors” as defined in the +regulations issued under Section 162(m) of the Internal +Revenue Code. Except as limited by the Restated Long-Term Plan, +the Compensation Committee would have all of the express and +implied powers and duties set forth in the Restated Long-Term +Plan and would have full authority and discretion to interpret +the Restated Long-Term Plan and to make all other determinations +considered necessary or advisable for the administration of the +Restated Long-Term Plan. The Compensation Committee could adopt +such other rules, policies and forms for the administration, +interpretation and implementation of the Restated Long-Term Plan +as it considered advisable. All determinations, interpretations +and selections made by the Compensation Committee regarding the +Restated Long-Term Plan would be final and conclusive. +The primary concept of the Restated Long-Term +Plan is to establish financial performance goals for each +overlapping three-year time period for Wolverine. Performance +periods would begin every fiscal year and end three full fiscal +years later. +For each three-year period, the Compensation +Committee would select the executive officers (currently seven +persons) and other key management employees (currently +approximately 27 persons) who would be participants for the +three-year period. The Compensation Committee could limit the +number of executive officers and key management employees who +would be participants for a three-year period. Selection as a +participant for a three-year period by the Compensation +Committee would be limited to that three-year period. An +eligible executive officer or key management employee would be a +participant for a three-year period only if designated as a +participant by the Compensation Committee for such three-year +period. The amount of bonus any individual would receive under +the Restated Long-Term Plan would depend upon corporate +performance for each three-year performance period and is not +presently determinable. If the Restated Long-Term Plan had been +in effect for Wolverine’s 1999-2001 performance period and +each individual named below had been designated to participate +in the Restated Long-Term Plan at the level at which each such +person has been designated to participate for Wolverine’s +2002-2004 performance period, and assuming that the Compensation +Committee used the same performance criteria as used for the +1999-2001 performance period, the following benefits would have +been paid under the Restated Long-Term Plan in 2001. +New Plan Benefits +Amended and Restated Executive Long-Term +Incentive Plan (3-Year Bonus Plan) +Name and Position +Dollar Value +Steven M. Duffy, Executive Vice President +$ +0 +V. Dean Estes, Vice President +0 +Stephen L. Gulis, Jr., Executive Vice President, +Chief Financial Officer and Treasurer +0 +Blake W. Krueger, Executive Vice President, +General Counsel and Secretary +0 +Timothy J. O’Donovan, Chief Executive +Officer and President +0 +Executive Group +0 +Non-Executive Director Group +0 +Non-Executive Officer Employee Group +0 +11 +Table of Contents +Executive officers and other key management +employees of Wolverine may be considered to have an interest in +the Restated Long-Term Plan because they may be designated as +participants in the Restated Long-Term Plan. +The Compensation Committee would preestablish +performance goals for each participant in the manner and within +the time limits specified in the Restated Long-Term Plan. For +each participant in each three-year period, the Compensation +Committee would specify a target bonus goal established by the +Compensation Committee, expressed as a specified dollar amount +or as a percentage of the participant’s average annual +earned salary, and incentive bonus levels, expressed as a +percentage of the target bonus, that would be paid to the +participant at specified levels of performance. The term +“incentive bonus,” as used in the Restated Long-Term +Plan, would mean a bonus awarded and paid to a participant for +services to Wolverine during a three-year period that is based +upon achievement of preestablished financial objectives by +Wolverine. The Compensation Committee could also establish any +specific conditions under which an incentive bonus would be +reduced or forfeited (but not increased). +The incentive bonus levels described above could +be expressed either as (i) a matrix of percentages of the +target bonus that would be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that would be paid at varying +levels of performance. +Under the 1997 Long-Term Plan, performance is +determined by reference to the earnings per share of Wolverine. +For purposes of the 1997 Long-Term Plan, the definition of +“earnings per share” means Wolverine’s net +after-tax earnings per share of common stock after all expenses +and taxes, except for any special one-time charges. +Under the Restated Long-Term Plan, performance of +Wolverine and/or its subsidiaries, operating divisions, or +profit centers would be determined by reference to one or more +of the following objectively determinable factors, as selected +by the Compensation Committee: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before the effect of acquisitions, +divestitures, accounting changes, restructuring or other special +charges. These factors could be measured against pre-determined +levels or Wolverine’s relative performance when compared to +a pre-established peer group. Wolverine believes that the list +of factors that would be used to measure performance under the +Restated Long-Term Plan provides more flexibility to the +Compensation Committee to establish relevant, objective factors +for measuring long-term performance than contained in the 1997 +Long-Term Plan. +Payment of an incentive bonus to a participant +for a three-year period under the Restated Long-Term Plan would +be entirely contingent upon the performance goals established by +the Compensation Committee, the satisfaction of which would be +substantially uncertain when established by the Compensation +Committee for the three-year period. All determinations to be +made by the Compensation Committee for a three-year period would +be made by the Compensation Committee during the first +90 days of each three-year period. An incentive bonus would +be based solely upon objective criteria, from which an +independent third party with knowledge of the facts could +determine whether the performance goals or range of goals were +met and from that determination could calculate the incentive +bonus to be paid. Although the Compensation Committee would have +authority to exercise reasonable discretion to interpret the +Restated Long-Term Plan and the criteria it would specify +pursuant to the Restated Long-Term Plan, it could not amend or +waive such criteria after the 90th day of a three-year period. +The Compensation Committee would have no authority or discretion +to increase any incentive bonus or to construct, modify or apply +the measurement of performance in a manner that would directly +or indirectly increase the incentive bonus for any participant +for any three-year period above the amount determined by the +applicable objective standards established within the first +90 days of the three-year period. +The incentive bonus for each eligible participant +for a three-year period would be determined on the basis of the +target bonus and performance criteria established by the +Compensation Committee for the three-year period. The +Compensation Committee would determine, and would certify in +writing prior to payment of any incentive bonus, that +Wolverine’s performance for the three-year period satisfied +the criteria established by the Compensation Committee for the +three-year period. +The incentive bonus otherwise payable to a +participant for a three-year period would be adjusted as +follows. If +12 +Table of Contents +a participant ceased to be a participant before +the end of any three-year period and more than 12 months +after the beginning of such three-year period because of death, +normal or early retirement under Wolverine’s retirement +plan, as then in effect, or total disability under +Wolverine’s long-term disability plan, an award would be +paid to the participant or the participant’s beneficiary +after the end of such three-year period prorated as follows: the +award, if any, for such three-year period would be equal to 100% +of the incentive bonus that the participant would have received +if the participant had been a participant during the entire +performance period multiplied by the ratio of the +participant’s full months as a participant during that +performance period to the total number of months in that +performance period. The award, if any, would only be made in the +form of a cash payout and no shares of restricted stock would be +awarded. Despite the above, the Compensation Committee would +have discretion to reduce or eliminate any incentive bonus +otherwise payable pursuant to the Restated Long-Term Plan. If an +employee ceased to be a participant during any three-year +period(s), or prior to actual receipt of the award for a +previous period because of the participant’s termination of +employment for any reason other than described above, the +participant would not be entitled to any award for such +three-year period. If a participant continued in +Wolverine’s employment but no longer was approved by the +Compensation Committee to participate in future three-year +periods, the participant would be eligible for a prorated award +determined in the same manner set forth above. Despite the +above, the Compensation Committee would have discretion to +reduce or eliminate any incentive bonus otherwise payable +pursuant to the Restated Long-Term Plan. +Each participant would receive part of his or her +incentive bonus in cash and part in restricted stock according +to the terms of the Restated Long-Term Plan. Each active +participant would receive a cash payment equal to 50% of his or +her incentive bonus. Wolverine would make the cash payment as +soon as feasible following final determination and certification +by the Compensation Committee of the amount payable. Each +participant would also receive a grant of restricted stock on +the same date the cash payment is made. The number of shares of +restricted stock a participant would receive would equal 70% of +the incentive bonus divided by the market value of +Wolverine’s common stock on the date of grant, rounded to +the nearest whole share. The restrictions imposed on the +restricted stock would lapse in three equal annual installments +commencing one year following the grant date. Each award of +restricted stock would be evidenced by a restricted stock +agreement containing such terms and conditions, including +vesting schedules, consistent with the provisions of the +Restated Long-Term Plan. The incentive bonus payable to any +participant with respect to any three-year period would not, in +any event, exceed $1,500,000, exclusive of the 20% increase in +the amount of the incentive bonus payable in restricted stock. +The Board of Directors could terminate the +Restated Long-Term Plan at any time or could from time to time +amend the Restated Long-Term Plan as it considered proper and in +the best interests of Wolverine. No termination or amendment +could impair the validity of, or the obligation of Wolverine to +pay, any incentive bonus awarded for any three-year period +ending prior to the year in which the termination or amendment +was adopted or, if later, was effective. No amendment adopted +after the first 90 days of a performance period could +directly or indirectly increase the amount of any incentive +bonus, or alter the objective criteria in a manner which would +increase any incentive bonus, for that three-year period. Except +as otherwise provided in the Restated Long-Term Plan and the +applicable objective criteria established pursuant to the +Restated Long-Term Plan for determining the amount of any +incentive bonus for a three-year period, no incentive bonuses +would be payable for the three-year period in which the Restated +Long-Term Plan was terminated or, if later, in which the +termination was effective. +Subject to earlier termination by the Board of +Directors, the Restated Long-Term Plan would terminate without +action by the Board of Directors as of the date of the first +meeting of the stockholders in 2007, unless reapproved by the +stockholders at that meeting or any earlier meeting. If +reapproval occurs, the Restated Long-Term Plan would terminate +as of the date of the first meeting of the stockholders in the +fifth year following reapproval and each subsequent reapproval +unless reapproved on or before the termination date. If the +Restated Long-Term Plan terminates under this provision due to +lack of reapproval by the stockholders, incentive bonuses would +be paid for the three-year periods already commenced before the +date of termination of the Restated Long-Term Plan, except for +the three-year period that initially began in the year in which +the Restated Long-Term Plan terminates. +13 +Table of Contents +A vote of the stockholders holding a majority of +the shares present in person or represented by proxy and +entitled to vote on this proposal is required to approve the +Restated Long-Term Plan. For purposes of counting votes on this +proposal, abstentions will be counted as voted against the +proposal. Broker non-votes will not be counted as voted on the +proposal, and the number of shares of which a majority is +required will be reduced by the number of shares not voted. The +New York Stock Exchange has advised Wolverine that this proposal +is considered to be a routine matter. Therefore, shares of +common stock held by New York Stock Exchange member +organizations, or their nominees, may be voted without specific +instructions from the beneficial owners of such shares. If the +Restated Long-Term Plan is not approved by the stockholders, no +incentive bonuses will be paid under the Restated Long-Term Plan +to the Chief Executive Officer or any of the four most highly +compensated executive officers (other than the Chief Executive +Officer). +Your Board of Directors recommends that you +vote FOR approval of the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan). +Amended and Restated Directors’ Stock +Option Plan +The Board of Directors believes that stock +options, which return no monetary value to a recipient unless +the stockholders as a whole benefit from an increase in the +stock price, are an especially effective means of aligning the +interests of Wolverine’s directors with the interests of +its stockholders. Therefore, to attract and retain the services +of experienced and knowledgeable non-employee directors, who are +not eligible for awards under most of Wolverine’s stock +plans, and to provide additional incentive for Wolverine’s +non-employee directors to promote the best interests of +Wolverine and its stockholders, on February 15, 2002, the +Board of Directors adopted, subject to stockholder approval, the +Amended and Restated Directors’ Stock Option Plan (the +“Restated Directors’ Stock Option Plan”). The +Restated Directors’ Stock Option Plan is intended to amend +and restate the 1994 Directors’ Stock Option Plan (the +“1994 Directors’ Stock Option Plan”), which was +adopted and approved by the stockholders at the 1994 Annual +Meeting of Stockholders. Because the 1994 Directors’ Stock +Option Plan has only 60,478 authorized shares remaining for +future options, the Board of Directors believes that the +adoption and implementation of the Restated Directors’ +Stock Option Plan, making additional shares available for +options to non-employee directors, is now advisable. +The following is a summary of the principal +features of the Restated Directors’ Stock Option Plan. The +summary is qualified in its entirety by reference to the terms +of the Restated Directors’ Stock Option Plan as set forth +in Appendix D to this proxy statement. +• +Two key features of the Restated Directors’ +Stock Option Plan are: +• +400,000 additional shares of common stock would +be available for stock option grants under the Restated +Directors’ Stock Option Plan, subject to certain +anti-dilution and other adjustments; and +• +the exercise price for all stock options issuable +under the Restated Directors’ Stock Option Plan must be +100% of the fair market value of common stock on the date of +grant. +The stock options granted under the Restated +Directors’ Stock Option Plan would be nonqualified stock +options. Only directors of Wolverine who are not also employees +of Wolverine or any of its subsidiaries would be eligible to +participate in the Restated Directors’ Stock Option Plan +unless excluded from participation by the Compensation Committee +pursuant to an individual agreement or arrangement. On +April 25, 2002, the date of the 2002 annual meeting of +stockholders, there would be nine non-employee directors who +would become participants in the Restated Directors’ Stock +Option Plan upon approval of the plan by the stockholders. +Additional individuals may become non-employee directors in the +future and may thereafter participate in the Restated +Directors’ Stock Option Plan. The Restated Directors’ +Stock Option Plan would not be qualified under +Section 401(a) of the Internal Revenue Code and would not +be subject to the Employee Retirement Income Security Act of +1974, as amended. +The Restated Directors’ Stock Option Plan +would be administered by the Compensation Committee. The +Compensation Committee would interpret the provisions of the +Restated Directors’ Stock Option Plan and supervise its +administration. However, because stock options would be granted +automatically +14 +Table of Contents +each year and the term, exercise price, number of +options to be granted, and other material features of the stock +options would be fixed, the Compensation Committee would +exercise limited discretion with respect to stock option grants +under the Restated Directors’ Stock Option Plan. +The Restated Directors’ Stock Option Plan +provides that an option to purchase a number of shares of +Wolverine’s common stock that have a market value equal to +three times the annual director retainer fee then in effect +would be automatically granted on April 25, 2002, and on +the date of each succeeding annual meeting of Wolverine’s +stockholders to each person who is a non-employee director at +the close of each annual meeting. For 2002 grants, this amount +is $69,000. Under the 1994 Directors’ Stock Option Plan +(which would be amended and replaced by the proposed plan), +non-employee directors receive, on the date of each annual +meeting, an option to purchase a number of shares of +Wolverine’s common stock equal to a set dollar amount, +currently $65,000. If the Restated Directors’ Stock Option +Plan is approved by stockholders, the 60,478 shares remaining +under the 1994 Directors’ Stock Option Plan would be used +for awards under the Restated Directors’ Stock Option Plan +in amounts and under the terms of the plan as restated. These +shares would be in addition to the 400,000 shares that the +Restated Directors’ Stock Option Plan authorizes. +In addition to the annual option grant under the +Restated Directors’ Stock Option Plan, each non-employee +director would receive a one-time award on the date of his or +her initial election or appointment as a director an option to +purchase a number of shares of Wolverine common stock that have +a market value equal to six times the annual director retainer +fee then in effect. For a new director elected or appointed to +the Board in 2002, this amount would be $138,000. Under the 1994 +Directors’ Stock Option Plan, non-employee directors +receive on the date of their initial appointment or election an +option to purchase a number of shares of Wolverine’s common +stock equal to a set dollar amount, currently $250,000. The +number of shares awarded pursuant to automatic grants, along +with the exercise prices, would be subject to adjustment in the +event of a stock split, stock dividend, merger or any other +similar change in the corporate structure or shares of Wolverine. +The Compensation Committee would set forth the +terms of individual grants of stock options in stock option +agreements containing such terms and conditions, consistent with +the provisions of the Restated Directors’ Stock Option +Plan, as the Compensation Committee considers appropriate. +Wolverine would receive no consideration upon the grant of stock +options. The option price per share would be 100% of the market +value of the common stock on the date of grant. Market value is +the mean of the highest and lowest sale prices of shares of +Wolverine’s common stock on the New York Stock Exchange on +the grant date or, if the New York Stock Exchange is closed on +the grant date, the last preceding date on which the New York +Stock Exchange was open for trading and on which shares of +common stock were traded. On March 1, 2002, the market +value of Wolverine’s common stock was $15.645 per share. +The term of each stock option would not exceed +10 years from the grant date. Options generally would be +exercisable for limited periods of time in the event an option +holder retired, died, became disabled or otherwise ceased to be +a director of Wolverine. Stock options granted to participants +under the Restated Directors’ Stock Option Plan generally +could not be transferred except by will or by the laws of +descent and distribution. There would be no specified limit on +the number of options that could be granted to any individual +participant under the Restated Directors’ Stock Option +Plan, except that pursuant to the formula in the plan itself a +new non-employee director would be granted an initial option for +a number of shares of Wolverine common stock that have a market +value equal to six times the annual director retainer fee then +in effect, and each continuing non-employee director would be +limited to an annual grant of options for a number of shares of +Wolverine common stock that have a market value equal to three +times the annual director retainer fee then in effect. +Because the number of non-employee directors, the +annual director retainer fee, and the market value of the common +stock on the date of each annual meeting cannot presently be +determined, the benefits or amounts that will be received by the +non-employee directors under the Restated Directors’ Stock +Option Plan also are not determinable. However, if the Restated +Directors’ Stock Option Plan had been in effect for +Wolverine’s 2001 fiscal year, the benefits under the +Restated Directors’ Stock Option Plan would have been as +follows: +15 +Table of Contents +New Plan Benefits +Amended and Restated Directors’ Stock +Option Plan +Dollar Value at +Number of Securities +Name and Position +March 1, 2002(1) +Underlying Options +Non-Executive Director Group +(10 persons)(2) +$ +0 +40,190(3) +All Other Directors and Employees +0 +0 +(1) +The dollar value of a stock option is determined +by calculating the spread between the exercise price of the +option and the current value of Wolverine’s common stock. +There is no spread based on the exercise price of the options +listed in this table and the market value of Wolverine’s +common stock as of March 1, 2002. +(2) +Mr. Bloom is not included in this group +because his consulting agreement precludes him from +participating in the Restated Directors’ Stock Option Plan. +(3) +Includes stock options to purchase 4,019 shares +of Wolverine’s common stock for each of the 10 persons +who were non-employee directors as of December 29, 2001. +Non-employee directors of Wolverine may be +considered to have an interest in the Restated Directors’ +Stock Option Plan because they would receive automatic grants of +stock options under the Restated Directors’ Stock Option +Plan. +Under current federal income tax laws, neither +Wolverine nor the non-employee directors would recognize any +income or deduction at the time a stock option was granted. When +a non-employee director exercised a stock option granted under +the Restated Directors’ Stock Option Plan, he or she would +recognize self-employment income in the year of exercise equal +to the difference between the stock option price and the fair +market value of the shares acquired on the date of exercise. +Wolverine would receive a corresponding deduction of this amount +for federal income tax purposes. The optionee’s tax basis +in the shares acquired would be increased by the amount of +self-employment income recognized. Sale of the stock +after exercise would result in recognition of short- or +long-term capital gain or loss. +The Board of Directors could from time to time +amend the Restated Directors’ Stock Option Plan as it +considered proper and in the best interests of Wolverine, except +that the Restated Directors’ Stock Option Plan could not be +amended more than once every six months other than to comply +with changes in the Internal Revenue Code, the Employee +Retirement Income Security Act, or the rules under those +statutes. In addition, without stockholder approval, no +amendment could become effective that would require stockholder +approval pursuant to the rules of the New York Stock Exchange or +any other exchange upon which Wolverine’s common stock is +traded. No termination, amendment or modification could become +effective with respect to any outstanding stock option without +the prior written consent of the non-employee director holding +the stock option unless such termination, amendment or +modification operated solely to the benefit of the non-employee +director. +Subject to stockholder approval, the Restated +Directors’ Stock Option Plan would take effect on +April 25, 2002 and, unless terminated earlier by the Board +of Directors, the Restated Directors’ Stock Option Plan +would terminate on April 24, 2012. No stock option could be +granted under the Restated Directors’ Stock Option Plan +after that date. +Wolverine intends to register shares covered by +the Restated Directors’ Stock Option Plan under the +Securities Act of 1933 before any stock options may be exercised +and to file a listing application to cover the shares with the +New York Stock Exchange. +A vote of the stockholders holding a majority of +the shares present in person or represented by proxy and +entitled to vote on this proposal is required to approve the +adoption of the Restated Directors’ Stock Option Plan. For +purposes of counting votes on this proposal, abstentions will be +counted as voted against the proposal. Broker non-votes will not +be counted as voted on the proposal, and the number of shares of +which a majority is required will be reduced by the number of +shares not voted. The New York Stock Exchange has advised +Wolverine that this proposal is +16 +Table of Contents +considered to be a routine matter. Therefore, +shares of common stock held by New York Stock Exchange member +organizations, or their nominees, may be voted without specific +instructions from the beneficial owners of such shares. If the +Restated Directors’ Stock Option Plan is not approved by +stockholders, no awards under the Restated Directors’ Stock +Option Plan will be made. +Your Board of Directors recommends that you +vote FOR approval of the Amended and Restated Directors’ +Stock Option Plan. +Amended and Restated Outside Directors’ +Deferred Compensation Plan +The Board of Directors believes that +Wolverine’s long-term interests are best advanced by +aligning the interests of its directors with the interests of +its stockholders. Therefore, to attract and retain the services +of experienced and knowledgeable non-employee directors and to +provide additional incentive for Wolverine’s non-employee +directors to promote the best interests of Wolverine and its +stockholders, on February 15, 2002, the Board of Directors +adopted, subject to stockholder approval, the Amended and +Restated Outside Directors’ Deferred Compensation Plan (the +“Restated Deferred Compensation Plan”). The Restated +Deferred Compensation Plan would allow non-employee directors to +continue to defer their directors’ fees for retirement +benefits, the future value of which would be directly tied to +the value of Wolverine common stock. The Restated Deferred +Compensation Plan is intended to amend and restate the 1996 +Deferred Compensation Plan. The Restated Deferred Compensation +Plan would continue in effect until amended. The primary change +that the Restated Deferred Compensation Plan would make to the +1996 Deferred Compensation Plan is that benefit distributions +would be made in shares of Wolverine common stock rather than +cash. Upon stockholder approval, all future distributions of +benefits, including those that Wolverine began to pay in annual +cash installments before the Restated Deferred Compensation Plan +became effective, would be made in shares of Wolverine common +stock. +The following is a summary of the principal +features of the Restated Deferred Compensation Plan. The summary +is qualified in its entirety by reference to the terms of the +Restated Deferred Compensation Plan as set forth in +Appendix E to this proxy statement. +The Restated Deferred Compensation Plan would be +administered and interpreted by the Compensation Committee, or +such other committee as the Board of Directors designates. The +Restated Deferred Compensation Plan would be an unfunded, +supplemental nonqualified deferred compensation plan. Only +directors who are not employees of Wolverine or its subsidiaries +would be eligible to participate in the Restated Deferred +Compensation Plan unless excluded from participation by the +Compensation Committee pursuant to an individual agreement or +arrangement. The Restated Deferred Compensation Plan would +permit all non-employee directors to defer 25%, 50%, 75% or 100% +of their directors’ fees. Except for newly eligible +directors, elections to defer fees from any calendar year would +be required to be made before the beginning of that calendar +year. Elections would not be revocable once the year of the +election begins and could only be revoked or modified as to +future years if the revocation or modification occurred before +the start of any such calendar year. Newly eligible directors +would have 90 days from the date of eligibility to elect to +participate in the Restated Deferred Compensation Plan, and such +participation would only begin after the election is made. If a +newly eligible director does not elect to participate within the +first 90 days of eligibility, he or she would have to wait +until the next calendar year to participate. +Amounts deferred under the Restated Deferred +Compensation Plan would be credited on the books of Wolverine to +an account established for that director as a number of stock +units equal to the cash amount of deferred director’s fees +divided by the market value of Wolverine common stock on the +date the deferred director’s fees would have been payable. +The number of stock units in each director’s account would +be increased upon each payment of a cash dividend by an amount +of stock units equal to the amount of cash that would have been +payable to a stockholder owning the number of shares of +Wolverine common stock represented by stock units credited to a +director’s account divided by the market value of Wolverine +common stock on the date of payment of the dividend. +Upon termination of service by a participating +director or a change in control of Wolverine, stock units within +the plan would be converted to Wolverine common stock at a +one-to-one ratio (with cash in lieu of +17 +Table of Contents +fractional shares) and distributed to the +participant. Under the 1996 Deferred Compensation Plan, +distributions are made in cash in an amount determined by a +formula that converts stock units to cash based on the average +market value of Wolverine common stock during the 12 months +preceding distribution. The Board of Directors believes that the +Restated Deferred Compensation Plan provides a more direct link +to stock price performance by providing for distributions in the +form of shares of common stock. +Distributions of Wolverine common stock to a +participant after termination of service as a director under the +Restated Deferred Compensation Plan would be made according to +the method of distribution selected by the participant. +Participating directors could elect either: (i) a single +lump-sum distribution; (ii) installment distributions in +not more than 10 annual installments; or (iii) a lump-sum +distribution or installment distributions that would be +distributed following termination of service and commencing +either (a) when the participant retires from his or her +principal employment, (b) in January of the year following +termination of service or retirement from his or her principal +employment, or (c) at such age selected by the director not +to exceed 70. If, on the date of distribution, the market value +of the Wolverine common stock to be distributed is less than +$5,000, the distribution would occur as a lump-sum distribution +despite the participating director’s election. If a change +in control of Wolverine (as defined below) triggers the +distribution, the distribution would occur immediately despite +the participating director’s election. The Restated +Deferred Compensation Plan defines a change in control as: +• +failure of the individuals who were directors at +the time the Restated Deferred Compensation Plan was adopted and +those whose election or nomination to the Board of Directors was +approved by a three-quarters vote of the directors then still in +office who were directors at the time the Restated Deferred +Compensation Plan was adopted, or whose election or nomination +was so approved, to constitute a majority of the Board of +Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +If a participant dies before distribution of all +benefits due under the Restated Deferred Compensation Plan, the +remaining benefits would be distributed to the beneficiary +previously selected by the participant. In the absence of a +properly selected beneficiary, the remaining benefits would be +distributed to the surviving spouse, or if there is no surviving +spouse, to the participant’s estate. Unless otherwise +elected by the participant before death, such distributions +would continue in the time and manner of distributions before +the participant’s death. Wolverine would reduce the amount +of benefits distributed to a participant’s beneficiary by +an amount equal to the generation-skipping transfer tax and +interest, if any, that is payable by Wolverine. +The right to receive Wolverine common stock (and +cash in lieu of fractional shares) equal to the number of stock +units credited to the participating director’s account is +fully vested. Subject to adjustment for a stock split, stock +dividend, recapitalization, merger, consolidation, combination, +exchange of shares or any other change in the corporate +structure or shares of Wolverine, the Restated Deferred +Compensation Plan limits the number of shares of +Wolverine’s common stock available for distribution under +the Restated Deferred Compensation Plan to 400,000 shares. +Benefits to be received by or allocated to the participants +under the Restated Deferred Compensation Plan are not +determinable because director participation is optional and the +future value of Wolverine’s common stock is not +determinable. Benefits that would have been received or +allocated to the participants under the Restated Deferred +Compensation Plan had the plan been in effect for +Wolverine’s last fiscal year are also not determinable +because director participation is optional and no benefits were +distributed to the non-executive director group under the 1996 +Deferred Compensation Plan during Wolverine’s last fiscal +year. +Non-employee directors of Wolverine may be +considered to have an interest in the Restated Deferred +Compensation Plan because they may elect to participate in the +Restated Deferred Compensation Plan. +Upon adoption of the 1996 Deferred Compensation +Plan, Wolverine terminated its previously existing Director +Retirement Plan and provided for the conversion of the expected +benefits payable under the Director Retirement Plan. To +approximate as nearly as +18 +Table of Contents +possible the expected benefits that otherwise +would have been payable to continuing directors under the +Director Retirement Plan if it had remained in effect, on +April 17, 1996, Wolverine awarded to each continuing +director a number of retirement stock units under the 1996 +Deferred Compensation Plan having a market value equal to the +present value (determined by an actuary) of the expected +benefits payable under the Director Retirement Plan. Only +non-employee directors as of April 17, 1996, received +retirement stock units as a conversion of benefits under the +Director Retirement Plan. No individual who became a director +after that date has received retirement awards under the 1996 +Deferred Compensation Plan or will receive retirement awards +under the Restated Deferred Compensation Plan. In addition, to +approximate as nearly as possible the minimum service +requirements imposed under the Director Retirement Plan, +retirement stock units representing awards of retirement income +are separately accounted for and are subject to delayed vesting +provisions. +Except as discussed in the preceding and +following paragraphs, retirement stock units under the Restated +Deferred Compensation Plan would be accounted for, accumulate, +and be converted to Wolverine common stock upon distribution in +the same manner as other stock units. Under the Restated +Deferred Compensation Plan, retirement stock units vest and +would be distributed differently than other stock units. The +right to receive distributions of common stock (and cash in lieu +of fractional shares) for retirement stock units vests at the +rate of 50% after five years of total service and +10% per year of total service thereafter. Upon a change in +control of Wolverine or a director attaining age 65 or +becoming unable to fulfill his or her duties as a director due +to death or disability, however, all right to receive +distributions of common stock (and cash in lieu of fractional +shares) for retirement stock units would vest immediately. The +distribution of Wolverine common stock (and cash in lieu of +fractional shares) based on retirement stock units would occur +in 10 annual installments upon termination of service as a +director of Wolverine. A distribution to a participating +director triggered by a change in control of Wolverine would +occur in a single lump-sum. +A vote of the stockholders holding a majority of +the shares present in person or represented by proxy and +entitled to vote on this proposal is required to approve the +Restated Deferred Compensation Plan. For purposes of counting +votes on this proposal, abstentions will be counted as voted +against the proposal. Broker non-votes will not be counted as +voted on the proposal, and the number of shares of which a +majority is required will be reduced by the number of shares not +voted. The New York Stock Exchange has advised Wolverine that +this proposal is considered to be a routine matter. Therefore, +shares of common stock held by New York Stock Exchange member +organizations, or their nominees, may be voted without specific +instructions from the beneficial owners of such shares. If the +Restated Deferred Compensation Plan is not approved by the +stockholders, no shares of Wolverine common stock will be issued +under the Restated Deferred Compensation Plan and the 1996 +Deferred Compensation Plan would continue in effect. +Your Board of Directors recommends that you +vote FOR approval of the Amended and Restated Outside +Directors’ Deferred Compensation Plan. +19 +Table of Contents +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information +concerning the number of shares of Wolverine stock held by each +entity known to Wolverine to have been the beneficial owner of +more than five percent of Wolverine’s outstanding shares of +common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Sole Voting +Shared +and +Voting +Total +Name and Address +Dispositive +Or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Ownership +of Class +Berger Small Cap Value Fund(1) +210 University Boulevard, Suite 900 +Denver, Colorado 80206 +— +3,800,000 +3,800,000 +9.15 +% +Perkins, Wolf, McDonnell & Company(2) +310 S. Michigan Avenue, Suite 2600 +Chicago, Illinois 60604 +67,900 +5,363,495 +(2) +5,431,395 +(2) +12.0 +% +Gabelli Entities(3) +One Corporate Center +Rye, New York 10580-1435 +2,405,300 +— +2,405,300 +5.4 +% +Putnam Investments, LLC.(4) +One Post Office Square +Boston, Massachusetts 02109 +— +2,510,266 +2,510,266 +5.5 +% +(1) +Based on information set forth in +Schedule 13G dated February 12, 2002. The +Schedule 13G indicates that the Berger Small Cap Value Fund +and its sub-investment adviser, Perkins, Wolf, McDonnell & +Company, have investment and voting authority with respect to +3,800,000 shares of Wolverine’s common stock. Documents +filed with the Securities and Exchange Commission indicate that +Berger Small Cap Value Fund is a portfolio series established +under the Berger Omni Investment Trust, an open-ended management +investment company registered under the Investment Company Act +of 1940, as amended. +(2) +Based on information set forth in +Schedule 13G dated February 26, 2002. The +Schedule 13G indicates that Perkins, Wolf, +McDonnell & Company, identified as a broker or dealer +and an investment adviser, is considered the beneficial owner of +5,431,395 shares of Wolverine common stock. According to the +Berger Small Cap Value Fund Schedule 13G dated February 12, +2002, Perkins, Wolf, McDonnell & Company is the +sub-investment adviser with respect to 3,800,000 shares of +Wolverine’s common stock. It is likely that these 3,800,000 +shares are counted twice in this table, once by the Berger Small +Cap Value Fund and once by Perkins, Wolf, McDonnell & +Company. +(3) +Based on information set forth in +Schedule 13D dated February 5, 2001. The +Schedule 13D indicates that: (i) Gabelli Funds, LLC +(an investment adviser) has the sole power to vote and dispose +of 903,600 shares of common stock; (ii) GAMCO Investors, +Inc. (an investment adviser) has the sole power to vote +1,441,700 shares of common stock and the sole power to dispose +of 1,471,700 shares of common stock; and (iii) Gabelli +International Limited (a corporation) has the sole power to vote +30,000 shares of common stock. +(4) +Based on information set forth in +Schedule 13G dated February 5, 2002. According to the +Schedule 13G, Marsh & McLennan Companies, Inc. +wholly owns Putnam Investments, LLC., which wholly owns two +registered investment advisers: Putnam Investment Management, +LLC., the investment adviser to the Putnam Family of Mutual +Funds and The Putnam Advisory Company, LLC., which is the +investment adviser to Putnam’s institutional clients. Both +Putnam Investment Management, LLC. and The Putnam Advisory +Company, LLC. have dispository power over the shares as +investment managers, but each of the mutual funds’ trustees +have voting power over the shares held by each fund, and the +Putnam Advisory Company, LLC. has shared voting +20 +Table of Contents +power over the shares held by the institutional +clients. The Schedule 13G indicates the following +interests: (i) Putnam Investments, LLC. has shared voting +power with respect to 1,059,769 shares and shared +dispositive power with respect to 2,510,266 shares; +(ii) Putnam Investment Management LLC. has shared +dispositive power with respect to 708,645 shares; and +(iii) the Putnam Advisory Company has shared voting power +with respect to 1,059,769 shares and shared dispositive +power with respect to 1,801,621 shares. +Stock Ownership By Management +The following table sets forth the number of +shares of common stock beneficially owned as of March 1, +2002, by each of Wolverine’s directors and nominees for +director, each of the named executive officers and all of +Wolverine’s directors, nominees for director and executive +officers as a group. An asterisk in the column for “Percent +of Class” means the individual owns less than one percent +of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Shared +Sole Voting +Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Geoffrey B. Bloom +324,844 +76,405 +398,848 +800,097 +1.91 +% +Daniel T. Carroll +27,842 +38,475 +66,317 +* +Steven M. Duffy +75,902 +154,391 +230,293 +* +V. Dean Estes +81,113 +155,541 +236,654 +* +Donald V. Fites +10,000 +38,749 +48,749 +* +Alberto L. Grimoldi +15,184 +29,616 +44,800 +* +Stephen L. Gulis, Jr. +79,887 +164,191 +244,078 +* +David T. Kollat +25,312 +51,131 +76,443 +* +Blake W. Krueger +75,144 +148,033 +223,177 +* +Phillip D. Matthews +20,062 +53,662 +73,724 +* +David P. Mehney +85,217 +33,413 +118,630 +* +Timothy J. O’Donovan +370,619 +18,983 +338,115 +727,717 +1.74 +% +Joseph A. Parini +7,185 +29,616 +36,801 +* +Joan Parker +23,019 +29,616 +52,635 +* +Elizabeth A. Sanders +7,000 +3,375 +44,803 +55,178 +* +Paul D. Schrage +5,000 +33,415 +38,415 +* +All directors and executive +officers as a group +1,292,755 +98,888 +1,836,305 +3,227,994 +7.44 +% +(1) +The numbers of shares stated are based on +information provided by each person listed and include shares +personally owned of record by the person and shares that, under +applicable regulations, are considered to be otherwise +beneficially owned by the person. +(2) +These numbers include shares over which the +listed person is legally entitled to share voting or dispositive +power by reason of joint ownership, trust or other contract or +property right, and shares held by spouses, children or other +relatives over whom the listed person may have influence by +reason of relationship. +(3) +These numbers include shares that may be acquired +within 60 days after March 1, 2002, by the exercise of +stock options granted under Wolverine’s various stock +option plans. +21 +Table of Contents +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total +stockholder return on Wolverine common stock to the Standard +& Poor’s Small Cap 600 Index and the Standard & +Poor’s 600 Footwear Index, assuming an investment of +$100.00 at the beginning of the period indicated. Wolverine is +part of the Standard & Poor’s Small Cap 600 Index and +the Standard & Poor’s 600 Footwear Index. Cumulative +total stockholder return is measured by dividing: (i) the +sum of the cumulative amount of dividends for the measurement +period, assuming dividend reinvestment, and the difference +between the share price at the end and the beginning of the +measurement period; by (ii) the share price at the +beginning of the measurement period. +Five Year Cumulative Total Return Summary +The dollar values for total stockholder return +plotted in the graph are shown in the table below: +S&P +S&P 600 +Fiscal +Small Cap +Footwear +Year-End +Wolverine +600 Index +Index +1996 +$ +100.00 +$ +100.00 +$ +100.00 +1997 +117.43 +125.58 +120.68 +1998 +69.25 +123.95 +97.63 +1999 +57.78 +139.32 +125.23 +2000 +81.59 +155.76 +242.28 +2001 +81.38 +165.94 +174.38 +22 +Table of Contents +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows +selected information concerning the compensation earned during +each of the three fiscal years in the period ended +December 29, 2001, by all individuals who served as Chief +Executive Officer during the last fiscal year and each of +Wolverine’s four most highly compensated executive officers +who served in positions other than Chief Executive Officer at +the end of the last completed fiscal year. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Restricted +Shares +Name and +Stock +Underlying +LTIP +All Other +Principal Position +Year +Salary +Bonus +Awards(1) +Options +Payouts(2) +Compensation(3) +Steven M. Duffy +2001 +$ +313,077 +$ +96,437 +$ +129,625 +90,060 +$ +— +$ +9,204 +Executive Vice +2000 +298,462 +— +110,630 +40,230 +— +9,204 +President +1999 +278,846 +148,026 +96,250 +43,979 +105,984 +8,129 +V. Dean Estes +2001 +$ +287,116 +$ +169,026 +$ +68,625 +42,118 +$ +— +$ +5,547 +Vice President +2000 +276,250 +— +55,315 +20,703 +— +6,216 +1999 +264,115 +89,354 +48,125 +20,135 +102,106 +6,491 +Stephen L. Gulis, Jr. +2001 +$ +281,731 +$ +98,741 +$ +129,625 +71,503 +$ +— +$ +7,196 +Executive Vice +2000 +268,462 +— +110,630 +40,087 +— +7,196 +President, Chief +1999 +253,462 +134,550 +96,250 +43,770 +98,654 +6,946 +Financial Officer and Treasurer +Blake W. Krueger +2001 +$ +318,077 +$ +132,443 +$ +129,625 +74,674 +$ +— +$ +9,092 +Executive Vice +2000 +304,519 +— +110,630 +40,555 +— +9,092 +President, General +1999 +288,846 +139,470 +96,250 +42,329 +108,000 +7,912 +Counsel and Secretary +Timothy J. O’Donovan +2001 +$ +563,462 +$ +300,000 +$ +259,250 +69,207 +$ +— +$ +10,184 +Chief Executive +2000 +517,308 +— +221,260 +84,623 +— +10,184 +Officer, President +1999 +434,615 +288,396 +154,000 +68,347 +178,022 +8,764 +and Director +(1) +The values of restricted stock awards reported in +this column are calculated using the closing market price of +common stock on the date of grant. As of the end of +Wolverine’s 2001 fiscal year, each of the named executive +officers held shares of restricted stock. Dividends will be paid +on shares of restricted stock at the same rate dividends are +paid on common stock. The number of shares of restricted stock +held by each named individual and the aggregate value of those +shares (as represented by the closing price of common stock on +December 28, 2001) at the end of Wolverine’s 2001 +fiscal year, without giving effect to the reduction in value +attributable to the restrictions on the stock, are set forth +below: +Number +Aggregate +of Shares +Value +Mr. Duffy +35,250 +$ +543,908 +Mr. Estes +18,250 +281,598 +Mr. Gulis +35,250 +543,908 +Mr. Krueger +35,250 +543,908 +Mr. O’Donovan +63,500 +979,805 +23 +Table of Contents +These numbers do not include the number or value +of shares of restricted stock awarded during the years presented +in connection with the 1997 Long-Term Plan, the values of which +are included in the amounts reported in the “LTIP +Payouts” column in this table for the applicable year for +each listed individual. +(2) +Under both the 1997 Long-Term Plan and the +proposed Restated Long-Term Plan, amounts payable are paid +(i) in cash equal to 50% of the incentive bonus, and +(ii) in shares of restricted stock that have a market +value, on the date the cash payment is made, equal to 70% of the +incentive bonus. The dollar amounts reported in this column +reflect the cash payment and the market value of the shares of +restricted stock on the date of payment. Shares of restricted +stock are granted under existing plans that provide for such +awards. The restrictions lapse with respect to one-third of the +shares on each of the first three anniversaries of the date of +grant. Pursuant to these plans, Wolverine did not grant any +shares of restricted stock to key management employees with +respect to amounts payable for the three-year performance period +ended December 29, 2001. +(3) +The compensation listed in this column for 2001 +consisted of: (i) Wolverine’s contributions to the +accounts of the named executive officers under Wolverine’s +401(k) Savings Plan as follows: $5,250 for Mr. Duffy; +$5,250 for Mr. Estes; $5,250 for Mr. Gulis; $5,250 for +Mr. Krueger; and $5,250 for Mr. O’Donovan; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,954 for Mr. Duffy; +$297 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +24 +Table of Contents +Stock Options +The Compensation Committee administers +Wolverine’s stock option plans and also has authority to +determine the individuals to whom and the terms upon which +options are granted, the number of shares subject to each option +and the form of consideration payable upon the exercise of an +option. The Chief Executive Officer makes recommendations of +stock option grants (other than for himself), which the +Compensation Committee then considers. +The following tables set forth information +regarding stock options granted to and exercised by the named +executive officers during the fiscal year ended +December 29, 2001, and the number of shares of common stock +subject to and values of options at that date: +Option Grants In Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Securities +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share +Date +Value(2) +Steven M. Duffy +30,000 +3.5209 +% +$ +15.15000 +03/05/11 +$ +269,349.00 +1,273 +0.1494 +14.57000 +02/27/06 +8,551.63 +679 +0.0797 +14.70000 +02/23/07 +4,953.64 +878 +0.1030 +15.18500 +02/24/08 +7,011.79 +850 +0.0998 +14.70000 +02/23/10 +7,168.73 +1,838 +0.2157 +14.70000 +02/22/09 +14,908.02 +22,393 +2.6281 +18.04000 +03/02/09 +220,759.15 +13,745 +1.6131 +18.04000 +02/23/10 +141,029.20 +239 +0.0280 +19.17500 +02/24/09 +2,485.07 +233 +0.0273 +19.17500 +02/25/09 +2,422.69 +841 +0.0987 +19.17500 +03/01/09 +8,748.59 +568 +0.0667 +19.17500 +03/09/09 +5,914.13 +1,058 +0.1242 +19.17500 +03/10/09 +11,016.11 +2,091 +0.2454 +19.17500 +02/23/10 +22,667.28 +767 +0.0900 +19.17500 +02/24/10 +8,317.81 +239 +0.0280 +19.17500 +02/25/10 +2,591.86 +487 +0.0572 +19.17500 +02/28/10 +5,283.32 +1,165 +0.1367 +19.17500 +03/09/10 +12,648.29 +1,603 +0.1881 +19.17500 +02/22/09 +16,659.98 +593 +0.0696 +19.17500 +02/23/07 +5,491.00 +777 +0.0912 +19.17500 +02/24/08 +7,670.00 +1,105 +0.1297 +19.17500 +02/27/06 +9,441.45 +6,638 +0.7790 +19.17500 +03/05/11 +74,583.90 +25 +Table of Contents +Option Grants In Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Securities +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share +Date +Value(2) +V. Dean Estes +12,500 +1.4670 +% +$ +15.15000 +03/05/11 +$ +112,228.75 +424 +0.0498 +14.70000 +02/23/07 +3,093.29 +1,273 +0.1494 +14.57000 +02/27/06 +8,551.63 +590 +0.0692 +15.18500 +02/24/08 +4,714.27 +1,819 +0.2135 +14.70000 +02/22/09 +14,753.91 +819 +0.0961 +14.70000 +02/23/10 +6,907.28 +6,107 +0.7167 +19.17500 +03/08/05 +47,062.37 +8,200 +0.9624 +19.17500 +03/01/06 +70,127.22 +5,427 +0.6369 +19.17500 +03/03/09 +56,454.91 +4,959 +0.5820 +19.17500 +02/23/10 +53,757.54 +Stephen L. Gulis, Jr. +30,000 +3.5209 +% +$ +15.15000 +03/05/11 +$ +269,349.00 +679 +0.0797 +14.70000 +02/23/07 +4,953.64 +1,273 +0.1494 +14.57000 +02/27/06 +8,551.63 +856 +0.1004 +15.18500 +02/24/08 +6,839.70 +1,766 +0.2073 +14.70000 +02/22/09 +14,324.03 +791 +0.0928 +14.70000 +02/23/10 +6,671.14 +22,393 +2.6281 +18.04000 +03/02/09 +220,759.15 +13,745 +1.6131 +18.04000 +02/23/10 +141,029.20 +Blake W. Krueger +30,000 +3.5209 +% +$ +15.15000 +03/05/11 +$ +269,349.00 +679 +0.0797 +14.70000 +02/23/07 +4,953.64 +1,038 +0.1218 +15.18500 +02/24/08 +8,293.93 +866 +0.1016 +14.70000 +02/23/10 +7,303.67 +1,872 +0.2197 +14.70000 +02/22/09 +15,183.79 +23,931 +2.8086 +15.36000 +03/02/09 +199,601.29 +14,761 +1.7324 +15.36000 +02/24/10 +128,326.23 +1,527 +0.1792 +13.80000 +04/15/06 +9,715.84 +Timothy J. O’Donovan +60,000 +7.0417 +% +$ +15.15000 +03/05/11 +$ +538,698.00 +1,018 +0.1195 +14.70000 +02/23/07 +7,426.82 +2,545 +0.2987 +14.57000 +02/27/06 +17,096.55 +1,470 +0.1725 +15.18500 +02/24/08 +11,745.74 +1,428 +0.1676 +14.70000 +02/23/10 +12,043.47 +2,746 +0.3223 +14.70000 +02/22/09 +22,272.81 +(1) +All options indicated in boldface text above are +exercisable with respect to 25% of the shares on the date of +grant and become exercisable with respect to 25% of the shares +on each following anniversary date with full vesting occurring +on the third anniversary date of the grant. Vesting may be +accelerated upon certain events relating to a change in control +of Wolverine. All options in boldface text were granted in March +2001. All such options were granted for a term of 10 years. +In 1997, the Compensation Committee adopted a program to +automatically award “reload options” to a limited +group of senior executives if those executives surrender shares +of common stock to pay the exercise price or tax withholding +obligations associated with the exercise of a then outstanding +nonqualified stock option or the vesting of restricted stock. +New stock options (both stock options that may +26 +Table of Contents +qualify as incentive stock options as defined in +Section 422 of the Internal Revenue Code and other stock +options that would not be incentive stock options within the +meaning of the Internal Revenue Code) and restricted stock +awards under Wolverine’s plans provide for automatic awards +of reload options to such executives. All options not shown in +boldface text in the table are reload options granted in 2001. +Reload options to purchase the number of shares +surrendered by an executive are awarded at the market price on +the date of grant. Reload options granted in connection with the +exercise of another stock option have the same term as the term +remaining under the underlying option that was exercised. Reload +options granted upon vesting of restricted stock have 10-year +terms from the date of the underlying restricted stock award. +Reload options are fully vested on the date of grant. Certain +senior executives are permitted to transfer nonqualified stock +options to a limited group of permissible transferees primarily +for estate planning purposes. Options terminate, with certain +limited exercise provisions, in the event of death, retirement +or other termination of employment. All options permit the +option price to be paid by delivery of cash or, if permitted by +the Compensation Committee, shares of common stock. +(2) +Based on the Black-Scholes option pricing model. +The actual value, if any, an option holder may realize will +depend on the excess of the stock price over the exercise price +on the date the option is exercised. There is no assurance the +value realized by an option holder will be at or near the value +estimated by the Black-Scholes model. The estimated values in +the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .515%, +calculated using monthly stock prices for the three years prior +to the grant date; +• +a risk free rate of return of 4.6%; +• +an expected average dividend yield of 1.0% (the +dividend yield at the date of the grant); and +• +an expected average option holding period of +4 years, which approximates Wolverine’s historical +experience. +No adjustments were made for the general +non-transferability of the options or to reflect any risk of +forfeiture before vesting. Disclosure of grant date present +value is presented pursuant to Securities and Exchange +Commission regulations. Wolverine’s use of the +Black-Scholes model to indicate the present value of each grant +is not an endorsement of this valuation method. +Aggregated Option Exercises In Last Fiscal Year +And Fiscal Year-End Option Values +Number of Shares +Value of Unexercised +Underlying Unexercised +In-the-Money Options at +Options at Fiscal Year-End +Fiscal Year-End +Number of +Shares +Acquired on +Value +Name +Exercise +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Steven M. Duffy +88,285 +$ +662,068 +116,766 +50,000 +$ +33,356 +$ +141,788 +V. Dean Estes +33,030 +290,600 +138,911 +20,625 +497,244 +57,615 +Stephen L. Gulis, Jr. +47,496 +374,269 +126,680 +50,000 +96,868 +141,788 +Blake W. Krueger +47,495 +246,974 +110,369 +50,000 +55,101 +141,788 +Timothy J. O’Donovan +0 +0 +266,747 +97,500 +691,871 +266,018 +Wolverine’s employee loan program allows an +employee (or outside director) to borrow from Wolverine up to +95% of the exercise price to exercise options acquired under +Wolverine’s stock option plans. These loans bear interest +at a rate equal to the greater of 6.5% per annum or the prime +rate in effect on the date of the loan with interest payable +quarterly. Principal is payable quarterly at the rate of 15% per +annum beginning five years after the date on which the option to +which the loan relates is exercised. Participants may pay +principal and/or accrued interest on these loans in shares of +Wolverine stock. All loans are full recourse loans and are also +secured by a pledge of the stock obtained upon exercise of the +applicable option. Outstanding loan balances as of March 1, +2002 (and, if higher, the largest balance outstanding during the +last fiscal year) for each director and executive officer were +as follows: Mr. Duffy, $0 ($109,818); Mr. Gulis, $0 +($285,042); Mr. Krueger, $0 ($160,989); Mr. O’Donovan, +$0 ($188,739); Mr. Ottenwess, $7,856; Ms. Parker, +$85,254 ($87,289); and Mr. Sedrowski, $0 ($82,002). +27 +Table of Contents +Long-Term Incentive Awards +Wolverine’s 1997 Long-Term Plan permits +Wolverine to award cash and shares of restricted stock to plan +participants conditioned upon the achievement of certain +corporate performance goals over a three-year performance period. +The following table sets forth certain +information concerning awards of long-term incentive +compensation to the named individuals during the last fiscal +year: +Long-Term Incentive Plans — Awards in Last Fiscal Year +Performance Or +Estimated Future Payouts Under +Number of +Other Period until +Non-Stock-Price-Based Plans(2) +Shares, Units or +Maturation or +Name +Other Rights(1) +Payout +Threshold +Target +Maximum +Steven M. Duffy +40 +% +3 yrs +$ +78,958 +$ +157,916 +$ +315,832 +V. Dean Estes +35 +3 yrs +63,359 +126,719 +253,436 +Stephen L. Gulis, Jr. +40 +3 yrs +71,052 +142,105 +284,210 +Blake W. Krueger +40 +3 yrs +80,204 +160,408 +320,815 +Timothy J. O’Donovan +60 +3 yrs +213,157 +426,316 +852,631 +(1) +Under the 1997 Long-Term Plan, key management +employees may earn incentive compensation based upon achievement +of specified fully-diluted earnings per share (“EPS”) +goals over a three-year performance period. The numbers reported +in the column under the heading “Number of Shares, Units or +Other Rights” represent the percentage of each +officer’s average earned salary during the three-year +period that the officer will receive as bonus compensation under +the plan if the specified EPS targets are achieved. The +Compensation Committee determined these amounts. If higher or +lower actual EPS levels are attained during the three-year +performance period, the percentage of base salary to be received +as bonus compensation by each officer will be correspondingly +higher, lower or zero. Bonuses are conditioned upon achieving a +minimum or “threshold” EPS level. The Compensation +Committee established the EPS goals at the beginning of 2001 for +the period ending on the last day of Wolverine’s 2003 +fiscal year. EPS goals are expressed as net earnings per share +after taxes, excluding one-time charges. +(2) +Under the 1997 Long-Term Plan, amounts earned as +bonus compensation are calculated based on each +participant’s average annual earned salary during the +three-year performance period. For purposes of illustration, the +“Threshold,” “Target” and +“Maximum” amounts in the table have been calculated +using each named individual’s base salary for 2001 as +reported in the Summary Compensation Table, adjusted for 5% +annual cost of living increases. Incentive bonuses payable under +the 1997 Long-Term Plan are paid (i) in cash equal to 50% +of the incentive bonus and (ii) in shares of restricted +stock that have a market value, on the date the cash payment is +made, equal to 70% of the incentive bonus. The dollar amounts +reported under the headings “Threshold,” +“Target” and “Maximum” reflect the value of +the cash payment and the market value of restricted stock to be +received on the date of payment. Shares of restricted stock are +granted under existing plans that provide for such awards. The +restrictions lapse with respect to one-third of the shares on +each anniversary of the date of grant. +Pension Plan +Wolverine has a qualified pension plan covering +most of its salaried employees. The Internal Revenue Code +imposes limitations on the maximum amount of pension benefits +payable under qualified plans. It also imposes a cap currently +equal to $200,000 (subject to grandfather provisions for +earnings accrued before January 1, 1994) on the amount of +earnings that may be taken into account in determining benefits +payable under qualified plans. +The following table illustrates the estimated +annual benefits payable under the pension plan for +Wolverine’s named executive officers if they retire at age +65 at the annual levels of average remuneration and years of +service indicated (computed on a straight life annuity basis +without the reduction required by the plan for the Social +Security +28 +Table of Contents +allowance received by participants in the plan +and without regard to any accrued grandfathered benefit for +earnings before January 1, 1994): +Pension Plan Table +Years of Service +Average Remuneration +10 +15 +20 +25 +30 or more +$200,000 +$ +48,000 +$ +72,000 +$ +96,000 +$ +120,000 +$ +144,000 +Subject to the limitations imposed by the +Internal Revenue Code, the pension plan provides monthly +benefits at normal retirement in an amount equal to the greater +of: (i) $22.00 multiplied by the participant’s number of +years of service up to 30 years; (ii) 1.6% of final +average earnings multiplied by the participant’s number of +years of service up to 30 years reduced by the +participant’s Social Security allowance as defined in the +pension plan; or (iii) for certain designated executives, a +percentage benefit multiplier of 2.4% or 2.0% of final average +earnings multiplied by the participant’s number of years of +service up to 25 years reduced by the participant’s +Social Security allowance as defined in the pension plan. All of +the executive officers named in the Summary Compensation Table +have a percentage benefit multiplier of 2.4%. “Final +average earnings” are defined as the average of the +participant’s annual earnings for the four consecutive +highest compensation calendar years out of the last 10 calendar +years of the participant’s employment (with earnings for +the last year of employment annualized based on a +participant’s then rate of pay). Except for the +compensation cap imposed by the Internal Revenue Code, the +remuneration covered by the plan for an employee would be +essentially equivalent to the sum of the amounts reported under +the heading “Annual Compensation” in the Summary +Compensation Table above. +If the pension plan is terminated during any +period beginning on a “restricted date” (defined +below) and ending two years later, the plan requires that +surplus plan assets be used to purchase retiree medical and life +insurance in satisfaction of Wolverine’s then outstanding +obligations, if any, and be paid pro rata to increase the +benefits of plan participants, subject to legal limitations. If +the pension plan is merged with, or the assets of the plan are +transferred to, another plan, then (i) benefits will be +fully vested; (ii) benefits will be increased as if the plan had +been terminated; and (iii) benefits will be satisfied through +the purchase of a guaranteed annuity contract. A restricted date +is defined as the date any person or group acquires more than +50% of the voting stock of Wolverine in a transaction not +approved by the Board of Directors or the date during any +two-year period on which individuals who at the beginning of the +period constituted the Board of Directors (including any new +director whose nomination or election was approved by two-thirds +of the directors who were directors at the beginning of the +period or whose election or nomination was so approved) cease +for any reason to constitute a majority of the Board. +As of December 29, 2001, the persons listed +in the Summary Compensation Table had the following years of +credited service under the plan: Mr. Duffy, 13 years; +Mr. Estes, 27 years; Mr. Gulis, 17 years; +Mr. Krueger, 6 years; and Mr. O’Donovan, +30 years. +Supplemental Executive Retirement +Plan +In 1995, Wolverine adopted a Supplemental +Executive Retirement Plan to replace the deferred compensation +agreements entered into with certain key employees, including +those listed in the Summary Compensation Table, except that an +executive covered by a deferred compensation agreement will +always be entitled to a benefit under the Supplemental Executive +Retirement Plan at least equal to what he or she would have +received under the deferred compensation agreement. The +Supplemental Executive Retirement Plan became effective +January 1, 1996. Effective March 6, 2001, Wolverine +amended and restated the Supplemental Executive Retirement Plan +(the “SERP”). +Under the SERP, a participating executive will be +eligible for an annual supplemental benefit once he or she has +completed five years of service after having been approved as a +participant in the SERP (or, for those executives already +covered by a deferred compensation agreement, five years after +entering into the deferred compensation agreement). +Alternatively, a participating executive will be eligible for a +benefit with less than five years of service if he or she +retires at or after age 65. The supplemental benefit is equal to +the difference between the executive’s retirement benefit +under Wolverine’s qualified pension plan and an amount +equal to a designated percentage of the +29 +Table of Contents +executive’s average earnings multiplied by +the executive’s years of service under the pension plan, +except that the plan counts years during which the executive +received a disability benefit under the SERP (except in +computing the SERP’s disability benefit); excludes years +that an executive is designated as an inactive participant; and +may count deemed years of service granted by the Board of +Directors (up to a maximum of 25 years). The designated +percentage is either 2.4% for each year of service (including +all of the individuals listed in Summary Compensation Table) or +2% per year of service. “Annual earnings” is defined +as the average of the executive’s annual earnings for the +four consecutive highest compensation years out of the last +10 years of the executive’s employment (excluding +years during which the executive receives a disability benefit +if the exclusion would produce a higher average; yearly +compensation is not restricted by the $200,000 compensation cap +under the pension plan and for the last year of employment is +annualized). Average earnings do not include payments under the +1997 Long-Term Plan or severance payments. For this purpose, +average earnings do not vary significantly from the amounts +shown under the caption “Annual Compensation” in the +Summary Compensation Table above. +A retired participating executive may draw the +full benefit beginning at age 65. A participating executive may +elect to begin receiving a reduced benefit at or after age 55. +The reduction factor is 0.333% for each month prior to age 60, +and 0.1666% for each month between age 60 and age 65. The SERP +provides for a disability benefit equal to 60% of the +supplemental retirement benefit (based on the executive’s +years of service at the date of disability). A disabled +executive is still eligible for a supplemental retirement +benefit beginning at age 65 based on all years of service +(including years during which the executive was receiving a +disability benefit). The SERP also provides for a death benefit +to the executive’s designated beneficiary if the executive +dies before retiring. The death benefit is a lump-sum equal to +the present value of the benefit the executive could have +received beginning at age 65, based on his or her years of +service up to the date of death. +Benefits under the SERP are subject to forfeiture +if the executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund plan benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump-sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his or her actual age, if greater than +age 55), without applying the monthly early retirement +reduction factor, but based on years of service at the actual +date of termination. For purposes of the SERP, “change in +control” is defined as: +• +failure of the individuals who were directors at +the time the SERP was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters vote of the directors then still in office who +were directors at the time the SERP was adopted, or whose +election or nomination was so approved, to constitute a majority +of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Wolverine may terminate the SERP or stop further +accrual of plan benefits for a participating executive at any +time, but termination will not affect previously accrued +benefits. +30 +Table of Contents +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Severance Agreements. +Under individual agreements, +Messrs. Duffy, Estes, Gulis, Krueger and O’Donovan, +and certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or +retirement in accordance with Wolverine’s policy or as +otherwise agreed; +• +the termination is by Wolverine for cause or +disability; or +• +the termination is by resignation of the officer +for other than “good reason.” +Good reason is defined in the agreements to +include, among other things, the assignment of duties +inconsistent with the officer’s status as a senior +executive officer or the duties performed by the officer +immediately before a change in control, a reduction in the +officer’s annual base salary or relocation of the officer. +The compensation payable if such a termination +occurs after a change in control includes: +• +cash equal to two or three times the +officer’s annual salary, including target bonus; +• +cash equal to 100% of the difference between the +market price of common stock (or, if higher, the highest price +paid in connection with any change in control of Wolverine) and +the exercise prices of unexercised stock options granted to the +officer (other than incentive stock options granted after the +date of the officer’s agreement), and 100% of the +difference between the market price and exercise prices of +incentive stock options granted to the officer after the date of +the agreement which are then exercisable; +• +relocation expenses, legal fees and indemnity +against loss in the sale of the officer’s principal +residence; +• +up to two or three years’ benefits under all +employee benefit programs; +• +a cash payment at the officer’s retirement +age equal to the actuarial value of the retirement pension and +SERP to which the officer would have been entitled (without +regard to vesting requirements) had he or she accrued three +additional years of service with Wolverine, plus the amount +awarded to the officer during the year most recently ended +reduced by the single sum actuarial equivalent of any amounts to +which the officer is entitled under Wolverine’s normal +retirement plans and programs; and +• +outplacement services paid for by Wolverine. +In all of the severance agreements, the officer +has no requirement to mitigate the payments by seeking +employment, but the compensation to be paid during the fourth +and later months after termination will be reduced to the extent +of any compensation earned by the officer during the applicable +period. +A change in control is defined in the agreements +to include the acquisition of 20% or more of the common stock by +any person or group of persons acting together or a change in a +majority of the Board of Directors unless each new director was +approved by a vote of at least three-quarters of the directors +then still in office who were directors as of the date of the +agreements, or whose election or nomination was so approved. +Stock Plan Provisions. +Wolverine has granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting upon a change in control of Wolverine. +The options include options issued under plans adopted by +Wolverine in 1988, 1993, 1995, 1997, 1999 and 2001 and the +shares of restricted stock include shares awarded under plans +adopted by Wolverine in 1993, 1995, 1997, 1999 and 2001. +Under the stock option agreements entered into +between Wolverine and participants in the 1988, 1993, 1995, +1997, 1999 and 2001 plans, other than the agreements applicable +to reload options, 25% of each option generally becomes +exercisable on the date of grant and 25% of the shares becomes +exercisable on each of the next three anniversary dates +following the date of grant. The stock option agreements also +provide that all options granted under the 1988 plan become +immediately exercisable in the event of a change in control of +Wolverine. The terms of the 1993, 1995, 1997, 1999 and 2001 +plans provide for such acceleration upon a change in control of +Wolverine. +31 +Table of Contents +The 1993, 1995, 1997, 1999 and 2001 plans provide +for restricted stock awards. Except for shares awarded in +connection with the payment of bonuses under the 1997 Long-Term +Plan, the restrictions on 25% of the shares received under an +award normally lapse on the third anniversary of the date of the +award, with the restrictions on an additional 25% of the shares +lapsing on the fourth anniversary and the restrictions with +respect to the remaining shares lapsing on the fifth +anniversary. With respect to shares awarded in connection with +the 1997 Long-Term Plan, the restrictions on one-third of the +shares received under an award lapse on each anniversary of the +date of the award. The restricted stock agreements entered into +with employees under these plans provide that all restrictions +on restricted stock will lapse upon certain terminations of +employment within a five-year period after a change in control. +A change in control is defined in the agreements +under the 1988 plan to include a change of control as set forth +in the proxy rules issued by the Securities and Exchange +Commission, the acquisition of 25% or more of the common stock +by any person or group of persons acting together or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. The definition of change in control +under the 1993 plan differs from the definition of that term in +the agreements under the 1988 plan in that a change in control +is considered to occur upon the acquisition of 20% or more +(rather than 25%) of the common stock and the definition +includes the sale, lease, exchange or other transfer of +substantially all of Wolverine’s assets to, or the merger +or consolidation of Wolverine with, a corporation that is not +controlled by Wolverine. Under the 1995, 1997, 1999 and 2001 +plans, a change in control is defined as: +• +failure of the individuals who were directors at +the time such plan was adopted and those whose election or +nomination to the Board of Directors was approved by a +two-thirds vote of the directors then still in office who were +directors at the time such plan was adopted, or whose election +or nomination was so approved, to constitute a majority of the +Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock; +• +approval by the stockholders of a reorganization, +merger or consolidation (except with certain permitted +entities); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (other than to certain permitted entities). +Other Plans and Agreements. +Severance agreements with various +executive officers (described above) provide for cash payments +in lieu of outstanding options if a change in control of +Wolverine and a subsequent triggering event occur. In addition, +the SERP (described above) and the 1996 Deferred Compensation +Plan (described above) provide for certain benefits and payments +if a change in control of Wolverine occurs. +Benefit Trust Agreement. +In May 1987, Wolverine +established a Benefit Trust (“trust”) to ensure that +payments to employees under the severance agreements, the SERP +and deferred compensation agreements (collectively, the +“agreements”) will not be improperly withheld after a +change in control of Wolverine as defined in the agreement +establishing the trust. Under the trust, upon the occurrence of +a “potential change in control,” Wolverine will +deliver to the trustee, to be held in trust, cash, marketable +securities or insurance corresponding to an amount determined by +Wolverine to have a fair market value, together with any +existing amounts in the trust, equal to the value of the +benefits due to employees under the agreements given certain +assumptions set forth in the trust. Additional terms of the +trust provide for the return of the property to Wolverine upon +written request before a change in control or automatically if +no change in control has occurred within six months after +funding upon a potential change in control. Wolverine has +transferred to the trust insurance policies on the lives of +certain key employees. +Indemnity Agreements. +Wolverine has entered into indemnity +agreements with Messrs. Duffy, Estes, Gulis, Krueger and +O’Donovan and with each director and executive officer. The +indemnity agreements indemnify each director and officer against +all expenses incurred in connection with any action or +investigation involving the director or officer by reason of his +or her position with Wolverine (or with another entity at +Wolverine’s request). The directors and officers will also +be indemnified for costs, including judgments, fines and +penalties, indemnifiable under Delaware law or under the terms +of any current or +32 +Table of Contents +future liability insurance policy maintained by +Wolverine that covers the directors and officers. A director or +officer involved in a derivative suit will be indemnified for +expenses and amounts paid in settlement. Indemnification is +dependent in every instance on the director or officer meeting +the standards of conduct set forth in the indemnity agreements. +If a potential change in control occurs, Wolverine will fund a +trust to satisfy its anticipated indemnification obligations. +Compensation Committee Report on Executive +Compensation +The Compensation Committee develops and +recommends to the Board of Directors the compensation policies +of Wolverine. The Compensation Committee also administers +Wolverine’s compensation plans and recommends for approval +by the Board of Directors the compensation to be paid to the +Chief Executive Officer and, with the advice of the Chief +Executive Officer, the other executive officers and senior +managers of Wolverine. The Compensation Committee consists of +five directors, none of whom is a current or former employee of +Wolverine or its subsidiaries. +The Compensation Committee continues to engage an +independent compensation consulting firm to assist the +Compensation Committee in formulating Wolverine’s +compensation policies, provide advice to the Compensation +Committee concerning specific compensation packages and +appropriate levels of executive and Board of Director +compensation, provide advice about competitive levels of +compensation and review and recommend changes in the +compensation system of Wolverine. +The basic compensation philosophy of the +Compensation Committee and Wolverine is to provide competitive +salaries as well as competitive incentives to achieve superior +financial performance. Wolverine’s executive compensation +policies are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who +will lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific +short-term individual, business unit and corporate goals; +• +provide incentives for achievement of longer-term +financial goals; and +• +align the interests of management with those of +the stockholders to encourage achievement of continuing +increases in stockholder value. +Executive compensation at Wolverine consists +primarily of the following components: +• +base salary and benefits; +• +amounts paid, if any, under the 1997 Annual Bonus +Plan; +• +amounts paid, if any, under the 1997 Long-Term +Plan; +• +amounts paid, if any, as individual-specific +bonuses designed to encourage achievement of individual goals; +and +• +participation in Wolverine’s stock option +and equity-based incentive plans. +Each component of compensation is designed to +accomplish one or more of the four compensation objectives +described above. +Management recommends the participation of +specific executive officers and other key employees in the 1997 +Annual Bonus Plan, the 1997 Long-Term Plan and Wolverine’s +stock option and equity-based incentive plans. All such +recommendations (including the level of participation) are +reviewed, modified (to the extent appropriate) and approved by +the Compensation Committee. Senior executive officers are +normally eligible to receive a greater percentage of their +potential compensation in the form of awards under these +incentive plans to reflect the Compensation Committee’s +belief that the percentage of an executive’s total +compensation that is “at risk” should increase as the +executive’s responsibilities and ability to influence +profits increase. +Section 162(m) of the Internal Revenue Code +provides that publicly held companies may not deduct +compensation paid to certain executive officers in excess of +$1,000,000 annually, with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the 1997 Annual Bonus Plan, the +1997 Long-Term Plan, and the 1997, 1999 and 2001 stock incentive +plans to permit amounts payable under the 1997 Annual Bonus Plan +and the 1997 Long-Term Plan and awards of stock options granted +under the 1997, 1999 and 2001 plans to qualify as +“performance-based” compensation for purposes of +Section 162(m). Because incentives under these plans are +not included in the $1,000,000 +33 +Table of Contents +limit for purposes of calculating +Wolverine’s deduction for compensation paid to its +executive officers, Wolverine believes its compensation policies +reflect due consideration of Section 162(m). +Base Salary +To attract and retain well-qualified executives, +the Compensation Committee seeks to establish base salaries at +levels and provide benefit packages that have been confirmed to +be competitive. The Compensation Committee determines the base +salaries of executives by comparing each executive’s +position with similar positions in companies of similar type, +size and financial performance. The Compensation Committee uses +surveys provided by the independent compensation consulting firm +in making that comparison. Although some other footwear +companies are among the companies included in the surveys, the +surveys are not limited to those companies because Wolverine +competes for talent with a wide range of corporations. In +general, the Compensation Committee has targeted salaries to be +at the median to slightly below the median percentile of base +salaries paid for comparable positions by companies included in +the surveys provided by the independent compensation consulting +firm. Other factors considered by the Compensation Committee are +the executive’s performance, the executive’s current +compensation and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance (in determining +whether to adjust above or below the current salary level), and +a significant but lesser weight is generally given to the +comparative survey data. In general, base salaries for +Wolverine’s executive officers during 2001 were near the +median of salaries paid by companies included in the surveys. +The 2001 average base salary of executive officers increased +over the previous year’s level as a result of a combination +of factors, including improved individual performance, improved +or continued excellent performance by the applicable business +unit (and Wolverine), promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement +of short-term business unit goals, the existing 1997 Annual Plan +was designed to provide key employees with the opportunity for +bonuses based on the performance of Wolverine and/or the +performance of its operating divisions or profit-centers. The +1997 Annual Bonus Plan was approved by the stockholders at the +April 16, 1997, annual meeting of stockholders. The 1997 +Annual Bonus Plan continues the annual bonus policy that +Wolverine has used for many years. A target bonus goal (the +“target bonus”), expressed as a percentage of the +participant’s base salary, is established by the +Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance by Wolverine, the division or +profit-center. +“Incentive bonus” as used in the 1997 +Annual Bonus Plan means an annual bonus awarded and paid to a +participant for services to Wolverine during a fiscal year that +is based upon achievement of pre-established financial +objectives of Wolverine. The incentive bonus levels may be +expressed as either: (i) a matrix of percentages of the +target bonus that would be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that would be paid at varying +levels of performance. Performance is determined by reference to +pre-tax profit and sales of Wolverine and/or its operating +divisions or profit-centers. Payment of an incentive bonus to a +participant for a fiscal year under the 1997 Annual Bonus Plan +is entirely contingent upon achievement of the performance +levels established by the Compensation Committee. All +determinations to be made by the Compensation Committee for a +fiscal year are made by the Compensation Committee during the +first 90 days of each fiscal year. The two primary measures +of corporate performance in 2001 were pre-tax profits and sales. +Wolverine’s sales performance did not meet threshold +requirements in 2001, however, the pre-tax profit performance +achieved was between the threshold and target levels. +During fiscal 2001, executive officers were +generally targeted to receive from 15% to 48% of their annual +salaries in bonus compensation. In determining these +percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and to put a larger percentage of their total potential +34 +Table of Contents +cash compensation “at risk.” Because +Wolverine’s pre-tax profits for 2001 were at levels between +the threshold and target levels, executive officers received +bonuses under the 1997 Annual Bonus Plan slightly below target +levels. +Long-Term Plan +To provide incentives and rewards for longer-term +planning and decision-making and the achievement of longer-term +corporate performance goals, the 1997 Long-Term Plan provides +the opportunity for additional compensation based upon the +achievement of company financial performance goals over a +three-year period. The stockholders approved the +1997 Long-Term Plan at the April 16, 1997, annual +meeting of stockholders. The 1997 Long-Term Plan continues +the long-term incentive bonus policy that Wolverine has used for +many years. The primary purposes of the 1997 Long-Term Plan +and prior long-term bonus plans are to provide significant +incentive and to foster cooperation among all business units +such that the long-term earnings performance of Wolverine is +substantially improved. The primary concept of the +1997 Long-Term Plan is to establish financial performance +goals for each three-year time period for Wolverine. New +performance periods begin each fiscal year and end +three full fiscal years later. The Compensation Committee +establishes the goals during the first 90 days of each +three-year performance period. +Awards under the 1997 Long-Term Plan are +based on a percentage of average annual earned salary during the +three-year period. For each participant in each three-year +period, the Compensation Committee specifies a target bonus goal +(the “target bonus”), expressed as a specified dollar +amount or as a percentage of the participant’s average +annual earned salary, and “incentive bonus” levels, +expressed as a percentage of the target bonus, that will be paid +to the participant at specified levels of performance. +“Incentive bonus” as used in the 1997 Long-Term +Plan means a bonus awarded and paid to a participant for +services to Wolverine during a three-year period, which bonus is +based upon achievement of previously established financial +objectives by Wolverine. The incentive bonus levels may be +expressed as either: (i) a matrix of multiples of the +target bonus that will be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that will be paid at varying +levels of performance. Performance is determined by reference to +the fully-diluted earnings per share (“EPS”) of +Wolverine. If the minimum three-year targeted EPS goal is not +achieved, no bonus will be paid. For purposes of the +1997 Long-Term Plan, the definition of “earnings per +share” means Wolverine’s net after-tax earnings per +share of common stock after all expenses and taxes, except for +any special one-time charges. For the 2001-2003 performance +period, executive officers are targeted to receive long-term +bonus compensation in amounts that range from 0% to 60% of their +average annual earned salaries. In determining the percentages, +the Compensation Committee considered the factors discussed +above in connection with the 1997 Annual Bonus Plan and each +executive’s capacity to affect the long-term performance of +Wolverine. EPS was below the pre-established threshold +performance level for the 1999-2001 performance period +under the 1997 Long-Term Plan, and executive officers did +not receive any bonuses under the 1997 Long-Term Plan for +this period. +Under the 1997 Long-Term Plan, amounts +payable are paid: +• +in cash equal to 50% of the calculated bonus; and +• +in shares of restricted stock under existing +stockholder approved plans that have a market value, on the date +the cash payment is made, equal to 70% of the calculated bonus +amount. +The restrictions lapse with respect to one-third +of the shares of restricted stock on each anniversary of the +date of grant. Wolverine did not grant any shares of restricted +stock to executive officers with respect to amounts payable +under the 1997 Long-Term Plan for the three-year +performance period ended December 29, 2001. +Discretionary Bonuses +In addition to bonuses based on corporate +performance pursuant to the 1997 Annual Bonus Plan, +Wolverine generally pays annual incentive bonuses to employees +based on individual performance goals. Bonuses based on +individual performance are paid on a discretionary basis and the +performance bonuses for the Chief Executive Officer are paid +only after the review and approval of the Compensation +Committee. Because Wolverine met the corporate threshold +earnings goal under the 1997 Annual Bonus Plan for +fiscal 2001, discretionary bonus payments were made to +Wolverine’s executive officers for this period based upon +achievement of individual performance goals. +35 +Table of Contents +Stock Options and Equity-Based Incentive +Plans +Awards under Wolverine’s stock option and +equity-based incentive plans are designed to: +• +encourage long-term investment in Wolverine by +participating executives; +• +more closely align executive and stockholder +interests; and +• +reward executives and other key employees for +building stockholder value. +The Compensation Committee believes stock +ownership by management has been demonstrated to be beneficial +to all stockholders and stock awards have been granted by +Wolverine to executives and other key employees pursuant to +various equity-based plans for several decades. The Compensation +Committee administers all aspects of these plans and reviews, +modifies (to the extent appropriate) and takes final action on +any such awards. +Under Wolverine’s plans that provide for +awards of restricted stock, all of which have been previously +approved by the stockholders, the Compensation Committee may +grant to executives and other key employees shares of restricted +stock. +These shares are subject to certain restrictions +that, except for shares awarded in connection with the +1997 Long-Term Plan described above, generally lapse over a +period of five years from the date of grant. +Under Wolverine’s stock option plans, all of +which have been previously approved by the stockholders, the +Compensation Committee may grant to executives and other key +employees options to purchase shares of stock, as well as tax +benefit rights. Wolverine has never granted tax benefit rights +under its existing plans and has no present intention to do so. +The Compensation Committee reviews, modifies (to the extent +appropriate) and takes final action on the amount, timing, price +and other terms of all options granted to employees of +Wolverine. The Compensation Committee grants both incentive +stock options and nonqualified options within the meaning of the +Internal Revenue Code. Under the terms and conditions of all the +plans other than the 2001 plan, the Compensation Committee +may grant nonqualified options with an exercise price above or +below the market price on the date of grant. The 2001 plan +requires that all options have an exercise price equal to or +greater than the market value of Wolverine’s common stock +on the date of grant. Virtually all stock options granted (both +incentive and nonqualified) have an exercise price equal to the +market price of common stock on the date of grant. +In determining the number of shares of restricted +stock and/or the number of options to be awarded to an +executive, the Compensation Committee generally adheres to a +formula which takes into consideration the executive’s +level of responsibility and compensation practices of similar +companies. The Compensation Committee also considers the +recommendations of management (except for awards to the Chief +Executive Officer), the individual performance of the executive +and the number of shares previously awarded to the executive. As +a general practice, both the number of shares granted and their +proportion relative to the total number of shares granted +increase in some proportion to increases in each +executive’s responsibilities. +Chief Executive Officer +The Chief Executive Officer’s compensation +is based upon the policies and objectives discussed above. The +Chief Executive Officer, however, has a higher percentage of +total compensation “at risk” because a larger +percentage of potential compensation is based upon the +1997 Annual Bonus Plan and the 1997 Long-Term Plan +described above. +In setting Mr. O’Donovan’s base +salary and total annual cash compensation, the Compensation +Committee was advised by the independent compensation consulting +firm and compared Mr. O’Donovan’s cash +compensation with that of chief executive officers in a survey +group of companies of similar general type and size. +Mr. O’Donovan’s base salary was targeted by the +Compensation Committee near the median of salaries paid to chief +executive officers by companies included in the survey group. +Mr. O’Donovan’s base salary for 2001 increased +3.6% above his 2000 level. Following the 2001 increase, +Mr. O’Donovan’s salary was near the competitive +median. At his request, Mr. O’Donovan does not have an +employment agreement with Wolverine. +Mr. O’Donovan’s annual incentive +bonus under the 1997 Annual Bonus Plan was based upon +corporate performance goals (100% weighting). The target +annual bonus award for Mr. O’Donovan under the +1997 Annual Bonus Plan was 48% of earned salary. +Mr. O’Donovan’s annual bonus was subject to +achievement of minimum goals and his threshold bonus at this +level would have been 24% of earned salary. +Mr. O’Donovan’s annual bonus was capped at 96% of +earned salary under the 1997 Annual Bonus +36 +Table of Contents +Plan. Corporate performance goals in 2001 were +based on Wolverine’s achievement of predetermined pre-tax +levels of profit (approximately 80% weighting) and sales (20% +weighting), both of which were set above the prior year’s +actual results. Wolverine’s sales level was below the +pre-established performance threshold in 2001, however, since +Wolverine’s profit performance exceeded the pre-established +performance levels, Mr. O’Donovan received a payment +under the 1997 Annual Bonus Plan and a discretionary bonus +for fiscal 2001 slightly below target levels. +Mr. O’Donovan’s +1997 Long-Term Plan bonus award was based upon financial +performance goals for Wolverine expressed in terms of targeted +EPS that were above budget and prior year’s results. The +target bonus for Mr. O’Donovan was 60% of average +annual earned salary for the 2001-2003 plan period. The bonus +payout for Mr. O’Donovan can range from 0%-200% of the +target bonus. Wolverine did not make any payment to +Mr. O’Donovan for the 1999-2001 performance period +under the 1997 Long-Term Plan because Wolverine did not +meet the pre-established level of financial performance for the +bonus period. +In 2001, Mr. O’Donovan was awarded +17,000 shares of restricted stock and stock options to +purchase 60,000 shares of common stock. The amounts of +these awards were determined by the Compensation Committee +considering the factors discussed above. +Due to Wolverine’s 2001 results, +Mr. O’Donovan’s salary, bonus and total cash +compensation was near the median for chief executive officers +paid by companies included in the previously described survey +group. +All actions and recommendations of the +Compensation Committee attributable to 2001 compensation were +unanimous and all recommendations were approved and adopted by +the Board of Directors without modification. +Respectfully submitted, +Phillip D. Matthews, Chairman, +Donald V. Fites, +David P. Mehney, Elizabeth A. Sanders, +Paul D. Schrage +Selection of Auditors +Subject to the approval of stockholders, the +Board of Directors has reappointed the firm of Ernst & Young +LLP as independent auditors for the current fiscal year. +Ernst & Young LLP, certified public +accountants, has audited the financial statements of Wolverine +and its subsidiaries for the fiscal year ended December 29, +2001. Representatives of Ernst & Young LLP are expected to +be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. +Wolverine paid to Ernst & Young LLP $411,000 during fiscal +year 2001 for the last annual audit and reviews of the financial +statements included in Wolverine’s Form 10-Q filings. +All Other Fees. +Wolverine paid to Ernst & Young LLP $1,081,813 during fiscal +year 2001 for services other than the last annual audit, +including audit related services of $82,148 and nonaudit +services of $999,665. Audit related services generally include +fees for pension audits, potential business acquisitions and +accounting consultations. Non-audit services generally include +fees for tax compliance, tax planning services, acquisition +related tax support and actuarial services. +Your Board of Directors recommends that you +vote FOR ratification of the reappointment of Ernst & Young +LLP. +37 +Table of Contents +Audit Committee Report +The Audit Committee reviews and supervises +Wolverine’s procedures for recording and reporting the +financial results of its operations on behalf of the Board of +Directors. Wolverine’s management has primary +responsibility for the financial statements and the reporting +process, including the systems of internal controls. As part of +its supervisory duties, the Audit Committee has reviewed +Wolverine’s audited financial statements for the fiscal +year ended December 29, 2001 and has discussed those +financial statements with Wolverine’s management. +The Audit Committee has also discussed with +Wolverine’s independent auditors, who are responsible for +expressing an opinion on the conformity of those financial +statements with generally accepted accounting principles, the +judgments of the independent auditors concerning the quality of +Wolverine’s accounting principles and such other matters +that are required under generally accepted auditing standards to +be discussed with the independent auditors. In addition, the +Audit Committee has received from the independent auditors the +written disclosures required by the Independence Standards Board +and has discussed their independence from Wolverine and +Wolverine’s management with them, including a consideration +of the compatibility of nonaudit services with their +independence. +After and in reliance upon the reviews and +discussions described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended December 29, 2001, be +included in Wolverine’s Annual Report on Form 10-K for +the year then ended to be filed with the Securities and Exchange +Commission. +Respectfully submitted, +Joseph A. Parini, Chairman, Daniel T. +Carroll, Alberto L. Grimoldi, David T. Kollat +Related Matters +Certain Relationships and Related +Transactions +During 2001, Wolverine engaged J. Walter +Thompson, an international advertising firm, to perform public +relations and marketing services. Wolverine paid $258,543 in +fees and expenses to J. Walter Thompson. Ms. Joan +Parker, a director of Wolverine, is a Senior Partner with +J. Walter Thompson. Wolverine anticipates continuing its +relationship with J. Walter Thompson during the current +year. +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is a large +shareholder, granting to Grimoldi, S.A. the exclusive rights to +distribute and sell footwear products in Argentina under the +Hush Puppies® , Caterpillar® and +Merrell® trademarks. Wolverine and Grimoldi, S.A. +executed a similar agreement that grants rights with respect to +Brazil, which was subsequently terminated by mutual agreement in +fiscal 2001. Under these agreements, Grimoldi, S.A., or its +subsidiary, pays Wolverine royalties and certain sublicense fees +based on sales or purchases of footwear products in Argentina +and Brazil. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2001 totaling $938,500. These +agreements were made under terms and conditions customary for +other international licensees and distributors, and all payments +due under these agreements were invoiced or paid in accordance +with Wolverine’s customary terms and practices. +In the ordinary course of their business, +Wolverine and its subsidiaries sell footwear for resale, +samples, components of footwear products (such as leather and +shoe soles), advertising materials and miscellaneous items to +licensees, distributors and customers. In 2001, purchases of +such items by Grimoldi, S.A. totaled $443,583 (including any +applicable sublicense fees for products containing licensed +proprietary technology). All of these purchases were made +pursuant to Wolverine’s customary trade terms and were +invoiced or paid in accordance with Wolverine’s customary +payment terms and schedules applicable to all licensees, +distributors and customers. +All of the transactions described above occurred +pursuant to continuing contractual arrangements +38 +Table of Contents +between Wolverine and Grimoldi, S.A. Wolverine +expects similar transactions to occur between Grimoldi, S.A. and +Wolverine and its subsidiaries during 2002. +Compensation Committee Interlocks and Insider +Participation +Wolverine’s Compensation Committee consists +of Donald V. Fites, Phillip D. Matthews, David P. +Mehney, Elizabeth A. Sanders, and Paul D. Schrage. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +requires Wolverine’s directors and officers, and persons +who beneficially own more than 10% of the outstanding shares of +common stock, to file reports of ownership and changes in +ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2001 +fiscal year, Wolverine believes that its officers and directors +complied with all applicable reporting requirements during +Wolverine’s last fiscal year, except as described below. +Mr. Mundt failed to file one Form 4 +with respect to one transaction involving the sale of 2,900 +shares. This transaction was reported on Form 5. The +Form 5 filed for Mr. Sedrowski inadvertently omitted +one disposition of 237 shares. The Form 5 filed for +Mr. Bloom inadvertently omitted the surrender back to +Wolverine of 9,585 shares. Corrective amendments or reports for +the above holdings were filed upon discovery. +Stockholder Proposals +To be considered timely, any stockholder proposal +intended to be presented at the annual meeting of stockholders +in 2003 (whether or not intended for inclusion in our proxy +statement and proxy card relating to that meeting) must be +received by us not later than November 15, 2002. +Stockholder proposals intended for inclusion in our proxy +statement and proxy card relating to that meeting should be made +as described in Securities and Exchange Commission +Rule 14a-8. You should address all stockholder proposals to +the attention of the Secretary of the Company, +9341 Courtland Drive, N.E., Rockford, +Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine +directors, officers and employees may also solicit proxies by +telephone or facsimile or personally without additional +compensation. Proxies may be solicited by nominees and other +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by them. Wolverine +will pay all costs of solicitation of proxies, including the +charges and expenses of brokerage firms, banks, trustees or +other nominees for forwarding proxy materials to beneficial +owners. We have engaged Georgeson Shareholder Communications, +Inc. at an estimated cost of $7,500, plus expenses and +disbursements, to assist in solicitation of proxies. +39 +Table of Contents +Appendix A +WOLVERINE WORLD WIDE, INC. +AUDIT COMMITTEE CHARTER +I. GOVERNANCE +This Charter sets forth the organization and +operation of the Audit Committee (the “Committee”) for +Wolverine World Wide, Inc. (the “Company”) and has +been approved by the Company’s Board of Directors. The +Committee shall review and reassess the Charter at least +annually. Amendments to this Charter shall be approved by the +Board of Directors. +II. ORGANIZATION +The Board of Directors shall appoint the members +of the Committee. The Committee shall consist of at least three +directors, each of whom are independent of management and the +Company. Members of the Committee shall be considered +independent if they have no relationship to the Company that may +interfere with the exercise of their independence from +management and the Company. All Committee members shall be +financially literate or shall become financially literate within +a reasonable period of time after appointment to the Committee. +At least one member shall have accounting or related financial +management experience. Any questions concerning a +Director’s independence or qualification to serve on the +Committee will be determined by the Board of Directors in its +business judgment. +III. STATEMENT OF +POLICY +The Committee shall provide assistance to the +Board of Directors in fulfilling its oversight responsibility +relating to the Company’s financial statements and the +financial reporting process, the systems of internal accounting +and financial controls, the internal audit function, and the +annual independent audit of the Company’s financial +statements. In so doing, it is the responsibility of the +Committee to maintain open communication between the Committee, +the independent auditors, internal auditors and management of +the Company. In discharging its oversight role, the Committee +may review any matter of concern with full access to all books, +records, facilities, and personnel of the Company and may retain +outside counsel, or other experts for this purpose. +IV. RESPONSIBILITIES +AND PROCESSES +The Committee’s primary responsibility is to +oversee the Company’s financial reporting process on behalf +of the Board of Directors and report the results of the +Committee’s activities to the Board. Management is +responsible for preparing the Company’s financial +statements, and the independent auditors are responsible for +auditing those financial statements. The Committee’s +policies and procedures should remain flexible, in order to +react to changing conditions and circumstances. +The following shall be the principal recurring +processes of the Committee in carrying out its responsibilities. +The processes are set forth as a guide with the understanding +that the Committee may modify or supplement them as appropriate. +• +The Committee shall communicate to management and +the independent auditors that the independent auditors are +ultimately accountable to the Committee and the Board of +Directors, as representatives of the Company’s stockholders. +• +The Committee shall assist the Board of Directors +in its responsibility to select, evaluate and, if appropriate, +replace the independent auditors. Annually, the Committee shall +review and recommend to the Board the selection of the +Company’s independent auditors, subject to stockholder +approval. The Committee shall annually review the performance +(effectiveness, objectivity, and independence) of the +independent and internal auditors and shall report its +conclusions to the Board of Directors. +A-1 +Table of Contents +• +The Committee shall ensure receipt of a formal +written statement from the independent auditors consistent with +standards set by the Independence Standards Board. The Committee +shall review the statement on independence and shall discuss +with the independent auditors any relationships that may +adversely affect the independent auditors’ objectivity or +independence, and shall consider the compatibility of nonaudit +services with the auditors’ independence. If the Committee +is not satisfied with the auditors’ assurances of +independence, it shall recommend to the full Board appropriate +action to ensure the independence of the independent auditors. +• +The Committee shall discuss with the internal and +independent auditors the overall scope and plans for their +respective audits including the adequacy of staffing and fee +arrangements. The Committee shall review with management and the +internal and independent auditors the adequacy and effectiveness +of the Company’s accounting and financial controls, +including the Company’s systems to monitor and manage +business risks. The Committee shall also meet separately with +the internal auditors and the independent auditors, with and +without management present, to discuss the results of the +Committee’s examinations. +• +The Committee shall review the Company’s +interim financial statements with management and the independent +auditors prior to the filing of Quarterly Reports on +Form 10-Q. The Committee shall review the results of the +quarterly reviews with the independent auditors and any other +matters required to be communicated to the Committee by the +independent auditors under generally accepted auditing +standards. The Chairperson of the Committee may represent the +entire Committee for the purposes of quarterly reviews. +• +The Committee shall review with management and +the independent auditors the Company’s financial statements +to be included in Annual Reports on Form 10-K (or annual +reports to stockholders if distributed prior to the filing of +Form 10-K). The Committee shall review the results of the +annual audit with the independent auditors and any other matters +required to be communicated to the Committee by the independent +auditors under generally accepted auditing standards. +Although the Committee has the responsibilities +and powers set forth in this Charter, it is not the duty of the +Committee to plan or conduct audits or to determine that the +Company’s financial statements are complete, accurate and +in accordance with generally accepted accounting principles. +These tasks are the responsibility of management and the +independent auditors. It is not the duty of the Committee to +conduct investigations, to resolve disagreements between +management and the independent auditors, or to assure compliance +with laws and regulations. +A-2 +Table of Contents +Appendix B +WOLVERINE WORLD WIDE, INC. +AMENDED AND RESTATED +EXECUTIVE SHORT-TERM INCENTIVE PLAN +(ANNUAL BONUS PLAN) +SECTION 1 +Establishment of Plan; Purpose of +Plan +1.1 Establishment +of Plan. The Company hereby establishes the AMENDED AND +RESTATED EXECUTIVE SHORT-TERM INCENTIVE PLAN (ANNUAL BONUS PLAN) +(the “Plan”), for its executive officers, senior +corporate and divisional officers and other key employees. The +Plan amends and restates the Wolverine World Wide, Inc. +Executive Short-Term Incentive Plan (Annual Bonus Plan) +previously approved by the stockholders at the 1997 Annual +Meeting of Stockholders. The Plan provides for the payment of +bonuses to participants based upon the financial performance of +the Company, or a Subsidiary, operating division or profit +center of the Company, in a particular fiscal year. +1.2 Purpose of +Plan. The purpose of the Plan is to motivate Participants to +improve the Company’s profitability and growth by the +attainment of carefully planned goals, promote initiative and +cooperation with awards based on corporate and divisional +performance and encourage outstanding individuals to enter and +continue in the employ of the Company. Within that context, the +Plan is intended to provide performance-based compensation under +Section 162(m) of the Code and shall be interpreted and +administered to achieve that purpose. +1.3 Effective +Date. The Plan is initially effective as of +February 15, 2002. Adoption of the Plan by the Board and +payment of Incentive Bonuses for Fiscal Year 2002 shall be +contingent upon approval by the stockholders at the 2002 Annual +Meeting of Stockholders or any adjournment thereof or at a +Special Meeting of the Stockholders. In the absence of such +approval, this Plan shall be void. +SECTION 2 +Definitions +The following terms have the stated definitions +unless a different meaning is plainly required by the context: +2.1 “Act” +means the Securities Exchange Act of 1934, as amended. +2.2 “Beneficiary” +means the individual, trust or other entity designated by the +Participant to receive any amount payable with respect to the +Participant under the Plan after the Participant’s death. A +Participant may designate or change a Beneficiary by filing a +signed designation with the Committee in a form approved by the +Committee. A Participant’s will is not effective for this +purpose. If a designation has not been completed properly and +filed with the Committee or is ineffective for any other reason, +the Beneficiary shall be the Participant’s Surviving +Spouse. If there is no effective designation and the Participant +does not have a Surviving Spouse, the remaining benefits, if +any, shall be paid to the Participant’s estate. +2.3 “Board” +means the Board of Directors of the Company. +2.4 “Code” +means the Internal Revenue Code of 1986, as amended. +2.5 “Committee” +means the Compensation Committee of the Board or such other +committee as the Board shall designate to administer the Plan. +The Committee shall consist of at least 2 members and all of its +members shall be “non-employee directors” as defined +in Rule 16b-3 issued under the Act and “outside +directors” as defined in the regulations issued under +Section 162(m) of the Code. +2.6 “Company” +means Wolverine World Wide, Inc., a Delaware corporation, and +its successors and assigns. +B-1 +Table of Contents +2.7 “Fiscal +Year” means the fiscal year of the Company for financial +reporting purposes as the Company may adopt from time to time. +2.8 “Incentive +Bonus” means an annual bonus awarded and paid to a +Participant for services to the Company during a Fiscal Year +that is based upon achievement of preestablished performance +objectives by the Company, or a Subsidiary, operating division +or profit center. +2.9 “Participant” +means an executive officer, senior corporate or divisional +officer or other key employee of the Company or its Subsidiaries +who is designated as a Participant for a Fiscal Year. +2.10 “Performance” +means the level of achievement by the Company or its +Subsidiaries, operating divisions or profit centers of the +financial performance criteria established by the Committee +pursuant to Section 5.2. +2.11 “Subsidiary” +means any company or other entity of which 50% or more of the +outstanding voting stock or voting ownership interest is +directly or indirectly owned or controlled by the Company or by +one or more Subsidiaries of the Company. +2.12 “Surviving +Spouse” means the spouse of the Participant at the time of +the Participant’s death who survives the Participant. If +the Participant and spouse die under circumstances which prevent +ascertainment of the order of their deaths, it shall be presumed +for the Plan that the Participant survived the spouse. +2.13 “Target +Bonus” means the bonus goal established by the Committee +for each Participant under Section 5.1(a). +SECTION 3 +Administration +3.1 Power and +Authority. The Plan shall be administered by the Committee. +The Committee may delegate recordkeeping, calculation, payment +and other ministerial or administrative functions to individuals +designated by the Committee, who may be employees of the Company +or its Subsidiaries. Except as limited in the Plan, the +Committee shall have all of the express and implied powers and +duties set forth in the Plan and shall have full authority and +discretion to interpret the Plan and to make all other +determinations deemed necessary or advisable for the +administration of the Plan. Action may be taken by a written +instrument signed by a majority of the members of the Committee +and any action so taken shall be as effective as if it had been +taken at a meeting. The Committee may make such other rules for +the conduct of its business and may adopt such other rules, +policies and forms for the administration, interpretation and +implementation of the Plan as it deems advisable. All +determinations, interpretations and selections made by the +Committee regarding the Plan shall be final and conclusive. +3.2 Indemnification +of Committee Members. Neither any member or former member of +the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each individual +who is or has been a member of the Committee, or delegated +authority by the Committee, shall be indemnified and held +harmless by the Company from and against any cost, liability or +expense imposed or incurred in connection with any act or +failure to act under the Plan. Each such individual shall be +justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or +persons. +SECTION 4 +Participation +4.1 Participation. +For each Fiscal Year, the Committee shall select the executive +officers, senior corporate and divisional officers and other key +employees who shall be the Participants for the Fiscal Year. The +Committee may limit the number of executive officers, senior +corporate and divisional officers and other key employees who +will be Participants for a Fiscal Year. Officers and key +employees designated as Participants after the first +90 days of any Fiscal Year shall not be eligible for any +Incentive Bonus paid with respect to such Fiscal Year. +B-2 +Table of Contents +4.2 Continuing +Participation. Selection as a Participant for a Fiscal Year +by the Committee is limited to that Fiscal Year. An eligible +executive officer, senior corporate or divisional officer or key +employee will be a Participant for a Fiscal Year only if +designated as a Participant by the Committee for such Fiscal +Year. +SECTION 5 +Performance Goals and Criteria +5.1 Selection of +Criteria. The Committee shall preestablish performance goals +for each Participant in the manner and within the time limits +specified in this Section 5. For each Participant for each +Fiscal Year, the Committee shall specify: +(a) Target Bonus. +A Target Bonus, expressed as a percentage of the +Participant’s base salary or a specified dollar amount; +(b) Incentive +Bonus. The Incentive Bonus levels, expressed as a percentage +of the Target Bonus, that shall be paid to the Participant at +specified levels of performance by the Company, division or +profit center based on the criteria established by the Committee +pursuant to Section 5.2; +(c) Performance +Measurement. The applicable measurement of Performance under +Section 5.2; and +(d) Conditions on +Incentive Bonus. Any specific conditions under which an +Incentive Bonus specified under subsection (b) above may be +reduced or forfeited (but not increased). +The Incentive Bonus levels specified under +subsection (b) above may be expressed either as (i) a +matrix of percentages of the Target Bonus that will be paid at +specified levels of the Performance or (ii) a mathematical +formula that determines the percentage of the Target Bonus that +will be paid at varying levels of Performance. +5.2 Measurement +of Performance. Performance of the Company and/or its +Subsidiaries, operating divisions or profit centers shall be +determined by reference to one or more of the following: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on assets, +return on invested capital or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges or +extraordinary items. These factors could be measured against +pre-determined levels or the Company’s relative performance +when compared to a pre-established peer group. +5.3 Incentive +Bonus Conditioned on Performance. Payment of an Incentive +Bonus to a Participant for a Fiscal Year under this Plan shall +be entirely contingent upon achievement of the Performance +levels established by the Committee pursuant to this +Section 5, the satisfaction of which is substantially +uncertain when established by the Committee for the Fiscal Year. +5.4 Time of +Determination by Committee. All determinations to be made by +the Committee for a Fiscal Year pursuant to this Section 5 +shall be made by the Committee during the first 90 days of +such Fiscal Year. +5.5 Objective +Standards. An Incentive Bonus shall be based solely upon +objective criteria, consistent with this Section 5, from +which an independent third party with knowledge of the facts +could determine whether the performance goal or range of goals +is met and from that determination could calculate the Incentive +Bonus to be paid. Although the Committee has authority to +exercise reasonable discretion to interpret this Plan and the +criteria it shall specify pursuant to this Section 5 of the +Plan, it may not amend or waive such criteria after the 90th day +of a Fiscal Year. The Committee shall have no authority or +discretion to increase any Incentive Bonus or to construct, +modify or apply the measurement of Performance in a manner that +will directly or indirectly increase the Incentive Bonus for any +Participant for any Fiscal Year above the amount determined by +the applicable objective standards established within the first +90 days of the Fiscal Year. +B-3 +Table of Contents +SECTION 6 +Determination and Payment of Incentive +Bonuses +6.1 Committee +Certification. The Incentive Bonus for each eligible +Participant for a Fiscal Year shall be determined on the basis +of the Target Bonus and Performance criteria established by the +Committee pursuant to Section 5 for the Fiscal Year. The +Committee shall determine, and shall certify in writing prior to +payment of the Incentive Bonus, that the Company Performance for +the Fiscal Year satisfied the Performance criteria established +by the Committee for the Fiscal Year. Approved minutes of the +Committee shall constitute sufficient written certification for +this purpose. +6.2 Eligibility +for Payment. The Incentive Bonus otherwise payable to a +Participant for a Fiscal Year shall be adjusted as follows: +(a) Retirement, +Death or Total Disability. If a Participant ceases to be a +Participant before the end of any Fiscal Year and more than +6 months after the beginning of such Fiscal Year because of +death, normal or early retirement under the Company’s +retirement plan, as then in effect, or total disability under +the Company’s long-term disability plan, an award shall be +paid to the Participant or the Participant’s Beneficiary +after the end of such Fiscal Year prorated as follows: the +award, if any, for such Fiscal Year shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire Fiscal +Year, multiplied by the ratio of the Participant’s full +months as a Participant during that Fiscal Year to the +12 months in that Fiscal Year. Notwithstanding the +foregoing, the Committee shall have discretion to reduce or +eliminate any Incentive Bonus otherwise payable pursuant to this +Section 6.2(a). +(b) Other +Termination. If an employee ceases to be a Participant +during any Fiscal Year, or prior to actual receipt of the award +for a previous Fiscal Year, because of the Participant’s +termination of employment for any reason other than described in +Section 6.2(a), the Participant will not be entitled to any +award for such Fiscal Year. +6.3 Maximum +Incentive Bonus. The Incentive Bonus for any Participant for +a Fiscal Year under this Plan shall not, in any event, exceed +$1,500,000. +6.4 Payment to +Participant or Beneficiary. The Incentive Bonus of each +Participant shall be paid to the Participant, or the Beneficiary +of any deceased Participant, by the Company as soon as feasible +following final determination and certification by the Committee +of the amount payable. +6.5 Manner of +Payment. Each Participant will receive his or her Incentive +Bonus in cash. +SECTION 7 +General Provisions +7.1 Benefits Not +Guaranteed. Neither the establishment and maintenance of the +Plan nor participation in the Plan shall provide any guarantee +or other assurance that an Incentive Bonus will be payable under +the Plan. +7.2 No Right to +Participate. Nothing in this Plan shall be deemed or +interpreted to provide a Participant or any non-participating +employee any contractual right to participate in or receive +benefits under the Plan. No designation of an employee as a +Participant for all or any part of a Fiscal Year shall create a +right to an Incentive Bonus under the Plan for any other Fiscal +Year. There is no obligation of uniformity of treatment of +employees, eligible officers or Participants under the Plan. +7.3 No Employment +Right. Participation in this Plan shall not be construed as +constituting a commitment, guarantee, agreement or understanding +of any kind that the Company or any Subsidiary will continue to +employ any individual and this Plan shall not be construed or +applied as an employment contract or obligation. Nothing in this +Plan shall abridge or diminish the rights of the Company or any +Subsidiary to determine the terms and conditions of employment +of any Participant, officer or other employee or to terminate +the employment of any Participant, officer or other employee +with or without reason at any time. +B-4 +Table of Contents +7.4 No Assignment +or Transfer. Neither a Participant nor any Beneficiary or +other representative of a Participant shall have any right to +assign, transfer, attach or hypothecate any amount or credit, +potential payment or right to future payments of any amount or +credit or any other benefit provided under this Plan. Payment of +any amount due or to become due under this Plan shall not be +subject to the claims of creditors of the Participant or to +execution by attachment or garnishment or any other legal or +equitable proceeding or process. +7.5 No Limit on +Other Compensation Arrangements. Nothing contained in this +Plan shall prevent the Company or any Subsidiary from adopting +or continuing in effect other or additional compensation +arrangements. A Participant may have other targets under other +plans of the Company. However, no payment under any other plan +or arrangement shall be contingent upon failure to attain the +criteria for payment of an Incentive Bonus under this Plan. +7.6 Withholding +and Payroll Taxes. The Company shall deduct from any payment +made under this Plan all amounts required by federal, state, +local and foreign tax laws to be withheld and shall subject any +payments made under the Plan to all applicable payroll taxes and +assessments. +7.7 Incompetent +Payee. If the Committee determines that an individual +entitled to a payment under this Plan is incompetent, it may +cause benefits to be paid to another individual for the use or +benefit of the Participant or Beneficiary at the time or times +otherwise payable under this Plan in total discharge of the +Plan’s obligations to the Participant or Beneficiary. +7.8 Governing +Law. The validity, construction and effect of the Plan shall +be determined in accordance with the laws of the State of +Michigan and applicable federal law. +7.9 Severability. +In the event any provision of the Plan shall be held illegal +or invalid for any reason, the remaining provisions of the Plan +shall not be affected and the Plan shall be construed and +enforced as if the illegal or invalid provision had not been +included. +SECTION 8 +Termination and Amendment +The Board may terminate the Plan at any time, or +may from time to time amend the Plan as it deems proper and in +the best interests of the Company. No termination or amendment +may impair the validity of, or the obligation of the Company to +pay, any Incentive Bonus awarded for any Fiscal Year prior to +the year in which the termination or amendment is adopted or, if +later, is effective. No amendment adopted after the first +90 days of a Fiscal Year may directly or indirectly +increase any Incentive Bonus for that Fiscal Year. Except as +otherwise provided in this Plan and the applicable objective +criteria established pursuant to this Plan for determining the +amount of any Incentive Bonus for a Fiscal Year, no Incentive +Bonuses shall be payable for the Fiscal Year in which the Plan +is terminated, or, if later, in which the termination is +effective. +SECTION 9 +Duration of the Plan +Subject to earlier termination by the Board, this +Plan shall terminate without action by the Board as of the date +of the first meeting of stockholders held in 2007, unless +reapproved by the stockholders at such meeting or earlier. If +reapproval occurs, the Plan will terminate as of the date of the +first meeting of stockholders in the fifth year following +reapproval or any subsequent reapproval. If the Plan terminates +under this provision due to lack of reapproval by the +stockholders, no Incentive Bonuses shall be awarded for the +Fiscal Year in which the Plan terminates. +B-5 +Table of Contents +Appendix C +WOLVERINE WORLD WIDE, INC. +AMENDED AND RESTATED +EXECUTIVE LONG-TERM INCENTIVE PLAN +(3-YEAR BONUS PLAN) +SECTION 1 +Establishment of Plan; Purpose of +Plan +1.1 Establishment +of Plan. The Company hereby establishes the RESTATED AND +AMENDED WOLVERINE WORLD WIDE, INC. EXECUTIVE LONG-TERM INCENTIVE +PLAN (3-YEAR BONUS PLAN) (the “Plan”) for its +executive officers and key management employees. The Plan amends +and restates the Wolverine World Wide, Inc. Executive Long-Term +Incentive Plan (3-Year Bonus Plan) previously approved by the +stockholders at the 1997 Annual Meeting of Stockholders. The +Plan provides for the payment of bonuses to participants based +upon the financial performance of the Company, or a Subsidiary, +operating division or profit center, over a 3-year period. +1.2 Purpose of +Plan. The purpose of the Plan is to encourage longer range +strategic planning and not stress over-dependence on short-term +performance which could hinder long-term increases in +stockholder value and/or achievement of a strategic position +and/or advantage in the marketplace, to encourage cooperation +among all the units of the Company to foster a closer and more +cooperative association and sense of teamwork and to encourage +executive officers and key management individuals to enter and +continue in the employ of the Company. Within that context, the +Plan is intended to provide performance-based compensation under +Section 162(m) of the Code and shall be interpreted and +administered to achieve that purpose. +1.3 Effective +Date. The Plan is initially effective as of +February 15, 2002. Adoption of the Plan by the Board and +payment of Incentive Bonuses pursuant to this Plan shall be +contingent upon approval of the Plan by the stockholders of the +Company at the 2002 Annual Meeting of Stockholders or any +adjournment thereof or at a Special Meeting of the Stockholders. +In the absence of such approval, this Plan shall be void. +SECTION 2 +Definitions +The following terms have the stated definitions +unless a different meaning is plainly required by the context: +2.1 “Act” +means the Securities Exchange Act of 1934, as amended. +2.2 “Beneficiary” +means the individual, trust or other entity designated by the +Participant to receive any amount payable with respect to the +Participant under the Plan after the Participant’s death. A +Participant may designate or change a Beneficiary by filing a +signed designation with the Committee in a form approved by the +Committee. A Participant’s will is not effective for this +purpose. If a designation has not been completed properly and +filed with the Committee or is ineffective for any other reason, +the Beneficiary shall be the Participant’s Surviving +Spouse. If there is no effective designation and the Participant +does not have a Surviving Spouse, the remaining benefits, if +any, shall be paid to the Participant’s estate. +2.3 “Board” +means the Board of Directors of the Company. +2.4 “Code” +means the Internal Revenue Code of 1986, as amended. +2.5 “Committee” +means the Compensation Committee of the Board or such other +committee as the Board shall designate to administer the Plan. +The Committee shall consist of at least 2 members and all of its +members shall be “non-employee directors” as defined +in Rule 16b-3 issued under the Act and “outside +directors” as defined in the regulations issued under +Section 162(m) of the Code. +2.6 “Company” +means Wolverine World Wide, Inc., a Delaware corporation, and +its successors and assigns. +C-1 +Table of Contents +2.7 “Fiscal +Year” means the fiscal year of the Company for financial +reporting purposes as the Company may adopt from time to time. +2.8 “Incentive +Bonus” means a bonus awarded and paid to a Participant for +services to the Company during a 3-year period that is based +upon achievement of preestablished financial objectives by the +Company or a Subsidiary, operating division of profit center. +2.9 “Market +Value” shall equal the mean of the highest and lowest sales +prices of shares of common stock of the Company on the New York +Stock Exchange (or any successor exchange that is the primary +stock exchange for trading of common stock of the Company) on +the date of grant or reference, or if the New York Stock +Exchange (or any such successor) is closed on that date, the +last preceding date on which the New York Stock Exchange (or any +such successor) was open for trading and on which shares of +common stock of the Company were traded. +2.10 “Participant” +means an executive officer or key management employee of the +Company or its Subsidiaries who is designated as a Participant +for a 3-year period. +2.11 “Performance” +means the level of achievement by the Company or its +Subsidiaries, operating divisions or profit centers of the +financial performance criteria established by the Committee +pursuant to Section 5.3. +2.12 “Subsidiary” +means any corporation or other entity of which 50% or more of +the outstanding voting stock or voting ownership interest is +directly or indirectly owned or controlled by the Company or by +one or more Subsidiaries of the Company. +2.13 “Surviving +Spouse” means the spouse of the Participant at the time of +the Participant’s death who survives the Participant. If +the Participant and spouse die under circumstances which prevent +ascertainment of the order of their deaths, it shall be presumed +for the Plan that the Participant survived the spouse. +2.14 “Target +Bonus” means the bonus goal established by the Committee +for each Participant under Section 5.2(a). +SECTION 3 +Administration +3.1 Power and +Authority. The Plan shall be administered by the Committee. +The Committee may delegate recordkeeping, calculation, payment +and other ministerial or administrative functions to individuals +designated by the Committee, who may be employees of the Company +or its Subsidiaries. Except as limited in this Plan, the +Committee shall have all of the express and implied powers and +duties set forth in the Plan and shall have full authority and +discretion to interpret the Plan and to make all other +determinations deemed necessary or advisable for the +administration of the Plan. Action may be taken by a written +instrument signed by a majority of the members of the Committee +and any action so taken shall be as effective as if it had been +taken at a meeting. The Committee may make such other rules for +the conduct of its business and may adopt such other rules, +policies and forms for the administration, interpretation and +implementation of the Plan as it deems advisable. All +determinations, interpretations and selections made by the +Committee regarding the Plan shall be final and conclusive. +3.2 Indemnification +of Committee Members. Neither any member or former member of +the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each individual +who is or has been a member of the Committee, or delegated +authority by the Committee, shall be indemnified and held +harmless by the Company from and against any cost, liability or +expense imposed or incurred in connection with any act or +failure to act under the Plan. Each such individual shall be +justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or +persons. +C-2 +Table of Contents +SECTION 4 +Participation +4.1 Participation. +For each 3-year period, the Committee shall select the executive +officers and key management employees who shall be the +Participants for the 3-year period. The Committee may limit the +number of executive officers and key management employees who +will be Participants for a 3-year period. Executive officers and +key management employees designated as Participants after the +first 90 days of any 3-year period shall not be eligible +for any Incentive Bonus paid with respect to such 3-year period. +4.2 Continuing +Participation. Selection as a Participant for a 3-year +period by the Committee is limited to that 3-year period. An +eligible executive officer or key management employee will be a +Participant for a 3-year period only if designated as a +Participant by the Committee for such 3-year period. +SECTION 5 +Performance Goals and Criteria +5.1 Concept. +The primary concept of the Plan is to establish financial +performance goals for each 3-year time period for the Company. +The performance periods are overlapping, beginning every Fiscal +Year and ending 3 full Fiscal Years later. The Plan provides for +the payment of bonuses to participants based upon the financial +performance of the Company over the 3-year period. +5.2 Selection of +Criteria. The Committee shall preestablish performance goals +for each Participant in the manner and within the time limits +specified in this Section 5. For each Participant for each +3-year period, the Committee shall specify: +(a) Target +Bonus. A Target Bonus, expressed as a specified dollar +amount or as a percentage of the Participant’s average +annual earned salary; +(b) Incentive +Bonus. The Incentive Bonus levels, expressed as a percentage +of the Target Bonus, that shall be paid to the Participant at +specified levels of Performance by the Company based on the +criteria established by the Committee pursuant to Section 5.3; +(c) Performance +Measurement. The applicable measurement of Performance under +Section 5.3; and +(d) Conditions on +Incentive Bonus. Any specific conditions under which an +Incentive Bonus specified under (b) above may be reduced or +forfeited (but not increased). +The Incentive Bonus levels specified under +(b) above may be expressed either as (i) a matrix of +percentages of the Target Bonus that will be paid at specified +levels of Performance or (ii) a mathematical formula that +determines the percentage of the Target Bonus that will be paid +at varying levels of Performance. +5.3 Measurement +of Performance. Performance of the Company and/or its +Subsidiaries, operating divisions or profit centers shall be +determined by reference to one or more of the following: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on assets, +return on invested capital or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges or +extraordinary items. These factors could be measured against +pre-determined levels or the Company’s relative performance +when compared to a pre-established peer group. +5.4 Incentive +Bonus Conditioned on Performance. Payment of an Incentive +Bonus to a Participant for a 3-year period under this Plan shall +be entirely contingent upon the Performance criteria established +by the Committee pursuant to this Section 5, the +satisfaction of which is substantially uncertain when +established by the Committee for the 3-year period. +5.5 Time of +Determination by Committee. All determinations to be made by +the Committee for a 3-year period pursuant to this +Section 5 shall be made by the Committee during the first +90 days of such 3-year period. +C-3 +Table of Contents +5.6 Objective +Standards. An Incentive Bonus shall be based solely upon +objective criteria, consistent with this Section 5, from +which an independent third party with knowledge of the facts +could determine whether the performance goal or range of goals +is met and from that determination could calculate the Incentive +Bonus to be paid. Although the Committee has authority to +exercise reasonable discretion to interpret this Plan and the +criteria it shall specify pursuant to this Section 5 of the +Plan, it may not amend or waive such criteria after the +90th day of a 3-year period. The Committee shall have no +authority or discretion to increase any Incentive Bonus or to +construct, modify or apply the measurement of Performance in a +manner that will directly or indirectly increase the Incentive +Bonus for any Participant for any 3-year period above the amount +determined by the applicable objective standards established +within the first 90 days of the 3-year period. +SECTION 6 +Determination and Payment of Incentive +Bonuses +6.1 Committee +Certification. The Incentive Bonus for each eligible +Participant for a 3-year period shall be determined on the basis +of the Target Bonus and Performance criteria established by the +Committee pursuant to Section 5 for the 3-year period. The +Committee shall determine, and shall certify in writing prior to +payment of any Incentive Bonus, that the Company Performance for +the 3-year period satisfied the Performance criteria established +by the Committee for the 3-year period. Approved minutes of the +Committee shall constitute sufficient written certification for +this purpose. +6.2 Partial +Period Performance Adjustments. The Incentive Bonus +otherwise payable to a Participant for a 3-year period shall be +adjusted as follows: +(a) Retirement, +Death or Total Disability. If a Participant ceases to be a +Participant before the end of any 3-year period and more than +12 months after the beginning of such 3-year period because +of death, normal or early retirement under the Company’s +retirement plan, as then in effect, or total disability under +the Company’s long-term disability plan, an award shall be +paid to the Participant or the Participant’s Beneficiary +after the end of such 3-year period prorated as follows: the +award, if any, for such 3-year period shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire +performance period, multiplied by the ratio of the +Participant’s full months as a Participant during that +performance period to the total number of months in that +performance period. The award, if any, shall only be made in the +form of a cash payout and no shares of restricted stock shall be +awarded. Notwithstanding the foregoing, the Committee shall have +discretion to reduce or eliminate any Incentive Bonus otherwise +payable pursuant to this Section. +(b) Other +Termination. If an employee ceases to be a Participant +during any 3-year period(s), or prior to actual receipt of the +award for a previous period because of the Participant’s +termination of employment for any reason other than described in +Section 6.2(a), the Participant will not be entitled to any +award for such 3-year period. If a Participant continues in +Wolverine’s employment but no longer is approved by the +Committee to participate in future 3-year periods, the +Participant shall be eligible for a prorated award determined in +the same manner set forth in Section 6.2(a). +Notwithstanding the foregoing, the Committee shall have +discretion to reduce or eliminate any Incentive Bonus otherwise +payable pursuant to this Section. +6.3 Maximum +Incentive Bonus. The Incentive Bonus for any Participant for +a 3-year period shall not, in any event, exceed $1,500,000, +exclusive of the 20% increase in the amount of the Incentive +Bonus payable in restricted stock which reflects what the +Company believes to be the diminution of value of the award +created by the restrictions. +6.4 Payment to +Participant or Beneficiary. The Incentive Bonus of each +Participant shall be paid to the Participant, or the Beneficiary +of any deceased Participant, by the Company as soon as feasible +following final determination and certification by the Committee +of the amount payable. +C-4 +Table of Contents +SECTION 7 +Manner of Payment +7.1 General. +Each Participant will receive part of his or her Incentive +Bonus in cash and part in restricted stock according to the +terms below. +7.2 Cash Payout. +Each Participant will receive a cash payment equal to 50% of +his or her Incentive Bonus. The Company will make the cash +payment as soon as feasible following final determination and +certification by the Committee of the amount payable. +7.3 Restricted +Stock. Each Participant will also receive a grant of +restricted stock under the Company’s existing +stockholder-approved plans on the same date the cash payment is +made pursuant to Section 7.2. The number of shares of +restricted stock a Participant shall receive will equal 70% of +the Incentive Bonus divided by the Market Value of the +Company’s common stock on the date of grant, rounded to the +nearest whole share. The restrictions imposed on the restricted +stock shall lapse in three equal annual installments commencing +one year following the grant date. Each award of restricted +stock shall be evidenced by a restricted stock agreement +containing such terms and conditions, including vesting +schedules, consistent with the provisions of this Plan and the +plan under which the restricted stock is so awarded. +SECTION 8 +General Provisions +8.1 Benefits Not +Guaranteed. Neither the establishment and maintenance of the +Plan nor participation in the Plan shall provide any guarantee +or other assurance that an Incentive Bonus will be payable under +the Plan. +8.2 No Right to +Participate. Nothing in this Plan shall be deemed or +interpreted to provide a Participant or any non-participating +employee any contractual right to participate in or receive +benefits under the Plan. No designation of an employee as a +Participant for any 3-year period shall create a right to an +Incentive Bonus under the Plan for any other 3-year period. +There is no obligation of uniformity of treatment of employees, +eligible officers or Participants under the Plan. +8.3 No Employment +Right. Participation in this Plan shall not be construed as +constituting a commitment, guarantee, agreement or understanding +of any kind that the Company or any Subsidiary will continue to +employ any individual and this Plan shall not be construed or +applied as an employment contract or obligation. Nothing in this +Plan shall abridge or diminish the rights of the Company or any +Subsidiary to determine the terms and conditions of employment +of any Participant, officer or other employee or to terminate +the employment of any Participant, officer or other employee +with or without reason at any time. +8.4 No Assignment +or Transfer. Neither a Participant nor any Beneficiary or +other representative of a Participant shall have any right to +assign, transfer, attach or hypothecate any amount or credit, +potential payment or right to future payments of any amount or +credit or any other benefit provided under this Plan. Payment of +any amount due or to become due under this Plan shall not be +subject to the claims of creditors of the Participant or to +execution by attachment or garnishment or any other legal or +equitable proceeding or process. +8.5 No Limit on +Other Compensation Arrangements. Nothing contained in this +Plan shall prevent the Company or any Subsidiary from adopting +or continuing in effect other or additional compensation +arrangements. A Participant may have other targets under other +plans of the Company. However, no payment under any other plan +or arrangement shall be contingent upon failure to attain the +criteria for payment of an Incentive Bonus under this Plan. +8.6 Withholding +and Payroll Taxes. The Company shall deduct from any payment +made under this Plan all amounts required by federal, state, +local and foreign tax laws to be withheld and shall subject any +payments made under the Plan to all applicable payroll taxes and +assessments. +8.7 Incompetent +Payee. If the Committee determines that an individual +entitled to a payment under this Plan is incompetent, it may +cause benefits to be paid to another individual for the use or +benefit of the Participant or Beneficiary at the time or times +otherwise payable under this Plan in total discharge of the +Plan’s obligations to the Participant or Beneficiary. +C-5 +Table of Contents +8.8 Governing +Law. The validity, construction and effect of the Plan shall +be determined in accordance with the laws of the State of +Michigan and applicable federal law. +8.9 Severability. +In the event any provision of the Plan shall be held illegal +or invalid for any reason, the remaining provisions of the Plan +shall not be affected and the Plan shall be construed and +enforced as if the illegal or invalid provision had not been +included. +SECTION 9 +Termination and Amendment +The Board may terminate the Plan at any time or +may from time to time amend the Plan as it deems proper and in +the best interests of the Company. No termination or amendment +may impair the validity of, or the obligation of the Company to +pay, any Incentive Bonus awarded for any 3-year period ending +prior to the year in which the termination or amendment is +adopted or, if later, is effective. No amendment adopted after +the first 90 days of a 3-year period may directly or +indirectly increase the amount of any Incentive Bonus, or alter +the objective criteria in a manner which will increase any +Incentive Bonus, for that 3-year period. Except as otherwise +provided in this Plan and the applicable objective criteria +established pursuant to this Plan for determining the amount of +any Incentive Bonus for a 3-year period, no Incentive Bonuses +shall be payable for the 3-year period in which the Plan is +terminated, or, if later, in which the termination is effective. +SECTION 10 +Duration of the Plan +Subject to earlier termination by the Board, this +Plan shall terminate without action by the Board as of the date +of the first meeting of the stockholders in 2007 unless +reapproved by the stockholders at that meeting or any earlier +meeting. If reapproval occurs, the Plan will terminate as of the +date of the first meeting of the stockholders in the fifth year +following reapproval and each subsequent reapproval unless +reapproved on or before the termination date. If the Plan +terminates under this provision due to lack of reapproval by the +stockholders, Incentive Bonuses shall be paid for the 3-year +periods already commenced before the date of termination of the +Plan, except for the 3-year period that initially began in the +year the Plan terminates. +C-6 +Table of Contents +Appendix D +WOLVERINE WORLD WIDE, INC. +AMENDED AND RESTATED +DIRECTORS’ STOCK OPTION PLAN +SECTION 1 +Establishment of Plan; Purpose of +Plan +1.1 Establishment +of Plan. The Company hereby establishes the AMENDED AND +RESTATED DIRECTORS’ STOCK OPTION PLAN (the +“Plan”) for its Non-Employee Directors. The Plan +amends and restates the 1994 Directors’ Stock Option Plan +previously approved by the stockholders at the 1994 Annual +Meeting of Stockholders. The Plan permits the grant of Stock +Options that are nonqualified stock options. +1.2 Purpose +of Plan. The purpose of the Plan is to advance the interests +of the Company and its stockholders by attracting and retaining +the services of experienced and knowledgeable Non-Employee +Directors and to provide additional incentive for such +Non-Employee Directors to continue to promote and work for the +best interests of the Company and its stockholders through +continuing ownership of the Company’s Common Stock. +SECTION 2 +Definitions +The following words have the following meanings +unless a different meaning is plainly required by the context: +2.1 “Act” +means the Securities Exchange Act of 1934, as amended. +2.2 “Board” +means the Board of Directors of the Company. +2.3 “Code” +means the Internal Revenue Code of 1986, as amended. +2.4 “Committee” +means the Compensation Committee of the Board or such other +committee as the Board shall designate to administer the Plan. +2.5 “Common +Stock” means the Common Stock of the Company, par value $1 +per share. +2.6 “Company” +means Wolverine World Wide, Inc., a Delaware corporation, and +its successors and assigns. +2.7 “Market +Value” shall equal the mean of the highest and lowest sales +prices of shares of Common Stock on the New York Stock Exchange +(or any successor exchange that is the primary stock exchange +for trading of Common Stock) on the date of grant or reference, +or if the New York Stock Exchange (or any such successor) is +closed on that date, the last preceding date on which the New +York Stock Exchange (or any such successor) was open for trading +and on which shares of Common Stock were traded. +2.8 “Non-Employee +Directors” means directors of the Company who are not also +employees of the Company or any of its subsidiaries; provided, +that the Committee may exclude any Non-Employee Director from +participating in the Plan at any time or from time to time +pursuant to an individual agreement or arrangement with such +Non-Employee Director. +2.9 “Retirement” +means the reaching of mandatory retirement age for a director as +established by the Board, which is currently 72 years of +age. +2.10 “Stock +Option” means the right to purchase Common Stock at a +stated price for a specified period of time. For purposes of the +Plan, all Stock Options shall be nonqualified stock options. +D-1 +Table of Contents +SECTION 3 +Administration +3.1 Power +and Authority. The Committee shall administer the Plan, +shall have full power and authority to interpret the provisions +of the Plan and to supervise the administration of the Plan. The +Committee may delegate record keeping, calculation, payment and +other ministerial administrative functions to individuals +designated by the Committee, who may be officers or employees of +the Company or its Subsidiaries. All determinations, +interpretations, and selections made by the Committee regarding +the Plan shall be final and conclusive. The Committee shall hold +its meetings at such times and places as it deems advisable. +Action may be taken by a written instrument signed by a majority +of the members of the Committee, and any action so taken shall +be fully as effective as if it had been taken at a meeting duly +called and held. The Committee shall make such rules and +regulations for the conduct of its business as it deems +advisable. The members of the Committee shall not be paid any +additional fees for their services. +3.2 Indemnification +of Committee Members. Neither any member or former member of +the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each person who +is or has been a member of the Committee, and each person to +whom authority is or has been delegated, shall be indemnified +and held harmless by the Company from and against any cost, +liability, or expense imposed or incurred in connection with +such person’s or the Committee’s taking or failing to +take any action under the Plan. Each such person shall be +justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or +persons. +SECTION 4 +Shares Subject to the Plan +4.1 Number +of Shares. Subject to adjustment as provided in subsection +4.2, a maximum of 400,000 shares of Common Stock shall be +available for Stock Options under the Plan in addition to any +shares previously authorized for issuance under the Plan, as +adopted in 1994, plus shares subject to Stock Options that are +canceled, surrendered, modified, exchanged for substitute Stock +Options or expire or terminate prior to the exercise or vesting +of the Stock Options in full and shares that are surrendered to +the Company in connection with the exercise or vesting of a +Stock Option, whether previously owned or otherwise subject to +such Stock Options. Such shares shall be authorized and may be +either unissued or treasury shares. +4.2 Adjustments . +(a) Stock +Dividends and Distributions. If the number of shares of +Common Stock outstanding changes by reason of a stock dividend, +stock split, recapitalization or other general distribution of +Common Stock or other securities to holders of Common Stock, the +number and kind of securities subject to Stock Options and +reserved for issuance under the Plan, including, without +limitation, the number of shares to be granted pursuant to +subsection 5.1, together with applicable exercise prices, +as well as the number of shares available for issuance under the +Plan, shall be adjusted appropriately. No fractional shares +shall be issued pursuant to the Plan and any fractional shares +resulting from such adjustments shall be eliminated from the +respective Stock Options. +(b) Other +Actions Affecting Common Stock. If there occurs, other than +as described in the preceding subsection, any merger, business +combination, recapitalization, reclassification, subdivision or +combination approved by the Board that would result in the +persons who were stockholders of the Company immediately prior +to the effective time of any such transaction owning or holding, +in lieu of or in addition to shares of Common Stock, other +securities, money and/or property (or the right to receive other +securities, money and/or property) immediately after the +effective time of such transaction, then the outstanding Stock +Options (including exercise prices) and reserves for Stock +Options under this Plan shall be adjusted in such manner and at +such time as shall be equitable under the circumstances. It is +intended that in the event of any such transaction, Stock +Options under this Plan shall entitle the holder of each Stock +Option to receive upon exercise, in lieu of or in addition to +shares of Common Stock, any other securities, money and/or +property receivable upon consummation of any such transaction by +holders of Common Stock with respect to each share of Common +Stock outstanding immediately +D-2 +Table of Contents +prior to the effective time of such transaction; +upon any such adjustment, holders of Stock Options under this +Plan shall have only the right to receive in lieu of or in +addition to shares of Common Stock such other securities, money +and/or other property as provided by the adjustment. If the +agreement, resolution or other document approved by the Board to +effect any such transaction provides for the adjustment of Stock +Options under the Plan in connection with such transaction, then +the adjustment provisions contained in such agreement, +resolution or other document shall be final and conclusive. +SECTION 5 +Stock Options +5.1 Grant. +Subject to adjustment as provided in subsection 4.2, a +Stock Option to purchase a number of shares of Common Stock that +have a Market Value equal to three times the annual director +retainer fee then in effect shall be granted automatically on +the date of the 2002 Annual Meeting of Stockholders and the date +of each annual meeting thereafter to each director of the +Company who is, at the close of each such annual meeting, a +Non-Employee Director. In addition, each Non-Employee Director +shall at the time of his or her initial election or appointment +to the Board be granted a Stock Option to purchase a number of +shares of Common Stock that have a Market Value equal to six +times the annual director retainer fee then in effect; provided, +that any person that is or at any time has been an employee of +the Company or any of its subsidiaries shall not be entitled to +the award provided in this sentence. Stock Options shall be +subject to such terms and conditions, consistent with the other +provisions of the Plan, as may be determined by the Committee in +its sole discretion. +5.2 Stock +Option Agreements. Stock Options shall be evidenced by Stock +Option agreements containing such terms and conditions, +consistent with the provisions of the Plan, as the Committee +shall from time to time determine. Each Stock Option agreement +shall conclusively evidence, by the Non-Employee Director’s +signature thereon, that it is the intent of the Non-Employee +Director to continue to serve as a director of the Company for +the remainder of his or her term during which the Stock Option +was granted. +5.3 Stock +Option Price. The per share Stock Option price shall be one +hundred percent (100%) of the Market Value of Common Stock on +the date of grant. +5.4 Medium +and Time of Payment. The exercise price for each share +purchased pursuant to a Stock Option granted under the Plan +shall be payable in cash or in shares of Common Stock (including +Common Stock to be received upon a simultaneous exercise) or +other consideration substantially equivalent to cash. When +appropriate arrangements are made with a broker or other +institution, payment may be made by a properly executed exercise +notice directing delivery of shares to a broker, together with +irrevocable instructions to the broker to deliver promptly to +the Company the amount of sale or loan proceeds to pay the +exercise price. +5.5 Limits +on Exercisability. Stock Options shall be exercisable for a +period not to exceed 10 years from the date of grant. At +the time of the exercise of a Stock Option, the holder of the +Stock Option, if requested by the Committee, must represent to +the Company that the shares are being acquired for investment +and not with a view to the distribution thereof. +5.6 Restrictions +on Transferability. +(a) General. +No Stock Options granted under the Plan may be sold, +exchanged, transferred, pledged, assigned, or otherwise +alienated or hypothecated except by will or the laws of descent +and distribution. All Stock Options granted to a Non-Employee +Director shall be exercisable during the Non-Employee +Director’s lifetime only by such Non-Employee Director or +the legal representative acting in the name of the Non-Employee +Director. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock acquired pursuant to the exercise of +a Stock Option under the Plan as the Committee deems advisable, +including, without limitation, restrictions under applicable +federal or state securities laws. +D-3 +Table of Contents +5.7 Termination +of Directorship . +(a) General. +If a Non-Employee Director ceases to be a director of the +Company for any reason other than the Non-Employee +Director’s death, disability, or Retirement, the +Non-Employee Director may exercise his or her Stock Options only +for a period of three months after such termination of director +status. +(b) Death. +If a Non-Employee Director dies either while a director of +the Company or after the termination of his or her directorship, +Stock Options issued to such Non-Employee Director shall be +exercisable by the personal representative of such Non-Employee +Director or other successor to the interest of the Non-Employee +Director for one year after the Non-Employee Director’s +death. +(c) Disability. +If a Non-Employee Director ceases to be a director of the +Company due to the Non-Employee Director’s disability, the +Non-Employee Director may exercise a Stock Option for a period +of one year following such termination of directorship. +(d) Non-Employee +Director Retirement. If a Non-Employee Director reaches +mandatory Retirement age for a director, any Stock Option +granted under the Plan may be exercised during the remaining +term of the Stock Option. +SECTION 6 +General Provisions +6.1 No +Rights to Awards. Except as otherwise provided in subsection +5.1, no Non-Employee Director or other person shall have any +claim to be granted any Stock Option under the Plan, and there +is no obligation of uniformity of treatment of Non-Employee +Directors or holders or beneficiaries of Stock Options under the +Plan. To the extent consistent with the Plan, the terms and +conditions of Stock Options and the determination of the +Committee to grant a waiver or modification of any Stock Option +and the terms and conditions thereof need not be the same with +respect to each Non-Employee Director. +6.2 Compliance +With Laws; Listing and Registration of Shares. All Stock +Options granted under the Plan (and all issuances of Common +Stock or other securities under the Plan) shall be subject to +all applicable laws, rules, and regulations, and to the +requirement that if at any time the Committee shall determine, +in its discretion, that the listing, registration, or +qualification of the shares covered thereby upon any securities +exchange or under any state or federal law, or the consent or +approval of any governmental regulatory body, is necessary or +desirable as a condition of, or in connection with, the grant of +such Stock Option or the issue or purchase of shares thereunder, +such Stock Option may not be exercised in whole or in part, or +the restrictions on such Stock Option shall not lapse, unless +and until such listing, registration, qualification, consent, or +approval shall have been effected or obtained free of any +conditions not acceptable to the Committee. +6.3 No +Limit on Other Compensation Arrangements. Nothing contained +in the Plan shall prevent the Company from adopting or +continuing in effect other or additional compensation +arrangements, including the grant of stock options and other +stock-based awards, and such arrangements may be either +generally applicable or applicable only in specific cases. +6.4 No +Right to Directorship. The grant of a Stock Option shall not +be construed as giving a Non-Employee Director the right to be +retained as a director of the Company. A Non-Employee Director +may be removed from his or her directorship in accordance with +the Company’s Amended and Restated Bylaws, Certificate of +Incorporation, as amended, or applicable law, free from any +liability or any claim under the Plan, unless otherwise +expressly provided in the Plan or in any written agreement with +a Non-Employee Director. +6.5 Governing +Law. The validity, construction, and effect of the Plan and +any rules and regulations relating to the Plan shall be +determined in accordance with the laws of the State of Michigan +and applicable federal law. +6.6 Severability. +In the event any provision of the Plan shall be held illegal +or invalid for any reason, the illegality or invalidity shall +not affect the remaining provisions of the Plan, and the Plan +shall be construed and enforced as if the illegal or invalid +provision had not been included. +D-4 +Table of Contents +SECTION 7 +Amendment +The Board may from time to time amend the Plan as +it considers proper and in the best interests of the Company; +provided, however, that the Plan may not be amended more +than once every six months, other than to comport with changes +in the Code, the Employee Retirement Income Security Act, or the +rules thereunder; and provided further, that without +stockholder approval no such amendment shall be effective that +would require stockholder approval pursuant to the rules of the +New York Stock Exchange or any other exchange upon which the +Company’s Common Stock is traded. In addition, no +termination, amendment, or modification of the Plan shall become +effective with respect to any Stock Option previously granted +under the Plan without the prior written consent of the +Non-Employee Director holding such Stock Option, unless such +termination, amendment, or modification operates solely to the +benefit of the Non-Employee Director, except according to the +terms of the Plan or the Stock Option agreement. +SECTION 8 +Effective Date and Duration of the +Plan +This Plan as amended and restated shall take +effect April 25, 2002, subject to approval by the +stockholders at the 2002 Annual Meeting of Stockholders or any +adjournment thereof or at a Special Meeting of Stockholders. The +Board may terminate the Plan at any time and, unless earlier +terminated by the Board, the Plan shall terminate on +April 24, 2012. No Stock Option shall be granted under the +Plan after such date. +D-5 +Table of Contents +Appendix E +WOLVERINE WORLD WIDE, INC. +AMENDED AND RESTATED +OUTSIDE DIRECTORS’ DEFERRED COMPENSATION +PLAN +ARTICLE 1 +Establishment of Plan; Purposes of +Plan +1.1 Establishment +of Plan. The Company hereby establishes the WOLVERINE WORLD +WIDE, INC. AMENDED AND RESTATED OUTSIDE DIRECTORS’ DEFERRED +COMPENSATION PLAN (the “Plan”), a supplemental +nonqualified deferred compensation plan for the Outside +Directors of the Company. The Plan amends and restates the +Outside Directors’ Deferred Compensation Plan that went +into effect April 17, 1996 (the “1996 Plan”). The +Plan shall be an unfunded plan within the meaning of the +Internal Revenue Code of 1986, as amended. It is intended that +the Plan not cover employees and therefore not be subject to the +Employee Retirement Income Security Act of 1974, as amended. +1.2 Purposes of +Plan. The purposes of the Plan are to attract and retain +well qualified individuals for service as Outside Directors of +the Company, to provide Outside Directors with the opportunity +to increase their financial interest in the Company, and thereby +increase their personal interest in the Company’s continued +success, through the payment of retirement income to Current +Directors in amounts tied to the performance of the +Company’s Common Stock and payable in Common Stock, and to +provide Outside Directors with the opportunity to accumulate +supplemental assets for retirement through the deferral of all +or a portion of Director’s Fees payable to Outside +Directors. +1.3 Effective +Date. The “Effective Date” of the Plan as amended +and restated is February 15, 2002, subject to approval by +the stockholders at the 2002 Annual Meeting of Stockholders or +any adjournment thereof or at a Special Meeting of Stockholders. +No Common Stock shall be issued under the Plan prior to such +stockholder approval. Each Plan provision applies until the +effective date of an amendment of that provision. +1.4 Number of +Stock Units. Subject to adjustment as provided in +Section 7.1 of the Plan, a maximum of 400,000 Stock Units, +which are convertible into Common Stock at a one-to-one ratio +upon distribution, together with 400,000 shares of Common Stock +shall be available for awards under the Plan. +1.5 Application +to Former Participants. This Plan applies to former +Participants and controls, among other things, the timing, +manner and form of any future distribution that is based on +amounts deferred and reflected in the Fee Account or Retirement +Account of former and current Participants before the Effective +Date of the Plan. +ARTICLE 2 +Definitions +2.1 Beneficiary. +“Beneficiary” means the individual, trust or other +entity designated by the Participant to receive any benefits to +be distributed under the Plan after the Participant’s +death. A Participant may designate or change a Beneficiary by +filing a signed designation with the Committee in a form +approved by the Committee. The Participant’s Will is not +effective for this purpose. If a designation has not been +properly completed and filed with the Committee or is +ineffective for any other reason, the Beneficiary shall be the +Participant’s Surviving Spouse. If there is no effective +designation and the Participant does not have a Surviving +Spouse, the remaining benefits, if any, shall be distributed to +the Participant’s estate. +2.2 Change in +Control. “Change in Control” means: +(a) The acquisition +by any individual, entity or group (a “Person”), +including any “person” within the meaning of +Section 13(d)(3) or 14(d)(2) of the Securities +Exchange Act of 1934, as amended (the “Exchange Act”), +of beneficial ownership within the meaning of Rule 13d-3 +issued under the Exchange Act, of 20% or more of either +(i) the then outstanding shares of common stock of the +Company (the “Outstanding Company Common Stock”) or +(ii) the combined voting power of the then outstanding +securities of the Company entitled to vote generally in the +election of directors (the “Outstanding Company Voting +Securities”); provided, that the following acquisitions +shall not constitute a Change in +E-1 +Table of Contents +Control: (A) any acquisition by the Company, +(B) any acquisition by an employee benefit plan (or related +trust) sponsored or maintained by the Company or any corporation +controlled by the Company, (C) any acquisition by any +corporation pursuant to a reorganization, merger, or +consolidation involving the Company, if, immediately after such +reorganization, merger, or consolidation, each of the conditions +described in clauses (i), (ii), and (iii) of +subsection (c) below shall be satisfied, or (D) any +acquisition by the Participant or any group of persons including +the Participant; and provided further that, for purposes of +clause (A), if any Person (other than the Company or any +employee benefit plan (or related trust) sponsored or maintained +by the Company or any corporation controlled by the Company) +shall become the beneficial owner of 20% or more of the +Outstanding Company Common Stock or 20% or more of the +Outstanding Company Voting Securities by reason of an +acquisition by the Company and such Person shall, after such +acquisition by the Company, become the beneficial owner of any +additional shares of the Outstanding Company Common Stock or any +additional Outstanding Company Voting Securities and such +beneficial ownership is publicly announced, such additional +beneficial ownership shall constitute a Change in Control; +(b) Individuals who, +as of the date of the Plan, constitute the Board (the +“Incumbent Board”) cease for any reason to constitute +at least a majority of such Board; provided, that any individual +who becomes a director of the Company subsequent to the date of +the Plan whose election, or nomination for election by the +Company’s stockholders, was approved by the vote of at +least three-quarters of the directors then comprising the +Incumbent Board (either by a specific vote or by approval of the +proxy statement of the Company in which such person is named as +a nominee for director, without objection to such nomination) +shall be deemed to have been a member of the Incumbent Board; +and provided further, that no individual who was initially +elected as a director of the Company as a result of an actual or +threatened election contest subject to Rule 14a-12(c) +issued under the Exchange Act, or any other actual or threatened +solicitation of proxies or consents by or on behalf of any +Person other than the Board, shall be deemed to have been a +member of the Incumbent Board; +(c) Approval by the +stockholders of the Company of a reorganization, merger or +consolidation unless, in any such case, immediately after such +reorganization, merger or consolidation, (i) more than 50% +of the then outstanding shares of common stock of the +corporation resulting from such reorganization, merger or +consolidation and more than 50% of the combined voting power of +the then outstanding securities of such corporation entitled to +vote generally in the election of directors is then beneficially +owned, directly or indirectly, by all or substantially all of +the individuals or entities who were the beneficial owners, +respectively, of the Outstanding Company Common Stock and the +Outstanding Company Voting Securities immediately prior to such +reorganization, merger or consolidation and in substantially the +same proportions relative to each other as their ownership, +immediately prior to such reorganization, merger or +consolidation, of the Outstanding Company Common Stock and the +Outstanding Company Voting Securities, as the case may be, +(ii) no Person (other than the Company, any employee +benefit plan (or related trust) sponsored or maintained by the +Company or the corporation resulting from such reorganization, +merger or consolidation (or any corporation controlled by the +Company, or any Person which beneficially owned, immediately +prior to such reorganization, merger or consolidation, directly +or indirectly, 20% or more of the Outstanding Company Common +Stock or the Outstanding Company Voting Securities, as the case +may be) beneficially owns, directly or indirectly, 20% or more +of the then outstanding shares of common stock of such +corporation or 20% or more of the combined voting power of the +then outstanding securities of such corporation entitled to vote +generally in the election of directors, and (iii) at least +a majority of the members of the board of directors of the +corporation resulting from such reorganization, merger or +consolidation were members of the Incumbent Board at the time of +the execution of the initial agreement or action of the Board +providing for such reorganization, merger or consolidation; or +(d) Approval by the +stockholders of the Company of (i) a plan of complete +liquidation or dissolution of the Company or (ii) the sale +or other disposition of all or substantially all of the assets +of the Company other than to a corporation with respect to +which, immediately after such sale or other disposition, +(A) more than 50% of the then outstanding shares of common +stock thereof and more than 50% of the combined voting power of +the then outstanding securities thereof entitled to vote +generally in the +E-2 +Table of Contents +election of directors is then beneficially owned, +directly or indirectly, by all or substantially all of the +individuals and entities who were the beneficial owners, +respectively, of the Outstanding Company Common Stock and the +Outstanding Company Voting Securities immediately prior to such +sale or other disposition and in substantially the same +proportions relative to each other as their ownership, +immediately prior to such sale or other disposition, of the +Outstanding Company Common Stock and the Outstanding Company +Voting Securities, as the case may be, (B) no Person (other +than the Company, any employee benefit plan (or related trust) +sponsored or maintained by the Company or such corporation (or +any corporation controlled by the Company), or any Person which +beneficially owned, immediately prior to such sale or other +disposition, directly or indirectly, 20% or more of the +Outstanding Company Common Stock or the Outstanding Company +Voting Securities, as the case may be) beneficially owns, +directly or indirectly, 20% or more of the then outstanding +shares of common stock thereof or 20% or more of the combined +voting power of the then outstanding securities thereof entitled +to vote generally in the election of directors, and (C) at +least a majority of the members of the board of directors +thereof were members of the Incumbent Board at the time of the +execution of the initial agreement or action of the Board +providing for such sale or other disposition. +2.3 Committee. +“Committee” means the Compensation Committee of the +Board of Directors or such other committee as the Board of +Directors shall designate to administer the Plan. The Committee +shall consist of at least two members of the Board, and all of +its members shall be “non-employee directors” as +defined in Rule 16b-3 under the Securities Exchange Act of +1934, as amended. +2.4 Common +Stock. “Common Stock” means the common stock, +$1.00 par value per share, of Wolverine World Wide, Inc. +2.5 Company. +“Company” means Wolverine World Wide, Inc., a Delaware +corporation. +2.6 Current +Directors. “Current Directors” means the Outside +Directors of the Company at the close of business on +April 17, 1996 who participated in the Company’s +former Director Retirement Plan. +2.7 Director’s +Fee. “Director’s Fee” means the amount of +income payable to a Participant for service as an Outside +Director, including payments for attendance at meetings of the +Board of Directors or meetings of committees of the Board of +Directors, and any retainer fee paid to chairpersons of +committees of the Board of Directors. +2.8 Dividend +Equivalent. “Dividend Equivalent” means a number +of Stock Units equal to the number of shares of Common Stock +(including fractions of a share) that have a Market Value equal +to the amount of any cash dividends that would have been payable +to a stockholder owning the number of shares of Common Stock +represented by Stock Units credited to a Fee Account or +Retirement Account on each dividend payment date. +2.9 Fee +Account. “Fee Account” means the bookkeeping +device used by the Company to measure and determine the amounts +of deferred Director’s Fee income to be distributed to a +Participant under the Plan. +2.10 Fee +Stock Unit. “Fee Stock Unit” means a Stock Unit +credited to a Participant’s Fee Account representing +deferred Director’s Fee income and Dividend Equivalents to +be distributed to a Participant under the Plan. +2.11 Market +Value. “Market Value” means the mean of the +highest and lowest sale prices of shares of Common Stock on the +New York Stock Exchange (or any successor exchange that is the +primary stock exchange for trading of Common Stock) on the +applicable date, or if the New York Stock Exchange (or any such +successor) is closed on that date, the last preceding date on +which the New York Stock Exchange (or any such successor) was +open for trading and on which shares of Common Stock were traded. +2.12 Outside +Director. “Outside Director” means any individual +who serves as a member of the Board of Directors of the Company +and who is not an employee of the Company or any of its +subsidiaries; provided, that the Committee may exclude any +Outside Director from participating in the Plan at any time or +from time to time pursuant to an individual agreement or +arrangement with such Outside Director. +2.13 Participant. +“Participant” means any individual who is +participating in the Plan. +E-3 +Table of Contents +2.14 Plan +Year. “Plan Year” means the 12-month period +beginning each January 1, except that the Plan Year for the +year in which the Plan becomes effective shall commence on the +effective date of the Plan and end on December 31 of such +year. +2.15 Retirement +Account. “Retirement Account” means the +bookkeeping device used by the Company to measure and determine +the amounts of retirement income to be distributed to a Current +Director under the Plan. +2.16 Retirement +Stock Unit. “Retirement Stock Unit” means a Stock +Unit credited to a Current Director’s Retirement Account +representing retirement income and Dividend Equivalents to be +distributed to a Current Director under the Plan. +2.17 Spouse. +“Spouse” means the husband or wife to whom the +Participant is married on the date the benefit is scheduled to +be distributed, or distribution is scheduled to begin. The legal +existence of the spousal relationship shall be governed by the +law of the state or other jurisdiction of domicile of the +Participant. +2.18 Stock +Unit. “Stock Unit” means the device used by the +Company to measure and determine the value of benefits to be +distributed to a Participant under the Plan. One Stock Unit +represents an amount of cash equal to the Market Value of one +share of the Company’s Common Stock on the applicable date. +2.19 Surviving +Spouse. “Surviving Spouse” means the Spouse of the +Participant at the time of the Participant’s death who +survives the Participant. If the Participant and Spouse die +under circumstances which prevent ascertainment of the order of +their deaths, it shall be presumed for the Plan that the +Participant survived the Spouse. +2.20 Termination +of Service. “Termination of Service” means the +termination by a Participant of service as a director of the +Company for any reason. +ARTICLE 3 +Administration +3.1 Power and +Authority. The Committee shall administer the Plan, shall +have full power and authority to interpret the provisions of the +Plan, and shall have full power and authority to supervise the +administration of the Plan. All determinations, interpretations +and selections made by the Committee regarding the Plan shall be +final and conclusive. The Committee shall hold its meetings at +such times and places as it deems advisable. Action may be taken +by a written instrument signed by a majority of the members of +the Committee, and any action so taken shall be fully as +effective as if it had been taken at a meeting duly called and +held. The Committee shall make such rules and regulations for +the conduct of its business as it deems advisable. The members +of the Committee shall not be paid any additional fees for their +services. +3.2 Delegation of +Powers; Employment of Advisers. The Committee may delegate +to any agent such duties and powers, both ministerial and +discretionary, as it deems appropriate except those that may not +be delegated by law or regulation. In administering the Plan, +the Committee may employ attorneys, consultants, accountants or +other persons, and the Company and the Committee shall be +entitled to rely upon the advice, opinions or valuation of any +such persons. All usual and reasonable expenses of the Committee +shall be paid by the Company. +3.3 Indemnification +of Committee Members. Each person who is or shall have been +a member of the Committee or to whom authority is or has been +delegated shall be indemnified and held harmless by the Company +from and against any cost, liability or expense imposed or +incurred in connection with such person’s or the +Committee’s taking or failing to take any action under the +Plan. Each such person shall be justified in relying on +information furnished in connection with the Plan’s +administration by any appropriate person or persons. +ARTICLE 4 +Participation +4.1 Eligibility +to Participate. An Outside Director shall be eligible to +become a Participant in the Plan on the first day of the +individual’s term as an Outside Director. +E-4 +Table of Contents +ARTICLE 5 +Elective Deferrals of Director’s +Fees +5.1 Deferral of +Director’s Fees. A Participant may elect to defer +payment of 25%, 50%, 75% or 100% of Director’s Fees for a +Plan Year. For each amount deferred, the Participant’s Fee +Account shall be credited with a number of Fee Stock Units +(including fractions of a Stock Unit) determined by dividing the +dollar amount deferred by the Market Value of Common Stock on +the date on which the corresponding non-deferred portion of the +Director’s Fee is paid or would have been payable to the +Participant if the Participant had not elected to defer payment +of Director’s Fees. +5.2 Prior +Irrevocable Election. The election to defer Director’s +Fees shall be made by the Participant on a form provided for +that purpose prior to the beginning of a Plan Year and shall +become irrevocable for each Plan Year thereafter as of the +beginning of each Plan Year. The deferral election shall +continue in effect for each Plan Year until revoked or modified +for a subsequent Plan Year by the Participant. The deferral +shall be applicable to Director’s Fees earned in each Plan +Year. A new Participant may make an initial irrevocable election +to defer Director’s Fees during the first 90 days of +eligibility to participate and such election shall apply only to +Director’s Fees earned following the date of the election. +If a new Participant does not make an election during this +90-day period, the Participant may not make an election +effective earlier than the beginning of the next Plan Year. The +Participant shall have no claim or right to payment or +distribution of the amounts deferred and shall be limited solely +to the rights and benefits conferred under the terms of the +Plan. In no event shall an election to defer Director’s +Fees become effective sooner than the date of the written, +irrevocable election. +5.3 Fee Accounts. +For bookkeeping purposes only, the Company shall maintain a +separate Fee Account for each Participant. A Fee Account shall +be maintained for and credited with Fee Stock Units representing +the value of the Participant’s deferrals plus Dividend +Equivalents on such Fee Stock Units. The Company shall provide +each Participant with a written account statement reflecting the +number of Fee Stock Units in the Participant’s account at +least annually. If the Participant does not object to the +account within 60 days after receipt, the account shall be +deemed final and binding on all parties. +5.4 Timing of +Deferrals. Deferrals shall be credited to the +Participant’s Fee Account on each January 1, +April 1, July 1, October 1 or such other dates on +which the Director’s Fees would have been payable to the +Participant if the Participant had not made a deferral election. +5.5 Vesting. +The right to receive Common Stock (and cash in lieu of +fractional shares) equal to the number of Fee Stock Units +credited to the Participant’s Fee Account, including +Dividend Equivalents credited to the Participant’s Fee +Account, is fully vested and shall not be subject to forfeiture +for any reason. +5.6 Event of +Distribution. Upon Termination of Service or a Change in +Control, a number of shares of Common Stock (and cash in lieu of +fractional shares) equal to the number of Fee Stock Units +credited to the Participant shall be distributed at the times +and in the manner specified in the Plan. +5.7 Manner of +Distribution. At the time of the initial irrevocable +election to defer Director’s Fees under the Plan, each +Participant shall elect a manner of distribution. All elections +of manner of payment in cash under the 1996 Plan shall be deemed +to be elections for the manner of distribution under the Plan as +amended and restated, and the Company’s Common Stock (and +cash in lieu of fractional shares) shall be distributed in the +same manner as cash would have been paid under the 1996 Plan. +The following manners of distribution may be elected by a +Participant: +(a) Lump Sum. +A single lump-sum distribution of all of the Common Stock +(and cash in lieu of fractional shares) to be issued with +respect to Fee Stock Units under the Plan; +(b) Installments. +Distribution of all of the Common Stock (and cash in lieu of +fractional shares) to be distributed with respect to Fee Stock +Units under the Plan in not more than 10 annual installments; or +(c) Deferred +Distribution. Distribution of the lump sum or installment +distributions that are to be distributed following Termination +of Service and commencing either (i) when the Participant +retires from his or her principal employment, (ii) in +January of the year following Termination of Service or +E-5 +Table of Contents +retirement from his or her principal employment, +or (iii) at such age selected by the Participant not to +exceed age 70. +A Participant may change his or her election as +to the manner of distribution, provided, that any such change +will only become effective if the change is made at least one +year before the event of distribution. +If, on the date of distribution, the Market Value +of the Common Stock (and cash in lieu of fractional shares) to +be distributed to a Participant does not exceed $5,000, the +distribution shall occur as a lump-sum distribution under +(a) above. If the Participant fails to make an election of +a manner of distribution in the initial election, the +Participant shall receive a lump-sum distribution. +Notwithstanding any election by a Participant of a manner of +distribution pursuant to (a), (b) or (c) of this +Section, all Participants shall receive a lump-sum distribution +upon an event of distribution resulting from a Change in Control. +5.8 Number of +Shares to be Distributed. The Participant shall receive a +number of shares of Common Stock (and cash in lieu of fractional +shares) equal to the number of Fee Stock Units in the +Participant’s Fee Account plus Dividend Equivalents +credited to the Participant’s Fee Account. The amount to be +distributed shall be determined as follows: +(a) Lump Sum. +For a lump-sum distribution, the Participant shall receive a +one-time distribution of Common Stock (and cash in lieu of +fractional shares) equal to the number of Fee Stock Units in the +Participant’s Fee Account plus Dividend Equivalents +credited to the Participant’s Fee Account. +(b) Installments. +If distribution is in installments, the initial amount to be +distributed shall be a number of shares of Common Stock (and +cash in lieu of fractional shares) equal to the number of Fee +Stock Units in the Participant’s Fee Account plus Dividend +Equivalents credited to the Participant’s Fee Account +divided by the number of installment distributions elected. The +number of Fee Stock Units credited to the Participant’s Fee +Account shall be reduced by the number of Fee Stock Units that +were converted to Common Stock (and cash in lieu of fractional +shares) and either distributed to the Participant (or to any +other person as contemplated by the Plan) or withheld to account +for payment of the generation-skipping transfer tax. Future +installments shall be determined by dividing the remaining Fee +Stock Units credited to the Participant’s Fee Account, plus +any additional Dividend Equivalents credited to the +Participant’s Fee Account during the distribution period by +the remaining number of annual installment distributions. Each +such distribution shall result in a reduction of the amount of +Fee Stock Units credited to Participant’s Fee Account by an +amount of Fee Stock Units equal to the number of Fee Stock Units +that were either converted to Common Stock (and cash in lieu of +fractional shares) and distributed to the Participant (or to any +other person, as contemplated by the Plan) or withheld to +account for payment of the generation-skipping tax. +5.9 Form of +Distribution. Distributions shall be made to the Participant +or Beneficiary in Common Stock (and cash in lieu of fractional +shares) directly by the Company. The Company shall not be +relieved of its obligation and liability to distribute the +benefits of the Plan, except to the extent distributions are +actually made from any trust established by the Company for such +purpose. +5.10 Time +of Distribution. A lump-sum distribution or an initial +installment distribution shall be made within 30 days +following the date of Termination of Service, unless such +distributions are deferred pursuant to Section 5.7(c) of +the Plan. Later installment distributions shall be made on or +before January 31 of each year thereafter until the total +amount to be distributed under the Plan is distributed. A +lump-sum distribution shall be made immediately upon the +occurrence of a Change in Control. +5.11 Death. +(a) Distribution +to Beneficiary. If the Participant dies prior to +distribution of all benefits due under the Plan, distribution of +all remaining benefits shall be made to the Participant’s +Beneficiary. Distributions to a Beneficiary following a +Participant’s death shall be in the form elected by the +Participant and shall be made or shall begin on the date +specified in Section 5.10. At the time of the initial irrevocable +E-6 +Table of Contents +election to defer Director’s Fees, the +Participant may designate a manner of distribution following the +Participant’s death which is different from the manner of +distribution during the Participant’s lifetime. +(b) Distribution +to Estate. If distribution is to be made to the estate of a +Participant, distribution shall be made in a lump sum within +90 days after the date of the Participant’s death. +(c) Generation-Skipping +Transfer Tax. Notwithstanding any other provision in the +Plan, the Company may withhold any benefits that would otherwise +be distributed to a Beneficiary as a result of the death of a +Participant or any other Beneficiary until it can be determined +whether a generation-skipping transfer tax, as defined in +Chapter 13 of the Internal Revenue Code of 1986, as +amended, or any substitute provision therefor, is payable by the +Company and the amount of generation-skipping transfer tax, +including interest, that is due. If such tax is payable, the +benefits that would otherwise be distributed under the Plan +shall be reduced by the number of shares of Common Stock with a +Market Value on the date of distribution of the benefits, if +any, equal to the generation-skipping transfer tax and interest. +Any benefits withheld and determined not to be required to +account for the generation-skipping transfer tax shall be +distributed as soon as there is a final determination of the +applicable generation-skipping transfer tax and interest. No +interest shall be payable to any Beneficiary for the period from +the date of death to the time when the amount of benefits to be +distributed to a Beneficiary can be fully determined pursuant to +this paragraph. +ARTICLE 6 +Awards of Past-Service Retirement +Income +6.1 Past-Service +Awards. Under the 1996 Plan, on April 17, 1996, each +Current Director as of the close of business on April 17, +1996, was credited with a number of Retirement Stock Units based +on his or her anticipated benefit under the former Director +Retirement Plan. +6.2 Retirement +Accounts. For bookkeeping purposes only, the Company shall +maintain a separate Retirement Account for each Current +Director. A Retirement Account shall be maintained for and +credited with Retirement Stock Units representing the value of +the Current Director’s past-service awards plus Dividend +Equivalents on such Retirement Stock Units. The Company shall +provide each Current Director with a written account statement +reflecting the number of Retirement Stock Units in the Current +Director’s account at least annually. If the Current +Director does not object to the account within 60 days +after receipt, the account shall be deemed final and binding on +all parties. +6.3 Vesting. +All accumulated Retirement Stock Units credited pursuant to +Section 6.1 of the Plan shall vest at the rate of 50% after +five years of total service, and 10% per year of total service +thereafter; provided, that all Retirement Stock Units credited +to a Participant pursuant to the Plan shall vest upon a Change +in Control or at such time as the Participant attains age 65 or +becomes unable to fulfill his or her duties as a director due to +death or disability. As used in this Article, a “year of +total service” means that period of time measured from +Annual Meeting of Stockholders to the next following Annual +Meeting of Stockholders. Each Current Director shall receive +full credit for purposes of this Section 6.4 for each year +of total service served by him or her before the effective date +of the Plan. +6.4 Event of +Distribution; Manner of Distribution. +(a) Termination +of Service. Upon Termination of Service, a number of shares +of Common Stock (and cash in lieu of fractional shares) equal to +the number of vested Retirement Stock Units credited to the +Current Director shall be distributed in 10 annual installments. +The initial amount to be distributed shall be a number of shares +of Common Stock (and cash in lieu of fractional shares) equal to +the number of vested Retirement Stock Units credited to the +Current Director’s Retirement Account divided by 10. The +number of vested Retirement Stock Units credited to the Current +Director’s Retirement Account shall be reduced by the +number of Retirement Stock Units that were converted to Common +Stock (and cash in lieu of fractional shares) and either +distributed to the Participant (or to any other person, as +contemplated by the Plan) or withheld to account for payment of +the generation-skipping transfer tax. Future installments shall +be determined by dividing the remaining vested Retirement Stock +Units credited to the Current Director’s Retirement +Account, plus any additional Dividend Equivalents credited to the +E-7 +Table of Contents +Participant’s Retirement Account during the +distribution period by the remaining number of annual +installment distributions. Each such distribution shall result +in a reduction of the amount of Retirement Stock Units credited +to Current Director’s Retirement Account by an amount of +Retirement Stock Units equal to the number of Retirement Stock +Units that were either converted to Common Stock (and cash in +lieu of fractional shares) and distributed to the Current +Director (or to any other person, as contemplated by the Plan) +or withheld to account for payment of the generation-skipping +tax. +(b) Change in Control. Upon a Change +in Control, shares of Common Stock (and cash in lieu of +fractional shares) equal to the number of vested Retirement +Stock Units credited to the Current Director shall be +distributed in a single lump-sum. +6.5 Form of +Distribution. Distribution shall be made to the Participant +or Beneficiary in shares of Common Stock (and cash in lieu of +fractional shares) directly by the Company. The Company shall +not be relieved of its obligation and liability to distribute +the benefits of the Plan, except to the extent distributions are +actually made from any trust established by the Company for such +purpose. +6.6 Time of +Distribution. An initial installment distribution shall be +made within 30 days following the date of Termination of +Service. Later installment distributions shall be made on or +before January 31 of each year thereafter until the total +amount to be distributed under the Plan is distributed. A +lump-sum distribution shall be made immediately upon a Change in +Control. +6.7 Death. +(a) Distribution +to Beneficiary. If the Participant dies prior to +distribution of all benefits due under the Plan, distribution of +all remaining benefits shall be made to the Participant’s +Beneficiary. Distributions to a Beneficiary following a +Participant’s death shall be made on the same schedule set +forth in Section 6.4 and shall begin on the date specified +in Section 6.6. +(b) Distribution +to Estate. If distribution is to be made to the estate of a +Participant, distribution shall be made in a lump sum within +90 days after the date of the Participant’s death. +(c) Generation-Skipping +Transfer Tax. Notwithstanding any other provision in the +Plan, the Company may withhold any benefits that would otherwise +be distributed to a Beneficiary as a result of the death of a +Participant or any other Beneficiary until it can be determined +whether a generation-skipping transfer tax, as defined in +Chapter 13 of the Internal Revenue Code of 1986, as +amended, or any substitute provision therefor, is payable by the +Company and the amount of generation-skipping transfer tax, +including interest, that is due. If such tax is payable, the +benefits that would otherwise be distributed under the Plan +shall be reduced by the number of shares of Common Stock with a +Market Value on the date of distribution of the benefits, if +any, equal to the generation-skipping transfer tax and interest. +Any benefits withheld and determined not to be required to +account for the generation-skipping transfer tax shall be +distributed as soon as there is a final determination of the +applicable generation-skipping transfer tax and interest. No +interest shall be payable to any Beneficiary for the period from +the date of death to the time when the amount of benefits to be +distributed to a Beneficiary can be fully determined pursuant to +this paragraph. +ARTICLE 7 +General Provisions +7.1 Adjustments. +If the number of shares of Common Stock outstanding changes by +reason of a stock dividend, stock split, recapitalization, +merger, consolidation, combination, exchange of shares or any +other change in the corporate structure or shares of the +Company, the number of Stock Units credited to a +Participant’s Fee Account and Retirement Account shall be +appropriately adjusted to reflect the number and kind of shares +of common stock, other securities or other consideration that +holders of common stock would receive by reason of the change in +corporate structure. +E-8 +Table of Contents +7.2 Amendment; +Termination. The Company reserves the right to amend the +Plan prospectively or retroactively, in whole or in part, or to +terminate the Plan, provided that no change or amendment may be +made more than once every six months and that an amendment or +termination may not reduce or revoke Stock Units accrued and the +amounts represented by them promised to be distributed to +Participants as of the later of the date of adoption of the +amendment or the effective date of the amendment or termination. +Upon termination of the Plan, the accounts of affected +Participants shall be administered and distributed in accordance +with the provisions of the Plan. +7.3 Rights Not +Assignable. Except for designation of a Beneficiary, Stock +Units credited to Participants and amounts represented thereby +promised under the Plan shall not be subject to assignment, +conveyance, transfer, anticipation, pledge, alienation, sale, +encumbrance or charge, whether voluntary or involuntary, by the +Participant or any Beneficiary of the Participant, even if +directed under a qualified domestic relations order or other +divorce order. An interest in a Stock Unit or the amount +represented thereby shall not provide collateral or security for +a debt of a Participant or Beneficiary or be subject to +garnishment, execution, assignment, levy or to another form of +judicial or administrative process or to the claim of a creditor +of a Participant or Beneficiary, through legal process or +otherwise. Any attempt to anticipate, alienate, sell, transfer, +assign, pledge, encumber, charge or to otherwise dispose of +benefits, before actual receipt of the benefits, or a right to +receive benefits, shall be void and shall not be recognized. +7.4 Unsecured +Creditor Status. A Participant shall be an unsecured general +creditor of the Company as to the distribution of any benefit +under the Plan. The right of any Participant or Beneficiary to +receive a distribution promised in the Plan shall be no greater +than the right of any other general, unsecured creditor of the +Company. +7.5 No Trust or +Fiduciary Relationship. Nothing contained in the Plan shall +be deemed to create a trust or fiduciary relationship of any +kind for the benefit of any Participant or Beneficiary. +7.6 Construction. +The singular includes the plural, and the plural includes the +singular, unless the context clearly indicates the contrary. +Capitalized terms (except those at the beginning of a sentence +or part of a heading) have the meaning specified in the Plan. If +a capitalized term is not defined in the Plan, the term shall +have the general, accepted meaning of the term. +7.7 Disputes. +In the event that a dispute arises regarding the eligibility to +participate in the Plan or any other matter relating to Plan +participation, such dispute shall be made to the Committee. The +determination by the Committee with respect to such disputes +shall be final and binding on all parties. In the event that a +dispute arises regarding the amount of any benefit distribution +under the Plan that is not related to Participant eligibility +disputes, the Committee may appoint a qualified independent +certified public accountant to determine the amount of +distribution and such determination shall be final and binding +on all parties. If the Participant involved in the dispute is a +member of the Committee, such Participant shall not be involved +in the Committee’s decision. +7.8 Unfunded +Plan. This shall be an unfunded plan within the meaning of +the Internal Revenue Code of 1986, as amended. Benefits provided +in the Plan constitute only an unsecured contractual promise to +distribute Common Stock (and cash in lieu of fractional shares) +in accordance with the terms of the Plan by the Company. +7.9 Self-Employment +Taxes. To the extent that amounts distributed or deferred +under the Plan are deemed to be net earnings from +self-employment, each Outside Director shall be responsible for +any taxes payable under federal, state or local law. +7.10 Right +of Company to Replace Directors. Neither the action of the +Company in establishing the Plan, nor any provision of the Plan, +shall be construed as giving any Outside Director the right to +be retained as a director, or any right to any payment +whatsoever except to the extent of the benefits provided for by +the Plan. The Company expressly reserves the right at any time +to replace or fail to renominate any Outside Director without +any liability for any claim against the Company for any payment +or distribution whatsoever except to the extent provided for in +the Plan. The Company has no obligation to create any other or +subsequent deferred compensation plan for directors. +7.11 Governing +Law; Severability. The Plan shall be construed, regulated +and administered under the laws of the State of Michigan. If any +provisions of the Plan shall be held invalid or unenforceable +for any reason, such invalidity or unenforceability shall not +affect the remaining provisions of the Plan, and the Plan shall +be deemed to be modified to the least extent possible to make it +valid and enforceable in its entirety. +E-9 +Table of Contents +7.12 Trust +Fund. The Company shall be responsible for the distribution +of all benefits provided under the Plan. At its discretion, the +Company may establish one or more trust, with such trustees as +the Board or the Committee may approve, for the purpose of +providing for the distribution of such benefits. Such trust or +trusts may be irrevocable, but the assets thereof shall be +subject to the claims of the Company’s creditors. To the +extent any benefits provided under the Plan are actually +distributed from any such trust, the Company shall have no +further obligation with respect thereto, but to the extent not +so distributed, such benefits shall remain the obligation of, +and shall be distributed by, the Company. +E-10 +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, +N.E. +Rockford, Michigan +49351 +Wolverine World Wide, Inc. will be holding its annual meeting of stockholders +on April 25, 2002. The enclosed Notice of Annual Meeting provides information +regarding the matters that are expected to be voted on at the meeting. Your +vote is important to us. Even if you plan to attend the meeting, please read +the enclosed materials and vote through the Internet, by telephone or by +mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the +Internet or by telephone. Please consider voting through one of these new +methods. Your vote is recorded as if you mailed in your Proxy. We believe +voting through the Internet or by telephone is convenient, and it also saves +money. +Electronic Delivery of Proxy Statement and Annual Report. +You may elect to receive your annual report and proxy statement online by +checking the appropriate box below. Selecting this option means that you may +receive the Wolverine World Wide, Inc. annual report and proxy statement online +rather than in printed form unless you request a paper copy. If a sufficient +number of stockholders select this option, beginning next year and continuing +until you tell us otherwise, you will receive your printed Proxy with +information regarding the internet website containing the annual report and +proxy statement. You will need a computer with Internet access and we +anticipate that you will need a utility such as Adobe ® Acrobat ® Reader to read +the annual report and proxy statement, which will be in PDF file format. We +plan to provide information on obtaining free access to a utility necessary for +reading PDF files. You may incur costs such as on-line charges or printing +costs and face possible risks such as systems outages in accessing Wolverine +Word Wide, Inc.’s proxy statement and annual report via the Internet website. +You may cancel your enrollment in this process at any time or may request a +paper copy of the annual report and/or proxy statement in any given year while +continuing your long-term enrollment in this process by written notification to +National City Bank, Attn. Shareholder Services Department, Dept. 5352, +Corporate Trust Operations, P.O. Box 92301, Cleveland, Ohio 44193-0900. The +telephone number is 1-800-622-6757. There is no charge for canceling enrollment +or requesting a paper copy of the annual report and proxy statement. +Thank you in advance for your participation in our 2002 Annual Meeting. +Wolverine World Wide, Inc. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC +PROXY +1. +ELECTION OF DIRECTORS +For +Withhold +For all +4. +Proposal to approve the Amended and +For +Against +Abstain +Nominees: +(01) Donald V. Fites +all +all +except* +Restated Directors’ Stock Option Plan. +(02) Phillip D. Matthews +Your Board of Directors +(03) Paul D. Schrage +Recommends +that You +Vote FOR this Proposal +*(INSTRUCTION: To withhold authority to +5. +Proposal to approve the Amended and +For +Against +Abstain +vote for any individual nominee, strike +Restated Outside Directors’ Deferred +that nominee’s name in the list above.) +Compensation Plan. +Your Board of Directors +Your Board of Directors +Recommends that You +Vote FOR ALL NOMINEES +Recommends that You +Vote +FOR this Proposal +2. +Proposal to approve the Amended and +For +Against +Abstain +6. +Proposal +to ratify the appointment of +For +Against +Abstain +Restated Executive Short-Term Incentive +Ernst & Young LLP as independent +Plan (Annual Bonus Plan) +auditors for the current fiscal year. +Your Board of Directors +Your Board of Directors +Recommends that You +Vote FOR this Proposal +Recommends +that You +Vote FOR this Proposal +3. +Proposal to approve the Amended and +Restated Executive Long-Term Incentive Plan +(3-Year Bonus Plan). +Your Board of Directors Recommends +that You Vote +FOR this Proposal +For +Against +Abstain +Please check this box if you consent to +access future annual reports and proxy +statements via the Internet. (see details +above) +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +Table of Contents +VOTE BY TELEPHONE +Have your proxy card available +when you call the Toll-Free +number 1-800-542-1160 using a +touch-tone telephone. You will +be prompted to enter your Control +Number. Please follow the simple +prompts that will be presented to +you to record your vote. +VOTE BY INTERNET +Have your proxy card available +when you access the website +http://www.votefast.com . You will +be prompted to enter your Control +Number. Please follow the simple +prompts that will be presented to +you to record your vote. +VOTE BY MAIL +Please mark, sign and date your +proxy card and return it in the +postage-paid envelope provided or +return it to: Stock Transfer Dept +(WWW), National City Bank, P.O. +Box 92301, Cleveland, OH +44193-0900. Mailed proxies must +be received no later than April +25, 2002 at 10:00 a.m. Eastern +Daylight Time. +Vote by Telephone +Vote by Internet +Vote by Mail +Call toll-free using a +Access the website and +Return your proxy +touch-tone phone: +cast your vote: +in the postage-paid +1-800-542-1160 +http://www.votefast.com +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 24, 2002, to be counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE +OFFICIAL VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET. +YOUR +CONTROL NUMBER IS: +Proxy must be signed and dated below. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC. +PROXY +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints Geoffrey B. Bloom, Phillip D. +Matthews and Timothy J. O’Donovan, and each of them, each with full power of +substitution, proxies to represent the undersigned stockholder and to vote all +shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would +be entitled to vote on all matters which come before the Annual Meeting of +Stockholders to be held at the Company’s headquarters located at 9341 Courtland +Drive, N.E., Rockford, Michigan, on Thursday, April 25, 2002, at 10 a.m. local +time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will +be voted as specified. If no specification is made, the shares represented by +this Proxy will be voted for the election of all nominees named on this Proxy +as directors and for approval of the proposals identified on this Proxy. The +shares represented by this Proxy will be voted in the discretion of the proxies +on any other matters that may come before the meeting. +Signature(s) +Signature(s) +Date: +____________________________________, 2002 +IMPORTANT – Please sign exactly as your name(s) appears on +this Proxy. When signing on behalf of a corporation, partnership, +estate or trust, indicate title or capacity of person signing. If +shares are held jointly, each holder should sign. +Table of Contents +Welcome to the Wolverine World Wide, Inc. +2002 Proxy Voting Site +This Internet vote is solicited by the Board of Directors +Your Internet vote authorizes the Proxies to vote your shares in the same +manner as if you marked, signed, and returned your Proxy Card. +The Board of Directors recommends a vote +FOR Proposals 1, 2, 3, 4, 5 and 6. +Table of Contents +I Vote As The Board +Recommends +PLEASE PROVIDE THE INFORMATION REQUESTED, IF APPLICABLE +THEN SCROLL TO THE END OF +THE PAGE TO REGISTER YOUR VOTE. +I consent to access future Annual Reports +and Proxy Statements via the Internet. See Proxy Card for details. +Yes +No +If you have a change of address, please enter it below: +If you would like to receive an email confirmation of your vote, +please enter your email address below. +In their discretion, the Proxies are authorized to vote upon such other +business as may come before the meeting, or at any adjournment +thereof. +Table of Contents +To Vote Individually On Each Proposal — Check The Boxes Below: +(NOTE — Your vote will not be registered until you click the “Click Here to +Register Your Vote” button at the bottom of this page). +PROPOSAL 1 +FOR ALL +WITHHOLD ALL +FOR ALL EXCEPT +(Instruction: +To withhold authority +to vote for any individual nominee, +check the box next to his name) +ELECTION OF DIRECTORS +Nominees +01 Donald V. Fites +Donald V. Fites +Phillip D. Matthews +02 Phillip D. Matthews +Paul D. Schrage +03 Paul D. Schrage +The Board recommends a vote FOR all nominees. +PROPOSAL 2 +Proposal to approve the Amended +and Restated Executive Short- +For +Against +Abstain +Term Incentive Plan (Annual +Bonus Plan). +The Board recommends a vote FOR all Proposals. +PROPOSAL 3 +Proposal to approve the Amended +and Restated Executive Long- +For +Against +Abstain +Term Incentive Plan (3-Year +Bonus Plan). +The Board recommends a vote FOR all Proposals. +PROPOSAL 4 +Proposal to approve the Amended +For +Against +Abstain +and Restated Directors’ Stock +Option Plan. +The Board recommends a vote FOR all Proposals. +PROPOSAL 5 +Proposal to approve the Amended +For +Against +Abstain +and Restated Outside Directors’ +Deferred Compensation Plan. +The Board recommends a vote FOR all Proposals. +PROPOSAL 6 +Proposal to ratify the +For +Against +Abstain +appointment of Ernst & Young +LLP as independent auditors for +the current fiscal year. +The Board recommends a vote FOR all Proposals. +Table of Contents +PLEASE PROVIDE THE INFORMATION REQUESTED, IF APPLICABLE +THEN SCROLL TO THE END OF +THE PAGE TO REGISTER YOUR VOTE. +I consent to access future Annual Reports +and Proxy Statements via the Internet. +See Proxy Card for details +Yes No +If you have a change of address, please enter it below: +If you would like to receive an email confirmation of your vote, +please enter your email address below. +The shares represented by this Internet Vote will be voted as specified. If no +specification is made, the shares represented by this Internet Vote will be +voted for the election of all nominees named on this Internet Vote as directors +and for approval of the proposals identified on this Internet Vote. The shares represented +by this Internet Vote will be voted in the discretion of the proxies on any +other matter that may come before the meeting. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-02-000877/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-02-000877/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2d4e56e38095ebfc934952d626e7f94525d7fa5d --- /dev/null +++ b/raw/proxies/0000110471/0000950124-02-000877/proxy_rpt.txt @@ -0,0 +1,57 @@ +Certain Relationships and Related +Transactions +During 2001, Wolverine engaged J. Walter +Thompson, an international advertising firm, to perform public +relations and marketing services. Wolverine paid $258,543 in +fees and expenses to J. Walter Thompson. Ms. Joan +Parker, a director of Wolverine, is a Senior Partner with +J. Walter Thompson. Wolverine anticipates continuing its +relationship with J. Walter Thompson during the current +year. +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is a large +shareholder, granting to Grimoldi, S.A. the exclusive rights to +distribute and sell footwear products in Argentina under the +Hush Puppies® , Caterpillar® and +Merrell® trademarks. Wolverine and Grimoldi, S.A. +executed a similar agreement that grants rights with respect to +Brazil, which was subsequently terminated by mutual agreement in +fiscal 2001. Under these agreements, Grimoldi, S.A., or its +subsidiary, pays Wolverine royalties and certain sublicense fees +based on sales or purchases of footwear products in Argentina +and Brazil. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2001 totaling $938,500. These +agreements were made under terms and conditions customary for +other international licensees and distributors, and all payments +due under these agreements were invoiced or paid in accordance +with Wolverine’s customary terms and practices. +In the ordinary course of their business, +Wolverine and its subsidiaries sell footwear for resale, +samples, components of footwear products (such as leather and +shoe soles), advertising materials and miscellaneous items to +licensees, distributors and customers. In 2001, purchases of +such items by Grimoldi, S.A. totaled $443,583 (including any +applicable sublicense fees for products containing licensed +proprietary technology). All of these purchases were made +pursuant to Wolverine’s customary trade terms and were +invoiced or paid in accordance with Wolverine’s customary +payment terms and schedules applicable to all licensees, +distributors and customers. +All of the transactions described above occurred +pursuant to continuing contractual arrangements +38 +Table of Contents +between Wolverine and Grimoldi, S.A. Wolverine +expects similar transactions to occur between Grimoldi, S.A. and +Wolverine and its subsidiaries during 2002. +Compensation Committee Interlocks and Insider +Participation +Wolverine’s Compensation Committee consists +of Donald V. Fites, Phillip D. Matthews, David P. +Mehney, Elizabeth A. Sanders, and Paul D. Schrage. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-03-000712/proxy.txt b/raw/proxies/0000110471/0000950124-03-000712/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5056782361f0906c7996e45650afe140ee3f3aa4 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-03-000712/proxy.txt @@ -0,0 +1,4674 @@ +DEF 14A +1 +k74917def14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +SCHEDULE 14A +Information Required in Proxy +Statement +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant +x +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual +meeting of stockholders at Wolverine’s headquarters located +at 9341 Courtland Drive, N.E., Rockford, Michigan, on +Thursday, April 24, 2003, at 10 a.m. local time. At the +meeting, we will: +(1) +Elect three directors for three-year terms +expiring in 2006. +(2) +Vote on the proposed Stock Incentive Plan of 2003. +(3) +Vote on ratification of the Audit +Committee’s appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +(4) +Conduct such other business as may properly come +before the meeting. +You can vote at the meeting and any adjournment +of the meeting if you were a stockholder of record on +March 3, 2003. A list of stockholders entitled to vote at +the meeting will be available for review by Wolverine +stockholders at the office of Blake W. Krueger, Executive +Vice President, General Counsel and Secretary of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan, +during ordinary business hours for the 10-day period before the +meeting. +A copy of the Annual Report to Stockholders for +the year ended December 28, 2002, is enclosed with this +Notice. The following proxy statement and enclosed proxy card +are being sent to stockholders on and after March 17, 2003. +By Order of the Board of Directors +Blake W. Krueger, Executive Vice President, +General Counsel and Secretary +March 17, 2003 +Your Vote is Important to Us. Even if You Plan +to Attend the Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED +PROXY PROMPTLY OR +VOTE BY TELEPHONE OR ON THE +INTERNET. +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Stock Incentive Plan of 2003 +Ownership of Wolverine Stock +Wolverine’s Stock Price Performance +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +Appendix B +STOCK INCENTIVE PLAN OF 2003 +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 24, 2003 +Proxy Statement +Time and Place +You are invited to attend the annual meeting of +stockholders of Wolverine World Wide, Inc. that will be held on +April 24, 2003, at Wolverine’s headquarters located at +9341 Courtland Drive, N.E., Rockford, Michigan, at +10:00 a.m. local time. +This proxy statement and enclosed proxy card are +being furnished to you in connection with the solicitation of +proxies by the Wolverine Board of Directors for use at the +annual meeting. In this proxy statement, “we,” +“us,” “our” and “Wolverine” refer +to Wolverine World Wide, Inc. and “you” and +“your” refer to Wolverine stockholders. +Purpose of the Meeting +The purpose of the annual meeting is to consider +and vote upon: +• +election of three directors for three-year terms +expiring in 2006; +• +approval of the Stock Incentive Plan of 2003; +• +ratification of the appointment of Ernst & +Young LLP as independent auditors for Wolverine for its current +fiscal year; and +• +such other business as may properly come before +the meeting. +Your Board of Directors recommends that you +vote FOR each nominee and FOR each proposal discussed in this +proxy statement . +How to Vote Your Shares +You may vote at the meeting or by proxy if you +were a stockholder of record of Wolverine at the close of +business on March 3, 2003. Wolverine now offers the +convenience of voting by mail-in proxy, by telephone or by the +Internet. See the enclosed proxy for voting instructions. Each +stockholder is entitled to one vote per share on each matter +presented. +As of March 3, 2003, there were 40,008,488 +shares of Wolverine common stock issued and outstanding +(excluding 6,047,122 shares of treasury stock). +If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or by the +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +If you specify a choice, the proxy will be voted +as specified. If you do not specify a choice, your shares will +be voted in favor of the election of all nominees named in this +proxy statement, in favor of the proposals set forth in this +proxy statement and, with respect to any other matter that may +come before the meeting, in the discretion of the individuals +named as proxies on the proxy card. We are not currently aware +of any other matters to be presented at the meeting. +You may revoke your proxy at any time before it +is exercised by delivering written notice of revocation to the +Secretary of Wolverine or by attending and voting at the annual +meeting. +Quorum and Required Vote +The presence in person or by proxy of the holders +of a majority of the shares entitled to vote at the meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the meeting, we will count as present +and represented at the meeting all shares for which we receive a +proxy or vote, including abstentions and shares represented by a +broker vote on any matter. +A plurality of the shares voting is required to +elect directors. This means that if there are more nominees than +positions to be filled, the nominees who receive the most votes +will be elected. In counting votes on the election of directors, +abstentions, broker non-votes and other shares not voted will be +counted as not voted. These shares will be deducted from the +total shares of which a plurality is required. +Table of Contents +Each other matter to be voted upon at the meeting +will be approved if a majority of the shares present or +represented at the meeting and entitled to vote on the proposal +are voted in favor of such matter. In counting votes on each +matter, abstentions will be counted as voted against the matter +and broker non-votes will be counted as not voted on the matter. +Shares that are not voted will be deducted from the total shares +of which a majority is required. +Election of Directors +As recommended by the Governance Committee, the +Board of Directors proposes that the following nominees be +elected as directors for terms expiring at the 2006 annual +meeting: +Alberto L. Grimoldi +Joseph A. Parini +Elizabeth A. Sanders +All of the nominees are currently directors of +Wolverine whose terms will expire at the annual meeting. Each +proposed nominee is willing to be elected and serve as a +director. However, if a nominee is unable to serve or is +otherwise unavailable for election, which is not contemplated, +the incumbent Wolverine Board of Directors may or may not select +a substitute nominee. If a substitute nominee is selected, your +shares will be voted for the substitute nominee (unless you give +other instructions). If a substitute nominee is not selected, +your shares will be voted for the remaining nominees. Proxies +will not be voted for more than three nominees. +Wolverine’s Board of Directors currently +consists of 11 directors. Joan Parker, whose term expires at +this year’s annual meeting, is retiring after 22 years of +service as a director. After this year’s annual meeting, +the Board of Directors will consist of 10 directors. +Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into three +classes, with each class to be as nearly equal in number as +possible. Each class serves a term of office of three years, +with the term of one class expiring at the annual meeting in +each successive year. +Biographical information as of December 28, +2002, for each nominee and each current director who will +continue to serve after the annual meeting is presented below. +Except as otherwise indicated, all have had the same principal +positions and employment for over five years. +Your Board of Directors recommends that you +vote FOR each nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2006 +ALBERTO L. GRIMOLDI (age 61) has been a director +since 1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a +shoe manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi is also a founding member +and has been Vice Chairman of Banco Privado de Inversiones, +S.A., an Argentinean investment bank, since 1994. +Mr. Grimoldi was previously a member of the Advisory Board +of Ford Motor Company in Argentina, and has also held various +positions in the Argentinean government. +JOSEPH A. PARINI (age 71) has been a director +since 1987. He is Chairman of the Board and an officer of EFW, +Inc., a designer and manufacturer of avionics systems for global +markets, and has held that position since January 1997. He +is also President and Chief Executive Officer of Intermet +Systems, Inc., a manufacturer of weather instrumentation +systems, and has held that position since January 1997. +Mr. Parini was previously President and Chief Executive +Officer of Elbit Systems, Inc., a designer, manufacturer and +marketer of infrared, telecommunications and medical +instrumentation, as well as defense products, from 1990 until +1996. +ELIZABETH A. SANDERS (age 57) has been a director +since 1994. Ms. Sanders is the principal of The Sanders +Partnership, a management consulting practice. Ms. Sanders +has held that position since 1990. Ms. Sanders was +previously Vice President of Nordstrom, Inc., a retailer. +Ms. Sanders is also a director of Wal-Mart Stores, Inc.; +Washington Mutual, Inc.; Denny’s Corporation; and Wellpoint +Health Networks, Inc. +2 +Table of Contents +Continuing Directors — Terms Expiring in 2005 +DONALD V. FITES (age 69) has been a director +since 1999. From 1990 until 1999, Mr. Fites was Chairman +and Chief Executive Officer of Caterpillar Inc., a manufacturer +of construction, mining and agricultural machinery and engines. +Mr. Fites also is a director of AK Steel Holding +Corporation; AT&T Wireless Services; ExxonMobil Corporation; +Oshkosh Truck Corporation; and Georgia-Pacific Corporation. +PHILLIP D. MATTHEWS (age 64) has been a director +since 1981. Mr. Matthews is Lead Director of Wolverine and +was Chairman of the Board of Wolverine from 1993 until 1996. +Mr. Matthews is Chairman of the Board of Worldwide +Restaurant Concepts, Inc., a national restaurant chain. +Mr. Matthews is also a general partner in Hayden Capital +Investments LLC, a private investment firm. From 1991 until +1997, Mr. Matthews was Chairman of Reliable Company, a +coin-operated laundry equipment company servicing the multi-unit +housing industry. Mr. Matthews is also a director of Washington +Mutual, Inc. and Worldwide Restaurant Concepts, Inc. +PAUL D. SCHRAGE (age 67) has been a director +since 1997. Mr. Schrage was Senior Executive Vice President +and Chief Marketing Officer of McDonald’s Corporation, a +worldwide restaurant franchisor and operator, and was employed +at that company from 1967 until 1997. Mr. Schrage is also a +director of Thrivent Financial for Lutherans; Compact +Industries, Inc.; and Foodland Supermarket Ltd. +Continuing Directors — Terms Expiring in 2004 +GEOFFREY B. BLOOM (age 61) has been a director +since 1987. Mr. Bloom is Chairman of the Board of Wolverine +and has served in that capacity since 1996. Until his retirement +in April 2000, Mr. Bloom was also Chief Executive +Officer of Wolverine. Mr. Bloom was previously President +and Chief Executive Officer from 1993 until 1996 and Chief +Operating Officer from 1987 until 1993. Mr. Bloom is also a +director of Coachmen Industries, Inc. and Comshare, Inc. +DAVID T. KOLLAT (age 64) has been a director +since 1992. Mr. Kollat is President and Chairman of 22, +Inc., a company specializing in research and management +consulting for retailers and consumer goods manufacturers. Mr. +Kollat is also a director of The Limited, Inc.; Cone Mills +Corporation; Big Lots, Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 63) has been a director +since 1977. Mr. Mehney is President of The KMW Group, Inc., +a distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 57) has been a +director since 1993. Mr. O’Donovan is Chief Executive +Officer and President of Wolverine and has served in that +capacity since April 2000. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President of Wolverine since 1996. Before 1996, Mr. +O’Donovan was Executive Vice President of Wolverine. +Board Committees and Meetings +The Board of Directors has four standing +committees: the Audit Committee, the Compensation Committee, the +Executive Committee and the Governance Committee. Members of +each committee are appointed by the Board of Directors and the +authority, duties and responsibilities of each committee are +governed by written charters approved by the Board of Directors. +Audit Committee. The +Audit Committee: +• +oversees Wolverine’s financial reporting +process on behalf of the Board; +• +retains, oversees, evaluates and, if appropriate, +terminates the independent auditors; +• +annually reviews the performance of the +independent auditors and Wolverine’s internal audit +function; +• +at least annually, reviews all relationships +between the independent auditors and Wolverine to assess +independence; +3 +Table of Contents +• +approves the nature and scope of services to be +performed by the independent auditors and reviews the range of +their fees for such services; +• +establishes and maintains procedures for the +receipt, retention and treatment of complaints regarding +accounting and auditing matters; +• +reviews the results of the annual audit and +policies and practices regarding conflicts of interest and +compliance with laws, rules and regulations; +• +reviews Wolverine’s financial statements, +including disclosures in Management’s Discussion and +Analysis of Financial Condition and Results of Operation, that +are included in Wolverine’s reports on Form 10-Q and +Form 10-K; and +• +reviews, with Wolverine’s management, +independent auditors and internal financial staff, +Wolverine’s accounting and financial controls, including +Wolverine’s policies and systems with respect to risk +assessment and risk management. +Only independent directors may serve on the Audit +Committee. Messrs. Kollat, Matthews and Parini and +Ms. Sanders currently serve on the Audit Committee. +Mr. Kollat is Chairman of this committee. It met six times +in 2002. +Wolverine’s Board of Directors has adopted a +written charter for the Audit Committee. The written charter is +attached as Appendix A to this proxy statement. All members +of the Audit Committee are “independent” from +Wolverine and its management under currently effective rules and +standards of the New York Stock Exchange. +Compensation Committee. +The Compensation Committee: +• +discharges, subject to general review and +oversight by the Board, the Board’s responsibilities +relating to Wolverine’s compensation and benefits programs +and policies; +• +reviews and approves corporate and personal goals +and objectives relevant to Chief Executive Officer compensation; +• +reviews and approves the timing and amount of +compensation of the Chief Executive Officer and other key senior +executives, including stock incentive grants, salaries, bonuses +and other benefits; +• +administers Wolverine’s stock option and +other equity-based incentive plans; +• +recommends retainer and attendance fees for +directors who are not employees of Wolverine or any of its +subsidiaries (“outside directors”). +Messrs. Fites, Mehney and Schrage currently +serve on the Compensation Committee. Mr. Fites is Chairman +of this committee. It met three times during 2002. +Executive Committee. +The Executive Committee exercises all +powers and authority of the Board of Directors during periods +between Board meetings with respect to matters that the Chairman +of the Board determines must be addressed before the next +scheduled meeting of the Board and for which a special meeting +of the Board is not practicable. Messrs. Bloom, Fites, +Matthews, O’Donovan and Parini currently serve on the +Executive Committee. Mr. Matthews is Chairman of this +committee. It did not meet during 2002. +Governance Committee. +The Governance Committee: +• +interviews each potential director nominee and +recommends suitable candidates for nomination or appointment to +the Board of Directors; +• +reviews the appropriate skills and +characteristics of Board and committee members; +• +develops and recommends to the Board of Directors +an annual self-evaluation of the Board and its committees and +oversees the self-evaluation; +• +reviews and reports on all matters generally +relating to corporate governance and develops and recommends to +the Board corporate governance guidelines; and +• +recommends to the Board of Directors for its +approval key executives to serve as corporate officers of +Wolverine. +Messrs. Kollat, Mehney and Schrage and +Mses. Parker (until this year’s annual meeting) and +Sanders currently serve on the Governance Committee. +Mr. Schrage is Chairman of this committee. It met two times +during 2002. +During the 2002 fiscal year, the Board of +Directors held five regular and one special meeting. Each of the +directors attended at least 75% or more of the aggregate of the +total number of full Board meetings and the total number of +meetings of committees on which he or she served (during the +periods that he or she served). +Stockholder Nominations +The Governance Committee will consider nominees +for election to the Board of Directors submitted by +stockholders. Nominations may be made by a stockholder entitled +to vote for the election of directors if, and only if, the +stockholder submits advance notice of the proposed nomination +and the +4 +Table of Contents +notice is received by the Secretary of Wolverine +not less than 50 nor more than 75 days before the annual +meeting. However, if the first to occur of the notice of the +meeting or public disclosure is given or made to stockholders +less than 65 days before the annual meeting, the notice of +the proposed nomination must be received not later than the +close of business on the 15th day after the day on which the +notice of the date of the meeting was mailed or the public +disclosure was made, whichever occurs first. Each notice +submitted by a stockholder must set forth each nominee’s +name, age, business address, residence address and principal +occupation and employment, the class and number of shares of +common stock beneficially owned by each nominee, and any other +information concerning each nominee required to be included in a +proxy statement soliciting proxies for the election of the +nominee under the rules of the Securities and Exchange +Commission. In addition, the notice must state the name, record +address and the class and number of shares of common stock +beneficially owned by the stockholder submitting the notice. If +the chairman of the meeting determines that a nomination was not +made in accordance with these procedures, he or she must +announce that determination at the meeting and the nomination +will be disregarded. +Compensation of Directors +Wolverine paid each outside director an annual +retainer of $23,000 plus $1,000 per day for attendance at each +regular meeting of the Board of Directors and $1,000 per day for +participation in each committee meeting. In addition, Wolverine +paid the chairperson of the Audit, Compensation and Governance +Committees annual fees of $3,500. Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual retainer and are not compensated for attendance at Board +or committee meetings. Wolverine also reimburses directors for +expenses associated with attending Board and committee meetings. +Under the Amended and Restated Directors’ +Stock Option Plan (the “Directors’ Stock Option +Plan”) approved by stockholders in 2002, each newly +appointed or elected outside director is granted an option to +purchase shares of common stock with a market value on the date +of his or her initial election or appointment equal to six times +the annual director retainer fee then in effect. On the date of +each annual meeting after his or her initial appointment or +election, each outside director is granted an option to purchase +shares with a market value on the annual meeting date equal to +three times the annual director retainer fee then in effect. The +exercise price of options granted under this plan is 100% of the +market value of common stock on the date each option is granted. +The term of each option may not exceed 10 years. Options +were granted under this plan to all outside directors on +April 25, 2002. Options to purchase a maximum of 400,000 +shares of common stock (plus any remaining shares previously +authorized under the plan before the 2002 amendment) may be +granted under the Directors’ Stock Option Plan. +In 2002, Wolverine adopted and the stockholders +approved the Amended and Restated Outside Directors’ +Deferred Compensation Plan (the “Deferred Compensation +Plan”), a supplemental nonqualified deferred compensation +plan for directors who are not employees of Wolverine or its +subsidiaries. The Deferred Compensation Plan amended and +restated a plan originally adopted in 1996. The plan permits all +outside directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred are credited on the books +of Wolverine to an account established for that director as if +the amounts had been invested to purchase shares of common stock +using the market price of common stock on the payment date of +the next cash dividend (“phantom stock”). Phantom +stock units are increased by a dividend equivalent based on +dividends paid by Wolverine, the amount of phantom stock units +credited to each director’s account and the market price of +common stock on the payment date of the cash dividend. The +accumulated phantom stock units in a director’s account +under the plan are distributed in shares of Wolverine common +stock in a single lump-sum or annual installments over a period +of up to 10 years by converting each phantom stock unit to +one share of Wolverine common stock upon termination of service +as a director. +Certain outside directors also received in 1996 +an award of phantom stock units representing accrued retirement +income under the former Director Retirement Plan, which was +replaced by the Deferred Compensation Plan in 1996. No future +outside director will receive retirement awards under the +Deferred Compensation Plan. Phantom stock units that represent +awards of retirement income are subject to delayed vesting +provisions and are credited with dividend equivalents. Shares of +Wolverine common stock equal to the number of all phantom stock +units representing retirement awards credited to a +director’s account will be distributed upon termination of +service as a director. Distributions will be made in 10 annual +5 +Table of Contents +installments beginning the month following +termination of service as a director. +Upon a “change in control” as defined +in the Deferred Compensation Plan, all amounts credited to a +director’s account (both for deferred fees and retirement +income) will be distributed to the director in a single +lump-sum. For purposes of the Deferred Compensation Plan, +“change in control” is defined as: +• +failure of the individuals who were directors at +the time the Deferred Compensation Plan was adopted and those +whose election or nomination to the Board of Directors was +approved by a three-quarters vote of the directors then still in +office who were directors at the time the Deferred Compensation +Plan was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Mr. Matthews serves as Lead Director of +Wolverine. For his service as lead director, Mr. Matthews +received $46,000 for the period from May 2001 through +April 2002, and he will receive $46,000 for the period from +May 2002 through April 2003. These payments are in +lieu of the annual director retainer fee of $23,000. +In April 2000, Mr. Bloom retired as +Chief Executive Officer of Wolverine but continues to serve as +Chairman of the Board of Directors. For his services as +Chairman, Mr. Bloom received $175,000 for the period from +May 2001 through April 2002 and will receive $125,000 +for the period from May 2002 through April 2003, together +with reimbursement of certain business expenses. These payments +are in lieu of all other director compensation and +Mr. Bloom did not participate in the Directors’ Stock +Option Plan or the Deferred Compensation Plan and did not +receive an annual retainer, fees for Board or Committee meeting +attendance or other compensation. The scope of +Mr. Bloom’s services and his compensation is reviewed +annually by the Board of Directors. +Corporate Governance Principles +Wolverine has developed governance principles to +assist the Board in fulfilling its responsibilities to +stockholders and to provide a framework for the Board’s +oversight responsibilities regarding the management of +Wolverine. Wolverine’s governance principles are dynamic +and have been developed and revised over a period of many years +to reflect changing laws, regulations and best business +practices. The governance principles also provide guidance and +transparency to management, employees, investors and other +stakeholders regarding the Board’s philosophy, high ethical +standards, expectations for conducting business, and +decision-making processes. The following is a summary of certain +of Wolverine’s policies, charters, guidelines and +principles relating to corporate governance and financial +reporting. +Independence +The Board believes that the independence of +directors and Board committee members is important to assure +that the Board and its committees operate only in the best +interests of the stockholders and to avoid any appearance of +conflict of interest. For over 10 years, Wolverine has +functioned with only two active or former management employees +as directors. The remainder of the Board’s 10 to +12 directors over this period have been outside directors +that are independent of Wolverine. Currently, only one +management employee, Wolverine’s Chief Executive Officer +and President, serves as a director. While Wolverine’s +formal Corporate Governance Guidelines require that a majority +of the directors be independent, Wolverine has for many years +operated with a substantial majority of independent directors. +The Board does not intend to deviate from this practice. +Corporate Governance Guidelines +The Board of Directors has adopted Corporate +Governance Guidelines that set forth the principle framework of +governance principles applicable to Wolverine. These guidelines +succeed the Board Governance Guidelines that were in place for +many years and addressed many of the same subjects. The +Corporate Governance Guidelines outline the general +6 +Table of Contents +duties and functions of the Board and management, +and set forth general principles regarding Board composition, +independence, Board meetings and responsibilities, Board +committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. The +Corporate Governance Guidelines are required to be reviewed and +updated at least annually. +Alignment of Stockholder, Management and +Director Interests +For many years, the Board has believed that +directors and management should have a significant financial +stake in Wolverine to align their interests with those of the +stockholders. For that reason, the Board adopted formal stock +ownership guidelines that require ownership of Wolverine stock: +(i) by directors equal in value to five times the current +Board retainer, (ii) by the Chief Executive Officer equal +in value to four times his or her base salary, and (iii) by +other executive officers equal to between two and four times +their current base salaries. All directors and executive +officers are in compliance with the stock ownership guidelines. +The directors have also, for many years, received a significant +portion of their director compensation in the form of options to +purchase Wolverine stock, which only have value if the stock +price increases. Directors also participate in the Deferred +Compensation Plan that allows outside directors to convert a +portion or all of their cash compensation into stock ownership. +Further, Wolverine believes that its practice of granting stock +options and restricted stock to its management team aligns the +interests of management with stockholders. +Code of Conduct and Compliance +For years, Wolverine and its employees have +followed an extensive Code of Conduct and Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees comply with applicable legal +requirements and sets forth Wolverine’s expectations +regarding business ethics, integrity, honesty, fairness and +keeping commitments. The Code contains Wolverine’s +principles and procedures regarding conflicts of interest, +corporate opportunities, confidentiality, fair dealing, +protection of Wolverine’s assets, compliance with rules and +regulations, engagement criteria for Wolverine’s trading +partners, “whistle blower” provisions, expectations +regarding the integrity of books and records, and guidelines and +procedures for many other subjects. Employees are surveyed +annually to identify any areas of noncompliance with the Code, +and the results of this survey are reported to the Board of +Directors. The Code is reviewed and updated at least annually. +Board Committee Charters +The Board has organized and formed three +operating committees, the Audit Committee, the Compensation +Committee and the Governance Committee. In addition, the Board +has an Executive Committee that is empowered to act as necessary +on behalf of the Board between formal meetings of the Board of +Directors. The Board has approved committee charters for each +committee that contain basic principles regarding the +committee’s organization, purpose, authority and +responsibilities. The charters are reviewed at least annually +and any proposed changes are recommended to the Board of +Directors for approval. The performance of each committee is +reviewed annually by committee members and the Board. +Leadership +Since 1993, the Board has operated with an +independent Lead Director. In addition, for the past three years +Wolverine has divided the roles of its Chairman and Chief +Executive Officer and the elected Chairman has not been an +employee or officer of Wolverine. Wolverine’s Corporate +Governance Guidelines require that when Wolverine’s Chief +Executive Officer retires, he must tender his resignation and +the issue of continued Board membership for the former Chief +Executive Officer will be determined by the Board of Directors +on a case-by-case basis. +Accounting and Finance Code of +Ethics +The Board of Directors has adopted an Accounting +and Finance Code of Ethics (“Finance Ethics Code”). +This is an ethics code focused on the financial reporting +process and is intended to protect the interests of all of +Wolverine’s constituents, including stockholders, +employees, customers and the communities in which Wolverine +conducts business. Many of the basic tenets of the Finance +Ethics Code have been incorporated for many years in +Wolverine’s Code of Conduct and Compliance. The Finance +Ethics Code is applicable to Wolverine’s Chief Executive +Officer, Chief Financial Officer and Corporate Controller and +sets forth specific rules of conduct and expectations regarding +the financial reporting process, protection of Wolverine’s +assets, +7 +Table of Contents +compliance with rules and regulations and honest +and ethical conduct in connection with the financial reporting +process and related disclosures. The Finance Ethics Code will be +reviewed at least annually and complies with the current rules +and regulations issued by the Securities and Exchange Commission. +Attendance +The Board of Directors prides itself in its +ability to recruit and retain directors who have a diversity of +experience, who have the highest personal and professional +integrity, who have demonstrated exceptional ability and +judgment, and who are effective (in conjunction with the other +members of the Board) in collectively serving the long-term +interests of the stockholders. Board and committee attendance is +central to the proper functioning of the Board of Directors and +is a priority. Directors are expected to make every effort to +personally attend every Board meeting and every meeting of each +committee on which they serve as a member. Over the past eight +years, individual directors have attended 478 out of a total of +490 required meeting attendances. Given Wolverine’s home +base in Rockford, Michigan and the geographic diversity of the +home cities of Wolverine’s directors, we believe this +attendance record is exceptional. +Board and Company Culture +Wolverine’s comprehensive governance +guidelines and principles are coupled with a robust, open and +effective Board environment that promotes respect, trust and +candor, fosters a culture of open dissent and permits each +director to express opinions and contribute to the Board +process. Directors are expected to have unrestricted access to +management and any company information they desire. The +participation of Board members and the open exchange of opinions +is further encouraged at the Board committee level through the +periodic rotation of Board members among its standing +committees. This open and candid operating environment is shared +by management and the Board and is essential to fully realize +the benefits of Wolverine’s formal governance guidelines, +principles, charters and policies. +Stock Incentive Plan of 2003 +The Board of Directors firmly believes that +Wolverine’s long-term interests are best advanced by +aligning the interests of its key employees with the interests +of its stockholders. Therefore, to attract, retain and motivate +officers and key management employees of exceptional abilities, +and in recognition of the significant and extraordinary +contributions to the long-term performance and growth of +Wolverine and its subsidiaries made by these individuals, on +February 13, 2003, the Board of Directors adopted, subject +to stockholder approval, the Stock Incentive Plan of 2003 (the +“Plan”). The terms of the Plan are attached as +Appendix B to this proxy statement. The Plan is intended to +supplement and continue the compensation policy and practice of +other stock incentive plans of Wolverine, which Wolverine has +utilized for these purposes for several decades. Because the +current plans have limited authorized shares remaining for +future awards and stock options to employees (approximately +393,946 shares in total as of March 3, 2003), the Board of +Directors believes that adoption of the Plan is now advisable to +make additional shares available for awards. +The following summarizes information as of +March 3, 2003, with respect to available shares and +outstanding awards under Wolverine’s existing equity-based +incentive plans: +• +393,946 shares of common stock are currently +available for new awards to employees under Wolverine’s +existing equity-based compensation plans for employees; +• +444,436 shares of common stock are currently +available for option awards to directors under the +Directors’ Stock Option Plan; +• +options for 4,675,413 shares of common stock +are currently outstanding and unexercised under all of +Wolverine’s existing stock option plans for employees; +• +options for 353,382 shares of common stock +are currently outstanding and unexercised under all of +Wolverine’s stock option plans for directors; +• +the weighted-average exercise price of all +currently outstanding stock options is approximately $14.90; and +• +the weighted-average term until expiration of all +currently outstanding stock options is 6.53 years. +8 +Table of Contents +The following summarizes certain important +information about the proposed Plan: +• +1,300,000 shares of common stock would be +available for awards under the Plan, subject to certain +anti-dilution and other adjustments; +• +a maximum of 15% of the shares available for +issuance under the Plan could be awarded in the form of +restricted stock and stock awards, combined; +• +the exercise price for all stock options issuable +under the Plan must be at least 100% of the market value of +common stock on the date of grant; +• +the Plan prohibits repricing, replacement, or +modification of any award under the Plan without stockholder +approval if the effect of the action would be to reduce the +exercise price of an outstanding award; and +• +restricted stock and stock option awards vest +according to schedules set by the Compensation Committee based +on company performance or time periods that provide for full +vesting in not less than three years. +Section 162(m) of the Internal Revenue Code +of 1986, as amended, limits to $1,000,000 the annual income tax +deduction that may be claimed by a publicly held corporation for +compensation paid to its chief executive officer and to the four +most highly compensated officers other than the chief executive +officer. Qualified “performance-based” compensation is +exempt from the $1,000,000 limit and may be deducted even if +other compensation exceeds $1,000,000. The proposed Plan is +intended to provide performance-based compensation under +Section 162(m) to permit compensation associated with stock +options awarded under the Plan to be tax deductible to Wolverine +while allowing, as nearly as practicable, the continuation of +Wolverine’s preexisting practices with respect to the award +of stock options. In any calendar year, no participant in the +Plan may be granted awards with respect to more than 300,000 +shares of Wolverine common stock. +The Plan is intended to grant stock options and +restricted stock consistent with the past practice of Wolverine. +Most of the options granted under the current plans have been +incentive stock options within the meaning of the Internal +Revenue Code with an exercise price equal to the market price of +the stock on the date of grant. However, the Plan would also +permit the grant of stock awards if determined to be desirable +to advance the purposes of the Plan (together with stock options +and restricted stock, collectively referred to as +“Incentive Awards”). By combining in a single plan +many types of incentives commonly used in long-term incentive +compensation programs, the Plan is intended to provide +significant flexibility for Wolverine to design specific +long-term incentives to best promote Plan objectives and in turn +promote the interests of Wolverine’s stockholders. +The following is a summary of the principal +features of the Plan and is qualified in its entirety by +reference to the terms of the Plan attached as Appendix B +to this proxy statement. +Subject to certain anti-dilution and other +adjustments, the total number of shares available for Incentive +Awards under the Plan would be 1,300,000 shares of +Wolverine’s common stock, $1.00 par value. Persons +eligible to receive Incentive Awards under the Plan (with +certain limitations discussed below) include corporate executive +officers (currently 8 persons) and other officers and key +employees (currently approximately 270 persons) of +Wolverine and its subsidiaries in consideration of their +abilities to contribute to increased stockholder value. +Additional individuals may become executive officers, officers +or key employees in the future and could participate in the +Plan. Executive officers, officers and key employees of +Wolverine and its subsidiaries may be considered to have an +interest in the Plan because they may receive Incentive Awards +under the Plan. The benefits payable under the Plan are +presently not determinable and the benefits that would have been +payable had the Plan been in effect during the most recent +fiscal year are similarly not determinable. The Plan would not +be qualified under Section 401(a) of the Internal Revenue +Code and would not be subject to the Employee Retirement Income +Security Act of 1974. +The Plan would be administered by the +Compensation Committee of the Board of Directors. The +Compensation Committee would determine, subject to the terms of +the Plan, the persons to receive Incentive Awards, the amount of +Incentive Awards to be granted to each person (subject to the +limit specified in the Plan), the time of each grant, the terms +and duration of each grant and all other determinations +necessary or advisable for administration of the Plan. No +participant may be granted, during any calendar year, Incentive +Awards representing more than 300,000 shares of Wolverine common +stock, subject to certain anti-dilution and other adjustments. +In addition, not more than 15% of the total number of shares +available for awards under the Plan could be +9 +Table of Contents +granted in the form of restricted stock and stock +awards, combined. The Compensation Committee could amend the +terms of Incentive Awards granted under the Plan from time to +time in a manner consistent with the Plan. +The principal stock option features of the Plan +permit Wolverine to grant to participants options to purchase +shares of Wolverine common stock at stated prices for specific +periods of time. Certain stock options that could be granted to +employees under the Plan may qualify as incentive stock options +as defined in Section 422 of the Internal Revenue Code. +Wolverine has traditionally granted incentive stock options to +its officers and key employees as the primary form of long-term, +equity-based incentive compensation. Other stock options would +not be incentive stock options within the meaning of the +Internal Revenue Code. Stock options could be granted at any +time prior to the termination of the award provisions of the +Plan according to its terms or termination of the Plan by action +of the Compensation Committee or the Board of Directors. The +Compensation Committee could award options for any amount of +consideration, or no consideration, as determined by the +Compensation Committee. +The Compensation Committee would establish the +terms of individual stock option grants in stock option +agreements. The stock option agreements would contain terms, +conditions and restrictions that the Compensation Committee +determines to be appropriate and consistent with the provisions +of the Plan. The Plan requires that vesting schedules set by the +Compensation Committee be based on company performance or extend +over a period of time that provides for full vesting in a period +of not less than three years. Stock options granted by the +Compensation Committee under the stock incentive plans currently +in place generally vest in four installments over a three-year +period subject to, among other things, the participant’s +continued employment with Wolverine or the applicable +subsidiary. The terms could also provide for automatic regrants +of options for a small group of senior managers with respect to +shares surrendered to Wolverine in connection with the exercise +of an outstanding stock option or payment of taxes in connection +with the vesting of restricted stock or the exercise of a stock +option. The exercise price per share would be determined by the +Compensation Committee and would be a price equal to or greater +than the market value of common stock on the date of grant. No +Incentive Award could be repriced, replaced, regranted through +cancellation or modified without stockholder approval if the +effect of such repricing, replacement, regrant or modification +would be to reduce the exercise price of then outstanding +Incentive Awards to the same participants. On March 3, +2003, the closing price of Wolverine common stock on the New +York Stock Exchange was $16.65 per share. When exercising all or +a portion of a stock option, a participant could pay the +exercise price with cash or, if permitted by the Compensation +Committee, shares of Wolverine common stock or other +consideration substantially equal to cash. If shares of +Wolverine common stock are used to pay the exercise price and +the Compensation Committee permits, a participant could use the +value of shares received upon exercise for further exercises in +a single transaction. The Compensation Committee could also +authorize payment by employees other than executive officers of +all or a portion of the exercise price in the form of a full +recourse promissory note or installments on terms approved by +the Compensation Committee. The Board of Directors could +restrict or suspend the power of the Compensation Committee to +permit such loans and could require that adequate security be +provided. +Although the term of each stock option would be +determined by the Compensation Committee, no stock option would +be exercisable under the Plan after the expiration of +10 years from the date it was granted. Stock options +generally become fully vested and are exercisable for limited +periods of time in the event a stock option holder dies or +becomes disabled. If a stock option holder is terminated without +cause, no additional vesting will occur and the options +previously vested are exercisable for a limited period of time. +If a stock option holder is terminated for cause, the stock +option holder would forfeit all rights to exercise any +outstanding stock options unless the Compensation Committee +determines otherwise. If a stock option holder retires +(i) after age 62, (ii) after age 50 and the +completion of seven years of service as an employee and/or +officer of Wolverine or any subsidiary, or (iii) upon +attaining any other age or years of service determined by the +Compensation Committee, all of his or her options become fully +vested and may be exercised for the remainder of the terms of +the options unless the terms of the option agreement or grant +provide otherwise. Stock options granted to participants under +the Plan generally could not be transferred except by will or by +the laws of descent and distribution, unless the Compensation +Committee otherwise consents or transfer is permitted +10 +Table of Contents +by the terms of the grant or the applicable stock +option agreement. +For federal income tax purposes, the participant +would not recognize income and Wolverine would not receive a +deduction at the time an incentive stock option is granted. A +participant exercising an incentive stock option would not +recognize income at the time of the exercise. The difference +between the market value and the exercise price would, however, +be a tax preference item for purposes of calculating alternative +minimum tax. Upon sale of the stock, as long as the participant +held the stock for at least one year after the exercise of the +stock option and at least two years after the grant of the stock +option, the participant’s basis would equal the exercise +price and the participant would pay tax on the difference +between the sale proceeds and the exercise price as capital +gain. Wolverine would receive no deduction for federal income +tax purposes. If, before the expiration of either of the above +holding periods, the participant sold shares acquired under an +incentive stock option, the tax deferral would be lost and the +participant generally would recognize taxable compensation +income equal to the difference between the exercise price and +the fair market value of the stock at the time of exercise. +Wolverine would then receive a corresponding deduction for +federal income tax purposes. Additional gains, if any, +recognized by the participant would result in the recognition of +short- or long-term capital gain. +Federal income tax laws provide different rules +for nonqualified options that do not meet the Internal Revenue +Code’s definition of an incentive stock option. Under +current federal income tax laws, a participant would not +recognize any income and Wolverine would not receive a deduction +at the time a nonqualified option is granted. If a nonqualified +option is exercised, the participant would recognize +compensation income in the year of exercise equal to the +difference between the exercise price and the fair market value +of the stock on the date of exercise. Wolverine would receive a +corresponding deduction for federal income tax purposes. +The participant’s tax basis in the shares +acquired would be increased over the exercise price by the +amount of compensation income recognized. Sale of the stock +after exercise would result in recognition of short- or +long-term capital gain or loss. +The Plan also permits the Compensation Committee +to make stock awards. A stock award of Wolverine’s common +stock would be subject to terms and conditions set by the +Compensation Committee at the time of the award. Stock award +recipients would generally have all voting, dividend, +liquidation and other rights with respect to awarded shares of +Wolverine common stock. However, the Compensation Committee +could impose restrictions on the assignment or transfer of +Wolverine common stock awarded under a stock award. Wolverine +has previously granted stock awards for minimal numbers of +shares to a limited number of persons in connection with +short-term programs targeted at specific locations or profit +centers as rewards for achieving pre-established sales or +similar goals. Wolverine presently expects any future awards +would be for a de minimis number of shares and similar purposes. +Finally, the Plan permits the Compensation +Committee to award restricted stock, subject to such terms and +conditions set by the Compensation Committee. Only 15% of the +shares authorized under the Plan may be issued as restricted +stock or stock awards, combined. As with stock option grants, +the Compensation Committee would establish the terms of +individual awards of restricted stock in restricted stock +agreements. The Plan requires that vesting schedules set by the +Compensation Committee be based on company performance or extend +over a period of time that provides for full vesting in a period +of not less than three years. Restricted stock granted by the +Compensation Committee, other than stock associated with payouts +under Wolverine’s Executive Long-Term Incentive Plan, +generally vests in three installments over a five-year period, +with 25% of the shares subject to an award vesting on the third +anniversary of the date of the award, 25% of the shares vesting +on the fourth anniversary and the remaining shares vesting on +the fifth anniversary. Restricted stock awarded in connection +with the Executive Long-Term Incentive Plan (approved by the +stockholders in 1997 and 2002) generally vests in three equal +installments over a three-year period on each anniversary of the +date of grant. Unless the Compensation Committee consents or +provides otherwise in a restricted stock agreement, if a +participant’s employment is terminated during the +restricted period for any reason other than death, disability or +retirement (as defined in the Plan), the participant’s +restricted stock would be entirely forfeited. If the +participant’s employment terminates during the restricted +period by reason of death, disability or retirement, the +restrictions on the participant’s shares would terminate +automatically. Wolverine has previously granted restricted stock +awards pursuant to the current stock incentive plans. +11 +Table of Contents +Without Compensation Committee authorization, a +recipient of restricted stock would not be allowed to sell, +exchange, transfer, pledge, assign or otherwise dispose of the +stock other than to Wolverine or by will or the laws of descent +and distribution. In addition, the Compensation Committee could +impose other restrictions on shares of restricted stock. Holders +of restricted stock would enjoy all other rights of a +stockholder with respect to restricted stock, including the +right to vote restricted shares at stockholders’ meetings +and the right to receive all dividends paid with respect to +shares of Wolverine common stock. Any securities received by a +holder of restricted stock pursuant to a stock dividend, stock +split, recapitalization, merger, consolidation, combination or +exchange of shares would be subject to the same terms, +conditions and restrictions that are applicable to the +restricted stock for which the shares are received. +Generally, a participant would not recognize +income upon the award of restricted stock. However, a +participant would be required to recognize compensation income +on the value of restricted stock at the time the restricted +stock vests (when the restrictions lapse). At the time the +participant recognizes compensation income, Wolverine would be +entitled to a corresponding deduction for federal income tax +purposes. If restricted stock is forfeited by a participant, the +participant would not recognize income and Wolverine would not +receive a deduction. Prior to the lapse of restrictions, +dividends paid on restricted stock would be reported as +compensation income to the participant and Wolverine would +receive a corresponding deduction. +A participant could, within 30 days after +the date of an award of restricted stock, elect to report +compensation income for the tax year in which the award of +restricted stock occurs. If the participant makes such an +election, the amount of compensation income would be the value +of the restricted stock at the time of the award. Any later +appreciation in the value of the restricted stock would be +treated as capital gain and realized only upon the sale of the +restricted stock. Dividends received after such an election +would be taxable as dividends and not treated as additional +compensation income. If, however, restricted stock is forfeited +after the participant makes such an election, the participant +would not be allowed any deduction for the amount earlier taken +into income. Upon the sale of restricted stock, a participant +would realize capital gain (or loss) in the amount of the +difference between the sale price and the value of the stock +previously reported by the participant as compensation income. +Compensation associated with awards of restricted +stock under the Plan not associated with payouts under the +Executive Long-Term Incentive Plan would not, based upon +Wolverine’s past practices, qualify as performance-based +compensation for purposes of Section 162(m) and would be +subject to the $1,000,000 deductibility limit. Wolverine +believes that awards of restricted stock in connection with the +Executive Long-Term Incentive Plan would constitute +performance-based compensation and would be exempt from the +$1,000,000 deductibility limit imposed by Section 162(m). +Upon the occurrence of a “change in +control” of Wolverine (as defined in the Plan), all +outstanding stock options would become immediately exercisable +in full and would remain exercisable in accordance with their +terms and all other outstanding Incentive Awards under the Plan +would immediately become fully vested and nonforfeitable. In +addition, the Compensation Committee, without the consent of any +affected participant, could determine that some or all +participants holding outstanding stock options would receive +cash in an amount equal to the greater of the excess over the +exercise price per share of each stock option of: (i) the +highest sale price of the shares on the New York Stock Exchange +immediately before the effective date of the change in control; +or (ii) the price per share actually paid in connection +with any change in control of Wolverine. +If Incentive Awards are made under the Plan, +Wolverine could withhold from any cash otherwise payable to a +participant or require a participant to remit to Wolverine an +amount sufficient to satisfy federal, state, local and foreign +withholding taxes. Tax withholding obligations could be +satisfied by withholding Wolverine common stock to be received +upon exercise of an option or the vesting of restricted stock or +by delivery to Wolverine of previously owned shares of common +stock. +The Board of Directors could, on the +recommendation of the Compensation Committee, terminate the Plan +at any time and could from time to time amend the Plan as it +considered proper and in the best interests of Wolverine, +provided that no amendment could impair any outstanding +Incentive Award without the consent of the participant except +according to the terms of the Plan or Incentive Award. No +termination, amendment or modification could become effective +with respect to any Incentive Award outstanding under +12 +Table of Contents +the Plan without the prior written consent of the +participant holding the award unless the amendment or +modification operated to the benefit of the participant. Subject +to stockholder approval, the Plan would take effect on +February 13, 2003, and, unless terminated earlier by the +Board of Directors, no awards could be made under the Plan after +February 12, 2013. +Wolverine intends to register shares covered by +the Plan under the Securities Act of 1933 before any Incentive +Award could be exercised. If the Plan is not approved by the +stockholders, no Incentive Awards will be made under the Plan to +any employee of Wolverine, including the Chief Executive Officer +or any of the four most highly compensated executive officers +(other than the Chief Executive Officer). +A vote of the stockholders holding a majority of +the shares present in person or represented by proxy and +entitled to vote on this proposal is required to approve the +Plan. For purposes of counting votes on this proposal, +abstentions will be counted as voted against the proposal. +Broker non-votes will not be counted as voted on the proposal, +and the number of shares of which a majority is required will be +reduced by the number of shares not voted. +This proposal is considered to be a routine +matter and the New York Stock Exchange has advised Wolverine +that shares of common stock held by New York Stock Exchange +member organizations, or their nominees, may be voted +without specific instructions from the beneficial +owners of such shares. +Your Board of Directors recommends that you +vote FOR approval of the Stock Incentive Plan of +2003. +13 +Table of Contents +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information +concerning the number of shares of Wolverine stock held by each +entity known to Wolverine to have been the beneficial owner of +more than five percent of Wolverine’s outstanding shares of +common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Sole Voting +Shared +and +Voting +Total +Name and Address +Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Ownership +of Class +Perkins, Wolf, McDonnell & Company(1)(2) +310 S. Michigan Avenue, Suite 2600 +Chicago, Illinois 60604 +87,100 +6,102,490 +(3) +6,189,590 +(3) +15.3 +% +Berger Small Cap Value Fund(1)(2) +210 University Boulevard, Suite 900 +Denver, Colorado 80206 +— +3,800,000 +3,800,000 +9.15 +% +Royce & Associates, LLC(3) +1414 Avenue of the Americas +New York, New York 10019 +2,598,700 +— +2,598,700 +6.42 +% +Putnam, LLC. d/b/a Putnam Investments(4) +One Post Office Square +Boston, Massachusetts 02109 +— +2,106,025 +2,106,025 +5.1 +% +(1) +Based on information set forth in +Schedule 13G dated February 12, 2002. The +Schedule 13G indicates that the Berger Small Cap Value Fund +and its sub-investment adviser, Perkins, Wolf, McDonnell & +Company, have investment and voting authority with respect to +3,800,000 shares of Wolverine’s common stock. Documents +filed with the Securities and Exchange Commission indicate that +Berger Small Cap Value Fund is a portfolio series established +under the Berger Omni Investment Trust, an open-ended management +investment company registered under the Investment Company Act +of 1940, as amended. +(2) +Based on information set forth in +Schedule 13G filed January 31, 2003. The +Schedule 13G indicates that Perkins, Wolf, McDonnell & +Company, identified as a broker or dealer and an investment +adviser, is considered the beneficial owner of 6,189,590 shares +of Wolverine common stock. According to the Berger Small Cap +Value Fund Schedule 13G dated February 12, 2002, Perkins, +Wolf, McDonnell & Company is the sub-investment adviser with +respect to 3,800,000 shares of Wolverine’s common stock. It +is likely that these 3,800,000 shares are counted twice in this +table, once by the Berger Small Cap Value Fund and once by +Perkins, Wolf, McDonnell & Company. +(3) +Based on information set forth in +Schedule 13G dated February 6, 2003. The +Schedule 13G indicates that Royce & Associates, +LLC is an investment adviser registered under Section 203 +of the Investment Advisers Act of 1940. +(4) +Based on information set forth in +Schedule 13G dated February 5, 2003. According to the +Schedule 13G, Marsh & McLennan Companies, Inc. +wholly owns Putnam, LLC. d/b/a Putnam Investments, which wholly +owns two registered investment advisers: Putnam Investment +Management, LLC., the investment adviser to the Putnam family of +mutual funds; and The Putnam Advisory Company, LLC., the +investment adviser to Putnam’s institutional clients. Both +Putnam Investment Management, LLC. and The Putnam Advisory +Company, LLC. have dispository power over the shares as +investment managers, but each of the mutual funds’ trustees +have voting power over the shares held by each fund, and the +Putnam Advisory Company, LLC. has shared voting power over the +shares held by the institutional clients. The Schedule 13G +indicates the following interests: (i) Putnam, LLC. d/b/a +Putnam Investments has shared voting power with respect to +721,355 shares and shared +14 +Table of Contents +dispositive power with respect to +2,106,025 shares; (ii) Putnam Investment Management, +LLC. has shared dispositive power with respect to +734,300 shares; and (iii) The Putnam Advisory Company, +LLC. has shared voting power with respect to 721,355 shares +and shared dispositive power with respect to +1,371,725 shares. +Stock Ownership By Management +The following table sets forth the number of +shares of common stock beneficially owned as of March 3, +2003, by each of Wolverine’s directors and nominees for +director, each of the named executive officers and all of +Wolverine’s directors, nominees for director and executive +officers as a group. An asterisk in the column for “Percent +of Class” means the individual owns less than one percent +of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Stock Options(3) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +In-the- +Out-of-the- +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Money(4) +Money(5) +Ownership(3) +of Class +Geoffrey B. Bloom +296,690 +188,534 +218,817 +704,041 +1.74 +% +Steven M. Duffy +69,570 +84,257 +105,867 +259,694 +* +V. Dean Estes +91,994 +94,357 +53,543 +239,894 +* +Donald V. Fites +10,000 +34,963 +7,639 +52,602 +* +Alberto L. Grimoldi +15,184 +18,240 +15,229 +48,653 +* +Stephen L. Gulis, Jr. +83,835 +110,994 +87,295 +282,124 +* +David T. Kollat +40,500 +24,567 +15,229 +80,296 +* +Blake W. Krueger +83,579 +128,796 +46,899 +259,274 +* +Phillip D. Matthews +22,593 +39,754 +15,229 +77,576 +* +David P. Mehney +87,217 +22,036 +15,229 +124,482 +* +Timothy J. O’Donovan +384,332 +18,983 +287,933 +109,206 +800,454 +1.98 +% +Joseph A. Parini +7,185 +18,240 +15,229 +40,654 +* +Joan Parker +19,082 +18,240 +15,229 +52,551 +* +Elizabeth A. Sanders +7,000 +3,375 +33,427 +15,229 +59,031 +* +Paul D. Schrage +5,000 +10,647 +26,621 +42,268 +* +All directors and executive officers as a group +1,292,996 +22,485 +1,220,494 +769,863 +3,305,838 +7.87 +% +(1) +The numbers of shares stated are based on +information provided by each person listed and include shares +personally owned of record by the person and shares that, under +applicable regulations, are considered to be otherwise +beneficially owned by the person. +(2) +These numbers include shares over which the +listed person is legally entitled to share voting or dispositive +power by reason of joint ownership, trust or other contract or +property right, and shares held by spouses, children or other +relatives over whom the listed person may have influence by +reason of relationship. +(3) +These numbers include shares that may be acquired +within 60 days after March 3, 2003, by the exercise of +stock options granted under Wolverine’s various stock +option plans. +(4) +Shares subject to option with exercise prices +below $16.65, the closing price of Wolverine’s common stock +on March 3, 2003. +(5) +Shares subject to option with exercise prices at +or above $16.65, the closing price of Wolverine’s common +stock on March 3, 2003, often referred to as +“underwater options.” +15 +Table of Contents +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total +stockholder return on Wolverine common stock to the Standard +& Poor’s Small Cap 600 Index and the Standard & +Poor’s 600 Footwear Index, assuming an investment of +$100.00 at the beginning of the period indicated. These indicies +are weighted based on the market capitalization of the companies +included in each index. +Wolverine is part of the Standard & +Poor’s Small Cap 600 Index and the Standard & +Poor’s 600 Footwear Index. Cumulative total stockholder +return is measured by dividing: (i) the sum of the +cumulative amount of dividends for the measurement period, +assuming dividend reinvestment, and the difference between the +share price at the end and the beginning of the measurement +period; by (ii) the share price at the beginning of the +measurement period. +Five Year Cumulative Total Return Summary +The dollar values for total stockholder return +plotted in the graph are shown in the table below: +S&P +S&P 600 +Fiscal +Small Cap +Footwear +Year-End +Wolverine +600 Index +Index +1997 +$ +100.00 +$ +100.00 +$ +100.00 +1998 +56.46 +98.78 +78.49 +1999 +47.11 +111.03 +95.68 +2000 +66.51 +124.12 +185.65 +2001 +67.13 +133.35 +140.05 +2002 +68.65 +112.74 +170.10 +16 +Table of Contents +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows +selected information concerning the compensation earned during +each of the three fiscal years in the period ended +December 28, 2002, by all individuals who served as Chief +Executive Officer during the last fiscal year and each of +Wolverine’s four most highly compensated executive officers +who served in positions other than Chief Executive Officer at +the end of the last completed fiscal year. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Restricted +Shares +Name and +Stock +Underlying +LTIP +All Other +Principal Position +Year +Salary +Bonus +Awards(1) +Options +Payouts(2) +Compensation(3) +Steven M. Duffy +2002 +$ +328,827 +$ +197,721 +$ +145,825 +36,565 +$ +— +$ +9,454 +Executive Vice +2001 +313,077 +96,437 +129,625 +90,060 +— +9,204 +President +2000 +298,462 +— +110,630 +40,230 +— +9,204 +V. Dean Estes +2002 +$ +301,827 +$ +149,072 +$ +76,750 +16,537 +$ +— +$ +5,834 +Vice President +2001 +287,116 +169,026 +68,625 +42,118 +— +5,547 +2000 +276,250 +— +55,315 +20,703 +— +6,216 +Stephen L. Gulis, Jr. +2002 +$ +296,827 +$ +233,050 +$ +145,825 +36,453 +$ +— +$ +7,446 +Executive Vice +2001 +281,731 +98,741 +129,625 +71,503 +— +7,196 +President, Chief +2000 +268,462 +— +110,630 +40,087 +— +7,196 +Financial Officer and +Treasurer +Blake W. Krueger +2002 +$ +333,827 +$ +207,873 +$ +145,825 +43,029 +$ +— +$ +9,342 +Executive Vice +2001 +318,077 +132,443 +129,625 +74,674 +— +9,092 +President, General +2000 +304,519 +— +110,630 +40,555 +— +9,092 +Counsel and Secretary +Timothy J. O’Donovan +2002 +$ +593,654 +$ +699,151 +$ +283,975 +76,420 +$ +— +$ +10,434 +Chief Executive +2001 +563,462 +300,000 +259,250 +69,207 +— +10,184 +Officer, President +2000 +517,308 +— +221,260 +84,623 +— +10,184 +and Director +(1) +The values of restricted stock awards reported in +this column are calculated using the closing market price of +common stock on the date of grant. As of the end of +Wolverine’s 2002 fiscal year, each of the named executive +officers held shares of restricted stock. Dividends are paid on +shares of restricted stock at the same rate dividends are paid +on common stock. The number of shares of restricted stock held +by each named individual and the aggregate value of those shares +(as represented by the closing price of common stock on +December 27, 2002) at the end of Wolverine’s 2002 +fiscal year, without giving effect to the reduction in value +attributable to the restrictions on the stock, are set forth +below: +Number +Aggregate +of Shares +Value +Mr. Duffy +38,000 +$ +587,100 +Mr. Estes +19,500 +301,275 +Mr. Gulis +38,000 +587,100 +Mr. Krueger +38,000 +587,100 +Mr. O’Donovan +71,500 +1,104,675 +17 +Table of Contents +These numbers do not include the number or value +of shares of restricted stock, if any, awarded during the years +presented in connection with the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”), the values of which, if any, are included in +the amounts reported in the “LTIP Payouts” column in +this table for the applicable year for each listed individual. +(2) +Under the LTIP, amounts payable are paid +(i) in cash equal to 50% of the incentive bonus, and +(ii) in shares of restricted stock that have a market +value, on the date the cash payment is made, equal to 70% of the +incentive bonus. The dollar amounts, if any, reported in this +column reflect the cash payment and the market value of the +shares of restricted stock on the date of payment. Shares of +restricted stock are granted under existing plans that provide +for such awards. The restrictions lapse with respect to +one-third of the shares on each of the first three anniversaries +of the date of grant. Wolverine did not grant any shares of +restricted stock to key management employees with respect to +amounts payable under the LTIP for the three-year performance +periods ended in any of the last three fiscal years. +(3) +The compensation listed in this column for 2002 +consisted of: (i) Wolverine’s contributions to the +accounts of the named executive officers under Wolverine’s +401(k) Savings Plan as follows: $5,500 for Mr. Duffy; +$5,500 for Mr. Estes; $5,500 for Mr. Gulis; $5,500 for +Mr. Krueger; and $5,500 for Mr. O’Donovan; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,954 for Mr. Duffy; +$334 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +Stock Options +The Compensation Committee administers +Wolverine’s stock option plans and also has authority to +determine the individuals to whom and the terms upon which +options are granted, the number of shares subject to each option +and the form of consideration payable upon the exercise of an +option. The Chief Executive Officer makes recommendations of +stock option grants (other than for himself), which the +Compensation Committee then considers. +18 +Table of Contents +The following tables set forth information +regarding stock options granted to and exercised by the named +executive officers during the fiscal year ended +December 28, 2002, and the number of shares of common stock +subject to and values of options at that date: +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Securities +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share +Date +Value(2) +Steven M. Duffy +32,500 +4.2858 +$ +15.440 +02/14/12 +$ +176,218.25 +977 +0.1288 +15.935 +02/24/07 +5,467.19 +1,255 +0.1655 +15.575 +02/21/09 +6,864.22 +814 +0.1073 +15.900 +03/03/09 +4,545.05 +612 +0.0807 +15.935 +02/24/10 +3,424.69 +407 +0.0537 +15.935 +02/24/08 +2,277.53 +V. Dean Estes +13,500 +1.7803 +$ +15.440 +02/14/12 +$ +73,198.35 +407 +0.0537 +15.900 +03/03/09 +2,272.53 +589 +0.0777 +15.935 +02/24/10 +3,295.99 +1,228 +0.1619 +15.575 +02/21/09 +6,716.55 +203 +0.0268 +15.935 +02/24/08 +1,135.97 +610 +0.0804 +15.935 +02/24/07 +3,413.50 +Stephen L. Gulis, Jr. +32,500 +4.2858 +$ +15.440 +02/14/12 +$ +176,218.25 +977 +0.1288 +15.935 +02/24/07 +5,467.19 +814 +0.1073 +15.900 +03/03/09 +4,545.05 +569 +0.0750 +15.935 +02/24/10 +3,184.07 +1,186 +0.1564 +15.575 +02/21/09 +6,486.83 +407 +0.0537 +15.935 +02/24/08 +2,277.53 +Blake W. Krueger +32,500 +4.2858 +$ +15.440 +02/14/12 +$ +176,218.25 +6,226 +0.8210 +15.570 +03/03/09 +34,041.90 +977 +0.1288 +15.935 +02/24/07 +5,467.19 +1,282 +0.1691 +15.575 +02/21/09 +7,011.90 +814 +0.1073 +15.900 +03/03/09 +4,545.05 +623 +0.0822 +15.935 +02/24/10 +3,486.25 +407 +0.0537 +15.935 +02/24/08 +2,277.53 +200 +0.0264 +15.570 +02/24/10 +1,093.54 +Timothy J. O’Donovan +70,000 +9.2310 +$ +15.440 +02/14/12 +$ +379,547.00 +1,302 +0.1717 +15.900 +03/03/09 +7,269.85 +1,027 +0.1354 +15.935 +02/24/10 +5,746.99 +651 +0.0858 +15.935 +02/24/08 +3,642.93 +1,975 +0.2604 +15.575 +02/21/09 +10,802.26 +1,465 +0.1932 +15.935 +02/24/07 +8,197.99 +(1) +All options indicated in boldface text above are +exercisable with respect to 25% of the shares on the date of +grant and become exercisable with respect to 25% of the shares +on each following anniversary date with full vesting occurring +on the third anniversary date of the grant. Vesting may be +accelerated upon certain events relating to a change in control +of Wolverine. All options in boldface text were granted in +February 2002. All such options were granted for a term of +10 years. +In 1997, the Compensation Committee adopted a +program to automatically award “reload options” to a +limited group of senior executives if those executives surrender +shares of common stock to pay the exercise price or tax +withholding obligations associated with the exercise of a then +outstanding stock option or the vesting of restricted +19 +Table of Contents +stock. Stock options granted after 1997 (both +stock options that may qualify as incentive stock options as +defined in Section 422 of the Internal Revenue Code and +other stock options that would not be incentive stock options +within the meaning of the Internal Revenue Code) and restricted +stock awards under Wolverine’s plans provide for automatic +awards of reload options to such executives. All options not +shown in boldface text in the table are reload options granted +in 2002. Reload options to purchase the number of shares +surrendered by an executive are awarded at the market price on +the date of grant. Reload options granted in connection with the +exercise of another stock option have the same term as the term +remaining under the underlying option that was exercised. Reload +options granted upon vesting of restricted stock have 10-year +terms from the date of the underlying restricted stock award. +Reload options are fully vested on the date of grant. +Certain senior executives are permitted to +transfer nonqualified stock options to a limited group of +permissible transferees primarily for estate planning purposes. +Options terminate, with certain limited exercise provisions, in +the event of death or certain other terminations of employment. +All options permit the option price to be paid by delivery of +cash or, if permitted by the Compensation Committee, shares of +common stock. +(2) +Based on the Black-Scholes option pricing model. +The actual value, if any, an option holder may realize will +depend on the excess of the stock price over the exercise price +on the date the option is exercised. There is no assurance the +value realized by an option holder will be at or near the value +estimated by the Black-Scholes model. The estimated values in +the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .420%, +calculated using monthly stock prices for the three years prior +to the grant date; +• +a risk free rate of return of 4.23%; +• +an expected average dividend yield of 1.1% (the +dividend yield at the date of the grant); and +• +an expected average option holding period of +4 years, which approximates Wolverine’s historical +experience. +No adjustments were made for the general +non-transferability of the options or to reflect any risk of +forfeiture before vesting. Disclosure of grant date present +value is presented pursuant to Securities and Exchange +Commission regulations. Wolverine’s use of the +Black-Scholes model to indicate the present value of each grant +is not an endorsement of this valuation method. +Aggregated Option Exercises In Last Fiscal Year +And Fiscal Year-End Option Values +Number of Shares +Value of Unexercised +Underlying Unexercised +In-the-Money Options at +Options at Fiscal Year-End +Fiscal Year-End +Number of +Shares +Acquired on +Value +Name +Exercise +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Steven M. Duffy +— +$ +— +155,206 +48,126 +$ +138,265 +$ +49,734 +V. Dean Estes +10,500 +117,351 +140,220 +20,125 +460,622 +21,200 +Stephen L. Gulis, Jr. +— +— +163,414 +48,126 +205,539 +49,734 +Blake W. Krueger +14,507 +69,356 +140,766 +48,126 +98,030 +49,734 +Timothy J. O’Donovan +13,771 +110,966 +325,646 +101,250 +793,446 +105,694 +Wolverine’s employee loan program allows an +employee to borrow from Wolverine up to 95% of the exercise +price to exercise options acquired under Wolverine’s stock +option plans. These loans bear interest at a rate equal to the +greater of 6.5% per annum or the prime rate in effect on the +date of the loan with interest payable quarterly. Principal is +payable quarterly at the rate of 15% per annum beginning five +years after the date on which the option to which the loan +relates is exercised. Participants may pay principal and/or +accrued interest on these loans in shares of Wolverine stock. +All loans are full recourse loans and are also secured by a +pledge of the stock obtained upon exercise of the applicable +option. Outstanding loan balances as of March 3, 2003 (and, +if higher, the largest balance outstanding during the last +fiscal year) for each director and executive officer were as +follows: Mr. O’Donovan, $0 ($105,152); +Mr. Ottenwess, $56,270; and Ms. Parker, $79,572 +($85,254). All outstanding balances for these directors and +executive officers are pursuant to loans made by Wolverine +before July 30, 2002, the date the Sarbanes-Oxley Act of +2002 prohibited loans to directors and executive officers. +Wolverine’s amended stock option loan program prohibits +20 +Table of Contents +loans to directors and executive officers and was +filed as an exhibit to Wolverine’s Quarterly Report on Form +10-Q for the period ended September 7, 2002. +Equity Compensation Plan Information +The following table provides information about +Wolverine’s equity compensation plans as of +December 28, 2002: +Equity Compensation Plan Information +Number of Securities +Remaining Available for +Number of Securities to +Future Issuance Under +be Issued Upon +Weighted Average +Equity Compensation +Exercise +Exercise Price of +Plans (Excluding +of Outstanding Options, +Outstanding Options, +Securities Reflected in +Warrants and Rights +Warrants and Rights +Column (a)) +Plan Category(1) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +4,412,198 +(2)(3) +$ +14.89 +2,010,124 +(4) +Equity compensation plans not approved by +security holders +15,187 +(5) +$ +3.56 +— +Total +4,427,385 +$ +14.85 +2,010,124 +(1) +Each plan for which aggregated information is +provided contains customary anti-dilution provisions that are +applicable in the event of a stock split, stock dividend or +certain other changes in the Wolverine’s capitalization. +(2) +Includes 4,058,817 stock options awarded to +employees under the 1988 Stock Option Plan, the 1993 Stock +Incentive Plan, the 1995 Stock Incentive Plan, the 1997 Stock +Incentive Plan, the Stock Incentive Plan of 1999 and the Stock +Incentive Plan of 2001, and 353,381 stock options awarded to +non-employee directors under the currently effective Amended and +Restated Directors’ Stock Option Plan and the previous +Amended and Restated Directors Stock Option Plan initially +adopted in 1988. Column (a) does not include stock units +credited to outside directors’ fee accounts or retirement +accounts under the Outside Directors’ Deferred Compensation +Plan. Stock units do not have an exercise price. Each stock unit +credited to a director’s fee account and retirement account +under the Outside Directors’ Deferred Compensation Plan +will be converted into one share of common stock upon +distribution. Column (a) also does not include shares of +restricted or unrestricted common stock previously issued under +Wolverine’s equity compensation plans. +(3) +Of this amount, 907,442 options were not +exercisable as of December 28, 2002, due to vesting +restrictions. +(4) +Comprised of: (i) 444,436 shares available +for issuance to non-employee directors under the Amended and +Restated Directors’ Stock Option Plan, which only +authorizes the award of stock option grants at pre-established +limited levels as described in the plan (this number of shares +is expected to be sufficient to make awards to directors for +approximately seven years); (ii) 399,243 shares available +for issuance under the Outside Directors’ Deferred +Compensation Plan upon the retirement of the current directors +or upon a change in control; and (iii) 1,166,445 shares +issuable under the various employee stock incentive plans. Of +these total amounts available, the number of shares with respect +to the following plans may be issued other than upon the +exercise of an option, warrant or right as of December 28, +2002: +• +Outside Directors’ Deferred Compensation +Plan: 399,243 +• +1993 Stock Incentive Plan: 683 +• +1995 Stock Incentive Plan: 178 +• +Stock Incentive Plan of 1999: 17,104 +• +Stock Incentive Plan of 2001: 471,400 +21 +Table of Contents +The Outside Directors’ Deferred Compensation +Plan is a supplemental, unfunded, nonqualified deferred +compensation plan for non-employee directors. Participation in +the plan is voluntary. The plan allows participating directors +to receive, in lieu of some or all directors’ fees, a +number of stock units equal to the amount of the deferred +directors’ fees divided by the fair market value of +Wolverine’s common stock on the date of payment of the next +cash dividend on Wolverine’s common stock. These stock +units are increased by a dividend equivalent based on dividends +paid by Wolverine and the amount of stock units credited to the +participating director’s fee account and retirement +account. Upon distribution, the participating directors receive +a number of shares of Wolverine’s common stock equal to the +number of stock units to be distributed at that time. +Distribution is triggered by termination of service as a +director or by a change in control of Wolverine and can occur in +a lump sum, in installments or on another deferred basis. Of the +399,243 shares issuable under the Outside Directors’ +Deferred Compensation Plan, 134,578 shares have been issued to a +trust to satisfy Wolverine’s obligations and are included +in shares reported as issued and outstanding as of the record +date. +The employee stock incentive plans listed above +are equity-based incentive plans for officers and key employees. +Those plans authorize awards of stock options, restricted common +stock, common stock and tax benefit rights. The numbers +reflected in this footnote with respect to those equity-based +incentive plans represent, subject to the possible adjustments +described below, the maximum number of shares that could be +issued other than upon the exercise of an option, warrant or +right. In addition, the Stock Incentive Plan of 2001 +specifically limits the number of shares that can be awarded as +restricted or unrestricted common stock to 40% of the shares +authorized under the plan. The numbers provided in this footnote +and in column (c) will increase to the extent that options +relating to the number of shares listed in column (a) of +the table or outstanding shares of restricted or unrestricted +stock previously issued under a plan are canceled, surrendered, +modified, exchanged for substitutes or expire or terminate prior +to exercise or vesting because any such number of shares will +again become available for issuance under the plan under which +the option or stock was granted. +(5) +Represents Wolverine common stock to be issued +upon exercise of an option granted to Phillip D. Matthews, +Wolverine’s Lead Director, in 1993 under an individual +compensation arrangement. The exercise price of the option was +equal to the market price of Wolverine common stock on the date +of grant and the option is fully vested. The agreement was +entered into in connection with the election of +Mr. Matthews as Chairman of the Board of Wolverine. +Long-Term Incentive Awards +Wolverine’s LTIP permits Wolverine to award +cash and shares of restricted stock to plan participants +conditioned upon the achievement of certain corporate +performance goals over a three-year performance period. +The following table sets forth certain +information concerning awards of long-term incentive +compensation to the named executive officers during the last +fiscal year: +Long-Term Incentive Plans — Awards in Last Fiscal Year +Performance or +Estimated Future Payouts Under +Number of +Other Period until +Non-Stock-Price-Based Plans(2) +Shares, Units or +Maturation or +Name +Other Rights(1) +Payout +Threshold +Target +Maximum +Steven M. Duffy +40 +% +3 yrs +$ +82,930 +$ +165,860 +$ +331,721 +V. Dean Estes +35 +3 yrs +66,606 +133,211 +266,423 +Stephen L. Gulis, Jr. +40 +3 yrs +74,860 +149,719 +299,440 +Blake W. Krueger +40 +3 yrs +84,191 +168,383 +336,764 +Timothy J. O’Donovan +60 +3 yrs +224,579 +419,159 +898,318 +(1) +Under the LTIP, key management employees may earn +incentive compensation based upon achievement of specified +performance goals with respect to the performance of Wolverine +and/or its subsidiaries, operating divisions or profit centers +over a three-year performance period. Performance goals under +the LTIP are based on +22 +Table of Contents +one or more of the following: net earnings, net +earnings before taxes, operating income, revenues, net sales, +net sales and other operating income, return on sales, return on +equity, earnings per share, total stockholder return, economic +value added measurements, return on assets, return on invested +capital or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. The numbers reported in the column under the heading +“Number of Shares, Units or Other Rights” represent +the percentage of each officer’s average annual earned +salary during the three-year period that the officer will +receive as bonus compensation under the plan if the specified +targets are achieved. The Compensation Committee determined +these amounts. If higher or lower actual levels are attained +during the three-year performance period, the percentage of base +salary to be received as bonus compensation by each officer will +be correspondingly higher, lower or zero. Bonuses are +conditioned upon achieving a minimum or “threshold” +level. The Compensation Committee established the performance +goals at the beginning of 2002 for the period ending on the last +day of Wolverine’s 2004 fiscal year. +(2) +Under the LTIP, amounts earned as bonus +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2002 as reported in the Summary Compensation Table, +adjusted for 5% annual cost of living increases. Incentive +bonuses payable under the LTIP are paid: (i) in cash equal +to 50% of the incentive bonus; and (ii) in shares of +restricted stock that have a market value, on the date the cash +payment is made, equal to 70% of the incentive bonus. The dollar +amounts reported under the headings “Threshold,” +“Target” and “Maximum” reflect the value of +the cash payment and the market value of restricted stock to be +received on the date of payment. Shares of restricted stock are +granted under existing plans that provide for such awards. The +restrictions lapse with respect to one-third of the shares on +each anniversary of the date of grant. +Pension Plan +Wolverine has a qualified pension plan covering +most of its salaried employees. The Internal Revenue Code +imposes limitations on the maximum amount of pension benefits +payable under qualified plans. It also imposes a cap currently +equal to $200,000 (subject to grandfather provisions for +earnings accrued before January 1, 1994) on the amount of +earnings that may be taken into account in determining benefits +payable under qualified plans. +The following table illustrates the estimated +annual benefits payable under the pension plan for +Wolverine’s named executive officers if they retire at +age 65 at the annual levels of average remuneration and +years of service indicated (computed on a straight life annuity +basis without regard to any accrued grandfathered benefit for +earnings before January 1, 1994): +Pension Plan Table +Years of Service +Average Remuneration +10 +15 +20 +25 or more +$200,000 +$ +48,000 +$ +72,000 +$ +96,000 +$ +120,000 +Subject to the limitations imposed by the +Internal Revenue Code, the pension plan provides monthly +benefits at normal retirement in an amount equal to the greater +of: (i) $24.00 multiplied by the participant’s number +of years of service up to 30 years; (ii) 1.6% of final +average earnings multiplied by the participant’s number of +years of service up to 30 years reduced by the +participant’s Social Security allowance as defined in the +pension plan; or (iii) for certain designated executives, a +percentage benefit multiplier of 2.4% or 2.0% of final average +earnings multiplied by the participant’s number of years of +service up to 25 years. All of the executive officers named +in the Summary Compensation Table have a percentage benefit +multiplier of 2.4% and are capped at 25 years of service. +“Final average earnings” are defined as the average of +the participant’s annual earnings for the four consecutive +highest compensation calendar years out of the last 10 calendar +years of the participant’s employment (with earnings for +the last year of employment annualized based on a +participant’s then rate of pay). Except for the +compensation cap imposed by the Internal Revenue Code, the +remuneration covered by the plan for an employee would be +essentially +23 +Table of Contents +equivalent to the sum of the amounts reported +under the heading “Annual Compensation” in the Summary +Compensation Table above. +If the pension plan is terminated during any +period beginning on a “restricted date” (defined +below) and ending two years later, the plan requires that +surplus plan assets be used to purchase retiree medical and life +insurance in satisfaction of Wolverine’s then outstanding +obligations, if any, and be paid pro rata to increase the +benefits of plan participants, subject to legal limitations. If +the pension plan is merged with, or the assets of the plan are +transferred to, another plan, then (i) benefits will be +fully vested; (ii) benefits will be increased as if the +plan had been terminated; and (iii) benefits will be +satisfied through the purchase of a guaranteed annuity contract. +A restricted date is defined as the date any person or group +acquires more than 50% of the voting stock of Wolverine in a +transaction not approved by the Board of Directors or the date +during any two-year period on which individuals who at the +beginning of the period constituted the Board of Directors +(including any new director whose nomination or election was +approved by two-thirds of the directors who were directors at +the beginning of the period or whose election or nomination was +so approved) cease for any reason to constitute a majority of +the Board. +As of December 28, 2002, the persons listed +in the Summary Compensation Table had the following years of +credited service under the plan: Mr. Duffy, 14 years; +Mr. Estes, 25 years; Mr. Gulis, 18 years; +Mr. Krueger, 7 years; and Mr. O’Donovan, +25 years. +Supplemental Executive Retirement +Plan +In 1995, Wolverine adopted a Supplemental +Executive Retirement Plan to replace deferred compensation +agreements previously entered into with certain key employees, +including Messrs. O’Donovan and Estes. An executive +covered by a deferred compensation agreement will always be +entitled to a benefit under the Supplemental Executive +Retirement Plan at least equal to what he or she would have +received under the deferred compensation agreement. The +Supplemental Executive Retirement Plan became effective +January 1, 1996 (the “SERP”). +Under the SERP, a participating executive will be +eligible for an annual supplemental benefit once he or she has +completed five years of service after having been approved as a +participant in the SERP (or, for those executives already +covered by a deferred compensation agreement, five years after +entering into the deferred compensation agreement). +Alternatively, a participating executive will be eligible for a +benefit with less than five years of service if he or she +retires at or after age 65. The supplemental benefit is +equal to the difference between the executive’s retirement +benefit under Wolverine’s qualified pension plan and an +amount equal to a designated percentage of the executive’s +average earnings multiplied by the executive’s years of +service under the pension plan, except that the plan counts +years during which the executive received a disability benefit +under the SERP (except in computing the SERP’s disability +benefit); excludes years that an executive is designated as an +inactive participant; and may count deemed years of service +granted by the Board of Directors (up to a maximum of +25 years). The designated percentage is either 2.4% for +each year of service (including all of the individuals listed in +Summary Compensation Table) or 2% per year of service. +“Annual earnings” is defined as the average of the +executive’s annual earnings for the four consecutive +highest compensation years out of the last 10 years of the +executive’s employment (excluding years during which the +executive receives a disability benefit if the exclusion would +produce a higher average; yearly compensation is not restricted +by the $200,000 compensation cap under the pension plan and for +the last year of employment is annualized). Average earnings do +not include payments under the LTIP or severance payments. For +this purpose, average earnings do not vary significantly from +the amounts shown under the caption “Annual +Compensation” in the Summary Compensation Table above. +A retired participating executive may draw the +full benefit beginning at age 65. A participating executive +may elect to begin receiving a reduced benefit at or after age +55. The reduction factor is 0.333% for each month prior to +age 60, and 0.1666% for each month between age 60 and +age 65. The SERP provides for a disability benefit equal to +60% of the supplemental retirement benefit (based on the +executive’s years of service at the date of disability). A +disabled executive is still eligible for a supplemental +retirement benefit beginning at age 65 based on all years +of service (including years during which the executive was +receiving a disability benefit). The SERP also provides for a +death benefit to the executive’s designated beneficiary if +the executive dies before retiring. The death benefit is a +lump-sum equal to the present value of the benefit the executive +could have received beginning at age 65, based on his or +her years of service up to the date of death. +24 +Table of Contents +Benefits under the SERP are subject to forfeiture +if the executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund plan benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump-sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his or her actual age, if greater than age 55), +without applying the monthly early retirement reduction factor, +but based on years of service at the actual date of termination. +For purposes of the SERP, “change in control” is +defined as: +• +failure of the individuals who were directors at +the time the SERP was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters vote of the directors then still in office who +were directors at the time the SERP was adopted, or whose +election or nomination was so approved, to constitute a majority +of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Wolverine may terminate the SERP or stop further +accrual of plan benefits for a participating executive at any +time, but termination will not affect previously accrued +benefits. +25 +Table of Contents +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Severance Agreements. +Under individual agreements, +Messrs. Duffy, Estes, Gulis, Krueger and O’Donovan, +and certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or +retirement in accordance with Wolverine’s policy or as +otherwise agreed; +• +the termination is by Wolverine for cause or +disability; or +• +the termination is by resignation of the officer +for other than “good reason.” +Good reason is defined in the agreements to +include, among other things, the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. +The compensation payable if such a termination +occurs after a change in control includes: +• +cash equal to two or three times the +executive’s annual salary, including target bonus; +• +cash equal to 100% of the difference between the +market price of common stock (or, if higher, the highest price +paid in connection with any change in control of Wolverine) and +the exercise prices of unexercised stock options granted to the +executive (other than incentive stock options granted after the +date of the officer’s agreement), and 100% of the +difference between the market price and exercise prices of +incentive stock options granted to the officer after the date of +the agreement which are then exercisable; +• +relocation expenses, legal fees and indemnity +against loss in the sale of the officer’s principal +residence; +• +up to two or three years’ benefits under all +employee benefit programs; +• +a cash payment at the executive’s retirement +age equal to the actuarial value of the retirement pension and +SERP to which the officer would have been entitled (without +regard to vesting requirements) had he or she accrued three +additional years of service with Wolverine, reduced by the +single sum actuarial equivalent of any amounts to which the +executive is entitled under Wolverine’s normal retirement +plans and programs; and +• +outplacement services paid for by Wolverine. +In all of the severance agreements, the executive +has no requirement to mitigate the payments by seeking +employment, but the compensation to be paid during the fourth +and later months after termination will be reduced to the extent +of any compensation earned by the officer during the applicable +period. +A change in control is defined in the agreements +to include the acquisition of 20% or more of the common stock by +any person or group of persons acting together or a change in a +majority of the Board of Directors unless each new director was +approved by a vote of at least three-quarters of the directors +then still in office who were directors as of the date of the +agreements, or whose election or nomination was so approved. +Stock Plan Provisions. +Wolverine has granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting upon a change in control of Wolverine. +The options include options issued under plans adopted by +Wolverine in 1988, 1993, 1995, 1997, 1999 and 2001 and the +shares of restricted stock include shares awarded under plans +adopted by Wolverine in 1993, 1995, 1997, 1999 and 2001. +Under the stock option agreements entered into +between Wolverine and participants in the 1988, 1993, 1995, +1997, 1999 and 2001 plans, other than the agreements applicable +to reload options, 25% of each option generally becomes +exercisable on the date of grant and 25% of the shares becomes +exercisable on each of the next three anniversary dates +following the date of grant. The stock option agreements also +provide that all options granted under the 1988 plan become +immediately exercisable in the event of a change in control of +Wolverine. The terms of the 1993, 1995, 1997, 1999 and 2001 +plans provide for such acceleration upon a change in control of +Wolverine. +The 1993, 1995, 1997, 1999 and 2001 plans provide +for restricted stock awards. Except for shares awarded in +connection with the payment of bonuses under the LTIP, the +restrictions on 25% of the shares received under an award +normally lapse on the third anniversary of the date of the +award, with the +26 +Table of Contents +restrictions on an additional 25% of the shares +lapsing on the fourth anniversary and the restrictions with +respect to the remaining shares lapsing on the fifth +anniversary. With respect to shares awarded in connection with +the LTIP, the restrictions on one-third of the shares received +under an award lapse on each anniversary of the date of the +award. Under the five plans listed above, restricted stock +becomes fully vested and nonforfeitable upon a change in control +of Wolverine. +A change in control is defined in the agreements +under the 1988 plan to include a change of control as set forth +in the proxy rules issued by the Securities and Exchange +Commission, the acquisition of 25% or more of the common stock +by any person or group of persons acting together or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. The definition of change in control +under the 1993 plan differs from the definition of that term in +the agreements under the 1988 plan in that a change in control +is considered to occur upon the acquisition of 20% or more +(rather than 25%) of the common stock and the definition +includes the sale, lease, exchange or other transfer of +substantially all of Wolverine’s assets to, or the merger +or consolidation of Wolverine with, a corporation that is not +controlled by Wolverine. Under the 1995, 1997, 1999 and 2001 +plans, a change in control is defined as: +• +failure of the individuals who were directors at +the time such plan was adopted and those whose election or +nomination to the Board of Directors was approved by a +two-thirds vote of the directors then still in office who were +directors at the time such plan was adopted, or whose election +or nomination was so approved, to constitute a majority of the +Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock; +• +approval by the stockholders of a reorganization, +merger or consolidation (except with certain permitted +entities); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (other than to certain permitted entities). +Benefit Trust Agreement. +In May 1987, Wolverine +established a Benefit Trust (“trust”) to ensure that +payments to employees under the severance agreements, the SERP +and deferred compensation agreements (collectively, the +“agreements”) will not be improperly withheld after a +change in control of Wolverine, as defined in the agreement +establishing the trust. Under the trust, upon the occurrence of +a “potential change in control,” Wolverine will +deliver to the trustee, to be held in trust, cash, marketable +securities or insurance corresponding to an amount determined by +Wolverine to have a fair market value, together with any +existing amounts in the trust, equal to the value of the +benefits due to employees under the agreements given certain +assumptions set forth in the trust. Additional terms of the +trust provide for the return of the property to Wolverine upon +written request before a change in control or automatically if +no change in control has occurred within six months after +funding upon a potential change in control. Wolverine has +transferred to the trust insurance policies on the lives of +certain key employees. +Indemnity Agreements. +Wolverine has entered into indemnity +agreements with Messrs. Duffy, Estes, Gulis, Krueger and +O’Donovan and with each director and executive officer. The +indemnity agreements indemnify each director and executive +officer against all expenses incurred in connection with any +action or investigation involving the director or executive +officer by reason of his or her position with Wolverine (or with +another entity at Wolverine’s request). The directors and +executive officers will also be indemnified for costs, including +judgments, fines and penalties, indemnifiable under Delaware law +or under the terms of any current or future liability insurance +policy maintained by Wolverine that covers the directors and +executive officers. A director or officer involved in a +derivative suit will be indemnified for expenses and amounts +paid in settlement. Indemnification is dependent in every +instance on the director or executive officer meeting the +standards of conduct set forth in the indemnity agreements. If a +potential change in control occurs, Wolverine will fund a trust +to satisfy its anticipated indemnification obligations. +Other Plans and Agreements. +Severance agreements with various +executive officers (described above) provide for cash payments +in lieu of outstanding options if a change in control of +Wolverine and a subsequent triggering event occur. In addition, +the SERP (described above) and the Deferred Compensation Plan +(described above) provide for certain benefits and payments if a +change in control of Wolverine occurs. +27 +Table of Contents +Compensation Committee Report on Executive +Compensation +The Compensation Committee discharges, assists +and carries out the Board of Directors’ responsibilities +relating to Wolverine’s compensation and benefit programs +and policies. The Compensation Committee also administers +Wolverine’s compensation plans and reviews and approves the +compensation of the Chief Executive Officer and other key senior +executives. The Compensation Committee currently consists of +three directors, none of whom is a current or former employee of +Wolverine or its subsidiaries. +The Compensation Committee consults with +independent compensation consulting firms as necessary from time +to time to assist the Compensation Committee in formulating +Wolverine’s compensation policies, provide advice to the +Compensation Committee concerning specific compensation packages +and appropriate levels of executive and Board of Director +compensation, provide advice about competitive levels of +compensation and review and recommend changes in the +compensation system and programs of Wolverine. +The basic compensation philosophy of the +Compensation Committee and Wolverine is to provide competitive +salaries as well as competitive incentives to achieve superior +financial performance. Wolverine’s executive compensation +policies are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who +will lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific +short-term individual, business unit and corporate goals; +• +provide incentives for achievement of longer-term +financial goals; and +• +align the interests of management with those of +the stockholders to encourage achievement of continuing +increases in stockholder value. +Executive compensation at Wolverine consists +primarily of the following components: +• +base salary and benefits; +• +amounts paid, if any, under the Amended and +Restated Executive Short-Term Incentive Plan (the “Annual +Bonus Plan”); +• +amounts paid, if any, under the LTIP; +• +amounts paid, if any, as individual-specific +bonuses designed to encourage achievement of individual goals; +and +• +participation in Wolverine’s stock option +and equity-based incentive plans. +Each component of compensation is designed to +accomplish one or more of the four compensation objectives +described above. +Management recommends the participation of +specific executive officers and other key employees in the +Annual Bonus Plan, the LTIP and Wolverine’s stock option +and equity-based incentive plans. All such recommendations +(including the level of participation) are reviewed, modified +(to the extent appropriate) and approved by the Compensation +Committee. Senior executive officers are normally eligible to +receive a greater percentage of their potential compensation in +the form of awards under these incentive plans to reflect the +Compensation Committee’s belief that the percentage of an +executive’s total compensation that is “at risk” +should increase as the executive’s responsibilities and +ability to influence profits increase. +Section 162(m) of the Internal Revenue Code +provides that publicly held companies may not deduct +compensation paid to certain executive officers in excess of +$1,000,000 annually, with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and the 1997, 1999 and 2001 stock incentive plans to +permit amounts payable under the Annual Bonus Plan and the LTIP +and awards of stock options granted under the 1997, 1999 and +2001 plans to qualify as “performance-based” +compensation for purposes of Section 162(m). Because +incentives under these plans are not included in the $1,000,000 +limit for purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers, Wolverine believes +its compensation policies reflect due consideration of +Section 162(m). +Base Salary +To attract and retain well-qualified executives, +the Compensation Committee seeks to establish base salaries at +levels and provide benefit packages that are competitive. The +Compensation Committee determines the base salaries of +executives by comparing each executive’s position with +similar positions in companies of similar type, size and +28 +Table of Contents +financial performance. The Compensation Committee +uses surveys provided by the independent compensation consulting +firm in making that comparison. Although some other footwear +companies are among the companies included in the surveys, the +surveys are not limited to footwear companies because Wolverine +competes for talent with a wide range of corporations. In +general, the Compensation Committee has targeted salaries to be +at the median to slightly below the median percentile of base +salaries paid for comparable positions by companies included in +the surveys provided by the independent compensation consulting +firm. Other factors considered by the Compensation Committee are +the executive’s performance, the executive’s current +compensation and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance (in determining +whether to adjust above or below the current salary level), and +a significant but lesser weight is generally given to the +comparative survey data. In general, base salaries for +Wolverine’s executive officers during 2002 were near the +median of salaries paid by companies included in the surveys. +The 2002 average base salary of executive officers increased +over the previous year’s level as a result of a combination +of factors, including improved individual performance, improved +or continued excellent performance by the applicable business +unit (and Wolverine), promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement +of short-term business unit goals, the Annual Bonus Plan was +designed to provide key employees with the opportunity for +bonuses based on the performance of Wolverine and/or the +performance of its subsidiaries, operating divisions or profit +centers. The Annual Bonus Plan was most recently approved by +stockholders at the April 25, 2002 annual meeting of +stockholders. The Annual Bonus Plan continues the annual bonus +policy that Wolverine has used for many years. A target bonus +goal (the “target bonus”), expressed as a percentage +of the participant’s base salary, is established by the +Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance by Wolverine, the subsidiary, +operating division or profit center. +“Incentive bonus” as used in the Annual +Bonus Plan means an annual bonus awarded and paid to a +participant for services to Wolverine during a fiscal year that +is based upon achievement of pre-established financial +objectives of Wolverine or a subsidiary, operating division or +profit center. The incentive bonus levels may be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. Performance of Wolverine and/or its subsidiaries, +operating divisions or profit centers is determined by reference +to one or more of the following: net earnings, net earnings +before taxes, operating income, revenues, net sales, net sales +and other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. Payment of an incentive bonus to a participant for a +fiscal year under the Annual Bonus Plan is entirely contingent +upon achievement of the performance levels established by the +Compensation Committee. All determinations to be made by the +Compensation Committee for a fiscal year are made by the +Compensation Committee during the first 90 days of each +fiscal year. The two primary measures of corporate performance +in 2002 were pre-tax profits and sales. For 2002, +Wolverine’s sales performance was slightly under its +maximum goal and the pre-tax profit performance achieved was +slightly above the maximum goal. +During fiscal 2002, executive officers were +generally targeted to receive from 16% to 48% of their annual +salaries in bonus compensation. In determining these +percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and to put a larger percentage of their total potential +cash compensation “at risk.” Because Wolverine’s +29 +Table of Contents +pre-tax profits for 2002 were near or above its +maximum goals, executive officers received bonuses under the +2002 Annual Bonus Plan at or near maximum levels. +Long-Term Plan +To provide incentives and rewards for longer-term +planning and decision-making and the achievement of longer-term +corporate performance goals, the LTIP provides the opportunity +for additional compensation based upon the achievement of +company financial performance goals over a three-year period. +Stockholders most recently approved the LTIP at the +April 25, 2002 annual meeting of stockholders. The LTIP +continues the long-term incentive bonus policy that Wolverine +has used for many years. The primary purposes of the LTIP and +prior long-term bonus plans are to provide significant incentive +and to foster cooperation among all business units so the +long-term earnings performance of Wolverine is substantially +improved. The primary concept of the LTIP is to establish +financial performance goals for each three-year time period for +Wolverine. New performance periods begin each fiscal year and +end three full fiscal years later. The Compensation Committee +establishes the goals during the first 90 days of each +three-year performance period. +Awards under the LTIP are based on a percentage +of average annual earned salary during the three-year period. +For each participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the LTIP means a bonus awarded and paid +to a participant for services to Wolverine or a subsidiary, +operating division or profit center during a three-year period, +which bonus is based upon achievement of previously established +financial objectives by Wolverine. The incentive bonus levels +may be expressed as either: (i) a matrix of percentages of +the target bonus that will be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that will be paid at varying +levels of performance. Performance is determined by reference to +one or more of the following: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. If the minimum three-year targeted goal is not achieved, +no bonus will be paid. For the 2002-2004 performance period, +executive officers who participate in the plan are targeted to +receive long-term bonus compensation in amounts that range from +25% to 60% of their average annual earned salaries. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each executive’s capacity to affect +the long-term performance of Wolverine. +Under the LTIP, amounts payable are paid: +• +in cash equal to 50% of the calculated bonus; and +• +in shares of restricted stock under existing +stockholder approved plans that have a market value, on the date +the cash payment is made, equal to 70% of the calculated bonus +amount. +The restrictions lapse with respect to one-third +of the shares of restricted stock on each anniversary of the +date of grant. EPS was below the pre-established threshold +performance level for the 2000-2002 performance period under the +LTIP and Wolverine did not pay out any cash or grant any shares +of restricted stock to executive officers under the LTIP with +respect to the three-year performance period ended +December 28, 2002. +Discretionary Bonuses +In addition to bonuses based on corporate +performance pursuant to the Annual Bonus Plan, Wolverine +generally pays annual incentive bonuses to employees based on +individual performance goals. Bonuses based on individual +performance are paid on a discretionary basis based on +achievement of pre-established personal goals and the +performance bonuses for the Chief Executive Officer are paid +only after the review and approval of the Compensation +Committee. During 2002, discretionary bonuses for employees +participating in this plan were generally targeted at between +20% and 30% of annual salaries depending upon the achievement of +threshold earnings requirements and actual graded performance +against pre-established +30 +Table of Contents +personal objectives. Because Wolverine achieved +the corporate maximum earnings goal under the 2002 Annual Bonus +Plan for fiscal 2002, discretionary bonus payments were made to +Wolverine’s executive officers for this period based upon +achievement of individual performance goals. +Stock Options and Equity-Based Incentive +Plans +Awards under Wolverine’s stock option and +equity-based incentive plans are designed to: +• +encourage long-term investment in Wolverine by +participating executives; +• +more closely align executive and stockholder +interests; and +• +reward executives and other key employees for +building stockholder value. +The Compensation Committee believes stock +ownership by management has been demonstrated to be beneficial +to all stockholders and stock awards have been granted by +Wolverine to executives and other key employees pursuant to +various equity-based plans for several decades. The Compensation +Committee administers all aspects of these plans and reviews, +modifies (to the extent appropriate) and takes final action on +any such awards. +Under Wolverine’s plans that provide for +awards of restricted stock, all of which have been previously +approved by the stockholders, the Compensation Committee may +grant to executives and other key employees shares of restricted +stock. These shares are subject to certain restrictions that, +except for shares awarded in connection with the LTIP described +above, generally lapse over a period of five years from the date +of grant. +Under Wolverine’s stock option plans, all of +which have been previously approved by the stockholders, the +Compensation Committee may grant to executives and other key +employees options to purchase shares of stock, as well as tax +benefit rights. Wolverine has never granted tax benefit rights +under its existing plans and has no present intention to do so. +The Compensation Committee reviews, modifies (to the extent +appropriate) and takes final action on the amount, timing, price +and other terms of all options granted to employees of +Wolverine. The Compensation Committee grants both incentive +stock options and nonqualified options within the meaning of the +Internal Revenue Code. Under the terms and conditions of all the +plans other than the 2001 plan, the Compensation Committee may +grant nonqualified options with an exercise price above or below +the market price on the date of grant. The 2001 plan requires +that all options have an exercise price equal to or greater than +the market value of Wolverine’s common stock on the date of +grant. Virtually all stock options granted (both incentive and +nonqualified) have an exercise price equal to the market price +of common stock on the date of grant. +In determining the number of shares of restricted +stock and/or the number of options to be awarded to an +executive, the Compensation Committee generally adheres to a +formula which takes into consideration the executive’s +level of responsibility and compensation practices of similar +companies. The Compensation Committee also considers the +recommendations of management (except for awards to the Chief +Executive Officer), the individual performance of the executive +and the number of shares previously awarded to the executive. As +a general practice, both the number of shares granted and their +proportion relative to the total number of shares granted +increase in some proportion to increases in each +executive’s responsibilities. +Chief Executive Officer +The Chief Executive Officer’s compensation +is based upon the policies and objectives discussed above. The +Chief Executive Officer, however, has a higher percentage of +total compensation “at risk” because a larger +percentage of potential compensation is based upon the Annual +Bonus Plan, the LTIP, and stock option and restricted stock +grants. +In setting Mr. O’Donovan’s base +salary and total annual cash compensation, the Compensation +Committee was advised by the independent compensation consulting +firm and compared Mr. O’Donovan’s cash +compensation with that of chief executive officers in a survey +group of companies of similar general type and size. +Mr. O’Donovan’s base salary was targeted by the +Compensation Committee near the median of salaries paid to chief +executive officers by companies included in the survey group. +Mr. O’Donovan’s base salary for 2002 increased +approximately 5.3% above his 2001 level. Following the 2002 +increase, Mr. O’Donovan’s salary was near the +competitive median. At his request, Mr. O’Donovan does +not have an employment agreement with Wolverine. +Mr. O’Donovan’s annual incentive +bonus under the Annual Bonus Plan was based upon corporate +performance goals (100% weighting). The target +31 +Table of Contents +annual bonus award for Mr. O’Donovan +under the Annual Bonus Plan was 48% of earned salary. +Mr. O’Donovan’s annual bonus was subject to +achievement of minimum goals and his threshold bonus at this +level would have been 24% of earned salary. +Mr. O’Donovan’s annual bonus was capped at 96% of +earned salary under the Annual Bonus Plan. Corporate performance +goals in 2002 were based on Wolverine’s achievement of +predetermined pre-tax levels of profit (80% weighting) and sales +(20% weighting), both of which were set above the prior +year’s actual results. Wolverine’s sales level was +slightly below the pre-established maximum performance in 2002 +and Wolverine’s profit performance exceeded the +pre-established maximum performance levels and therefore +Mr. O’Donovan received a payment under the 2002 Annual +Bonus Plan and a discretionary bonus for fiscal 2002 near +maximum levels. +Mr. O’Donovan’s LTIP bonus award +was based upon financial performance goals for Wolverine +expressed in terms of targeted earnings per share that were +above budget and prior year’s results. +Mr. O’Donovan’s target bonus for the three-year +period beginning in 2002 was set at 60% of average annual earned +salary for the 2002-2004 plan period. The bonus payout for +Mr. O’Donovan can range from 0%-200% of the target +bonus. Wolverine did not make any payment to +Mr. O’Donovan for the 2000-2002 performance period +under the LTIP because Wolverine did not meet the +pre-established level of financial performance for the bonus +period. +In 2002, Mr. O’Donovan was awarded +18,500 shares of restricted stock and stock options to +purchase 70,000 shares of common stock. The amounts of +these awards were determined by the Compensation Committee +considering the factors discussed above. +Due to Wolverine’s 2002 results, +Mr. O’Donovan’s salary, bonus and total cash +compensation was slightly above the median for chief executive +officers paid by companies included in the previously described +survey group. +All actions and recommendations of the +Compensation Committee attributable to 2002 compensation were +unanimous and all recommendations were approved and adopted by +the Board of Directors without modification. +Respectfully submitted, +Donald V. Fites, Chairman, David P. Mehney, Paul +D. Schrage +Selection of Auditors +Subject to the approval of stockholders, the +Audit Committee has reappointed the firm of Ernst & +Young LLP as independent auditors for the current fiscal year. +Ernst & Young LLP, certified public +accountants, has audited the financial statements of Wolverine +and its subsidiaries for the fiscal year ended December 28, +2002. Representatives of Ernst & Young LLP are expected +to be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. +Wolverine paid to Ernst & Young LLP $528,000 during +fiscal year 2002 for the last annual audit and reviews of the +financial statements included in Wolverine’s Form 10-Q +filings. +All Other Fees. +Wolverine paid to Ernst & Young LLP $1,320,000 during +fiscal year 2002 for services other than the last annual audit, +including audit related services of $123,549 and nonaudit +services of $1,196,451. Audit related services generally include +fees for pension audits, potential business acquisitions and +accounting consultations. Nonaudit services generally include +fees for tax compliance, tax planning services, acquisition +related tax support and actuarial services. +Your Board of Directors recommends that you +vote FOR ratification of the reappointment of Ernst & +Young LLP. +32 +Table of Contents +Audit Committee Report +The Audit Committee of the Board of Directors +consists of four non-employee directors who are independent +directors as defined by currently effective New York Stock +Exchange listing standards. The Audit Committee represents and +assists the Board of Directors in fulfilling its oversight +responsibility regarding the integrity of Wolverine’s +financial statements and the financial reporting process, the +systems of internal accounting and financial controls, the +performance of the internal audit function and the independent +auditors, the qualification and independence of the independent +auditors, the annual independent audit of Wolverine’s +financial statements and compliance with legal and regulatory +requirements. The Audit Committee has sole responsibility for +retaining (subject to stockholder ratification), overseeing, +evaluating, terminating (if appropriate) and determining the +fees paid to Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the reporting process, including the +application of accounting and financial principles, the +preparation, presentation and integrity of the financial +statements, and the systems of internal controls and other +procedures designed to ensure compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles. +The Audit Committee has taken steps to provide +additional assurances regarding the Audit Committee composition +and procedures, the independence of Wolverine’s outside +auditors and the integrity of Wolverine’s financial +statements and disclosures. These steps include: +(i) adopting a revised Audit Committee Charter (attached as +Appendix A); (ii) adopting an Accounting and Finance +Code of Ethics; (iii) implementing an Accounting and +Auditing Complaint Procedure to allow employees, stockholders +and the public to report concerns regarding Wolverine’s +financial statements, internal controls and disclosures; +(iv) establishing procedures for the Audit Committee to +pre-approve all audit and nonaudit services provided by +Wolverine’s outside auditors; and (v) increasing the +number, frequency, and length of Audit Committee meetings. +As part of its supervisory duties, the Audit +Committee has reviewed Wolverine’s audited financial +statements for the fiscal year ended December 28, 2002, and +has discussed those financial statements with Wolverine’s +management, internal financial staff and independent auditors, +with and without management present. The Audit Committee has +also reviewed and discussed the following with Wolverine’s +management, financial staff and independent auditors, with and +without management present: +• +accounting and financial controls and other +procedures designed to ensure compliance with accounting +standards and applicable laws and regulations; +• +accounting and financial principles and +significant assumptions, estimates and matters of judgment used +in preparing the financial statements; +• +allowances and reserves for accounts receivable, +inventories, taxes and fringe benefits; +• +accounting for acquisitions, pension plans and +stock options; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and +practices. +The Audit Committee has discussed with +Wolverine’s independent auditors the results of the +independent auditors’ examinations and the judgments of the +independent auditors concerning the quality, as well as the +acceptability, of Wolverine’s accounting principles and +such other matters that it is required to discuss with the +independent auditors under applicable rules, regulations or +generally accepted auditing standards. In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services with their independence, the +scope of the audit, and the scope of all fees paid to the +independent auditors during the year. +33 +Table of Contents +After and in reliance upon the reviews and +discussions described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended December 28, 2002, be +included in Wolverine’s Annual Report on Form 10-K for +the year then ended to be filed with the Securities and Exchange +Commission. +Respectfully submitted, +David T. Kollat, Chairman, Phillip D. Matthews, +Joseph A. Parini, Elizabeth A. Sanders +Related Matters +Certain Relationships and Related +Transactions +During 2002, Wolverine engaged J. Walter +Thompson, an international advertising firm, to perform public +relations and marketing services. Wolverine paid $154,081 in +fees and expenses to J. Walter Thompson. Ms. Joan +Parker, a director of Wolverine, was a Senior Partner with +J. Walter Thompson until April 2002. Wolverine does not +anticipate engaging J. Walter Thompson to provide services +in 2003. +Wolverine has entered into an agreement with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is a +significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies ®, +Caterpillar ® and Merrell ® brand names. +Under this agreement, Grimoldi, S.A., or its subsidiary, pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +Under the agreement described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2002 totaling $341,494. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2002, purchases of such items by +Grimoldi, S.A. totaled $95,202 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2003. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of March 3, 2003, the aggregate principal balance of the +note was $605,202. +Compensation Committee Interlocks and Insider +Participation +For 2002, Wolverine’s Compensation Committee +consisted of Donald V. Fites, Phillip D. Matthews, +David P. Mehney and Paul D. Schrage. While +Mr. Matthews was not at any time an employee of Wolverine +or its subsidiaries, he served as Chairman of the Board of +Wolverine from 1993 until 1996. Effective following the +February 2003 meeting of the Board of Directors, +Mr. Matthews resigned from the Compensation Committee and +was appointed to the Audit Committee. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +requires Wolverine’s directors and executive officers, and +persons who beneficially own more than 10% of the outstanding +shares of common stock, to file reports of ownership and changes +in ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2002 +fiscal year, Wolverine believes that its officers and directors +complied with all applicable reporting requirements during +Wolverine’s last fiscal year. +34 +Table of Contents +Stockholder Proposals +To be considered timely, any stockholder proposal +intended to be presented at the annual meeting of stockholders +in 2004 (whether or not intended for inclusion in our proxy +statement and proxy card relating to that meeting) must be +received by us not later than November 18, 2003. +Stockholder proposals intended for inclusion in our proxy +statement and proxy card relating to that meeting should be made +as described in Securities and Exchange Commission +Rule 14a-8. You should address all stockholder proposals to +the attention of the Secretary of Wolverine, 9341 Courtland +Drive, N.E., Rockford, Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine +directors, officers and employees may also solicit proxies by +telephone or facsimile or personally without additional +compensation. Proxies may be solicited by nominees and other +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by them. Wolverine +will pay all costs of solicitation of proxies, including the +charges and expenses of brokerage firms, banks, trustees or +other nominees for forwarding proxy materials to beneficial +owners. We have engaged Georgeson Shareholder Communications, +Inc. at an estimated cost of $6,000, plus expenses and +disbursements, to assist in solicitation of proxies. +35 +Table of Contents +Appendix A +AUDIT COMMITTEE CHARTER +of the +Audit Committee of the +Board of Directors +of +Wolverine World Wide, Inc. +I. GOVERNANCE +This Charter sets forth the basic principles +regarding the organization, purpose, authority and +responsibilities of the Audit Committee (the +“Committee”) of Wolverine World Wide, Inc. (the +“Company”) and has been approved by the Company’s +Board of Directors. The Committee shall review the adequacy of +this Charter at least annually and recommend any proposed +changes to the Board of Directors for approval. +II. ORGANIZATION +The Committee shall consist of at least three +directors appointed by the Board of Directors upon the +recommendation of the Company’s Governance Committee. One +Committee member shall be designated by the Board of Directors +as Chairperson. All Committee members shall be independent under +applicable rules and regulations, as determined by the Board of +Directors. All Committee members shall be financially literate +or shall become financially literate within a reasonable period +of time after appointment to the Committee. At least one member +shall have accounting or related financial management +experience. Committee members may not receive, directly or +indirectly, any consulting, advisory or other compensatory fee +from the Company other than compensation for services as a +Director. If a Committee member serves on the audit committees +of more than three public companies, the Board of Directors +shall, as required by applicable rules and regulations, +determine and disclose whether such service will impair the +member’s ability to serve on the Committee. A Committee +member may be removed for any reason by the Board of Directors. +III. STATEMENT +OF PURPOSE +The Committee shall represent and assist the +Board of Directors in fulfilling its oversight responsibility +regarding (i) the integrity of the Company’s financial +statements and the financial reporting process, (ii) the +Company’s systems of internal accounting and financial +controls, (iii) the performance of the internal audit +function and the independent auditors, (iv) the qualifications +and independence of the independent auditors, (v) the +annual independent audit of the Company’s financial +statements, and (vi) the Company’s compliance with +legal and regulatory requirements. In so doing, it is the +responsibility of the Committee to maintain open communication +between the Committee, the independent auditors, the internal +finance staff and the management of the Company. In discharging +its oversight role, the Committee may review any matter brought +to its attention with full access to all books, records, +facilities, and personnel of the Company and may retain outside +legal counsel, accounting or other advisors and consult with the +Company’s corporate legal counsel as the Committee deems +necessary. +IV. AUTHORITY, +DUTIES AND RESPONSIBILITIES +The Committee’s authority, duties and +responsibilities shall include the following: +• +Be responsible and have sole authority to retain, +oversee, evaluate and, if appropriate, terminate the independent +auditors. The Committee shall have sole authority to approve all +audit engagement fees and terms as well as all non-audit +engagements; +• +Establish policies and procedures for the +engagement of the independent auditors to provide permissible +non-audit services, and advanced approval by the Committee of +such permissible non-audit services; +A-1 +Table of Contents +• +Annually review the performance (effectiveness, +objectivity, and independence) of the independent auditors and +the internal audit function, including a review and evaluation +of the lead partner of the independent auditor, and report its +conclusions to the Board of Directors; +• +Communicate to management and the independent +auditors that the independent auditors are ultimately +accountable to the Committee, as representatives of the +Company’s stockholders; +• +Obtain and review at least annually a report from +the independent auditors describing: the auditing firm’s +internal quality-control procedures; any material issues raised +by the most recent internal quality-control review, or peer +review, of the firm, or by any inquiry or investigation by +governmental or professional authorities, within the preceding +five years, respecting one or more independent audits carried +out by the firm, and any steps taken to deal with any such +issues; and all relationships between the independent auditor +and the Company; +• +The Committee shall ensure receipt of a formal +written report from the independent auditors consistent with +applicable rules and regulations and standards set by the +Independence Standards Board; +• +To assess auditor independence, the Committee +will review at least annually all relationships between the +independent auditor and the Company; +• +Discuss with the internal financial staff and the +independent auditors the overall scope and plans for their +respective audits including the adequacy of staffing and +compensation. The Committee shall review with management, the +internal finance staff and the independent auditors the adequacy +and effectiveness of the Company’s accounting and financial +controls, including the Company’s policies and systems with +respect to risk assessment and risk management. The Committee +shall review any identified audit problems or difficulties and +discuss management’s response; +• +Meet periodically with management, the internal +finance staff and the independent auditors separately to +identify issues warranting Committee attention. The Committee +shall be responsible for the resolution of any disagreements +between management and the independent auditors regarding +financial reporting; +• +Review with management and the independent +auditors the Company’s interim financial statements, +including disclosures in the Company’s +“Management’s Discussion and Analysis of Financial +Condition and Results of Operation” (“MD&A”) +to be included in Securities and Exchange Commission +(“SEC”) Quarterly Reports on Form 10-Q. The +Committee shall review with the independent auditors the results +of the quarterly reviews and any other matters required to be +communicated to the Committee by the independent auditors under +generally accepted auditing standards and applicable rules and +regulations; +• +Review with management and the independent +auditors the Company’s annual audited financial statements, +including disclosures in the Company’s MD&A, to be +included in SEC Annual Reports on Form 10-K (or annual +reports to stockholders if distributed prior to the filing of +Form 10-K). The Committee shall review with the independent +auditors the results of the annual audit and any other matters +required to be communicated to the Committee by the independent +auditors under generally accepted auditing standards and +applicable rules and regulations; +• +Establish procedures for the receipt, retention +and treatment of complaints received by the Company regarding +accounting, internal accounting controls or auditing matters and +for the confidential, anonymous submission by the Company’s +employees of concerns regarding questionable accounting or +auditing matters; +• +Ensure that the Chief Executive Officer and Chief +Financial Officer are meeting their obligations under the SEC +certification requirements; +• +Review earnings press releases and financial +information and earnings guidance provided by the Company to +analysts and rating agencies; +• +Prepare the Audit Committee report required by +applicable rules and regulations to be included in the +Company’s annual proxy statement; +• +Establish Company hiring policies for employees +or former employees of independent auditors for the Company; +A-2 +Table of Contents +• +Engage consultants and advisors at the expense of +the Company to assist the Committee as it deems necessary in the +performance of its functions. The Committee shall have sole +authority to retain and terminate any consultants and advisors +and to approve all fees and other retention terms; +• +Establish sub-committees of the Committee in its +discretion and delegate such powers and authority as determined +by the Committee; +• +Conduct and present to the Board of Directors for +approval an annual performance evaluation of the Committee, +including the Committee’s adherence to this Charter; +• +Provide the Board of Directors with regular +reports regarding the Committee’s decisions, actions and +recommendations; and +• +Undertake such other duties and responsibilities +as required by applicable rules and regulations. +A-3 +Table of Contents +Appendix B +WOLVERINE WORLD WIDE, INC. +STOCK INCENTIVE PLAN OF 2003 +SECTION 1 +Establishment of Plan; Purpose of +Plan +1.1 Establishment +of Plan. The Company hereby establishes the STOCK INCENTIVE +PLAN OF 2003 (the “Plan”) for its corporate, +divisional and Subsidiary officers and key employees. The Plan +permits the grant and award of Stock Options, Restricted Stock, +and Stock Awards. +1.2 Purpose +of Plan. The purpose of the Plan is to provide officers and +key management employees of the Company, its divisions and its +Subsidiaries with an increased incentive to contribute to the +long-term performance and growth of the Company and its +Subsidiaries, to join the interests of officers and key +employees with the interests of the Company’s stockholders +through the opportunity for increased stock ownership and to +attract and retain officers and key employees. The Plan is +further intended to provide flexibility to the Company in +structuring long-term incentive compensation to best promote the +foregoing objectives. Within that context, it is intended that +most awards of Stock Options under the Plan are to provide +performance-based compensation under Section 162(m) of the +Code and the Plan shall be interpreted, administered and amended +if necessary to achieve that purpose. +SECTION 2 +Definitions +The following words have the following meanings +unless a different meaning plainly is required by the context: +2.1 “Act” +means the Securities Exchange Act of 1934, as amended. +2.2 “Board” +means the Board of Directors of the Company. +2.3 “Change +in Control,” unless otherwise defined in an Incentive +Award, means (a) the failure of the Continuing Directors at +any time to constitute at least a majority of the members of the +Board; (b) the acquisition by any Person other than an +Excluded Holder of beneficial ownership (within the meaning of +Rule 13d-3 issued under the Act) of 20% or more of the +outstanding Common Stock or the combined voting power of the +Company’s outstanding securities entitled to vote generally +in the election of directors; (c) the approval by the +stockholders of the Company of a reorganization, merger or +consolidation, unless with or into a Permitted Successor; or +(d) the approval by the stockholders of the Company of a +complete liquidation or dissolution of the Company or the sale +or disposition of all or substantially all of the assets of the +Company other than to a Permitted Successor. +2.4 “Code” +means the Internal Revenue Code of 1986, as amended. +2.5 “Committee” +means the Compensation Committee of the Board. The Committee +shall consist of at least 2 members of the Board and all of its +members shall be “non-employee directors” as defined +in Rule 16b-3 issued under the Act and “outside +directors” as defined in the regulations issued under +Section 162(m) of the Code. +2.6 “Common +Stock” means the Common Stock, $1 par value, of the Company. +2.7 “Company” +means Wolverine World Wide, Inc., a Delaware corporation, and +its successors and assigns. +2.8 “Continuing +Directors” mean the individuals constituting the Board as +of the date this Plan was adopted and any subsequent directors +whose election or nomination for election by the Company’s +stockholders was approved by a vote of three-quarters (3/4) +of the individuals who are then Continuing Directors, but +specifically excluding any individual whose initial assumption +of office occurs as a result of either an actual or threatened +solicitation subject to Rule 14a-12(c) of +Regulation 14A issued under the Act or other actual or +threatened solicitation of proxies or consents by or on behalf +of a Person other than the Board. +B-1 +Table of Contents +2.9 “Employee +Benefit Plan” means any plan or program established by the +Company or a Subsidiary for the compensation or benefit of +employees of the Company or any of its Subsidiaries. +2.10 “Excluded +Holder” means (a) any Person who at the time this Plan +was adopted was the beneficial owner of 20% or more of the +outstanding Common Stock; or (b) the Company, a Subsidiary +or any Employee Benefit Plan of the Company or a Subsidiary or +any trust holding Common Stock or other securities pursuant to +the terms of an Employee Benefit Plan. +2.11 “Incentive +Award” means the award or grant of a Stock Option, +Restricted Stock, or Stock Award to a Participant pursuant to +the Plan. +2.12 “Market +Value” shall equal the mean of the highest and lowest sale +prices of shares of Common Stock reported on the New York Stock +Exchange (or any successor exchange that is the primary stock +exchange for trading of Common Stock) on the date of grant, +exercise or vesting, as applicable, or if the New York Stock +Exchange (or any such successor) is closed on that date, the +last preceding date on which the New York Stock Exchange (or any +such successor) was open for trading and on which shares of +Common Stock were traded. +2.13 “Participant” +means a corporate officer, divisional officer or any key +employee of the Company, its divisions or its Subsidiaries who +is granted an Incentive Award under the Plan. +2.14 “Permitted +Successor” means a company that, immediately following the +consummation of a transaction specified in clauses (c) and +(d) of the definition of “Change in Control” above, +satisfies each of the following criteria: (a) 50% or more +of the outstanding common stock of the company and the combined +voting power of the outstanding securities of the company +entitled to vote generally in the election of directors (in each +case determined immediately following the consummation of the +applicable transaction) is beneficially owned, directly or +indirectly, by all or substantially all of the Persons who were +the beneficial owners of the Company’s outstanding Common +Stock and outstanding securities entitled to vote generally in +the election of directors (respectively) immediately prior to +the applicable transaction; (b) no Person other than an +Excluded Holder beneficially owns, directly or indirectly, 20% +or more of the outstanding common stock of the company or the +combined voting power of the outstanding securities of the +company entitled to vote generally in the election of directors +(for these purposes the term Excluded Holder shall include the +company, any subsidiary of the company and any employee benefit +plan of the company or any such subsidiary or any trust holding +common stock or other securities of the company pursuant to the +terms of any such employee benefit plan); and (c) at least +a majority of the board of directors of the company is comprised +of Continuing Directors. +2.15 “Person” +has the same meaning as set forth in Sections 13(d) and +14(d)(2) of the Act. +2.16 “Restricted +Period” means the period of time during which Restricted +Stock awarded under the Plan is subject to restrictions. The +Restricted Period may differ among Participants and may have +different expiration dates with respect to shares of Common +Stock covered by the same Incentive Award. +2.17 “Restricted +Stock” means Common Stock awarded to a Participant pursuant +to Section 6 of the Plan. +2.18 “Retirement” +means the voluntary termination of all employment by a +Participant after the Participant has attained +(i) 50 years of age and seven years of service +(as an employee and/or officer of the Company or a Subsidiary), +(ii) 62 years of age, or (iii) such other age or +years of service as shall be determined by the Committee in its +sole discretion or as otherwise may be set forth in the +Incentive Award agreement or other grant document with respect +to a Participant and a particular Incentive Award. +2.19 “Stock +Award” means an award of Common Stock awarded to a +Participant pursuant to Section 7 of the Plan. +2.20 “Stock +Option” means the right to purchase Common Stock at a +stated price for a specified period of time. For purposes of the +Plan, a Stock Option may be either an incentive stock option +within the meaning of Section 422(b) of the Code or a +nonqualified stock option. +2.21 “Subsidiary” +means any corporation or other entity of which 50% or more of +the outstanding voting stock or voting ownership interest is +directly or indirectly owned or controlled by the Company or by +one or more Subsidiaries of the Company. +B-2 +Table of Contents +SECTION 3 +Administration +3.1 Power +and Authority. The Committee shall administer the Plan. The +Committee may delegate record keeping, calculation, payment and +other ministerial administrative functions to individuals +designated by the Committee, who may be officers or employees of +the Company or its Subsidiaries. Except as limited in this Plan +or as may be necessary to ensure that this Plan provides +performance-based compensation under Section 162(m) of the +Code, the Committee shall have all of the express and implied +powers and duties set forth in the Bylaws of the Company and +this Plan, shall have full power and authority to interpret the +provisions of the Plan and Incentive Awards granted under the +Plan and shall have full power and authority to supervise the +administration of the Plan and Incentive Awards granted under +the Plan and to make all other determinations considered +necessary or advisable for the administration of the Plan. All +determinations, interpretations and selections made by the +Committee regarding the Plan shall be final and conclusive. The +Committee shall hold its meetings at such times and places as it +considers advisable. Action may be taken by a written instrument +signed by a majority of the members of the Committee and any +action so taken shall be fully as effective as if it had been +taken at a meeting duly called and held. The Committee shall +make such rules and regulations for the conduct of its business +as it considers advisable. +3.2 Grants +or Awards to Participants. In accordance with and subject to +the provisions of the Plan, the Committee shall have the +authority to determine all provisions of Incentive Awards as the +Committee may consider necessary or desirable and as are +consistent with the terms of the Plan, including, without +limitation, the following: (a) the persons who shall be +selected as Participants; (b) the nature and, subject to +the limitations set forth in Sections 4.1 and 4.2 of the +Plan, extent of the Incentive Awards to be made to each +Participant (including the number of shares of Common Stock to +be subject to each Incentive Award, any exercise price, the +manner in which an Incentive Award will vest or become +exercisable and the form of payment for the Incentive Award); +(c) the time or times when Incentive Awards will be +granted; (d) the duration of each Incentive Award; and +(e) the restrictions and other conditions to which payment +or vesting of Incentive Awards may be subject. +3.3 Amendments +or Modifications of Awards. The Committee shall have the +authority to amend or modify the terms of any outstanding +Incentive Award in any manner, provided that the amended or +modified terms are not prohibited by the Plan as then in effect, +including, without limitation, the authority to: (a) modify +the number of shares or other terms and conditions of an +Incentive Award; (b) extend the term of an Incentive Award; +(c) accelerate the exercisability or vesting or otherwise +terminate, waive or modify any restrictions relating to an +Incentive Award; (d) accept the surrender of any +outstanding Incentive Award; and (e) to the extent not +previously exercised or vested, authorize the grant of new +Incentive Awards in substitution for surrendered Incentive +Awards; provided, that Incentive Awards issued under the +Plan may not be repriced, replaced, regranted through +cancellation or modified without stockholder approval if the +effect of such repricing, replacement, regrant or modification +would be to reduce the exercise price of then outstanding +Incentive Awards to the same Participants. +3.4 Indemnification +of Committee Members. Neither any member nor former member +of the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each person who +is or shall have been a member of the Committee shall be +indemnified and held harmless by the Company from and against +any cost, liability or expense imposed or incurred in connection +with such person’s or the Committee’s taking or +failing to take any action under the Plan. Each such person +shall be justified in relying on information furnished in +connection with the Plan’s administration by any +appropriate person or persons. +SECTION 4 +Shares Subject to the Plan +4.1 Number +of Shares. Subject to adjustment as provided in +Section 4.3 of the Plan, the total number of shares of +Common Stock available for Incentive Awards under the Plan shall +be 1,300,000 shares of Common Stock. The following shares shall +replace shares previously awarded as Incentive Awards under the +Plan and be available for future Incentive Awards under the +Plan: (i) shares subject to Incentive Awards that are +canceled, surrendered, modified, exchanged for substitute +Incentive Awards, or expire or terminate prior to the exercise +or vesting of the Incentive Award +B-3 +Table of Contents +in full; (ii) shares that are surrendered to +the Company in connection with the exercise or vesting of an +Incentive Award or surrendered to satisfy withholding +requirements, whether previously owned or otherwise subject to +such Incentive Award; and (iii) shares of Common Stock +repurchased by the Company with the cash paid by Participants +for the exercise price of Incentive Awards. No more than 15% of +the shares authorized for issuance under the Plan pursuant to +this Section 4.1 may be issued as Restricted Stock or Stock +Awards, combined. Shares of Common Stock subject to this +Section 4.1 shall be authorized and may be either unissued +or treasury shares or shares repurchased by the Company, +including shares purchased on the open market. +4.2 Limitation +Upon Incentive Awards. No Participant shall be granted, +during any calendar year, Incentive Awards with respect to more +than 300,000 shares of Common Stock, subject to adjustment +as provided in Section 4.3 of the Plan. The purpose of this +Section 4.2 is to ensure that the Plan may provide +performance-based compensation under Section 162(m) of the +Code and this Section 4.2 shall be interpreted, +administered and amended if necessary to achieve that purpose. +4.3 Adjustments. +(a) Stock +Dividends and Distributions. If the number of shares of +Common Stock outstanding changes by reason of a stock dividend, +stock split, recapitalization or other general distribution of +Common Stock or other securities to holders of Common Stock, the +number and kind of securities subject to Incentive Awards and +reserved for issuance under the Plan and the limitation provided +in Section 4.2, together with applicable exercise prices, +as well as the number of shares available for issuance under the +Plan, shall be adjusted appropriately. No fractional shares +shall be issued pursuant to the Plan and any fractional shares +resulting from such adjustments shall be eliminated from the +respective Incentive Awards. +(b) Other Actions +Affecting Common Stock. If there occurs, other than as +described in the preceding subsection, any merger, business +combination, recapitalization, reclassification, subdivision or +combination approved by the Board that would result in the +Persons who were stockholders of the Company immediately prior +to the effective time of any such transaction owning or holding, +in lieu of or in addition to shares of Common Stock, other +securities, money and/or property (or the right to receive other +securities, money and/or property) immediately after the +effective time of such transaction, then the outstanding +Incentive Awards (including exercise prices) and reserves for +Incentive Awards under this Plan shall be adjusted in such +manner and at such time as shall be equitable under the +circumstances. It is intended that in the event of any such +transaction, Incentive Awards under this Plan shall entitle the +holder of each Incentive Award to receive (upon exercise in the +case of Stock Options), in lieu of or in addition to shares of +Common Stock, any other securities, money and/or property +receivable upon consummation of any such transaction by holders +of Common Stock with respect to each share of Common Stock +outstanding immediately prior to the effective time of such +transaction; upon any such adjustment, holders of Incentive +Awards under this Plan shall have only the right to receive in +lieu of or in addition to shares of Common Stock such other +securities, money and/or other property as provided by the +adjustment. If the agreement, resolution or other document +approved by the Board to effect any such transaction provides +for the adjustment of Incentive Awards under the Plan in +connection with such transaction, then the adjustment provisions +contained in such agreement, resolution or other document shall +be final and conclusive. +SECTION 5 +Stock Options +5.1 Grant. A +Participant may be granted one or more Stock Options under the +Plan. The Committee, in its discretion, may provide in the +initial grant of a Stock Option or other Incentive Award for the +subsequent automatic grant of additional Stock Options for the +number of shares, if any, that are surrendered to the Company in +connection with the exercise or vesting of the initial or any +subsequently granted Stock Option or other Incentive Award. +Stock Options shall be subject to such terms and conditions, +consistent with the other provisions of the Plan, as may be +determined by the Committee in its sole discretion. The +Committee may impose such restrictions or conditions, consistent +with the provisions of the Plan, to the vesting, or the +acceleration of vesting based on any of the performance goals +provided in Section 6.2, of Stock Options as it considers +appropriate. The Committee, in its sole discretion, may +establish vesting schedules (i) based upon Company +performance, or (ii) that extend over a period of time +selected by the Committee, +B-4 +Table of Contents +provided, that such +period of time shall not provide for full vesting in a period of +less than 3 years. In addition, the Committee may vary, +among Participants and among Stock Options granted to the same +Participant, any and all of the terms and conditions of the +Stock Options granted under the Plan. Subject to the limitation +imposed by Section 4.2 of the Plan, the Committee shall +have complete discretion in determining the number of Stock +Options granted to each Participant. The Committee may designate +whether or not a Stock Option is to be considered an incentive +stock option as defined in Section 422(b) of the Code; +provided, that the number of shares of Common Stock that +may be designated as subject to incentive stock options for any +given Participant shall be limited to that number of shares that +become exercisable for the first time by the Participant during +any calendar year (under all plans of the Company and its +Subsidiaries) and have an aggregate Market Value less than or +equal to $100,000 (or such other amount as may be set forth in +the Code) and all shares subject to an Incentive Award that have +a Market Value in excess of such aggregate amount shall +automatically be subject to Stock Options that are not incentive +stock options. +5.2 Stock +Option Agreements. Stock Options shall be evidenced by stock +option agreements and/or certificates of award containing the +terms and conditions applicable to such Stock Options. To the +extent not covered by the stock option agreement, the terms and +conditions of this Section 5 shall govern. +5.3 Stock +Option Price. The per share Stock Option price shall be +determined by the Committee, but shall be a price that is equal +to or greater than 100% of the Market Value of the +Company’s Common Stock on the date of grant. +5.4 Medium +and Time of Payment. The exercise price for each share +purchased pursuant to a Stock Option granted under the Plan +shall be payable in cash or, if the Committee consents or +provides in the applicable stock option agreement or grant, in +actual or attested shares of Common Stock owned by the +Participant or other consideration substantially equivalent to +cash. The time and terms of payment may be amended with the +consent of a Participant before or after exercise of a Stock +Option. The Committee may from time to time authorize payment of +all or a portion of the Stock Option price in the form of a full +recourse promissory note or other deferred payment installments +according to such terms as the Committee may approve. The Board +may restrict or suspend the power of the Committee to permit +such loans and may require that adequate security be provided. +The Committee may implement a program for the broker-assisted +cashless exercise of Stock Options. The Company or any of its +Subsidiaries shall not extend credit, directly or indirectly, to +an executive officer in violation of Section 13 of the Act. +5.5 Stock +Options Granted to 10% Stockholders. Unless otherwise +permitted by applicable laws and regulations, no Stock Option +granted to any Participant who at the time of such grant owns, +together with stock attributed to such Participant under +Section 424(d) of the Code, more than 10% of the total +combined voting power of all classes of stock of the Company or +any of its Subsidiaries may be designated as an incentive stock +option, unless such Stock Option provides an exercise price +equal to at least 110% of the Market Value of the Common Stock +on the date of grant and the exercise of the Stock Option after +the expiration of 5 years from the date of grant of the +Stock Option is prohibited by its terms. +5.6 Limits +on Exercisability. Except as set forth in Section 5.5, +Stock Options shall be exercisable for such periods, not to +exceed 10 years from the date of grant, as may be fixed by +the Committee. At the time of exercise of a Stock Option, the +holder of the Stock Option, if requested by the Committee, must +represent to the Company that the shares are being acquired for +investment and not with a view to the distribution thereof. The +Committee may in its discretion require a Participant to +continue the Participant’s service with the Company and its +Subsidiaries for a certain length of time prior to a Stock +Option becoming exercisable and may eliminate such delayed +vesting provisions. +5.7 Restrictions +on Transferability. +(a) General. +Unless the Committee otherwise consents or permits (before +or after the option grant) or unless the stock option agreement +or grant provides otherwise, Stock Options granted under the +Plan may not be sold, exchanged, transferred, pledged, assigned +or otherwise alienated or hypothecated except by will or the +laws of descent and distribution, and, as a condition to any +transfer permitted by the Committee or the terms of the stock +option agreement or grant, the transferee must execute a written +agreement permitting the Company to withhold from the shares +subject to the Stock Option a number of shares having a Market +Value at least equal to the amount of any federal, state, local +and foreign withholding or other taxes associated with or +resulting from the exercise of a Stock Option. All provisions of +a Stock Option that are determined with reference to the +Participant, +B-5 +Table of Contents +including without limitation those that refer to +the Participant’s employment with the Company or its +Subsidiaries, shall continue to be determined with reference to +the Participant after any transfer of a Stock Option. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock acquired pursuant to the exercise of +a Stock Option under the Plan as the Committee deems advisable, +including, without limitation, restrictions under applicable +federal or state securities laws. +5.8 Termination +of Employment or Officer Status. Unless the Committee +otherwise consents or permits (before or after the option grant) +or unless the stock option agreement or grant provides otherwise: +(a) General. +If a Participant ceases to be employed by or an officer of the +Company or a Subsidiary for any reason other than the +Participant’s death, disability, Retirement, consensual +severance or termination for cause, the Participant may exercise +his or her Stock Options in accordance with their terms for a +period of 3 months after such termination of employment or +officer status, but only to the extent the Participant was +entitled to exercise the Stock Options on the date of +termination. For purposes of the Plan, the following shall not +be considered a termination of employment or officer status: +(i) a transfer of an employee from the Company to any +Subsidiary; (ii) a leave of absence, duly authorized in +writing by the Company, for military service or for any other +purpose approved by the Company if the period of such leave does +not exceed 90 days; (iii) a leave of absence in excess of +90 days, duly authorized in writing by the Company, +provided that the employee’s right to re-employment is +guaranteed by statute, contract or written policy of the +Company; or (iv) a termination of employment with continued +service as an officer. For purposes of the Plan, termination of +employment shall be considered to occur on the date on which the +employee is no longer obligated to perform services for the +Company or any of its Subsidiaries and the employee’s right +to re-employment is not guaranteed by statute, contract or +written policy of the Company, regardless of whether the +employee continues to receive compensation from the Company or +any of its Subsidiaries after such date. +(b) Death. If +a Participant dies either while an employee or officer of the +Company or a Subsidiary or after the termination of employment +other than for cause but during the time when the Participant +could have exercised a Stock Option, the Stock Options issued to +such Participant shall become fully vested and exercisable in +accordance with their terms by the personal representative of +such Participant or other successor to the interest of the +Participant for one year after the Participant’s death, but +not beyond the original terms of the Stock Options. +(c) Disability. +If a Participant ceases to be an employee or officer of the +Company or a Subsidiary due to the Participant’s disability +(as defined in the Company’s long-term disability plan), +the Participant shall become fully vested in any Stock Options +that had not been fully vested prior to the disability and the +Participant or the personal representative of the Participant +may exercise his or her Stock Options in accordance with their +terms for one year following such termination of employment, but +not beyond the original terms of the Stock Options. +(d) Participant +Retirement. Upon a Participant’s Retirement from the +Company as an employee or officer of the Company or a +Subsidiary, the Participant shall be fully vested in his or her +Stock Options granted under the Plan and the Participant or the +personal representative of the Participant, in the event +Participant dies or is disabled subsequent to his or her +Retirement, may exercise the Stock Options in accordance with +their terms during the remaining term of the Stock Options. +(e) Consensual +Severance. If a Participant terminates employment with the +Company or a Subsidiary under circumstances (other than death, +disability or Retirement) in which the Committee determines that +partial or full vesting of his or her Stock Options is in the +best interests of the Company, the Committee may, in its sole +discretion either before or after such termination, partially or +fully vest any or all of the Participant’s Stock Options +that have not been fully vested prior to such termination and +permit the Participant to exercise his or her Stock Options in +accordance with their terms for a period of time as may be +determined by the Committee, but not beyond the original term of +the Stock Options. +(f) Termination +for Cause. If a Participant is terminated for cause, the +Participant shall have no further right to exercise any Stock +Options previously granted. The Committee or officers designated +by the Committee shall have absolute discretion to determine +whether a termination is for cause. +B-6 +Table of Contents +SECTION 6 +Restricted Stock +6.1 Grant. +Subject to the limitations set forth in Sections 4.1 +and 4.2 of the Plan, a Participant may be granted Restricted +Stock under the Plan. Restricted Stock shall be subject to such +terms and conditions, consistent with the other provisions of +the Plan, as shall be determined by the Committee in its sole +discretion. The Committee may impose such restrictions or +conditions, consistent with the provisions of the Plan, to the +vesting of Restricted Stock as it considers appropriate. The +Committee in its sole discretion may establish vesting schedules +(i) based upon Company performance, or (ii) that +extend over a period of time selected by the Committee, +provided, that such period of time shall not provide for +full vesting in a period of less than 3 years. The Committee may +also require that certificates representing shares of Restricted +Stock be retained and held in escrow by a designated employee or +agent of the Company or any Subsidiary until any restrictions +applicable to shares of Restricted Stock so retained have been +satisfied or lapsed. +6.2 Measurement +of Performance. If the Committee imposes performance +conditions to the vesting or acceleration of the vesting of +Restricted Stock, the Committee shall select one or more of the +following measurements of the performance of the Company and/or +its Subsidiaries, operating divisions or profit centers: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on invested +capital or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring, +or other extraordinary items. These factors could be measured +against pre-determined levels or the Company’s relative +performance when compared to a pre-established peer group. +6.3 Restricted +Stock Agreements. Awards of Restricted Stock shall be +evidenced by restricted stock agreements or certificates of +award containing such terms and conditions, consistent with the +provisions of the Plan, as the Committee shall from time to time +determine. Unless a restricted stock agreement or certificate +provides otherwise, Restricted Stock awards shall be subject to +the terms and conditions set forth in this Section 6. +6.4 Termination +of Employment or Officer Status. Unless the Committee +otherwise consents or permits (before or after the grant of +Restricted Stock) or unless the restricted stock agreement or +grant provides otherwise: +(a) General. +In the event of termination of employment or officer status +during the Restricted Period for any reason other than death, +disability, Retirement or consensual severance, any shares of +Restricted Stock still subject to restrictions at the date of +such termination shall automatically be forfeited and returned +to the Company. For purposes of the Plan, the following shall +not be considered a termination of employment or officer status: +(i) a transfer of an employee from the Company to any +Subsidiary; (ii) a leave of absence, duly authorized in +writing by the Company, for military service or for any other +purpose approved by the Company if the period of such leave does +not exceed 90 days; (iii) a leave of absence in excess of +90 days duly authorized in writing by the Company, provided +that the employee’s right to re-employment is guaranteed by +statute, contract or written policy of the Company; and +(iv) a termination of employment with continued service as +an officer. For purposes of the Plan, termination of employment +shall be considered to occur on the date on which the employee +is no longer obligated to perform services for the Company or +any of its Subsidiaries and the employee’s right to +re-employment is not guaranteed by statute, contract or written +policy of the Company, regardless of whether the employee +continues to receive compensation from the Company or any of its +Subsidiaries after such date. +(b) Death, +Retirement or Disability. In the event a Participant +terminates his or her employment with the Company or a +Subsidiary because of death, disability (as defined in the +Company’s long-term disability plan) or Retirement during +the Restricted Period, the restrictions applicable to the shares +of Restricted Stock shall terminate automatically. +(c) Consensual +Severance. If a Participant terminates employment with the +Company or a Subsidiary during the Restricted Period under +circumstances (other than death, disability or Retirement) in +which the Committee determines that partial or full waiver of +the restrictions is in the best interests of the Company, the +Committee may, in its sole discretion either before or after +such termination, waive the restrictions remaining on any or all +remaining shares of Restricted Stock. +B-7 +Table of Contents +6.5 Restrictions +on Transferability. +(a) General. +Unless the Committee otherwise consents or permits or unless +the terms of the restricted stock agreement or grant provide +otherwise: (i) shares of Restricted Stock shall not be +sold, exchanged, transferred, pledged, assigned or otherwise +alienated or hypothecated during the Restricted Period except by +will or the laws of descent and distribution; and (ii) all +rights with respect to Restricted Stock granted to a Participant +under the Plan shall be exercisable during the +Participant’s lifetime only by such Participant, his or her +guardian or legal representative. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock acquired pursuant to an award of +Restricted Stock under the Plan as the Committee considers +advisable, including, without limitation, restrictions under +applicable federal or state securities laws. +6.6 Legending of +Restricted Stock. Any certificates evidencing shares of +Restricted Stock awarded pursuant to the Plan shall bear the +following legend: +The shares represented by this certificate were +issued subject to certain restrictions under the Wolverine World +Wide, Inc. Stock Incentive Plan of 2003 (the “Plan”). +This certificate is held subject to the terms and conditions +contained in a restricted stock agreement that includes a +prohibition against the sale or transfer of the stock +represented by this certificate except in compliance with that +agreement and that provides for forfeiture upon certain events. +Copies of the Plan and the restricted stock agreement are on +file in the office of the Secretary of the Company. +6.7 Rights as a +Stockholder. A Participant shall have all voting, dividend, +liquidation and other rights with respect to Restricted Stock +held of record by such Participant as if the Participant held +unrestricted Common Stock; provided, that the unvested +portion of any award of Restricted Stock shall be subject to any +restrictions on transferability or risks of forfeiture imposed +pursuant to Sections 6.1, 6.4 and 6.5 of the Plan. Unless +the Committee otherwise determines or unless the terms of the +restricted stock agreement or grant provide otherwise, any +noncash dividends or distributions paid with respect to shares +of unvested Restricted Stock shall be subject to the same +restrictions as the shares to which such dividends or +distributions relate. +SECTION 7 +Stock Awards +7.1 Grant. +Subject to the limitations set forth in Sections 4.1 +and 4.2 of the Plan, a Participant may be granted one or more +Stock Awards under the Plan. Stock Awards shall be subject to +such terms and conditions, consistent with the other provisions +of the Plan, as may be determined by the Committee in its sole +discretion. +7.2 Rights as a +Stockholder. A Participant shall have all voting, dividend, +liquidation and other rights with respect to shares of Common +Stock issued to the Participant as a Stock Award under this +Section 7 upon the Participant becoming the holder of +record of the Common Stock granted pursuant to such Stock Award; +provided, that the Committee may impose such restrictions +on the assignment or transfer of Common Stock awarded pursuant +to a Stock Award as it considers appropriate. +SECTION 8 +Change in Control +8.1 Acceleration +of Vesting. If a Change in Control of the Company shall +occur, then, unless the Committee or the Board otherwise +determines with respect to one or more Incentive Awards, without +action by the Committee or the Board: (a) all outstanding +Stock Options shall become immediately exercisable in full and +shall remain exercisable during the remaining terms thereof, +regardless of whether the Participants to whom such Stock +Options have been granted remain in the employ or service of the +Company or any Subsidiary; and (b) all other outstanding +Incentive Awards shall become immediately fully vested and +exercisable and nonforfeitable. +B-8 +Table of Contents +8.2 Cash Payment +for Stock Options. If a Change in Control of the Company +shall occur, then the Committee, in its sole discretion, and +without the consent of any Participant affected thereby, may +determine that some or all Participants holding outstanding +Stock Options shall receive, with respect to some or all of the +shares of Common Stock subject to such Stock Options, as of the +effective date of any such Change in Control of the Company, +cash in an amount equal to the greater of the excess of +(a) the highest sales price of the shares on the New York +Stock Exchange on the date immediately prior to the effective +date of such Change in Control of the Company or (b) the +highest price per share actually paid in connection with any +Change in Control of the Company over the exercise price per +share of such Stock Options. +SECTION 9 +General Provisions +9.1 No Rights to +Awards. No Participant or other person shall have any claim +to be granted any Incentive Award under the Plan and there is no +obligation of uniformity of treatment of Participants or holders +or beneficiaries of Incentive Awards under the Plan. The terms +and conditions of Incentive Awards of the same type and the +determination of the Committee to grant a waiver or modification +of any Incentive Award and the terms and conditions thereof need +not be the same with respect to each Participant or the same +Participant. +9.2 Withholding. +The Company or a Subsidiary shall be entitled to: +(a) withhold and deduct from future wages of a Participant +(or from other amounts that may be due and owing to a +Participant from the Company or a Subsidiary), or make other +arrangements for the collection of, all legally required amounts +necessary to satisfy any and all federal, state, local and +foreign withholding and employment-related tax requirements +attributable to an Incentive Award, including, without +limitation, the grant, exercise or vesting of, or payment of +dividends with respect to, an Incentive Award or a disqualifying +disposition of Common Stock received upon exercise of an +incentive stock option; or (b) require a Participant +promptly to remit the amount of such withholding to the Company +before taking any action with respect to an Incentive Award. +Unless the Committee determines otherwise, withholding may be +satisfied (but only to the extent necessary to satisfy mandatory +statutory withholding amounts) by withholding Common Stock to be +received upon exercise or vesting of an Incentive Award or by +delivery to the Company of previously owned Common Stock. +9.3 Compliance +With Laws; Listing and Registration of Shares. All Incentive +Awards granted under the Plan (and all issuances of Common Stock +or other securities under the Plan) shall be subject to all +applicable laws, rules and regulations, and to the requirement +that if at any time the Committee shall determine, in its +discretion, that the listing, registration or qualification of +the shares covered thereby upon any securities exchange or under +any state or federal law, or the consent or approval of any +governmental regulatory body, is necessary or desirable as a +condition of, or in connection with, the grant of such Incentive +Award or the issue or purchase of shares thereunder, such +Incentive Award may not be exercised in whole or in part, or the +restrictions on such Incentive Award shall not lapse, unless and +until such listing, registration, qualification, consent or +approval shall have been effected or obtained free of any +conditions not acceptable to the Committee. +9.4 No Limit on +Other Compensation Arrangements. Nothing contained in the +Plan shall prevent the Company or any Subsidiary from adopting +or continuing in effect other or additional compensation +arrangements, including the grant of stock options and other +stock-based awards, and such arrangements may be either +generally applicable or applicable only in specific cases. +9.5 No Right to +Employment. The grant of an Incentive Award shall not be +construed as giving a Participant the right to be retained in +the employ of the Company or any Subsidiary. The Company or any +Subsidiary may at any time dismiss a Participant from +employment, free from any liability or any claim under the Plan, +unless otherwise expressly provided in the Plan or in any +written agreement with a Participant. +9.6 Suspension of +Rights under Incentive Awards. The Company, by written +notice to a Participant, may suspend a Participant’s and +any transferee’s rights under any Incentive Award for a +period not to exceed 30 days while the termination for +cause of that Participant’s employment with the Company and +its Subsidiaries is under consideration. +9.7 Governing +Law. The validity, construction and effect of the Plan and +any rules and regulations relating to the Plan shall be +determined in accordance with the laws of the State of Delaware +and applicable federal law. +B-9 +Table of Contents +9.8 Severability. +In the event any provision of the Plan shall be held illegal +or invalid for any reason, the illegality or invalidity shall +not affect the remaining provisions of the Plan and the Plan +shall be construed and enforced as if the illegal or invalid +provision had not been included, unless such construction would +cause the Plan to fail in its essential purposes. +SECTION 10 +Termination and Amendment +The Board may terminate the Plan at any time or +may from time to time amend the Plan as it considers proper and +in the best interests of the Company, provided that no such +amendment may impair any outstanding Incentive Award without the +consent of the Participant, except according to the terms of the +Plan or the Incentive Award. No termination, amendment or +modification of the Plan shall become effective with respect to +any Incentive Award previously granted under the Plan without +the prior written consent of the Participant holding such +Incentive Award unless such amendment or modification operates +solely to the benefit of the Participant. +SECTION 11 +Effective Date and Duration of the +Plan +This Plan shall take effect February 13, +2003, subject to approval by the stockholders at the 2003 Annual +Meeting of Stockholders or any adjournment thereof or at a +Special Meeting of Stockholders. Unless earlier terminated by +the Board of Directors, no Incentive Award shall be granted +under the Plan after February 12, 2013. +B-10 +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its annual meeting of stockholders +on April 24, 2003. The enclosed Notice of Annual Meeting provides information +regarding the matters that are expected to be voted on at the meeting. Your +vote is important to us. Even if you plan to attend the meeting, please read +the enclosed materials and vote through the Internet, by telephone or by +mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the +Internet or by telephone. Please consider voting through one of these new +methods. Your vote is recorded as if you mailed in your Proxy. We believe +voting through the Internet or by telephone is convenient, and it also saves +money. +Electronic Delivery of Proxy Statement and Annual Report. +You may elect to receive your annual report and proxy statement on-line by +checking the appropriate box below. Selecting this option means that you may +receive the Wolverine World Wide, Inc. annual report and proxy statement +on-line rather than in printed form unless you request a paper copy. If a +sufficient number of stockholders select this option, beginning next year and +continuing until you tell us otherwise, you will receive your printed Proxy +with information regarding the Internet website containing the annual report +and proxy statement. You will need a computer with Internet access and we +anticipate that you will need a utility such as Adobe® +Acrobat® Reader to read +the annual report and proxy statement, which will be in PDF file format. We +plan to provide information on obtaining free access to a utility necessary for +reading PDF files. You may incur costs such as on-line charges or printing +costs and face possible risks such as systems outages in accessing Wolverine +World Wide, Inc.’s proxy statement and annual report via the Internet website. +You may cancel your enrollment in this process at any time or may request a +paper copy of the annual report and/or proxy statement in any given year while +continuing your long-term enrollment in this process by written notification to +National City Bank, Attn. Shareholder Services Department, Dept. 5352, +Corporate Trust Operations, P.O. Box 92301, Cleveland, Ohio 44193-0900. The +telephone number is 1-800-622-6757. There is no charge for canceling +enrollment or requesting a paper copy of the annual report and proxy statement. +Thank you in advance for your participation in our 2003 Annual Meeting. +Wolverine World Wide, Inc. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC. +PROXY +1. +ELECTION OF DIRECTORS +FOR all +WITHHOLD all +FOR all except (*) +o +o +o +Nominees: +(01) +Alberto L. Grimoldi +(02) +Joseph A. Parini +(03) +Elizabeth A. Sanders +*(INSTRUCTION: To withhold authority to vote for any individual +nominee, strike that nominee’s name in the list above.) +Your Board of Directors Recommends that You Vote FOR ALL +NOMINEES +2. +Proposal to approve the Stock Incentive Plan of 2003. +FOR +AGAINST +ABSTAIN +Your Board of Directors Recommends that You Vote FOR this +Proposal +o +o +o +3. +Proposal to ratify the appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +FOR +AGAINST +ABSTAIN +o +o +o +Your Board of Directors Recommends that You Vote FOR this +Proposal +Please check this box if you consent to access future annual reports +and proxy statements via the Internet (see details above). +o +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +Table of Contents +VOTE BY TELEPHONE +Have your proxy card available when you +call the Toll-Free number 1-800-542-1160 +using a touch-tone telephone. You will be +prompted to enter your Control Number. +Please follow the simple prompts that will be +presented to you to record your vote. +VOTE BY INTERNET +Have your proxy card available when you +access the website http://www.votefast.com . +You will be prompted to enter your Control +Number. Please follow the simple prompts +that will be presented to you to record your +vote. +VOTE BY MAIL +Please mark, sign and date your proxy card +and return it in the postage-paid envelope +provided or return it to: Stock Transfer Dept +(WWW), National City Bank, P.O. Box +92301, Cleveland, OH 44193-0900. Mailed +proxies must be received no later than +April 24, 2003, at 10:00 a.m. Eastern +Daylight Time. +Vote by Telephone +Call toll-free using a +touch-tone phone: +1-800-542-1160 +Vote by Internet +Access the website and +cast your vote: +http://www.votefast.com +Vote by Mail +Return your proxy +in the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 23, 2003, to assure that it is counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL +VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +Your Control Number Is: +This Proxy must be signed and dated below. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC. +PROXY +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints Geoffrey B. Bloom, Phillip D. +Matthews and Timothy J. O’Donovan, and each of them, each with full power of +substitution, proxies to represent the undersigned stockholder and to vote all +shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would +be entitled to vote on all matters which come before the Annual Meeting of +Stockholders to be held at the Company’s headquarters located at 9341 Courtland +Drive, N.E., Rockford, Michigan, on Thursday, April 24, 2003, at 10 a.m. local +time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will +be voted as specified. If no specification is made, the shares represented by +this Proxy will be voted for the election of all nominees named on this Proxy +as directors and for approval of the proposals identified on this Proxy. The +shares represented by this Proxy will be voted in the discretion of the proxies +on any other matters that may come before the meeting. +Signature(s) +Signature(s) +Date: ___________________________________________________________,2003 +IMPORTANT — Please sign exactly as your name(s) appears on +this Proxy. When signing on behalf of a corporation, partnership, +estate or trust, indicate title or capacity of person signing. +If shares are held jointly, each holder should sign. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-03-000712/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-03-000712/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0ba19dfbda37721f629cfe931c10114e638a6c76 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-03-000712/proxy_rpt.txt @@ -0,0 +1,54 @@ +Certain Relationships and Related +Transactions +During 2002, Wolverine engaged J. Walter +Thompson, an international advertising firm, to perform public +relations and marketing services. Wolverine paid $154,081 in +fees and expenses to J. Walter Thompson. Ms. Joan +Parker, a director of Wolverine, was a Senior Partner with +J. Walter Thompson until April 2002. Wolverine does not +anticipate engaging J. Walter Thompson to provide services +in 2003. +Wolverine has entered into an agreement with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is a +significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies ®, +Caterpillar ® and Merrell ® brand names. +Under this agreement, Grimoldi, S.A., or its subsidiary, pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +Under the agreement described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2002 totaling $341,494. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2002, purchases of such items by +Grimoldi, S.A. totaled $95,202 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2003. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of March 3, 2003, the aggregate principal balance of the +note was $605,202. +Compensation Committee Interlocks and Insider +Participation +For 2002, Wolverine’s Compensation Committee +consisted of Donald V. Fites, Phillip D. Matthews, +David P. Mehney and Paul D. Schrage. While +Mr. Matthews was not at any time an employee of Wolverine +or its subsidiaries, he served as Chairman of the Board of +Wolverine from 1993 until 1996. Effective following the +February 2003 meeting of the Board of Directors, +Mr. Matthews resigned from the Compensation Committee and +was appointed to the Audit Committee. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-04-000869/proxy.txt b/raw/proxies/0000110471/0000950124-04-000869/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..dd64ccab24716db3028cffe8228eb57d78cdf018 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-04-000869/proxy.txt @@ -0,0 +1,3316 @@ +DEF 14A +1 +k83506def14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +February 28, 2006 +Estimated average burden +hours per +response +12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(RULE +14A-101) +INFORMATION REQUIRED IN PROXY +STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant +x +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Wolverine World Wide, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information +contained in this form are not required to respond unless the form displays a currently valid +OMB control number. +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual +meeting of stockholders at Wolverine’s headquarters located +at 9341 Courtland Drive, N.E., Rockford, Michigan, on +Thursday, April 22, 2004, at 10 a.m. local time. At +the meeting, we will: +(1) +Elect four directors for three-year terms +expiring in 2007. +(2) +Vote on ratification of the Audit +Committee’s appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +(3) +Conduct such other business as may properly come +before the meeting. +You can vote at the meeting and any adjournment +of the meeting if you were a stockholder of record on +March 1, 2004. A list of stockholders entitled to vote at +the meeting will be available for review by Wolverine +stockholders at the office of Blake W. Krueger, Executive Vice +President and Secretary of Wolverine, located at +9341 Courtland Drive, N.E., Rockford, Michigan, during +ordinary business hours for the 10-day period before the meeting. +A copy of the Annual Report to Stockholders for +the year ended January 3, 2004, is enclosed with this Notice. +The following proxy statement and enclosed proxy card are being +sent to stockholders on and after March 12, 2004. +By Order of the Board of Directors +Blake W. Krueger, Executive Vice President and +Secretary +March 12, 2004 +Your Vote is Important to Us. Even if You Plan +to Attend the Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED +PROXY PROMPTLY OR +VOTE BY TELEPHONE OR ON THE +INTERNET. +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Ownership of Wolverine Stock +Wolverine’s Stock Price Performance +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 22, 2004 +Proxy Statement +Time and Place +You are invited to attend the annual meeting of +stockholders of Wolverine World Wide, Inc. that will be held on +April 22, 2004, at Wolverine’s headquarters located at +9341 Courtland Drive, N.E., Rockford, Michigan, at +10:00 a.m. local time. +This proxy statement and enclosed proxy card are +being furnished to you in connection with the solicitation of +proxies by the Wolverine Board of Directors for use at the +annual meeting. In this proxy statement, “we,” +“us,” “our” and “Wolverine” refer +to Wolverine World Wide, Inc. and “you” and +“your” refer to Wolverine stockholders. +Purpose of the Meeting +The purpose of the annual meeting is to consider +and vote upon: +• +election of four directors for three-year terms +expiring in 2007; +• +ratification of the appointment of Ernst & +Young LLP as independent auditors for Wolverine for the current +fiscal year; and +• +such other business as may properly come before +the meeting. +Your Board of Directors recommends that you +vote FOR each nominee and FOR the ratification of Ernst & +Young LLP as independent auditors. +How to Vote Your Shares +You may vote at the meeting or by proxy if you +were a stockholder of record of Wolverine at the close of +business on March 1, 2004. Wolverine offers the convenience +of voting by mail-in proxy, telephone or the Internet. See the +enclosed proxy for voting instructions. Each stockholder is +entitled to one vote per share on each matter presented. +As of March 1, 2004, there were 39,407,748 +shares of Wolverine common stock issued and outstanding +(excluding 7,433,825 shares of treasury stock). +If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or the +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +If you specify a choice, the proxy will be voted +as specified. If you do not specify a choice, your shares will +be voted in favor of the election of all nominees named in this +proxy statement, in favor of the proposal set forth in this +proxy statement and, with respect to any other matter that may +come before the meeting, in the discretion of the individuals +named as proxies on the proxy card. We are not currently aware +of any other matters to be presented at the meeting. +You may revoke your proxy at any time before it +is exercised by delivering written notice of revocation to the +Secretary of Wolverine or by attending and voting at the annual +meeting. +Quorum and Required Vote +The presence in person or by proxy of the holders +of a majority of the shares entitled to vote at the meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the meeting, we will count as present +and represented at the meeting all shares for which we receive a +proxy or vote, including abstentions and shares represented by a +broker vote on any matter. +A plurality of the shares voting is required to +elect directors. This means that if there are more nominees than +positions to be filled, the nominees who receive the most votes +will be elected. In counting votes on the election of directors, +abstentions, broker non-votes and other shares not voted will be +counted as not voted. These shares will be deducted from the +total shares of which a plurality is required. +Table of Contents +Each other matter to be voted upon at the meeting +will be approved if a majority of the shares present or +represented at the meeting and entitled to vote on the proposal +are voted in favor of such matter. In counting votes on each +matter, abstentions will be counted as voted against the matter +and broker non-votes will be counted as not voted on the matter. +Shares that are not voted will be deducted from the total shares +of which a majority is required. +Election of Directors +As recommended by the Governance Committee, the +Board of Directors proposes that the following nominees be +elected as directors for terms expiring at the 2007 annual +meeting: +Geoffrey B. Bloom +David T. Kollat +David P. Mehney +Timothy J. O’Donovan +All of the nominees are currently directors of +Wolverine whose terms will expire at the annual meeting. Each +proposed nominee is willing to be elected and serve as a +director. However, if a nominee is unable to serve or is +otherwise unavailable for election, which is not contemplated, +the incumbent Wolverine Board of Directors may or may not select +a substitute nominee. If a substitute nominee is selected, your +shares will be voted for the substitute nominee (unless you give +other instructions). If a substitute nominee is not selected, +your shares will be voted for the remaining nominees. Proxies +will not be voted for more than four nominees. +Wolverine’s Board of Directors currently +consists of 11 directors. Joseph Parini is retiring at this +year’s annual meeting after 17 years of service as a +director. After this year’s annual meeting, the Board of +Directors will consist of 10 directors. +Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into three +classes, with each class to be as nearly equal in number as +possible. Each class serves a term of office of three years, +with the term of one class expiring at the annual meeting in +each successive year. +Biographical information as of January 3, +2004, for each nominee and each current director who will +continue to serve after the annual meeting is presented below. +Except as otherwise indicated, all have had the same principal +positions and employment for over five years. +Your Board of Directors recommends that you +vote FOR each nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2007 +GEOFFREY B. BLOOM (age 62) has been a director +since 1987. Mr. Bloom is Chairman of the Board of Wolverine +and has served in that capacity since 1996. Until his retirement +in April 2000, Mr. Bloom was also Chief Executive Officer +of Wolverine. Mr. Bloom was previously President and Chief +Executive Officer from 1993 until 1996 and Chief Operating +Officer from 1987 until 1993. Mr. Bloom is also a director +of Coachmen Industries, Inc. +DAVID T. KOLLAT (age 65) has been a director +since 1992. Mr. Kollat is President and Chairman of 22, +Inc., a company specializing in research and management +consulting for retailers and consumer goods manufacturers. +Mr. Kollat is also a director of Limited Brands, Inc.; Big +Lots, Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 64) has been a director +since 1977. Mr. Mehney is President of The KMW Group, Inc., +a distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 58) has been a +director since 1993. Mr. O’Donovan is Chief Executive +Officer and President of Wolverine and has served in that +capacity since April 2000. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. +2 +Table of Contents +Continuing Directors — Terms Expiring in 2006 +ALBERTO L. GRIMOLDI (age 62) has been a director +since 1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a +shoe manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi is also a founding member +and has been Vice Chairman of Banco Privado de Inversiones, +S.A., an Argentinean investment bank, since 1994. +Mr. Grimoldi was previously a member of the Advisory Board +of Ford Motor Company in Argentina, and has also held various +positions in the Argentinean government. +BRENDA J. LAUDERBACK (age 53) was appointed to +the Board of Directors in 2003. From 1995 until 1998, +Ms. Lauderback was president of the Wholesale and Retail +Group of Nine West Group, Inc., a footwear manufacturer and +distributor. She was previously the President of the Wholesale +Division of U.S. Shoe Corporation, a footwear manufacturer and +distributor, and the Vice President of Dayton Hudson +Corporation, a retailer. Ms. Lauderback is also a director +of Irwin Financial Corporation; Big Lots, Inc.; and +Louisiana-Pacific Corporation. +ELIZABETH A. SANDERS (age 58) has been a director +since 1994. Ms. Sanders is the principal of The Sanders +Partnership, a management consulting practice. Ms. Sanders +has held that position since 1990. Ms. Sanders was +previously Vice President of Nordstrom, Inc., a retailer. +Ms. Sanders is also a director of Washington Mutual, Inc.; +Denny’s Corporation; and Wellpoint Health Networks, Inc. +Continuing Directors — Terms Expiring in 2005 +DONALD V. FITES (age 70) has been a director +since 1999. From 1990 until 1999, Mr. Fites was Chairman +and Chief Executive Officer of Caterpillar Inc., a manufacturer +of construction, mining and agricultural machinery and engines. +Mr. Fites also is a director of AK Steel Holding +Corporation; AT&T Wireless Services; ExxonMobil Corporation; +Oshkosh Truck Corporation; and Georgia-Pacific Corporation. +PHILLIP D. MATTHEWS (age 65) has been a director +since 1981. Mr. Matthews is Lead Director of Wolverine and +was Chairman of the Board of Wolverine from 1993 until 1996. +Since 1997, Mr. Matthews has been a general partner of +Matthews, Mullaney & Co., a consulting firm. +Mr. Matthews is Chairman of the Board of Worldwide +Restaurant Concepts, Inc., a national restaurant chain. +Mr. Matthews is also a director of Washington Mutual, Inc. +PAUL D. SCHRAGE (age 68) has been a director +since 1997. Mr. Schrage was Senior Executive Vice President +and Chief Marketing Officer of McDonald’s Corporation, a +worldwide restaurant franchisor and operator and was employed at +that company from 1967 until 1997. Mr. Schrage is also a +director of Thrivent Financial for Lutherans; Compact +Industries, Inc.; and Foodland Supermarket Ltd. +Board Committees and Meetings +During the 2003 fiscal year, the Board of +Directors held five regular meetings. Each of the directors +attended 75% or more of the aggregate of the total number of +full Board meetings and the total number of meetings of +committees on which he or she served (during the periods that he +or she served). +The Board of Directors has four standing +committees: the Audit Committee, the Compensation Committee, the +Executive Committee and the Governance Committee. Members of +each committee are appointed by the Board of Directors and the +authority, duties and responsibilities of each committee are +governed by written charters approved by the Board of Directors. +In addition to regular Board and Committee +meetings, Wolverine has scheduled regular executive sessions for +non-management directors. Wolverine’s independent Lead +Director, Mr. Matthews, presides at all non-management +executive sessions. +Audit Committee. The +Audit Committee: +• +represents and assists the Board in fulfilling +its oversight responsibility regarding Wolverine’s +financial reporting and accounting process; +3 +Table of Contents +• +appoints, retains, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance of the +independent auditors and Wolverine’s internal audit +function; +• +obtains and reviews the independent +auditors’ internal quality control report and other reports +required by applicable rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention +and treatment of complaints regarding accounting and auditing +matters; +• +reviews Wolverine’s financial statements, +including disclosures in Management’s Discussion and +Analysis of Financial Condition and Results of Operations, that +are included in Wolverine’s reports on Form 10-Q and +Form 10-K; +• +reviews Wolverine’s policies and systems +with respect to risk assessment and risk management and +discusses significant risks or exposures with management and the +independent auditors; +• +discusses with internal financial staff and the +independent auditors the overall scope and plans for their +respective audits; +• +oversees Wolverine’s legal and regulatory +compliance systems; +• +reviews and discusses the adequacy and +effectiveness of Wolverine’s internal control over +financial reporting and disclosure controls and procedures; and +• +establishes policies and procedures relating to +the engagement of the independent auditors, including +pre-approval policies and procedures. +Only independent directors may serve on the Audit +Committee. Messrs. Kollat, Matthews and Parini (until this +year’s annual meeting) and Mses. Lauderback and +Sanders currently serve on the Audit Committee. Mr. Kollat +is Chairman of this committee. The Audit Committee met eleven +times in 2003. +Compensation Committee. +The Compensation Committee: +• +discharges, subject to general review and +oversight by the Board, the Board’s responsibilities +relating to executive compensation and assists the Board in +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +reviews and approves corporate and personal goals +and objectives relevant to Chief Executive Officer compensation, +evaluates the performance of the Chief Executive Officer in +light of these goals and objectives, and, together with the +other independent directors, approves the compensation of the +Chief Executive Officer based on the evaluation; +• +reviews and approves the compensation of other +key senior executives, including bonuses and equity +compensation; and +• +administers and makes recommendations with +respect to Wolverine’s stock option and other equity-based +incentive plans. +Only independent directors may serve on the +Compensation Committee. Messrs. Fites, Mehney and Schrage +currently serve on the Compensation Committee. Mr. Fites is +Chairman of this committee. The Compensation Committee met four +times during 2003. +Executive Committee. +Subject to limitations set forth in +the Executive Committee Charter and applicable laws, rules and +regulations, the Executive Committee exercises the powers of the +Board of Directors during periods between Board meetings with +respect to matters that the Chairman of the Board determines +must be addressed before the next scheduled meeting of the Board +and for which a special meeting of the Board is not practicable. +Messrs. Bloom, Fites, Matthews, O’Donovan and Parini +(until this year’s annual meeting) currently serve on the +Executive Committee. Mr. Matthews is Chairman of this +committee. It did not meet during 2003. +Governance Committee. +The Governance Committee: +• +interviews each potential director nominee and +recommends, consistent with criteria approved by the Board, +suitable candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes +qualification standards for Board and committee membership; +• +develops and recommends to the Board an annual +self-evaluation process for the Board and its committees and +oversees the evaluation process; +• +establishes and recommends director independence +guidelines to the Board; +• +reviews and reports on all matters generally +relating to corporate governance and develops and recommends to +the Board corporate governance guidelines; +• +recommends to the Board key executives to serve +as corporate officers of Wolverine; and +• +recommends retainer and attendance fees for +directors who are not employees of Wolverine or any of its +subsidiaries. +4 +Table of Contents +In evaluating the skills and characteristics +required of Board members, the Governance Committee addresses +issues such as experience, diversity, age and skills in the +context of the current make-up of the Board. The Governance +Committee will consider candidates for nomination that are +recommended by stockholders, directors, officers, third party +search firms and other sources. Stockholders may recommend +individual nominees for consideration by the Governance +Committee by communicating with the Governance Committee through +one of the Board communication mechanisms described under the +heading “Corporate Governance Principles — +Communication with the Board.” The Governance Committee +ultimately determines individuals to be nominated at each annual +meeting. Direct stockholder nominations may only be made through +the procedure described below under the subheading +“Stockholder Nominations.” From time to time, the +Governance Committee engages third-party search firms to assist +with identifying and evaluating potential nominees. +In making nominee recommendations to the Board, +the Governance Committee considers a potential nominee’s +ability, judgment and personal and professional integrity. The +Governance Committee seeks nominees who are likely to be most +effective, in conjunction with other nominees and Board members, +in collectively serving the long-term interests of the +stockholders. +Only independent directors may serve on the +Governance Committee. Messrs. Kollat, Mehney and Schrage +and Ms. Sanders currently serve on the Governance +Committee. Mr. Schrage is Chairman of this committee. The +Governance Committee met five times during 2003. +Stockholder Nominations +Nominations may be made directly by a stockholder +entitled to vote for the election of directors if, and only if, +the stockholder submits advance notice of the proposed +nomination to the Secretary of Wolverine and the notice is +received by the Secretary of Wolverine not less than 50 nor more +than 75 days before the annual meeting. However, if the +first to occur of the notice of the meeting or public disclosure +is given or made to stockholders less than 65 days before +the annual meeting, the notice of the proposed nomination must +be received not later than the close of business on the 15th day +after the day on which the notice of the date of the meeting was +mailed or the public disclosure was made, whichever occurs +first. Each notice submitted by a stockholder must set forth +each nominee’s name, age, business address, residence +address and principal occupation and employment, the class and +number of shares of common stock beneficially owned by each +nominee, and any other information concerning each nominee +required to be included in a proxy statement soliciting proxies +for the election of the nominee under the rules of the +Securities and Exchange Commission (“SEC”). In +addition, the notice must state the name, record address and the +class and number of shares of common stock beneficially owned by +the stockholder submitting the notice. If the chairman of the +meeting determines that a nomination was not made in accordance +with these procedures, he or she must announce that +determination at the meeting and the nomination will be +disregarded. +Compensation of Directors +Wolverine paid each non-employee director an +annual retainer of $30,000 plus $1,000 per day for attendance at +each regular meeting of the Board of Directors and $1,000 per +day for attendance at each committee meeting. In addition, +Wolverine paid the chairpersons of the Audit, Compensation and +Governance Committees annual fees of $3,500. Directors who are +also employees of Wolverine or any of its subsidiaries receive +no annual retainer and are not compensated for attendance at +Board or committee meetings. Wolverine also reimburses directors +for expenses associated with attending Board and committee +meetings. +Under the Amended and Restated Directors’ +Stock Option Plan (the “Directors’ Stock Option +Plan”) approved by stockholders in 2002, each newly +appointed or elected non-employee director is granted an option +to purchase shares of common stock with a market value on the +date of his or her initial election or appointment equal to six +times the annual director retainer fee then in effect. On the +date of each annual meeting after his or her initial appointment +or election, each non-employee director is granted an option to +purchase shares with a market value on the annual meeting date +equal to three times the annual director retainer fee then in +effect. The exercise price of options granted under this plan is +100% of the market value of common stock on the date each option +is granted. The term of each option may not exceed +10 years. Options were granted under this plan to all +non-employee directors on April 24, 2003. Options to +purchase a maximum of 400,000 shares of common stock (plus any +remaining shares previously authorized +5 +Table of Contents +under the plan before the 2002 amendment) may be +granted under the Directors’ Stock Option Plan. +In 2002, Wolverine adopted and the stockholders +approved the Amended and Restated Outside Directors’ +Deferred Compensation Plan (the “Deferred Compensation +Plan”), a supplemental nonqualified deferred compensation +plan for directors who are not employees of Wolverine or its +subsidiaries. The Deferred Compensation Plan amended and +restated a plan originally adopted in 1996. The plan permits all +non-employee directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred are credited on the books +of Wolverine to an account established for that director as if +the amounts had been invested to purchase shares of common stock +using the market price of common stock on the payment date of +the next cash dividend (“phantom stock”). Phantom +stock units are increased by a dividend equivalent based on +dividends paid by Wolverine, the amount of phantom stock units +credited to each director’s account and the market price of +common stock on the payment date of the cash dividend. The +accumulated phantom stock units in a director’s account +under the plan are distributed in shares of Wolverine common +stock in a single lump-sum or annual installments over a period +of up to 10 years by converting each phantom stock unit to +one share of Wolverine common stock upon termination of service +as a director. +Certain non-employee directors also received in +1996 an award of phantom stock units representing accrued +retirement income under the former Director Retirement Plan, +which was replaced by the Deferred Compensation Plan in 1996. No +future non-employee director will receive retirement awards +under the Deferred Compensation Plan. Phantom stock units that +represent awards of retirement income are subject to delayed +vesting provisions and are credited with dividend equivalents. +Shares of Wolverine common stock equal to the number of all +phantom stock units representing retirement awards credited to a +director’s account will be distributed upon the +director’s termination of service. Distributions will be +made in 10 annual installments beginning the month following +termination of service as a director. +Upon a “change in control” as defined +in the Deferred Compensation Plan, Wolverine common stock equal +to the phantom stock units credited to a director’s account +(both for deferred fees and retirement income) will be +distributed to the director in a single lump sum. For purposes +of the Deferred Compensation Plan, “change in control” +is defined as: +• +failure of the individuals who were directors at +the time the Deferred Compensation Plan was adopted and those +whose election or nomination to the Board was approved by +three-quarters of the directors then still in office who were +directors at the time the Deferred Compensation Plan was +adopted, or whose election or nomination was so approved, to +constitute a majority of the Board; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Mr. Matthews serves as Lead Director of +Wolverine. For his service as Lead Director, Mr. Matthews +received $46,000 for the period from May 2002 through April +2003, and he will receive $60,000 for the period from May 2003 +through April 2004. These payments are in lieu of the annual +director retainer fee of $30,000. Mr. Matthews receives the +standard director fee for attendance at Board meetings, but does +not receive attendance fees for attending committee meetings. +In April 2000, Mr. Bloom retired as Chief +Executive Officer of Wolverine but he continues to serve as +Chairman of the Board of Directors. For his service as Chairman, +Mr. Bloom received $125,000 for the period from May 2002 +through April 2003 and will receive $90,000 for the period from +May 2003 through April 2004, together with reimbursement of +certain business expenses. These payments are in lieu of the +annual director retainer fee of $30,000. Mr. Bloom receives +the standard director fee for attendance at Board meetings, but +does not receive attendance fees for attending committee +meetings. The scope of Mr. Bloom’s service and his +compensation are reviewed annually by the Board. +6 +Table of Contents +Corporate Governance Principles +Wolverine has developed governance principles to +assist the Board in fulfilling its responsibilities to +stockholders and to provide a framework for the Board’s +oversight responsibilities regarding the management of +Wolverine. Wolverine’s governance principles are dynamic +and have been developed and revised over a period of many years +to reflect changing laws, regulations and best business +practices. The governance principles also provide guidance and +transparency to management, employees, investors and other +stakeholders regarding the Board’s philosophy, high ethical +standards, expectations for conducting business, and +decision-making processes. +The following is a summary of certain of +Wolverine’s policies, charters, guidelines and principles +relating to corporate governance and financial reporting. You +may access complete copies of our Code of Conduct and +Compliance, Corporate Governance Guidelines, Accounting and +Finance Code of Ethics, Audit Committee Charter, Governance +Committee Charter, Compensation Committee Charter and Executive +Committee Charter at our website, +www.wolverineworldwide.com . +Independence +The Board believes that the independence of +directors and Board committee members is important to assure +that the Board and its committees operate only in the best +interests of the stockholders and to avoid any appearance of +conflict of interest. For over 10 years, Wolverine has +functioned with only two active or former management employees +as directors. The remainder of the Board’s 10 to 12 +directors over this period have been non-management directors. +Only one current management employee, Wolverine’s Chief +Executive Officer and President, currently serves as a director. +While Wolverine’s formal Corporate Governance Guidelines +require that a majority of the directors be independent, +Wolverine has for many years operated with a substantial +majority of independent directors. The Board does not intend to +deviate from this practice. +The Board has determined that the following 8 of +its 11 directors meet the applicable New York Stock Exchange and +SEC standards for independence, including the heightened +standard for Audit Committee members, and have no material +relationship with Wolverine: +• +Donald V. Fites +• +David T. Kollat +• +Brenda J. Lauderback +• +Phillip D. Matthews +• +David P. Mehney +• +Joseph A. Parini +• +Elizabeth A. Sanders +• +Paul D. Schrage +Corporate Governance Guidelines +The Board has adopted Corporate Governance +Guidelines that set forth the primary framework of governance +principles applicable to Wolverine. The Corporate Governance +Guidelines outline the general duties and functions of the Board +and management, and set forth general principles regarding Board +composition, independence, Board meetings and responsibilities, +Board committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Alignment of Stockholder, Management and +Director Interests +For many years, the Board has believed that +directors and management should have a significant financial +stake in Wolverine to align their interests with those of the +stockholders. For that reason, the Board adopted formal stock +ownership guidelines that require ownership of Wolverine stock +(including phantom stock units by non-employee directors) within +certain time periods: (i) by directors equal in value to +five times the current Board retainer, (ii) by the Chief +Executive Officer equal in value to four times base salary, and +(iii) by other executive officers equal in value to between +two and four times base salaries. Most non-employee directors +also participate in the Deferred Compensation Plan that allows +non-employee directors to convert a portion or all of their cash +compensation into stock ownership. +Code of Conduct and Compliance +For years, Wolverine and its employees have +followed an extensive Code of Conduct and Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply +7 +Table of Contents +with applicable legal requirements and sets forth +Wolverine’s expectations regarding business ethics, +integrity, honesty, fairness and keeping commitments. The Code +contains Wolverine’s principles and procedures regarding +conflicts of interest, corporate opportunities, confidentiality, +fair dealing, protection and proper use of Wolverine’s +assets, compliance with laws, rules and regulations, engagement +criteria for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. Employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Board Committee Charters +The Board has organized and formed three +operating committees, the Audit Committee, the Compensation +Committee and the Governance Committee. In addition, the Board +has an Executive Committee that is empowered to act as necessary +on behalf of the Board between formal meetings of the Board. The +Executive Committee has not met in over ten years. The Board has +approved committee charters for each committee that contain +basic principles regarding the committee’s organization, +purpose, authority and responsibilities. The performance of each +committee is reviewed annually by committee members and the +Board. +Leadership +Since 1993, the Board has operated with an +independent Lead Director. In addition, for the past four years +Wolverine has divided the roles of its Chairman and Chief +Executive Officer and the elected Chairman has not been an +employee or officer of Wolverine. Wolverine’s Corporate +Governance Guidelines require that when Wolverine’s Chief +Executive Officer retires, he must tender his resignation from +the Board and the issue of continued Board membership for the +former Chief Executive Officer will be determined by the Board +on a case-by-case basis. +Accounting and Finance Code of +Ethics +The Board has adopted an Accounting and Finance +Code of Ethics (“Finance Ethics Code”). This is an +ethics code focused on the financial reporting process and is +intended to protect the interests of all of Wolverine’s +constituents, including stockholders, employees, customers and +the communities in which Wolverine conducts business. Many of +the basic tenets of the Finance Ethics Code have been +incorporated for many years in Wolverine’s Code of Conduct +and Compliance. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. +Attendance +The Board prides itself on its ability to recruit +and retain directors who have a diversity of experience, who +have the highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to personally attend +every Board meeting and every meeting of each committee on which +they serve as a member. Over the past nine years, individual +directors have attended 604 out of a total of 620 required +meeting attendances. Directors are also expected to attend the +Annual Meeting of Stockholders in person. All eleven +then-current directors attended the 2003 annual meeting. Given +Wolverine’s home base in Rockford, Michigan and the +geographic diversity of the home cities of Wolverine’s +directors, we believe this attendance record is exceptional. +Communication with the Board +Stockholders and interested parties may +communicate with members of Wolverine’s Board of Directors +through various links provided on the Corporate Governance +section of the investors section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board or specific Board members c/o General Counsel, +Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Board and Company Culture +Wolverine’s comprehensive governance +guidelines and principles are coupled with a robust, open and +effective Board environment that promotes respect, +8 +Table of Contents +trust and candor, fosters a culture of open +dissent and permits each director to express opinions and +contribute to the Board process. Directors are expected to have +unrestricted access to management and any company information +they desire. The participation of Board members and the open +exchange of opinions is further encouraged at the Board +committee level through the periodic rotation of Board members +among its standing committees. This open and candid operating +environment is shared by management and the Board and is +essential to fully realize the benefits of Wolverine’s +formal governance guidelines, principles, charters and policies. +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information +concerning the number of shares of Wolverine stock held by each +entity known to Wolverine to have been the beneficial owner of +more than five percent of Wolverine’s outstanding shares of +common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Sole Voting +Shared +and +Voting +Total +Name and Address +Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Ownership +of Class +Mac-Per-Wolf / Janus(1) +4,210,515 +— +4,210,515 +10.5 +% +Mac-Per-Wolf Company(1) +310 S. Michigan Avenue, Suite 2600 +Chicago, Illinois 60604 +Janus Small Cap Value Fund(1) +100 Fillmore Street +Denver, Colorado 80206 +Barclays entities(2) +45 Fremont Street +San Francisco, California 94105 +2,026,819 +— +2,289,333 +5.7 +% +(1) +Based on information set forth in +Schedule 13G filed February 2, 2004. The +Schedule 13G, filed jointly by Mac-Per-Wolf Company and +Janus Small Cap Value Fund, indicates that Mac-Per-Wolf Company +is the parent holding company of both PWMCO, LLC (a +broker-dealer and investment adviser) and Perkins, Wolf, +McDonnell and Company, LLC (an investment adviser). Perkins, +Wolf, McDonnell and Company, LLC provides investment advice to +several clients including the Janus Small Cap Value Fund. Janus +Small Cap Value Fund is a portfolio series of the Janus +Investment Fund and an open-ended management investment company +registered under the Investment Company Act of 1940, as amended. +Mac-Per-Wolf Company reported that it beneficially owned +4,210,515 shares of Wolverine common stock. Janus Small Cap +Value Fund reported that it also beneficially owned 2,858,100 of +the shares of Wolverine common stock reported as beneficially +owned by Mac-Per-Wolf Company. The 2,858,100 shares reported as +beneficially owned by both the Janus Small Cap Value Fund and +Mac-Per-Wolf Company are only counted once in the table. +(2) +Based on information set forth in +Schedule 13G filed February 17, 2004. The totals in +the table reflect the combined ownership of various Barclays +entities. The Schedule 13G indicates the following +interests: (i) Barclays Global Investors, NA (a bank) has +sole voting power and sole dispositive power with respect to +1,271,689 shares and beneficially owns an aggregate amount of +1,534,203 shares; (ii) Barclays Global Fund Advisors (an +investment adviser) has sole voting power and sole dispositive +power with respect to 710,330 shares and +9 +Table of Contents +beneficially owns an aggregate amount of 710,330 +shares; and (iii) Barclays Bank PLC (a bank) has sole +voting power and sole dispositive power with respect to 44,800 +shares and beneficially owns an aggregate amount of 44,800 +shares. The Schedule 13G does not describe the relationship +between the Barclays entities. +Stock Ownership By Management +The following table sets forth the number of +shares of common stock beneficially owned as of March 1, +2004, by each of Wolverine’s directors and nominees for +director, each of the named executive officers and all of +Wolverine’s directors, nominees for director and executive +officers as a group. An asterisk in the column for “Percent +of Class” means the individual beneficially owns less than +one percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Geoffrey B. Bloom +239,903 +404,801 +644,704 +1.62 +% +Steven M. Duffy +60,239 +206,634 +266,873 +* +V. Dean Estes +79,423 +153,543 +232,966 +* +Donald V. Fites +10,000 +47,589 +57,589 +* +Alberto L. Grimoldi +4,091 +38,456 +42,547 +* +Stephen L. Gulis, Jr. +103,914 +214,424 +318,338 +* +David T. Kollat +43,031 +42,252 +85,283 +* +Blake W. Krueger +94,415 +200,661 +295,076 +* +Brenda J. Lauderback +0 +9,454 +9,454 +* +Phillip D. Matthews +35,257 +38,456 +70,713 +* +David P. Mehney +80,750 +42,252 +123,002 +* +Timothy J. O’Donovan +407,779 +18,983 +440,553 +867,315 +2.18 +% +Joseph A. Parini +7,185 +38,456 +45,641 +* +Elizabeth A. Sanders +7,000 +3,375 +53,643 +64,018 +* +Paul D. Schrage +5,000 +42,255 +47,255 +* +All directors and executive officers as a group +1,244,684 +22,485 +2,094,489 +3,361,658 +8.10 +% +(1) +The numbers of shares stated are based on +information provided by each person listed and include shares +personally owned of record and shares that, under applicable +regulations, are considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the +listed person is legally entitled to share voting or dispositive +power by reason of joint ownership, trust or other contract or +property right, and shares held by spouses, children or other +relatives over whom the listed person may have influence by +reason of relationship. +(3) +These numbers include shares that may be acquired +within 60 days after March 1, 2004, by the exercise of +stock options granted under Wolverine’s various stock +option plans. +10 +Table of Contents +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total +stockholder return on Wolverine common stock to the +Standard & Poor’s Small Cap 600 Index and the +Standard & Poor’s 600 Footwear Index, +assuming an investment of $100.00 at the beginning of the period +indicated. Wolverine is part of the Standard & +Poor’s Small Cap 600 Index and the Standard & +Poor’s 600 Footwear Index. In addition to Wolverine, +the Standard & Poor’s 600 Footwear Index +consists of Brown Shoe Company, Inc., K-Swiss Inc. +(Class A), and The Stride Rite Corporation. These indices +are weighted based on the market capitalization of the companies +included in each index. +Cumulative total stockholder return is measured +by dividing: (i) the sum of the cumulative amount of +dividends for the measurement period, assuming dividend +reinvestment, and the difference between the share price at the +end and the beginning of the measurement period; by +(ii) the share price at the beginning of the measurement +period. +Five Year Cumulative Total Return Summary +The dollar values for total stockholder return +plotted in the graph are shown in the table below: +S&P +S&P 600 +Fiscal +Small Cap +Footwear +Year-End +Wolverine +600 Index +Index +1998 +$ +100.00 +$ +100.00 +$ +100.00 +1999 +83.43 +112.40 +121.91 +2000 +117.78 +125.66 +236.54 +2001 +118.89 +135.00 +178.44 +2002 +121.58 +114.13 +216.74 +2003 +165.82 +158.88 +358.54 +11 +Table of Contents +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows +selected information concerning the compensation paid during +each of the three fiscal years in the period ended +January 3, 2004, to the Chief Executive Officer and each of +Wolverine’s four most highly compensated executive officers +who served in positions other than Chief Executive Officer at +the end of the last completed fiscal year. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Restricted +Shares +Name and +Stock +Underlying +LTIP +All Other +Principal Position +Year +Salary(1) +Bonus +Awards(2) +Options +Payouts(3) +Compensation(4) +Steven M. Duffy +2003 +$ +358,827 +$ +189,611 +$ +148,580 +37,500 +$ +168,122 +$ 9,954 +Executive Vice +2002 +328,827 +197,721 +145,825 +36,565 +— +9,454 +President +2001 +313,077 +96,437 +129,625 +90,060 +— +9,204 +V. Dean Estes +2003 +$ +329,135 +$ +184,863 +$ +78,200 +14,305 +$ +134,957 +$ 6,966 +Vice President +2002 +301,827 +149,072 +76,750 +16,537 +— +5,834 +2001 +287,116 +169,026 +68,625 +42,118 +— +5,547 +Stephen L. Gulis, Jr. +2003 +$ +323,942 +$ +251,283 +$ +148,580 +55,470 +$ +151,620 +$ 7,946 +Executive Vice President, +2002 +296,827 +233,050 +145,825 +36,453 +— +7,446 +Chief Financial Officer +2001 +281,731 +98,741 +129,625 +71,503 +— +7,196 +and Treasurer +Blake W. Krueger +2003 +$ +364,019 +$ +271,438 +$ +148,580 +37,874 +$ +170,666 +$ 9,842 +Executive Vice President +2002 +333,827 +207,873 +145,825 +43,029 +— +9,342 +and Secretary +2001 +318,077 +132,443 +129,625 +74,674 +— +9,092 +Timothy J. O’Donovan +2003 +$ +647,885 +$ +742,188 +$ +289,340 +76,146 +$ +454,860 +$10,934 +Chief Executive Officer, +2002 +593,654 +699,151 +283,975 +76,420 +— +10,434 +President and Director +2001 +563,462 +300,000 +259,250 +69,207 +— +10,184 +(1) +Approximately 4% of the increase in 2003 salaries +over 2002 is the result of an extra payroll period in 2003 +caused by the timing of Wolverine’s fiscal +2003 year-end. +(2) +The values of restricted stock awards reported in +this column are calculated using the closing market price of +common stock on the date of grant. As of the end of +Wolverine’s 2003 fiscal year, each of the named executive +officers held shares of restricted stock. Dividends are paid on +shares of restricted stock at the same rate dividends are paid +on common stock. The number of shares of restricted stock held +by each named individual and the aggregate value of those shares +at the end of Wolverine’s 2003 fiscal year (as represented +by the closing price of common stock on January 2, 2004), +without giving effect to the reduction in value attributable to +the restrictions on the stock, are set forth below: +Number +Aggregate +of Shares +Value +Mr. Duffy +40,000 +$ +830,800 +Mr. Estes +20,750 +430,978 +Mr. Gulis +40,000 +830,800 +Mr. Krueger +40,000 +830,800 +Mr. O’Donovan +77,000 +1,599,290 +12 +Table of Contents +These numbers do not include the number or value +of shares of restricted stock, if any, awarded during the years +presented in connection with the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”), the values of which, if any, are included in +the amounts reported in the “LTIP Payouts” column in +this table for the applicable year for each listed individual. +(3) +Under the LTIP, amounts payable are paid +(i) in cash equal to 50% of the incentive bonus, and +(ii) in shares of restricted stock that have a market value +(without factoring in a reduction in value for potential +forfeiture and the transfer restrictions), on the date the cash +payment is made, equal to 70% of the incentive bonus. The dollar +amounts, if any, reported in this column reflect the cash +payment and the market value of the shares of restricted stock +on the date of payment. Shares of restricted stock are granted +under existing plans that provide for such awards. The +restrictions lapse with respect to one-third of the shares on +each of the first three anniversaries of the date of grant. +(4) +The compensation listed in this column for 2003 +consisted of: (i) Wolverine’s contributions to the +accounts of the named executive officers under Wolverine’s +401(k) Savings Plan as follows: $6,000 for Mr. Duffy; +$6,000 for Mr. Estes; $6,000 for Mr. Gulis; $6,000 for +Mr. Krueger; and $6,000 for Mr. O’Donovan; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,954 for Mr. Duffy; +$966 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +Stock Options +The Compensation Committee administers +Wolverine’s stock option plans and also has authority to +determine the individuals to whom and the terms upon which +options are granted, the number of shares subject to each option +and the form of consideration payable upon the exercise of +an option. The Chief Executive Officer makes recommendations of +stock option grants (other than for himself), which the +Compensation Committee then considers. +13 +Table of Contents +The following tables set forth information +regarding stock options granted to and exercised by the named +executive officers during the fiscal year ended January 3, +2004, and the number of shares of common stock subject to and +values of options at that date: +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share +Date +Value(2) +Steven M. Duffy +30,000 +3.9509 +$ +15.760 +02/12/13 +$ +117,477.00 +1,421 +0.1871 +15.905 +02/23/10 +5,615.79 +811 +0.1068 +16.065 +02/24/08 +3,237.27 +4,457 +0.5870 +21.115 +02/23/10 +23,383.65 +811 +0.1068 +16.780 +03/02/09 +3,381.38 +V. Dean Estes +12,500 +1.6462 +$ +15.760 +02/12/13 +$ +48,948.75 +406 +0.0535 +16.065 +02/24/08 +1,620.63 +406 +0.0535 +16.780 +03/02/09 +1,692.78 +993 +0.1308 +15.905 +02/23/10 +3,924.34 +Stephen L. Gulis, Jr. +30,000 +3.9509 +$ +15.760 +02/12/13 +$ +117,477.00 +1,378 +0.1815 +15.905 +02/23/10 +5,445.86 +6,129 +0.8072 +20.450 +02/23/10 +31,143.29 +1,205 +0.1587 +20.450 +02/22/10 +6,122.97 +998 +0.1314 +20.450 +03/09/09 +5,071.14 +3,778 +0.4976 +20.450 +03/01/06 +15,459.20 +5,077 +0.6686 +19.520 +02/23/10 +24,624.47 +5,283 +0.6958 +18.345 +03/02/09 +24,080.97 +811 +0.1068 +16.065 +02/24/08 +3,237.27 +811 +0.1068 +16.780 +03/02/09 +3,381.38 +Blake W. Krueger +30,000 +3.9509 +$ +15.760 +02/12/13 +$ +117,477.00 +4,627 +0.6094 +20.745 +02/23/10 +23,850.33 +1,432 +0.1886 +15.905 +02/23/10 +5,659.26 +811 +0.1068 +16.065 +02/24/08 +3,237.27 +811 +0.1068 +16.780 +03/02/09 +3,381.38 +193 +0.0254 +20.745 +03/04/11 +994.84 +Timothy J. O’Donovan +60,000 +7.9019 +$ +15.760 +02/12/13 +$ +234,954.00 +1,298 +0.1709 +16.780 +03/02/09 +5,411.88 +5,452 +0.7180 +18.345 +03/02/09 +24,851.30 +5,451 +0.7179 +18.345 +02/23/10 +24,846.75 +1,298 +0.1709 +16.065 +02/24/08 +5,181.23 +2,647 +0.3486 +15.905 +02/23/10 +10,460.94 +(1) +All options indicated in boldface text above are +exercisable with respect to 25% of the shares on the date of +grant and become exercisable with respect to 25% of the shares +on each following anniversary date with full vesting occurring +on the third anniversary date of the grant. Vesting may be +accelerated upon certain events relating to a change in control +of Wolverine. All such options were granted for a term of +10 years. +In 1997, the Compensation Committee adopted a +program to automatically award “reload options” to a +limited group of senior executives if those executives surrender +shares of common stock to pay the exercise price or tax +withholding obligations associated with the exercise of a +then-outstanding stock option or the vesting of restricted +stock. Stock option grants (both stock options that may qualify +as incentive stock options as defined in Section 422 of the +Internal Revenue Code and stock options that would not be +incentive stock options within the +14 +Table of Contents +meaning of the Internal Revenue Code) and +restricted stock awards under Wolverine’s plans provide for +automatic awards of reload options to such executives for all +options and awards made after 1997. All options not shown in +boldface text in the table are reload options granted in 2003. +Reload options to purchase the number of shares surrendered by +an executive are awarded at the market price on the date of +grant. Reload options granted in connection with the exercise of +another stock option have the same term as the term remaining +under the underlying option that was exercised. Reload options +granted upon vesting of restricted stock have 10-year terms from +the date of the underlying restricted stock award. Reload +options are fully vested on the date of grant. +Certain senior executives are permitted to +transfer nonqualified stock options to a limited group of +permissible transferees primarily for estate planning purposes. +Options terminate, with certain limited exercise provisions, in +the event of death or certain other terminations of employment. +All options permit the option price to be paid by delivery of +cash or, if permitted by the Compensation Committee, shares of +common stock. +(2) +Based on the Black-Scholes option pricing model. +The actual value, if any, an option holder may realize will +depend on the excess of the stock price over the exercise price +on the date the option is exercised. There is no assurance that +the value realized by an option holder will be at or near the +value estimated by the Black-Scholes model. The estimated values +in the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .386%, +calculated using daily stock prices for the four years prior to +the grant date; +• +a risk free rate of return of 2.87%; +• +an expected average dividend yield of 1.3% (the +dividend yield at the date of the grant); and +• +an expected average option holding period of +4 years, which approximates Wolverine’s historical +experience. +No adjustments were made for the general +non-transferability of the options or to reflect any risk of +forfeiture before vesting. Disclosure of grant date present +value is presented pursuant to SEC regulations. Wolverine’s +use of the Black-Scholes model to indicate the present value of +each grant is not an endorsement of this valuation method. +Aggregated Option Exercises in Last Fiscal Year +and Fiscal Year-End Option Values +Number of Shares +Value of Unexercised +Number of +Underlying Unexercised +In-the-Money Options at +Shares +Options at Fiscal Year-End +Fiscal Year-End +Acquired on +Value +Name +Exercise +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Steven M. Duffy +8,466 +$ +85,896 +186,115 +46,250 +$ +706,494 +$ +255,830 +V. Dean Estes +7,500 +62,559 +147,900 +19,250 +983,011 +106,476 +Stephen L. Gulis, Jr. +35,494 +313,136 +181,486 +50,028 +634,299 +258,211 +Blake W. Krueger +9,015 +87,023 +171,500 +46,250 +763,906 +255,825 +Timothy J. O’Donovan +28,059 +212,437 +379,983 +95,000 +2,221,220 +525,750 +Wolverine’s employee loan program allows an +employee (other than an executive officer) to borrow from +Wolverine up to 95% of the exercise price to exercise options +acquired under Wolverine’s stock option plans. These loans +bear interest at a rate equal to the greater of 6.5% per annum +or the prime rate in effect on the date of the loan with +interest payable quarterly. Principal is payable quarterly at +the rate of 15% per annum beginning five years after the date on +which the option to which the loan relates is exercised. +Participants may pay principal and/or accrued interest on these +loans in shares of Wolverine stock. All loans are full recourse +loans and are also secured by a pledge of the stock obtained +upon exercise of the applicable option. Outstanding loan +balances as of March 1, 2004 (and, if higher, the largest +balance outstanding during the last fiscal year) for each +director and executive officer were as follows: Ms. Joan +Parker (former director), $0 ($79,752). +15 +Table of Contents +Long-Term Incentive Awards +Wolverine’s Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”) permits Wolverine to award cash and shares of +restricted stock to plan participants conditioned upon the +achievement of certain corporate performance goals over a +three-year performance period. +The following table sets forth certain +information concerning awards of long-term incentive +compensation to the named executive officers during the last +fiscal year: +Long-Term Incentive Plans — Awards in Last Fiscal Year +Performance or +Estimated Future Payouts Under +Number of +Other Period until +Non-Stock-Price-Based Plans(2) +Shares, Units or +Maturation or +Name +Other Rights(1) +Payout +Threshold +Target +Maximum +Steven M. Duffy +40 +% +3 years +$ +75,413 +$ +150,827 +$ +301,654 +V. Dean Estes +35 +3 years +60,526 +121,053 +242,105 +Stephen L. Gulis, Jr. +40 +3 years +68,082 +136,164 +272,327 +Blake W. Krueger +40 +3 years +76,505 +153,009 +306,019 +Timothy J. O’Donovan +60 +3 years +204,245 +408,491 +816,982 +(1) +Under the LTIP, key management employees may earn +incentive compensation based upon achievement of specified +performance goals with respect to the performance of Wolverine +and/or its subsidiaries, operating divisions or profit centers +over a three-year performance period. Performance goals under +the LTIP are based on one or more of the following: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on assets, +return on invested capital or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring or other special charges or extraordinary +items. These factors may be measured against pre-determined +levels or Wolverine’s relative performance when compared to +a pre-established peer group. The numbers reported in the column +under the heading “Number of Shares, Units or Other +Rights” represent the percentage of each officer’s +average annual earned salary during the three-year period that +the officer will receive as bonus compensation under the plan if +the specified targets are achieved. The Compensation Committee +determined these amounts. If higher or lower actual levels are +attained during the three-year performance period, the +percentage of base salary to be received as bonus compensation +by each officer will be correspondingly higher, lower or zero. +Bonuses are conditioned upon achieving a minimum or +“threshold” level. The Compensation Committee +established the performance goals at the beginning of 2003 for +the period ending on the last day of Wolverine’s 2005 +fiscal year. +(2) +Under the LTIP, amounts earned as bonus +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2003 as reported in the Summary Compensation Table, +adjusted for 5% estimated annual merit increases. Incentive +bonuses payable under the LTIP are paid: (i) in cash equal +to 50% of the incentive bonus; and (ii) in shares of +restricted stock that have a market value (without factoring in +a reduction in value for potential forfeiture and the transfer +restrictions), on the date the cash payment is made, equal to +70% of the incentive bonus. The dollar amounts reported under +the headings “Threshold,” “Target” and +“Maximum” reflect the value of the cash payment and +the market value (including a reduction in value for potential +forfeiture and the transfer restrictions) of restricted stock to +be received on the date of payment. Shares of restricted stock +are granted under existing plans that provide for such awards. +The restrictions lapse with respect to one-third of the shares +on each anniversary of the date of grant. +Pension Plan and Supplemental Executive +Retirement Plan +Wolverine has a qualified pension plan covering +most of its salaried employees. The Internal Revenue Code +imposes limitations on the maximum amount of pension benefits +payable under qualified plans. It also imposes a cap currently +16 +Table of Contents +equal to $205,000 (subject to grandfather +provisions for earnings accrued before January 1, 1994) on +the amount of earnings that may be taken into account in +determining benefits payable under qualified plans. +In 1995, Wolverine adopted a Supplemental +Executive Retirement Plan (the “SERP”) to replace +deferred compensation agreements previously entered into with +certain key employees, including Messrs. O’Donovan and +Estes. An executive covered by a deferred compensation agreement +will always be entitled to a benefit under the SERP at least +equal to what he or she would have received under the deferred +compensation agreement. The SERP became effective +January 1, 1996. +The following table illustrates the combined +estimated annual benefits payable under the pension plan and the +SERP for Wolverine’s named executive officers if they +retire at age 65 at the annual levels of average remuneration +and years of service indicated: +Pension Plan Table +Years of Service +Average Remuneration +5 +10 +15 +20 +25 or more +$ 500,000 +$ +60,000 +$ +120,000 +$ +180,000 +$ +240,000 +$ +300,000 +$ 750,000 +$ +90,000 +$ +180,000 +$ +270,000 +$ +360,000 +$ +450,000 +$1,000,000 +$ +120,000 +$ +240,000 +$ +360,000 +$ +480,000 +$ +600,000 +$1,250,000 +$ +150,000 +$ +300,000 +$ +450,000 +$ +600,000 +$ +750,000 +$1,500,000 +$ +180,000 +$ +360,000 +$ +540,000 +$ +720,000 +$ +900,000 +$1,750,000 +$ +210,000 +$ +420,000 +$ +630,000 +$ +840,000 +$ +1,050,000 +Subject to the limitations imposed by the +Internal Revenue Code, the pension plan provides monthly +benefits (computed on a straight life annuity basis without +regard to any accrued grandfathered benefits for earnings before +January 1, 1994) at normal retirement in an amount equal to +the greater of: (i) $24.00 multiplied by the +participant’s number of years of service up to +30 years; (ii) 1.6% of final average earnings +multiplied by the participant’s number of years of service +up to 30 years reduced by the participant’s Social +Security allowance as defined in the pension plan; or +(iii) for certain designated executives, a percentage +benefit multiplier of 2.4% or 2.0% of final average earnings +multiplied by the participant’s number of years of service +up to 25 years. All of the executive officers named in the +Summary Compensation Table have a percentage benefit multiplier +of 2.4% and are capped at 25 years of service. “Final +average earnings” are defined as the participant’s +average monthly earnings for the four consecutive highest +compensation calendar years out of the last 10 calendar years of +the participant’s employment (with earnings for the last +year of employment annualized based on a participant’s then +rate of pay). Except for the compensation cap imposed by the +Internal Revenue Code, the remuneration covered by the pension +plan for an employee would be essentially equivalent to the sum +of the amounts reported under the heading “Annual +Compensation” in the Summary Compensation Table above. +If the pension plan is terminated during any +period beginning on a restricted date (defined below) and ending +two years later, the pension plan requires that surplus pension +plan assets be used to purchase retiree medical and life +insurance in satisfaction of Wolverine’s then outstanding +obligations, if any, and be paid pro rata to increase the +benefits of pension plan participants, subject to legal +limitations. If the pension plan is merged with, or the assets +of the pension plan are transferred to, another plan, then +(i) benefits will be fully vested; (ii) benefits will +be increased as if the pension plan had been terminated; and +(iii) benefits will be satisfied through the purchase of a +guaranteed annuity contract. A “restricted date” is +defined as the date any person or group acquires more than 50% +of the voting stock of Wolverine in a transaction not approved +by the Board of Directors or the date during any two-year period +on which individuals who at the beginning of the period +constituted the Board of Directors (including any new director +whose nomination or election was approved by two-thirds of the +directors who were directors at the beginning of the period or +whose election or nomination was so approved) cease for any +reason to constitute a majority of the Board. +Under the SERP, a participating executive will be +eligible for an annual supplemental benefit once he or she has +completed five years of service after having been approved as a +participant in the SERP (or, for those executives already +covered by a deferred compensation agreement, five years after +entering into the deferred compensation +17 +Table of Contents +agreement). Alternatively, a participating +executive will be eligible for a benefit with less than five +years of service if he or she retires at or after age 65. The +supplemental benefit is equal to the difference between the +executive’s retirement benefit under Wolverine’s +qualified pension plan and an amount equal to a designated +percentage of the executive’s average earnings multiplied +by the executive’s years of service under the pension plan, +except that the plan counts years during which the executive +received a disability benefit under the SERP (except in +computing the SERP’s disability benefit); excludes years +that an executive is designated as an inactive participant; and +may count deemed years of service granted by the Board of +Directors (up to a maximum of 25 years). +The designated percentage for benefits under the +SERP is either 2.4% for each year of service (including all of +the individuals listed in Summary Compensation Table) or 2% per +year of service. “Average earnings” is defined as the +average of the executive’s annual earnings for the four +consecutive highest compensation years out of the last +10 years of the executive’s employment (excluding +years during which the executive receives a disability benefit +if the exclusion would produce a higher average; yearly +compensation is not restricted by the $205,000 compensation cap +under the pension plan and for the last year of employment is +annualized). Average earnings do not include payments under the +LTIP or severance payments. For this purpose, average earnings +do not vary significantly from the sum of the amounts shown +under the caption “Annual Compensation” in the Summary +Compensation Table above. The final SERP benefit is reduced by +the amount of any pension benefits to which a participant is +entitled. +A retired SERP participant may draw the full +benefit beginning at age 65. A retired SERP participant may +elect to begin receiving a reduced benefit at or after age 55. +The reduction factor is 0.333% for each month prior to age 60, +and 0.1666% for each month between age 60 and age 65. The SERP +provides for a disability benefit equal to 60% of the +supplemental retirement benefit (based on the executive’s +years of service at the date of disability). A disabled +executive is still eligible for a supplemental retirement +benefit beginning at age 65 based on all years of service +(including years during which the executive was receiving a +disability benefit). The SERP also provides for a death benefit +to the executive’s designated beneficiary if the executive +dies before retiring. The death benefit is a lump-sum equal to +the present value of the benefit the executive could have +received beginning at age 65, based on his or her years of +service up to the date of death. +Benefits under the SERP are subject to forfeiture +if the executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump-sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his or her actual age, if greater than age 55), +without applying the monthly early retirement reduction factor, +but based on years of service at the actual date of termination. +For purposes of the SERP, “change in control” is +defined as: +• +failure of the individuals who were directors at +the time the SERP was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters vote of the directors then still in office who +were directors at the time the SERP was adopted, or whose +election or nomination was so approved, to constitute a majority +of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Wolverine may terminate the SERP or stop further +accrual of SERP benefits for a participating executive at any +time, but termination will not affect previously accrued +benefits. +As of January 3, 2004, the persons listed in +the Summary Compensation Table had the following years of +credited service under the pension plan and the SERP: +Mr. Duffy, 15 years; Mr. Estes, 25 years; +Mr. Gulis, 19 years; Mr. Krueger, 8 years; +and Mr. O’Donovan, 25 years. +18 +Table of Contents +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Severance Agreements. +Under individual agreements, +Messrs. Duffy, Estes, Gulis, Krueger and O’Donovan, +and certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or +retirement in accordance with Wolverine’s policy or as +otherwise agreed; +• +the termination is by Wolverine for cause or +disability; or +• +the termination is by resignation of the officer +for other than “good reason.” +Good reason is defined in the agreements to +include, among other things, the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. +The compensation payable if such a termination +occurs after a change in control includes: +• +cash equal to two or three times the +executive’s annual salary, including target bonus; +• +cash equal to 100% of the difference between the +market price of common stock (or, if higher, the highest price +paid in connection with any change in control of Wolverine) and +the exercise prices of unexercised stock options granted to the +executive (other than incentive stock options granted after the +date of the officer’s agreement), and 100% of the +difference between the market price and exercise prices of +incentive stock options granted to the officer after the date of +the agreement which are then exercisable; +• +relocation expenses, legal fees and indemnity +against loss in the sale of the officer’s principal +residence; +• +up to two or three years’ benefits under all +employee benefit programs; +• +a cash payment at the executive’s retirement +age equal to the actuarial value of the retirement pension and +SERP benefits to which the officer would have been entitled +(without regard to vesting requirements) had he or she accrued +three additional years of service with Wolverine, reduced by the +single sum actuarial equivalent of any amounts to which the +executive is entitled under Wolverine’s normal retirement +plans and programs; and +• +outplacement services paid for by Wolverine. +In all of the severance agreements, the executive +has no requirement to mitigate the payments by seeking +employment, but the compensation to be paid during the fourth +and later months after termination will be reduced to the extent +of any compensation earned by the officer during the applicable +period. +A change in control is defined in the agreements +to include the acquisition of 20% or more of the common stock by +any person or group of persons acting together or a change in a +majority of the Board of Directors unless each new director was +approved by a vote of at least three-quarters of the directors +then still in office who were directors as of the date of the +applicable agreement, or whose election or nomination was so +approved. +Stock Plan Provisions. +Wolverine has granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting upon a change in control of Wolverine. +The options include options issued under plans adopted by +Wolverine in 1988, 1993, 1995, 1997, 1999, 2001 and 2003 and the +shares of restricted stock include shares awarded under plans +adopted by Wolverine in 1993, 1995, 1997, 1999, 2001 and 2003. +Under the stock option agreements entered into +between Wolverine and participants in the 1988, 1993, 1995, +1997, 1999, 2001 and 2003 plans, other than the agreements +applicable to reload options, 25% of each option generally +becomes exercisable on the date of grant and 25% of the shares +becomes exercisable on each of the next three anniversary dates +following the date of grant. The stock option agreements also +provide that all options granted under the 1988 plan become +immediately exercisable in the event of a change in control of +Wolverine. The terms of the 1993, 1995, 1997, 1999, 2001 and +2003 plans provide for such acceleration upon a change in +control of Wolverine. +The 1993, 1995, 1997, 1999, 2001 and 2003 plans +provide for restricted stock awards. Except for shares awarded +in connection with the payment of bonuses under the LTIP, the +restrictions on 25% of the shares received under an award +normally lapse on the third +19 +Table of Contents +anniversary of the date of the award, with the +restrictions on an additional 25% of the shares lapsing on the +fourth anniversary and the restrictions with respect to the +remaining shares lapsing on the fifth anniversary. With respect +to shares awarded in connection with the LTIP, the restrictions +on one-third of the shares received under an award lapse on each +anniversary of the date of the award. Under the six plans listed +above, restricted stock becomes fully vested and nonforfeitable +upon a change in control of Wolverine. +A change in control is defined in the agreements +under the 1988 plan to include a change of control as set forth +in the proxy rules issued by the Securities and Exchange +Commission, the acquisition of 25% or more of the common stock +by any person or group of persons acting together or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. The definition of change in control +under the 1993 plan differs from the definition of that term in +the agreements under the 1988 plan in that a change in control +is considered to occur upon the acquisition of 20% or more +(rather than 25%) of the common stock and the definition +includes the sale, lease, exchange or other transfer of +substantially all of Wolverine’s assets to, or the merger +or consolidation of Wolverine with, a corporation that is not +controlled by Wolverine. Under the 1995, 1997, 1999, 2001 and +2003 plans, a change in control is defined as: +• +failure of the individuals who were directors at +the time such plan was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-fourths vote (two-thirds vote under the 1995 Plan) of the +directors then still in office who were directors at the time +such plan was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock; +• +approval by the stockholders of a reorganization, +merger or consolidation (except with certain permitted +entities); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (other than to certain permitted entities). +Benefit Trust Agreement. +In May 1987, Wolverine established a +Benefit Trust (“trust”) to ensure that payments to +employees under the severance agreements, the SERP, the deferred +compensation agreements and the indemnity agreements (discussed +below) (collectively, the “agreements”) will not be +improperly withheld after a change in control of Wolverine, as +defined in the agreement establishing the trust. Under the +trust, upon the occurrence of a “potential change in +control,” Wolverine will deliver to the trustee, to be held +in trust, cash, marketable securities or insurance corresponding +to an amount determined by Wolverine to have a fair market +value, together with any existing amounts in the trust, equal to +the value of the benefits due to employees under the agreements +given certain assumptions set forth in the trust. Additional +terms of the trust provide for the return of the property to +Wolverine upon written request before a change in control or +automatically if no change in control has occurred within six +months after funding upon a potential change in control. +Wolverine has transferred to the trust insurance policies on the +lives of certain key employees. +Indemnity Agreements. +Wolverine has entered into indemnity +agreements with Messrs. Duffy, Estes, Gulis, Krueger and +O’Donovan and with each director and executive officer. The +indemnity agreements indemnify each director and executive +officer against all expenses incurred in connection with any +action or investigation involving the director or executive +officer by reason of his or her position with Wolverine (or with +another entity at Wolverine’s request). The directors and +executive officers will also be indemnified for costs, including +judgments, fines and penalties, indemnifiable under Delaware law +or under the terms of any current or future liability insurance +policy maintained by Wolverine that covers the directors and +executive officers. A director or executive officer involved in +a derivative suit will be indemnified for expenses and amounts +paid in settlement. Indemnification is dependent in every +instance on the director or executive officer meeting the +standards of conduct set forth in the indemnity agreements. +Other Plans and Agreements. +Severance agreements with various +executive officers (described above) provide for cash payments +in lieu of outstanding options if a change in control of +Wolverine and a subsequent triggering event occur. In addition, +the SERP (described above) and the Deferred Compensation Plan +(described above) provide for certain benefits and payments if a +change in control of Wolverine occurs. +20 +Table of Contents +Compensation Committee Report on Executive +Compensation +The Compensation Committee discharges, subject to +general review and oversight by the Board, the Board of +Directors’ responsibilities relating to executive +compensation and assists the Board in fulfilling its +responsibilities relating to Wolverine’s compensation and +benefit programs and policies. The Compensation Committee also +administers and makes recommendations with respect to +Wolverine’s compensation plans and reviews and approves (in +conjunction with the other independent directors in the case of +the Chief Executive Officer) the compensation of key senior +executives. The Compensation Committee currently consists of +three directors, none of whom is a current or former employee of +Wolverine or its subsidiaries and all of whom are independent +under applicable New York Stock Exchange and SEC standards. +The Compensation Committee consults with +independent compensation consulting firms as necessary from time +to time to: assist the Compensation Committee in formulating +Wolverine’s compensation policies; provide advice to the +Compensation Committee concerning specific compensation packages +and appropriate levels of executive and Board of Director +compensation; provide advice about competitive levels of +compensation; and review and recommend changes in the +compensation system and programs of Wolverine. +The basic compensation philosophy of the +Compensation Committee and Wolverine is to provide competitive +salaries as well as competitive incentives to achieve superior +financial performance. Wolverine’s executive compensation +policies are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who +will lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific +short-term individual, business unit and corporate goals; +• +provide incentives for achievement of longer-term +financial goals; and +• +align the interests of management with those of +the stockholders to encourage achievement of continuing +increases in stockholder value. +Executive compensation at Wolverine consists +primarily of the following components: +• +base salary and benefits; +• +amounts paid, if any, under the Amended and +Restated Executive Short-Term Incentive Plan (the “Annual +Bonus Plan”); +• +amounts paid, if any, under the Amended and +Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) +(the “LTIP”); +• +amounts paid, if any, as individual-specific +bonuses designed to encourage achievement of individual goals; +and +• +participation in Wolverine’s stock option +and equity-based incentive plans. +Each component of compensation is designed to +accomplish one or more of the four compensation objectives +described above. +Management recommends the participation of +specific executive officers and other key employees in the +Annual Bonus Plan, the LTIP and Wolverine’s stock option +and equity-based incentive plans. All such recommendations +(including the level of participation) are reviewed, modified +(to the extent appropriate) and approved by the Compensation +Committee. Senior executive officers are normally eligible to +receive a greater percentage of their potential compensation in +the form of awards under these incentive plans to reflect the +Compensation Committee’s belief that the percentage of an +executive’s total compensation that is “at risk” +should increase as the executive’s responsibilities and +ability to influence profits increase. +Section 162(m) of the Internal Revenue Code +provides that publicly held companies may not deduct +compensation paid to certain executive officers in excess of +$1,000,000 annually, with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and the 1997, 1999, 2001 and 2003 stock incentive plans to +permit amounts payable under the Annual Bonus Plan and the LTIP +and awards of stock options granted under the 1997, 1999, 2001 +and 2003 plans to qualify as “performance-based” +compensation for purposes of Section 162(m). Because incentives +under these plans are not included in the $1,000,000 limit for +purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers, Wolverine believes +its compensation policies reflect due consideration of +Section 162(m). +21 +Table of Contents +Base Salary +To attract and retain well-qualified executives, +the Compensation Committee seeks to establish base salaries at +levels and provide benefit packages that are competitive. The +Compensation Committee determines the base salaries of +executives by comparing each executive’s position with +similar positions in companies of similar type, size and +financial performance. Although some other footwear companies +are among the companies included in the comparison group, this +group is not limited to footwear companies because Wolverine +competes for talent with a wide range of corporations. In +general, the Compensation Committee has targeted salaries to be +at the median to slightly below the median percentile of base +salaries paid for comparable positions with similar companies. +Other factors considered by the Compensation Committee are the +executive’s performance, the executive’s current +compensation and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance (in determining +whether to adjust above or below the current salary level), and +a significant but lesser weight is generally given to the +comparative data. In general, base salaries for Wolverine’s +executive officers during 2003 were near the median of salaries +paid by companies included in the comparison group. The 2003 +average base salary of executive officers increased over the +previous year’s level as a result of a combination of +factors, including improved individual performance, improved or +continued excellent performance by the applicable business unit +and Wolverine, promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement +of short-term business unit goals, the Annual Bonus Plan was +designed to provide key employees with the opportunity for +bonuses based on the performance of Wolverine and/or the +performance of its subsidiaries, operating divisions or profit +centers. The Annual Bonus Plan was most recently approved by +stockholders at the 2002 annual meeting of stockholders. The +Annual Bonus Plan continues the annual bonus policy that +Wolverine has used for many years. A target bonus goal (the +“target bonus”), expressed as a percentage of the +participant’s base salary, is established by the +Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance by Wolverine, the subsidiary, +operating division or profit center. +“Incentive bonus” as used in the Annual +Bonus Plan means an annual bonus awarded and paid to a +participant for services to Wolverine during a fiscal year that +is based upon achievement of pre-established financial +objectives of Wolverine or a subsidiary, operating division or +profit center. The incentive bonus levels may be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. Performance of Wolverine and/or its subsidiaries, +operating divisions or profit centers is determined by reference +to one or more of the following: net earnings, net earnings +before taxes, operating income, revenues, net sales, net sales +and other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. Payment of an incentive bonus to a participant for a +fiscal year under the Annual Bonus Plan is entirely contingent +upon achievement of the performance levels established by the +Compensation Committee. All determinations to be made by the +Compensation Committee for a fiscal year are made by the +Compensation Committee during the first 90 days of each +fiscal year. The two primary measures of corporate performance +in 2003 were pre-tax profits and sales. +During fiscal 2003, executive officers were +generally targeted to receive from 14% to 48% of their annual +salaries in bonus compensation. In determining these +percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits +22 +Table of Contents +and sales and to put a larger percentage of their +total potential cash compensation “at risk.” +For 2003, Wolverine’s sales performance was +slightly under the maximum goal (the “stretch goal”) +and the pre-tax profit performance achieved was slightly above +the stretch goal. Accordingly, executive officers received +bonuses under the Annual Bonus Plan at or near stretch-goal +levels. +Long-Term Plan +To provide incentives and rewards for longer-term +planning and decision-making and the achievement of longer-term +corporate performance goals, the LTIP provides the opportunity +for additional compensation based upon the achievement of +company financial performance goals over a three-year period. +Stockholders most recently approved the LTIP at the 2002 annual +meeting of stockholders. The LTIP continues the long-term +incentive bonus policy that Wolverine has used for many years. +The primary purposes of the LTIP and prior long-term bonus plans +are to provide significant incentive and to foster cooperation +among all business units so the long-term earnings performance +of Wolverine and total stockholder return is substantially +improved. The primary concept of the LTIP is to establish +financial performance goals for each three-year time period for +Wolverine. New performance periods begin each fiscal year and +end three full fiscal years later. The Compensation Committee +establishes the goals during the first 90 days of each +three-year performance period. +Awards under the LTIP are based on a percentage +of average annual earned salary during the three-year period. +For each participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the LTIP means a bonus awarded and paid +to a participant for services to Wolverine or a subsidiary, +operating division or profit center during a three-year period, +which bonus is based upon achievement of previously-established +financial objectives by Wolverine. The incentive bonus levels +may be expressed as either: (i) a matrix of percentages of +the target bonus that will be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that will be paid at varying +levels of performance. Performance is determined by reference to +one or more of the following: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. If the minimum three-year targeted goal is not achieved, +no bonus will be paid. For the 2003-2005 performance period, +executive officers who participate in the plan are targeted to +receive long-term bonus compensation in amounts that range from +25% to 60% of their average annual earned salaries. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each executive’s capacity to affect +the long-term performance of Wolverine. +Under the LTIP, amounts payable are paid: +• +in cash equal to 50% of the calculated bonus; and +• +in shares of restricted stock under existing +stockholder-approved plans that have a market value (without +factoring in a reduction in value for potential forfeiture and +the transfer restrictions) on the date the cash payment is made +equal to 70% of the calculated bonus amount. +The restrictions lapse with respect to one-third +of the shares of restricted stock on each anniversary of the +date of grant. +For the 2001-2003 performance period, performance +was determined by reference to earnings per share +(“EPS”). EPS was slightly above the pre-established +target performance level for the 2001-2003 performance period +under the LTIP and Wolverine paid cash and granted shares of +restricted stock to executive officers with respect to the +three-year performance period ended January 3, 2004, +slightly above target bonus levels. +23 +Table of Contents +Discretionary Bonuses +In addition to bonuses based on corporate +performance pursuant to the Annual Bonus Plan, Wolverine +generally pays annual incentive bonuses to employees based on +individual performance goals. Bonuses based on individual +performance are paid on a discretionary basis based on +achievement of pre-established personal goals and the +performance bonuses for the Chief Executive Officer are paid +only after the review and approval of the Compensation +Committee. During 2003, discretionary bonuses for employees +participating in this plan were generally targeted at 4% to 12% +of annual salaries depending upon the executive’s level of +responsibility, the achievement of threshold earnings +requirements and actual graded performance against +pre-established personal objectives. Because Wolverine exceeded +the threshold earnings goal under the Annual Bonus Plan for +fiscal 2003, discretionary bonus payments were made to +Wolverine’s executive officers for this period based upon +achievement of individual performance goals. +Stock Options and Equity-Based Incentive +Plans +Awards under Wolverine’s stock option and +equity-based incentive plans are designed to: +• +encourage long-term investment in Wolverine by +participating executives; +• +more closely align executive and stockholder +interests; and +• +reward executives and other key employees for +building stockholder value. +The Compensation Committee believes stock +ownership by management has been demonstrated to be beneficial +to all stockholders and stock awards have been granted by +Wolverine to executives and other key employees pursuant to +various equity-based plans for several decades. The Compensation +Committee administers all aspects of these plans and reviews, +modifies (to the extent appropriate) and takes final action on +any such awards. +Under Wolverine’s plans that provide for +awards of restricted stock, all of which have been previously +approved by the stockholders, the Compensation Committee may +grant to executives and other key employees shares of restricted +stock. These shares are subject to certain restrictions that, +except for shares awarded in connection with the LTIP described +above, generally lapse over a period of five years from the date +of grant. +Under Wolverine’s stock option plans, all of +which have been previously approved by the stockholders, the +Compensation Committee may grant to executives and other key +employees options to purchase shares of stock. Some of +Wolverine’s stock option plans allow the grant of tax +benefit rights. Wolverine has never granted tax benefit rights +under its existing plans and has no present intention to do so. +The Compensation Committee reviews, modifies (to the extent +appropriate) and takes final action on the amount, timing, price +and other terms of all options granted to employees of +Wolverine. The Compensation Committee grants both incentive +stock options and nonqualified options within the meaning of the +Internal Revenue Code. Under the terms and conditions of all the +plans other than the 2001 plan and the 2003 plan, the +Compensation Committee may grant nonqualified options with an +exercise price above or below the market price on the date of +grant. The 2001 plan and the 2003 plan require that all options +have an exercise price equal to or greater than the market value +of Wolverine’s common stock on the date of grant. Virtually +all stock options granted under all of Wolverine’s plans +have an exercise price equal to the market price of common stock +on the date of grant. +In determining the number of shares of restricted +stock and/or the number of options to be awarded to an +executive, the Compensation Committee generally adheres to a +formula which takes into consideration the executive’s +level of responsibility and compensation practices of similar +companies. The Compensation Committee also considers the +recommendations of management (except for awards to the Chief +Executive Officer), the individual performance of the executive +and the number of shares previously awarded to the executive. As +a general practice, both the number of shares granted and their +proportion relative to the total number of shares granted +increase in some proportion to increases in each +executive’s responsibilities. +Chief Executive Officer +The Chief Executive Officer’s compensation +is based upon the policies and objectives discussed above. The +Chief Executive Officer, however, has a higher percentage of +total compensation “at risk” because a larger +percentage of potential compensation is based upon the Annual +Bonus Plan, the LTIP, and stock option and restricted stock +grants. +24 +Table of Contents +For 2003, in setting +Mr. O’Donovan’s base salary and total annual cash +compensation, the Compensation Committee compared +Mr. O’Donovan’s cash compensation with that of +chief executive officers of companies in the footwear industry +and other companies similar to Wolverine in general type and +size. Mr. O’Donovan’s base salary was targeted by +the Compensation Committee near the median of salaries paid to +chief executive officers by companies included in the comparison +group. Mr. O’Donovan’s base salary for 2003 +increased approximately 5% above his 2002 level. Following the +2003 increase, Mr. O’Donovan’s salary was near +the competitive median. At his request, Mr. O’Donovan +does not have an employment agreement with Wolverine. +Mr. O’Donovan’s annual incentive +bonus under the Annual Bonus Plan was based upon corporate +performance goals (100% weighting). The target annual bonus +award for Mr. O’Donovan under the Annual Bonus Plan +was 48% of earned salary. Mr. O’Donovan’s annual +bonus was subject to achievement of minimum goals and his +threshold bonus at this level would have been 24% of earned +salary. Mr. O’Donovan’s annual bonus was capped +at 96% of earned salary under the Annual Bonus Plan. Corporate +performance goals in 2003 were based on Wolverine’s +achievement of predetermined pre-tax levels of profit (80% +weighting) and sales (20% weighting), both of which were set +above the prior year’s actual results. +Mr. O’Donovan’s target annual discretionary bonus +was 12% of earned salary and was capped at 18% of earned salary. +Wolverine’s sales level was slightly below the +pre-established stretch-goal performance in 2003 and +Wolverine’s profit performance exceeded the pre-established +stretch-goal performance levels. Therefore, +Mr. O’Donovan received a payment under the Annual +Bonus Plan and a discretionary bonus based on achievement of +individual performance goals for fiscal 2003 near maximum levels. +Mr. O’Donovan’s LTIP bonus award +was based upon financial performance goals for Wolverine +expressed in terms of targeted earnings per share that were +above budget and prior year’s results. +Mr. O’Donovan’s target bonus for the three-year +period beginning in 2003 was set at 60% of average annual earned +salary for the 2003-2005 plan period. The bonus payout for +Mr. O’Donovan can range from 0%-200% of the target +bonus. Mr. O’Donovan received payment and was awarded +shares of restricted stock at slightly above pre-established +target performance levels for the 2001-2003 performance period +under the LTIP because Wolverine met the pre-established level +of financial performance for the bonus period. +In 2003, Mr. O’Donovan was awarded +18,500 shares of restricted stock and stock options to purchase +76,146 shares of common stock. The amounts of these awards were +determined by the Compensation Committee considering the factors +discussed above. +Due to Wolverine’s 2003 results, +Mr. O’Donovan’s salary, bonus and total cash +compensation was above the median for chief executive officers +paid by companies included in the previously described +comparison group. +All actions and recommendations of the +Compensation Committee attributable to 2003 compensation were +unanimous and all recommendations were approved and adopted by +the Board of Directors without modification. +Respectfully submitted, +Donald V. Fites, Chairman, David P. Mehney, Paul +D. Schrage +Selection of Auditors +The Audit Committee has reappointed the firm of +Ernst & Young LLP as independent auditors for the +current fiscal year. +Ernst & Young LLP, certified public +accountants, has audited the financial statements of Wolverine +and its subsidiaries for the fiscal year ended January 3, +2004. Representatives of Ernst & Young LLP are expected +to be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. +Ernst & Young LLP billed Wolverine $631,027 in fiscal +2003 and $637,917 in fiscal 2002 for the annual audit, reviews +of the financial statements included in Wolverine’s +Form 10-Q filings and foreign statutory audits. +Audit-Related Fees. +Ernst & Young LLP billed Wolverine $116,775 in fiscal +2003 and $56,565 in +25 +Table of Contents +fiscal 2002 for assurance and related services +that were reasonably related to the performance of the audit or +a review of the financial statements and that are not reported +as Audit Fees above, including accounting research and employee +benefit plan audits. +Tax Fees. +Ernst & Young LLP billed Wolverine $514,228 in fiscal +2003 and $1,060,206 in fiscal 2002 for tax compliance, tax +advice and tax planning services. +All Other Fees. +Ernst & Young LLP billed Wolverine $0 in fiscal 2003 +and $92,965 in fiscal 2002 for services other than those +described above. These services included actuarial services and +Internet security testing. +Pre-Approval Policy. +Wolverine’s Audit Committee has adopted a policy under +which all audit and non-audit services provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. Items +in this category are pre-approved within specific service +descriptions and budgets. All audit services and other services +that are not within the specifically pre-approved service +descriptions and budgets require engagement-specific +pre-approval. With certain exceptions such as pre-approval of +audit services, engagement-specific pre-approval may be +delegated to one or more Audit Committee members. Any services +approved by a designated Audit Committee member must be +communicated to the full Audit Committee at its next +regularly-scheduled meeting. The Audit Committee’s +pre-approval policy also prohibits Ernst & Young LLP from +providing any non-audit services that are prohibited by the +Securities and Exchange Commission. +Your Board of Directors recommends that you +vote FOR ratification of the reappointment of Ernst & Young +LLP. +Audit Committee Report +The Audit Committee of the Board of Directors +consists of four non-employee directors who are independent +under applicable New York Stock Exchange and SEC standards. The +Audit Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the reporting process, including the +application of accounting and financial principles, the +preparation, presentation and integrity of the financial +statements, and the systems of internal controls and other +procedures designed to ensure compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles. +The Audit Committee has taken steps to provide +assurances regarding Audit Committee composition and procedures, +the independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) adopting an Audit +Committee Charter (attached as Appendix A); +(ii) adopting an Accounting and Finance Code of Ethics; +(iii) implementing an Accounting and Auditing Complaint +Procedure to allow employees, stockholders and the public to +report concerns regarding Wolverine’s financial statements, +internal controls and disclosures; (iv) establishing +procedures for the Audit Committee to pre-approve all audit and +nonaudit services provided by Wolverine’s independent +auditors; and (v) increasing the number, frequency and +length of Audit Committee meetings. +As part of its supervisory duties, the Audit +Committee has reviewed Wolverine’s audited financial +statements for the fiscal year ended January 3, 2004, and +has discussed those financial statements with Wolverine’s +management, internal financial staff and independent auditors, +with and without management present. The Audit Committee has +also reviewed and discussed the +26 +Table of Contents +following with Wolverine’s management, +financial staff and independent auditors, with and without +management present: +• +accounting and financial principles and +significant assumptions, estimates and matters of judgment used +in preparing the financial statements; +• +allowances and reserves for accounts receivable, +inventories, taxes and fringe benefits; +• +accounting for acquisitions, pension plans and +equity-based compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and +practices. +The Audit Committee has discussed with +Wolverine’s independent auditors the results of the +independent auditors’ examinations and the judgments of the +independent auditors concerning the quality, as well as the +acceptability, of Wolverine’s accounting principles and +such other matters that it is required to discuss with the +independent auditors under applicable rules, regulations or +generally accepted auditing standards. In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services with their independence, the +scope of the audit and the scope of all fees paid to the +independent auditors during the year. +After and in reliance upon the reviews and +discussions described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended January 3, 2004, be +included in Wolverine’s Annual Report on Form 10-K for +the year then ended to be filed with the Securities and Exchange +Commission. +Respectfully submitted, +David T. Kollat, Chairman, Brenda J. Lauderback, +Phillip D. Matthews, Joseph A. Parini, Elizabeth A. Sanders +Related Matters +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies® , +Caterpillar® and Merrell® brand names. +Under these agreements, Grimoldi, S.A. or its subsidiary pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2003 totaling $650,275. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2003, purchases of such items by +Grimoldi, S.A. totaled $239,750 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2004. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of February 1, 2004, the aggregate principal balance of the +note was $461,231. The highest principal balance of the note +between December 29, 2002 and February 1, 2004 was +$635,761. +Compensation Committee Interlocks and Insider +Participation +Mr. Matthews was a member of +Wolverine’s Compensation Committee until February 2003. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. +27 +Table of Contents +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +requires Wolverine’s directors and executive officers, and +persons who beneficially own more than 10% of the outstanding +shares of common stock, to file reports of ownership and changes +in ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2003 +fiscal year, Wolverine believes that all reporting persons +complied with all applicable reporting requirements during +Wolverine’s last fiscal year. Although properly reflected +in Wolverine’s proxy statements since their grant in 1999, +individual stock option awards to Mr. O’Donovan and +Mr. Bloom for 20,000 shares and 50,000 shares, +respectively, were inadvertently omitted from 1999 Form 4 +filings. Forms 4 have been filed to report these awards. +Stockholder Proposals +To be considered timely, any stockholder proposal +intended to be presented at the annual meeting of stockholders +in 2005 (whether or not intended for inclusion in +Wolverine’s proxy statement and proxy card relating to that +meeting) must be received by Wolverine not later than +November 12, 2004. Stockholder proposals intended for +inclusion in Wolverine’s proxy statement and proxy card +relating to that meeting should be made as described in +Securities and Exchange Commission Rule 14a-8. You should +address all stockholder proposals to the attention of the +Secretary of Wolverine, 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine +directors, officers and employees may also solicit proxies by +telephone or facsimile or personally without additional +compensation. Proxies may be solicited by nominees and other +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by them. Wolverine +will pay all costs of solicitation of proxies, including the +charges and expenses of brokerage firms, banks, trustees or +other nominees for forwarding proxy materials to beneficial +owners. We have engaged Georgeson Shareholder Communications, +Inc. at an estimated cost of $6,000, plus expenses and +disbursements, to assist in solicitation of proxies. +28 +Table of Contents +Appendix A +AUDIT COMMITTEE CHARTER +of the +Audit Committee of the +Board of Directors +of +Wolverine World Wide, Inc. +I. GOVERNANCE +This Charter sets forth the basic principles +regarding the organization, purpose, authority and +responsibilities of the Audit Committee (the +“Committee”) of Wolverine World Wide, Inc. (the +“Company”) and has been approved by the Company’s +Board of Directors. The Committee shall review the adequacy of +this Charter at least annually and recommend any proposed +changes to the Board of Directors for approval. +II. ORGANIZATION +The Committee shall consist of at least three +directors appointed by the Board of Directors upon the +recommendation of the Company’s Governance Committee. One +Committee member shall be designated by the Board of Directors +as Chairperson. All Committee members shall be independent under +the New York Stock Exchange (“NYSE”) definition of +“independence” for directors and audit committee +members, independence standards adopted by the Board and any +other applicable rules and regulations, all as determined by the +Board. All Committee members shall be financially literate or +shall become financially literate within a reasonable period of +time after appointment to the Committee. At least one member +shall have accounting or related financial management +experience. A Committee member may be removed for any reason by +the Board of Directors. +The Committee shall meet as often as may be +deemed necessary or appropriate in its judgment, but not less +than four times per year. +III. STATEMENT +OF PURPOSE +The Committee shall represent and assist the +Board of Directors in fulfilling its oversight responsibility +regarding (i) the integrity of the Company’s financial +statements and the financial reporting process, (ii) the +Company’s systems of internal accounting and financial +controls, (iii) the performance of the internal audit +function and the independent auditors, (iv) the +qualifications and independence of the independent auditors, +(v) the annual independent audit of the Company’s +financial statements, and (vi) the Company’s +compliance with legal and regulatory requirements. In so doing, +it is the responsibility of the Committee to maintain open +communication between the Committee, the independent auditors, +the internal finance staff and the management of the Company. +The Audit Committee’s responsibility is one of oversight +and it does not provide any special assurance as to the +Company’s financial statements or the audit of those +financial statements by the independent auditors. +IV. AUTHORITY, +DUTIES AND RESPONSIBILITIES +The Committee’s authority, duties and +responsibilities shall include the following: +• +Be directly responsible, in its capacity as a +Committee of the Board, to appoint and retain (subject to +ratification by the Company’s stockholders), compensate, +oversee, evaluate and, if appropriate, terminate the independent +auditors, which shall report directly to the Committee; +• +Approve in advance all audit and permissible +non-audit services to be provided by the independent auditors +and establish policies and procedures for the engagement of the +independent auditors to provide audit and permissible non-audit +services; +A-1 +Table of Contents +• +Annually review the performance (effectiveness, +objectivity, and independence) of the independent auditors and +the internal audit function, including a review and evaluation +of the lead partner of the independent auditors, and report the +Committee’s conclusions to the Board of Directors; +• +Obtain and review at least annually a report from +the independent auditors describing: the auditing firm’s +internal quality-control procedures; and any material issues +raised by the most recent internal quality-control review, or +peer review, of the firm, or by any inquiry or investigation by +governmental or professional authorities, within the preceding +five years, respecting one or more independent audits carried +out by the firm, and any steps taken to deal with any such +issues; +• +Obtain and review, at least annually, a formal +written report from the independent auditors consistent with +applicable rules and regulations and standards set by the +Independence Standards Board; +• +Annually assess auditor independence, considering +all relationships between the independent auditors and the +Company and any other relationships that may adversely affect +the auditors independence; +• +Discuss with the internal financial staff and the +independent auditors the overall scope and plans for their +respective audits including the adequacy of staffing and +compensation. The Committee shall review any identified audit +problems or difficulties and discuss management’s response; +• +Receive reports from management, the internal +finance staff and the independent auditors regarding, and review +and discuss the adequacy and effectiveness of, the +Company’s internal control over financial reporting; +• +Receive reports from management regarding, and +review and discuss the adequacy and effectiveness of, the +Company’s disclosure controls and procedures; +• +Review the Company’s policies and systems +with respect to risk assessment and risk management and discuss +with management and the independent auditors significant risks +or exposures and the steps taken by management to resolve them; +• +Meet periodically with management, the internal +finance staff and the independent auditors separately; +• +Review with management and the independent +auditors the Company’s interim financial statements, +including disclosures in the Company’s +“Management’s Discussion and Analysis of Financial +Condition and Results of Operation” (“MD&A”) +to be included in Securities and Exchange Commission +(“SEC”) Quarterly Reports on Form 10-Q. The +Committee shall review with the independent auditors the results +of the quarterly reviews and any other matters required to be +communicated to the Committee by the independent auditors under +generally accepted auditing standards and applicable rules and +regulations; +• +Review with management and the independent +auditors the Company’s annual audited financial statements, +including disclosures in the Company’s MD&A, to be +included in SEC Annual Reports on Form 10-K (or annual reports +to stockholders if distributed prior to the filing of +Form 10-K). The Committee shall review with the independent +auditors the results of the annual audit and any other matters +required to be communicated to the Committee by the independent +auditors under generally accepted auditing standards and +applicable rules and regulations; +• +Establish procedures for the receipt, retention +and treatment of complaints received by the Company regarding +accounting, internal accounting controls or auditing matters and +for the confidential, anonymous submission by the Company’s +employees of concerns regarding questionable accounting or +auditing matters; +• +Review with management and the independent +auditors the Company’s earnings press releases and +financial information and earnings guidance provided by the +Company to analysts and rating agencies; +• +Prepare the Audit Committee report required by +applicable rules and regulations to be included in the +Company’s annual proxy statement; +• +Establish Company hiring policies for employees +and former employees of independent auditors for the Company; +A-2 +Table of Contents +• +Engage consultants and advisors at the expense of +the Company to assist the Committee as it deems necessary in the +performance of its functions. The Committee shall have sole +authority to retain and terminate any consultants and advisors +and to approve all fees and other retention terms; +• +Oversee the Company’s compliance systems +with respect to legal and regulatory requirements and review the +Company’s code of conduct and programs to monitor +compliance with such codes; +• +Establish sub-committees of the Committee in its +discretion and delegate such powers and authority as determined +by the Committee; +• +Conduct and discuss with the Board of Directors +an annual performance evaluation of the Committee, including the +Committee’s adherence to this Charter; and +• +Provide the Board of Directors with regular +reports regarding the Committee’s decisions, actions and +recommendations. +Effective Date: February 19, 2004 +A-3 +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Table of Contents +WOLVERINE WORLD WIDE, INC. +VOTE BY TELEPHONE +c/o National City +Bank +Corporate Trust Operations +Locator 5352 +P.O. Box +92301 +Cleveland, OH 44101-4301 +Temporary Return Service +Requested +Have your proxy card available when you +call the Toll-Free number 1-800-542-1160 +using a touch-tone telephone, and follow the simple instructions to record your vote. +VOTE BY INTERNET +Have your proxy card available when you +access the website http://www.votefast.com , +and follow the simple instructions to record your +vote. +VOTE BY MAIL +Please mark, sign and date your proxy card +and return it in the postage-paid envelope +provided or return it to: Stock Transfer Dept +(WWW), National City Bank, P.O. Box +92301, Cleveland, OH 44101-4301. Mailed +proxies must be received no later than +April 22, 2004, at 10:00 a.m. Eastern +Daylight Time. +Vote by Telephone +Call toll-free using a +touch-tone phone: +1-800-542-1160 +Vote by Internet +Access the website and +cast your vote: +http://www.votefast.com +Vote by Mail +Return your proxy +in the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 21, 2004, to assure that it is counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL +VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +Control +Number: +This Proxy must be signed and dated below. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC. +PROXY +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints Geoffrey B. Bloom, Phillip D. +Matthews and Timothy J. O’Donovan, and each of them, each with full power of +substitution, proxies to represent the undersigned stockholder and to vote all +shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would +be entitled to vote on all matters which come before the Annual Meeting of +Stockholders to be held at the Company’s headquarters located at 9341 Courtland +Drive, N.E., Rockford, Michigan, on Thursday, April 22, 2004, at 10 a.m. local +time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will +be voted as specified. If no specification is made, the shares represented by +this Proxy will be voted for the election of all nominees named on this Proxy +as directors and for approval of the proposal identified on this Proxy. The +shares represented by this Proxy will be voted in the discretion of the proxies +on any other matters that may come before the meeting. +Signature(s) +Signature(s) +Date: ___________________________________________________________,2004 +IMPORTANT — Please sign exactly as your name(s) appears on +this Proxy. When signing on behalf of a corporation, partnership, +estate or trust, indicate title or capacity of person signing. +If shares are held jointly, each holder must sign. +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders +on April 22, 2004. The enclosed Notice of Annual Meeting provides information +regarding the matters that are expected to be voted on at the meeting. Your +vote is important to us. Even if you plan to attend the meeting, please read +the enclosed materials and vote through the Internet, by telephone or by +mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the +Internet or by telephone. Please consider voting through one of these methods. Your vote is recorded as if you mailed in your Proxy. We believe +voting through the Internet or by telephone is convenient, and it also saves +money. +Electronic Delivery of Proxy Statement and Annual Report. +You may elect to receive your annual report and proxy statement on-line by +checking the appropriate box below. Selecting this option means that you may +receive the Wolverine World Wide, Inc. annual report and proxy statement +on-line rather than in printed form unless you request a paper copy. If a +sufficient number of stockholders select this option, beginning next year and +continuing until you tell us otherwise, you will receive your printed Proxy +with information regarding the Internet website containing the annual report +and proxy statement. You will need a computer with Internet access and we +anticipate that you will need a utility such as Adobe® +Acrobat® Reader to read +the annual report and proxy statement, which will be in PDF file format. We +plan to provide information on obtaining free access to a utility necessary for +reading PDF files. You may incur costs such as on-line charges or printing +costs and face possible risks such as systems outages in accessing Wolverine +World Wide, Inc.’s proxy statement and annual report via the Internet website. +You may cancel your enrollment in this process at any time or may request a +paper copy of the annual report and/or proxy statement in any given year while +continuing your long-term enrollment in this process by written notification to +National City Bank, Attn. Shareholder Services Department, Dept. 5352, +Corporate Trust Operations, P.O. Box 92301, Cleveland, Ohio 44193-0900. The +telephone number is 1-800-622-6757. There is no charge for canceling +enrollment or requesting a paper copy of the annual report and proxy statement. +Thank you in advance for your participation in our +2004 Annual Meeting. +Wolverine World Wide, Inc. +\/ Please fold and detach card at perforation before mailing. \/ +WOLVERINE WORLD WIDE, INC. +PROXY +1. +ELECTION OF DIRECTORS +FOR all +WITHHOLD all +FOR all except (*) +o +o +o +Nominees: +(01) +Geoffrey B. Bloom +(02) +David T. Kollat +(03) +David P. Mehney +(04) +Timothy J. O’Donovan +*(INSTRUCTION: To withhold authority to vote for any individual +nominee, strike that nominee’s name in the list above.) +Your Board of Directors Recommends that You Vote FOR ALL +NOMINEES +2. +Proposal to ratify the appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +FOR +AGAINST +ABSTAIN +Your Board of Directors Recommends that You Vote FOR this +Proposal +o +o +o +Please check this box if you consent to access future annual reports +and proxy statements via the Internet (see details above). +o +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-04-000869/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-04-000869/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..cc0aaa83de8a94b0f67d01b70cf9909af455a633 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-04-000869/proxy_rpt.txt @@ -0,0 +1,46 @@ +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies® , +Caterpillar® and Merrell® brand names. +Under these agreements, Grimoldi, S.A. or its subsidiary pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees in 2003 totaling $650,275. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2003, purchases of such items by +Grimoldi, S.A. totaled $239,750 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2004. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of February 1, 2004, the aggregate principal balance of the +note was $461,231. The highest principal balance of the note +between December 29, 2002 and February 1, 2004 was +$635,761. +Compensation Committee Interlocks and Insider +Participation +Mr. Matthews was a member of +Wolverine’s Compensation Committee until February 2003. +While Mr. Matthews was not at any time an employee of +Wolverine or its subsidiaries, he served as Chairman of the +Board of Wolverine from 1993 until 1996. +27 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-05-001482/proxy.txt b/raw/proxies/0000110471/0000950124-05-001482/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..cd58a15b3136ba2351c1c496bcae78ab47c18efd --- /dev/null +++ b/raw/proxies/0000110471/0000950124-05-001482/proxy.txt @@ -0,0 +1,6722 @@ +DEF 14A +1 +k91504ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +February 28, 2006 +Estimated average burden +hours per +response +12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant +o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information +contained in this form are not required to respond unless the form displays a currently valid +OMB control number. +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual +meeting of stockholders at Wolverine’s headquarters located +at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 21, 2005, at 10 a.m. local time. At the meeting, +we will: +(1) +Elect three directors for three-year terms +expiring in 2008. +(2) +Vote on an amendment to the Certificate of +Incorporation to increase the number of authorized shares of +Common Stock. +(3) +Vote on the proposed Stock Incentive Plan of 2005. +(4) +Vote on ratification of the Audit +Committee’s appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +(5) +Conduct such other business as may properly come +before the meeting. +You can vote at the meeting and any adjournment +of the meeting if you were a stockholder of record on +March 1, 2005. A list of stockholders entitled to vote at +the meeting will be available for review by Wolverine +stockholders at the office of Blake W. Krueger, Executive +Vice President and Secretary of Wolverine, located at 9341 +Courtland Drive, N.E., Rockford, Michigan, during ordinary +business hours for the 10-day period before the meeting. +A copy of the Annual Report to Stockholders for +the year ended January 1, 2005, is enclosed with this Notice. +The following proxy statement and enclosed proxy card are being +sent to stockholders on and after March 14, 2005. +By Order of the Board of Directors +Blake W. Krueger, Executive Vice President and +Secretary +March 14, 2005 +Your Vote is Important to Us. Even if You Plan +to Attend the Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED +PROXY PROMPTLY OR +VOTE BY TELEPHONE OR ON THE +INTERNET. +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Stock Incentive Plan of 2005 +Amendment of the Certificate of Incorporation +Ownership of Wolverine Stock +Wolverine’s Stock Price Performance +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +Appendix B +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 21, 2005 +Proxy Statement +Time and Place +You are invited to attend the annual meeting of +stockholders of Wolverine World Wide, Inc. that will be held on +April 21, 2005, at Wolverine’s headquarters located at +9341 Courtland Drive, N.E., Rockford, Michigan, at +10:00 a.m. local time. +This proxy statement and enclosed proxy card are +being furnished to you in connection with the solicitation of +proxies by the Wolverine Board of Directors for use at the +annual meeting. In this proxy statement, “we,” +“us,” “our” and “Wolverine” refer +to Wolverine World Wide, Inc. and “you” and +“your” refer to Wolverine stockholders. +Purpose of the Meeting +The purpose of the annual meeting is to consider +and vote upon: +• +election of three directors for three-year terms +expiring in 2008; +• +approval of an amendment to the Certificate of +Incorporation to increase the number of authorized shares of +Common Stock; +• +approval of the proposed Stock Incentive Plan of +2005; +• +ratification of the appointment of Ernst & +Young LLP as independent auditors for Wolverine for the current +fiscal year; and +• +such other business as may properly come before +the meeting. +Your Board of Directors recommends that you +vote FOR each nominee and FOR each proposal discussed in this +Proxy Statement. +How to Vote Your Shares +You may vote at the meeting or by proxy if you +were a stockholder of record of Wolverine at the close of +business on March 1, 2005. Wolverine offers the convenience +of voting by mail-in proxy, telephone or the Internet. See the +enclosed proxy for voting instructions. Each stockholder is +entitled to one vote per share on each matter presented. +As of March 1, 2005, there were 58,141,657 +shares of Wolverine common stock issued and outstanding +(excluding 155,721 shares of treasury stock). +If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or the +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +If you specify a choice, the proxy will be voted +as specified. If you return a signed proxy but do not specify a +choice, your shares will be voted in favor of the election of +all nominees named in this proxy statement, in favor of the +proposals set forth in this proxy statement and, with respect to +any other matter that may come before the meeting, in the +discretion of the individuals named as proxies on the proxy +card. We are not currently aware of any other matters to be +presented at the meeting. +You may revoke your proxy at any time before it +is exercised by delivering written notice of revocation to the +Secretary of Wolverine or by attending and voting at the annual +meeting. +Quorum and Required Vote +The presence in person or by proxy of the holders +of a majority of the shares entitled to vote at the meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the meeting, we will count as present +and represented at the meeting all shares for which we receive a +proxy or vote, including abstentions and shares represented by a +broker vote on any matter. +A plurality of the shares voting is required to +elect directors. This means that if there are more nominees than +positions to be filled, the nominees who receive the most votes +will be elected. In counting votes on +Table of Contents +the election of directors, abstentions, broker +non-votes and other shares not voted will be counted as not +voted. These shares will be deducted from the total shares of +which a plurality is required. +The affirmative vote of holders of a majority of +the outstanding shares entitled to vote at the annual meeting of +stockholders is required to approve the proposed amendment to +Wolverine’s Certificate of Incorporation. For the purpose +of counting votes on this proposal, abstentions, broker +non-votes and other shares not voted will have the same effect +as a vote against the proposal. +Each other matter to be voted upon at the meeting +will be approved if a majority of the shares present or +represented at the meeting and entitled to vote on the proposal +are voted in favor of such matter (approval of the Stock +Incentive Plan of 2005 also requires that a majority of the +shares entitled to vote on the matter be voted). In counting +votes on each such matter, abstentions will be counted as voted +against the matter and broker non-votes will be counted as not +voted on the matter. Shares that are not voted on such matters +will be deducted from the total shares of which a majority is +required. +Election of Directors +As recommended by the Governance Committee, the +Board of Directors proposes that the following nominees be +elected as directors for terms expiring at the 2008 annual +meeting: +Donald V. Fites +Phillip D. Matthews +Paul D. Schrage +All of the nominees are currently directors of +Wolverine whose terms will expire at the annual meeting. Each +proposed nominee is willing to be elected and serve as a +director. However, if a nominee is unable to serve or is +otherwise unavailable for election, which is not contemplated, +the incumbent Wolverine Board of Directors may or may not select +a substitute nominee. If a substitute nominee is selected, your +shares will be voted for the substitute nominee (unless you give +other instructions). If a substitute nominee is not selected, +your shares will be voted for the remaining nominees. Proxies +will not be voted for more than three nominees. +Wolverine’s Board of Directors currently +consists of 10 directors. Elizabeth Sanders is retiring at this +year’s annual meeting after 10 years of service as a +director. +Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into three +classes, with each class to be as nearly equal in number as +possible. Each class serves a term of office of three years, +with the term of one class expiring at the annual meeting in +each successive year. +Biographical information for each nominee and +each current director who will continue to serve after the +annual meeting is presented below. Except as otherwise +indicated, all have had the same principal positions and +employment for over five years. +Your Board of Directors recommends that you +vote FOR each nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2008 +DONALD V. FITES (age 71) has been a director +since 1999. From 1990 until his retirement in 1999, +Mr. Fites was Chairman and Chief Executive Officer of +Caterpillar Inc., a manufacturer of construction, mining and +agricultural machinery and engines. Mr. Fites also is a +director of AK Steel Holding Corporation; Oshkosh Truck +Corporation; Georgia-Pacific Corporation; and Unitrin, Inc. +PHILLIP D. MATTHEWS (age 66) has been a director +since 1981. Mr. Matthews is Lead Director of Wolverine and +was Chairman of the Board of Wolverine from 1993 until 1996. +Since 1997, Mr. Matthews has been a general partner of +Matthews, Mullaney & Co., a consulting firm. +Mr. Matthews is Chairman of the Board of Worldwide +Restaurant Concepts, Inc., a national restaurant chain. +2 +Table of Contents +Mr. Matthews is also a director of +Washington Mutual, Inc. and Ashworth, Inc. +PAUL D. SCHRAGE (age 70) has been a director +since 1997. Mr. Schrage was Senior Executive Vice President +and Chief Marketing Officer of McDonald’s Corporation, a +worldwide restaurant franchisor and operator and was employed at +that company from 1967 until his retirement in 1997. +Mr. Schrage is also a director of Thrivent Financial for +Lutherans and Compact Industries, Inc. +Continuing Directors — Terms Expiring in 2007 +GEOFFREY B. BLOOM (age 63) has been a +director since 1987. Mr. Bloom is Chairman of the Board of +Wolverine and has served in that capacity since 1996. Until his +retirement in April 2000, Mr. Bloom was also Chief +Executive Officer of Wolverine. Mr. Bloom was previously +President and Chief Executive Officer from 1993 until 1996 and +Chief Operating Officer from 1987 until 1993. Mr. Bloom is +also a director of Coachmen Industries, Inc. +DAVID T. KOLLAT (age 66) has been a director +since 1992. Mr. Kollat is President and Chairman of 22, +Inc., a company specializing in research and management +consulting for retailers and consumer goods manufacturers. +Mr. Kollat is also a director of Limited Brands, Inc.; Big +Lots, Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 65) has been a director +since 1977. Mr. Mehney is President of The KMW Group, Inc., +a distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 59) has been a +director since 1993. Mr. O’Donovan is Chief Executive +Officer and President of Wolverine and has served in that +capacity since April 2000. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. +Continuing Directors — Terms Expiring in 2006 +ALBERTO L. GRIMOLDI (age 63) has been a +director since 1994. Mr. Grimoldi is Chairman of Grimoldi, +S.A., a shoe manufacturer and retailer in Argentina. He has held +that position since 1986. Mr. Grimoldi is also a founding +member and has been Vice Chairman of Banco Privado de +Inversiones, S.A., an Argentinean investment bank, since 1994. +Mr. Grimoldi was previously a member of the Advisory Board +of Ford Motor Company in Argentina, and has also held various +positions in the Argentinean government. +BRENDA J. LAUDERBACK (age 54) was appointed +to the Board of Directors in 2003. From 1995 until her +retirement in 1998, Ms. Lauderback was president of the +Wholesale and Retail Group of Nine West Group, Inc., a footwear +manufacturer and distributor. She was previously the President +of the Wholesale Division of U.S. Shoe Corporation, a footwear +manufacturer and distributor, and a Vice President of Dayton +Hudson Corporation, a retailer. Ms. Lauderback is also a +director of Irwin Financial Corporation; Big Lots, Inc.; +Louisiana-Pacific Corporation; and Select Comfort Corporation. +Board Committees and Meetings +During the 2004 fiscal year, the Board of +Directors held five regular meetings. Each of the directors +attended 75% or more of the aggregate of the total number of +full Board meetings and the total number of meetings of +committees on which he or she served (during the periods that he +or she served). +The Board of Directors has four standing +committees: the Audit Committee, the Compensation Committee, the +Executive Committee and the Governance Committee. Members of +each committee are appointed by the Board of Directors and the +authority, duties and responsibilities of each committee are +governed by written charters approved by the Board of +3 +Table of Contents +Directors. The Audit Committee Charter is +attached as Appendix A to this proxy statement. +In addition to regular Board and Committee +meetings, Wolverine has scheduled regular executive sessions for +non-management directors. Wolverine’s independent Lead +Director, Mr. Matthews, presides at all non-management +executive sessions. Interested parties may make concerns known +to the non-management directors by communicating with +Mr. Matthews or with the non-management directors as a +group, through one of the Board communication mechanisms +described later in this proxy statement under the heading +“Corporate Governance Principles — Communication +with the Board.” +Audit Committee. The +Audit Committee has been established in accordance with the +Securities Exchange Act of 1934 and performs the following +duties: +• +represents and assists the Board in fulfilling +its oversight responsibility regarding Wolverine’s +financial reporting and accounting process; +• +appoints, retains, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance of the +independent auditors and Wolverine’s internal audit +function; +• +obtains and reviews the independent +auditors’ internal quality control report and other reports +required by applicable rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention +and treatment of complaints regarding accounting and auditing +matters; +• +meets to review Wolverine’s financial +statements, including disclosures in Management’s +Discussion and Analysis of Financial Condition and Results of +Operations, that are included in Wolverine’s reports on +Form 10-Q and Form 10-K; +• +reviews Wolverine’s policies and systems +with respect to risk assessment and risk management and +discusses significant risks or exposures with management and the +independent auditors; +• +discusses with internal auditors and the +independent auditors the overall scope and plans for their +respective audits; +• +oversees Wolverine’s legal and regulatory +compliance systems; +• +reviews and discusses the adequacy and +effectiveness of Wolverine’s internal control over +financial reporting and disclosure controls and procedures; and +• +establishes policies and procedures relating to +the engagement of the independent auditors, including +pre-approval policies and procedures. +Only independent directors may serve on the Audit +Committee. Each member of the Audit Committee satisfies the +independence standards for such committee members established by +the New York Stock Exchange (“NYSE”). +Messrs. Kollat and Matthews and Mses. Lauderback and +Sanders currently serve on the Audit Committee. Mr. Kollat +is Chairman of this committee. The Audit Committee met +12 times in 2004. +Compensation Committee. +The Compensation Committee: +• +discharges, subject to general review and +oversight by the Board, the Board’s responsibilities +relating to executive compensation and assists the Board in +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +reviews and approves corporate and personal goals +and objectives relevant to Chief Executive Officer compensation, +evaluates the performance of the Chief Executive Officer in +light of these goals and objectives, and, together with the +other independent directors, approves the compensation of the +Chief Executive Officer based on the evaluation; +• +reviews and approves the compensation of other +key senior executives, including bonuses and equity +compensation; and +• +administers and makes recommendations with +respect to Wolverine’s stock option and other equity-based +incentive plans. +Only independent directors may serve on the +Compensation Committee. Messrs. Fites, Mehney and Schrage +currently serve on the Compensation Committee. Mr. Fites is +Chairman of this committee. The Compensation Committee met four +times during 2004. +Executive Committee. +Subject to limitations set forth in +the Executive Committee Charter and applicable laws, rules and +regulations, the Executive Committee exercises the powers of the +Board of Directors during periods between Board meetings with +respect to matters that the Chairman of the Board determines +must be addressed before the next scheduled meeting of the Board +and for which a special meeting of the Board is not practicable. +Messrs. Bloom, Fites, Matthews and O’Donovan currently +serve on the +4 +Table of Contents +Executive Committee. Mr. Matthews is +Chairman of this committee. It did not meet during 2004. +Governance Committee. +The Governance Committee: +• +interviews each potential director nominee and +recommends, consistent with criteria approved by the Board, +suitable candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes +qualification standards for Board and committee membership; +• +develops and recommends to the Board an annual +self-evaluation process for the Board and its committees and +oversees the evaluation process; +• +establishes and recommends director independence +guidelines to the Board; +• +reviews and reports on all matters generally +relating to corporate governance and develops and recommends to +the Board corporate governance guidelines; +• +recommends to the Board key executives to serve +as corporate officers of Wolverine; and +• +recommends retainer and attendance fees for +directors who are not employees of Wolverine or any of its +subsidiaries. +In evaluating the skills and characteristics +required of Board members, the Governance Committee addresses +issues such as experience, diversity, age and skills in the +context of the current make-up of the Board. The Governance +Committee will consider candidates for nomination that are +recommended by stockholders, directors, officers, third-party +search firms and other sources. Stockholders may recommend +individual nominees for consideration by the Governance +Committee by communicating with the Governance Committee through +one of the Board communication mechanisms described under the +heading “Corporate Governance Principles — +Communication with the Board.” The Board of Directors +ultimately determines individuals to be nominated at each annual +meeting. Direct stockholder nominations may only be made through +the procedure described below under the subheading +“Stockholder Nominations.” From time to time, the +Governance Committee engages third-party search firms to assist +with identifying and evaluating potential nominees. +In making nominee recommendations to the Board, +the Governance Committee considers a potential nominee’s +ability, judgment and personal and professional integrity. The +Governance Committee seeks nominees who are likely to be most +effective, in conjunction with other nominees and Board members, +in collectively serving the long-term interests of the +stockholders. +Only independent directors may serve on the +Governance Committee. Each member of the Governance Committee +satisfies the independence standards for such committee members +established by NYSE. Messrs. Kollat, Mehney and Schrage and +Ms. Sanders currently serve on the Governance Committee. +Mr. Schrage is Chairman of this committee. The Governance +Committee met four times during 2004. +Stockholder Nominations +Nominations may be made directly by a stockholder +entitled to vote for the election of directors if, and only if, +the stockholder submits advance notice of the proposed +nomination to the Secretary of Wolverine and the notice is +received by the Secretary of Wolverine not less than 50 nor more +than 75 days before the annual meeting. However, if the +first to occur of the notice of the meeting or public disclosure +is given or made to stockholders less than 65 days before +the annual meeting, the notice of the proposed nomination must +be received not later than the close of business on the +15th day after the day on which the notice of the date of +the meeting was mailed or the public disclosure was made, +whichever occurs first. Each notice submitted by a stockholder +must set forth each nominee’s name, age, business address, +residence address and principal occupation and employment, the +class and number of shares of common stock beneficially owned by +each nominee, and any other information concerning each nominee +required to be included in a proxy statement soliciting proxies +for the election of the nominee under the rules of the +Securities and Exchange Commission (“SEC”). In +addition, the notice must state the name, record address and the +class and number of shares of common stock beneficially owned by +the stockholder submitting the notice. If the chairman of the +meeting determines that a nomination was not made in accordance +with these procedures, he or she must announce that +determination at the meeting and the nomination will be +disregarded. +Compensation of Directors +Wolverine pays each non-employee director an +annual retainer of $30,000 plus $2,000 per day for attendance at +each regular meeting of the Board of Directors and $1,000 per +day for attendance at each committee meeting. In addition, +Wolverine pays the chairperson +5 +Table of Contents +of the Audit Committee an annual fee of $7,500 +and the chairpersons of the Compensation and Governance +Committees annual fees of $5,000. Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual retainer and are not compensated for attendance at Board +or committee meetings. Wolverine also pays director expenses +associated with attending Board and committee meetings and other +Wolverine matters. In addition, Board members from time to time +receive sample Wolverine products of nominal value for review +and assessment. +Under the Amended and Restated Directors’ +Stock Option Plan (the “Directors’ Stock Option +Plan”) approved by stockholders in 2002, each newly +appointed or elected non-employee director is granted an option +to purchase shares of common stock with a market value on the +date of his or her initial election or appointment equal to six +times the annual director retainer fee then in effect. On the +date of each annual meeting after his or her initial appointment +or election, each non-employee director is granted an option to +purchase shares with a market value on the annual meeting date +equal to three times the annual director retainer fee then in +effect. The exercise price of options granted under this plan is +100% of the market value of common stock on the date each option +is granted. The term of each option may not exceed +10 years. Options were granted under this plan to all +non-employee directors on April 22, 2004. Options to +purchase a maximum of 718,665 shares of common stock +(post-split) were authorized under the 2002 amendment to the +Directors’ Stock Option Plan. +In 2002, Wolverine adopted and the stockholders +approved the Amended and Restated Outside Directors’ +Deferred Compensation Plan (the “Deferred Compensation +Plan”), a supplemental nonqualified deferred compensation +plan for directors who are not employees of Wolverine or its +subsidiaries. The Deferred Compensation Plan amended and +restated a plan originally adopted in 1996. The plan permits all +non-employee directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred are credited on the books +of Wolverine to an account established for that director as if +the amounts had been invested to purchase shares of common stock +using the market price of common stock on the payment date of +the next cash dividend (“phantom stock”). Phantom +stock units are increased by a dividend equivalent based on +dividends paid by Wolverine, the amount of phantom stock units +credited to each director’s account and the market price of +common stock on the payment date of the cash dividend. The +accumulated phantom stock units in a director’s account +under the plan are distributed in shares of Wolverine common +stock in a single lump-sum or annual installments over a period +of up to 10 years by converting each phantom stock unit to +one share of Wolverine common stock upon termination of service +as a director or as of a date selected by the director. +Certain non-employee directors also received in +1996 an award of phantom stock units representing accrued +retirement income under the former Director Retirement Plan, +which was replaced by the Deferred Compensation Plan in 1996. No +future non-employee director will receive retirement awards +under the Deferred Compensation Plan. Phantom stock units that +represent awards of retirement income are subject to delayed +vesting provisions and are credited with dividend equivalents. +Shares of Wolverine common stock equal to the number of all +phantom stock units representing retirement awards credited to a +director’s account will be distributed upon the +director’s termination of service. Distributions will be +made in 10 annual installments beginning the month following +termination of service as a director. +Upon a “change in control” as defined +in the Deferred Compensation Plan, Wolverine common stock equal +to the phantom stock units credited to a director’s account +(both for deferred fees and retirement income) will be +distributed to the director in a single lump sum. For purposes +of the Deferred Compensation Plan, “change in control” +is defined as: +• +failure of the individuals who were directors at +the time the Deferred Compensation Plan was adopted and those +whose election or nomination to the Board was approved by +three-quarters of the directors then still in office who were +directors at the time the Deferred Compensation Plan was +adopted, or whose election or nomination was so approved, to +constitute a majority of the Board; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +6 +Table of Contents +Mr. Matthews serves as Lead Director of +Wolverine. For his service as Lead Director, Mr. Matthews +receives an annual fee of $60,000. These payments are in lieu of +the annual director retainer fee of $30,000. Mr. Matthews +receives the standard director fee for attendance at Board +meetings and standard director stock options, but does not +receive attendance fees for attending committee meetings. +In April 2000, Mr. Bloom retired as Chief +Executive Officer of Wolverine but he continues to serve as +Chairman of the Board of Directors. For his service as Chairman, +Mr. Bloom receives an annual fee of $90,000, together with +reimbursement of certain business expenses. These payments are +in lieu of the annual director retainer fee of $30,000. +Mr. Bloom receives the standard director fee for attendance +at Board meetings and standard director stock options, but does +not receive attendance fees for attending committee meetings. +The scope of Mr. Bloom’s service and his compensation +are reviewed annually by the Board. +Corporate Governance Principles +Wolverine has developed governance principles to +assist the Board in fulfilling its responsibilities to +stockholders and to provide a framework for the Board’s +oversight responsibilities regarding the management of +Wolverine. Wolverine’s governance principles are dynamic +and have been developed and revised over a period of many years +to reflect changing laws, regulations and best business +practices. The governance principles also provide guidance and +transparency to management, employees, investors and other +stakeholders regarding the Board’s philosophy, high ethical +standards, expectations for conducting business, and +decision-making processes. +The following is a summary of certain of +Wolverine’s policies, charters, guidelines and principles +relating to corporate governance and financial reporting. You +may access complete current copies of our Code of Conduct and +Compliance, Corporate Governance Guidelines, Director +Independence Standards, Accounting and Finance Code of Ethics, +Audit Committee Charter, Governance Committee Charter, +Compensation Committee Charter and Executive Committee Charter +at our website, www.wolverineworldwide.com . Each of these +is also available in print to any stockholder upon request. +Independence +The Board believes that the independence of +directors and Board committee members is important to assure +that the Board and its committees operate only in the best +interests of the stockholders and to avoid any appearance of +conflict of interest. For over 10 years, Wolverine has +functioned with only two active or former management employees +as directors. The remainder of the Board’s 10 to +12 directors over this period have been non-management +directors. Only one current management employee, +Wolverine’s Chief Executive Officer and President, +currently serves as a director. While Wolverine’s formal +Corporate Governance Guidelines require that a majority of the +directors be independent, Wolverine has for many years operated +with a substantial majority of independent directors. The Board +does not intend to deviate from this practice. +The Board has determined that the following 7 of +its 10 directors meet the director independence standards +adopted by the Board and the applicable NYSE and SEC standards +for independence (including NYSE and SEC independence standards +relating to each committee upon which the respective directors +serve), and have no material relationship with Wolverine: +• +Donald V. Fites +• +David T. Kollat +• +Brenda J. Lauderback +• +Phillip D. Matthews +• +David P. Mehney +• +Elizabeth A. Sanders +• +Paul D. Schrage +Our Board of Directors has adopted categorical +Independence Standards, which are available at our website. +These Independence Standards comply with, and in some areas, +exceed the director independence standards required by NYSE. In +summary, under these standards a director is considered +independent only if the director and his or her immediate family +members do not have, and generally have not had in the most +recent three years, any material relationships with Wolverine, +its subsidiaries or affiliates (including certain relationships +with Wolverine’s independent auditors). The standards +establish thresholds at which such relationships are deemed to +be not material. In +7 +Table of Contents +addition, the Board examines on a case-by-case +basis transactions and relationships that are not of a nature +addressed by the categorical standards. +Corporate Governance Guidelines +The Board has adopted Corporate Governance +Guidelines that set forth the primary framework of governance +principles applicable to Wolverine. The Corporate Governance +Guidelines outline the general duties and functions of the Board +and management, and set forth general principles regarding Board +composition, independence, Board meetings and responsibilities, +Board committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Alignment of Stockholder, Management and +Director Interests +For many years, the Board has believed that +directors and management should have a significant financial +stake in Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal stock ownership guidelines that require ownership +of Wolverine stock (including ownership credit for phantom stock +units allocated to non-employee directors) within certain time +periods: (i) by directors equal in value to three times the +current Board retainer, (ii) by the Chief Executive Officer +equal in value to five times base salary, (iii) by other +executive officers equal in value to between two and four times +base salaries, and (iv) by other executive management equal +in value to between one and two times base salaries. Most +non-employee directors also participate in the Deferred +Compensation Plan that allows non-employee directors to convert +a portion or all of their cash compensation into stock ownership. +Code of Conduct and Compliance +For years, Wolverine and its employees and +directors have followed an extensive Code of Conduct and +Compliance (“Code”). This comprehensive Code +establishes basic guidelines to help employees and directors +comply with applicable legal requirements and sets forth +Wolverine’s expectations regarding business ethics, +integrity, honesty, fairness and keeping commitments. The Code +contains Wolverine’s principles and procedures regarding +conflicts of interest, corporate opportunities, confidentiality, +fair dealing, protection and proper use of Wolverine’s +assets, compliance with laws, rules and regulations, engagement +criteria for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. Employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Board Committee Charters +The Board has organized and formed three +operating committees, the Audit Committee, the Compensation +Committee and the Governance Committee. In addition, the Board +has an Executive Committee that is empowered to act as necessary +on behalf of the Board between formal meetings of the Board. The +Executive Committee has not met in over ten years. The Board has +approved a committee charter for each committee that contains +basic principles regarding the committee’s organization, +purpose, authority and responsibilities. The performance of each +committee is reviewed annually by committee members and the +Board. +Leadership +Since 1993, the Board has operated with an +independent Lead Director. In addition, for the past five years +Wolverine has divided the roles of its Chairman and Chief +Executive Officer and the elected Chairman has not been an +employee or officer of Wolverine. Wolverine’s Corporate +Governance Guidelines require that when Wolverine’s Chief +Executive Officer retires, he or she must tender his or her +resignation from the Board and the issue of continued Board +membership for the former Chief Executive Officer will be +determined by the Board on a case-by-case basis. +Accounting and Finance Code of +Ethics +The Board has adopted an Accounting and Finance +Code of Ethics (“Finance Ethics Code”). This is an +ethics code focused on the financial reporting process and is +intended to protect the interests of all of Wolverine’s +constituents, including stockholders, employees, customers and +the communities in which Wolverine conducts business. Many of +the basic tenets of the Finance Ethics Code have been +incorporated for many years in Wolverine’s Code of Conduct +and Compliance. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the +8 +Table of Contents +financial reporting process, protection of +Wolverine’s assets, compliance with rules and regulations +and honest and ethical conduct in connection with the financial +reporting process and related disclosures. +Attendance +The Board prides itself on its ability to recruit +and retain directors who have a diversity of experience, who +have the highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to personally attend +every Board meeting and every meeting of each committee on which +they serve as a member. Over the past ten years, individual +directors have attended 569 out of a total of 582 required Board +meeting attendances. Directors are also expected to attend the +Annual Meeting of Stockholders in person. All eleven +then-current directors attended the 2004 annual meeting. Given +Wolverine’s home base in Rockford, Michigan and the +geographic diversity of the home cities of Wolverine’s +directors, we believe this attendance record is exceptional. +Communication with the Board +Stockholders and interested parties may +communicate with members of Wolverine’s Board of Directors +and may report any complaints or concerns regarding +Wolverine’s financial statements and accounting, auditing, +internal control and reporting practices to the Audit Committee +(including anonymous submissions) to +financialconcerns@wwwinc.com , through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General Counsel, Wolverine World Wide, Inc., +9341 Courtland Drive, N.E., Rockford, Michigan 49351. +Board and Company Culture +Wolverine’s comprehensive governance +guidelines and principles are coupled with a robust, open and +effective Board environment that promotes respect, trust and +candor, fosters a culture of open dissent and permits each +director to express opinions and contribute to the Board +process. Directors are expected to have unrestricted access to +management and any company information they desire. The +participation of Board members and the open exchange of opinions +is further encouraged at the Board committee level through the +periodic rotation of Board members among its standing +committees. This open and candid operating environment is shared +by management and the Board and is essential to fully realize +the benefits of Wolverine’s formal governance guidelines, +principles, charters and policies. +Stock Incentive Plan of 2005 +Purposes and Effects of the Proposal +The Board of Directors firmly believes that +Wolverine’s long-term interests are best advanced by +aligning the interests of its key employees and directors with +the interests of its stockholders. Therefore, to attract, retain +and motivate non-employee directors, officers and key management +employees of exceptional abilities, and in recognition of the +significant contributions to the long-term performance and +growth of Wolverine and its subsidiaries made by these +individuals, on February 10, 2005, the Board of Directors +adopted, subject to stockholder approval, the Stock Incentive +Plan of 2005 (the “Plan”). A copy of the Plan is +attached as Appendix B to this proxy statement. The Plan is +intended to supplement and continue the compensation policy and +practice of other stock incentive plans of Wolverine, which +Wolverine has utilized for these purposes for several decades. +The Plan applies to both employees of Wolverine and non-employee +directors and provides the ability for the Compensation +Committee to award stock options, stock appreciation rights, +restricted stock, restricted stock units and stock awards with +vesting and other award provisions that provide effective +incentives to Wolverine employees and non-employee directors and +alignment of stockholder, management and director interests. +Since non-employee directors will be eligible to +receive grants under the Plan, upon stockholder +9 +Table of Contents +approval of the Plan, Wolverine’s Amended +and Restated Directors’ Stock Option Plan, which was +approved by the stockholders in April 2002, will be suspended +and no additional stock options will be issued thereunder. The +Amended and Restated Directors’ Stock Option Plan is the +only current plan that permits awards of options to non-employee +directors. +Wolverine’s current stock incentive plans +have a limited number of authorized shares remaining for future +awards to employees (approximately 814,524 shares in total as of +March 1, 2005). In addition, Wolverine is currently only +able to grant awards of stock options to non-employee directors. +Thus, the Board of Directors believes that adoption of the Plan +is now advisable in order to increase the available pool of +shares for awards to employees and to allow for the grant of +awards other than stock options to non-employee directors. +The following summarizes information as of +March 1, 2005, with respect to available shares and +outstanding awards under Wolverine’s existing equity-based +incentive plans: +• +814,524 shares of common stock were available for +the grant of new awards to employees under all of +Wolverine’s existing equity-based compensation plans for +employees; +• +options to acquire 5,446,734 shares of common +stock were outstanding and unexercised under all of +Wolverine’s existing equity-based compensation plans for +employees; +• +options to acquire 524,599 shares of common stock +were outstanding and unexercised under all of +Wolverine’s stock option plans for non-employee directors; +• +the weighted-average exercise price of all +outstanding stock options was approximately $13.43; +• +the weighted-average term until expiration of all +outstanding stock options was 6.13 years; and +• +559,961 shares of common stock previously +available for the grant of stock options to non-employee +directors under the Amended and Restated Directors’ Stock +Option Plan will no longer be available for grant upon +stockholder approval of the Plan. +On March 1, 2005, the closing price of +Wolverine common stock on the New York Stock Exchange was +$22.81 per share. +The following summarizes certain important +information about the proposed Plan: +• +4,250,000 shares of common stock would be +available for awards under the Plan, subject to certain +anti-dilution and other adjustments; +• +each share to be issued under the Plan pursuant +to awards of restricted stock, restricted stock units, stock +appreciation rights and stock awards would count as two +(2) shares against the total pool of shares available under +the Plan, and each share issued pursuant to awards of stock +options would count as one (1) share against the pool; +• +the Company has historically granted +approximately 75 to 81 percent of incentive awards as stock +options and the remaining awards as restricted stock; at this +percentage range, a total of approximately 3,500,000 shares +could be awarded under the Plan; +• +the exercise or settlement price for all stock +options and stock appreciation rights issuable under the Plan +must be at least 100% of the market value of Wolverine’s +common stock on the date of grant; +• +other than in connection with a change in +Wolverine’s capitalization, the Plan prohibits repricing or +modification of any award under the Plan without stockholder +approval if the effect of the action would be to reduce the +exercise or settlement price of an outstanding stock option or +stock appreciation right; +• +stock option, restricted stock and restricted +stock unit awards to employees will vest according to schedules +set by the Compensation Committee based on +(i) Wolverine’s performance and/or (ii) continued +employment with Wolverine over a period of time; +• +stock options granted to employees and all awards +of restricted stock and restricted stock units that provide for +vesting solely based on continued employment or service with +Wolverine may not provide for full vesting over a period of less +than three years (except in the event of a change in control of +Wolverine or the recipient’s death, disability or +retirement); +• +no participant in the Plan may be granted awards +with respect to more than 450,000 shares of Wolverine common +stock in any calendar year; +• +annual awards to non-employee directors are +limited to a market value (as described in the Plan) on the date +of grant of 150% of the director’s annual retainer and full +Board meeting fees and initial awards upon becoming a director +are limited to a +10 +Table of Contents +market value of 300% of such annual retainer and +full Board meeting fees; and +• +shares available for issuance under the Plan are +only replenished for awards that have been terminated, expired +unexercised, forfeited or settled in cash. +Summary of the Plan +The following is a summary of the principal +features of the Plan and is qualified in its entirety by +reference to the terms of the Plan attached as Appendix B +to this proxy statement. +General. The Plan is +intended to grant stock incentives consistent with the past +practice of Wolverine. Most of the options granted to employees +under the current plans have been incentive stock options within +the meaning of the Internal Revenue Code with an exercise price +equal to the market price of the stock on the date of grant. +However, the Plan would also permit the grant of stock +appreciation rights, restricted stock, restricted stock units +and stock awards if determined to be desirable to advance the +purposes of the Plan (together with stock options, collectively +referred to as “Incentive Awards”). By combining in a +single plan many types of incentives commonly used in employee +and director long-term incentive compensation programs, the Plan +is intended to provide significant flexibility for Wolverine to +design specific long-term incentives to best promote Plan +objectives and in turn promote the interests of Wolverine’s +stockholders. Executive officers, officers, key employees and +directors of Wolverine and its subsidiaries may be considered to +have interests in the Plan because they may receive Incentive +Awards under the Plan. The Plan would not be qualified under +Section 401(a) of the Internal Revenue Code and would not +be subject to the Employee Retirement Income Security Act of +1974. +Shares Subject to the +Plan. Subject to certain anti-dilution +and other adjustments, the total number of shares available for +Incentive Awards under the Plan would be 4,250,000 shares of +Wolverine’s common stock, $1.00 par value. Each share +issued pursuant to an award of stock, stock appreciation rights, +restricted stock or restricted stock units would count as two +(2) shares towards the 4,250,000 share limit. Each share +issued pursuant to an award of stock options would count as one +(1) share towards the 4,250,000 share limit. +No Plan participant may be granted Incentive +Awards with respect to more than 450,000 shares of Wolverine +common stock during any calendar year, subject to certain +anti-dilution and other adjustments. In addition, annual +Incentive Awards to non-employee directors are limited to a +market value on the date of grant equal to 150% of the +director’s annual retainer and full Board meeting fees, and +initial awards upon becoming a director are limited to a market +value of 300% of such annual retainer and full Board meeting +fees. +Eligibility. Persons +eligible to receive Incentive Awards under the Plan (with +certain limitations discussed below) include corporate executive +officers (currently eight persons), other officers and key +employees (currently approximately 210 persons) and +non-employee directors (currently nine persons) of Wolverine and +its subsidiaries in consideration of their abilities to +contribute to increased stockholder value as determined by the +Compensation Committee. Additional individuals may become +executive officers, officers, key employees or directors in the +future and could participate in the Plan. +Administration. The +Plan would be administered by the Compensation Committee of the +Board of Directors. The Compensation Committee would determine, +subject to the terms of the Plan, the persons to receive +Incentive Awards, the amount of Incentive Awards to be granted +to each person (subject to the limits specified in the Plan), +the time of each grant, the terms and duration of each grant and +all other determinations necessary or advisable for +administration of the Plan. The Compensation Committee has the +authority to amend the terms of Incentive Awards granted under +the Plan from time to time in a manner consistent with the terms +of the Plan. Notwithstanding the preceding sentence, other than +in connection with a change in Wolverine’s capitalization, +no Incentive Award granted under the Plan may be repriced or +modified without stockholder approval if the effect of such +repricing or modification would be to reduce the exercise or +settlement price of then outstanding Incentive Awards to the +same participants. +Stock Options. The +Plan permits Wolverine to grant to participants options to +purchase shares of Wolverine common stock at stated prices for +specific periods of time. Certain stock options that could be +granted to employees under the Plan may qualify as incentive +stock options as defined in Section 422 of the Internal +Revenue Code. Wolverine has traditionally granted incentive +stock options to its officers and key employees as a form of +long-term, equity-based incentive compensation. The Plan also +allows for the +11 +Table of Contents +grant of stock options to employees and to +non-employee directors that are not intended to qualify as +incentive stock options within the meaning of the Internal +Revenue Code. Stock options may be granted at any time prior to +the termination of the Plan according to its terms or by action +of the Board of Directors. +The Compensation Committee would establish the +terms of individual stock option grants in stock option +agreements. The stock option agreements would contain terms, +conditions and restrictions that the Compensation Committee +determines to be appropriate and consistent with the provisions +of the Plan. The Plan requires that vesting schedules set by the +Compensation Committee for employees be based on company +performance and/or continued employment or service with +Wolverine over a period of time; provided that stock options +granted to employees with vesting schedules that are based +solely on continued employment with Wolverine may not provide +for full vesting over a period of less than three years (except +in the event of a change in control of Wolverine or the death, +disability or retirement of the option holder). Stock options +granted to non-employee directors are not subject to this +three-year minimum vesting provision and may be granted with +immediate vesting. Stock options granted by the Compensation +Committee to employees under the stock incentive plans currently +in place generally vest in four installments over a three-year +period subject to, among other things, the participant’s +continued employment with Wolverine or the applicable +subsidiary. Stock options granted to non-employee directors have +typically been fully vested on the date of grant. When +exercising all or a portion of a stock option, a participant may +pay the exercise price with cash or, if permitted by the +Compensation Committee, shares of Wolverine common stock that +meet required holding periods or other consideration +substantially equal to cash. The Compensation Committee could +also authorize payment by employees other than directors or +executive officers of all or a portion of the exercise price in +the form of a full recourse promissory note or installments on +terms approved by the Compensation Committee. In addition, the +Compensation Committee may implement a program for the +broker-assisted cashless exercise of stock options. +Although the term of each stock option would be +determined by the Compensation Committee, no stock option would +be exercisable under the Plan after the expiration of +10 years from the date it was granted. Stock options +generally become fully vested and will remain exercisable for +limited periods of time in the event a stock option holder dies +or becomes disabled. Unless the Compensation Committee +determines otherwise, if a stock option holder is terminated +without cause, no additional vesting will occur and the options +previously vested will remain exercisable for a limited period +of time. If a stock option holder is terminated for cause, the +stock option holder will forfeit all rights to exercise any +outstanding stock options unless the Compensation Committee +determines otherwise. If a stock option holder retires +(i) after age 62, (ii) after age 50 and the +completion of seven years of service as an employee, officer +and/or director of Wolverine or any subsidiary, or +(iii) upon attaining any other age or years of service +determined by the Compensation Committee, all of his or her +options become fully vested and may be exercised for the +remainder of the terms of the options unless the terms of the +option agreement or grant provide otherwise. Stock options +granted to participants under the Plan generally may not be +transferred except by will or by the laws of descent and +distribution, unless the Compensation Committee otherwise +consents or transfer is permitted by the terms of the grant or +the applicable stock option agreement. +Stock Appreciation +Rights. The Plan also permits the +Compensation Committee to grant stock appreciation rights. Stock +appreciation rights each count as two (2) shares for +purposes of determining shares available for issuance under the +Plan. A stock appreciation right permits the holder to receive +the difference between the market value of the shares of common +stock subject to the stock appreciation right on the exercise +date of the stock appreciation right and the exercise or +settlement price of the stock appreciation rights. Stock +appreciation rights may be granted in tandem with Incentive +Awards granted under the Plan or stock options granted under +other of Wolverine’s equity-compensation plans or separate +and apart from a grant of an Incentive Award or stock option. As +with stock option grants, the Compensation Committee would +establish the terms of individual awards of stock appreciation +rights in an award agreement. Unless settled in cash, the +exercise of a stock appreciation right that is granted in tandem +with an Incentive Award or stock option will be in lieu of +exercising such Incentive Award or stock option. Stock +appreciation rights granted in tandem with an Incentive Award or +stock option may be granted at the time the related award is +granted or at any time after the grant and before the exercise +or expiration of such +12 +Table of Contents +award. All stock appreciation rights that are not +granted in tandem with another award will be subject to the same +terms and conditions as are applicable to stock options granted +under the Plan, including the terms and conditions described +above. All stock appreciation rights granted in tandem with an +Incentive Award or stock option will have the same vesting, +exercisability, forfeiture and termination provisions as the +award with respect to which it was granted. Stock appreciation +rights may be settled in shares of Wolverine’s common +stock, cash or a combination thereof. +Restricted Stock and Restricted Stock +Units. The Plan also permits the +Compensation Committee to award restricted stock and restricted +stock units, subject to such terms and conditions set by the +Compensation Committee. Shares of restricted stock and +restricted stock units each count as two (2) shares for +purposes of determining shares available for issuance under the +Plan. As with stock option grants, the Compensation Committee +would establish the terms of individual awards of restricted +stock and restricted stock units in award agreements. The Plan +requires that vesting schedules set by the Compensation +Committee be based on company performance and/or continued +employment or service with Wolverine over a period of time; +provided that awards with vesting schedules that are based +solely on continued employment or service as a non-employee +director with Wolverine may not provide for full vesting over a +period of less than three years (except in the event of a change +in control of Wolverine or the death, disability or retirement +of the participant). Restricted stock previously granted to +employees (other than under the LTIP) generally vests in three +installments over a five-year period, with 25% of the shares +subject to an award vesting on the third anniversary of the date +of grant, 25% of the shares vesting on the fourth anniversary +and the remaining shares vesting on the fifth anniversary. +Unless the Compensation Committee consents or provides otherwise +in an award agreement, if a participant’s employment is +terminated during the restricted period for any reason other +than death, disability or retirement (as defined in the Plan), +the participant’s restricted stock and restricted stock +units that are still subject to full or partial restrictions +would be entirely forfeited. If the participant’s +employment terminates during the restricted period by reason of +death, disability or retirement, the restrictions on the +participant’s shares and units would terminate +automatically. Wolverine has traditionally granted restricted +stock awards as a form of long-term equity-based incentive +compensation pursuant to its current stock incentive plans. +Without Compensation Committee authorization, a +recipient of restricted stock or restricted stock units would +not be allowed to sell, exchange, transfer, pledge, assign or +otherwise dispose of the stock or stock unit other than by will +or the laws of descent and distribution. In addition, the +Compensation Committee could impose other restrictions on shares +of restricted stock and/or restricted stock units. A restricted +stock unit award represents the right to receive a specified +number of shares of Wolverine common stock upon vesting of the +award. Unless otherwise provided by the Compensation Committee, +holders of restricted stock would enjoy all other rights of a +stockholder with respect to restricted stock, including the +right to vote restricted shares at stockholders’ meetings +and the right to receive all dividends paid with respect to +shares of Wolverine common stock. Unless otherwise provided by +the Compensation Committee, holders of restricted stock units +would also be entitled to all dividends and other distributions +paid with respect to the shares subject to the restricted stock +unit award, however, holders of restricted stock units would not +have any voting rights with respect to such shares prior to the +vesting and transfer of the shares to the holder. Any securities +received by a holder of restricted stock or restricted stock +unit pursuant to a stock dividend, stock split, +recapitalization, merger, consolidation, combination or exchange +of shares would be subject to the same terms, conditions and +restrictions that are applicable to the restricted stock or +restricted stock unit for which the securities are received. +Stock Awards. The +Plan also permits the Compensation Committee to make stock +awards. Shares of stock awarded each count as two +(2) shares for purposes of determining shares available for +issuance under the Plan. A stock award of Wolverine’s +common stock would be subject to terms and conditions set by the +Compensation Committee at the time of the award. Stock award +recipients would generally have all voting, dividend, +liquidation and other rights with respect to awarded shares of +Wolverine common stock. However, the Compensation Committee +could impose restrictions on the assignment or transfer of +Wolverine common stock awarded under a stock award. Wolverine +has previously granted stock awards for minimal numbers of +shares to a limited number of persons in connection with +short-term programs targeted at specific locations +13 +Table of Contents +or profit centers as rewards for achieving +pre-established sales or similar goals. Wolverine presently +expects any future awards would be for a de minimis number of +shares and similar purposes. +Deferred Stock +Units. The Plan provides that the +Compensation Committee may establish rules for the deferred +delivery of shares following the exercise of a stock option or +stock appreciation right or following the settlement, vesting or +other events with respect to restricted stock and restricted +stock units that could delay the recognition of taxable income +by the holder (and the deduction by Wolverine) in connection +with such an Incentive Award. +Performance-Based +Awards. Section 162(m) of the +Internal Revenue Code, as amended, limits to $1,000,000 the +annual income tax deduction that may be claimed by a publicly +held corporation for compensation paid to its chief executive +officer and to the four most highly compensated officers other +than the chief executive officer. Qualified +“performance-based” compensation is exempt from the +$1,000,000 limit and may be deducted even if other compensation +exceeds $1,000,000. The proposed Plan is intended to provide for +the ability to grant awards that qualify as performance-based +compensation under Section 162(m) to permit compensation +associated with such awards awarded under the Plan to be tax +deductible to Wolverine while allowing, as nearly as +practicable, the continuation of Wolverine’s preexisting +practices with respect to the award of equity compensation. +Compensation associated with awards of restricted +stock and restricted stock units under the Plan would not, based +upon Wolverine’s past practices, qualify as +performance-based compensation for purposes of +Section 162(m) and would be subject to the $1,000,000 +deductibility limit. However, the Plan does allow for the grant +of awards of restricted stock, restricted stock units and stock +awards that qualify as performance-based compensation. To +qualify as performance-based compensation, the vesting of an +award of stock, restricted stock or restricted stock units must +be contingent on the achievement of one or more Qualifying +Performance Criteria (as defined in the Plan and described +below). Notwithstanding satisfaction of any performance goals, +the number of shares of common stock granted, issued, retained +and/or vested under an award of stock, restricted stock or +restricted stock units may be reduced by the Compensation +Committee on the basis of such further considerations as the +Compensation Committee in its sole discretion shall determine. +No award of stock, restricted stock or restricted stock units +granted under the Plan that is intended to satisfy the +requirements for performance-based compensation under +Section 162(m) will be payable unless the Compensation +Committee certifies in writing that the applicable performance +goals have been satisfied. +Qualifying Performance +Criteria. The performance criteria for +any award of stock, restricted stock or restricted stock units +that is intended to satisfy the requirements for +performance-based compensation under Section 162(m) will be +any one or more of the following, either individually, +alternatively or in any combination, applied to either Wolverine +as a whole or to a business unit or subsidiary, either +individually, alternatively or in any combination, and measured +either annually or cumulatively over a period of years, on an +absolute basis or relative to a pre-established target, to +previous years’ results or to a designated comparison +group, in each case as specified by the Compensation Committee: +(a) net earnings or earnings per share (including earnings +before interest, taxes, depreciation and/or amortization), +(b) income, net income or operating income, +(c) revenues, (d) net sales, (e) return on sales, +(f) return on equity, (g) return on capital (including +return on total capital or return on invested capital), +(h) return on assets or net assets, (i) earnings per +share, (j) economic value added measurements, +(k) return on invested capital, (l) return on +operating revenue, (m) cash flow (before or after +dividends), (n) stock price, (o) total stockholder +return, (p) market capitalization, (q) economic value +added, (r) debt leverage (debt to capital), +(s) operating profit or net operating profit, +(t) operating margin or profit margin or (u) cash from +operations. To the extent consistent with Section 162(m), +the Compensation Committee may appropriately adjust any +evaluation of performance under a Qualifying Performance +Criteria to exclude any of the following events that occurs +during a performance period: (i) asset write-downs, +(ii) litigation or claim judgments or settlements, +(iii) the effect of changes in tax law, accounting +principles or other such laws or provisions affecting reported +results, (iv) accruals for reorganization and restructuring +programs, and (v) any extraordinary non-recurring items as +described in Accounting Principles Board Opinion No. 30 +and/or in management’s discussion and analysis of financial +condition and results of operations appearing in +Wolverine’s annual report to stockholders for the +applicable year. +14 +Table of Contents +Change in Control. +Upon the occurrence of a “change in control” of +Wolverine (as defined in the Plan), all outstanding stock +options and stock appreciation rights would become immediately +exercisable in full and would remain exercisable in accordance +with their terms and all other outstanding Incentive Awards +under the Plan would immediately become fully vested and +nonforfeitable. In addition, the Compensation Committee, without +the consent of any affected participant, could determine that +some or all participants holding outstanding stock options +and/or stock appreciation rights would receive, with respect to +some or all of the shares subject to such stock options and/or +stock appreciation rights, cash in an amount equal to the +greater of the excess over the exercise price per share of each +stock option or stock appreciation right of: (i) the +highest sale price of the shares on the New York Stock Exchange +immediately before the effective date of the change in control; +or (ii) the price per share actually paid in connection +with any change in control of Wolverine. +Amendment and +Termination. The Board of Directors +may terminate the Plan at any time and may from time to time +amend or alter the Plan or any aspect of it as it considers +proper and in the best interests of Wolverine, provided that no +such amendment may be made without the approval of stockholders +that would (i) reduce the exercise price at which stock +options or stock appreciation rights may be granted below the +price provided for in the Plan, (ii) reduce the exercise +price of outstanding options, (iii) increase the yearly +individual maximum limit on awards or (iv) otherwise amend +the Plan in any manner requiring stockholder approval by law or +under the New York Stock Exchange listing requirements. The +Compensation Committee may alter or amend an award agreement +and/or incentive award previously granted under the Plan to the +extent it determines that such action is appropriate. +Notwithstanding anything to the contrary in this paragraph, no +such amendment or alteration to the Plan or to any previously +granted award agreement or incentive award may be made that +would impair the rights of the holder of the award, without such +holder’s consent, provided that no such consent is required +if the Compensation Committee determines in its sole discretion +and prior to the date of any change of control (as defined in +the applicable award agreement) that such amendment or +alteration is required or advisable in order for Wolverine, the +Plan or the incentive award to satisfy any law or regulation or +to meet the requirements of or avoid adverse financial +accounting consequences under any accounting standard. +Subject to stockholder approval, the Plan would +take effect on April 21, 2005, and, unless terminated +earlier by the Board of Directors, no awards could be made under +the Plan after April 20, 2015. +New Plan Benefits. +Because benefits under the Plan will depend on the Compensation +Committee’s actions and the fair market value of +Wolverine’s common stock at various future dates, the +benefits payable under the Plan and the benefits that would have +been payable had the Plan been in effect during the most recent +fiscal year are not determinable. +Registration. +Wolverine intends to register shares covered by the Plan under +the Securities Act of 1933 before any Incentive Award could be +exercised. If the Plan is not approved by the stockholders, no +Incentive Awards will be made under the Plan. +Federal Income Tax Consequences of the +Plan +The following is only a summary of the effect of +U.S. federal tax laws upon participants and Wolverine, is not +complete, does not discuss the income tax laws of any state or +foreign country in which a participant may reside, and is +subject to change. Please note that the description with regard +to stock appreciation rights and the deferred delivery of shares +in particular are subject to change due to recently enacted tax +legislation. Participants in the Plan should consult their own +tax advisors regarding the specific tax consequences to them of +participating in and receiving Incentive Awards under the Plan. +Stock Options. For +federal income tax purposes, the participant would not recognize +income and Wolverine would not receive a deduction at the time +an incentive stock option is granted or at the time the +incentive stock option is exercised. The difference between the +market value of the common stock subject to the incentive stock +option and the exercise price would, however, be a tax +preference item for purposes of calculating alternative minimum +tax. Upon sale of the stock acquired pursuant to an incentive +stock option, as long as the participant held the stock for at +least one year after the date of exercise of the stock option +and at least two years after the date of grant of the stock +option, the participant’s basis would equal the exercise +price and the participant would pay tax on the difference +between the sale proceeds and the exercise price as capital +gain. Wolverine would receive no deduction for federal income +tax purposes under these +15 +Table of Contents +circumstances. If, however, before the expiration +of either of the above-described holding periods, the +participant sold shares acquired under an incentive stock +option, the participant generally would recognize taxable +compensation income equal to the difference between the exercise +price and the market value of the common stock acquired pursuant +to the stock option at the time of exercise. Wolverine would +then receive a corresponding deduction for federal income tax +purposes. Additional gains, if any, recognized by the +participant would result in the recognition of short- or +long-term capital gain. +Federal income tax laws provide different rules +for nonqualified stock options — those options that do +not meet the Internal Revenue Code’s definition of an +incentive stock option. Under current federal income tax laws, a +participant would not recognize any income and Wolverine would +not receive a deduction at the time a nonqualified option is +granted. If a nonqualified option is exercised, the participant +would recognize compensation income in the year of exercise +equal to the difference between the exercise price and the +market value of the stock acquired upon exercise on the date of +exercise. Wolverine would receive a corresponding deduction for +federal income tax purposes. The participant’s tax basis in +the shares acquired would be increased over the exercise price +by the amount of compensation income recognized. Sale of the +stock after exercise would result in recognition of short- or +long-term capital gain or loss. +Stock Appreciation +Rights. The treatment of stock +appreciation rights that are payable solely in the form of +Wolverine’s common stock under federal income tax laws is +similar to the treatment of nonqualified stock options as +described above. Under current federal income tax laws, a +participant would not recognize any income and Wolverine would +not receive a deduction at the time a stock appreciation right +is granted. If a stock appreciation right is exercised, the +participant would recognize compensation income in the year of +exercise equal to the difference between the exercise or +settlement price and the market value of the stock acquired upon +exercise on the date of exercise. Wolverine would receive a +corresponding deduction for federal income tax purposes. The +participant’s tax basis in the shares acquired would be +increased over the exercise price by the amount of compensation +income recognized. Sale of the stock after exercise would result +in recognition of short-or long-term capital gain or loss. +Federal income tax laws provide different rules +for stock appreciation rights that are payable in cash from +those that are payable solely in the form of Wolverine common +stock. Under current federal income tax laws, a participant +would not recognize any income and Wolverine would not receive a +deduction at the time a stock appreciation right is granted. +Depending on the terms of the stock appreciation right, pursuant +to recently enacted tax legislation, a participant may recognize +taxable income upon the vesting of a cash-settled stock +appreciation right and may also be subject to additional excise +taxes and penalties. Wolverine would receive a corresponding +deduction in any year in which the participant recognizes +taxable income. +Restricted Stock, Restricted Stock Units and +Stock Awards. Generally, a participant +would not recognize income upon the award of restricted stock or +restricted stock units. However, a participant would be required +to recognize compensation income on the value of shares subject +to such an award at the time the award vests (when the +restrictions lapse). Stock awards are generally recognized as +compensation income at issuance. At the time the participant +recognizes compensation income, Wolverine would be entitled to a +corresponding deduction for federal income tax purposes. If +restricted stock or a restricted stock unit is forfeited by a +participant prior to vesting, the participant would not +recognize income and Wolverine would not receive a deduction. +Prior to the vesting and lapse of restrictions, dividends paid +on shares subject to awards of restricted stock and restricted +stock units would be reported as compensation income to the +participant and Wolverine would receive a corresponding +deduction. +A participant could, within 30 days after +the date of an award of restricted stock (but not an award of +restricted stock units), elect to report compensation income for +the tax year in which the award of restricted stock occurs. If +the participant makes such an election, the amount of +compensation income would be the value of the award of +restricted stock at the time of grant. Any later appreciation in +the value of the restricted stock would be treated as capital +gain and realized only upon the sale of the stock subject to the +award of restricted stock. Dividends received after such an +election would be taxable as dividends and not treated as +additional compensation income. If, however, restricted stock is +forfeited after the participant makes such an election, the +participant would not be allowed any deduction for the amount +earlier taken into income. Upon the sale of shares +16 +Table of Contents +subject to the restricted stock award, a +participant would realize capital gain (or loss) in the amount +of the difference between the sale price and the value of the +stock previously reported by the participant as compensation +income. +Withholding. If +Incentive Awards are made under the Plan, Wolverine could +withhold from any cash otherwise payable to a participant or +require a participant to remit to Wolverine an amount sufficient +to satisfy federal, state, local and foreign withholding taxes. +Tax withholding obligations could be satisfied by withholding +Wolverine common stock to be received upon exercise of an option +or stock appreciation right or the vesting of restricted stock, +restricted stock unit or stock award or by delivery to Wolverine +of previously owned shares of common stock, subject to certain +holding period requirements. +Miscellaneous Tax +Issues. Wolverine will generally be +entitled to a tax deduction corresponding in amount and time to +the participant’s recognition of ordinary income in the +circumstances described above, provided, among other things, +that such deduction meets the test of reasonableness and is an +ordinary and necessary business expense. However, in connection +with a change in control of Wolverine, and depending upon the +terms and conditions of an Incentive Award and upon the +individual circumstances of the holder of such award, certain +amounts with respect to awards granted under the Plan may +constitute “excess parachute payments” under the +“golden parachute” provisions of Section 280G of +the Internal Revenue Code. Pursuant to these provisions, the +holder of the award will be subject to a 20% excise tax on any +“excess parachute payment” and Wolverine will be +denied any deduction with respect to such payment. In addition, +as noted above, in certain instances as a result of the +application of Section 162(m) of the Internal Revenue Code, +Wolverine may be denied a compensation deduction for awards +granted to certain officers that do not qualify as +“performance-based compensation” to the extent their +aggregate compensation exceeds $1,000,000 in a given year. +Deferred Stock +Units. As noted above, the Plan +provides that the Compensation Committee may establish rules for +the deferred delivery of shares following the exercise of a +stock option or stock appreciation right or following the +settlement, vesting or other events with respect to restricted +stock and restricted stock units that could delay the +recognition of taxable income by the holder (and the deduction +by Wolverine) in connection with such an Incentive Award. +Vote Required +Approval of the Stock Incentive Plan of 2005 +requires an affirmative vote of stockholders holding a majority +of the shares present in person or represented by proxy and +entitled to vote on this proposal. In addition, New York Stock +Exchange rules require that the total vote cast on this proposal +represent a majority of all shares entitled to vote on this +proposal. For purposes of counting votes on this proposal, +abstentions will be counted as voted against the proposal. +Broker non-votes will not be counted as voted on the proposal, +and the number of shares of which a majority is required will be +reduced by the number of shares not voted. +Your Board of Directors recommends that you +vote FOR approval of the Stock Incentive Plan of +2005. +Amendment of the Certificate of +Incorporation +The Board of Directors proposes to amend the +Fourth Article of Wolverine’s Certificate of Incorporation +to increase Wolverine’s authorized capital stock from +82,000,000 shares, of which 80,000,000 are shares of common +stock, $1.00 par value per share (“Common +Stock”), to 162,000,000 shares, of which 160,000,000 would +be shares of Common Stock. The purpose of the amendment is to +provide additional shares for possible future issuance. +As of March 1, 2005, there were 58,141,657 +authorized shares of Common Stock issued and outstanding, +excluding 155,721 shares of treasury stock. If all outstanding +stock options were exercised, there would have been +approximately 64,122,529 shares of Common Stock issued and +outstanding as of March 1, 2005. A significant number of +our existing authorized shares were used in connection with the +three-for-two stock split (in the form of a stock dividend) +distributed on February 1, 2005. +The Board of Directors believes that it is +advisable to have additional authorized shares of Common Stock +available to give Wolverine the ability to react quickly to +opportunities. Although the Board of Directors has no present +plans or commitments for the issuance of +17 +Table of Contents +any of the additional shares that would be +authorized upon approval of this amendment, such shares would be +available for possible future stock splits and dividends, public +or private offerings of Common Stock or securities convertible +into Common Stock, employee benefit plans, equity-based +acquisitions and other corporate purposes that might be +proposed. If Wolverine’s authorized capital stock is not +increased, as of March 1, 2005, it would have less than +14,347,300 shares available for such uses. +All of the additional shares resulting from the +increase in Wolverine’s authorized Common Stock would be of +the same class with the same dividend, voting and liquidation +rights as the shares of Common Stock presently outstanding. +Wolverine’s authorized capital stock also includes, and +will continue to include without increase, 2,000,000 shares of +preferred stock, none of which is currently outstanding. +Stockholders have no preemptive rights to acquire shares issued +by Wolverine under its Certificate of Incorporation and +stockholders would not acquire preemptive rights with respect to +additional shares under the proposed amendment to +Wolverine’s Certificate of Incorporation. Under some +circumstances, the issuance of additional shares of Common Stock +could dilute the voting rights, equity and earnings per share of +existing stockholders. +If the proposed amendment is adopted, the newly +authorized shares would be unreserved and available for issuance +by Wolverine without further stockholder authorization. +Although the Board of Directors has no present +intention of issuing any additional shares of Common Stock as an +anti-takeover measure, the proposed increase in authorized but +unissued Common Stock could be considered an anti-takeover +measure because the additional authorized but unissued shares of +Common Stock could be used by the Board of Directors to make a +change in control of Wolverine more difficult. +The first paragraph of the Fourth Article of +Wolverine’s Certificate of Incorporation, as amended, would +read as follows: +FOURTH: The total number of shares that the +corporation shall have authority to issue and have outstanding +is One Hundred Sixty-Two Million (162,000,000) shares, of which +Two Million (2,000,000) shares shall be Preferred Stock, +par value One Dollar ($1.00) per share, and One Hundred Sixty +Million (160,000,000) shares shall be Common Stock, par value +One Dollar ($1.00) per share. +The affirmative vote of holders of a majority of +outstanding shares entitled to vote at the annual meeting of +stockholders is required to approve the proposed amendment to +Wolverine’s Certificate of Incorporation. For the purpose +of counting votes on this proposal, abstentions, broker +non-votes and other shares not voted have the same effect as a +vote against the proposal. The New York Stock Exchange has +advised Wolverine that shares of Common Stock held by New York +Stock Exchange member organizations, or their nominees, may be +voted on this proposal without specific instructions from the +beneficial owners of such shares. +Your Board of Directors recommends that you +vote FOR the approval of the amendment to Wolverine’s +Certificate of Incorporation. +18 +Table of Contents +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information +concerning the number of shares of Wolverine stock held by each +entity known to Wolverine to be the beneficial owner of more +than five percent of Wolverine’s outstanding shares of +common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Shared +Sole +Voting +Total +Name and Address +Sole Voting +Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Mac-Per-Wolf Company(2) +4,472,736 +4,472,736 +— +4,472,736 +7.8% +310 S. Michigan Avenue, Suite 2600 +Chicago, Illinois 60604 +Barclays entities(3) +45 Fremont Street +San Francisco, California 94105 +3,856,276 +4,266,402 +— +4,266,402 +7.44% +(1) +The numbers of shares reported in this table and +in the footnotes relating to this table have been adjusted to +reflect the three-for-two stock split distributed on +February 1, 2005. +(2) +Based on information set forth in +Schedule 13G filed February 1, 2005. The +Schedule 13G, filed jointly by Mac-Per-Wolf Company and +Janus Small Cap Value Fund, indicates that Mac-Per-Wolf Company +is the parent holding company of both PWMCO, LLC (a +broker-dealer and investment adviser) and Perkins, Wolf, +McDonnell and Company, LLC (an investment adviser). Perkins, +Wolf, McDonnell and Company, LLC provides investment advice to +several clients including the Janus Small Cap Value Fund. Janus +Small Cap Value Fund is an investment company registered under +the Investment Company Act of 1940, as amended. Mac-Per-Wolf +Company reported that it beneficially owned 4,472,736 shares of +Wolverine common stock. Janus Small Cap Value Fund reported that +it beneficially owned 2,850,000 of the 4,472,736 shares of +Wolverine common stock reported as beneficially owned by +Mac-Per-Wolf Company and is no longer the beneficial owner of +more than five percent of Wolverine’s outstanding shares of +common stock. +(3) +Based on information set forth in +Schedule 13G filed February 14, 2005. The totals in +the table reflect the combined ownership of various Barclays +entities. The Schedule 13G indicates the following +interests: (i) Barclays Global Investors, NA (a bank) has +sole voting power with respect to 2,426,119 shares and sole +dispositive power with respect to 2,836,245 shares and +beneficially owns an aggregate amount of 2,836,245 shares; +(ii) Barclays Global Fund Advisors (an investment +adviser) has sole voting power and sole dispositive power with +respect to 1,395,957 shares and beneficially owns an aggregate +amount of 1,395,957 shares; and (iii) Palomino Limited has +sole voting power and sole dispositive power with respect to +34,200 shares and beneficially owns an aggregate amount of +34,200 shares. The Schedule 13G does not describe the +relationship between the Barclays entities. +19 +Table of Contents +Stock Ownership By Management +The following table sets forth the number of +shares of common stock beneficially owned as of March 1, +2005, by each of Wolverine’s directors and nominees for +director, each of the named executive officers and all of +Wolverine’s directors, nominees for director and executive +officers as a group. An asterisk in the column for “Percent +of Class” means the individual beneficially owns less than +one percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Stock +Total +Name of +and Dispositive +or Dispositive +Options +Beneficial +Percent +Beneficial Owner +Power +Power(2) +(3) +Ownership(3) +of Class +Geoffrey B. Bloom +303,358 +7,430 +376,015 +686,803 +1.17 +% +Steven M. Duffy +110,914 +335,951 +446,865 +* +V. Dean Estes +203,565 +138,852 +342,417 +* +Donald V. Fites +15,000 +76,406 +91,406 +* +Alberto L. Grimoldi +6,157 +43,130 +49,287 +* +Stephen L. Gulis, Jr. +234,167 +268,966 +503,133 +* +David T. Kollat +70,242 +62,705 +132,947 +* +Blake W. Krueger +217,894 +265,816 +483,710 +* +Brenda J. Lauderback +0 +19,207 +19,207 +* +Phillip D. Matthews +44,238 +51,319 +95,557 +* +David P. Mehney +91,711 +57,011 +148,722 +* +Timothy J. O’Donovan +747,931 +28,474 +509,508 +1,285,913 +2.19 +% +Elizabeth A. Sanders +26,577 +5,062 +62,705 +94,344 +* +Paul D. Schrage +29,363 +51,703 +81,066 +* +All directors and executive officers as a group +2,235,991 +41,156 +2,504,742 +4,781,889 +7.89 +% +(1) +The numbers of shares stated are based on +information provided by each person listed and include shares +personally owned of record and shares that, under applicable +regulations, are considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the +listed person is legally entitled to share voting or dispositive +power by reason of joint ownership, trust or other contract or +property right, and shares held by spouses, children or other +relatives over whom the listed person may have influence by +reason of relationship. +(3) +The numbers in the Stock Options column represent +shares that may be acquired within 60 days after +March 1, 2005, by the exercise of stock options granted +under Wolverine’s various stock option plans. These numbers +are also included in the Total Beneficial Ownership column. +20 +Table of Contents +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total +stockholder return on Wolverine common stock to the +Standard & Poor’s Small Cap 600 Index and the +Standard & Poor’s 600 Footwear Index, assuming an +investment of $100.00 at the beginning of the period indicated. +Wolverine is part of the Standard & Poor’s Small +Cap 600 Index and the Standard & +Poor’s 600 Footwear Index. In addition to Wolverine, +the Standard & Poor’s 600 Footwear Index consists +of Brown Shoe Company, Inc., K-Swiss Inc. (Class A), and +The Stride Rite Corporation. These indices are weighted based on +the market capitalization of the companies included in each +index. +Cumulative total stockholder return is measured +by dividing: (i) the sum of the cumulative amount of +dividends for the measurement period, assuming dividend +reinvestment, and the difference between the share price at the +end and the beginning of the measurement period; by +(ii) the share price at the beginning of the measurement +period. +Five Year Cumulative Total Return Summary +The dollar values for total stockholder return +plotted in the graph are shown in the table below: +S&P +S&P 600 +Fiscal +Small Cap +Footwear +Year-End +Wolverine +600 Index +Index +1999 +$ +100.00 +$ +100.00 +$ +100.00 +2000 +$ +141.18 +$ +111.80 +$ +194.03 +2001 +$ +142.51 +$ +120.10 +$ +146.38 +2002 +$ +145.73 +$ +101.54 +$ +177.79 +2003 +$ +198.76 +$ +141.35 +$ +294.57 +2004 +$ +303.95 +$ +173.08 +$ +337.45 +21 +Table of Contents +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows +selected information concerning the compensation paid during +each of the three fiscal years in the period ended +January 1, 2005, to the Chief Executive Officer and each of +Wolverine’s four most highly compensated executive officers +who served in positions other than Chief Executive Officer at +the end of the last completed fiscal year. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Restricted +Shares +Name and +Stock +Underlying +LTIP +All Other +Principal Position +Year +Salary(1) +Bonus +Awards(2) +Options(3) +Payouts(4) +Compensation(5) +Steven M. Duffy +2004 +$ +360,577 +$ +269,544 +$ +195,925 +49,923 +$ +209,646 +$ +10,454 +Executive Vice +2003 +358,827 +189,611 +148,580 +56,250 +168,122 +9,954 +President +2002 +328,827 +197,721 +145,825 +54,847 +— +9,454 +V. Dean Estes +2004 +$ +329,923 +$ +202,776 +$ +87,590 +95,097 +$ +168,155 +$ +8,306 +Vice President +2003 +329,135 +184,863 +78,200 +21,457 +134,957 +6,966 +2002 +301,827 +149,072 +76,750 +24,805 +— +5,834 +Stephen L. Gulis, Jr. +2004 +$ +325,750 +$ +260,600 +$ +195,925 +227,286 +$ +189,304 +$ +8,446 +Executive Vice +2003 +323,942 +251,283 +148,580 +83,205 +151,620 +7,946 +President, Chief +2002 +296,827 +233,050 +145,825 +54,679 +— +7,446 +Financial Officer and Treasurer +Blake W. Krueger +2004 +$ +365,577 +$ +268,085 +$ +195,925 +213,960 +$ +212,685 +$ +10,342 +Executive Vice +2003 +364,019 +271,438 +148,580 +56,811 +170,666 +9,842 +President and Secretary +2002 +333,827 +207,873 +145,825 +64,543 +— +9,342 +Timothy J. O’Donovan +2004 +$ +663,077 +$ +795,692 +$ +391,850 +474,531 +$ +571,385 +$ +11,434 +Chief Executive +2003 +647,885 +742,188 +289,340 +114,219 +454,860 +10,934 +Officer, President +2002 +593,654 +699,151 +283,975 +114,630 +— +10,434 +and Director +(1) +Salaries for 2003 include an extra payroll period +compared to 2002 and 2004, caused by the timing of +Wolverine’s 2003 fiscal year-end. +(2) +The values of restricted stock awards reported in +this column are calculated using the closing market price of +common stock on the date of grant. As of the end of +Wolverine’s 2004 fiscal year, each of the named executive +officers held shares of restricted stock. Dividends are paid on +shares of restricted stock at the same rate dividends are paid +on common stock. The number of shares of restricted stock held +by each named individual and the aggregate value of those shares +at the end of Wolverine’s 2004 fiscal year (as represented +by the closing price of +22 +Table of Contents +common stock on December 31, 2004), without +giving effect to the reduction in value attributable to the +restrictions on the stock, are set forth below: +Number +Aggregate +of Shares* +Value +Mr. Duffy +44,062 +$ +922,963 +Mr. Estes +22,200 +465,016 +Mr. Gulis +44,062 +922,963 +Mr. Krueger +44,062 +922,963 +Mr. O’Donovan +86,812 +1,818,433 +* +The numbers of shares have been adjusted to +reflect the three-for-two stock split distributed on +February 1, 2005. +These numbers do not include the number or value +of shares of restricted stock, if any, awarded during the years +presented in connection with the Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”), the values of which, if any, are included in +the amounts reported in the “LTIP Payouts” column in +this table for the applicable year for each listed individual. +(3) +The number of shares underlying options have been +adjusted to reflect the three-for-two stock split distributed on +February 1, 2005, and include all option awards shown in +greater detail below under the heading “Stock Options”. +(4) +Amounts payable under the LTIP with respect to +the three-year performance period ended in 2004 were paid 100% +in cash. Wolverine anticipates that future incentive bonuses +payable under the LTIP will be paid exclusively in cash. In +prior years, amounts payable under the LTIP were paid +(i) in cash equal to 50% of the incentive bonus, and +(ii) in shares of restricted stock that have a market value +(without factoring in a reduction in value for potential +forfeiture and the transfer restrictions), on the date the cash +payment is made, equal to 70% of the incentive bonus. The dollar +amounts reported in this column for 2003 reflect the cash +payment and the market value (without factoring in a reduction +in value for potential forfeiture and the transfer restrictions) +of the shares of restricted stock on the date of payment; shares +of restricted stock were granted under existing plans that +provided for such awards, and the restrictions on such shares +lapse with respect to one-third of the shares on each of the +first three anniversaries of the date of grant. +(5) +The compensation listed in this column for 2004 +consisted of: (i) Wolverine’s contributions to the +accounts of the named executive officers under Wolverine’s +401(k) Savings Plan as follows: $6,500 for Mr. Duffy; +$6,500 for Mr. Estes; $6,500 for Mr. Gulis; $6,500 for +Mr. Krueger; and $6,500 for Mr. O’Donovan; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,954 for Mr. Duffy; +$1,806 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +23 +Table of Contents +Stock Options +The Compensation Committee administers +Wolverine’s stock option plans and also has authority to +determine the individuals to whom and the terms upon which +options are granted, the number of shares subject to each option +and the form of consideration payable upon the exercise of an +option. The Chief Executive Officer makes recommendations of +stock option grants (other than for himself), which the +Compensation Committee then considers. +The following tables set forth information +regarding stock options granted to and exercised by the named +executive officers during the fiscal year ended January 1, +2005, and the number of shares of common stock subject to and +values of options at that date: +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share(2) +Date +Value(3) +Steven M. Duffy +30,750 +1.6294 +$ +15.367 +02/17/14 +$ +129,232.00 +1,142 +0.0605 +15.307 +02/23/10 +4,778.62 +2,285 +0.1210 +15.710 +03/02/09 +9,815.43 +971 +0.0514 +15.693 +03/04/11 +4,165.39 +4,446 +0.2356 +16.527 +02/23/10 +26,509.02 +5,865 +0.3108 +16.527 +03/02/09 +20,095.33 +1,082 +0.0573 +20.500 +02/13/12 +6,063.47 +967 +0.0513 +20.500 +03/04/11 +5,424.32 +2,277 +0.1207 +20.500 +02/23/10 +12,766.08 +140 +0.0074 +21.133 +03/04/11 +806.28 +V. Dean Estes +17,250 +0.9140 +$ +15.367 +02/17/14 +$ +72,496.00 +683 +0.0362 +15.307 +02/23/10 +2,857.13 +1,365 +0.0723 +15.710 +03/02/09 +5,864.77 +615 +0.0326 +15.693 +03/04/11 +2,639.58 +465 +0.0246 +16.197 +02/24/08 +1,926.31 +1,382 +0.0732 +16.197 +02/21/09 +6,119.58 +231 +0.0122 +16.197 +02/24/08 +956.94 +696 +0.0369 +16.197 +02/24/07 +2,439.43 +2,114 +0.1120 +16.197 +03/08/10 +9,362.10 +590 +0.0312 +16.197 +02/27/10 +2,611.29 +698 +0.0370 +16.197 +02/23/10 +3,089.69 +285 +0.0151 +16.197 +02/24/10 +1,262.46 +1,599 +0.0847 +16.197 +02/22/10 +7,083.04 +2,031 +0.1076 +16.197 +03/09/09 +8,996.65 +1,022 +0.0541 +16.197 +03/08/09 +4,524.90 +927 +0.0491 +16.197 +02/28/09 +4,106.30 +278 +0.0147 +16.197 +02/24/09 +1,229.23 +1,377 +0.0730 +16.197 +02/27/06 +3,715.24 +461 +0.0244 +16.197 +02/23/07 +1,610.74 +314 +0.0166 +16.197 +02/26/08 +1,300.54 +341 +0.0180 +16.197 +02/26/08 +1,412.55 +1,979 +0.1048 +16.197 +02/22/09 +8,764.10 +891 +0.0472 +16.197 +02/22/10 +3,946.83 +5,271 +0.2793 +16.197 +03/04/11 +23,348.77 +294 +0.0156 +16.197 +02/23/09 +1,302.32 +7,043 +0.3732 +16.197 +02/11/13 +31,195.93 +24 +Table of Contents +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share(2) +Date +Value(3) +V. Dean Estes (cont.) +6,720 +0.3561 +16.197 +02/13/12 +29,767.36 +479 +0.0254 +16.197 +03/02/09 +2,119.60 +1,131 +0.0599 +16.197 +02/23/10 +5,009.95 +464 +0.0246 +16.197 +03/03/09 +2,053.15 +672 +0.0356 +16.197 +02/24/10 +2,976.74 +6,945 +0.3680 +16.197 +03/03/09 +30,764.04 +1,139 +0.0603 +20.500 +02/23/10 +6,383.04 +512 +0.0271 +20.500 +03/04/11 +2,867.74 +569 +0.0301 +20.500 +02/13/12 +3,187.31 +26 +0.0014 +21.133 +02/11/13 +147.38 +4,424 +0.2344 +21.133 +02/23/10 +25,566.95 +5,391 +0.2857 +21.133 +02/24/10 +31,158.90 +4,413 +0.2338 +21.133 +03/04/11 +25,506.26 +552 +0.0292 +21.133 +02/23/10 +3,190.45 +5,018 +0.2659 +21.133 +03/04/11 +29,000.15 +3,440 +0.1822 +21.133 +03/02/09 +19,879.62 +3,011 +0.1595 +21.133 +02/13/12 +17,400.09 +Stephen L. Gulis, Jr. +30,750 +1.6294 +$ +15.367 +02/17/14 +$ +129,232.00 +1,365 +0.0723 +15.307 +02/23/10 +5,714.25 +2,730 +0.1447 +15.710 +03/02/09 +11,729.54 +1,161 +0.0615 +15.693 +03/04/11 +4,983.01 +834 +0.0442 +17.527 +02/28/09 +3,997.70 +252 +0.0134 +17.527 +02/24/09 +1,207.94 +255 +0.0135 +17.527 +02/23/09 +1,222.32 +26,067 +1.3812 +17.527 +02/13/12 +124,949.56 +24,476 +1.2969 +17.527 +03/04/11 +117,320.86 +1,317 +0.0698 +17.527 +02/27/06 +4,283.59 +987 +0.0523 +20.017 +02/23/07 +4,134.15 +758 +0.0401 +20.803 +04/26/07 +3,304.67 +1,082 +0.0573 +20.500 +12/13/12 +6,063.47 +707 +0.0374 +17.527 +02/23/07 +2,857.70 +1,356 +0.0718 +17.527 +03/08/10 +6,499.85 +567 +0.0300 +17.527 +02/27/10 +2,717.86 +261 +0.0138 +17.527 +02/24/10 +1,251.08 +870 +0.0461 +17.527 +02/23/10 +4,170.26 +657 +0.0348 +17.527 +03/08/09 +3,149.26 +6,288 +0.3332 +20.803 +02/17/14 +35,775.79 +9,749 +0.5165 +20.803 +03/04/11 +55,464.42 +308 +0.0163 +17.527 +02/26/08 +1,446.69 +600 +0.0318 +17.527 +02/26/08 +2,822.80 +1,838 +0.0974 +17.527 +02/22/09 +8,807.87 +822 +0.0436 +17.527 +02/23/10 +3,940.17 +24,251 +1.2850 +20.017 +03/02/09 +132,756.94 +411 +0.0218 +20.017 +02/24/08 +2,058.86 +1,182 +0.0626 +20.017 +02/22/09 +6,470.74 +822 +0.0436 +20.017 +02/24/08 +4,117.73 +25 +Table of Contents +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share(2) +Date +Value(3) +Stephen L. Gulis, Jr. (cont.) +5,778 +0.3062 +20.017 +03/02/09 +31,631.08 +14,886 +0.7888 +20.017 +02/23/10 +81,491.92 +575 +0.0304 +20.017 +02/23/10 +3,145.04 +821 +0.0435 +20.017 +03/02/09 +4,491.75 +2,277 +0.1207 +20.500 +02/23/10 +12,766.08 +968 +0.0513 +20.500 +03/04/11 +5,424.32 +5,196 +0.2753 +20.017 +03/04/11 +28,448.98 +963 +0.0510 +20.803 +03/04/11 +5,479.02 +2,265 +0.1200 +20.803 +03/02/09 +12,886.79 +1,115 +0.0591 +20.803 +02/23/10 +6,340.98 +19,526 +1.0346 +20.803 +02/23/07 +81,986.27 +1,391 +0.0737 +20.017 +02/23/10 +7,612.15 +843 +0.0447 +20.017 +03/02/09 +4,614.92 +5,760 +0.3052 +20.017 +02/23/10 +31,532.54 +7,152 +0.3790 +20.017 +02/23/10 +39,152.91 +15,054 +0.7977 +20.017 +02/11/13 +82,411.62 +Blake W. Krueger +30,750 +1.6294 +$ +15.367 +02/17/14 +$ +129,232.00 +1,365 +0.0723 +15.307 +02/23/10 +5,714.25 +2,730 +0.1447 +15.710 +03/02/09 +11,729.54 +1,161 +0.0615 +15.693 +03/04/11 +4,983.01 +986 +0.0522 +20.077 +02/23/07 +4,131.22 +411 +0.0218 +20.077 +02/24/08 +2,061.96 +1,277 +0.0676 +20.077 +02/22/09 +7,009.01 +6,303 +0.3340 +20.727 +02/17/14 +35,726.77 +965 +0.0511 +20.727 +03/04/11 +5,467.30 +2,270 +0.1203 +20.727 +03/02/09 +12,864.74 +1,116 +0.0591 +20.727 +02/23/10 +6,326.08 +222 +0.0118 +20.727 +03/04/11 +1,258.41 +5,333 +0.2826 +20.727 +02/23/10 +30,227.45 +15,642 +0.8288 +20.727 +02/23/07 +65,131.20 +4,824 +0.2556 +20.727 +03/04/11 +27,345.00 +20,013 +1.0604 +17.907 +03/02/09 +98,010.33 +1,517 +0.0804 +17.907 +04/15/06 +5,217.97 +24,180 +1.2812 +17.907 +03/04/11 +118,417.52 +494 +0.0261 +17.907 +02/26/08 +2,372.09 +593 +0.0314 +17.907 +02/26/08 +2,847.95 +890 +0.0471 +17.907 +02/23/10 +4,356.18 +1,925 +0.1020 +17.907 +02/22/09 +9,424.92 +698 +0.0370 +17.907 +02/23/07 +2,882.44 +683 +0.0362 +17.907 +04/16/10 +3,342.43 +1,343 +0.0711 +17.907 +03/08/10 +6,574.67 +1,082 +0.0573 +20.500 +02/13/12 +6,063.47 +821 +0.0435 +20.077 +02/24/08 +4,116.39 +4,872 +0.2582 +20.077 +03/02/09 +26,751.18 +6,198 +0.3284 +20.077 +03/02/09 +34,031.98 +629 +0.0333 +20.077 +02/23/10 +3,450.97 +26 +Table of Contents +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share(2) +Date +Value(3) +Blake W. Krueger (cont.) +819 +0.0434 +20.077 +03/02/09 +4,496.97 +1,442 +0.0764 +20.077 +02/23/10 +7,914.99 +200 +0.0106 +20.077 +02/23/10 +1,095.41 +842 +0.0446 +20.077 +03/02/09 +4,620.51 +2,277 +0.1207 +20.500 +02/23/10 +12,766.08 +968 +0.0513 +20.500 +03/04/11 +5,424.32 +419 +0.0222 +17.907 +02/24/10 +2,049.53 +7,473 +0.3960 +17.907 +02/23/10 +36,597.77 +884 +0.0468 +17.907 +02/23/10 +4,326.79 +1,590 +0.0842 +17.907 +02/22/10 +7,786.76 +665 +0.0352 +17.907 +04/15/09 +3,254.28 +650 +0.0344 +17.907 +03/08/09 +3,180.82 +407 +0.0215 +17.907 +02/24/09 +1,990.77 +275 +0.0145 +17.907 +02/23/09 +1,344.32 +14,586 +0.7729 +20.077 +02/23/10 +80,088.81 +24,153 +1.2798 +20.077 +02/13/12 +132,619.29 +15,030 +0.7964 +20.077 +02/11/13 +82,526.72 +Timothy J. O’Donovan +67,500 +3.5766 +$ +15.367 +02/17/14 +$ +283,680.00 +24,035 +1.2735 +19.503 +03/02/09 +128,200.02 +15,767 +0.8354 +19.503 +03/02/09 +84,098.51 +467 +0.0247 +19.503 +02/23/09 +2,488.31 +467 +0.0247 +19.503 +02/24/09 +2,488.31 +1,652 +0.0875 +19.503 +02/27/09 +8,809.10 +2,228 +0.1180 +20.803 +02/23/10 +12,673.44 +5,829 +0.3089 +20.803 +02/23/10 +33,164.29 +182 +0.0096 +20.803 +03/02/09 +1,032.65 +1,320 +0.0699 +20.803 +03/02/09 +7,510.18 +2,615 +0.1385 +20.803 +02/23/10 +14,875.28 +1,286 +0.0681 +20.803 +03/02/09 +7,313.90 +1,016 +0.0538 +20.803 +02/23/10 +5,777.72 +5,649 +0.2993 +20.803 +03/02/09 +32,140.17 +1,289 +0.0683 +20.803 +02/24/08 +6,546.44 +1,929 +0.1022 +20.803 +02/22/09 +10,975.11 +644 +0.0341 +20.803 +02/24/08 +3,269.41 +1,449 +0.0768 +20.803 +02/23/07 +6,084.25 +4,806 +0.2547 +20.803 +03/04/11 +27,343.90 +965 +0.0511 +20.803 +02/23/07 +4,049.87 +872 +0.0462 +20.803 +02/24/08 +4,427.80 +545 +0.0289 +20.803 +02/24/08 +2,766.42 +2,601 +0.1378 +20.803 +02/22/09 +14,798.48 +1,353 +0.0717 +20.803 +02/23/10 +7,697.94 +51,396 +2.7233 +20.803 +03/04/11 +292,419.26 +2,814 +0.1491 +20.803 +03/08/10 +16,010.35 +1,046 +0.0554 +20.803 +02/27/10 +5,948.41 +13,803 +0.7314 +20.803 +02/17/14 +78,532.63 +2,106 +0.1116 +20.500 +02/13/12 +11,807.36 +27 +Table of Contents +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share(2) +Date +Value(3) +Timothy J. O’Donovan (cont.) +2,400 +0.1272 +20.803 +02/27/06 +7,378.40 +29,487 +1.5624 +20.803 +02/11/13 +167,767.27 +51,039 +2.7044 +20.803 +02/13/12 +290,388.09 +1,923 +0.1019 +20.803 +03/04/11 +10,940.97 +3,623 +0.1919 +20.803 +03/02/09 +20,610.33 +4,553 +0.2412 +20.500 +02/23/10 +25,523.74 +1,935 +0.1025 +20.500 +03/04/11 +10,848.64 +2,321 +0.1230 +15.693 +03/04/11 +9,959.59 +4,368 +0.2314 +15.710 +03/02/09 +18,767.26 +1,305 +0.0691 +20.803 +02/23/10 +7,424.84 +467 +0.0247 +20.803 +02/24/10 +2,654.17 +2,282 +0.1209 +20.803 +02/22/10 +12,980.67 +54,189 +2.8713 +20.803 +02/23/10 +308,310.12 +17,885 +0.9476 +20.803 +02/27/06 +54,982.91 +25,616 +1.3573 +20.803 +03/08/05 +32,051.82 +2,898 +0.1536 +20.803 +02/28/05 +3,443.98 +1,517 +0.0804 +20.803 +04/26/07 +6,615.88 +31,796 +1.6847 +20.803 +02/23/07 +133,507.18 +2,730 +0.1447 +15.307 +02/23/10 +11,428.51 +1,406 +0.0745 +19.503 +03/08/09 +7,496.94 +2,796 +0.1482 +19.503 +03/09/09 +14,913.86 +9,506 +0.5037 +19.503 +02/27/06 +29,469.58 +872 +0.0462 +19.503 +02/28/05 +1,388.94 +(1) +The numbers of shares underlying stock options +have been adjusted to reflect the three-for-two stock split +distributed on February 1, 2005. +All options indicated in boldface text above are +exercisable with respect to 25% of the shares on the date of +grant and become exercisable with respect to 25% of the shares +on each following anniversary date with full vesting occurring +on the third anniversary date of the grant. Vesting may be +accelerated upon certain events including a change in control of +Wolverine. All such options were granted for a term of +10 years. +In 1997, the Compensation Committee adopted a +program to automatically award “reload options” to a +limited group of senior executives if those executives surrender +shares of common stock to pay the exercise price or tax +withholding obligations associated with the exercise of a +then-outstanding stock option or the vesting of restricted +stock. Stock option grants (both stock options that may qualify +as incentive stock options as defined in Section 422 of the +Internal Revenue Code and stock options that would not be +incentive stock options within the meaning of the Internal +Revenue Code) and restricted stock awards under Wolverine’s +plans provided for automatic awards of reload options to such +executives for all options and awards made after 1997. All +options not shown in boldface text in the table are reload +options granted in 2004. Reload options to purchase the number +of shares surrendered by an executive are awarded at the market +price on the date of grant. Reload options granted in connection +with the exercise of another stock option have the same term as +the term remaining under the underlying option that was +exercised. Reload options granted upon vesting of restricted +stock have 10-year terms from the date of the underlying +restricted stock award. Reload options are fully vested on the +date of grant. The Compensation Committee has discontinued the +program that awards reload options and all executives who +28 +Table of Contents +previously were eligible to receive reload +options have waived their rights to receive reload options after +January 1, 2005, regardless of whether the initial grant or +award provided for reload options. +Certain senior executives are permitted to +transfer nonqualified stock options to a limited group of +permissible transferees primarily for estate planning purposes. +Options terminate, with certain limited exercise provisions, in +the event of death or certain other terminations of employment. +All options permit the option price to be paid by delivery of +cash, and the Compensation Committee has also approved the +payment of the option price by surrendering shares of common +stock held for six months or more. +(2) +The exercise prices per share have been adjusted +to reflect the three-for-two stock split distributed on +February 1, 2005. +(3) +Based on the Black-Scholes option pricing model. +The actual value, if any, an option holder may realize will +depend on the excess of the stock price over the exercise price +on the date the option is exercised. There is no assurance that +the value realized by an option holder will be at or near the +value estimated by the Black-Scholes model. The estimated values +in the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .3173%, +calculated using daily stock prices for the four years prior to +the grant date; +• +a risk free rate of return of 3.37%; +• +an expected average dividend yield of 1.0% (the +dividend yield at the date of the grant); and +• +an expected average option holding period of four +years, which approximates Wolverine’s historical experience. +No adjustments were made for the general +non-transferability of the options or to reflect any risk of +forfeiture before vesting. Disclosure of grant date present +value is presented pursuant to SEC regulations. Wolverine’s +use of the Black-Scholes model to indicate the present value of +each grant is not an endorsement of this valuation method. +Aggregated Option Exercises in Last Fiscal Year +and Fiscal Year-End Option Values +Number of Shares +Underlying Unexercised +Value of Unexercised +Number of +Options at Fiscal +In-the-Money Options at +Shares +Year-End(1) +Fiscal Year-End(2) +Acquired on +Value +Name +Exercise(1) +Realized(2) +Exercisable +Unexercisable +Exercisable +Unexercisable +Steven M. Duffy +30,426 +$ +313,675 +310,276 +57,748 +$ +2,360,807 +$ +492,636 +V. Dean Estes +177,007 +1,615,793 +141,426 +27,373 +567,131 +223,615 +Stephen L. Gulis, Jr. +285,505 +2,149,260 +231,291 +57,748 +402,842 +492,636 +Blake W. Krueger +254,680 +2,203,472 +228,141 +57,748 +426,579 +492,636 +Timothy J. O’Donovan +600,786 +6,189,737 +459,642 +121,874 +284,025 +1,030,299 +(1) +The numbers of shares acquired on exercise and +the numbers of shares underlying unexercised stock options have +been adjusted to reflect the three-for-two stock split +distributed on February 1, 2005. +(2) +The dollar values are calculated by determining +the difference between the fair market value of the securities +underlying the options and the exercise prices of the options on +the dates of exercise or at fiscal year-end, as appropriate. +29 +Table of Contents +Equity Compensation Plan Information +The following table provides information about +Wolverine’s equity compensation plans as of January 1, +2005: +Equity Compensation Plan Information +Number of +Number of Securities +Securities to be +Weighted-Average +Remaining Available for +Issued Upon +Exercise Price of +Future Issuance Under +Exercise of +Outstanding +Equity Compensation +Outstanding +Options, +Plans (Excluding +Options, Warrants +Warrants and +Securities Reflected in +and Rights(2) +Rights(2) +Column (a))(2) +Plan Category(1) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +5,582,349 +(3)(4) +$ +13.1354 +2,640,773 +(5) +Equity compensation plans not approved by +security holders +— +n/a +— +Total +5,582,349 +$ +13.1354 +2,640,773 +(1) +Each plan for which aggregated information is +provided contains customary anti-dilution provisions that are +applicable in the event of a stock split, stock dividend or +certain other changes in Wolverine’s capitalization. +(2) +The number of securities and the weighted-average +exercise prices have been adjusted to reflect the three-for-two +stock split distributed on February 1, 2005. +(3) +Includes 5,052,019 stock options awarded to +employees under the 1988 Stock Option Plan, the 1993 Stock +Incentive Plan, the 1995 Stock Incentive Plan, the 1997 Stock +Incentive Plan, the Stock Incentive Plan of 1999, the Stock +Incentive Plan of 2001 and the Stock Incentive Plan of 2003, and +530,330 stock options awarded to non-employee directors +under the currently effective Amended and Restated +Directors’ Stock Option Plan and the previous Amended and +Restated Directors’ Stock Option Plan initially adopted in +1988. Column (a) does not include stock units credited to +outside directors’ fee accounts or retirement accounts +under the Outside Directors’ Deferred Compensation Plan. +Stock units do not have an exercise price. Each stock unit +credited to a director’s fee account and retirement account +under the Outside Directors’ Deferred Compensation Plan +will be converted into one share of common stock upon +distribution. Column (a) also does not include shares of +restricted or unrestricted common stock previously issued under +Wolverine’s equity compensation plans. +(4) +Of this amount, 1,236,894 options were not +exercisable as of January 1, 2005, due to vesting +restrictions. +(5) +Comprised of: (i) 559,916 shares available +for issuance to non-employee directors under the Amended and +Restated Directors’ Stock Option Plan (the Amended and +Restated Directors’ Stock Option Plan will be suspended and +no additional stock options will be issued thereunder if the +Stock Incentive Plan of 2005 is approved by the stockholders at +the 2005 annual meeting of stockholders and these shares will no +longer be authorized for issuance under the Amended and Restated +Directors’ Stock Option Plan); (ii) 573,326 shares +available for issuance under the Outside Directors’ +Deferred Compensation Plan upon the retirement of the current +directors or upon a change in control; and (iii) 1,507,531 +shares issuable under the various employee stock incentive +plans. Of these total amounts available, the number of shares +(as adjusted to reflect the three-for-two stock split +distributed on February 1, 2005) with respect to the +following plans may be issued other than upon the exercise of an +option, warrant or right as of January 1, 2005: +• +Outside Directors’ Deferred Compensation +Plan: 573,326 +• +1997 Stock Incentive Plan: 1,020 +• +Stock Incentive Plan of 1999: 36,489 +• +Stock Incentive Plan of 2001: 496,146 +• +Stock Incentive Plan of 2003: 84,563 +30 +Table of Contents +The Outside Directors’ Deferred Compensation +Plan is a supplemental, unfunded, nonqualified deferred +compensation plan for non-employee directors. Participation in +the plan is voluntary. The plan allows participating directors +to receive, in lieu of some or all directors’ fees, a +number of stock units equal to the amount of the deferred +directors’ fees divided by the fair market value of +Wolverine’s common stock on the date of payment of the next +cash dividend on Wolverine’s common stock. These stock +units are increased by a dividend equivalent based on dividends +paid by Wolverine, the amount of stock units credited to the +participating director’s fee account and retirement account +and the market price of Wolverine common stock on the dividend +payment date. Upon distribution, the participating directors +receive a number of shares of Wolverine’s common stock +equal to the number of stock units to be distributed at that +time. Distribution is triggered by termination of service as a +director or by a change in control of Wolverine and can occur in +a lump sum, in installments or on another deferred basis. Of the +573,326 shares issuable under the Outside Directors’ +Deferred Compensation Plan, 220,101 shares have been issued to a +trust to satisfy Wolverine’s obligations and are included +in shares reported as issued and outstanding as of the record +date. +The employee stock incentive plans listed above +are equity-based incentive plans for officers and key employees. +Those plans authorize awards of stock options, restricted common +stock, common stock and, under certain plans, tax benefit +rights. The Stock Incentive Plans of 2001 and 2003 specifically +limit the number of shares that can be awarded as restricted or +unrestricted common stock to 40% and 15%, respectively, of the +shares authorized under the plan. The numbers provided in this +footnote and in column (c) will increase to the extent that +options relating to the number of shares listed in column +(a) of the table or outstanding shares of restricted or +unrestricted stock previously issued under a plan are canceled, +surrendered, modified, exchanged for substitutes or expire or +terminate prior to exercise or vesting because any such number +of shares will again become available for issuance under the +plan under which the option or stock was granted. +Long-Term Incentive Awards +Wolverine’s Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”) permits Wolverine to award cash or a +combination of cash and restricted stock to plan participants +conditioned upon the achievement of certain corporate +performance goals over a three-year performance period. +The following table sets forth certain +information concerning awards of long-term incentive +compensation to the named executive officers during the last +fiscal year: +Long-Term Incentive Plans — Awards in Last Fiscal Year +Number of +Performance or +Estimated Future Payouts Under +Shares, +Other Period until +Non-Stock-Price-Based Plans(2) +Units or Other +Maturation or +Name +Rights(1) +Payout +Threshold +Target +Maximum +Steven M. Duffy +40 +% +3 years +$ +75,721 +$ +151,442 +$ +302,884 +V. Dean Estes +35 +3 years +60,623 +121,246 +242,493 +Stephen L. Gulis, Jr. +40 +3 years +68,407 +136,815 +273,630 +Blake W. Krueger +40 +3 years +76,771 +153,542 +307,084 +Timothy J. O’Donovan +60 +3 years +208,869 +417,738 +835,477 +(1) +Under the LTIP, key management employees may earn +incentive compensation based upon achievement of specified +performance goals with respect to the performance of Wolverine +and/or its subsidiaries, operating divisions or profit centers +over a three-year performance period. Performance goals under +the LTIP for the 2004-2006 period are based 50% on total +stockholder return (as compared to a pre- established peer +group) and 50% on earnings per share. The numbers reported in +the column under the heading “Number of Shares, Units or +Other Rights” represent the percentage of each +officer’s average annual earned salary during the +three-year period that the officer will receive as bonus +compensation under the plan if the specified targets are +achieved. The Compensation Committee determined these amounts. +If higher or lower actual levels are attained during the +three-year performance period, the percentage of base salary to +be received as bonus compensation by each +31 +Table of Contents +officer will be correspondingly higher, lower or +zero. Bonuses are conditioned upon achieving a minimum or +“threshold” performance level. The Compensation +Committee established the performance goals at the beginning of +2004 for the period ending on the last day of Wolverine’s +2006 fiscal year. +(2) +Under the LTIP, amounts earned as bonus +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2004 as reported in the Summary Compensation Table, +adjusted for 5% estimated annual merit increases. Beginning in +2005, Wolverine anticipates that incentive bonuses payable under +the LTIP will be paid exclusively in cash. Wolverine previously +paid a portion of the incentive bonuses under the LTIP in cash +and a portion in restricted stock. +Pension Plan and Supplemental Executive +Retirement Plan +Wolverine has a qualified pension plan covering +most of its salaried employees. The Internal Revenue Code +imposes limitations on the maximum amount of pension benefits +payable under qualified plans. It also imposes a cap currently +equal to $210,000 (subject to grandfather provisions for +earnings accrued before January 1, 1994) on the amount of +earnings that may be taken into account in determining benefits +payable under qualified plans. +In 1995, Wolverine adopted a Supplemental +Executive Retirement Plan (the “SERP”) to replace +deferred compensation agreements previously entered into with +certain key employees, including Messrs. O’Donovan, +Duffy, Estes and Gulis. An executive covered by a deferred +compensation agreement will always be entitled to a benefit +under the SERP at least equal to what he or she would have +received under the deferred compensation agreement. The SERP +became effective January 1, 1996. +The following table illustrates the combined +estimated annual benefits payable under the pension plan and the +SERP for Wolverine’s named executive officers if they +retire at age 65 at the annual levels of average remuneration +and years of service indicated: +Pension Plan Table +Years of Service +Average Remuneration +5 +10 +15 +20 +25 or more +$ 500,000 +$ +60,000 +$ +120,000 +$ +180,000 +$ +240,000 +$ +300,000 +$ 750,000 +$ +90,000 +$ +180,000 +$ +270,000 +$ +360,000 +$ +450,000 +$1,000,000 +$ +120,000 +$ +240,000 +$ +360,000 +$ +480,000 +$ +600,000 +$1,250,000 +$ +150,000 +$ +300,000 +$ +450,000 +$ +600,000 +$ +750,000 +$1,500,000 +$ +180,000 +$ +360,000 +$ +540,000 +$ +720,000 +$ +900,000 +$1,750,000 +$ +210,000 +$ +420,000 +$ +630,000 +$ +840,000 +$ +1,050,000 +Subject to the limitations imposed by the +Internal Revenue Code, the pension plan provides monthly +benefits (computed on a straight life annuity basis without +regard to any accrued grandfathered benefits for earnings before +January 1, 1994) at normal retirement in an amount equal to +the greater of: (i) $24.00 multiplied by the participant’s +number of years of service up to 30 years; (ii) 1.6% +of final average earnings multiplied by the participant’s +number of years of service up to 30 years reduced by the +participant’s Social Security allowance as defined in the +pension plan; or (iii) for certain designated executives, a +percentage benefit multiplier of 2.4% or 2.0% of final average +earnings multiplied by the participant’s number of years of +service up to 25 years. All of the executive officers named +in the Summary Compensation Table have a percentage benefit +multiplier of 2.4% and are capped at 25 years of service. +“Final average earnings” are defined as the +participant’s average monthly earnings for the four +consecutive highest compensation calendar years out of the last +10 calendar years of the participant’s employment (with +earnings for the last year of employment annualized based on a +participant’s then rate of pay). Except for the +compensation cap imposed by the Internal Revenue Code, the +remuneration covered by the pension plan for an employee would +be essentially equivalent to the sum of the salary and bonus +amounts reported under the heading “Annual +Compensation” in the Summary Compensation Table above. +32 +Table of Contents +If the pension plan is terminated during any +period beginning on a restricted date (defined below) and ending +two years later, the pension plan requires that surplus pension +plan assets be used to purchase retiree medical and life +insurance in satisfaction of Wolverine’s then outstanding +obligations, if any, and be paid pro rata to increase the +benefits of pension plan participants, subject to legal +limitations. If the pension plan is merged with, or the assets +of the pension plan are transferred to, another plan, then +(i) benefits will be fully vested; (ii) benefits will +be increased as if the pension plan had been terminated; and +(iii) benefits will be satisfied through the purchase of a +guaranteed annuity contract. A “restricted date” is +defined as the date any person or group acquires more than 50% +of the voting stock of Wolverine in a transaction not approved +by the Board of Directors or the date during any two-year period +on which individuals who at the beginning of the period +constituted the Board of Directors (including any new director +whose nomination or election was approved by two-thirds of the +directors who were directors at the beginning of the period or +whose election or nomination was so approved) cease for any +reason to constitute a majority of the Board. +Under the SERP, a participating executive will be +eligible for an annual supplemental benefit once he or she has +completed five years of service after having been approved as a +participant in the SERP (or, for those executives already +covered by a deferred compensation agreement, five years after +entering into the deferred compensation agreement). +Alternatively, a participating executive will be eligible for a +benefit with less than five years of service if he or she +retires at or after age 65. The supplemental benefit is equal to +the difference between the executive’s retirement benefit +under Wolverine’s qualified pension plan and an amount +equal to a designated percentage of the executive’s average +earnings multiplied by the executive’s years of service +under the pension plan, except that the plan counts years during +which the executive received a disability benefit under the SERP +(except in computing the SERP’s disability benefit); +excludes years that an executive is designated as an inactive +participant; and may count deemed years of service granted by +the Board of Directors (up to a maximum of 25 years). +The designated percentage for benefits under the +SERP is either 2.4% for each year of service (including all of +the individuals listed in Summary Compensation Table) or 2% per +year of service. “Average earnings” is defined as the +average of the executive’s annual earnings for the four +consecutive highest compensation years out of the last +10 years of the executive’s employment (excluding +years during which the executive receives a disability benefit +if the exclusion would produce a higher average; yearly +compensation is not restricted by the $210,000 compensation cap +under the pension plan and for the last year of employment is +annualized). Average earnings do not include payments under the +LTIP or severance payments. For this purpose, average earnings +do not vary significantly from the sum of the salary and bonus +amounts shown under the caption “Annual Compensation” +in the Summary Compensation Table above. The final SERP benefit +is reduced by the amount of any pension benefits to which a +participant is entitled. +A retired SERP participant may draw the full +benefit beginning at age 65. A retired SERP participant may +elect to begin receiving a reduced benefit at or after +age 55. The reduction factor is 0.333% for each month prior +to age 60, and 0.1666% for each month between age 60 +and age 65. The SERP provides for a disability benefit +equal to 60% of the supplemental retirement benefit (based on +the executive’s years of service at the date of +disability). A disabled executive is still eligible for a +supplemental retirement benefit beginning at age 65 based +on all years of service (including years during which the +executive was receiving a disability benefit). The SERP also +provides for a death benefit to the executive’s designated +beneficiary if the executive dies before retiring. The death +benefit is a lump-sum equal to the present value of the benefit +the executive could have received beginning at age 65, +based on his or her years of service up to the date of death. +Benefits under the SERP are subject to forfeiture +if the executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump-sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his +33 +Table of Contents +or her actual age, if greater than age 55), +without applying the monthly early retirement reduction factor, +but based on years of service at the actual date of termination. +For purposes of the SERP, “change in control” is +defined as: +• +failure of the individuals who were directors at +the time the SERP was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters vote of the directors then still in office who +were directors at the time the SERP was adopted, or whose +election or nomination was so approved, to constitute a majority +of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Wolverine may terminate the SERP or stop further +accrual of SERP benefits for a participating executive at any +time, but termination will not affect previously accrued +benefits. +As of January 1, 2005, the persons listed in +the Summary Compensation Table had the following years of +credited service under the pension plan and the SERP: +Mr. Duffy, 16 years; Mr. Estes, 25 years; +Mr. Gulis, 20 years; Mr. Krueger, 9 years; +and Mr. O’Donovan, 25 years. +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Severance Agreements. +Under individual agreements, +Messrs. Duffy, Estes, Gulis, Krueger and O’Donovan, +and certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or +retirement in accordance with Wolverine’s policy or as +otherwise agreed; +• +the termination is by Wolverine for cause or +disability; or +• +the termination is by resignation of the officer +for other than “good reason.” +Good reason is defined in the agreements to +include, among other things, the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. +The compensation payable if such a termination +occurs after a change in control includes: +• +cash equal to two or three times the +executive’s annual salary, including target bonus; +• +cash equal to 100% of the difference between the +market price of common stock (or, if higher, the highest price +paid in connection with any change in control of Wolverine) and +the exercise prices of unexercised stock options granted to the +executive (other than incentive stock options granted after the +date of the officer’s agreement), and 100% of the +difference between the market price of common stock and exercise +prices of incentive stock options granted to the officer after +the date of the agreement which are then exercisable; +• +relocation expenses, legal fees and indemnity +against loss in the sale of the officer’s principal +residence; +• +up to two or three years’ benefits under all +employee benefit programs; +• +a cash payment at the executive’s retirement +age equal to the actuarial value of the retirement pension and +SERP benefits to which the officer would have been entitled +(without regard to vesting requirements) had he or she accrued +three additional years of service with Wolverine, reduced by the +single sum actuarial equivalent of any amounts to which the +34 +Table of Contents +executive is entitled under Wolverine’s +normal retirement plans and programs; and +• +outplacement services paid for by Wolverine. +In all of the severance agreements, the executive +has no requirement to mitigate the payments by seeking +employment, but the compensation to be paid during the fourth +and later months after termination will be reduced to the extent +of any compensation earned by the officer during the applicable +period. +A change in control is defined in the agreements +to include the acquisition of 20% or more of the common stock by +any person or group of persons acting together or a change in a +majority of the Board of Directors unless each new director was +approved by a vote of at least three-quarters of the directors +then still in office who were directors as of the date of the +applicable agreement, or whose election or nomination was so +approved. +Stock Plan Provisions. +Wolverine has granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting upon a change in control of Wolverine. +The options include options issued under plans adopted by +Wolverine in 1988, 1993, 1995, 1997, 1999, 2001 and 2003 and the +shares of restricted stock include shares awarded under plans +adopted by Wolverine in 1995, 1997, 1999, 2001 and 2003. +Under the stock option agreements entered into +between Wolverine and participants in the 1988, 1993, 1995, +1997, 1999, 2001 and 2003 plans, other than the agreements +applicable to reload options (which Wolverine no longer grants +as of January 1, 2005), 25% of each option generally +becomes exercisable on the date of grant and 25% of the shares +becomes exercisable on each of the next three anniversary dates +following the date of grant. The stock option agreements under +the 1988 plan and the plan provisions of the 1993, 1995, 1997, +1999, 2001 and 2003 plans provide that all options become +immediately exercisable in the event of a change in control of +Wolverine. +The 1995, 1997, 1999, 2001 and 2003 plans provide +for restricted stock awards. Except for any shares awarded in +connection with the payment of bonuses under the LTIP, the +restrictions on 25% of the shares received under an award +normally lapse on the third anniversary of the date of grant, +with the restrictions on an additional 25% of the shares lapsing +on the fourth anniversary and the restrictions with respect to +the remaining shares lapsing on the fifth anniversary. With +respect to any shares awarded in connection with the LTIP, the +restrictions on one-third of the shares received under an award +generally lapse over a three-year period on each of the first +three anniversaries of the date of grant. Beginning in 2005, +Wolverine anticipates that incentive bonuses payable under the +LTIP will be paid exclusively in cash. Under the five plans +listed above, restricted stock becomes fully vested and +nonforfeitable upon a change in control of Wolverine. +A change in control is defined in the agreements +under the 1988 plan to include a change of control as set forth +in the proxy rules issued by the Securities and Exchange +Commission, the acquisition of 25% or more of the common stock +by any person or group of persons acting together or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. The definition of change in control +under the 1993 plan differs from the definition of that term in +the agreements under the 1988 plan in that a change in control +is considered to occur upon the acquisition of 20% or more +(rather than 25%) of the common stock and the definition +includes the sale, lease, exchange or other transfer of +substantially all of Wolverine’s assets to, or the merger +or consolidation of Wolverine with, a corporation that is not +controlled by Wolverine. Under the 1995, 1997, 1999, 2001 and +2003 plans, a change in control is defined as: +• +failure of the individuals who were directors at +the time such plan was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-fourths vote (two-thirds vote under the 1995 Plan) of the +directors then still in office who were directors at the time +such plan was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock; +• +approval by the stockholders of a reorganization, +merger or consolidation (except with certain permitted +entities); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (other than to certain permitted entities). +35 +Table of Contents +Benefit Trust Agreement. +In May 1987, Wolverine established a +Benefit Trust (“trust”) to ensure that payments to +employees under the severance agreements, the SERP, the deferred +compensation agreements and the indemnity agreements (discussed +below) (collectively, the “agreements”) will not be +improperly withheld after a change in control of Wolverine, as +defined in the agreement establishing the trust. Under the +trust, upon the occurrence of a “potential change in +control,” Wolverine will deliver to the trustee, to be held +in trust, cash, marketable securities or insurance corresponding +to an amount determined by Wolverine to have a fair market +value, together with any existing amounts in the trust, equal to +the value of the benefits due to employees under the agreements +given certain assumptions set forth in the trust. Additional +terms of the trust provide for the return of the property to +Wolverine upon written request before a change in control or +automatically if no change in control has occurred within six +months after funding upon a potential change in control. +Wolverine has transferred to the trust insurance policies on the +lives of certain key employees. +Indemnity Agreements. +Wolverine has entered into indemnity +agreements with Messrs. Duffy, Estes, Gulis, Krueger and +O’Donovan and with each director and executive officer. The +indemnity agreements indemnify each director and executive +officer against all expenses incurred in connection with any +action or investigation involving the director or executive +officer by reason of his or her position with Wolverine (or with +another entity at Wolverine’s request). The directors and +executive officers will also be indemnified for costs, including +judgments, fines and penalties, indemnifiable under Delaware law +or under the terms of any current or future liability insurance +policy maintained by Wolverine that covers the directors and +executive officers. A director or executive officer involved in +a derivative suit will be indemnified for expenses and amounts +paid in settlement. Indemnification is dependent in every +instance on the director or executive officer meeting the +standards of conduct set forth in the indemnity agreements. +Other Plans and Agreements. +Severance agreements with various +executive officers (described above) provide for cash payments +in lieu of outstanding options if a change in control of +Wolverine and a subsequent triggering event occur. In addition, +the SERP (described above) and the Deferred Compensation Plan +(described above) provide for certain benefits and payments if a +change in control of Wolverine occurs. +Compensation Committee Report on Executive +Compensation +The Compensation Committee discharges, subject to +general review and oversight by the Board, the Board of +Directors’ responsibilities relating to executive +compensation and assists the Board in fulfilling its +responsibilities relating to Wolverine’s compensation and +benefit programs and policies. The Compensation Committee also +administers and makes recommendations with respect to +Wolverine’s compensation plans and reviews and approves +(with input from non-management directors in the case of the +Chief Executive Officer) the compensation of key senior +executives. The Compensation Committee currently consists of +three directors, none of whom is a current or former employee of +Wolverine or its subsidiaries and all of whom are independent +under the standards adopted by the Board of Directors and +applicable New York Stock Exchange and SEC standards. +The Compensation Committee consults with +compensation consulting firms as it deems necessary from time to +time to: assist the Compensation Committee in formulating +Wolverine’s compensation policies; provide advice to the +Compensation Committee concerning specific compensation packages +and appropriate levels of executive and Board of Director +compensation; provide advice about competitive levels of +compensation; and review and recommend changes in the +compensation system and programs of Wolverine. +The basic compensation philosophy of the +Compensation Committee and Wolverine is to provide competitive +salaries as well as competitive incentives to achieve superior +financial performance. Wolverine’s executive compensation +policies are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who +will lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific +short-term individual, business unit and corporate goals; +36 +Table of Contents +• +provide incentives for achievement of longer-term +financial goals; and +• +align the interests of management with those of +the stockholders to encourage achievement of continuing +increases in stockholder value. +Executive compensation at Wolverine consists +primarily of the following components: +• +base salary and benefits; +• +amounts paid, if any, under the Amended and +Restated Executive Short-Term Incentive Plan (the “Annual +Bonus Plan”); +• +amounts paid, if any, under the Amended and +Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) +(the “LTIP”); +• +amounts paid, if any, as individual-specific +bonuses designed to encourage achievement of individual goals; +• +participation in Wolverine’s stock option +and equity-based incentive plans; and +• +participation in Wolverine’s retirement +plans. +Each component of compensation is designed to +accomplish one or more of the four compensation objectives +described above. +Except with respect to the Chief Executive +Officer, management recommends the participation of specific +executive officers and other key employees in the Annual Bonus +Plan, the LTIP and Wolverine’s stock option and +equity-based incentive plans. All such recommendations +(including the level of participation) are reviewed, modified +(to the extent appropriate) and approved by the Compensation +Committee. Senior executive officers are normally eligible to +receive a greater percentage of their potential compensation in +the form of awards under these incentive plans to reflect the +Compensation Committee’s belief that the percentage of an +executive’s total compensation that is “at risk” +should increase as the executive’s responsibilities and +ability to influence profits increase. +Section 162(m) of the Internal Revenue Code +provides that publicly held companies may not deduct +compensation paid to certain executive officers in excess of +$1,000,000 annually, with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and the 1997, 1999, 2001 and 2003 stock incentive plans to +permit amounts payable under the Annual Bonus Plan and the LTIP +and awards of stock options granted under the 1997, 1999, 2001 +and 2003 plans to qualify as “performance-based” +compensation for purposes of Section 162(m). Because +incentives under these plans are not included in the $1,000,000 +limit for purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers, Wolverine believes +its compensation policies reflect due consideration of +Section 162(m). +Base Salary +To attract and retain well-qualified executives, +the Compensation Committee seeks to establish competitive base +salaries and benefit packages. The Compensation Committee +determines the base salaries of executives by comparing each +executive’s position with similar positions in companies of +similar type, size and financial performance. Although some +other footwear companies are among the companies included in the +comparison group, this group is not limited to footwear +companies because Wolverine competes for talent with a wide +range of corporations. In general, the Compensation Committee +has targeted salaries to be at the median to slightly below the +median percentile of base salaries paid for comparable positions +with similar companies. Other factors considered by the +Compensation Committee are the executive’s performance, the +executive’s current compensation, the executive’s +responsibilities and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance (in determining +whether to adjust above or below the current salary level), and +a significant but lesser weight is generally given to the +comparative data. In general, base salaries for Wolverine’s +executive officers during 2004 were near the median of salaries +paid by companies included in the comparison group. The 2004 +average base salary of executive officers increased over the +previous year’s level as a result of a combination of +factors, including improved individual performance, improved or +continued excellent performance by the applicable business unit +and Wolverine, promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement +of short-term business unit goals, the Annual Bonus Plan was +designed to provide key employees with the opportunity for +bonuses based on the performance of Wolverine and/or the +performance of its subsidiaries, +37 +Table of Contents +operating divisions or profit centers. The Annual +Bonus Plan was most recently approved by stockholders at the +2002 annual meeting of stockholders. The Annual Bonus Plan +continues the annual bonus policy that Wolverine has used for +many years. A target bonus goal (the “target bonus”), +expressed as a percentage of the participant’s base salary, +is established by the Compensation Committee. The Compensation +Committee then establishes “incentive bonus” levels, +expressed as a percentage of the target bonus, that are paid to +the participant at specified levels of performance by Wolverine, +the subsidiary, operating division or profit center. +“Incentive bonus” as used in the Annual +Bonus Plan means an annual bonus awarded and paid to a +participant for services to Wolverine during a fiscal year that +is based upon achievement of pre-established financial +objectives of Wolverine or a subsidiary, operating division or +profit center. The incentive bonus levels may be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. Performance of Wolverine and/or its subsidiaries, +operating divisions or profit centers is determined by reference +to one or more of the following: net earnings, net earnings +before taxes, operating income, revenues, net sales, net sales +and other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. Payment of an incentive bonus to a participant for a +fiscal year under the Annual Bonus Plan is entirely contingent +upon achievement of the performance levels established by the +Compensation Committee, subject to negative discretion by the +Compensation Committee to reduce the amount below that +determined under the pre-established formula. All determinations +to be made by the Compensation Committee for a fiscal year are +made by the Compensation Committee during the first 90 days +of each fiscal year. +The two primary measures of corporate and +divisional performance in 2004 were pre-tax profits and sales, +with approximately 80% of participants’ target amounts +weighted on pre-tax profits. During fiscal 2004, executive +officers were generally targeted to receive from 20% to 48% of +their annual salaries in bonus compensation. Actual payouts, if +any, could range from 50% to 200% of target. In determining +these percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and sales and to put a larger percentage of their total +potential cash compensation “at risk.” +For 2004, Wolverine’s corporate sales +performance exceeded the maximum goal (the “stretch +goal”) and corporate pre-tax profit performance also +exceeded the stretch goal. Accordingly, executive officers +received bonuses related to corporate performance under the +Annual Bonus Plan at or near stretch-goal levels. Certain +executive officers also have a component of their annual bonus +based on the sales and pre-tax profit performance of specific +divisions. The sales and pre-tax profit performance of such +divisions ranged from target to stretch-goal levels with +corresponding bonus payment levels. +Long-Term Plan +To provide incentives and rewards for longer-term +planning and decision-making and the achievement of longer-term +corporate performance goals, the LTIP provides the opportunity +for additional compensation based upon the achievement of +company financial performance goals over a three-year period. +Stockholders most recently approved the LTIP at the 2002 annual +meeting of stockholders. The LTIP continues the long-term +incentive bonus policy that Wolverine has used for many years. +The primary purposes of the LTIP and prior long-term bonus plans +are to provide significant incentive and to foster cooperation +among all business units so the long-term earnings performance +of Wolverine and total stockholder return is substantially +improved. The primary concept of the LTIP is to establish +financial performance goals for each three-year time period for +Wolverine. New performance periods begin each fiscal year and +end three full fiscal years later. The Compensation Committee +establishes the goals during the first 90 days of each +three-year performance period. +38 +Table of Contents +Awards under the LTIP are based on a percentage +of average annual earned salary during the three-year period. +For each participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the LTIP means a bonus awarded and paid +to a participant for services to Wolverine or a subsidiary, +operating division or profit center during a three-year period, +which bonus is based upon achievement of previously-established +financial objectives by Wolverine. The incentive bonus levels +may be expressed as either: (i) a matrix of percentages of +the target bonus that will be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that will be paid at varying +levels of performance. Performance is determined by reference to +one or more of the following: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. If the minimum three-year targeted goal is not achieved, +no bonus will be paid. For the 2004-2006 performance period, +executive officers who participate in the plan are targeted to +receive long-term bonus compensation in amounts that range from +25% to 60% of their average annual earned salaries. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each executive’s capacity to affect +the long-term performance of Wolverine. Actual payouts, if any, +range from 50% to 200% of target. Although the LTIP permits +Wolverine to pay incentive bonuses in cash or a combination of +cash and restricted stock, beginning with payments made in 2005 +Wolverine anticipates that incentive bonuses payable under the +LTIP will be paid exclusively in cash. +For the 2002-2004 performance period, performance +was determined 50% by reference to Wolverine’s earnings per +share (“EPS”) and 50% by reference to total +stockholder return compared to a pre-established peer group +(“TSR”). EPS performance exceeded the stretch-goal +level and TSR performance was at the target level for the +2002-2004 performance period under the LTIP. Based on EPS and +TSR performance, Wolverine paid cash incentive bonuses with +respect to the three-year performance period ended +January 1, 2005, at goal (150% of target) bonus levels. +This level is between the target and stretch-goal performance +levels. +Discretionary Bonuses +In addition to bonuses based on corporate and/or +divisional performance pursuant to the Annual Bonus Plan, +Wolverine generally pays annual incentive bonuses to employees +based on individual performance goals. Bonuses based on +individual performance are paid on a discretionary basis based +on achievement of pre-established personal goals, and the +performance bonus for the Chief Executive Officer is paid only +after the review and approval of the Compensation Committee. No +discretionary bonuses are paid to executive officers if +Wolverine (or the applicable division) does not achieve its +threshold goal under the Annual Bonus Plan. During 2004, +discretionary bonuses for employees participating in this plan +were generally targeted at 5% to 12% of annual salaries +depending upon the executive’s level of responsibility, the +achievement of threshold sales and earnings requirements and +actual graded performance against pre-established personal +objectives. Because Wolverine generally exceeded its corporate +and, where applicable, divisional threshold sales and earnings +goals under the Annual Bonus Plan for fiscal 2004, discretionary +bonus payments were made to Wolverine’s executive officers +for this period based upon achievement of individual performance +goals. +Stock Options and Equity-Based Incentive +Plans +Awards under Wolverine’s stock option and +equity-based incentive plans are designed to: +• +more closely align executive and stockholder +interests; +• +reward executives and other key employees for +building stockholder value; and +• +encourage long-term investment in Wolverine by +participating executives. +The Compensation Committee believes that stock +ownership by management has been demonstrated to be beneficial +to all stockholders and stock awards have +39 +Table of Contents +been granted by Wolverine to executives and other +key employees pursuant to various equity-based plans for several +decades. The Compensation Committee administers all aspects of +these plans and reviews, modifies (to the extent appropriate) +and takes final action on any such awards. +Under Wolverine’s plans that provide for +awards of restricted stock, all of which have been previously +approved by the stockholders, the Compensation Committee may +grant shares of restricted stock to executives and other key +employees. These shares are subject to certain restrictions +that, except for shares awarded in prior years in connection +with the LTIP, generally lapse over a period of five years from +the date of grant. +Under Wolverine’s stock option plans, all of +which have been previously approved by the stockholders, the +Compensation Committee may grant to executives and other key +employees options to purchase shares of stock. The Compensation +Committee reviews, modifies (to the extent appropriate) and +takes final action on the amount, timing, price and other terms +of all options granted to employees of Wolverine. The +Compensation Committee grants both incentive stock options and +nonqualified options within the meaning of the Internal Revenue +Code. Under the terms and conditions of all the plans other than +the 2001 plan and the 2003 plan, the Compensation Committee may +grant nonqualified options with an exercise price above or below +the market price on the date of grant. The 2001 plan and the +2003 plan (as with the proposed Stock Incentive Plan of 2005) +require that all options have an exercise price equal to or +greater than the market value of Wolverine’s common stock +on the date of grant. Virtually all stock options granted under +all of Wolverine’s plans have had an exercise price equal +to the market price of common stock on the date of grant. +In determining the number of shares of restricted +stock and/or the number of options to be awarded to executives +in 2004, the Compensation Committee adhered to its practice of +generally applying a formula that takes into consideration the +executive’s level of responsibility and compensation +practices of similar companies. The Compensation Committee also +considers the recommendations of management (except for awards +to the Chief Executive Officer), the individual performance of +the executive and the number of shares previously awarded to the +executive. As a general practice, both the number of shares +granted and their proportion relative to the total number of +shares granted increase in some proportion to increases in each +executive’s responsibilities. The Compensation Committee +has also implemented stock ownership guidelines that apply to +all executive management and require ownership in amounts from +one to five times the executive’s base salary. The +Compensation Committee believes that these ownership guidelines +bolster the goals of Wolverine’s stock option and +equity-based incentive plans. +In 1997, the Compensation Committee adopted a +program to automatically award “reload options” to a +limited group of senior executives if those executives surrender +shares of common stock to pay the exercise price or tax +withholding obligations associated with the exercise of a +then-outstanding stock option or the vesting of restricted +stock. Based upon changes in compensation practices and +accounting standards, the Compensation Committee has +discontinued the program that awards reload options and +requested all executives who previously were eligible to receive +reload options to waive their rights to receive reload options +after January 1, 2005, regardless of whether the initial +grant or award provided for reload options. Each of +Wolverine’s executives agreed to waive his or her rights in +response to the Compensation Committee’s request. +Retirement Plans +Wolverine has a qualified pension plan covering +most salaried employees and a supplemental executive retirement +plan covering certain executives, as more fully described +earlier in this proxy statement under the heading “Pension +Plan and Supplemental Executive Retirement Plan.” The +Compensation Committee believes that Wolverine’s retirement +plans encourage long-term commitment by Wolverine’s +executives and other employees and assist Wolverine in +attracting and retaining talented executives and other employees. +Chief Executive Officer +The Chief Executive Officer’s compensation +is based upon the policies and objectives discussed above. The +Chief Executive Officer, however, has a higher percentage of +total compensation “at risk” because a larger +percentage of potential compensation is based upon the Annual +Bonus Plan, the LTIP, and stock option and restricted stock +grants. +The Compensation Committee has reviewed all +components of the Chief Executive Officer’s compensation +and the compensation of the other +40 +Table of Contents +executive officers who are named in the Summary +Compensation Table, including salary, bonus, equity and +long-term incentive compensation, accumulated realized and +unrealized stock option and restricted stock gains, the dollar +value to the executive and the cost to Wolverine of all +perquisites and other personal benefits, the payout obligations +and conditions under Wolverine’s pension plan and SERP and +any payments in the event of a change in control. +Based on its review described above, the +Compensation Committee found Mr. O’Donovan’s and +the named executive officers’ total compensation in the +aggregate to be appropriate and not excessive. +For 2004, in setting +Mr. O’Donovan’s base salary and total annual cash +compensation, the Compensation Committee compared +Mr. O’Donovan’s cash compensation with that of +chief executive officers of companies in the footwear industry +and other companies similar to Wolverine in general type and +size. Mr. O’Donovan’s base salary was targeted by +the Compensation Committee near the median of salaries paid to +chief executive officers by companies included in the comparison +group. Mr. O’Donovan’s base salary for 2004 +increased approximately 6.3% above his 2003 level. Following the +2004 increase, Mr. O’Donovan’s salary was near +the competitive median. At his request, Mr. O’Donovan +does not have an employment agreement with Wolverine. +Mr. O’Donovan’s annual incentive +bonus under the Annual Bonus Plan was based upon corporate +performance goals (100% weighting). The target annual bonus +award for Mr. O’Donovan under the Annual Bonus Plan +was 48% of base salary. Mr. O’Donovan’s annual +bonus was subject to achievement of minimum goals and his +threshold bonus at this level would have been 24% of earned +salary. Mr. O’Donovan’s annual bonus at the +stretch-goal level was capped at 96% of base salary under the +Annual Bonus Plan. Corporate performance goals in 2004 were +based on Wolverine’s achievement of predetermined pre-tax +levels of profit (80% weighting) and sales (20% weighting), both +of which were set above the prior year’s actual results. +Mr. O’Donovan’s target annual discretionary bonus +was 12% of earned salary and was capped at 24% of earned salary. +Wolverine’s sales level and profit performance exceeded the +pre-established stretch-goal performance level in 2004. +Therefore, Mr. O’Donovan received a payment under the +Annual Bonus Plan and a discretionary bonus based on achievement +of individual performance goals for fiscal 2004 near maximum +levels. +Mr. O’Donovan’s LTIP bonus award +was based on a combination of TSR and EPS, which was targeted +above budget and prior year’s results. +Mr. O’Donovan’s target bonus for the three-year +period beginning in 2004 was set at 60% of average annual earned +salary for the 2004-2006 plan period. The bonus payout for +Mr. O’Donovan can range from 0%-120% of +Mr. O’Donovan’s average earned salary for the +2004-2006 period. Based on EPS and TSR performance compared to +pre-established performance levels, Mr. O’Donovan +received payment at goal level (150% of target) for the +2002-2004 performance period under the LTIP. +In 2004, Mr. O’Donovan was awarded +25,500 shares of restricted stock (post-split) (not +including restricted shares awarded in 2004 with respect to the +2001-2003 performance period under the LTIP, the value of which +is included in the LTIP payout column for 2003 in the Summary +Compensation Table) and stock options to purchase +474,531 (post-split) shares of common stock (of this total +407,031 options were issued under the prior reload option +program which was discontinued on January 1, 2005). The +amounts of these awards were determined by the Compensation +Committee considering the factors discussed above. +Due to Wolverine’s 2004 results, the +aggregate of Mr. O’Donovan’s salary, bonus and +total cash compensation was above the median for chief executive +officers paid by companies included in the previously described +comparison group. +All actions and recommendations of the +Compensation Committee attributable to 2004 compensation were +unanimous and all recommendations were approved and adopted by +the Board of Directors without modification. +Respectfully submitted, +Donald V. Fites, Chairman, David P. +Mehney, Paul D. Schrage +41 +Table of Contents +Selection of Auditors +The Audit Committee has reappointed the firm of +Ernst & Young LLP as independent auditors for the +current fiscal year. +Ernst & Young LLP, certified public +accountants, has audited the financial statements of Wolverine +and its subsidiaries for the fiscal year ended January 1, +2005. Representatives of Ernst & Young LLP are expected +to be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. +Ernst & Young LLP billed Wolverine $895,543 in fiscal +2004 and $631,027 in fiscal 2003 for the annual audit, reviews +of the financial statements included in Wolverine’s +Form 10-Q filings, audit of internal control over financial +reporting for 2004, foreign statutory audits and consultations +concerning accounting matters associated with the annual audit. +Audit-Related Fees. +Ernst & Young LLP billed Wolverine $49,062 in fiscal +2004 and $116,775 in fiscal 2003 for assurance and related +services that were reasonably related to the performance of the +audit or a review of the financial statements and that are not +reported as Audit Fees above, including accounting research and +employee benefit plan audits. +Tax Fees. +Ernst & Young LLP billed Wolverine $674,850 in fiscal +2004 and $514,228 in fiscal 2003 for tax compliance, advisory +and planning services. +All Other Fees. +Ernst & Young LLP did not bill Wolverine in fiscal 2004 +or fiscal 2003 for any services other than those described above. +Pre-Approval Policy. +Wolverine’s Audit Committee has adopted a policy under +which all audit and non-audit services provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. Items +in this category are pre-approved within specific service +descriptions and budgets. All audit services, internal +control-related services, and other services that are not within +the specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions such as pre-approval of audit services, +engagement-specific pre-approval may be delegated to one or more +Audit Committee members. Any services approved by a designated +Audit Committee member must be communicated to the full Audit +Committee at its next regularly-scheduled meeting. The Audit +Committee’s pre-approval policy also prohibits +Ernst & Young LLP from providing any non-audit services +that are prohibited by the Securities and Exchange Commission or +the Public Company Accounting Oversight Board. All fees paid to +Ernst & Young LLP for services performed in 2003 and 2004 +were pre-approved pursuant to this policy. +Your Board of Directors recommends that you +vote FOR ratification of the reappointment of Ernst & +Young LLP. +Audit Committee Report +The Audit Committee of the Board of Directors +consists of four non-employee directors who are independent +under the standards adopted by the Board of Directors and +applicable New York Stock Exchange and SEC standards. The Audit +Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the reporting process, including the +application of accounting and financial principles, the +preparation, presentation and integrity +42 +Table of Contents +of the financial statements, and the systems of +internal controls and other procedures designed to ensure +compliance with accounting standards and applicable laws and +regulations. Wolverine’s independent auditors are +responsible for expressing an opinion on the conformity of +Wolverine’s financial statements with generally accepted +accounting principles and attesting to management’s +assessment of internal control over financial reporting and to +the effectiveness of internal control over financial reporting. +The Audit Committee has taken steps to provide +assurances regarding Audit Committee composition and procedures, +the independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) adopting an Audit +Committee Charter (attached as Appendix A); +(ii) adopting an Accounting and Finance Code of Ethics; +(iii) implementing an Accounting and Auditing Complaint +Procedure to allow employees, stockholders and the public to +report concerns regarding Wolverine’s financial statements, +internal controls and disclosures; (iv) establishing +procedures for the Audit Committee to pre-approve all audit and +nonaudit services provided by Wolverine’s independent +auditors; and (v) increasing the number, frequency and +length of Audit Committee meetings. +As part of its supervisory duties, the Audit +Committee has reviewed Wolverine’s audited financial +statements for the fiscal year ended January 1, 2005, and +has discussed those financial statements with Wolverine’s +management, internal financial staff, internal auditors and +independent auditors, with and without management present. The +Audit Committee has also reviewed and discussed the following +with Wolverine’s management, financial staff, internal +auditors and independent auditors, with and without management +present: +• +accounting and financial principles and +significant assumptions, estimates and matters of judgment used +in preparing the financial statements; +• +allowances and reserves for accounts receivable, +inventories and taxes; +• +accounting for acquisitions, pension plans and +equity-based compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and +practices. +The Audit Committee has discussed with +Wolverine’s independent auditors the results of the +independent auditors’ examinations and the judgments of the +independent auditors concerning the quality, as well as the +acceptability, of Wolverine’s accounting principles and +such other matters that it is required to discuss with the +independent auditors under applicable rules, regulations or +generally accepted auditing standards. In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services with their independence, the +scope of the audit and the scope of all fees paid to the +independent auditors during the year. After and in reliance upon +the reviews and discussions described above, the Audit Committee +recommended to Wolverine’s Board of Directors that the +audited financial statements for the fiscal year ended +January 1, 2005, be included in Wolverine’s Annual +Report on Form 10-K for the year then ended to be filed +with the Securities and Exchange Commission. +Respectfully submitted, +David T. Kollat, Chairman, Brenda J. +Lauderback, Phillip D. Matthews, Elizabeth A. Sanders +Related Matters +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies® , +Caterpillar® and Merrell® brand names. +Under these agreements, Grimoldi, S.A. or its subsidiary pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +43 +Table of Contents +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees relating to 2004 totaling $1,013,368. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2004, purchases of such items by +Grimoldi, S.A. totaled $136,019 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2005. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of January 1, 2005, the aggregate principal balance of the +note was $233,339. The highest principal balance of the note +between January 4, 2004 and January 1, 2005 was +$461,231. +In the ordinary course of its business, Wolverine +purchases promotional merchandise for use in connection with the +sale of its products. In 2004, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $373,459. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates continuing to purchase promotional materials from +Bullseye Group, LLC in 2005. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +of 1934 requires Wolverine’s directors and executive +officers, and persons who beneficially own more than 10% of the +outstanding shares of common stock, to file reports of ownership +and changes in ownership of shares of common stock with the +Securities and Exchange Commission. Directors, executive +officers and greater than 10% beneficial owners are required by +Securities and Exchange Commission regulations to furnish +Wolverine with copies of all Section 16(a) reports they +file. Based on its review of the copies of such reports received +by it, or written representations from certain reporting persons +that no reports on Form 5 were required for those persons +for the 2004 fiscal year, Wolverine believes that its officers +and directors complied with all applicable reporting +requirements during Wolverine’s last fiscal year, except as +described below. One stock option award to each of the following +individuals was not reported on Form 4 or Form 5 +during 1999, although these awards have been properly reflected +in Wolverine’s proxy statements since their grant in 1999: +Mr. Ottenwess, Mr. Grimoldi, Mr. Matthews, +Mr. Mehney, Mr. Fites, Mr. Kollat, +Mr. Schrage, Mr. Bloom and Ms. Sanders. +Forms 4 were filed in 2004 to report these awards. +Stockholder Proposals +To be considered timely, any stockholder proposal +intended to be presented at the annual meeting of stockholders +in 2006 (whether or not intended for inclusion in +Wolverine’s proxy statement and proxy card relating to that +meeting) must be received by Wolverine not later than +November 14, 2005. Stockholder proposals intended for +inclusion in Wolverine’s proxy statement and proxy card +relating to that meeting should be made as described in +Securities and Exchange Commission Rule 14a-8. You should +address all stockholder proposals to the attention of the +Secretary of Wolverine, 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine +directors, officers and employees may also solicit proxies by +telephone or facsimile or personally without additional +compensation. Proxies may be solicited by nominees and other +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by them. Wolverine +will pay all costs of solicitation of proxies, including the +charges and expenses of brokerage firms, banks, trustees or +other nominees for forwarding proxy materials to beneficial +owners. We have engaged Georgeson Shareholder Communications, +Inc. at an estimated cost of $8,000, plus expenses and +disbursements, to assist in solicitation of proxies. +44 +Table of Contents +Appendix A +AUDIT COMMITTEE CHARTER +of the +Audit Committee of the +Board of Directors +of +Wolverine World Wide, Inc. +I. GOVERNANCE +This Charter sets forth the basic principles +regarding the organization, purpose, authority and +responsibilities of the Audit Committee (the +“Committee”) of Wolverine World Wide, Inc. (the +“Company”) and has been approved by the Company’s +Board of Directors. The Committee shall review the adequacy of +this Charter at least annually and recommend any proposed +changes to the Board of Directors for approval. +II. ORGANIZATION +The Committee shall consist of at least three +directors appointed by the Board of Directors upon the +recommendation of the Company’s Governance Committee. One +Committee member shall be designated by the Board of Directors +as Chairperson. All Committee members shall be independent under +the New York Stock Exchange (“NYSE”) definition of +“independence” for directors and audit committee +members, independence standards adopted by the Board and any +other applicable rules and regulations, all as determined by the +Board. All Committee members shall be financially literate or +shall become financially literate within a reasonable period of +time after appointment to the Committee. At least one member +shall have accounting or related financial management +experience. A Committee member may be removed for any reason by +the Board of Directors. +The Committee shall meet as often as may be +deemed necessary or appropriate in its judgment, but not less +than four times per year. +III. STATEMENT +OF PURPOSE +The Committee shall represent and assist the +Board of Directors in fulfilling its oversight responsibility +regarding (i) the integrity of the Company’s financial +statements and the financial reporting process, (ii) the +Company’s systems of internal accounting and financial +controls, (iii) the performance of the internal audit +function and the independent auditors, (iv) the +qualifications and independence of the independent auditors, +(v) the annual independent audit of the Company’s +financial statements, and (vi) the Company’s +compliance with legal and regulatory requirements. In so doing, +it is the responsibility of the Committee to maintain open +communication between the Committee, the independent auditors, +the internal finance staff and the management of the Company. +The Audit Committee’s responsibility is one of oversight +and it does not provide any special assurance as to the +Company’s financial statements or the audit of those +financial statements by the independent auditors. +IV. AUTHORITY, +DUTIES AND RESPONSIBILITIES +The Committee’s authority, duties and +responsibilities shall include the following: +• +Be directly responsible, in its capacity as a +Committee of the Board, to appoint and retain (subject to +ratification by the Company’s stockholders), compensate, +oversee, evaluate and, if appropriate, terminate the independent +auditors, which shall report directly to the Committee; +• +Approve in advance all audit and permissible +non-audit services to be provided by the independent auditors +and establish policies and procedures for the engagement of the +independent auditors to provide audit and permissible non-audit +services; +A-1 +Table of Contents +• +Annually review the performance (effectiveness, +objectivity, and independence) of the independent auditors and +the internal audit function, including a review and evaluation +of the lead partner of the independent auditors, and report the +Committee’s conclusions to the Board of Directors; +• +Obtain and review at least annually a report from +the independent auditors describing: the auditing firm’s +internal quality-control procedures; and any material issues +raised by the most recent internal quality-control review, or +peer review, of the firm, or by any inquiry or investigation by +governmental or professional authorities, within the preceding +five years, respecting one or more independent audits carried +out by the firm, and any steps taken to deal with any such +issues; +• +Obtain and review, at least annually, a formal +written report from the independent auditors consistent with +applicable rules and regulations and standards set by the +Independence Standards Board; +• +Annually assess auditor independence, considering +all relationships between the independent auditors and the +Company and any other relationships that may adversely affect +the auditors independence; +• +Discuss with the internal financial staff and the +independent auditors the overall scope and plans for their +respective audits including the adequacy of staffing and +compensation. The Committee shall review any identified audit +problems or difficulties and discuss management’s response; +• +Receive reports from management, the internal +finance staff and the independent auditors regarding, and review +and discuss the adequacy and effectiveness of, the +Company’s internal control over financial reporting; +• +Receive reports from management regarding, and +review and discuss the adequacy and effectiveness of, the +Company’s disclosure controls and procedures; +• +Review the Company’s policies and systems +with respect to risk assessment and risk management and discuss +with management and the independent auditors significant risks +or exposures and the steps taken by management to resolve them; +• +Meet periodically with management, the internal +finance staff and the independent auditors separately; +• +Meet to review with management and the +independent auditors the Company’s interim financial +statements, including the specific disclosures in the +Company’s “Management’s Discussion and Analysis +of Financial Condition and Results of Operation” +(“MD&A”) to be included in SEC Quarterly Reports +on Form 10-Q. The Committee shall review with the +independent auditors the results of the quarterly reviews and +any other matters required to be communicated to the Committee +by the independent auditors under generally accepted auditing +standards and applicable rules and regulations; +• +Meet to review with management and the +independent auditors the Company’s annual audited financial +statements, including the specific disclosures in the +Company’s MD&A, to be included in SEC Annual Reports on +Form 10-K (or annual reports to stockholders if distributed +prior to the filing of Form 10-K). The Committee shall +review with the independent auditors the results of the annual +audit and any other matters required to be communicated to the +Committee by the independent auditors under generally accepted +auditing standards and applicable rules and regulations; +• +Establish procedures for the receipt, retention +and treatment of complaints received by the Company regarding +accounting, internal accounting controls or auditing matters and +for the confidential, anonymous submission by the Company’s +employees of concerns regarding questionable accounting or +auditing matters; +• +Review with management and the independent +auditors the Company’s earnings press releases and +financial information and earnings guidance provided by the +Company to analysts and rating agencies; +• +Prepare the Audit Committee report required by +applicable rules and regulations to be included in the +Company’s annual proxy statement; +• +Establish Company hiring policies for employees +and former employees of independent auditors for the Company; +A-2 +Table of Contents +• +Engage consultants and advisors at the expense of +the Company to assist the Committee as it deems necessary in the +performance of its functions. The Committee shall have sole +authority to retain and terminate any consultants and advisors +and to approve all fees and other retention terms; +• +Oversee the Company’s compliance systems +with respect to legal and regulatory requirements and review the +Company’s code of conduct and programs to monitor +compliance with such codes; +• +Establish sub-committees of the Committee in its +discretion and delegate such powers and authority as determined +by the Committee; +• +Conduct and discuss with the Board of Directors +an annual performance evaluation of the Committee, including the +Committee’s adherence to this Charter; and +• +Provide the Board of Directors with regular +reports regarding the Committee’s decisions, actions and +recommendations. +Effective Date: February 10, 2005 +A-3 +Table of Contents +Appendix B +WOLVERINE WORLD WIDE, INC. +STOCK INCENTIVE PLAN OF 2005 +SECTION 1 +Establishment of Plan; Purpose of Plan +1.1 Establishment +of Plan. The Company hereby establishes the STOCK INCENTIVE +PLAN OF 2005 (the “Plan”) for its non-employee +directors and corporate, divisional and Subsidiary officers and +key employees. The Plan permits the grant and award of Stock +Options, Stock Appreciation Rights, Restricted Stock, Restricted +Stock Units and Stock Awards. +1.2 Purpose of +Plan. The purpose of the Plan is to provide non-employee +directors, officers and key management employees of the Company, +its divisions and its Subsidiaries with an increased incentive +to contribute to the long-term performance and growth of the +Company and its Subsidiaries, to join the interests of +non-employee directors, officers and key employees with the +interests of the Company’s stockholders through the +opportunity for increased stock ownership and to attract and +retain non-employee directors, officers and key employees. The +Plan is further intended to provide flexibility to the Company +in structuring long-term incentive compensation to best promote +the foregoing objectives. +SECTION 2 +Definitions +The following words have the following meanings +unless a different meaning plainly is required by the context: +2.1 “Act” +means the Securities Exchange Act of 1934, as amended. +2.2 “Award +Agreement” means one or more written agreements or other +instruments as may be approved from time to time by the +Committee implementing the grant of an Incentive Award. An Award +Agreement may but need not be in the form of an agreement to be +executed by both the Participant and the Company (or an +authorized representative of the Company), and may consist of +certificates, notices, terms and conditions or similar +instruments as approved by the Committee. +2.3 “Board” +means the Board of Directors of the Company. +2.4 “Change in +Control,” unless otherwise defined in an Incentive Award, +means (a) the failure of the Continuing Directors at any +time to constitute at least a majority of the members of the +Board; (b) the acquisition by any Person other than an +Excluded Holder of beneficial ownership (within the meaning of +Rule 13d-3 issued under the Act) of 20% or more of the +outstanding Common Stock or the combined voting power of the +Company’s outstanding securities entitled to vote generally +in the election of directors; (c) the approval by the +stockholders of the Company of a reorganization, merger or +consolidation, unless with or into a Permitted Successor; or +(d) the approval by the stockholders of the Company of a +complete liquidation or dissolution of the Company or the sale +or disposition of all or substantially all of the assets of the +Company other than to a Permitted Successor. +2.5 “Code” +means the Internal Revenue Code of 1986, as amended. +2.6 “Committee” +has the meaning set forth in Section 3.1. +2.7 “Common +Stock” means the Common Stock, $1 par value, of the Company. +2.8 “Company” +means Wolverine World Wide, Inc., a Delaware corporation, and +its successors and assigns. +2.9 “Continuing +Directors” mean the individuals constituting the Board as +of the date this Plan was adopted and any subsequent directors +whose election or nomination for election by the Company’s +stockholders was approved by a vote of three-quarters (3/4) of +the individuals who are then Continuing Directors, but +specifically excluding any individual whose initial assumption +of office occurs as a result of either an actual or threatened +solicitation subject to Rule 14a-12(c) +B-1 +Table of Contents +of Regulation 14A issued under the Act or +other actual or threatened solicitation of proxies or consents +by or on behalf of a Person other than the Board. +2.10 “Director” +means each member of the Board who is not an officer or employee +of the Company or any Subsidiary of the Company. The status of +the Chairman of the Board as a Director or officer shall be +determined by the Committee. +2.11 “Employee +Benefit Plan” means any plan or program established by the +Company or a Subsidiary for the compensation or benefit of +employees of the Company or any of its Subsidiaries. +2.12 “Excluded +Holder” means (a) any Person who at the time this Plan +was adopted was the beneficial owner of 20% or more of the +outstanding Common Stock; or (b) the Company, a Subsidiary +or any Employee Benefit Plan of the Company or a Subsidiary or +any trust holding Common Stock or other securities pursuant to +the terms of an Employee Benefit Plan. +2.13 “Incentive +Award” means the award or grant of a Stock Option, Stock +Appreciation Right, Restricted Stock, Restricted Stock Unit or +Stock Award to a Participant pursuant to the Plan. +2.14 “Market +Value” shall equal, unless a different calculation measure +is specified by the Committee, the mean of the highest and +lowest sale prices of shares of Common Stock reported on the New +York Stock Exchange (or any successor exchange that is the +primary stock exchange for trading of Common Stock) on the date +of grant, exercise or vesting, as applicable, or if the New York +Stock Exchange (or any such successor) is closed on that date, +the last preceding date on which the New York Stock Exchange (or +any such successor) was open for trading and on which shares of +Common Stock were traded. +2.15 “Participant” +means a Director, corporate officer, divisional officer or any +key employee of the Company, its divisions or its Subsidiaries +who is granted an Incentive Award under the Plan. +2.16 “Permitted +Successor” means a company that, immediately following the +consummation of a transaction specified in clauses (c) and +(d) of the definition of “Change in Control” +above, satisfies each of the following criteria: (a) 50% or +more of the outstanding common stock of the company and the +combined voting power of the outstanding securities of the +company entitled to vote generally in the election of directors +(in each case determined immediately following the consummation +of the applicable transaction) is beneficially owned, directly +or indirectly, by all or substantially all of the Persons who +were the beneficial owners of the Company’s outstanding +Common Stock and outstanding securities entitled to vote +generally in the election of directors +(respectively) immediately prior to the applicable +transaction; (b) no Person other than an Excluded Holder +beneficially owns, directly or indirectly, 20% or more of the +outstanding common stock of the company or the combined voting +power of the outstanding securities of the company entitled to +vote generally in the election of directors (for these purposes +the term Excluded Holder shall include the company, any +subsidiary of the company and any employee benefit plan of the +company or any such subsidiary or any trust holding common stock +or other securities of the company pursuant to the terms of any +such employee benefit plan); and (c) at least a majority of +the board of directors of the company is comprised of Continuing +Directors. +2.17 “Person” +has the same meaning as set forth in Sections 13(d) and +14(d)(2) of the Act. +2.18 “Qualifying +Performance Criteria” shall have the meaning provided in +Section 11.2. +2.19 “Restricted +Period” means the period of time during which Restricted +Stock or Restricted Stock Units awarded under the Plan are +subject to the risk of forfeiture and restrictions on transfer +pursuant to Section 7. The Restricted Period may differ +among Participants and may have different expiration dates with +respect to shares of Common Stock covered by the same Incentive +Award. +2.20 “Restricted +Stock” means Common Stock awarded to a Participant pursuant +to Section 7 of the Plan. +2.21 “Restricted +Stock Unit” means an award to a Participant pursuant to +Section 7 of the Plan. +2.22 “Retirement” +means the voluntary termination of all employment or service as +a member of the Board by a Participant after the Participant has +attained (i) 50 years of age and seven years of +service (as a Director and/or an employee and/or officer of the +Company or a Subsidiary), (ii) 62 years of age, or +(iii) such other age or years of service +B-2 +Table of Contents +as shall be determined by the Committee or as +otherwise may be set forth in the Incentive Award agreement or +other grant document with respect to a Participant and a +particular Incentive Award. +2.23 “Stock +Appreciation Right” or “SAR” means a right +awarded to a Participant pursuant to Section 6 of the Plan +that entitles the Participant to receive, in cash or shares of +Common Stock or a combination thereof, as determined by the +Committee, an amount equal to or otherwise based on the excess +of (a) the Market Value of a share of Common Stock at the +time of exercise over (b) the exercise price of the right, +as established by the Committee on the date the award is granted. +2.24 “Stock +Award” means an award of Common Stock awarded to a +Participant pursuant to Section 8 of the Plan. +2.25 “Stock +Option” means the right to purchase Common Stock at a +stated price for a specified period of time. For purposes of the +Plan, a Stock Option may be either an incentive stock option +within the meaning of Section 422(b) of the Code or a +nonqualified stock option. +2.26 “Subsidiary” +means any corporation or other entity of which 50% or more of +the outstanding voting stock or voting ownership interest is +directly or indirectly owned or controlled by the Company or by +one or more Subsidiaries of the Company. +SECTION 3 +Administration +3.1 The Plan shall +be administered by the Compensation Committee of the Board (the +“Committee”). Any power of the Committee may also be +exercised by the Board, except to the extent that the grant or +exercise of such authority would cause any Incentive Award or +transaction to become subject to (or lose an exemption under) +the short-swing profit recovery provisions of Section 16 of +the Securities Exchange Act of 1934 or cause an Incentive Award +intended to qualify for treatment as performance-based +compensation under Section 162(m) of the Code not to +qualify for such treatment. To the extent that any permitted +action taken by the Board conflicts with action taken by the +Committee, the Board action shall control. The Committee may by +resolution authorize one or more officers of the Company to +perform any or all things that the Committee is authorized and +empowered to do or perform under the Plan, and for all purposes +under this Plan, such officer or officers shall be treated as +the Committee; provided, however, that the resolution so +authorizing such officer or officers shall specify the total +number of Incentive Awards (if any) such officer or officers may +award pursuant to such delegated authority, and any such +Incentive Award shall be subject to the form of Incentive Award +agreement theretofore approved by the Committee. No such officer +shall designate himself or herself as a recipient of any +Incentive Awards granted under authority delegated to such +officer. In addition, the Committee may delegate any or all +aspects of the day-to-day administration of the Plan to one or +more officers or employees of the Company or any Subsidiary, +and/or to one or more agents. +3.2 Power and +Authority. Subject to the express provisions of this Plan, +the Committee shall be authorized and empowered to do all things +that it determines to be necessary or appropriate in connection +with the administration of this Plan, including, without +limitation: (i) to prescribe, amend and rescind rules and +regulations relating to this Plan and to define terms not +otherwise defined herein; (ii) to determine which persons +are Participants, to which of such Participants, if any, +Incentive Awards shall be granted hereunder and the timing of +any such Incentive Awards; (iii) to grant Incentive Awards +to Participants and determine the terms and conditions thereof, +including the number of shares subject to Incentive Awards, the +exercise or purchase price of such shares and the circumstances +under which Incentive Awards become exercisable or vested or are +forfeited or expire, which terms may but need not be conditioned +upon the passage of time, continued employment, the satisfaction +of performance criteria, the occurrence of certain events +(including events which the Board or the Committee determine +constitute a Change of Control), or other factors, and the +period of time following termination of employment or service as +a member of the Board during which Incentive Awards may be +exercised; (iv) to establish and verify the extent of +satisfaction of any performance goals or other conditions +applicable to the grant, issuance, exercisability, vesting +and/or ability to retain any Incentive Award; (v) to +prescribe and amend the terms of the agreements or other +documents evidencing Incentive Awards made under this Plan +(which need not be identical) and the terms of or form of any +document or notice required to be delivered to the Company by +Participants under this Plan; (vi) to determine whether, +and the extent to which, adjustments are required pursuant to +Section 4.4; +B-3 +Table of Contents +(vii) to interpret and construe this Plan, +any rules and regulations under this Plan and the terms and +conditions of any Incentive Award granted hereunder, and to make +exceptions to any such provisions in good faith and for the +benefit of the Company; and (viii) to make all other +determinations deemed necessary or advisable for the +administration of this Plan. +3.3 Determinations +by the Committee. All decisions, determinations and +interpretations by the Committee regarding the Plan, any rules +and regulations under the Plan and the terms and conditions of +or operation of any Incentive Award granted hereunder, shall be +final and binding on all Participants, beneficiaries, heirs, +assigns or other persons holding or claiming rights under the +Plan or any Incentive Award. The Committee shall consider such +factors as it deems relevant, in its sole and absolute +discretion, to making such decisions, determinations and +interpretations including, without limitation, the +recommendations or advice of any officer or other employee of +the Company and such attorneys, consultants and accountants as +it may select. +3.4 Amendments or +Modifications of Incentive Awards; No Stock Option Repricing. +Subject to Section 14, the Committee shall have the +authority to amend or modify the terms of any outstanding +Incentive Award in any manner, provided that the amended or +modified terms are not prohibited by the Plan as then in effect, +including, without limitation, the authority to: (a) modify +the number of shares or other terms and conditions of an +Incentive Award; (b) extend the term of an Incentive Award; +and (c) accelerate the exercisability or vesting or +otherwise terminate, waive or modify any restrictions relating +to an Incentive Award; provided, that Stock Options and +SARs issued under the Plan may not be repriced or modified +without stockholder approval if the effect of such repricing or +modification would be to reduce the exercise price of such +Incentive Awards to the same Participants. +3.5 Indemnification +of Committee Members. Neither any member nor former member +of the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each person who +is or shall have been a member of the Committee shall be +indemnified and held harmless by the Company from and against +any cost, liability or expense imposed or incurred in connection +with such person’s or the Committee’s taking or +failing to take any action under the Plan. Each such person +shall be justified in relying on information furnished in +connection with the Plan’s administration by any employee, +officer, agent or expert employed or retained by the Committee +or the Company. +SECTION 4 +Shares Subject to the Plan +4.1 Number of +Shares. Subject to adjustment as provided in +Section 4.4 of the Plan, the total number of shares of +Common Stock issued under Incentive Awards pursuant to the Plan +shall not exceed 4,250,000 shares of Common Stock, provided +that each share of Common Stock issued pursuant to awards of +Restricted Stock, Restricted Stock Units, Stock Appreciation +Rights or Stock Awards shall be counted against this limit as +two (2) shares. For purposes of the first sentence of this +Section 4.1, the number of shares issued pursuant to +Incentive Awards under this Plan at any time shall not be +reduced by shares subject to Incentive Awards that have been +terminated, expired unexercised, forfeited or settled in cash. +Shares of Common Stock subject to this Section 4.1 shall be +authorized and may be either unissued or treasury shares or +shares repurchased by the Company, including shares purchased on +the open market. +4.2 Limitations +Upon Incentive Awards. No Participant shall be granted, +during any calendar year, Incentive Awards with respect to more +than 450,000 shares of Common Stock, which number shall be +calculated and adjusted pursuant to Section 4.4 only to the +extent that such calculation or adjustment will not affect the +status of any Incentive Award theretofore issued or that may +thereafter be issued as “performance based +compensation” under Section 162(m) of the Code. The +aggregate number of shares of Common Stock that may be issued +pursuant to the exercise of incentive stock options (within the +meaning of Section 422(b) of the Code) granted under the +Plan shall not exceed 4,250,000, subject to adjustment as +provided in Section 4.4, but only to the extent that such +adjustment will not affect the status of any Stock Option +intended to qualify as an incentive stock option under +Section 422(b) of the Code. +4.3 Limitations +on Incentive Awards to Directors. The maximum number of +shares subject to Incentive Awards granted during any calendar +year to a Participant who is a Director shall equal a number of +shares of Common Stock having a deemed value on the date of +grant equal to one hundred fifty percent (150%) of the aggregate +value of the retainer and full Board meeting fees that the +Committee determines that such Director is eligible to earn in +respect of +B-4 +Table of Contents +such calendar year, with the “deemed +value” of Stock Awards, Restricted Stock or Restricted +Stock Units for purposes only of this Section 4.3 being +calculated as the Market Value of the shares subject to such +award, and the “deemed value” of Stock Options and +SARs being calculated as the Market Value of the shares subject +to such award divided by two (2); provided, however, that in the +first calendar year in which such Participant becomes a +Director, the maximum number of shares subject to Incentive +Awards granted to the Participant shall equal a number of shares +of Common Stock having a deemed value as calculated under this +Section 4.3 on the date of grant equal to three hundred +percent (300%) of the aggregate value of the retainer and full +Board meeting fees that the Committee determines that such +Director is eligible to earn in respect of a year of service as +a Director. +4.4 Adjustments. +(a) Stock +Dividends and Distributions. If the number of shares of +Common Stock outstanding changes by reason of a stock dividend, +stock split, recapitalization or other general distribution of +Common Stock or other securities to holders of Common Stock, the +Committee shall provide that the number and kind of securities +subject to Incentive Awards and reserved for issuance under the +Plan and the limitation provided in Section 4.2, together +with applicable exercise prices, as well as the number and kind +of securities available for issuance under the Plan, shall be +adjusted in such manner and at such time as it determines shall +be appropriate under the circumstances. No fractional shares +shall be issued pursuant to the Plan and any fractional shares +resulting from such adjustments shall be eliminated from the +respective Incentive Awards. +(b) Other Actions Affecting Common +Stock. If there occurs, other than as described in the +preceding subsection, any merger, business combination, +recapitalization, reclassification, subdivision or combination +approved by the Board that would result in the Persons who were +stockholders of the Company immediately prior to the effective +time of any such transaction owning or holding, in lieu of or in +addition to shares of Common Stock, other securities, money +and/or property (or the right to receive other securities, money +and/or property) immediately after the effective time of such +transaction, then the Committee shall provide that the +outstanding Incentive Awards (including exercise prices) and +reserves for Incentive Awards under this Plan shall be adjusted +in such manner and at such time as it determines shall be +appropriate under the circumstances. It is intended that in the +event of any such transaction, Incentive Awards under this Plan +shall entitle the holder of each Incentive Award to receive +(upon exercise in the case of Stock Options and SARs), in lieu +of or in addition to shares of Common Stock, any other +securities, money and/or property receivable upon consummation +of any such transaction by holders of Common Stock with respect +to each share of Common Stock outstanding immediately prior to +the effective time of such transaction; upon any such +adjustment, holders of Incentive Awards under this Plan shall +have only the right to receive in lieu of or in addition to +shares of Common Stock such other securities, money and/or other +property as provided by the adjustment. If the agreement, +resolution or other document approved by the Board to effect any +such transaction provides for the adjustment of Incentive Awards +under the Plan in connection with such transaction, then the +adjustment provisions contained in such agreement, resolution or +other document shall be final and conclusive. +SECTION 5 +Stock Options +5.1 Grants. +Stock Options may be granted at any time and from time to +time prior to the termination of the Plan to Participants +selected by the Committee. The Committee may grant a Stock +Option or provide for the grant of a Stock Option, either from +time-to-time in the discretion of the Committee or automatically +upon the occurrence of specified events, including, without +limitation, the achievement of performance goals (including any +Qualifying Performance Criteria), or the satisfaction of an +event or condition within the control of the recipient of the +Award. No Participant shall have any rights as a stockholder +with respect to any shares of stock subject to Stock Options +granted hereunder until said shares have been issued. Each Stock +Option shall be evidenced by an Award Agreement. Stock Options +granted pursuant to the Plan need not be identical but shall be +consistent with the terms of the Plan. Stock Options shall be +subject to such terms and conditions, consistent with the other +provisions of the Plan, as may be determined by the Committee. +The Committee shall have the right to make the timing of the +ability to exercise any Stock Option subject to continued +employment, the passage of time and/or such performance +requirements as deemed appropriate by the Committee, provided +that in no event shall any Stock Option awarded to a Participant +who is not a +B-5 +Table of Contents +Director provide for full vesting in a period of +less than 3 years, except in the event of the +Participant’s death, disability or Retirement or upon a +Change in Control. Unless provided otherwise in the applicable +Award Agreement, the vesting period and/or exercisability of a +Stock Option shall be adjusted by the Committee during or to +reflect the effects of any period during which the Participant +is on an approved leave of absence or is employed on a less than +full-time basis. The Committee may designate whether or not a +Stock Option is to be considered an incentive stock option as +defined in Section 422(b) of the Code, subject to +Section 5.4 of the Plan. +5.2 Stock Option +Price. The per share Stock Option price shall be determined +by the Committee, but shall be a price that is equal to or +greater than 100% of the Market Value of the Company’s +Common Stock on the date of grant. +5.3 Medium and +Time of Payment. The exercise price for each share purchased +pursuant to a Stock Option granted under the Plan shall be +payable in cash or, if the Committee consents or so provides, in +actual or attested shares of Common Stock owned by the +Participant and meeting holding requirements established by the +Committee or other consideration substantially equivalent to +cash. The Committee may from time to time authorize payment of +all or a portion of the Stock Option price in the form of a full +recourse promissory note or other deferred payment installments +according to such terms as the Committee may approve. The Board +may restrict or suspend the power of the Committee to permit +such loans and may require that adequate security be provided. +The Committee may implement a program for the +broker-assisted cashless exercise of Stock Options. The Company +or any of its Subsidiaries shall not extend credit, directly or +indirectly, to an executive officer or director in violation of +Section 13 of the Act. +5.4 Incentive +Stock Options. Notwithstanding anything to the contrary in +this Section 5, in the case of the grant of a Stock Option +that the Committee designates as intended to qualify as an +“incentive stock option” (within the meaning of +Section 422(b) of the Code): (a) if the Participant +owns stock possessing more than 10 percent of the combined +voting power of all classes of stock of the Company (a “10% +Stockholder”), the purchase price of such Stock Option must +be at least 110 percent of the fair market value of the +Common Stock on the date of grant and the Stock Option must +expire within a period of not more than five (5) years from +the date of grant, and (b) termination of employment will +be deemed to occur when the person to whom an Incentive Award +was granted ceases to be an employee (as determined in +accordance with Section 3401(c) of the Code and the +regulations promulgated thereunder) of the Company and its +Subsidiaries. Notwithstanding anything in this Section 5 to +the contrary, options designated as incentive stock options +shall not be eligible for treatment under the Code as incentive +stock options to the extent that either (i) the aggregate +fair market value of shares of Common Stock (determined as of +the time of grant) with respect to which such Stock Options are +exercisable for the first time by the Participant during any +calendar year (under all plans of the Company and any +Subsidiary) exceeds $100,000, taking Stock Options into account +in the order in which they were granted, and (ii) such +Stock Options otherwise remain exercisable but are not exercised +within three (3) months of termination of employment (or +such other period of time provided in Section 422 of the +Code). +5.5 Limits on +Exercisability. Except as set forth in Section 5.7, +Stock Options shall be exercisable for such periods, not to +exceed 10 years from the date of grant, as may be fixed by +the Committee. +5.6 Restrictions +on Stock Options. +(a) General. +Unless the Committee provides otherwise, Stock Options +granted under the Plan may not be sold, exchanged, transferred, +pledged, assigned or otherwise alienated or hypothecated except +by will or the laws of descent and distribution. To the extent +that the Committee otherwise determines to permit the transfer +of a Stock Option, as a condition thereof, the transferor and +the transferee must execute a written agreement containing such +terms specified by the Committee. Except to the extent the +Committee provides otherwise, all provisions of a Stock Option +that are determined with reference to the Participant, including +without limitation those that refer to the Participant’s +obligation to satisfy tax withholding requirements and to +vesting or forfeiture being related to the Participant’s +employment with the Company or its Subsidiaries, shall continue +to be determined with reference to the Participant after any +transfer of a Stock Option. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock acquired pursuant to the exercise of +a Stock Option under the Plan as the Committee deems advisable, +including, without limitation, holding periods or further +transfer restrictions, forfeiture or “claw-back” +provisions, and restrictions under applicable federal or state +securities laws. +B-6 +Table of Contents +5.7 Termination +of Employment or Officer or Director Status. Unless the +Committee provides otherwise, Stock Options shall expire upon +the earlier of the expiration of the term established pursuant +to Section 5.5 and the date determined as set forth herein: +(a) General. +If a Participant’s employment with the Company or a +Subsidiary or service as a member of the Board terminates for +any reason other than the Participant’s death, disability, +Retirement or termination for cause, Stock Options granted to +the Participant may continue to be exercised in accordance with +their terms for a period of three (3) months after such +termination of employment or of service as a director, but only +to the extent the Participant was entitled to exercise the Stock +Options on the date of such termination. For purposes of the +Plan, the following shall not be considered a termination of +employment or service: (i) a transfer of an employee from +the Company to any Subsidiary; (ii) a leave of absence, +duly authorized in writing by the Company, for military service +or for any other purpose approved by the Company if the period +of such leave does not exceed 90 days; (iii) a leave +of absence in excess of 90 days, duly authorized in writing +by the Company, provided that the employee’s right to +re-employment is guaranteed by statute, contract or written +policy of the Company; or (iv) a termination of employment +with continued service as a Director or termination of service +as a Director when the Participant thereafter serves as an +employee. For purposes of the Plan, termination of employment +shall be considered to occur on the date on which the employee +is no longer obligated to perform services for the Company or +any of its Subsidiaries and the employee’s right to +re-employment is not guaranteed by statute, contract or written +policy of the Company, regardless of whether the employee +continues to receive compensation from the Company or any of its +Subsidiaries after such date. +(b) Death. If +a Participant dies either while an employee or officer of the +Company or a Subsidiary or member of the Board, or after the +termination of employment or service as a member of the Board +other than for cause but during the time when the Participant +could have exercised a Stock Option, the Stock Options issued to +such Participant shall become fully vested and exercisable by +the personal representative of such Participant or other +successor to the interest of the Participant for one year after +the Participant’s death. +(c) Disability. +If a Participant ceases to be employed by the Company and +its Subsidiaries or a member of the Board due to the +Participant’s disability (as defined in the Company’s +long-term disability plan), then all of the Participant’s +Stock Options shall immediately fully vest, and the Stock +Options held by the Participant at the time of such termination +of employment or service shall be exercisable by the Participant +or the personal representative of such Participant for one year +following such termination of employment or service. +(d) Participant +Retirement. Upon a Participant’s Retirement as an +employee or officer of the Company and its Subsidiaries or +Retirement from service as a member of the Board, then all of +the Participant’s Stock Options shall immediately fully +vest, and the Stock Options held by the Participant at the time +of such Retirement shall be exercisable by the Participant or +the personal representative of such Participant during the +remaining term of the Stock Options. +(e) Termination +for Cause. If a Participant is terminated for cause, the +Participant shall have no further right to exercise any Stock +Options previously granted. The Committee or officers designated +by the Committee shall determine whether a termination is for +cause. +SECTION 6 +Stock Appreciation Rights +6.1 Grants. +Stock Appreciation Rights may be granted to Participants +from time to time either in tandem with or as a component of a +Stock Option granted under Section 5, other Incentive +Awards granted under the Plan or stock options granted under any +other Company equity compensation plan (“tandem SARs”) +or without reference to other Incentive Awards or stock options +(“freestanding SARs”). The provisions of Stock +Appreciation Rights need not be the same with respect to each +grant or each Participant. Any Stock Appreciation Right granted +in tandem with a stock option or Incentive Award may be granted +at the same time such option or Incentive Award is granted or at +any time thereafter before exercise or expiration of such stock +option or Incentive Award. Unless settled in cash, the exercise +of a tandem SAR will be in lieu of the exercise of the stock +option or Incentive Award in connection with which the tandem +SAR was granted. All freestanding SARs shall be granted subject +to the same terms and conditions applicable to Stock Options as +B-7 +Table of Contents +set forth in Section 5 and all tandem SARs +shall have the same vesting, exercisability, forfeiture and +termination provisions as such Incentive Award or stock option +to which they relate. Subject to the foregoing sentence and the +terms of the Plan, the Committee may impose such other +conditions or restrictions on any Stock Appreciation Right as it +shall deem appropriate. +6.2 Exercise or +Settlement Price. The per share price for exercise or +settlement of Stock Appreciation Rights shall be determined by +the Committee, but shall be a price that is equal to or greater +than 100% of the Market Value of the Company’s Common Stock +on the date of grant. Other than in connection with a change in +the Company’s capitalization (as described in +Section 4.4) the exercise price of Stock Appreciation +Rights may not be reduced without stockholder approval +(including canceling previously awarded Stock Appreciation +Rights and regranting them with a lower exercise price). +6.3 Medium and +Time of Payment. Stock Appreciation Rights may be settled in +shares of Common Stock, cash or a combination thereof, as +determined by the Committee. +6.4 Limits on +Exercisability. Except as set forth in Section 6.6, +Stock Appreciation Rights shall be exercisable for such periods, +not to exceed 10 years from the date of grant, as may be +fixed by the Committee. +6.5 Restrictions +on Stock Appreciation Rights. +(a) General. +Unless the Committee provides otherwise, Stock Appreciation +Rights granted under the Plan may not be sold, exchanged, +transferred, pledged, assigned or otherwise alienated or +hypothecated except by will or the laws of descent and +distribution. To the extent that the Committee otherwise +determines to permit the transfer of a Stock Appreciation Right, +as a condition thereof, the transferor and the transferee must +execute a written agreement containing such terms specified by +the Committee. Except to the extent the Committee provides +otherwise, all provisions of a Stock Appreciation Right that are +determined with reference to the Participant, including without +limitation those that refer to the Participant’s obligation +to satisfy tax withholding requirements and to vesting or +forfeiture being related to the Participant’s employment +with the Company or its Subsidiaries, shall continue to be +determined with reference to the Participant after any transfer +of a Stock Appreciation Right. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock acquired pursuant to the exercise of +a Stock Appreciation Right under the Plan as the Committee deems +advisable, including, without limitation, holding periods or +further transfer restrictions, forfeiture or +“claw-back” provisions, and restrictions under +applicable federal or state securities laws. +6.6 Termination +of Employment or Officer or Director Status. Unless the +Committee provides otherwise, Stock Appreciation Rights shall +expire upon the earlier of the expiration of the term +established pursuant to Section 6.4 and the date determined +as set forth herein: +(a) General. +If a Participant’s employment with the Company or a +Subsidiary or service as a member of the Board terminates for +any reason other than the Participant’s death, disability, +Retirement or termination for cause, Stock Appreciation Rights +granted to the Participant may continue to be exercised in +accordance with their terms for a period of three (3) +months after such termination of employment or of service as a +director, but only to the extent the Participant was entitled to +exercise the Stock Appreciation Rights on the date of such +termination. For purposes of the Plan, the following shall not +be considered a termination of employment or service: (i) a +transfer of an employee from the Company to any Subsidiary; +(ii) a leave of absence, duly authorized in writing by the +Company, for military service or for any other purpose approved +by the Company if the period of such leave does not exceed +90 days; (iii) a leave of absence in excess of +90 days, duly authorized in writing by the Company, +provided that the employee’s right to re-employment is +guaranteed by statute, contract or written policy of the +Company; or (iv) a termination of employment with continued +service as a Director or termination of service as a Director +when the Participant thereafter serves as an employee. For +purposes of the Plan, termination of employment shall be +considered to occur on the date on which the employee is no +longer obligated to perform services for the Company or any of +its Subsidiaries and the employee’s right to re-employment +is not guaranteed by statute, contract or written policy of the +Company, regardless of whether the employee continues to receive +compensation from the Company or any of its Subsidiaries after +such date. +B-8 +Table of Contents +(b) Death. If +a Participant dies either while an employee or officer of the +Company or a Subsidiary or member of the Board, or after the +termination of employment or service as a member of the Board +other than for cause but during the time when the Participant +could have exercised a Stock Appreciation Right, the Stock +Appreciation Rights issued to such Participant shall become +fully vested and exercisable by the personal representative of +such Participant or other successor to the interest of the +Participant for one year after the Participant’s death. +(c) Disability. +If a Participant ceases to be employed by the Company and +its Subsidiaries or a member of the Board due to the +Participant’s disability (as defined in the Company’s +long-term disability plan), then all of the Participant’s +Stock Appreciation Rights shall immediately fully vest, and the +Stock Appreciation Rights held by the Participant at the time of +such termination of employment or service shall be exercisable +by the Participant or the personal representative of such +Participant for one year following such termination of +employment or service. +(d) Participant +Retirement. Upon a Participant’s Retirement as an +employee or officer of the Company and its Subsidiaries or +Retirement from service as a member of the Board, then all of +the Participant’s Stock Appreciation Rights shall +immediately fully vest, and the Stock Appreciation Rights held +by the Participant at the time of such Retirement shall be +exercisable by the Participant or the personal representative of +such Participant during the remaining term of the Stock +Appreciation Rights. +(e) Termination +for Cause. If a Participant is terminated for cause, the +Participant shall have no further right to exercise any Stock +Appreciation Rights previously granted. The Committee or +officers designated by the Committee shall determine whether a +termination is for cause. +SECTION 7 +Restricted Stock and Restricted Stock Units +7.1 Grant. +Restricted Stock and Restricted Stock Units may be granted +at any time and from time to time prior to the termination of +the Plan to Participants selected by the Committee. Restricted +Stock is an award or issuance of shares of Common Stock the +grant, issuance, retention, vesting and/or transferability of +which is subject during specified periods of time to such +conditions (including continued employment or performance +conditions) and terms as the Committee deems appropriate. +Restricted Stock Units are Incentive Awards denominated in units +of Common Stock under which the issuance of shares of Common +Stock is subject to such conditions (including continued +employment or performance conditions) and terms as the Committee +deems appropriate. Unless determined otherwise by the Committee, +each Restricted Stock Unit will be equal to one share of Common +Stock and will entitle a Participant to either shares of Common +Stock or an amount of cash determined with reference to the +value of shares of Common Stock. To the extent determined by the +Committee, Restricted Stock and Restricted Stock Units may be +satisfied or settled in Common Stock, cash or a combination +thereof. Restricted Stock and Restricted Stock Units granted +pursuant to the Plan need not be identical but shall be +consistent with the terms of the Plan. Subject to the +requirements of applicable law, the Committee shall determine +the price, if any, at which awards of Restricted Stock or +Restricted Stock Units, or shares of Common Stock issuable under +Restricted Stock Unit awards, shall be sold or awarded to a +Participant, which may vary from time to time and among +Participants and which may be below the market price of such +shares at the date of grant. +7.2 Restricted +Stock Agreements. Each grant of Restricted Stock and +Restricted Stock Units shall be evidenced by an Award Agreement. +Unless an Award Agreement provides otherwise, Restricted Stock +and Restricted Stock Unit awards shall be subject to the terms +and conditions set forth in this Section 7. +7.3 Vesting. +The grant, issuance, retention, vesting and/or settlement of +shares of Restricted Stock and Restricted Stock Units shall +occur at such time and in such installments as determined by the +Committee or under criteria established by the Committee. The +Committee shall have the right to make the timing of the grant +and/or the issuance, ability to retain, vesting and/or +settlement of shares of Restricted Stock and under Restricted +Stock Units subject to continued employment, passage of time +and/or such performance criteria as deemed appropriate by the +Committee; provided that in no event shall the grant, issuance, +retention, vesting and/or settlement of shares under Restricted +Stock or Restricted Stock Unit Awards that is based on +performance criteria and the level of achievement versus such +criteria be subject to a performance period of less than one +year and no condition that is based upon continued employment or +the passage of time shall provide for vesting or settlement in +full of a Restricted Stock or Stock Unit +B-9 +Table of Contents +Award over a period of less than three years from +the date the Award is made, in each case other than as a result +of or upon the death, disability or Retirement of the +Participant or a Change in Control. Notwithstanding anything to +the contrary herein, the performance criteria for any Restricted +Stock or Restricted Stock Unit that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code shall be a measure based +on one or more Qualifying Performance Criteria selected by the +Committee and specified at the time the Restricted Stock or +Restricted Stock Unit is granted. +7.4 Termination +of Employment or Officer or Director Status. Unless the +Committee provides otherwise: +(a) General. +In the event of termination of employment or officer or +director status during the Restricted Period for any reason +other than death, disability or Retirement, any Restricted Stock +or Restricted Stock Unit award still subject in full or in part +to restrictions at the date of such termination shall +automatically be forfeited and returned to the Company. For +purposes of the Plan, the following shall not be considered a +termination of employment or service: (i) a transfer of an +employee from the Company to any Subsidiary; (ii) a leave +of absence, duly authorized in writing by the Company, for +military service or for any other purpose approved by the +Company if the period of such leave does not exceed 90 days; +(iii) a leave of absence in excess of 90 days, duly +authorized in writing by the Company, provided that the +employee’s right to re-employment is guaranteed by statute, +contract or written policy of the Company; or (iv) a +termination of employment with continued service as a Director +or termination of service as a Director when the Participant +thereafter serves as an employee. For purposes of the Plan, +termination of employment shall be considered to occur on the +date on which the employee is no longer obligated to perform +services for the Company or any of its Subsidiaries and the +employee’s right to re-employment is not guaranteed by +statute, contract or written policy of the Company, regardless +of whether the employee continues to receive compensation from +the Company or any of its Subsidiaries after such date. +(b) Death, +Retirement or Disability. In the event a Participant +terminates his or her employment with the Company and its +Subsidiaries or service as a member of the Board because of +death, disability (as defined in the Company’s long-term +disability plan) or Retirement during the Restricted Period, the +restrictions remaining on any or all shares remaining subject to +a Restricted Stock or Restricted Stock Unit award shall lapse. +7.5 Restrictions +on Transferability. +(a) General. +Unless the Committee provides otherwise: (i) shares of +Restricted Stock and interests in Restricted Stock Units shall +not be sold, exchanged, transferred, pledged, assigned or +otherwise alienated or hypothecated during the Restricted Period +except by will or the laws of descent and distribution; and +(ii) all rights with respect to Restricted Stock and +Restricted Stock Units granted to a Participant under the Plan +shall be exercisable during the Participant’s lifetime only +by such Participant, his or her guardian or legal representative. +(b) Other +Restrictions. The Committee may impose other restrictions on +any shares of Common Stock subject to Restricted Stock and +Restricted Stock Unit awards as the Committee deems advisable, +including, without limitation, holding periods or further +transfer restrictions, forfeiture or “claw-back” +provisions, and restrictions under applicable federal or state +securities laws. +7.6 Legending of +Restricted Stock. The Committee may also require that +certificates representing shares of Restricted Stock be retained +and held in escrow by a designated employee or agent of the +Company or any Subsidiary until any restrictions applicable to +shares of Restricted Stock so retained have been satisfied or +lapsed. Any certificates evidencing shares of Restricted Stock +awarded pursuant to the Plan shall bear the following legend: +The shares represented by this certificate were +issued subject to certain restrictions under the Wolverine World +Wide, Inc. Stock Incentive Plan of 2005 (the “Plan”). +This certificate is held subject to the terms and conditions +contained in a restricted stock agreement that includes a +prohibition against the sale or transfer of the stock +represented by this certificate except in compliance with that +agreement and that provides for forfeiture upon certain events. +Copies of the Plan and the restricted stock agreement are on +file in the office of the Secretary of the Company. +7.7 Rights as a +Stockholder. A Participant shall have all dividend, +liquidation and other rights with respect to Restricted Stock +held by such Participant as if the Participant held unrestricted +Common Stock; provided , that the unvested portion of any +award of Restricted Stock shall be subject to any restrictions +on transferability or risks of +B-10 +Table of Contents +forfeiture imposed pursuant to Sections 7.1, +7.4 and 7.5 of the Plan. Unless the Committee otherwise +determines or unless the terms of the applicable Award Agreement +or grant provide otherwise, a Participant shall have all +dividend and liquidation rights with respect to shares of Common +Stock subject to awards of Restricted Stock Units held by such +Participant as if the Participant held unrestricted Common +Stock. Unless the Committee otherwise determines or unless the +terms of the applicable Award Agreement or grant provide +otherwise, any noncash dividends or distributions paid with +respect to shares of unvested Restricted Stock and shares of +Common Stock subject to unvested Restricted Stock Units shall be +subject to the same restrictions and vesting schedule as the +shares to which such dividends or distributions relate. +7.8 Voting +Rights. Unless otherwise determined by the Committee, +Participants holding shares of Restricted Stock granted +hereunder may exercise full voting rights with respect to those +shares during the period of restriction. Participants shall have +no voting rights with respect to shares of Common Stock +underlying Restricted Stock Units unless and until such shares +are reflected as issued and outstanding shares on the +Company’s stock ledger. +SECTION 8 +Stock Awards +8.1 Grant. +Subject to the limitations set forth in Section 4.2 of +the Plan, a Participant may be granted one or more Stock Awards +under the Plan. Stock Awards shall be subject to such terms and +conditions, consistent with the other provisions of the Plan, as +may be determined by the Committee. +8.2 Rights as a +Stockholder. A Participant shall have all voting, dividend, +liquidation and other rights with respect to shares of Common +Stock issued to the Participant as a Stock Award under this +Section 8 upon the Participant becoming the holder of +record of the Common Stock granted pursuant to such Stock Award; +provided , that the Committee may impose such restrictions +on the assignment or transfer of Common Stock awarded pursuant +to a Stock Award as it considers appropriate. +SECTION 9 +Deferred Stock Units +9.1 The Committee +may establish rules for the deferred delivery of Common Stock +following exercise of a Stock Option or Stock Appreciation Right +or following settlement, vesting or other events with respect to +Restricted Stock or Restricted Stock Units, in each case with +the deferral evidenced by use of “Stock Units” equal +in number to the number of shares of Common Stock whose delivery +is so deferred or to the value of the amount being so deferred. +A “Stock Unit” is a bookkeeping entry representing an +amount equivalent to the fair market value of one share of +Common Stock. Unless the Committee specifies otherwise, Stock +Units represent an unfunded and unsecured obligation of the +Company. Settlement of Stock Units upon expiration of the +deferral period shall be made in Common Stock, cash or a +combination thereof, as determined by the Committee. The amount +of Common Stock, or other settlement medium, to be so +distributed may be increased by dividend equivalents. Unless +determined otherwise by the Committee, during the deferral +period a Participant will not have any rights as a stockholder +of the Company, including, without limitation, voting rights and +the right to receive dividends or distributions. Until a Stock +Unit is so settled, the number of shares of Common Stock +represented by a Stock Unit shall be subject to adjustment +pursuant to Section 4.4. Any Stock Units that are settled +after the holder’s death shall be distributed to the +holder’s designated beneficiary(ies) or, if none was +designated, the holder’s estate. Notwithstanding anything +herein to the contrary, in no event will any deferral of the +delivery of Common Stock or any other payment with respect to +any Incentive Award be allowed if the Committee determines, in +its sole discretion, that the deferral would result in the +imposition of additional tax under Section 409A(1)(B) of +the Code. +SECTION 10 +Change in Control +10.1 Acceleration +of Vesting. If a Change in Control of the Company shall +occur, then, unless the Committee or the Board otherwise +determines with respect to one or more Incentive Awards, without +action by the Committee or the Board: (a) all outstanding +Stock Options and Stock Appreciation Rights shall become +immediately exercisable in full and +B-11 +Table of Contents +shall remain exercisable during the remaining +terms thereof as set forth in Sections 5.5 and 6.4, +regardless of whether the Participants to whom such Stock +Options and Stock Appreciation Rights have been granted remain +in the employ or service of the Company or any Subsidiary; and +(b) all other outstanding Incentive Awards shall become +immediately fully vested and exercisable and nonforfeitable. +10.2 Cash Payment +for Stock Options/Stock Appreciation Rights. If a Change in +Control of the Company shall occur, then the Committee without +the consent of any Participant affected thereby, may determine +that some or all Participants holding outstanding Stock Options +and/or Stock Appreciation Rights shall receive, with respect to +some or all of the shares of Common Stock subject to such Stock +Options and/or Stock Appreciation Rights, as of the effective +date of any such Change in Control of the Company, cash in an +amount equal to the greater of the excess of (a) the +highest sales price of the shares on the New York Stock Exchange +on the date immediately prior to the effective date of such +Change in Control of the Company or (b) the highest price +per share actually paid in connection with any Change in Control +of the Company over the exercise price per share of such Stock +Options and/or Stock Appreciation Rights. +SECTION 11 +Qualifying Performance-Based Compensation +11.1 General. +The Committee may specify that the grant, retention, vesting +or issuance of any Incentive Award, or the amount to be paid out +under any Incentive Award, be subject to or based on Qualifying +Performance Criteria or other standards of financial performance +and/or personal performance evaluations. Notwithstanding +satisfaction of any performance goals, the number of shares of +Common Stock issued or the amount paid under an Incentive Award +may, to the extent specified in the applicable agreement +evidencing the award, be reduced by the Committee on the basis +of such further considerations as the Committee shall determine. +11.2 Qualifying +Performance Criteria. For purposes of this Plan, the term +“Qualifying Performance Criteria” shall mean any one +or more of the following performance criteria, either +individually, alternatively or in any combination, applied to +either the Company as a whole or to a business unit or +Subsidiary, either individually, alternatively or in any +combination, and measured either annually or cumulatively over a +period of years, on an absolute basis or relative to a +pre-established target, to previous years’ results or to a +designated comparison group, in each case as specified by the +Committee: (a) net earnings or earnings per share +(including earnings before interest, taxes, depreciation and/or +amortization), (b) income, net income or operating income, +(c) revenues, (d) net sales, (e) return on sales, +(f) return on equity, (g) return on capital (including +return on total capital or return on invested capital), +(h) return on assets or net assets, (i) earnings per +share, (j) economic value added measurements, +(k) return on invested capital, (l) return on +operating revenue, (m) cash flow (before or after +dividends), (n) stock price, (o) total stockholder +return, (p) market capitalization, (q) economic value +added, (r) debt leverage (debt to capital), +(s) operating profit or net operating profit, +(t) operating margin or profit margin or (u) cash from +operations. To the extent consistent with Section 162(m) of +the Code, the Committee may appropriately adjust any evaluation +of performance under a Qualifying Performance Criteria to +exclude any of the following events that occurs during a +performance period: (i) asset write-downs, +(ii) litigation, claims, judgments or settlements, +(iii) the effect of changes in tax law, accounting +principles or other such laws or provisions affecting reported +results, (iv) the effect of acquisitions or divestitures +(v) accruals for reorganization and restructuring programs +and (vi) any extraordinary, unusual or non-recurring items +as described in Accounting Principles Board Opinion No. 30 +and/or in management’s discussion and analysis of financial +condition and results of operations appearing in the +Company’s Forms 10-K or any Form 10-Q for the +performance period. +SECTION 12 +General Provisions +12.1 No Rights to +Awards. No Participant or other person shall have any claim +to be granted any Incentive Award under the Plan and there is no +obligation of uniformity of treatment of Participants or holders +or beneficiaries of Incentive Awards under the Plan. The terms +and conditions of Incentive Awards of the same type and the +determination of the Committee to grant a waiver or modification +of any Incentive Award and the terms and conditions thereof need +not be the same with respect to each Participant or the same +Participant. +B-12 +Table of Contents +12.2 Withholding. +The Company or a Subsidiary shall be entitled to: +(a) withhold and deduct from future wages of a Participant +(or from other amounts that may be due and owing to a +Participant from the Company or a Subsidiary), or make other +arrangements for the collection of (including through the sale +of shares of Common Stock otherwise issuable pursuant to the +applicable Incentive Award), all legally required amounts +necessary to satisfy any and all federal, state, local and +foreign withholding and employment-related tax requirements +attributable to an Incentive Award, including, without +limitation, the grant, exercise or vesting of, or payment of +dividends with respect to, an Incentive Award or a disqualifying +disposition of Common Stock received upon exercise of an +incentive stock option; or (b) require a Participant +promptly to remit the amount of such withholding to the Company +before taking any action with respect to an Incentive Award. To +the extent specified by the Committee, withholding may be +satisfied by withholding Common Stock to be received upon +exercise or vesting of an Incentive Award or by delivery to the +Company of previously owned Common Stock. In addition, the +Company may reasonably delay the issuance or delivery of shares +of Common Stock pursuant to an Incentive Award as it determines +appropriate to address tax withholding and other administrative +matters. +12.3 Compliance +With Laws; Listing and Registration of Shares. All Incentive +Awards granted under the Plan (and all issuances of Common Stock +or other securities under the Plan) shall be subject to all +applicable laws, rules and regulations, and to the requirement +that if at any time the Committee shall determine that the +listing, registration or qualification of the shares covered +thereby upon any securities exchange or under any state or +federal law, or the consent or approval of any governmental +regulatory body, is necessary or desirable as a condition of, or +in connection with, the grant of such Incentive Award or the +issue or purchase of shares thereunder, such Incentive Award may +not be exercised in whole or in part, or the restrictions on +such Incentive Award shall not lapse, unless and until such +listing, registration, qualification, consent or approval shall +have been effected or obtained free of any conditions not +acceptable to the Committee. +12.4 Additional +Restrictions on Shares. The Committee may provide that the +shares of Common Stock issued upon exercise of a Stock Option or +Stock Appreciation Right or otherwise subject to or issued under +an Incentive Award shall be subject to such further agreements, +restrictions, conditions or limitations as the Committee in its +discretion may specify prior to the exercise of such Stock +Option or Stock Appreciation Right or the grant, vesting or +settlement of such Incentive Award, including without +limitation, conditions on vesting or transferability, forfeiture +or repurchase provisions and method of payment for the shares +issued upon exercise, vesting or settlement of such Incentive +Award (including the actual or constructive surrender of Common +Stock already owned by the Participant) or payment of taxes +arising in connection with an Incentive Award. Without limiting +the foregoing, such restrictions may address the timing and +manner of any resales by the Participant or other subsequent +transfers by the Participant of any shares of Common Stock +issued under an Incentive Award, including without limitation +restrictions under an insider trading policy, blackout period or +pursuant to applicable law, and restrictions as to the use of a +specified brokerage firm or equity plan administrator for such +resales or other transfers. +12.5 No Limit on +Other Compensation Arrangements. Nothing contained in the +Plan shall prevent the Company or any Subsidiary from adopting +or continuing in effect other or additional compensation +arrangements, including the grant of stock options and other +stock-based awards, and such arrangements may be either +generally available or available only in specific cases. +12.6 No Right to +Employment. The grant of an Incentive Award shall not be +construed as giving a Participant the right to be retained in +the employ of the Company or any Subsidiary. The Company or any +Subsidiary may at any time dismiss a Participant from +employment, free from any liability or any claim under the Plan, +unless otherwise expressly provided in the Plan or in any +written agreement authorized by the Committee. +12.7 No Liability +of Company. The Company and any Subsidiary or affiliate +which is in existence or hereafter comes into existence shall +not be liable to a Participant or any other person as to: +(a) the non-issuance or sale of Common Stock as to which +the Company has been unable to obtain from any regulatory body +having jurisdiction the authority deemed by the Company’s +counsel to be necessary to the lawful issuance and sale of any +shares hereunder; (b) any tax consequence to any +Participant or other person due to the receipt, exercise or +settlement of any Incentive Award granted hereunder; and +(c) any provision of law or legal restriction that +prohibits or restricts the transfer of shares of Common Stock +issued pursuant to any Incentive Award. +B-13 +Table of Contents +12.8 Suspension +of Rights under Incentive Awards. The Company, by written +notice to a Participant, may suspend a Participant’s and +any transferee’s rights under any Incentive Award for a +period not to exceed 60 days while the termination for +cause of that Participant’s employment with the Company and +its Subsidiaries is under consideration. +12.9 Governing +Law. The validity, construction and effect of the Plan and +any rules and regulations relating to the Plan shall be +determined in accordance with the laws of the State of Delaware +and applicable federal law. +12.10 Severability. +In the event any provision of the Plan shall be held illegal +or invalid for any reason, the illegality or invalidity shall +not affect the remaining provisions of the Plan and the Plan +shall be construed and enforced as if the illegal or invalid +provision had not been included, unless such construction would +cause the Plan to fail in its essential purposes. +SECTION 13 +Suspension or Termination of Awards +13.1 Except as +otherwise provided by the Committee, if at any time (including +after a notice of exercise has been delivered or an award has +vested) the Chief Executive Officer or any other person +designated by the Committee (each such person, an +“Authorized Officer”) reasonably believes that a +Participant may have committed an Act of Misconduct as described +in this Section 13, the Authorized Officer, Committee or +Board may suspend the Participant’s rights to exercise any +Stock Option or Stock Appreciation Right, to vest in an +Incentive Award, and/or to receive payment for or receive shares +of Common Stock in settlement of an Incentive Award pending a +determination of whether an Act of Misconduct has been committed. +13.2 If the +Committee or an Authorized Officer determines a Participant has +committed an act of embezzlement, fraud, dishonesty, nonpayment +of any obligation owed to the Company or any Subsidiary, breach +of fiduciary duty or deliberate disregard of Company or +Subsidiary rules resulting in loss, damage or injury to the +Company or any Subsidiary, or if a Participant makes an +unauthorized disclosure of any Company or Subsidiary trade +secret or confidential information, engages in any conduct +constituting unfair competition, breaches any non-competition +agreement, induces any Company or Subsidiary customer to breach +a contract with the Company or any Subsidiary, or induces any +principal for whom the Company or any Subsidiary acts as agent +to terminate such agency relationship (any of the foregoing +acts, an “Act of Misconduct”), then except as +otherwise provided by the Committee, (i) neither the +Participant nor his or her estate nor transferee shall be +entitled to exercise any Stock Option or Stock Appreciation +Right whatsoever, vest in or have the restrictions on an +Incentive Award lapse, or otherwise receive payment or shares of +Common Stock under any Incentive Award, (ii) the +Participant will forfeit all outstanding Incentive Awards and +(iii) the Participant may be required, at the +Committee’s sole discretion, to return and/or repay to the +Company any then unvested shares of Common Stock previously +issued under the Plan. In making such determination, the +Committee or an Authorized Officer shall give the Participant an +opportunity to appear and present evidence on his or her behalf +at a hearing before the Committee or an opportunity to submit +written comments, documents, information and arguments to be +considered by the Committee. +SECTION 14 +Termination and Amendment +14.1 The Board may +terminate the Plan at any time or may from time to time amend or +alter the Plan or any aspect of it as it considers proper and in +the best interests of the Company, provided that no such +amendment may be made, without the approval of stockholders of +the Company, that would (i) reduce the exercise price at +which Stock Options or Stock Appreciation Rights may be granted +below the price provided for in Section 5.2 and 6.2, +(ii) reduce the exercise price of outstanding Stock +Options, (iii) increase the individual maximum limits in +Section 4.2 or (iv) otherwise amend the Plan in any +manner requiring stockholder approval by law or under the New +York Stock Exchange listing requirements. The Committee may +alter or amend an Award Agreement and/or Incentive Award +previously granted under the Plan to the extent it determines +that such action is appropriate. +14.2 Notwithstanding +anything to the contrary in Section 14.1, no such amendment +or alteration to the Plan or to any previously granted Award +Agreement or Incentive Award shall be made which would impair +the rights of the holder +B-14 +Table of Contents +of the Award, without such holder’s consent, +provided that no such consent shall be required if the Committee +determines in its sole discretion and prior to the date of any +change of control (as defined in the applicable Award Agreement) +that such amendment or alteration either is required or +advisable in order for the Company, the Plan or the Incentive +Award to satisfy any law or regulation or to meet the +requirements of or avoid adverse financial accounting +consequences under any accounting standard. +SECTION 15 +Effective Date and Duration of the Plan +15.1 This Plan shall +take effect April 21, 2005, subject to approval by the +stockholders at the 2005 Annual Meeting of Stockholders or any +adjournment thereof or at a Special Meeting of Stockholders, but +in no event will such approval be obtained more than twelve +(12) months from the adoption of this Plan by the Board. +Unless earlier terminated by the Board, no Incentive Award shall +be granted under the Plan after April 20, 2015. +B-15 +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on April 21, +2005. The enclosed Notice of Annual Meeting provides information regarding the matters that are +expected to be voted on at the meeting. Your vote is important to us. Even if you plan to attend +the meeting, please read the enclosed materials and vote through the Internet, by telephone or by +mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by +telephone. Please consider voting through one of these methods. Your vote is recorded as if you +mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it +also saves money. +Electronic Delivery of Proxy Statement and Annual Report. +You may elect to receive your annual report and proxy statement on-line by checking the +appropriate box below. Selecting this option means that you may receive the Wolverine World Wide, +Inc. annual report and proxy statement on-line rather than in printed form unless you request a +paper copy. If a sufficient number of stockholders select this option, beginning next year and +continuing until you tell us otherwise, you will receive your printed Proxy with information +regarding the Internet website containing the annual report and proxy statement. You will need a +computer with Internet access and we anticipate that you will need a utility such as Adobe Acrobat +Reader to read the annual report and proxy statement, which will be in PDF file format. We plan +to provide information on obtaining free access to a utility necessary for reading PDF files. You +may incur costs such as on-line charges or printing costs and face possible risks such as systems +outages in accessing Wolverine World Wide, Inc.’s proxy statement and annual report via the +Internet website. You may cancel your enrollment in this process at any time or may request a +paper copy of the annual report and/or proxy statement in any given year while continuing your +long-term enrollment in this process by written notification to National City Bank, Attn. +Shareholder Services Department, Dept. 5352, Corporate Trust Operations, P.O. Box 92301, Cleveland, +Ohio 44193-0900. The telephone number is 1-800-622-6757. There is no charge for canceling +enrollment or requesting a paper copy of the annual report and proxy +statement. +Thank you in advance for your participation in our 2005 Annual Meeting. +Wolverine World Wide, Inc. +â Please fold and detach card at perforation before mailing. â +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +WOLVERINE WORLD WIDE, INC. +PROXY +1. +ELECTION OF DIRECTORS +Nominees: +(01) Donald V. Fites +(02) Phillip D. Matthews +(03) Paul D. Schrage +o FOR all +o WITHHOLD all +o FOR all except (*) +*(INSTRUCTION: To withhold authority to vote for any individual nominee, strike that nominee’s name in the list above.) +Your Board of Directors Recommends that You Vote FOR ALL NOMINEES +2. +Proposal to approve the Amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock. +o FOR +o AGAINST +o ABSTAIN +Your Board of Directors Recommends that You Vote FOR this Proposal +3. +Proposal to approve the Stock Incentive Plan of 2005. +o FOR +o AGAINST +o ABSTAIN +Your Board of Directors Recommends that You Vote FOR this Proposal +4. +Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current fiscal year. +o FOR +o AGAINST +o ABSTAIN +Your Board of Directors Recommends that You Vote FOR this Proposal +o Please check this box if you consent to access future annual reports and proxy statements via the Internet (see details above). +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +Table of Contents +WOLVERINE WORLD WIDE, INC. +VOTE BY TELEPHONE +c/o National City Bank +Corporate Trust Operations +Locator 5352 +P. O. Box 92301 +Have your proxy card available when you +call the Toll-Free number 1-800-542-1160 +using a touch-tone phone and follow the +simple instructions to record your vote. +Cleveland, OH 44101-4301 +VOTE BY INTERNET +Have your proxy card available when you +access the website http://www.votefast.com, +and follow the simple instructions to record +your vote. +VOTE BY MAIL +Please mark, sign and date your proxy card +and return it in the postage-paid envelope +provided or return it to: National City Bank, +P.O. Box 535300, Pittsburgh PA 15253- +9837. Mailed proxies must be received no +later than April 21, 2005, at 10:00 a.m. +Eastern Daylight Time. +Vote by Telephone +Call toll-free using a +touch-tone phone: +1-800-542-1160 +Vote by Internet +Access the website and +cast your vote: +http://www.votefast.com +Vote by Mail +Return your proxy +in the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 20, 2005, to assure that it is counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL +VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +à +This Proxy must be signed and dated below. +â Please fold and detach card at perforation before mailing. â +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — +WOLVERINE WORLD WIDE, INC. +PROXY +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints Geoffrey B. Bloom, Phillip D. Matthews and Timothy J. +O’Donovan, and each of them, each with full power of substitution, proxies to represent the +undersigned stockholder and to vote all shares of Common Stock of Wolverine World Wide, Inc. that +the stockholder would be entitled to vote on all matters which come before the Annual Meeting of +Stockholders to be held at the Company’s headquarters located at 9341 Courtland Drive, N.E., +Rockford, Michigan, on Thursday, April 21, 2005, at 10 a.m. local time, and any adjournment of that +meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be voted as +specified. If no specification is made, the shares represented by this Proxy will be voted for the +election of all nominees named on this Proxy as directors and for approval of the proposals +identified on this Proxy. The shares represented by this Proxy will be voted in the discretion of +the proxies on any other matters that may come before the meeting. +Signature(s) +Signature(s) +Date: +, 2005 +IMPORTANT – Please sign exactly as your name(s) appears on +this Proxy. When signing on behalf of a corporation, partnership, +estate or trust, indicate title or capacity of person signing. If shares are held jointly, each holder must sign. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-05-001482/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-05-001482/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..37ed2ce4bb9fa6a41499b6ec9c88014fa8d44c9a --- /dev/null +++ b/raw/proxies/0000110471/0000950124-05-001482/proxy_rpt.txt @@ -0,0 +1,47 @@ +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush Puppies® , +Caterpillar® and Merrell® brand names. +Under these agreements, Grimoldi, S.A. or its subsidiary pays +Wolverine royalties and certain sublicense fees based on sales +or purchases of footwear products in Argentina. +43 +Table of Contents +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees relating to 2004 totaling $1,013,368. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2004, purchases of such items by +Grimoldi, S.A. totaled $136,019 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2005. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of January 1, 2005, the aggregate principal balance of the +note was $233,339. The highest principal balance of the note +between January 4, 2004 and January 1, 2005 was +$461,231. +In the ordinary course of its business, Wolverine +purchases promotional merchandise for use in connection with the +sale of its products. In 2004, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $373,459. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates continuing to purchase promotional materials from +Bullseye Group, LLC in 2005. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-06-001182/proxy.txt b/raw/proxies/0000110471/0000950124-06-001182/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6010c12a906eb7ea45516a6c3f20883c691d3173 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-06-001182/proxy.txt @@ -0,0 +1,3215 @@ +DEF 14A +1 +k03126ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant +o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information +contained in this form are not required to respond unless the form displays a currently valid +OMB control number. +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Ownership of Wolverine Stock +Wolverine’s Stock Price Performance +Executive Compensation +Employment Agreements and Termination of Employment and Change In Control Arrangements +Compensation Committee Report on Executive Compensation +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL MEETING +To our Stockholders: +You are invited to attend Wolverine’s annual +meeting of stockholders at Wolverine’s headquarters located +at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 20, 2006, at 10 a.m. local time. At the meeting, +we will: +(1) +Elect three directors for three-year terms +expiring in 2009. +(2) +Vote on ratification of the Audit +Committee’s appointment of Ernst & Young LLP as +independent auditors for the current fiscal year. +(3) +Conduct such other business as may properly come +before the meeting. +You can vote at the meeting and any adjournment +of the meeting if you were a stockholder of record on +March 1, 2006. A list of stockholders entitled to vote at +the meeting will be available for review by Wolverine +stockholders at the office of James D. Zwiers, Secretary +and General Counsel of Wolverine, located at 9341 Courtland +Drive, N.E., Rockford, Michigan, during ordinary business hours +for the 10-day period before the meeting. +A copy of the Annual Report to Stockholders for +the year ended December 31, 2005, is enclosed with this +Notice. The following proxy statement and enclosed proxy card +are being sent to stockholders on and after +March 14, 2006. +By Order of the Board of Directors +James D. Zwiers, Secretary and General +Counsel +March 14, 2006 +Your Vote is Important to Us. Even if You Plan +to Attend the Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED +PROXY PROMPTLY OR +VOTE BY TELEPHONE OR THE INTERNET. +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL MEETING OF STOCKHOLDERS +April 20, 2006 +Proxy Statement +This proxy statement and enclosed proxy card are +being furnished to you in connection with the solicitation of +proxies by the Wolverine Board of Directors for use at the +annual meeting. In this proxy statement, “we,” +“us,” “our” and “Wolverine” refer +to Wolverine World Wide, Inc. and “you” and +“your” refer to Wolverine stockholders. +Questions and Answers About the Proxy +Materials and Our 2006 Annual Meeting +Q: +Why am I receiving these materials? +A: +Wolverine’s Board of Directors is providing +these proxy materials to you in connection with its solicitation +of proxies for use at the Wolverine World Wide, Inc. 2006 Annual +Meeting of Stockholders, which will take place on April 20, +2006, at Wolverine’s headquarters located at 9341 Courtland +Drive, N.E., Rockford, Michigan, at 10:00 a.m. local time. +Stockholders are invited to attend the annual meeting and are +requested to vote upon the proposals described in this Proxy +Statement. +Q: +What information is contained in these +materials? +A: +The information included in this Proxy Statement +relates to the proposals to be voted upon at the annual meeting, +the voting process, the compensation of our directors and most +highly paid executive officers, and certain other required +information. Wolverine’s Annual Report to Stockholders for +the year ended December 31, 2005, which includes +Wolverine’s audited consolidated financial statements, is +included in these proxy materials. Your proxy, which you may use +to vote, is also enclosed. +Q: +What proposals will be voted upon at the +annual meeting? +A: +There are two proposals scheduled to be voted +upon at the annual meeting: +• +election of three directors for three-year terms +expiring in 2009; and +• +ratification of the appointment of +Ernst & Young LLP as independent auditors for Wolverine +for the current fiscal year. +In addition, such other business as may properly +come before the meeting will be considered and voted upon. We +are not currently aware of any other matters to be considered +and voted upon at the meeting. +Q: +How does Wolverine’s Board of Directors +recommend that I vote on the two proposals? +A: +Wolverine’s Board of Directors recommends +that you vote your shares “FOR” each of the nominees +to the Board of Directors and “FOR” each other +proposal discussed in this Proxy Statement. +Q: +Who may vote? +A: +You may vote at the meeting or by proxy if you +were a stockholder of record of Wolverine at the close of +business on March 1, 2006. Each stockholder is entitled to +one vote per share on each matter presented. As of March 1, +2006, there were 55,896,795 shares of Wolverine common +stock issued and outstanding (excluding 3,642,849 shares of +treasury stock). +Q: +How do I vote before the annual +meeting? +A: +Wolverine offers the convenience of voting by +mail-in proxy, telephone or the Internet. See the enclosed proxy +for voting instructions. If you properly sign and return the +proxy in the form we have provided or properly vote by telephone +or +the Internet, your shares will be voted at the +annual meeting and at any adjournment of that meeting. +Q: +What if I return my proxy but do not provide +voting instructions? +A: +If you specify a choice, the proxy will be voted +as specified. If you return a signed proxy but do not specify a +choice, your shares will be voted in favor of the election of +all nominees named in this Proxy Statement and in favor of the +proposal set forth in this Proxy Statement. In all cases a proxy +will be voted in the discretion of the individuals named as +proxies on the proxy card with respect to any other matters that +may come before the meeting. +Q: +Can I change my mind after I vote? +A: +You may revoke your proxy at any time before it +is exercised by delivering written notice of revocation to the +Secretary of Wolverine or by attending and voting at the annual +meeting. +Q: +How can I vote my shares in person at the +annual meeting? +A: +Shares held directly in your name as the +stockholder of record may be voted in person at the annual +meeting. If you choose to vote in person, please bring the +enclosed proxy card and proof of identification. Even if you +plan to attend the annual meeting, Wolverine recommends that you +vote your shares in advance as described below so that your vote +will be counted if you later decide not to attend the annual +meeting. Shares held in “street name” through a +brokerage account or by a bank or other nominee may be voted in +person by you if you obtain a signed proxy from the record +holder giving you the right to vote the shares. +Q: +What is the quorum requirement for the annual +meeting? +A: +The presence in person or by proxy of the holders +of a majority of the shares entitled to vote at the annual +meeting is necessary to constitute a quorum. In determining the +presence or absence of a quorum for the annual meeting, all +shares for which a proxy or vote is received will be counted as +present and represented at the meeting, including abstentions +and shares represented by a broker vote on any matter. +Q: +What is the voting requirement to approve each +of the proposals? +A: +A plurality of the shares voting is required to +elect directors. This means that if there are more nominees than +positions to be filled, the nominees who receive the most votes +will be elected. In counting votes on the election of directors, +abstentions, broker non-votes and other shares not voted will be +counted as not voted. These shares will be deducted from the +total shares of which a plurality is required. +Each other matter to be voted upon at the annual +meeting will be approved if a majority of the shares present or +represented at the meeting and entitled to vote upon the +proposal are voted in favor of such matter. In counting votes on +each such matter, abstentions will be counted as voted against +the matter and broker non-votes will be counted as not voted +upon the matter. Shares that are not voted upon such matters +will be deducted from the total shares of which a majority is +required. +Q: +What are broker non-votes and what effect do +they have on the proposals? +A: +Generally, broker non-votes occur when shares +held by a broker in “street name” for a beneficial +owner are not voted with respect to a particular proposal +because (1) the broker has not received voting instructions +from the beneficial owner and (2) the broker lacks +discretionary voting power to vote those shares. A broker is +entitled to vote shares held for a beneficial owner on routine +matters, such as the election of directors and the ratification +of the appointment of Ernst & Young LLP as independent +auditors, without instructions from the beneficial owner of +those shares. +Q: +What does it mean if I receive more than one +proxy or voting instruction card? +A: +It means your shares are registered differently +or are in more than one account. Please provide voting +instructions for all proxy and voting instruction cards you +receive. +Q: +Where can I find the voting results of the +annual meeting? +A: +Wolverine will announce preliminary voting +results at the annual meeting and publish final results in +Wolverine’s quarterly report on Form 10-Q for the +second quarter of 2006. +2 +Election of Directors +As recommended by the Governance Committee, the +Board of Directors proposes that the following nominees be +elected as directors for terms expiring at the 2009 annual +meeting: +Alberto L. Grimoldi +Brenda J. Lauderback +Shirley D. Peterson +All of the nominees are currently directors of +Wolverine whose terms will expire at the annual meeting. Each +proposed nominee is willing to be elected and serve as a +director. However, if a nominee is unable to serve or is +otherwise unavailable for election, which is not contemplated, +the incumbent Wolverine Board of Directors may or may not select +a substitute nominee. If a substitute nominee is selected, your +shares will be voted for the substitute nominee (unless you give +other instructions). If a substitute nominee is not selected, +your shares will be voted for the remaining nominees. Proxies +will not be voted for more than three nominees. +Wolverine’s Board of Directors currently +consists of 10 directors. Donald V. Fites is retiring at +this year’s annual meeting after seven years of service as +a director. +Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into three +classes, with each class to be as nearly equal in number as +possible. Each class serves a term of office of three years, +with the term of one class expiring at the annual meeting in +each successive year. +Biographical information for each nominee and +each current director who will continue to serve after the +annual meeting is presented below. Except as otherwise +indicated, all have had the same principal positions and +employment for over five years. +Your Board of Directors recommends that you +vote FOR each nominee. +Wolverine’s Board of Directors +Nominees for Terms Expiring in 2009 +ALBERTO L. GRIMOLDI (age 64) has been a +director since 1994. Mr. Grimoldi is Chairman of Grimoldi, +S.A., a shoe manufacturer and retailer in Argentina. He has held +that position since 1986. Mr. Grimoldi was previously a +member of the Advisory Board of Ford Motor Company in Argentina, +and has also held various positions in the Argentinean +government. +BRENDA J. LAUDERBACK (age 55) was appointed +to the Board of Directors in 2003. From 1995 until her +retirement in 1998, Ms. Lauderback was president of the +Wholesale and Retail Group of Nine West Group, Inc., a footwear +wholesaler and distributor. She was previously the President of +the Wholesale Division of U.S. Shoe Corporation, a footwear +manufacturer and distributor, and a Vice President of Dayton +Hudson Corporation, a retailer. Ms. Lauderback is also a +director of Irwin Financial Corporation; Big Lots, Inc.; +Denny’s Corporation; and Select Comfort Corporation. +SHIRLEY D. PETERSON (age 64) has been a +director since 2005. Before her retirement Ms. Petersen was +a partner at the law firm Steptoe & Johnson LLP and +from 1995 until 2000 served as President of Hood College of +Frederick, Maryland. She was previously the Commissioner of the +Internal Revenue Service and an Assistant Attorney General of +the Tax Division for the U.S. Department of Justice. +Ms. Peterson is also a director of Federal-Mogul +Corporation; The Goodyear Tire & Rubber Company; AK +Steel Holding Corporation; Scudder Mutual Funds, Inc.; and +Champion Enterprises Inc. +3 +Continuing Directors — Terms Expiring in 2008 +PHILLIP D. MATTHEWS (age 67) has been a +director since 1981. Mr. Matthews is Lead Director of +Wolverine and was Chairman of the Board of Wolverine from 1993 +until 1996. Since 1997, Mr. Matthews has been a general +partner of Matthews, Mullaney & Co., a consulting firm. +Mr. Matthews is also a director of Washington Mutual, Inc. +PAUL D. SCHRAGE (age 71) has been a director +since 1997. Mr. Schrage was Senior Executive Vice President +and Chief Marketing Officer of McDonald’s Corporation, a +worldwide restaurant franchisor and operator and was employed at +that company from 1967 until his retirement in 1997. +Mr. Schrage is also a director of Compact Industries, Inc. +MICHAEL A. VOLKEMA (age 50) has been a +director since 2005. Mr. Volkema is Chairman of Herman +Miller, Inc., a leading designer and manufacturer of furnishings +for the office and home. He has held that position since 2000. +Mr. Volkema became President and Chief Executive Officer of +Herman Miller in 1995 and held those positions until 2003 and +2004, respectively. Mr. Volkema is also a director of +Applebee’s International, Inc. +Continuing Directors — Terms Expiring in 2007 +DAVID T. KOLLAT (age 67) has been a director +since 1992. Mr. Kollat is President and Chairman +of 22, Inc., a company specializing in research and +management consulting for retailers and consumer goods +manufacturers. Mr. Kollat is also a director of Limited +Brands, Inc.; Big Lots, Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 66) has been a director +since 1977. Mr. Mehney is President of The KMW Group, Inc., +a distributor of medical and marine products. +TIMOTHY J. O’DONOVAN (age 60) has been +a director since 1993. Mr. O’Donovan is Chief +Executive Officer and Chairman of the Board of Wolverine and has +served in that capacity since April 2005. +Mr. O’Donovan served Wolverine as its Chief Executive +Officer and President from April 2000 until April 2005. Before +April 2000, Mr. O’Donovan was Chief Operating Officer +and President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. and Kaydon Corporation. +Board Committees and Meetings +During the 2005 fiscal year, the Board of +Directors held five regular meetings. Each of the directors +attended 75% or more of the aggregate of the total number of +full Board meetings and the total number of meetings of +committees on which he or she served (during the periods that he +or she served). +The Board of Directors has four standing +committees: the Audit Committee, the Compensation Committee, the +Executive Committee and the Governance Committee. Members of +each committee are appointed by the Board of Directors and the +authority, duties and responsibilities of each committee are +governed by written charters approved by the Board of Directors. +In addition to regular Board and Committee +meetings, Wolverine has regular scheduled executive sessions for +non-management directors. Wolverine’s independent Lead +Director, Mr. Matthews, presides at all non-management +executive sessions. Interested parties may make concerns known +to the non-management directors by communicating with +Mr. Matthews or with the non-management directors as a +group, through one of the Board communication mechanisms +described later in this proxy statement under the heading +“Corporate Governance Principles — Communication +with the Board.” +4 +The tables below show current membership for each +of the standing committees: +Compensation +Executive +Governance +Audit Committee +Committee +Committee +Committee +Donald V. Fites +Donald V. Fites* +Donald V. Fites +David T. Kollat +David T. Kollat* +David P. Mehney +David T. Kollat +Brenda J. Lauderback +Brenda J. Lauderback +Paul D. Schrage +Phillip D. Matthews* +David P. Mehney +Phillip D. Matthews +Timothy J. O’Donovan +Paul D. Schrage* +* +Committee Chairman +Below is a description of each of the standing +committees. +Audit Committee. The +Audit Committee has been established in accordance with the +Securities Exchange Act of 1934 and performs the following +duties: +• +represents and assists the Board in fulfilling +its oversight responsibility regarding Wolverine’s +financial reporting and accounting process; +• +appoints, retains, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance of the +independent auditors and Wolverine’s internal audit +function; +• +obtains and reviews the independent +auditors’ internal quality control report and other reports +required by applicable rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention +and treatment of complaints regarding accounting and auditing +matters; +• +meets to review Wolverine’s financial +statements, including disclosures in Management’s +Discussion and Analysis of Financial Condition and Results of +Operations, that are included in Wolverine’s reports on +Form 10-Q and Form 10-K; +• +reviews Wolverine’s policies and systems +with respect to risk assessment and risk management and +discusses significant risks or exposures with management and the +independent auditors; +• +discusses with internal auditors and the +independent auditors the overall scope and plans for their +respective audits; +• +oversees Wolverine’s legal and regulatory +compliance systems; +• +reviews and discusses the adequacy and +effectiveness of Wolverine’s internal control over +financial reporting and disclosure controls and +procedures; and +• +establishes policies and procedures relating to +the engagement of the independent auditors, including +pre-approval policies and procedures. +Only independent directors may serve on the Audit +Committee. Each member of the Audit Committee satisfies the +independence standards for such committee members established by +the New York Stock Exchange (“NYSE”). The Audit +Committee met 12 times in 2005. +Compensation +Committee. The Compensation Committee: +• +discharges, subject to general review and +oversight by the Board, the Board’s responsibilities +relating to executive compensation and assists the Board in +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +reviews and approves corporate and personal goals +and objectives relevant to Chief Executive Officer compensation, +evaluates the performance of the Chief Executive Officer in +light of these goals and objectives, and, together with the +other independent directors, approves the compensation of the +Chief Executive Officer based on the evaluation; +• +reviews and approves the compensation of other +key senior executives, including bonuses and equity +compensation; and +• +administers and makes recommendations with +respect to Wolverine’s stock option and other equity-based +incentive plans. +Only independent directors may serve on the +Compensation Committee. Each member of the Compensation +Committee satisfies the independence standards for such +committee members established by NYSE. The Compensation +Committee met four times during 2005. +5 +Executive Committee. +Subject to limitations set forth in the Executive Committee +Charter and applicable laws, rules and regulations, the +Executive Committee exercises the powers of the Board of +Directors during periods between Board meetings with respect to +matters that the Chairman of the Board determines must be +addressed before the next scheduled meeting of the Board and for +which a special meeting of the Board is not practicable. The +Executive Committee did not meet during 2005. +Governance +Committee. The Governance Committee: +• +interviews each potential director nominee and +recommends, consistent with criteria approved by the Board, +suitable candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes +qualification standards for Board and committee membership; +• +develops and recommends to the Board an annual +self-evaluation process for the Board and its committees and +oversees the evaluation process; +• +establishes and recommends director independence +guidelines to the Board; +• +reviews and reports on all matters generally +relating to corporate governance and develops and recommends to +the Board corporate governance guidelines; +• +recommends to the Board key executives to serve +as corporate officers of Wolverine; and +• +recommends retainer and attendance fees for +directors who are not employees of Wolverine or any of its +subsidiaries. +In evaluating the skills and characteristics +required of Board members, the Governance Committee addresses +issues such as experience, diversity, age and skills in the +context of the current make-up of the Board. The Governance +Committee will consider candidates for nomination that are +recommended by stockholders, directors, officers, third-party +search firms and other sources. Stockholders may recommend +individual nominees for consideration by the Governance +Committee by communicating with the Governance Committee through +one of the Board communication mechanisms described under the +heading “Corporate Governance Principles — +Communication with the Board.” The Board of Directors +ultimately determines individuals to be nominated at each annual +meeting. Direct stockholder nominations may be made through +the procedure described below under the subheading +“Stockholder Nominations.” From time to time, the +Governance Committee engages third-party search firms to assist +with identifying and evaluating potential nominees. +In making nominee recommendations to the Board, +the Governance Committee considers a potential nominee’s +ability, judgment and personal and professional integrity. The +Governance Committee seeks nominees who are likely to be most +effective, in conjunction with other nominees and Board members, +in collectively serving the long-term interests of the +stockholders. +Only independent directors may serve on the +Governance Committee. Each member of the Governance Committee +satisfies the independence standards for such committee members +established by NYSE. The Governance Committee met six times +during 2005. +Stockholder Nominations +Nominations may be made by a stockholder entitled +to vote for the election of directors if, and only if, the +stockholder submits advance notice of the proposed nomination to +the Secretary of Wolverine and the notice is received by the +Secretary of Wolverine not less than 50 nor more than +75 days before the annual meeting. However, if the first to +occur of the notice of the meeting or public disclosure is given +or made to stockholders less than 65 days before the annual +meeting, the notice of the proposed nomination must be received +not later than the close of business on the 15th day after +the day on which the notice of the date of the meeting was +mailed or the public disclosure was made, whichever occurs +first. Each notice submitted by a stockholder must set forth +each nominee’s name, age, business address, residence +address and principal occupation and employment, the class and +number of shares of common stock beneficially owned by each +nominee, and any other information concerning each nominee +required to be included in a proxy statement soliciting proxies +for the election of the nominee under the rules of the +Securities and Exchange Commission (“SEC”). In +addition, the notice must state the name, record address and the +class and number of shares of common stock beneficially owned by +the stockholder submitting the notice. If the chairman of the +meeting determines that a nomination was not made in accordance +with these procedures, he or she must announce that +determination at the meeting and the nomination will be +disregarded. +6 +Compensation of Directors +Wolverine pays each non-employee director an +annual cash retainer of $30,000 plus $2,000 per day for +attendance at each regular meeting of the Board of Directors and +$1,000 per day for attendance at each committee meeting. In +addition, Wolverine pays the chairperson of the Audit Committee +an annual fee of $7,500 and the chairpersons of the Compensation +and Governance Committees annual fees of $5,000. Beginning in +2006, Wolverine will also pay each non-employee director an +annual equity retainer of $15,000 on the date of each April +meeting of the Board of Directors. The equity retainer will be +in the form of a contribution deferred under the Amended and +Restated Outside Directors’ Deferred Compensation Plan (the +“Deferred Compensation Plan”). Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual cash or equity retainer and are not compensated for +attendance at Board or committee meetings. Wolverine also pays +director expenses associated with attending Board and committee +meetings and other Wolverine matters (including spouse travel +expenses in connection with strategic planning meetings every +other year). Board members from time to time receive sample +Wolverine products of nominal value for review and assessment. +Board members are eligible to receive reimbursement for certain +approved expenses relating to director education. +Each newly appointed or elected non-employee +director is granted an option to purchase a number of shares of +common stock equal to six times the annual cash retainer fee +then in effect divided by the market price of Wolverine’s +stock on the date of his or her initial election or appointment. +On the date of each annual meeting after his or her initial +appointment or election, each non-employee director is granted +an option to purchase a number of shares equal to three times +the annual cash retainer fee then in effect divided by the +market price of Wolverine’s stock on the annual meeting +date. The exercise price of options granted is 100% of the +market value of common stock on the date each option is granted. +The term of each option may not exceed 10 years. Options +were previously granted under the Amended and Restated +Directors’ Stock Option Plan approved by stockholders in +2002. That plan was terminated upon the approval by stockholders +of the Stock Incentive Plan of 2005 at the 2005 annual meeting, +and the options are now granted under the Stock Incentive Plan +of 2005. +In 2002, Wolverine adopted and the stockholders +approved the Deferred Compensation Plan, a supplemental +nonqualified deferred compensation plan for directors who are +not employees of Wolverine or its subsidiaries. The Deferred +Compensation Plan amended and restated a plan originally adopted +in 1996. The Deferred Compensation Plan permits all non-employee +directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred and annual equity +retainer amounts described above are credited on the books of +Wolverine to an account established for that director as if the +amounts had been invested to purchase shares of common stock +using the market price of common stock on the payment date of +the next cash dividend (“Stock Units”). Stock Units +are increased by a dividend equivalent based on dividends paid +by Wolverine, the number of Stock Units credited to each +director’s account and the market price of common stock on +the payment date of the cash dividend. The accumulated Stock +Units in a director’s account under the plan are +distributed in shares of Wolverine common stock in a single +lump-sum or annual installments over a period of up to +10 years by converting each Stock Unit to one share of +Wolverine common stock upon termination of service as a director +or as of a date selected by the director. In 1996, under the +former Director Retirement Plan, certain non-employee directors +received an award of Stock Units that will be distributed in 10 +annual installments beginning the month following termination of +service as a director. +Upon a “change in control” as defined +in the Deferred Compensation Plan, Wolverine common stock equal +to the Stock Units credited to a director’s account (for +deferred fees, retirement income and annual equity retainer) +will be distributed to the director in a single lump sum. For +purposes of the Deferred Compensation Plan, “change in +control” is defined as: +• +failure of the individuals who were directors at +the time the Deferred Compensation Plan was adopted and those +whose election or nomination to the Board was approved by +three-quarters of the directors then still in office who were +directors at the time the Deferred Compensation Plan was +adopted, or whose election or nomination was so approved, to +constitute a majority of the Board; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +7 +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Mr. Matthews serves as Lead Director of +Wolverine. For his service as Lead Director, Mr. Matthews +receives an annual fee of $60,000. These payments are in lieu of +the annual director retainer fee of $30,000. Mr. Matthews +receives the standard director fee for attendance at Board +meetings and standard director stock options, but does not +receive attendance fees for attending committee meetings. +Mr. Geoffrey Bloom retired as a director in July 2005. He +had served as Chairman of the Board of Directors until the +Annual Meeting of Stockholders in April 2005. For his service as +Chairman, Mr. Bloom received an annual fee of $90,000, +together with reimbursement of certain business expenses. These +payments were in lieu of the annual director retainer fee of +$30,000. As Chairman, Mr. Bloom received the standard +director fee for attendance at Board meetings and standard +director stock options, but did not receive attendance fees for +attending committee meetings. In 2005, Mr. Bloom received +$45,000 for his services as Chairman. After retiring as +Chairman, Mr. Bloom entered into a one-year consulting +arrangement under which he serves the Board and senior +management as a consultant for a $6,250 monthly fee and +receives no other fees. +Corporate Governance Principles +Wolverine has developed governance principles to +assist the Board in fulfilling its responsibilities to +stockholders and to provide a framework for the Board’s +oversight responsibilities regarding the management of +Wolverine. Wolverine’s governance principles are dynamic +and have been developed and revised over a period of many years +to reflect changing laws, regulations and best business +practices. The governance principles also provide guidance and +transparency to management, employees, investors and other +stakeholders regarding the Board’s philosophy, high ethical +standards, expectations for conducting business, and +decision-making processes. +The following is a summary of certain of +Wolverine’s policies, charters, guidelines and principles +relating to corporate governance and financial reporting. You +may access complete current copies of our Code of Conduct and +Compliance, Corporate Governance Guidelines, Director +Independence Standards, Accounting and Finance Code of Ethics, +Audit Committee Charter, Governance Committee Charter, +Compensation Committee Charter and Executive Committee Charter +at our website, www.wolverineworldwide.com. Each of these +is also available in print to any stockholder upon request, and +the Director Independence Standards are attached as +Appendix A. +Independence +The Board believes that the independence of +directors and Board committee members is important to assure +that the Board and its committees operate only in the best +interests of the stockholders and to avoid any appearance of +conflict of interest. For over 13 years, Wolverine has +functioned with not more than two active or former management +employees as directors. The remainder of the Board’s 9 to +12 directors over this period have been non-management +directors. Only one current or former management employee, +Wolverine’s Chief Executive Officer and Chairman, currently +serves as a director. While Wolverine’s formal Corporate +Governance Guidelines require that a majority of the directors +be independent, Wolverine has for many years operated with a +substantial majority of independent directors. The Board does +not intend to deviate from this practice. +8 +The Board has determined that the following 8 of +its 10 directors meet the director independence standards +adopted by the Board and the applicable NYSE and SEC standards +for independence (including NYSE and SEC independence standards +relating to each committee upon which the respective directors +serve), and have no material relationship with Wolverine: +• +Donald V. Fites +• +David T. Kollat +• +Brenda J. Lauderback +• +Phillip D. Matthews +• +David P. Mehney +• +Shirley D. Peterson +• +Paul D. Schrage +• +Michael A. Volkema +Our Board of Directors has adopted categorical +Independence Standards, which are attached as Appendix A to +this Proxy Statement and which are also available at our +website. These Independence Standards comply with, and in some +areas, exceed the director independence standards required by +NYSE. In summary, under these standards a director is considered +independent only if the director and his or her immediate family +members do not have, and generally have not had in the most +recent three years, any material relationships with Wolverine, +its subsidiaries or affiliates (including certain relationships +with Wolverine’s independent auditors). The standards +establish thresholds at which such relationships are deemed to +be not material. In addition, the Board examines on a +case-by-case basis transactions and relationships that are not +of a nature addressed by the categorical standards. +Corporate Governance Guidelines +The Board has adopted Corporate Governance +Guidelines that set forth the primary framework of governance +principles applicable to Wolverine. The Corporate Governance +Guidelines outline the general duties and functions of the Board +and management, and set forth general principles regarding Board +composition, independence, Board meetings and responsibilities, +Board committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Alignment of Stockholder, Management and +Director Interests +For many years, the Board has believed that +directors and management should have a significant financial +stake in Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal stock ownership guidelines that require ownership +of Wolverine stock (including ownership credit for Stock Units +allocated to non-employee directors) within certain time +periods: (i) by directors equal in value to five times the +current Board retainer, (ii) by the Chief Executive Officer +equal in value to five times base salary, (iii) by other +executive officers equal in value to between two and three times +base salaries, and (iv) by other executive management equal +in value to between one and two times base salaries. Most +non-employee directors also participate in the Deferred +Compensation Plan that allows non-employee directors to convert +a portion or all of their cash compensation into stock ownership +and all non-employee directors participate in the Deferred +Compensation Plan with respect to the annual equity retainer. +Code of Conduct and Compliance +For years, Wolverine and its employees and +directors have followed an extensive Code of Conduct and +Compliance (“Code”). This comprehensive Code +establishes basic guidelines to help employees and directors +comply with applicable legal requirements and sets forth +Wolverine’s expectations regarding business ethics, +integrity, honesty, fairness and keeping commitments. The Code +contains Wolverine’s principles and procedures regarding +conflicts of interest, corporate opportunities, confidentiality, +fair dealing, protection and proper use of Wolverine’s +assets, compliance with laws, rules and regulations, engagement +criteria for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. All employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Board Committee Charters +The Board has organized and formed three +operating committees, the Audit Committee, the Compensation +Committee and the Governance Committee. In addition, the Board +has an Executive Committee that is empowered to act as necessary +on behalf of the Board between formal meetings of the Board. The +Executive Committee has not met in over ten years. The Board has +approved a committee charter for each committee that contains +basic principles regarding the committee’s organization, +purpose, authority and responsibilities. The performance of each +committee is +9 +reviewed annually by committee members and the +Board. +Leadership +Since 1993, the Board has operated with an +independent Lead Director. In addition, Wolverine’s +Corporate Governance Guidelines require that when +Wolverine’s Chief Executive Officer retires, he or she must +tender his or her resignation from the Board and the issue of +continued Board membership for the former Chief Executive +Officer will be determined by the Board on a case-by-case basis. +Accounting and Finance Code of +Ethics +The Board has adopted an Accounting and Finance +Code of Ethics (“Finance Ethics Code”). This is an +ethics code focused on the financial reporting process and is +intended to protect the interests of all of Wolverine’s +constituents, including stockholders, employees, customers and +the communities in which Wolverine conducts business. Many of +the basic tenets of the Finance Ethics Code have been +incorporated for many years in Wolverine’s Code of Conduct +and Compliance. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. It is available on the Corporate Governance section +of the Investors section of Wolverine’s website at +www.wolverineworldwide.com , at which Wolverine will post +any amendment to or waiver of the Finance Ethics Code. Wolverine +has not made any such waivers and does not anticipate ever +making any such a waiver. +Attendance +The Board prides itself on its ability to recruit +and retain directors who have a diversity of experience, who +have the highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a +priority. Directors are expected to make every effort to +personally attend every Board meeting and every meeting of each +committee on which they serve as a member. Over the past eleven +years, individual directors have attended 624 out of a total of +640 required Board meeting attendances. Directors are also +expected to attend the Annual Meeting of Stockholders in person. +All eleven then-current directors attended the 2005 annual +meeting. Given Wolverine’s home base in Rockford, Michigan +and the geographic diversity of the home cities of +Wolverine’s directors, we believe this attendance record is +exceptional. +Communication with the Board +Stockholders and interested parties may +communicate with members of Wolverine’s Board of Directors +and may report any complaints or concerns regarding +Wolverine’s financial statements and accounting, auditing, +internal control and reporting practices to the Audit Committee +(including anonymous submissions) to +financialconcerns@wwwinc.com , through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General Counsel, Wolverine World Wide, Inc., +9341 Courtland Drive, N.E., Rockford, Michigan 49351. Any +communications submitted by any of the above means are received +by Wolverine’s General Counsel and forwarded to the +appropriate person or persons. +Board and Company Culture +Wolverine’s comprehensive governance +guidelines and principles are coupled with a robust, open and +effective Board environment that promotes respect, trust and +candor, fosters a culture of open dissent and permits each +director to express opinions and contribute to the Board +process. Directors are expected to have unrestricted access to +management and any company information they desire. The +participation of Board members and the open exchange of opinions +is further encouraged at the Board committee level through the +periodic rotation of Board members among its standing +committees. This open and candid operating environment is shared +by management and the Board and is essential to fully realize +the benefits of Wolverine’s formal governance guidelines, +principles, charters and policies. +10 +Ownership of Wolverine Stock +Five Percent Stockholders +The following table sets forth information +concerning the number of shares of Wolverine stock held by each +entity known to Wolverine to be the beneficial owner of more +than five percent of Wolverine’s outstanding shares of +common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Shared +Sole +Voting +Total +Name and Address +Sole Voting +Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Mac-Per-Wolf Company(1) +126,176 +126,176 +3,604,900 +3,731,076 +6.6% +311 S. Wacker Drive, Suite 6000 +Chicago, Illinois 60606 +Janus Capital Management LLC(2) +151 Detroit Street +Denver, Colorado 80206 +445 +445 +3,604,900 +3,605,345 +6.1% +(1) +Based on information set forth in +Schedule 13G filed February 15, 2006. The +Schedule 13G indicates that Mac-Per-Wolf Company is the +parent holding company of both PWMCO, LLC (a broker-dealer and +investment adviser) and Perkins, Wolf, McDonnell and Company, +LLC (an investment adviser). PWMCO, LLC is a wholly-owned +subsidiary of Mac-Per-Wolf Company. Perkins, Wolf, McDonnell and +Company, LLC (“Perkins Wolf”) provides investment +advice to various types of clients. The shared voting and +dispositive holdings reported above are held by Perkins Wolf, +and the same holdings (i.e., 3,604,900 shares) are also +reported within the Schedule 13G filing submitted by Janus +Capital Management, LLC, which is a minority owner of Perkins, +Wolf, McDonnell and Company, LLC. +(2) +Based on information set forth in +Schedule 13G filed February 14, 2006. The +Schedule 13G indicates that Janus Capital Management LLC +(“Janus”) is an investment adviser and parent holding +company/control person and has an indirect 77.5% ownership stake +in Enhanced Investment Technologies LLC (“InTech”) and +an indirect 30% ownership stake in Perkins, Wolf, McDonnell and +Company, LLC (“Perkins Wolf”). The holdings for Janus, +Perkins Wolf and InTech are aggregated for purposes of +calculating Janus’ holdings reported in the table above. +Janus, Perkins Wolf and InTech are registered investment +advisers, each furnishing investment advice to various types of +clients. As a result of their roles as investment adviser or +sub-adviser to their respective clients, Janus and Perkins Wolf +may be deemed to be the beneficial owners of 445 shares and +3,604,900 shares of Wolverine Common Stock, respectively, +held by such clients. Neither Janus nor Perkins Wolf has the +right to receive any dividends from, or the proceeds from the +sale of, the shares disclosed in the table above and each +disclaims any ownership associated with such rights. The shared +voting and dispositive holdings reported above are held by +Perkins Wolf, and the same holdings (i.e., +3,604,900 shares) are also reported within the +Schedule 13G filing submitted by Mac-Per-Wolf Company, the +majority owner of Perkins Wolf. +11 +Stock Ownership By Management +The following table sets forth the number of +shares of common stock beneficially owned as of March 1, +2006, by each of Wolverine’s directors and nominees for +director, each of the named executive officers and all of +Wolverine’s directors, nominees for director and executive +officers as a group. An asterisk in the column for “Percent +of Class” means the individual beneficially owns less than +one percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Steven M. Duffy(4) +60,201 +150,377 +210,578 +* +V. Dean Estes(5) +190,417 +136,348 +326,765 +* +Donald V. Fites +15,000 +80,651 +95,651 +* +Alberto L. Grimoldi +6,157 +47,374 +53,531 +* +Stephen L. Gulis, Jr. +243,201 +298,499 +541,700 +* +David T. Kollat +75,937 +61,255 +137,192 +* +Blake W. Krueger +226,235 +312,090 +538,325 +* +Brenda J. Lauderback +0 +23,452 +23,452 +* +Phillip D. Matthews +34,238 +55,562 +89,800 +* +David P. Mehney +91,711 +61,255 +152,966 +* +Timothy J. O’Donovan +752,943 +28,474 +576,843 +1,358,260 +2.41% +Shirley D. Peterson +0 +12,808 +12,808 +* +Paul D. Schrage +29,363 +55,948 +85,311 +* +Michael A. Volkema +5,000 +8,108 +13,108 +* +All directors and executive officers as a group +1,794,148 +28,664 +2,001,134 +3,823,946 +6.61% +(1) +The numbers of shares stated are based on +information provided by each person listed and include shares +personally owned of record and shares that, under applicable +regulations, are considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the +listed person is legally entitled to share voting or dispositive +power by reason of joint ownership, trust or other contract or +property right, and shares held by spouses, children or other +relatives over whom the listed person may have influence by +reason of relationship. +(3) +The numbers in the Stock Options column represent +shares that may be acquired within 60 days after +March 1, 2006, by the exercise of stock options granted +under Wolverine’s various stock option plans. These numbers +are also included in the Total Beneficial Ownership column. +(4) +Mr. Duffy retired in the first quarter of +2006. +(5) +Mr. Estes retired in the first quarter of +2006. +12 +Wolverine’s Stock Price +Performance +The following graph compares the cumulative total +stockholder return on Wolverine common stock to the +Standard & Poor’s Small Cap 600 Index and the +Standard & Poor’s 600 Footwear Index, assuming an +investment of $100.00 at the beginning of the period indicated. +Wolverine is part of the Standard & Poor’s Small +Cap 600 Index and the Standard & Poor’s 600 +Footwear Index. In addition to Wolverine, the +Standard & Poor’s 600 Footwear Index currently +consists of Brown Shoe Company, Inc., K-Swiss Inc. +(Class A), and The Stride Rite Corporation. These indices +are weighted based on the market capitalization of the companies +included in each index. +Cumulative total stockholder return is measured +by dividing: (i) the sum of the cumulative amount of +dividends for the measurement period, assuming dividend +reinvestment, and the difference between the share price at the +end and the beginning of the measurement period; by +(ii) the share price at the beginning of the measurement +period. +Five Year Cumulative Total Return +Summary +The dollar values for total stockholder return +plotted in the graph are shown in the table below: +S&P +S&P 600 +Fiscal +Small Cap +Footwear +Year-End +Wolverine +600 Index +Index +2000 +$100.00 +$100.00 +$100.00 +2001 +$100.94 +$107.43 +$ 75.44 +2002 +$103.23 +$ 90.83 +$ 91.63 +2003 +$140.79 +$126.44 +$151.81 +2004 +$215.30 +$154.82 +$173.92 +2005 +$233.56 +$166.71 +$205.06 +13 +Executive Compensation +Summary of Executive Compensation +The following Summary Compensation Table shows +selected information concerning the compensation paid during +each of the three fiscal years in the period ended +December 31, 2005, to the Chief Executive Officer and each +of Wolverine’s four most highly compensated executive +officers who served in positions other than Chief Executive +Officer at the end of the last completed fiscal year. +Summary Compensation Table +Long-Term Compensation +Annual Compensation +Awards +Payouts +Number of +Restricted +Shares +Name and +Stock +Underlying +LTIP +All Other +Principal Position +Year +Salary(1) +Bonus +Awards(2) +Options(3) +Payouts(4) +Compensation(5) +Steven M. Duffy(6) +2005 +$ +372,923 +$ +198,082 +$ +240,620 +26,200 +$ +218,465 +$10,954 +Executive Vice +2004 +360,577 +269,544 +195,925 +49,923 +209,646 +10,454 +President +2003 +358,827 +189,611 +148,580 +56,250 +168,122 +9,954 +V. Dean Estes(7) +2005 +$ +341,923 +$ +134,444 +$ +118,040 +13,000 +$ +175,172 +$ 8,806 +Vice President +2004 +329,923 +202,776 +87,590 +95,097 +168,155 +8,306 +2003 +329,135 +184,863 +78,200 +21,457 +134,957 +6,966 +Stephen L. Gulis, Jr. +2005 +$ +350,327 +$ +270,452 +$ +240,620 +26,200 +$ +200,004 +$ 8,946 +Executive Vice +2004 +325,750 +260,600 +195,925 +227,286 +189,304 +8,446 +President, Chief +2003 +323,942 +251,283 +148,580 +83,205 +151,620 +7,946 +Financial Officer and Treasurer +Blake W. Krueger +2005 +$ +398,500 +$ +292,565 +$ +240,620 +26,200 +$ +225,619 +$10,842 +President and Chief +2004 +365,577 +268,085 +195,925 +213,960 +212,685 +10,342 +Operating Officer +2003 +364,019 +271,438 +148,580 +56,811 +170,666 +9,842 +Timothy J. O’Donovan +2005 +$ +694,808 +$ +804,587 +$ +499,400 +54,500 +$ +601,730 +$11,934 +Chief Executive +2004 +663,077 +795,692 +391,850 +474,531 +571,385 +11,434 +Officer, President +2003 +647,885 +742,188 +289,340 +114,219 +454,860 +10,934 +and Director +(1) +Salaries for 2003 include an extra payroll period +compared to 2004 and 2005, caused by the timing of +Wolverine’s 2003 fiscal year-end. +(2) +The values of restricted stock awards reported in +this column are calculated using the closing market price of +common stock on the date of grant. As of the end of +Wolverine’s 2005 fiscal year, each of the named executive +officers held shares of restricted stock. Dividends are paid on +shares of restricted stock at the same rate dividends are paid +on common stock. The number of shares of restricted stock held +by each named individual and the aggregate value of those shares +at the end of Wolverine’s 2005 fiscal year (as represented +by the closing price of common stock on December 30, 2005), +without giving effect to the reduction in value attributable to +the restrictions on the stock, are set forth below: +Number +Aggregate +of Shares +Value +Mr. Duffy +54,664 +$ +1,227,742 +Mr. Estes +27,401 +615,427 +Mr. Gulis +54,664 +1,227,742 +Mr. Krueger +54,664 +1,227,742 +Mr. O’Donovan +108,812 +2,443,918 +14 +These numbers do not include the number or value +of shares of restricted stock awarded with respect to the +three-year performance period ending in 2003 in connection with +the Amended and Restated Executive Long-Term Incentive Plan +(3-Year Bonus Plan) (the “LTIP”), the values of which +are included in the amounts reported in the “LTIP +Payouts” column in this table for 2003 for each listed +individual. +(3) +The number of shares underlying options include +all option awards shown in greater detail below under the +heading “Stock Options.” +(4) +Amounts payable under the LTIP with respect to +the three-year performance periods ended in 2004 and 2005 were +paid 100% in cash. Wolverine anticipates that future incentive +bonuses payable under the LTIP will be paid exclusively in cash. +Amounts payable under the LTIP with respect to the three-year +performance period ended in 2003 were paid (i) in cash +equal to 50% of the incentive bonus, and (ii) in shares of +restricted stock with a market value (without factoring in a +reduction in value for potential forfeiture and the transfer +restrictions), on the date the cash payment is made, equal to +70% of the incentive bonus. The dollar amounts reported in this +column for 2003 reflect the cash payment and the market value +(without factoring in a reduction in value for potential +forfeiture and the transfer restrictions) of the shares of +restricted stock on the date of payment; shares of restricted +stock were granted under existing plans that provided for such +awards, and the restrictions on such shares lapse with respect +to one-third of the shares on each of the first three +anniversaries of the date of grant. +(5) +The compensation listed in this column for 2005 +consisted of: (i) Wolverine’s contributions to the +accounts of the named executive officers under Wolverine’s +401(k) Savings Plan as follows: $7,000 for Mr. Duffy; +$7,000 for Mr. Estes; $7,000 for Mr. Gulis; $7,000 for +Mr. Krueger; and $7,000 for Mr. O’Donovan; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,954 for Mr. Duffy; +$1,806 for Mr. Estes; $1,946 for Mr. Gulis; $3,842 for +Mr. Krueger; and $4,934 for Mr. O’Donovan. +(6) +Mr. Duffy retired in the first quarter of +2006. +(7) +Mr. Estes retired in the first quarter of +2006. +Stock Options +The Compensation Committee administers +Wolverine’s stock option plans and also has authority to +determine the individuals to whom and the terms upon which +options are granted, the number of shares subject to each option +and the form of consideration payable upon the exercise of an +option. The Chief Executive Officer makes recommendations of +stock option grants (other than for himself), which the +Compensation Committee then considers. +Stock options are generally granted for a term of +10 years. All stock options permit the exercise price to be +paid by delivery of cash, and the Compensation Committee has +also approved the payment of the exercise price by surrendering +shares of common stock held for six months or more. +Primarily to reduce non-cash compensation expense +that Wolverine would have had to record in future fiscal +periods, the Board of Directors accelerated the vesting of all +unvested stock options previously awarded to employees and +officers of Wolverine under Wolverine’s various stock +option plans, effective December 13, 2005. As a result of +this action, all stock options granted before that date are +exercisable. All stock options granted after that date are +exercisable with respect to one-third of the shares on each of +the first three anniversaries of the date of the grant, with +full vesting occurring on the third anniversary date of the +grant. Vesting of such stock options may be accelerated upon +certain events, including a change in control of Wolverine. +Certain senior executives are permitted to +transfer nonqualified stock options to a limited group of +permissible transferees, primarily for estate planning purposes. +Stock options terminate, with certain limited exercise +provisions, in the event of certain terminations of employment. +In the event of retirement (as defined in the applicable plan or +stock option agreement), death or disability, all stock options +granted after December 13, 2005 that have been held for +more than one year on the date of retirement fully vest. Stock +options granted less than one year before the date of +termination of employment in the event of retirement (as defined +in the applicable plan or stock option agreement), death or +disability vest upon termination only in proportion to the +number of full months elapsed from the grant date until the +termination date divided by 12, and the remaining such +stock options terminate. +15 +The following tables set forth information +regarding stock options granted to and exercised by the named +executive officers during the fiscal year ended +December 31, 2005, and the number of shares of common stock +subject to and values of options at that date: +Option Grants in Last Fiscal Year +Individual Grants +Percent of +Total +Number of +Options +Shares +Granted to +Underlying +Employees +Exercise +Grant Date +Options +in Fiscal +Price Per +Expiration +Present +Name +Granted(1) +Year +Share +Date +Value(2) +Steven M. Duffy +26,200 +4.37 +$23.035 +02/08/15 +$134,414 +V. Dean Estes +13,000 +2.17 +$23.035 +02/08/15 +66,559 +Stephen L. Gulis, Jr. +26,200 +4.37 +$23.035 +02/08/15 +134,414 +Blake W. Krueger +26,200 +4.37 +$23.035 +02/08/15 +134,414 +Timothy J. O’Donovan +54,500 +9.09 +$23.035 +02/08/15 +279,035 +(1) +All stock options indicated above were granted +for a term of 10 years and are currently exercisable. +(2) +Based on the Black-Scholes option pricing model. +The actual value, if any, an option holder may realize will +depend on the excess of the stock price over the exercise price +on the date the option is exercised. There is no assurance that +the value realized by an option holder will be at or near the +value estimated by the Black-Scholes model. The estimated values +in the table above were calculated using the Black-Scholes model +based on assumptions that include: +• +a stock price volatility factor of .2385%, +calculated using daily stock prices for the four years prior to +the grant date; +• +a risk free rate of return of 3.66%; +• +an expected average dividend yield of 1.05% (the +dividend yield at the date of the grant); and +• +an expected average option holding period of four +years, which approximates Wolverine’s historical experience. +No adjustments were made for the general +non-transferability of the options or to reflect any risk of +forfeiture before vesting. Disclosure of grant date present +value is presented pursuant to SEC regulations. Wolverine’s +use of the Black-Scholes model to indicate the present value of +each grant is not an endorsement of this valuation method. +Aggregated Option Exercises in Last Fiscal +Year +and Fiscal Year-End Option Values +Number of Shares +Value of Unexercised +Number of +Underlying Unexercised +In-the-Money Options at +Shares +Options at Fiscal Year-End +Fiscal Year-End(1) +Acquired on +Value +Name +Exercise +Realized(1) +Exercisable +Unexercisable +Exercisable +Unexercisable +Steven M. Duffy +231,089 +$ +2,368,997 +163,136 +0 +$ +761,081 +$ +0 +V. Dean Estes +19,885 +220,754 +161,915 +0 +819,625 +0 +Stephen L. Gulis, Jr. +15,424 +86,607 +299,816 +0 +1,237,258 +0 +Blake W. Krueger +0 +0 +312,090 +0 +1,345,679 +0 +Timothy J. O’Donovan +29,384 +51,429 +606,632 +0 +2,132,965 +0 +(1) +The dollar values are calculated by determining +the difference between the fair market value of the securities +underlying the options and the exercise prices of the options on +the dates of exercise or at fiscal year-end, as appropriate. +16 +Long-Term Incentive Awards +Wolverine’s Amended and Restated Executive +Long-Term Incentive Plan (3-Year Bonus Plan) (the +“LTIP”) permits Wolverine to award performance-based +incentive compensation to plan participants conditioned upon the +achievement of certain pre-established corporate performance +goals over a three-year performance period. +The following table sets forth certain +information concerning awards of long-term incentive +compensation to the named executive officers during the last +fiscal year: +Long-Term Incentive Plans — Awards in Last Fiscal Year +Performance +Estimated Future Payouts +Number of +or Other +Under Non-Stock-Price-Based +Shares, +Period until +Plans(2) +Units or +Maturation +Name +Other Rights(1) +or Payout +Threshold +Target +Maximum +Steven M. Duffy(3) +40 +% +3 years +$ +26,105 +$ +52,209 +$ +104,418 +V. Dean Estes(3) +35 +3 years +20,943 +41,886 +83,771 +Stephen L. Gulis, Jr. +40 +3 years +73,569 +147,137 +294,275 +Blake W. Krueger +40 +3 years +83,685 +167,370 +334,740 +Timothy J. O’Donovan +60 +3 years +218,865 +437,729 +875,458 +(1) +Under the LTIP, key management employees may earn +incentive compensation based upon achievement of specified +performance goals with respect to the performance of Wolverine +and/or its subsidiaries, operating divisions or profit centers +over a three-year performance period. Performance goals under +the LTIP for the 2005-2007 period are based 50% on total +stockholder return (as compared to a pre-established peer group) +and 50% on earnings per share. The numbers reported in the +column under the heading “Number of Shares, Units or Other +Rights” represent the percentage of each officer’s +average annual earned salary during the three-year period that +the officer will receive as incentive compensation under the +plan if the specified targets are achieved. The Compensation +Committee determined these amounts. If higher or lower actual +levels are attained during the three-year performance period, +the percentage of base salary to be received as incentive +compensation by each officer will be correspondingly higher, +lower or zero. Incentive compensation is conditioned upon +achieving a minimum or “threshold” performance level. +The Compensation Committee established the performance goals at +the beginning of 2005 for the period ending on the last day of +Wolverine’s 2007 fiscal year. Beginning in 2005, Wolverine +incentive compensation payable under the LTIP was paid +exclusively in cash. +(2) +Under the LTIP, amounts earned as +performance-based incentive compensation are calculated based on +each participant’s average annual earned salary during the +three-year performance period. For purposes of illustration, the +“Threshold,” “Target” and +“Maximum” amounts in the table have been calculated +using each named individual’s base salary for 2005 as +reported in the Summary Compensation Table, adjusted for 5% +estimated annual merit increases. +(3) +Messrs. Duffy and Estes retired in the first +quarter of 2006. According to the terms of the LTIP, +Messrs. Duffy and Estes are entitled to one-third of any +LTIP payouts with respect to the 2005-2007 period discussed in +the table above. In addition, they are entitled to two-thirds of +any LTIP payouts with respect to the 2004-2006 period. +Pension Plan and Supplemental Executive +Retirement Plan +Wolverine has a qualified pension plan covering +most of its salaried employees. The Internal Revenue Code +imposes limitations on the maximum amount of pension benefits +payable under qualified plans. It also imposes a cap currently +equal to $220,000 (subject to grandfather provisions for +earnings accrued before January 1, 1994) on the amount of +earnings that may be taken into account in determining benefits +payable under qualified plans. +In 1995, Wolverine adopted a Supplemental +Executive Retirement Plan (the “SERP”) which replaced +deferred compensation agreements previously entered into with +certain key employees, including Messrs. O’Donovan, +Duffy, +17 +Estes and Gulis. An executive covered by a +deferred compensation agreement is entitled to a benefit under +the SERP at least equal to what he or she would have received +under the deferred compensation agreement. The SERP became +effective January 1, 1996. +The following table illustrates the combined +estimated annual benefits payable under the pension plan and the +SERP for Wolverine’s named executive officers if they +retire at age 65 at the annual levels of average +remuneration and years of service indicated: +Pension Plan Table +Years of Service +Average Remuneration +5 +10 +15 +20 +25 or more +$ 500,000 +$ 60,000 +$120,000 +$180,000 +$240,000 +$ 300,000 +$ 750,000 +$ 90,000 +$180,000 +$270,000 +$360,000 +$ 450,000 +$1,000,000 +$120,000 +$240,000 +$360,000 +$480,000 +$ 600,000 +$1,250,000 +$150,000 +$300,000 +$450,000 +$600,000 +$ 750,000 +$1,500,000 +$180,000 +$360,000 +$540,000 +$720,000 +$ 900,000 +$1,750,000 +$210,000 +$420,000 +$630,000 +$840,000 +$1,050,000 +Subject to the limitations imposed by the +Internal Revenue Code, the pension plan provides monthly +benefits (computed on a straight life annuity basis without +regard to any accrued grandfathered benefits for earnings before +January 1, 1994) at normal retirement in an amount equal to +the greater of: (i) $24.00 multiplied by the +participant’s number of years of service up to +30 years; (ii) 1.6% of final average earnings +multiplied by the participant’s number of years of service +up to 30 years reduced by the participant’s Social +Security allowance as defined in the pension plan; or +(iii) for certain designated executives, a percentage +benefit multiplier of 2.4% or 2.0% of final average earnings +multiplied by the participant’s number of years of service +up to 25 years. All of the executive officers named in the +Summary Compensation Table have a percentage benefit multiplier +of 2.4% and are capped at 25 years of service. “Final +average earnings” are defined as the participant’s +average monthly earnings for the four consecutive highest +compensation calendar years out of the last 10 calendar +years of the participant’s employment (with earnings for +the last year of employment annualized based on a +participant’s then rate of pay). Except for the +compensation cap imposed by the Internal Revenue Code, the +remuneration covered by the pension plan for an employee would +be essentially equivalent to the sum of the salary and bonus +amounts reported under the heading “Annual +Compensation” in the Summary Compensation Table above. +If the pension plan is terminated during any +period beginning on a restricted date (defined below) and ending +two years later, the pension plan requires that surplus pension +plan assets be used to purchase retiree medical and life +insurance in satisfaction of Wolverine’s then outstanding +obligations, if any, and be paid pro rata to increase the +benefits of pension plan participants, subject to legal +limitations. If the pension plan is merged with, or the assets +of the pension plan are transferred to, another plan, then +(i) benefits will be fully vested; (ii) benefits will +be increased as if the pension plan had been terminated; and +(iii) benefits will be satisfied through the purchase of a +guaranteed annuity contract. A “restricted date” is +defined as the date any person or group acquires more than 50% +of the voting stock of Wolverine in a transaction not approved +by the Board of Directors or the date during any two-year period +on which individuals who at the beginning of the period +constituted the Board of Directors (including any new director +whose nomination or election was approved by two-thirds of the +directors who were directors at the beginning of the period or +whose election or nomination was so approved), cease for any +reason to constitute a majority of the Board. +Under the SERP, a participating executive will be +eligible for an annual supplemental benefit once he or she has +completed five years of service after having been approved as a +participant in the SERP. Alternatively, a participating +executive will be eligible for a benefit with less than five +years of service if he or she retires at or after age 65. +The supplemental benefit is equal to the difference between the +executive’s retirement benefit under Wolverine’s +qualified pension plan and an amount equal to a designated +percentage of the executive’s average earnings multiplied +by the executive’s years of service under the pension plan, +except that the plan +18 +an executive is designated as an inactive +participant; and may count deemed years of service granted by +the Board of Directors (up to a maximum of 25 years). +The designated percentage for benefits under the +SERP is either 2.4% for each year of service (including all of +the individuals listed in Summary Compensation Table) or +2.0% per year of service. “Average earnings” is +defined as the average of the executive’s annual earnings +for the four consecutive highest compensation years out of the +last 10 years of the executive’s employment (excluding +years during which the executive receives a disability benefit +if the exclusion would produce a higher average; yearly +compensation is not restricted by the $220,000 compensation cap +under the pension plan and for the last year of employment is +annualized). Average earnings do not include payments under the +LTIP or severance payments. For this purpose, average earnings +do not vary significantly from the sum of the salary and bonus +amounts shown under the caption “Annual Compensation” +in the Summary Compensation Table above. The final SERP benefit +is reduced by the amount of any pension benefits to which a +participant is entitled. +A retired SERP participant may draw the full +benefit beginning at age 65. A retired SERP participant may +elect to begin receiving a reduced benefit at or after +age 55. The reduction factor is 0.333% for each month prior +to age 60, and 0.1666% for each month between age 60 +and age 65. The SERP provides for a disability benefit +equal to 60% of the supplemental retirement benefit (based on +the executive’s years of service at the date of +disability). A disabled executive is still eligible for a +supplemental retirement benefit beginning at age 65 based +on all years of service (including years during which the +executive was receiving a disability benefit). The SERP also +provides for a death benefit to the executive’s designated +beneficiary if the executive dies before retiring. The death +benefit is a lump-sum equal to the present value of the benefit +the executive could have received beginning at age 65, +based on his or her years of service up to the date of death. +Benefits under the SERP are subject to forfeiture +if the executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons. For all individuals +listed in the Summary Compensation Table, if, within two or +three years after a “change in control” the executive +resigns for “good reason” or is terminated by +Wolverine or at the request of a third party who effectuates a +change in control (other than for “cause” or due to +death or “disability” as defined in the SERP), the +executive will be entitled to a lump-sum payment equal to 125% +of the present value of the benefit payments for which the +executive would have been eligible if the executive had retired +at age 55 (or at his or her actual age, if greater than +age 55), without applying the monthly early retirement +reduction factor, but based on years of service at the actual +date of termination. For purposes of the SERP, “change in +control” is defined as: +• +failure of the individuals who were directors at +the time the SERP was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters vote of the directors then still in office who +were directors at the time the SERP was adopted, or whose +election or nomination was so approved, to constitute a majority +of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock or combined outstanding voting power +(excluding certain transactions); +• +approval by the stockholders of a reorganization, +merger or consolidation (excluding certain permitted +transactions); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (excluding certain permitted transactions). +Wolverine may terminate the SERP or stop further +accrual of SERP benefits for a participating executive at any +time, but termination will not affect previously accrued +benefits. +As of December 31, 2005, the persons listed +in the Summary Compensation Table had the following years of +credited service under the pension plan and the SERP: +Mr. Duffy, 17 years; Mr. Estes, 25 years; +Mr. Gulis, 21 years; Mr. Krueger, 10 years; +and Mr. O’Donovan, 25 years. +19 +Employment Agreements and Termination of +Employment +and Change In Control Arrangements +Severance +Agreements. Under individual +agreements, Messrs. Gulis, Krueger and O’Donovan, and +certain other key management employees, will receive +compensation if their employment is terminated following a +change in control of Wolverine, unless: +• +the termination of the officer is due to death or +retirement in accordance with Wolverine’s policy or as +otherwise agreed; +• +the termination is by Wolverine for cause or +disability; or +• +the termination is by resignation of the officer +for other than “good reason.” +Good reason is defined in the agreements to +include, among other things, the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. Messrs. Duffy and Estes were parties to such +individual agreements before their respective retirements. +The compensation payable if such a termination +occurs after a change in control includes: +• +cash equal to two (executive officers) or three +(CEO) times the executive’s annual salary, including +past target bonus; +• +cash equal to 100% of the difference between the +market price of common stock (or, if higher, the highest price +paid in connection with any change in control of Wolverine) and +the exercise prices of unexercised stock options granted to the +executive, and 100% of the difference between the market price +of common stock and exercise prices of incentive stock options +granted to the officer after the date of the agreement which are +then exercisable; +• +relocation expenses, legal fees and indemnity +against loss in the sale of the officer’s principal +residence; +• +up to two or three years’ benefits under all +employee benefit programs; +• +a cash payment at the executive’s retirement +age equal to the actuarial value of the retirement pension and +SERP benefits to which the officer would have been entitled +(without regard to vesting requirements) had he or she accrued +three additional years of service with Wolverine, reduced by the +single sum actuarial equivalent of any amounts to which the +executive is entitled under Wolverine’s normal retirement +plans and programs; and +• +outplacement services paid for by Wolverine. +In all of the severance agreements, the executive +has no requirement to mitigate the payments by seeking +employment, but the compensation to be paid during the fourth +and later months after termination will be reduced to the extent +of any compensation earned by the officer during the applicable +period. +A change in control is defined in the agreements +to include the acquisition of 20% or more of the common stock by +any person or group of persons acting together or a change in a +majority of the Board of Directors unless each new director was +approved by a vote of at least three-quarters of the directors +then still in office who were directors as of the date of the +applicable agreement, or whose election or nomination was so +approved. +Stock Plan +Provisions. Wolverine has granted +certain stock options and awarded shares of restricted stock +that are subject to accelerated vesting upon a change in control +of Wolverine. The options include options issued under plans +adopted by Wolverine in 1988, 1993, 1995, 1997, 1999, 2001, 2003 +and 2005 and the shares of restricted stock include shares +awarded under plans adopted by Wolverine in 1995, 1997, 1999, +2001, 2003 and 2005. All such options become immediately +exercisable in the event of a change in control of Wolverine. +The 1995, 1997, 1999, 2001, 2003 and 2005 plans +provide for restricted stock awards. Except for any shares +awarded in connection with the payment of bonuses under the +LTIP, the restrictions on 25% of the shares received under an +award normally lapse on the third anniversary of the date of +grant, with the restrictions on an additional 25% of the shares +lapsing on the fourth anniversary and the restrictions with +respect to the remaining shares lapsing on the fifth +anniversary. With respect to any shares previously awarded in +connection with the LTIP, the restrictions on one-third of the +shares received under an award generally lapse over a three-year +period on each of the first three anniversaries of the date of +grant. Although the LTIP permits Wolverine to pay incentive +bonuses +20 +in cash or a combination of cash and restricted +stock, beginning with payments made in 2005, incentive bonuses +payable under the LTIP have been paid exclusively in cash. Under +the six plans listed above, restricted stock becomes fully +vested and nonforfeitable upon a change in control of Wolverine. +A change in control is defined in the agreements +under the 1988 plan to include a change of control as set forth +in the proxy rules issued by the Securities and Exchange +Commission, the acquisition of 25% or more of the common stock +by any person or group of persons acting together or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. The definition of change in control +under the 1993 plan differs from the definition of that term in +the agreements under the 1988 plan in that a change in control +is considered to occur upon the acquisition of 20% or more +(rather than 25%) of the common stock and the definition +includes the sale, lease, exchange or other transfer of +substantially all of Wolverine’s assets to, or the merger +or consolidation of Wolverine with, a corporation that is not +controlled by Wolverine. Under the 1995, 1997, 1999, 2001, 2003 +and 2005 plans, a change in control is defined as: +• +failure of the individuals who were directors at +the time such plan was adopted and those whose election or +nomination to the Board of Directors was approved by a +three-quarters, vote (two-thirds vote under the 1995 Plan) of +the directors then still in office who were directors at the +time such plan was adopted, or whose election or nomination was +so approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% +or more of the common stock; +• +approval by the stockholders of a reorganization, +merger or consolidation (except with certain permitted +entities); or +• +approval by the stockholders of a complete +liquidation or dissolution of Wolverine or the sale or +disposition of all or substantially all of the assets of +Wolverine (other than to certain permitted entities). +Benefit +Trust Agreement. In May 1987, +Wolverine established a Benefit Trust (“trust”) to +ensure that payments to employees under the severance +agreements, the SERP, the deferred compensation agreements and +the indemnity agreements (discussed below) (collectively, the +“agreements”) will not be improperly withheld after a +change in control of Wolverine, as defined in the agreement +establishing the trust. Under the trust, upon the occurrence of +a “potential change in control,” Wolverine will +deliver to the trustee, to be held in trust, cash, marketable +securities or insurance corresponding to an amount determined by +Wolverine to have a fair market value, together with any +existing amounts in the trust, equal to the value of the +benefits due to employees under the agreements given certain +assumptions set forth in the trust. Additional terms of the +trust provide for the return of the property to Wolverine upon +written request before a change in control or automatically if +no change in control has occurred within six months after +funding upon a potential change in control. Wolverine has +transferred to the trust insurance policies on the lives of +certain key employees. +Indemnity +Agreements. Wolverine has entered into +indemnity agreements with Messrs. Gulis, Krueger and +O’Donovan and with each director and executive officer. +Messrs. Duffy and Estes were parties to such indemnity +agreements before their respective retirements. The indemnity +agreements indemnify each director and executive officer against +all expenses incurred in connection with any action or +investigation involving the director or executive officer by +reason of his or her position with Wolverine (or with another +entity at Wolverine’s request). The directors and executive +officers will also be indemnified for costs, including +judgments, fines and penalties, indemnifiable under Delaware law +or under the terms of any current or future liability insurance +policy maintained by Wolverine that covers the directors and +executive officers. A director or executive officer involved in +a derivative suit will be indemnified for expenses and amounts +paid in settlement. Indemnification is dependent in every +instance on the director or executive officer meeting the +standards of conduct set forth in the indemnity agreements. +Other Plans and +Agreements. Severance agreements with +various executive officers (described above) provide for cash +payments in lieu of outstanding options if a change in control +of Wolverine and a subsequent triggering event occur. In +addition, the SERP (described above) and the Deferred +Compensation Plan (described above) provide for certain benefits +and payments if a change in control of Wolverine occurs. +21 +Compensation Committee Report on Executive +Compensation +The Compensation Committee discharges, subject to +general review and oversight by the Board, the Board of +Directors’ responsibilities relating to executive +compensation and assists the Board in fulfilling its +responsibilities relating to Wolverine’s compensation and +benefit programs and policies. The Compensation Committee also +administers and makes recommendations with respect to +Wolverine’s compensation plans and reviews and approves +(with input from independent directors in the case of the Chief +Executive Officer) the compensation of key senior executives. +The Compensation Committee currently consists of three +directors, none of whom is a current or former employee of +Wolverine or its subsidiaries and all of whom are independent +under the standards adopted by the Board of Directors and +applicable New York Stock Exchange and SEC standards. +The Compensation Committee consults with +compensation consulting firms as it deems necessary from time to +time to: assist the Compensation Committee in formulating +Wolverine’s compensation policies; provide advice to the +Compensation Committee concerning specific compensation packages +and appropriate levels of executive and Board of Director +compensation; provide advice about competitive levels of +compensation; and review and recommend changes in the +compensation system and programs of Wolverine. +The basic compensation philosophy of the +Compensation Committee and Wolverine is to provide competitive +salaries as well as competitive incentives to achieve superior +financial performance. Wolverine’s executive compensation +policies are designed to achieve four primary objectives: +• +attract and retain well-qualified executives who +will lead Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific +short-term individual, business unit and corporate goals; +• +provide incentives for achievement of longer-term +financial goals; and +• +align the interests of management with those of +the stockholders to encourage achievement of continuing +increases in stockholder value. +The Compensation Committee reviews and structures +Wolverine’s compensation programs to effectively balance +employee salaries with compensation that is performance-based +and also to reward annual performance while maintaining a focus +on longer-term objectives. The mix of compensation elements +varies based on an employee’s position and +responsibilities. Executive compensation at Wolverine consists +primarily of the following components: +• +base salary and benefits; +• +performance-based compensation, if any, under the +Amended and Restated Executive Short-Term Incentive Plan (the +“Annual Bonus Plan”); +• +performance-based compensation, if any, under the +Amended and Restated Executive Long-Term Incentive Plan (3-Year +Bonus Plan) (the “LTIP”); +• +amounts paid, if any, as individual-specific +bonuses designed to encourage achievement of individual goals; +• +participation in Wolverine’s equity-based +incentive plans; and +• +participation in Wolverine’s retirement +plans. +Each component of compensation is designed to +accomplish one or more of the four compensation objectives +described above. +Except with respect to the Chief Executive +Officer, management recommends the participation of specific +executive officers and other key employees in the Annual Bonus +Plan, the LTIP and Wolverine’s equity-based incentive +plans. All such recommendations (including the level of +participation) are reviewed, modified (to the extent +appropriate) and approved by the Compensation Committee. Senior +executive officers are normally eligible to receive a greater +percentage of their potential compensation in the form of awards +under these performance-based incentive plans to reflect the +Compensation Committee’s belief that the percentage of an +executive’s total compensation that is “at risk” +should increase as the executive’s responsibilities and +ability to influence profits increase. +Section 162(m) of the Internal Revenue Code +provides that publicly held companies may not deduct +compensation paid to certain executive officers in +22 +excess of $1,000,000 annually, with certain +exceptions for qualified “performance-based” +compensation. Wolverine has obtained stockholder approval of the +Annual Bonus Plan, the LTIP, and the 1997, 1999, 2001 2003 and +2005 stock incentive plans to permit amounts payable under these +plans to qualify as “performance-based” compensation +for purposes of Section 162(m). Because incentives under +these plans are not included in the $1,000,000 limit for +purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers, Wolverine believes +its compensation policies reflect due consideration of +Section 162(m). +Base Salary +To attract and retain well-qualified executives, +the Compensation Committee seeks to establish competitive base +salaries and benefit packages. The Compensation Committee +determines the base salaries of executives by comparing each +executive’s position with similar positions in companies of +similar type, size and financial performance. Although some +other footwear companies are among the companies included in the +comparison group, this group is not limited to footwear +companies because Wolverine competes for talent with a wide +range of corporations. In general, the Compensation Committee +has targeted salaries to be at the median to slightly below the +median percentile of base salaries paid for comparable positions +with similar companies. Other factors considered by the +Compensation Committee are the executive’s performance, the +executive’s current compensation, the executive’s +responsibilities and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance (in determining +whether to adjust above or below the current salary level), and +a significant but lesser weight is generally given to the +comparative data. In general, base salaries for Wolverine’s +executive officers during 2005 were near the median of salaries +paid by companies included in the comparison group. The 2005 +average base salary of executive officers increased over the +previous year’s level as a result of a combination of +factors, including improved individual performance, improved or +continued excellent performance by the applicable business unit +and Wolverine, promotions and increased responsibilities. +Annual Bonus Plan +To provide incentives and rewards for achievement +of short-term business unit goals, the Annual Bonus Plan was +designed to provide key employees with the opportunity for +bonuses based on the performance of Wolverine and/or the +performance of its subsidiaries, operating divisions or profit +centers. The Annual Bonus Plan was most recently approved by +stockholders at the 2002 annual meeting of stockholders. The +Annual Bonus Plan continues the annual bonus policy that +Wolverine has used for many years. A target bonus goal (the +“target bonus”), expressed as a percentage of the +participant’s base salary, is established by the +Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance by Wolverine, the subsidiary, +operating division or profit center. +“Incentive bonus” as used in the Annual +Bonus Plan means an annual performance bonus awarded and paid to +a participant for services to Wolverine during a fiscal year +that is based upon achievement of pre-established financial +objectives of Wolverine or a subsidiary, operating division or +profit center. The incentive bonus levels may be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. Performance of Wolverine and/or its subsidiaries, +operating divisions or profit centers is determined by reference +to one or more of the following: net earnings, net earnings +before taxes, operating income, revenues, net sales, net sales +and other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. Payment of an incentive bonus to a participant for a +fiscal year under the Annual Bonus Plan is entirely contingent +upon achievement of the performance levels established by the +Compensation Committee, subject to negative discretion by the +Compensation Committee to reduce the amount below that +determined under the pre-established formula. All determinations +to be made by +23 +the Compensation Committee for a fiscal year are +made by the Compensation Committee during the first 90 days +of each fiscal year. +The two primary measures of corporate and +divisional performance in 2005 were pre-tax profits and sales, +with approximately 80% of participants’ target amounts +weighted on pre-tax profits. During fiscal 2005, executive +officers were generally targeted to receive from 20% to 48% of +their annual salaries in bonus compensation. Actual payouts, if +any, could range from 50% to 200% of target. In determining +these percentages, the Compensation Committee considered each +executive’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and sales and to put a larger percentage of their total +potential cash compensation “at risk.” +For 2005, Wolverine’s corporate sales +performance was between goal level (150% of target) and the +maximum goal (the “stretch goal”) and corporate +pre-tax profit performance exceeded the stretch goal. +Accordingly, executive officers received bonuses related to +corporate performance under the Annual Bonus Plan near +stretch-goal levels. Certain executive officers also have a +component of their annual bonus based on the sales and pre-tax +profit performance of specific divisions. The sales and pre-tax +profit performance of such divisions ranged from threshold to +stretch-goal levels with corresponding bonus payment levels. +The Annual Bonus Plan closely links the bonus +opportunity for key employees to the performance of the specific +divisions and operations over which they have substantial +control and ability to impact results. This structure provides +clear incentives and line-of-sight management to drive +operational performance and divisional achievements on an annual +basis. This complements the approach of the LTIP described +below, which is focused on Wolverine’s long-term +achievements in earnings-per-share and total shareholder return. +Long-Term Incentive Plan +To provide incentives and rewards for longer-term +planning and decision-making and the achievement of longer-term +corporate performance goals, the LTIP provides the opportunity +for additional performance-based compensation based upon the +achievement of company financial performance goals over a +three-year period. Stockholders most recently approved the LTIP +at the 2002 annual meeting of stockholders. The LTIP continues +the long-term incentive bonus policy that Wolverine has used for +many years. The primary purposes of the LTIP and prior long-term +bonus plans are to provide significant incentive and to foster +cooperation among all business units so the long-term earnings +performance of Wolverine and total stockholder return is +substantially improved. The primary concept of the LTIP is to +establish financial performance goals for each three-year time +period for Wolverine. New performance periods begin each fiscal +year and end three full fiscal years later. The Compensation +Committee establishes the goals during the first 90 days of +each three-year performance period. +Awards under the LTIP are based on a percentage +of average annual earned salary during the three-year period. +For each participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the LTIP means a bonus awarded and paid +to a participant for services to Wolverine or a subsidiary, +operating division or profit center during a three-year period, +which bonus is based upon achievement of previously-established +financial objectives by Wolverine. The incentive bonus levels +may be expressed as either: (i) a matrix of percentages of +the target bonus that will be paid at specified levels of +performance; or (ii) a mathematical formula that determines +the percentage of the target bonus that will be paid at varying +levels of performance. Performance is determined by reference to +one or more of the following: net earnings, net earnings before +taxes, operating income, revenues, net sales, net sales and +other operating income, return on sales, return on equity, +earnings per share, total stockholder return, economic value +added measurements, return on assets, return on invested capital +or any of the foregoing before or after the effect of +acquisitions, divestitures, accounting changes, restructuring or +other special charges or extraordinary items. These factors may +be measured against pre-determined levels or Wolverine’s +relative performance when compared to a pre-established peer +group. If the minimum three-year targeted goal is not achieved, +no bonus will be paid. For the 2005-2007 performance period, +executive +24 +officers who participate in the plan are targeted +to receive long-term bonus compensation in amounts that range +from 25% to 60% of their average annual earned salaries. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each executive’s capacity to affect +the long-term performance of Wolverine. Actual payouts, if any, +range from 50% to 200% of target. Although the LTIP permits +Wolverine to pay incentive bonuses in cash or a combination of +cash and restricted stock, beginning with payments made in 2005 +incentive bonuses payable under the LTIP have been paid +exclusively in cash. +For the 2003-2005 performance period, performance +was determined 50% by reference to Wolverine’s earnings per +share (“EPS”) and 50% by reference to total +stockholder return compared to a pre-established peer group +(“TSR”). EPS performance exceeded the stretch-goal +level and TSR performance was at the target level for the +2003-2005 performance period under the LTIP. Based on EPS and +TSR performance, Wolverine paid cash incentive bonuses with +respect to the three-year performance period ended +December 31, 2005, at goal (150% of target) bonus levels. +This level is between the target and stretch-goal performance +levels. +Discretionary Bonuses +In addition to performance-based compensation +based on corporate and/or divisional performance pursuant to the +Annual Bonus Plan, Wolverine generally pays annual incentive +bonuses to employees based on individual performance goals. +Bonuses based on individual performance are paid on a +discretionary basis based on achievement of pre-established +personal goals, and the performance bonus for the Chief +Executive Officer is paid only after the review and approval of +the Compensation Committee. No discretionary bonuses are paid to +executive officers if Wolverine (or the applicable division) +does not achieve its threshold goal under the Annual Bonus Plan. +During 2005, discretionary bonuses for employees participating +in this plan were generally targeted at 5% to 12% of annual +salaries depending upon the executive’s level of +responsibility, the achievement of threshold sales and earnings +requirements and actual graded performance against +pre-established personal objectives. Because Wolverine generally +exceeded its corporate and, where applicable, divisional +threshold sales and earnings goals under the Annual Bonus Plan +for fiscal 2005, discretionary bonus payments were made to +Wolverine’s executive officers for this period based upon +achievement of individual performance goals. +Equity-Based Incentive Plans +Awards under Wolverine’s stock option and +restricted stock plans are designed to: +• +more closely align executive and stockholder +interests; +• +reward executives and other key employees for +building stockholder value; and +• +encourage long-term investment in Wolverine by +participating executives. +The Compensation Committee believes that stock +ownership by management has been demonstrated to be beneficial +to all stockholders and restricted stock awards have been +granted by Wolverine to executives and other key employees +pursuant to various equity-based plans for several decades. The +Compensation Committee administers all aspects of these plans +and reviews, modifies (to the extent appropriate) and takes +final action on any such awards. +Under Wolverine’s plans that provide for +awards of restricted stock, all of which have been previously +approved by the stockholders, the Compensation Committee may +grant shares of restricted stock to executives and other key +employees. These shares are subject to certain restrictions +that, except for shares awarded in prior years in connection +with the LTIP, generally lapse over a period of five years from +the date of grant. +Under Wolverine’s stock option plans, all of +which have been previously approved by the stockholders, the +Compensation Committee may grant to executives and other key +employees options to purchase shares of stock. The Compensation +Committee reviews, modifies (to the extent appropriate) and +takes final action on the amount, timing, price and other terms +of all options granted to employees of Wolverine. The +Compensation Committee grants both incentive stock options and +nonqualified options within the meaning of the Internal Revenue +Code. Under the terms and conditions of all the plans other than +2001, 2003 and 2005 plans, the Compensation Committee may grant +nonqualified options with an exercise price above or below the +market price on the date of grant. The 2001, 2003 and 2005 plans +require that all options have an exercise price equal to or +greater than the market value of Wolverine’s common stock +on the date of grant. Virtually all stock options granted under +25 +all of Wolverine’s plans have had an +exercise price equal to the market price of common stock on the +date of grant. +In determining the number of shares of restricted +stock and/or the number of options to be awarded to executives +in 2005, the Compensation Committee adhered to its practice of +generally applying a formula that takes into consideration the +executive’s level of responsibility and compensation +practices of similar companies. The Compensation Committee also +considers the recommendations of management (except for awards +to the Chief Executive Officer), the individual performance of +the executive and the number of shares previously awarded to the +executive. As a general practice, both the number of shares +granted and their proportion relative to the total number of +shares granted increase in some proportion to increases in each +executive’s responsibilities. The Compensation Committee +has also implemented stock ownership guidelines that apply to +all executive management and require, within certain time +periods, ownership in amounts from one to five times the +executive’s base salary. The Compensation Committee +believes that these ownership guidelines bolster the goals of +Wolverine’s restricted stock plans. +Retirement Plans +Wolverine has a qualified pension plan covering +most salaried employees and a supplemental executive retirement +plan covering certain executives, as more fully described +earlier in this proxy statement under the heading “Pension +Plan and Supplemental Executive Retirement Plan.” The +Compensation Committee believes that Wolverine’s retirement +plans encourage long-term commitment by Wolverine’s +executives and other employees and assist Wolverine in +attracting and retaining talented executives and other employees. +Chief Executive Officer +The Chief Executive Officer’s compensation +is based upon the policies and objectives discussed above. The +Chief Executive Officer, however, has a higher percentage of +total compensation tied to performance and “at risk” +because a larger percentage of his potential compensation is +based upon the Annual Bonus Plan, the LTIP, and stock option and +restricted stock grants. +The Compensation Committee has reviewed all +components of the Chief Executive Officer’s compensation +and the compensation of the other executive officers who are +named in the Summary Compensation Table, including salary, +bonus, equity and long-term incentive compensation, accumulated +realized and unrealized stock option and restricted stock gains, +the dollar value to the executive and the cost to Wolverine of +all perquisites and other personal benefits, the payout +obligations and conditions under Wolverine’s pension plan +and SERP and any payments in the event of a change in control. +Based on its review described above, the Compensation Committee +found Mr. O’Donovan’s and the named executive +officers’ total compensation in the aggregate to be +appropriate and not excessive. +For 2005, in setting +Mr. O’Donovan’s base salary and total annual cash +compensation, the Compensation Committee compared +Mr. O’Donovan’s cash compensation with that of +chief executive officers of companies in the footwear industry +and other companies similar to Wolverine in general type and +size. Mr. O’Donovan’s base salary was targeted by +the Compensation Committee near the median of salaries paid to +chief executive officers by companies included in the comparison +group. Mr. O’Donovan’s base salary for 2005 +increased approximately 4.3% above his 2004 level. Following the +2005 increase, Mr. O’Donovan’s salary was near +the competitive median. Mr. O’Donovan does not have an +employment agreement with Wolverine. +Mr. O’Donovan’s annual incentive +bonus under the Annual Bonus Plan was based upon corporate +performance goals (100% weighting). The target annual bonus +award for Mr. O’Donovan under the Annual Bonus Plan +was 48% of base salary. Mr. O’Donovan’s annual +bonus was subject to achievement of minimum goals and his +threshold bonus at this level would have been 24% of earned +salary. Mr. O’Donovan’s annual bonus at the +stretch-goal level was capped at 96% of base salary under the +Annual Bonus Plan. Corporate performance goals in 2005 were +based on Wolverine’s achievement of predetermined pre-tax +levels of profit (80% weighting) and sales (20% weighting), both +of which were set above the prior year’s actual results. +Mr. O’Donovan’s target annual discretionary bonus +was 12% of earned salary and was capped at 18% of earned salary. +Wolverine’s sales performance was between goal (150% of +target) and stretch goal performance levels in 2005 and its +profit performance exceeded the pre-established stretch goal +performance level in 2005. Therefore, Mr. O’Donovan +received a payment under the Annual Bonus Plan and a +discretionary bonus +26 +based on achievement of individual performance +goals for fiscal 2005 near maximum levels. +Mr. O’Donovan’s LTIP bonus award +was based on a combination of TSR and EPS (50% weighting each), +which was targeted above budget and prior year’s results. +Mr. O’Donovan’s target bonus for the three-year +period beginning in 2005 was set at 60% of average annual earned +salary for the 2005-2007 plan period. The bonus payout for +Mr. O’Donovan can range from 0%-120% of +Mr. O’Donovan’s average earned salary for the +2005-2007 period. Based on EPS and TSR performance compared to +pre-established performance levels, Mr. O’Donovan +received payment at goal level (150% of target) for the +2003-2005 performance period under the LTIP. +In 2005, Mr. O’Donovan was awarded +22,000 shares of restricted stock and stock options to +purchase 54,500 shares of common stock. The amounts of +these awards were determined by the Compensation Committee +considering the factors discussed above. +Due to Wolverine’s strong 2005 results and +operating performance, the aggregate of +Mr. O’Donovan’s salary, bonus and total cash +compensation was above the median for chief executive officers +paid by companies included in the previously described +comparison group. +All actions and recommendations of the +Compensation Committee attributable to 2005 compensation were +unanimous and all recommendations were approved and adopted by +the Board of Directors without modification. +Respectfully submitted, +Donald V. Fites, Chairman, David P. Mehney, +Paul D. Schrage +Selection of Auditors +The Audit Committee has reappointed the firm of +Ernst & Young LLP as independent auditors for the +current fiscal year. +Ernst & Young LLP, certified public +accountants, has audited the financial statements of Wolverine +and its subsidiaries for the fiscal year ended December 31, +2005. Representatives of Ernst & Young LLP are expected +to be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. +Ernst & Young LLP billed Wolverine $898,965 in fiscal +2005 and $895,943 in fiscal 2004 for the annual audit, reviews +of the financial statements included in Wolverine’s +Form 10-Q filings, audit of internal control over financial +reporting, foreign statutory audits and consultations concerning +account matters associated with the annual audit. +Audit-Related Fees. +Ernst & Young LLP billed Wolverine $39,000 in fiscal +2005 and $54,062 in fiscal 2004 for assurance and related +services that were reasonably related to the performance of the +audit or a review of the financial statements and that are not +reported as Audit Fees above, including accounting research, +employee benefit plan audits and access to an online research +database service. +Tax Fees. +Ernst & Young LLP billed Wolverine $633,003 in fiscal +2005 and $674,849 in fiscal 2004 for tax compliance, advisory +and planning services. +All Other Fees. +Ernst & Young LLP did not bill Wolverine in fiscal 2005 +or fiscal 2004 for any services other than those described above. +Pre-Approval Policy. +Wolverine’s Audit Committee has adopted a policy under +which all audit and non-audit services provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. Items +in this category are pre-approved within specific service +descriptions and budgets. All audit services, internal +control-related services, and other services that are not within +the specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions such as pre-approval of audit services, +engagement-specific pre-approval may be delegated to one or more +Audit Committee members. Any services approved by a designated +Audit Committee member must be communicated to the full Audit +Committee at its next regularly-scheduled meeting. The Audit +Committee’s pre-approval policy also prohibits +Ernst & Young LLP from providing any non-audit services +that are prohibited by the Securities +27 +and Exchange Commission or the Public Company +Accounting Oversight Board. All fees paid to Ernst & +Young LLP for services performed in 2004 and 2005 were +pre-approved pursuant to this policy. +Your Board of Directors recommends that you +vote FOR ratification of the reappointment of +Ernst & Young LLP. +Audit Committee Report +The Audit Committee of the Board of Directors +consists of four non-employee directors who are independent +under the standards adopted by the Board of Directors and +applicable New York Stock Exchange and SEC standards. The Audit +Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the reporting process, including the +application of accounting and financial principles, the +preparation, presentation and integrity of the financial +statements, and the systems of internal controls and other +procedures designed to ensure compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and attesting to +management’s assessment of internal control over financial +reporting and to the effectiveness of internal control over +financial reporting. +The Audit Committee has taken steps to provide +assurances regarding Audit Committee composition and procedures, +the independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) adopting an Audit +Committee Charter; (ii) adopting an Accounting and Finance +Code of Ethics; (iii) implementing an Accounting and +Auditing Complaint Procedure to allow employees, stockholders +and the public to report concerns regarding Wolverine’s +financial statements, internal controls and disclosures; +(iv) establishing procedures for the Audit Committee to +pre-approve all audit and nonaudit services provided by +Wolverine’s independent auditors; and (v) increasing +the number, frequency and length of Audit Committee meetings. +As part of its supervisory duties, the Audit +Committee has reviewed Wolverine’s audited financial +statements for the fiscal year ended December 31, 2005, and +has discussed those financial statements with Wolverine’s +management, internal financial staff, internal auditors and +independent auditors, with and without management present. The +Audit Committee has also reviewed and discussed the following +with Wolverine’s management, financial staff, internal +auditors and independent auditors, with and without management +present: +• +accounting and financial principles and +significant assumptions, estimates and matters of judgment used +in preparing the financial statements; +• +allowances and reserves for accounts receivable, +inventories and taxes; +• +accounting for acquisitions, pension plans and +equity-based compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and +practices. +The Audit Committee has discussed with +Wolverine’s independent auditors the results of the +independent auditors’ examinations and the judgments of the +independent auditors concerning the quality, as well as the +acceptability, of Wolverine’s accounting principles and +such other matters that it is required to discuss with the +independent auditors under applicable rules, regulations or +generally accepted auditing standards. In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services +28 +with their independence, the scope of the audit +and the scope of all fees paid to the independent auditors +during the year. After and in reliance upon the reviews and +discussions described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended December 31, 2005, be +included in Wolverine’s Annual Report on Form 10-K for +the year then ended to be filed with the Securities and Exchange +Commission. +Respectfully submitted, +David T. Kollat, Chairman, Donald V. Fites, +Brenda J. Lauderback, Phillip D. Matthews +Related Matters +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush +Puppies ® , +Caterpillar ® +and +Merrell ® +brand names. Under these agreements, Grimoldi, S.A. or its +subsidiary pays Wolverine royalties and certain sublicense fees +based on sales or purchases of footwear products in Argentina. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees relating to 2005 totaling $1,439,938. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2005, purchases of such items by +Grimoldi, S.A. totaled $194,367 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2006. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of December 31, 2005, the aggregate principal balance of +the note was $40,520. The note was paid in full in January 2006. +The highest principal balance of the note between +January 1, 2005 and December 31, 2005 was $233,339. +In the ordinary course of its business, Wolverine +purchases promotional merchandise for use in connection with the +sale of its products. In 2005, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $402,500. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2006. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +of 1934 requires Wolverine’s directors and executive +officers, and persons who beneficially own more than 10% of the +outstanding shares of common stock, to file reports of ownership +and changes in ownership of shares of common stock with the +Securities and Exchange Commission. Directors, executive +officers and greater than 10% beneficial owners are required by +Securities and Exchange Commission regulations to furnish +Wolverine with copies of all Section 16(a) reports they +file. Based on its review of the copies of such reports received +by it, or written representations from certain reporting persons +that no reports on Form 5 were required for those persons +for the 2005 fiscal year, Wolverine believes that its officers +and directors complied with all applicable reporting +requirements during Wolverine’s last fiscal year. +Stockholder Proposals +To be considered timely, any stockholder proposal +intended to be presented at the annual meeting of stockholders +in 2007 (whether or not intended for inclusion in +Wolverine’s proxy statement and proxy card relating to that +meeting) must be received by Wolverine not later than +November 14, 2006. +29 +Stockholder proposals intended for inclusion in +Wolverine’s proxy statement and proxy card relating to that +meeting should be made as described in Securities and Exchange +Commission Rule 14a-8. You should address all stockholder +proposals to the attention of the Secretary of Wolverine, 9341 +Courtland Drive, N.E., Rockford, Michigan 49351. +Solicitation of Proxies +We will initially seek proxies by mail. Wolverine +directors, officers and employees may also solicit proxies by +telephone or facsimile or personally without additional +compensation. Proxies may be solicited by nominees and other +fiduciaries who may mail materials to or otherwise communicate +with the beneficial owners of shares held by them. Wolverine +will pay all costs of solicitation of proxies, including the +charges and expenses of brokerage firms, banks, trustees or +other nominees for forwarding proxy materials to beneficial +owners. We have engaged Georgeson Shareholder Communications, +Inc. at an estimated cost of $6,500, plus expenses and +disbursements, to assist in solicitation of proxies. +30 +Appendix A +Wolverine World Wide, Inc. +Director Independence Standards +The Board of Directors will annually evaluate the +independence of each Director. A Director is independent if the +Director meets each of the following standards unless the Board +determines that the Director has a material relationship with +Wolverine that is not of a nature addressed by these standards. +For purposes of these standards, “Wolverine” means +Wolverine World Wide, Inc. and its consolidated subsidiaries. +GENERAL STANDARD +1. +the Director is not, and in the past three years +has not been, an employee of Wolverine; +2. +an immediate family member of the Director is +not, and in the past three years has not been, employed as an +executive officer of Wolverine; +3. +neither the Director nor a member of the +Director’s immediate family has received, during any twelve +month period within the last three years, any direct +compensation from Wolverine in excess of $100,000, other than +compensation for Board service, compensation received by the +Director’s immediate family member for service as a +non-executive employee of Wolverine, and pension and other forms +of deferred compensation for prior service (provided that such +compensation is not contingent in any way on continued service); +4. (a) +the Director is not a current employee or partner +of a firm that is Wolverine’s internal or external auditor +(“Company Auditor”); +(b) +neither the Director nor a member of the +Director’s immediate family in the past three years has +been a partner or employee of a Company Auditor and personally +worked on Wolverine’s audit within that time; +(c) +no member of the Director’s immediate family +is a current partner of a Company Auditor or a current employee +of a Company Auditor who participates in the firm’s audit, +assurance or tax compliance practice; +5. +neither the Director nor a member of the +Director’s immediate family is, or in the past three years +has been, part of an interlocking directorate in which a current +executive officer of Wolverine served on the compensation +committee of another company where the Director or the +Director’s immediate family member concurrently served as +an executive officer; +6. (a) +the Director is not an employee, majority owner +or person in control of another company that has made payments +to or received payments from Wolverine for property or services +in an amount which, in any of the last three fiscal years, +exceeds the lesser of $250,000 or 10% of the other +company’s consolidated gross revenues; +(b) +no immediate family member of the Director is an +executive officer of another company that has made payments to +or received payments from Wolverine, for property or services in +an amount which in any of the past three fiscal years, exceeds +the greater of $1 million or 2% of the other company’s +consolidated gross revenues; +7. +the Director is not an executive officer, trustee +or board member of a tax exempt organization to which Wolverine +has made in the past three fiscal years contributions that, in +any single fiscal year, exceeded the greater of $50,000 or 2% of +the non-profit organization’s, foundation’s or +educational institution’s consolidated gross revenues. +8. +Any direct or indirect relationship between a +Director and Wolverine that is not of a nature addressed by +these standards will be reviewed by the Board on a case-by-case +basis and any such relationship that is found to be material +will preclude the Director from being independent. For purposes +of these standards, an “immediate family member” means +a person’s spouse, parents, children, siblings, mother and +father-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic employees) who +shares such person’s home. In no event may a Director be +determined to be independent under these standards if such +Director does not qualify as independent under the applicable +standards of the New York Stock Exchange. +A-1 +AUDIT COMMITTEE STANDARD +In addition, a Director is not considered +independent for purposes of serving on the Audit Committee, and +may not serve on that committee, if the Director: +(1) receives, either directly or indirectly, any +consulting, advisory or other compensatory fee from Wolverine +World Wide, Inc. or any of its subsidiaries other than fees for +service as a Director and fixed amounts of compensation under a +retirement plan (including deferred compensation) for prior +service with Wolverine or its subsidiaries (provided that such +compensation is not contingent in any way on continued service); +or (2) is an “affiliated person” of Wolverine +World Wide, Inc. or any of its subsidiaries; each as determined +in accordance with Securities and Exchange Commission +regulations. +A-2 +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on +April 20, 2006. The enclosed Notice of Annual Meeting provides information +regarding the matters that are expected to be voted on at the meeting. Your vote +is important to us. Even if you plan to attend the meeting, please read the +enclosed materials and vote through the Internet, by telephone or by mailing the +Proxy Card below. +Telephone +and Internet Voting. +On the reverse side of this card are instructions on how to vote through the +Internet or by telephone. Please consider voting through one of these methods. +Your vote is recorded as if you mailed in your Proxy. We believe voting through +the Internet or by telephone is convenient, and it also saves money. +Electronic +Delivery of Proxy Statement and Annual Report. +You may elect to receive your annual report and proxy statement on-line by +checking the appropriate box below. Selecting this option means that you may +receive the Wolverine World Wide, Inc. annual report and proxy statement on-line +rather than in printed form unless you request a paper copy. If a sufficient +number of stockholders select this option, beginning next year and continuing +until you tell us otherwise, you will receive your printed Proxy with +information regarding the Internet website containing the annual report and +proxy statement. You will need a computer with Internet access and we anticipate +that you will need a utility such as Adobe ® Acrobat ® Reader to read the annual +report and proxy statement, which will be in PDF file format. We plan to provide +information on obtaining free access to a utility necessary for reading PDF +files. You may incur costs such as on-line charges or printing costs and face +possible risks such as systems outages in accessing Wolverine World Wide, Inc.'s +proxy statement and annual report via the Internet website. You may cancel your +enrollment in this process at any time or may request a paper copy of the annual +report and/or proxy statement in any given year while continuing your long-term +enrollment in this process by written notification to National City Bank, Attn. +Shareholder Services Department, Dept. 5352, Corporate Trust Operations, P.O. +Box 92301, Cleveland, Ohio 44193-0900. The telephone number is 1-800-622-6757. +There is no charge for canceling enrollment or requesting a paper copy of the +annual report and proxy statement. +Thank you in advance for your participation in our 2006 Annual Meeting. +Wolverine World Wide, Inc. +ê Please fold and detach card at perforation before mailing. ê +W OLVERINE +W ORLD W IDE, INC. +P ROXY +1. +ELECTION OF DIRECTORS +Nominees: +(1) Alberto L. Grimoldi +(2) Brenda J. Lauderback +(3) Shirley D. Peterson +o FOR all +o WITHHOLD all +o FOR all except (*) +*(INSTRUCTION: To withhold authority to vote for any individual nominee, strike that nominee’s +name in the list above.) +Your Board of Directors Recommends that You Vote FOR ALL +NOMINEES +2. +Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current fiscal year. +o FOR +o AGAINST +o ABSTAIN +Your Board of Directors Recommends that You Vote FOR this Proposal +o +Please check this box +if you consent to access future annual reports and proxy statements via the Internet (see details above). +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +WOLVERINE +WORLD WIDE, INC. +Vote +by Telephone +c/o +National City Bank +Corporate Trust Operations +Locator 5352 +P.O. +Box 92301 +Cleveland, +OH 44101-4301 +Have your proxy card available when +you call the TOLL-FREE NUMBER 1-888-693-8683 using a touch-tone +phone and follow the simple instructions to record your vote. +Vote by Internet +Have your proxy card available when you access the +website http://www.cesvote.com , and follow the +simple instructions to record your vote. +Vote by Mail +Please mark, sign and date your +proxy card and return it in the postage-paid envelope provided +or return it to: National City Bank, P.O. Box 535300, Pittsburgh, PA +15230. Mailed proxies must be received no later than April 20, +2006, at 10:00 a.m. Eastern Daylight Time. +Vote by Telephone +Call toll-free using a +touch-tone phone: +1-888-693-8683 +Vote by Internet +Access the website and +cast your vote: +http://www.cesvote.com +Vote by Mail +Return your proxy +in +the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your +telephone or Internet vote must be received by 11:59 p.m. Eastern +Daylight Time +on April 19, 2006, to assure that it is counted in the final +tabulation. +PLEASE +DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE +THE OFFICIAL VOTE. DO +NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE +INTERNET OR BY TELEPHONE. +è +This Proxy must be signed and dated below. +ê Please fold and +detach card at perforation before mailing ê +W OLVERINE +W ORLD W IDE, INC. +P ROXY +This proxy is solicited on behalf of the Board of +Directors. +The undersigned stockholder hereby appoints Phillip D. Matthews and Timothy J. O'Donovan, and each of them, each +with full power of substitution, proxies to represent the undersigned stockholder and to vote all shares of +Common Stock of Wolverine World Wide, Inc. that the stockholder would be entitled to vote on all matters which +come before the Annual Meeting of Stockholders to be held at the Company's headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, April 20, 2006, at 10 a.m. local time, and any +adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be +voted as specified. If no specification is made, the shares represented by this +Proxy will be voted for the election of all nominees named on this Proxy as +directors and for approval of the proposal identified on this Proxy. The shares +represented by this Proxy will be voted in the discretion of the proxies on any +other matters that may come before the meeting. +Signature(s) +Signature(s) +Date: __________________, 2006 +IMPORTANT - Please sign exactly as your name(s) appears on this Proxy. When +signing on behalf of a corporation, partnership, estate or trust, indicate title +or capacity of person signing. If shares are held jointly, each holder must +sign. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-06-001182/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-06-001182/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..3aea6dc961995a6e3e9718ea38cc1ddc85997fe6 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-06-001182/proxy_rpt.txt @@ -0,0 +1,48 @@ +Certain Relationships and Related +Transactions +Wolverine has entered into agreements with +Grimoldi, S.A., an Argentinean corporation of which +Mr. Alberto Grimoldi, a director of Wolverine, is chairman +and a significant shareholder, granting to Grimoldi, S.A. the +exclusive rights to distribute and sell footwear products in +Argentina under the Hush +Puppies ® , +Caterpillar ® +and +Merrell ® +brand names. Under these agreements, Grimoldi, S.A. or its +subsidiary pays Wolverine royalties and certain sublicense fees +based on sales or purchases of footwear products in Argentina. +Under the agreements described above, Grimoldi, +S.A. was obligated to pay to Wolverine royalties, sublicense +fees and service fees relating to 2005 totaling $1,439,938. +In the ordinary course of business, Wolverine and +its subsidiaries sell footwear for resale, samples, components +of footwear products (such as leather and shoe soles), +advertising materials and miscellaneous items to licensees, +distributors and customers. In 2005, purchases of such items by +Grimoldi, S.A. totaled $194,367 (including any applicable +sublicense fees for products containing licensed proprietary +technology). +All of the transactions described above occurred +pursuant to continuing contractual arrangements between +Wolverine and Grimoldi, S.A. Wolverine expects similar +transactions to occur between Grimoldi, S.A. and Wolverine and +its subsidiaries during 2006. +During 2002, Wolverine and Grimoldi, S.A. agreed +to payment terms with respect to certain trade accounts owed by +Grimoldi, S.A. to Wolverine. Grimoldi, S.A. executed a +three-year note payable to Wolverine in the face amount of +$635,761 which bears interest at 10 percent per annum. As +of December 31, 2005, the aggregate principal balance of +the note was $40,520. The note was paid in full in January 2006. +The highest principal balance of the note between +January 1, 2005 and December 31, 2005 was $233,339. +In the ordinary course of its business, Wolverine +purchases promotional merchandise for use in connection with the +sale of its products. In 2005, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $402,500. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2006. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-07-001496/proxy.txt b/raw/proxies/0000110471/0000950124-07-001496/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b41fc8d42ba7955df14319eb07176c95fca6ec21 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-07-001496/proxy.txt @@ -0,0 +1,7445 @@ +DEF 14A +1 +k13079ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. __ ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying +value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on +which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any +part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting +fee +was paid previously. Identify the previous filing by registration +statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing party: +(4) +Date filed: +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL +MEETING +To our Stockholders: +You are invited to attend Wolverine’s Annual Meeting of +Stockholders at Wolverine’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 19, 2007, at 10 a.m. local time. At the meeting, +we will: +(1) +Elect four directors for three-year terms expiring in 2010. +(2) +Vote on the proposed Amended and Restated Executive Short-Term +Incentive Plan (Annual Bonus Plan). +(3) +Vote on the proposed Amended and Restated Executive Long-Term +Incentive Plan +(3-Year +Bonus Plan). +(4) +Vote on ratification of the Audit Committee’s appointment +of Ernst & Young LLP as independent auditors for the +current fiscal year. +(5) +Conduct such other business as may properly come before the +meeting. +You can vote at the meeting and any adjournment of the meeting +if you were a stockholder of record on March 1, 2007. A +list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan, +during ordinary business hours for the +10-day +period before the meeting. +A copy of the Annual Report to Stockholders for the year ended +December 30, 2006, is enclosed with this Notice. The +following proxy statement and enclosed proxy card are being sent +to stockholders on and after March 14, 2007. +By Order of the Board of Directors +Kenneth A. Grady, Secretary and General Counsel +March 14, 2007 +Your Vote is Important to Us. Even if You Plan to Attend the +Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR +VOTE BY TELEPHONE OR THE INTERNET. +WOLVERINE +WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL +MEETING OF STOCKHOLDERS +April 19, 2007 +Proxy +Statement +This proxy statement and enclosed proxy card are being furnished +to you in connection with the solicitation of proxies by the +Wolverine Board of Directors for use at the annual meeting. In +this proxy statement, “we,” “us,” +“our” and “Wolverine” refer to Wolverine +World Wide, Inc. and “you” and “your” refer +to Wolverine stockholders. +Questions +and Answers About the Proxy Materials and Our 2007 Annual +Meeting +Q: +Why am I receiving these materials? +A: +Wolverine’s Board of Directors is providing these proxy +materials to you in connection with its solicitation of proxies +for use at the Wolverine World Wide, Inc. 2007 Annual Meeting of +Stockholders, which will take place on April 19, 2007, at +Wolverine’s headquarters located at 9341 Courtland Drive, +N.E., Rockford, Michigan, at 10:00 a.m. local time. +Stockholders are invited to attend the annual meeting and are +requested to vote upon the proposals described in this Proxy +Statement. +Q: +What information is contained in these materials? +A: +The information included in this Proxy Statement relates to the +proposals to be voted upon at the annual meeting, the voting +process, the compensation of our directors and named executive +officers, and certain other required information. +Wolverine’s Annual Report to Stockholders for the year +ended December 30, 2006, which includes Wolverine’s +audited consolidated financial statements, is included in these +proxy materials. Your proxy, which you may use to vote, is also +enclosed. +Q: +What proposals will be voted upon at the annual meeting? +A: +There are four proposals scheduled to be voted upon at the +annual meeting: +• election of +four directors for three-year terms expiring in 2010; +• approval of +the Amended and Restated Executive Short-Term Incentive Plan +(Annual Bonus Plan); +• approval of +the Amended and Restated Executive Long-Term Incentive Plan +(3-Year +Plan); and +• ratification +of the appointment of Ernst & Young LLP as independent +auditors for Wolverine for the current fiscal year. +In addition, such other business as may properly come before the +meeting will be considered and voted upon. We are not currently +aware of any other matters to be considered and voted upon at +the meeting. +Q: +How does Wolverine’s Board of Directors recommend that I +vote on the four proposals? +A: +Wolverine’s Board of Directors recommends that you vote +your shares “FOR” each of the nominees to the Board of +Directors and “FOR” each other proposal discussed in +this Proxy Statement. +Q: +Who may vote? +A: +You may vote at the meeting or by proxy if you were a +stockholder of record of Wolverine at the close of business on +March 1, 2007. Each stockholder is entitled to one vote per +share on each matter presented. As of March 1, 2007, there +were 55,102,462 shares of Wolverine common stock issued and +outstanding (excluding 5,695,187 shares of treasury stock). +Q: +How do I vote before the annual meeting? +A: +Wolverine offers the convenience of voting by mail-in proxy, +telephone or the Internet. See the enclosed proxy for voting +instructions. If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or the +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +Q: +What if I return my proxy but do not provide voting +instructions? +A: +If you specify a choice, the proxy will be voted as specified. +If you return a signed proxy but do not specify a choice, your +shares will be voted in favor of the election of all nominees +named in this Proxy Statement and in favor of the proposals set +forth in this Proxy Statement. In all cases a proxy will be +voted in the discretion of the individuals named as proxies on +the proxy card with respect to any other matters that may come +before the meeting. +Q: +Can I change my mind after I vote? +A: +You may revoke your proxy at any time before it is exercised by +delivering written notice of revocation to the Secretary of +Wolverine or by attending and voting at the annual meeting. +Q: +How can I vote my shares in person at the annual meeting? +A: +Shares held directly in your name as the stockholder of record +may be voted in person at the annual meeting. If you choose to +vote in person, please bring the enclosed proxy card and proof +of identification. Even if you plan to attend the annual +meeting, Wolverine recommends that you vote your shares in +advance as described below so that your vote will be counted if +you later decide not to attend the annual meeting. Shares held +in “street name” through a brokerage account or by a +bank or other nominee may be voted in person by you if you +obtain a signed proxy from the record holder giving you the +right to vote the shares. +Q: +What is the quorum requirement for the annual meeting? +A: +The presence in person or by proxy of the holders of a majority +of the shares entitled to vote at the annual meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the annual meeting, all shares for which +a proxy or vote is received will be counted as present and +represented at the meeting, including abstentions and shares +represented by a broker vote on any matter. +Q: +What is the voting requirement to approve each of the +proposals? +A: +A plurality of the shares voting is required to elect directors. +This means that the nominees who receive the most votes will be +elected. In counting votes on the election of directors, only +votes “for” or “withheld” affect the +outcome. Broker non-votes will be counted as not voted and will +be deducted from the total shares of which a plurality is +required. +Each other matter to be voted upon at the annual meeting will be +approved if a majority of the shares present or represented at +the meeting and entitled to vote upon the proposal are voted in +favor of such matter. In counting votes on each such matter, +abstentions will be counted as voted against the matter and +broker non-votes will be counted as not voted upon the matter +and deducted from the total shares of which a majority is +required. +Q: +What are broker non-votes and what effect do they have on the +proposals? +A: +Generally, broker non-votes occur when shares held by a broker +in “street name” for a beneficial owner are not voted +with respect to a particular proposal because (1) the +broker has not received voting instructions from the beneficial +owner and (2) the broker lacks discretionary voting power +to vote those shares. A broker is entitled to vote shares held +for a beneficial owner on routine matters, such as the election +of directors and the ratification of the appointment of +Ernst & Young LLP as independent auditors, without +instructions from the beneficial owner of those shares. +Q: +What does it mean if I receive more than one proxy or voting +instruction card? +A: +It means your shares are registered differently or are in more +than one account. Please provide voting instructions for all +proxy and voting instruction cards you receive. +Q: +Where can I find the voting results of the annual meeting? +A: +Wolverine will announce preliminary voting results at the annual +meeting and publish final results in Wolverine’s quarterly +report on +Form 10-Q +for the second quarter of 2007. +2 +Election +of Directors +As recommended by the Governance Committee, the Board of +Directors proposes that the following nominees be elected as +directors for terms expiring at the 2010 annual meeting: +Jeffrey M. +Boromisa +David T. Kollat +David P. Mehney +Timothy J. O’Donovan +All of the nominees are currently directors of Wolverine whose +terms will expire at the annual meeting. Each proposed nominee +is willing to be elected and serve as a director. However, if a +nominee is unable to serve or is otherwise unavailable for +election, which is not contemplated, the incumbent Wolverine +Board of Directors may or may not select a substitute nominee. +If a substitute nominee is selected, your shares will be voted +for the substitute nominee (unless you give other instructions). +If a substitute nominee is not selected, your shares will be +voted for the remaining nominees. Proxies will not be voted for +more than four nominees. +Wolverine’s Board of Directors currently consists of +11 directors. Paul D. Schrage is retiring at this +year’s annual meeting after ten years of service as a +director. +Wolverine’s Amended and Restated Bylaws provide that the +Board of Directors is divided into three classes, with each +class to be as nearly equal in number as possible. Each class +serves a term of office of three years, with the term of one +class expiring at the annual meeting in each successive year. +Biographical information for each nominee and each current +director who will continue to serve after the annual meeting is +presented below. Except as otherwise indicated, all have had the +same principal positions and employment for over five years. +Your Board of Directors recommends that you vote FOR +each nominee. +Wolverine’s +Board of Directors +Nominees +for Terms Expiring in 2010 +JEFFREY M. BOROMISA (age 52) has been a director since +2006. Mr. Boromisa is Executive Vice President of Kellogg +International, President of Asia Pacific and Senior Vice +President of Kellogg Company, a leading global cereal, snack and +specialty foods company. He has held these positions since 2006. +Mr. Boromisa is also a member of Kellogg Company’s +Executive Management Committee. From 2004 until 2006, he was +Senior Vice President and Chief Financial Officer of Kellogg +Company. In 2002, Mr. Boromisa was promoted to Senior Vice +President, Corporate Controller and Chief Financial Officer of +Kellogg International. Mr. Boromisa served as Vice +President and Corporate Controller of Kellogg Company from +November 1999 until 2002. In 1997, he was promoted to Vice +President — Purchasing of Kellogg North America, and +since 1981, has served Kellogg Company in various financial +positions. +DAVID T. KOLLAT (age 68) has been a director since +1992. Mr. Kollat is President and Chairman of 22, +Inc., a company specializing in research and management +consulting for retailers and consumer goods manufacturers. +Mr. Kollat is also a director of Limited Brands, Inc.; Big +Lots, Inc.; and Select Comfort Corporation. +DAVID P. MEHNEY (age 67) has been a director since +1977. Mr. Mehney is President of The KMW Group, Inc., an +importer and distributor of medical products, and distributor of +marine products in Michigan. +TIMOTHY J. O’DONOVAN (age 61) has been a director +since 1993. Mr. O’Donovan is Chief Executive Officer +and Chairman of the Board of Wolverine and has served in that +capacity since April 2005. Mr. O’Donovan served +Wolverine as its Chief Executive Officer and President from +April 2000 until April 2005. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. and Kaydon Corporation. +3 +Continuing +Directors — Terms Expiring in 2009 +ALBERTO L. GRIMOLDI (age 65) has been a director since +1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a shoe +manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi was previously a member +of the Advisory Board of Ford Motor Company in Argentina, and +has also held various positions in the Argentinean government. +BRENDA J. LAUDERBACK (age 56) was appointed to the +Board of Directors in 2003. From 1995 until her retirement in +1998, Ms. Lauderback was president of the Wholesale and +Retail Group of Nine West Group, Inc., a footwear wholesaler and +distributor. She was previously the President of the Wholesale +Division of U.S. Shoe Corporation, a footwear manufacturer +and distributor, and a Vice President of Dayton Hudson +Corporation, a retailer. Ms. Lauderback is also a director +of Irwin Financial Corporation; Big Lots, Inc.; Denny’s +Corporation; and Select Comfort Corporation. +SHIRLEY D. PETERSON (age 65) has been a director since +2005. From 1995 until her retirement in 2000, Ms. Peterson +served as President of Hood College of Frederick, Maryland. From +1993 to 1995 she was a partner at the law firm +Steptoe & Johnson LLP. She was previously the +Commissioner of the Internal Revenue Service and an Assistant +Attorney General of the Tax Division for the +U.S. Department of Justice. Ms. Peterson is also a +director of Federal-Mogul Corporation; The Goodyear +Tire & Rubber Company; AK Steel Holding Corporation; +Champion Enterprises Inc.; and is a director or trustee of +various funds within the DWS Fund Complex. +Ms. Peterson also is a trustee of Bryn Mawr College. +Continuing +Directors — Terms Expiring in 2008 +BLAKE W. KRUEGER (age 53) has been a director since +2006. Mr. Krueger is President and Chief Operating Officer +of Wolverine, a position he assumed in October 2005. From 2004 +to October 2005, he served as Executive Vice President and +Secretary of Wolverine and President of the Heritage Brands +Group. From 2003 to 2004, Mr. Krueger served as Executive +Vice President and Secretary of Wolverine and President of the +Caterpillar Footwear Group. He has also previously served as +Executive Vice President, General Counsel and Secretary of +Wolverine with various responsibilities including the human +resources, retail, business development, accessory licensing, +mergers and acquisitions, and legal areas. +PHILLIP D. MATTHEWS (age 68) has been a director since +1981. Mr. Matthews is Lead Director of Wolverine and was +Chairman of the Board of Wolverine from 1993 until 1996. +Mr. Matthews is also Chairman of Water Pik Technologies, +Inc., a developer, manufacturer and marketer of health care +products. Mr. Matthews is also a director of Washington +Mutual, Inc. +MICHAEL A. VOLKEMA (age 51) has been a director since +2005. Mr. Volkema is Chairman of Herman Miller, Inc., a +leading designer and manufacturer of furnishings for the office +and home. He has held that position since 2000. Mr. Volkema +became President and Chief Executive Officer of Herman Miller in +1995 and held those positions until 2003 and 2004, respectively. +Mr. Volkema is also a director of Applebee’s +International, Inc. +Board +Committees and Meetings +During the 2006 fiscal year, the Board of Directors held five +regular meetings. Each of the directors attended 75% or more of +the aggregate of the total number of full Board meetings and the +total number of meetings of committees on which he or she served +(during the periods that he or she served). +The Board of Directors has four standing committees: the Audit +Committee, the Compensation Committee, the Executive Committee +and the Governance Committee. Members of each committee are +appointed by the Board of Directors and the authority, duties +and responsibilities of each committee are governed by written +charters approved by the Board of Directors. +In addition to regular Board and Committee meetings, Wolverine +has regular scheduled executive sessions for non-management +directors. Wolverine’s independent Lead Director, +Mr. Matthews, presides at all non-management executive +sessions. Interested parties may make concerns known to the +non-management directors +4 +by communicating with Mr. Matthews or with the +non-management directors as a group, through one of the Board +communication mechanisms described later in this proxy statement +under the heading “Corporate Governance +Principles — Communication with the Board.” +The table below shows current membership for each of the +standing committees: +Compensation +Executive +Governance +Audit Committee +Committee +Committee +Committee +David T. Kollat* +David T. Kollat +David T. Kollat +Brenda J. Lauderback +Brenda J. Lauderback +Phillip D. Matthews* +Phillip D. Matthews* +David P. Mehney +Phillip D. Matthews +David P. Mehney +Timothy J. O’Donovan +Shirley D. Peterson +Michael A. Volkema +Paul D. Schrage +Paul D. Schrage* +* +Committee Chairman +Below is a description of each of the standing committees. +Audit Committee. The Audit Committee has been +established in accordance with Section 3(a)(58)(A) of the +Securities Exchange Act of 1934 and performs the following +duties: +• +represents and assists the Board in fulfilling its oversight +responsibility regarding Wolverine’s financial reporting +and accounting process; +• +appoints, retains, compensates, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance, effectiveness, objectivity and +independence of the independent auditors and Wolverine’s +internal audit function; +• +obtains and reviews the independent auditors’ internal +quality control report and other reports required by applicable +rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention and treatment +of complaints regarding accounting and auditing matters; +• +meets to review Wolverine’s financial statements, including +disclosures in Management’s Discussion and Analysis of +Financial Condition and Results of Operations, that are included +in Wolverine’s reports on +Form 10-Q +and +Form 10-K; +• +reviews Wolverine’s policies and systems with respect to +risk assessment and risk management and discusses significant +risks or exposures with management and the independent auditors; +• +discusses with internal auditors and the independent auditors +the overall scope and plans for their respective audits; +• +oversees Wolverine’s legal and regulatory compliance +systems; +• +reviews and discusses the adequacy and effectiveness of +Wolverine’s internal control over financial reporting and +disclosure controls and procedures; and +• +establishes policies and procedures relating to the engagement +of the independent auditors, including pre-approval policies and +procedures. +Only independent directors may serve on the Audit Committee. +Each member of the Audit Committee satisfies the independence +standards for such committee members established by the New York +Stock Exchange (“NYSE”). The Audit Committee met 11 +times in 2006. +Compensation Committee. The Compensation +Committee: +• +assists the Board of Directors in discharging its +responsibilities relating to executive compensation and +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +oversees the overall compensation structure, policies and +programs, and assesses whether the compensation structure +establishes appropriate incentives; +• +reviews and approves corporate and personal goals and objectives +relevant to Chief Executive Officer compensation, evaluates the +performance of the Chief Executive Officer in light of these +goals and objectives, and, together with the other independent +directors, approves the compensation of the Chief Executive +Officer based on the evaluation; +• +reviews and approves the compensation of elected corporate +officers and other executives, including bonuses and equity +compensation; and +• +administers and makes recommendations with respect to +Wolverine’s stock option and other equity-based incentive +plans; and +• +reviews and discusses with management Wolverine’s +Compensation Discussion and Analysis and related disclosures +required by the rules of the Securities and Exchange Commission +(“SEC”) and recommends to +5 +the Board of Directors whether such disclosures should be +included in the annual report and proxy statement. +Only independent directors may serve on the Compensation +Committee. Each member of the Compensation Committee satisfies +the independence standards for such committee members +established by NYSE. The Compensation Committee met four times +during 2006. +Wolverine has engaged Watson Wyatt for compensation consulting +services. Pursuant to the engagement, Watson Wyatt provides +comparative compensation data to the Compensation Committee. +Watson Wyatt also assists the Compensation Committee, as deemed +necessary from time to time, in formulating Wolverine’s +compensation policies, provides advice to the Compensation +Committee concerning specific compensation packages and +appropriate levels of executive and Board of Director +compensation, provides advice about competitive levels of +compensation and reviews and recommends changes in the +compensation system and programs of Wolverine. +Executive Committee. Subject to limitations +set forth in the Executive Committee Charter and applicable +laws, rules and regulations, the Executive Committee exercises +the powers of the Board of Directors during periods between +Board meetings with respect to matters that the Chairman of the +Board determines must be addressed before the next scheduled +meeting of the Board and for which a special meeting of the +Board is not practicable. The Executive Committee did not meet +during 2006. +Governance Committee. The Governance Committee: +• +interviews each potential director nominee and recommends, +consistent with criteria approved by the Board, suitable +candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes qualification +standards for Board and committee membership; +• +develops and recommends to the Board an annual self-evaluation +process for the Board and its committees and oversees the +evaluation process; +• +establishes and recommends director independence guidelines to +the Board; +• +reviews and reports on all matters generally relating to +corporate governance and develops and recommends to the Board +corporate governance guidelines; +• +recommends to the Board key executives to serve as corporate +officers of Wolverine; and +• +annually reviews the compensation of directors for service on +the Board of Directors and committees and makes recommendations +to the Board of Directors regarding such compensation. +In prior years Watson Wyatt assisted the Governance Committee in +reviewing the general compensation structure for directors. +Watson Wyatt is engaged by Wolverine. +In evaluating the skills and characteristics required of Board +members, the Governance Committee addresses issues such as +experience, diversity, age and skills in the context of the +current +make-up of +the Board. The Governance Committee will consider candidates for +nomination that are recommended by stockholders, directors, +officers, third-party search firms and other sources. +Stockholders may recommend individual nominees for consideration +by the Governance Committee by communicating with the Governance +Committee through one of the Board communication mechanisms +described under the heading “Corporate Governance +Principles — Communication with the Board.” The +Board of Directors ultimately determines individuals to be +nominated at each annual meeting. Direct stockholder nominations +may be made through the procedure described below under the +subheading “Stockholder Nominations.” From time to +time, the Governance Committee engages third-party search firms +to assist with identifying and evaluating potential nominees. +In making nominee recommendations to the Board, the Governance +Committee considers a potential nominee’s ability, judgment +and personal and professional integrity. The Governance +Committee seeks nominees who are likely to be most effective, in +conjunction with other nominees and Board members, in +collectively serving the long-term interests of the stockholders. +Only independent directors may serve on the Governance +Committee. Each member of the Governance Committee satisfies the +independence standards for such committee members established by +NYSE. The Governance Committee met five times during 2006. +Stockholder +Nominations +Nominations may be made by a stockholder entitled to vote for +the election of directors if, and only if, the stockholder +submits advance notice of the proposed nomination to the +Secretary of Wolverine and the notice is received by the +Secretary of Wolverine not less than 50 nor more than +75 days before the annual meeting. +6 +However, if the first to occur of the notice of the meeting or +public disclosure is given or made to stockholders less than +65 days before the annual meeting, the notice of the +proposed nomination must be received not later than the close of +business on the 15th day after the day on which the notice +of the date of the meeting was mailed or the public disclosure +was made, whichever occurs first. Each notice submitted by a +stockholder must set forth each nominee’s name, age, +business address, residence address and principal occupation and +employment, the class and number of shares of common stock +beneficially owned by each nominee, and any other information +concerning each nominee required to be included in a proxy +statement soliciting proxies for the election of the nominee +under the rules of the SEC. In addition, the notice must state +the name, record address and the class and number of shares of +common stock beneficially owned by the stockholder submitting +the notice. If the chairman of the meeting determines that a +nomination was not made in accordance with these procedures, he +or she must announce that determination at the meeting and the +nomination will be disregarded. +Corporate +Governance Principles +Wolverine has developed governance principles to assist the +Board in fulfilling its responsibilities to stockholders and to +provide a framework for the Board’s oversight +responsibilities regarding the management of Wolverine. +Wolverine’s governance principles are dynamic and have been +developed and revised over a period of many years to reflect +changing laws, regulations and best business practices. The +governance principles also provide guidance and transparency to +management, employees, investors and other stakeholders +regarding the Board’s philosophy, high ethical standards, +expectations for conducting business, and decision-making +processes. +The following is a summary of certain of Wolverine’s +policies, charters, guidelines and principles relating to +corporate governance and financial reporting. You may access +complete current copies of our Code of Conduct & +Compliance, Corporate Governance Guidelines, Director +Independence Standards, Accounting and Finance Code of Ethics, +Audit Committee Charter, Governance Committee Charter, +Compensation Committee Charter and Executive Committee Charter +at our website, www.wolverineworldwide.com . Each of these +is also available in print to any stockholder upon request, and +the Director Independence Standards are attached as +Appendix A to this Proxy Statement. +Independence +The Board believes that the independence of directors and Board +committee members is important to assure that the Board and its +committees operate only in the best interests of the +stockholders and to avoid any appearance of conflict of +interest. For over 13 years, Wolverine has functioned with +not more than two active or former management employees as +directors. The remainder of the Board’s 9 to +12 directors over this period have been non-management +directors. Only two current or former management employees, +Wolverine’s Chief Executive Officer and Chairman and its +President and Chief Operating Officer, currently serve as +directors. Wolverine’s formal Corporate Governance +Guidelines require that a substantial majority of the directors +be independent. +The Board has determined that the following 8 of its +11 directors meet the director independence standards +adopted by the Board and the applicable NYSE standards for +independence (including, with respect to audit committee +members, the heightened independence criteria applicable to +audit committee members under the NYSE and SEC independence +standards), have no material relationship with Wolverine, and +therefore are independent: +• +Jeffrey M. Boromisa +• +David T. Kollat +• +Brenda J. Lauderback +• +Phillip D. Matthews +• +David P. Mehney* +• +Shirley D. Peterson +• +Paul D. Schrage +• +Michael A. Volkema +Our Board of Directors has adopted categorical Independence +Standards, which are attached as Appendix A to this Proxy +Statement and which are also available at our website. These +Independence Standards comply with and, in some areas, exceed +the director independence standards required by NYSE. In summary, +* See the discussion of indirect related party transactions +under the caption “Related Matters,” subheading +“Certain Relationships and Related Transactions.” +7 +under these standards a director is considered independent only +if the director and his or her immediate family members do not +have, and generally have not had in the most recent three years, +any material relationships with Wolverine, its subsidiaries or +affiliates (including certain relationships with +Wolverine’s independent auditors). The standards establish +thresholds at which such relationships are deemed to be not +material. In addition, the Board examines on a +case-by-case +basis transactions and relationships that are not of a nature +addressed by the categorical standards. +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set +forth the primary framework of governance principles applicable +to Wolverine. The Corporate Governance Guidelines outline the +general duties and functions of the Board and management, and +set forth general principles regarding Board composition, +independence, Board meetings and responsibilities, Board +committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Stock +Ownership Requirements for Directors and Executive +Officers +For many years, the Board has believed that directors and +management should have a significant financial stake in +Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal requirements that directors and executive +management own specified amounts of Wolverine stock (including +ownership credit for Stock Units allocated to non-employee +directors) within five years of their respective election to the +Board or appointment as a member of executive management. The +ownership requirements are as follows: (i) for directors, +five times the current Board retainer, (ii) for the Chief +Executive Officer, five times base salary, (iii) for other +executive officers, between two and three times base salaries, +and (iv) for other executive management, between one and +two times base salaries. Some non-employee directors also +participate in the Deferred Compensation Plan that allows +non-employee directors to convert a portion or all of their cash +compensation into stock ownership and all non-employee directors +participate in the Deferred Compensation Plan with respect to +the annual equity retainer. +Code of +Conduct & Compliance +For years, Wolverine and its employees and directors have +followed an extensive Code of Conduct & Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply with +applicable legal requirements and sets forth Wolverine’s +expectations regarding business ethics, integrity, honesty, +fairness and keeping commitments. The Code contains +Wolverine’s principles and procedures regarding conflicts +of interest, corporate opportunities, confidentiality, fair +dealing, protection and proper use of Wolverine’s assets, +compliance with laws, rules and regulations, engagement criteria +for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. Employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Accounting +and Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Finance Ethics Code”). This is an ethics code +focused on the financial reporting process and is intended to +protect the interests of all of Wolverine’s constituents, +including stockholders, employees, customers and the communities +in which Wolverine conducts business. Many of the basic tenets +of the Finance Ethics Code have been incorporated for many years +in the Code. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. The Finance Ethics Code and the Code are available +on the Corporate Governance section of the Investors section of +Wolverine’s website at www.wolverineworldwide.com , +where Wolverine will post any waiver of these codes for +directors or executive officers. +Board +Committee Charters +The Board has organized and formed four committees, the Audit +Committee, the Compensation Committee, the Executive Committee +and the Governance Committee. The Board has approved a committee +charter for each committee that contains basic principles +regarding the committee’s organization, purpose, authority +and responsibilities. The performance of each committee is +8 +reviewed annually by committee members and the Board. +Leadership +Since 1993, the Board has operated with an independent Lead +Director, who is selected by the independent directors. The +duties of the independent Lead Director include: +(a) working closely with the Chairman regarding the agenda +and scheduling for Board and committee meetings; +(b) overseeing information sent to the Board; +(c) presiding over executive sessions; (d) serving as +a liaison between the Chairman and the independent Directors; +(e) presiding over Board meetings in the absence of the +Chairman; and (f) being available for consultation and +communications with stockholders as appropriate. +Attendance +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to personally attend +every Board meeting. Directors are also expected to attend the +Annual Meeting of Stockholders in person. All ten then-current +directors attended the 2006 annual meeting. +Communication +with the Board +Stockholders and interested parties may communicate with members +of Wolverine’s Board of Directors through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General Counsel, Wolverine World Wide, Inc., 9341 +Courtland Drive, N.E., Rockford, Michigan 49351. Any +communications submitted by any of the above means (or the means +described below) are received by Wolverine’s General +Counsel and forwarded to the appropriate person or persons. +Complaints or concerns regarding Wolverine’s financial +statements and accounting, auditing, internal control and +reporting practices can be reported to the audit committee +(including anonymous and confidential submissions) by sending an +e-mail to +financialconcerns@wwwinc.com +or by writing to the audit committee c/o the General +Counsel at the above address. +Board and +Company Culture +Wolverine’s comprehensive governance guidelines and +principles are coupled with a robust, open and effective Board +environment that promotes respect, trust and candor, fosters a +culture of open dissent and permits each director to express +opinions and contribute to the Board process. Directors are +expected to have unrestricted access to management and any +company information they desire. The participation of Board +members and the open exchange of opinions is further encouraged +at the Board committee level through the periodic rotation of +Board members among its standing committees. This open and +candid operating environment is shared by management and the +Board and is essential to fully realize the benefits of +Wolverine’s formal governance guidelines, principles, +charters and policies. +Amended +and Restated Short-Term Incentive Plan (Annual Bonus +Plan) +To provide incentives and rewards for achievement of annual +business unit goals, on February 8, 2007, the Board of +Directors adopted, subject to stockholder approval, the Amended +and Restated Executive Short-Term Incentive Plan (Annual Bonus +Plan) (the “Restated Annual Bonus Plan”). The Restated +Annual Bonus Plan would amend and restate the existing Executive +Short-Term Incentive Plan (Annual Bonus Plan), which was +approved by the stockholders at the 2002 Annual Meeting of +Stockholders (the “2002 Annual Plan”). +The Restated Annual Bonus Plan differs from the 2002 Annual Plan +in three ways: (a) it would extend the term of the 2002 +Annual Plan to the first meeting of stockholders in 2012; +(b) it would provide greater flexibility to the +Compensation Committee in allowing new employees or an employee +who is assigned new duties to participate for a shorter +performance period, which would begin on the date the employee +assumes his or her new duties; and (c) it would increase +the maximum incentive bonus from $1,500,000 to $1,800,000. The +term of the 2002 Annual Plan expires at this year’s Annual +Meeting of Stockholders unless +9 +stockholders approve the extension of the 2002 Annual Plan by +approving the Restated Annual Bonus Plan. +The Restated Annual Bonus Plan is designed to provide executive +officers, senior corporate and divisional officers and other key +employees with the opportunity for bonuses based on the +performance of the business unit or units to which the employee +is assigned. The Restated Annual Bonus Plan is intended to +provide performance-based compensation under Section 162(m) +of the Code, as amended, and is interpreted and administered to +achieve that purpose. Wolverine intends to continue its +established practice of paying annual incentive bonuses to +officers and key management employees based on individual +performance goals. Participants in the Restated Annual Bonus +Plan may also receive cash or other bonuses from Wolverine under +other bonus programs, which may or may not qualify for +deductibility under Section 162(m) of the Code. No payment +under any such other arrangement may be contingent upon failure +to satisfy the criteria for payment of an incentive bonus under +the Restated Annual Bonus Plan. +The Board of Directors believes that it is in the best interests +of Wolverine and its stockholders to provide for a +stockholder-approved plan under which annual bonuses paid to its +executive officers can qualify for deductibility for federal +income tax purposes. Accordingly, Wolverine has structured the +Restated Annual Bonus Plan in a manner such that payments under +it can satisfy the requirements for +“performance-based” compensation within the meaning of +Section 162(m) of the Code. +In general, Section 162(m) places a limit on the +deductibility for federal income tax purposes of the +compensation paid to the named executive officers set forth in +the Summary Compensation Table who were employed by Wolverine on +the last day of its taxable year. Under Section 162(m), +compensation paid to such persons in excess of $1 million +in a taxable year is not generally deductible. However, +compensation that qualifies as “performance-based” as +determined under Section 162(m) does not count against the +$1,000,000 limitation. One of the requirements of +“performance-based” compensation for purposes of +Section 162(m) is that the material terms of the +performance goal under which compensation may be paid be +disclosed to and approved by Wolverine’s stockholders. For +purposes of Section 162(m) the material terms include: +(a) the employees eligible to receive compensation; +(b) a description of the business criteria on which the +performance goal is based; and (c) the maximum amount of +compensation that can be paid to an employee under the +performance goal. Each of these aspects of the Restated Annual +Bonus Plan is discussed below and stockholder approval of the +Restated Annual Bonus Plan will be deemed to constitute approval +of each of these aspects of the Restated Annual Bonus Plan for +purposes of the approval requirements of Section 162(m) of +the Code. +The following is a summary of the principal features of the +Restated Annual Bonus Plan and is qualified in its entirety by +reference to the terms of the Restated Annual Bonus Plan set +forth in Appendix B to this Proxy Statement. +The Restated Annual Bonus Plan is effective as of +February 8, 2007. Payment of bonuses pursuant to the +Restated Annual Bonus Plan for 2007 are contingent upon +stockholder approval. In the absence of such approval, the 2002 +Annual Plan would terminate without action by the Board of +Directors on April 19, 2007. +The Restated Annual Bonus Plan is administered by the +Compensation Committee of the Board of Directors (the +“Compensation Committee”) or such other committee as +the Board designates to administer the Restated Annual Bonus +Plan. The Compensation Committee currently consists of four +independent members, all of whom are “non-employee +directors” as defined in +Rule 16b-3 +issued under the Securities Exchange Act of 1934 and +“outside directors” as defined in the regulations +issued under Section 162(m) of the Internal Revenue Code. +Except as limited by the Restated Annual Bonus Plan, the +Compensation Committee has all of the express and implied powers +and duties set forth in the Restated Annual Bonus Plan and has +full authority and discretion to interpret the Restated Annual +Bonus Plan and to make all other determinations considered +necessary or advisable for the administration of the Restated +Annual Bonus Plan. The Compensation Committee can adopt such +other rules, policies and forms for the administration, +interpretation and implementation of the Restated Annual Bonus +Plan as it considers advisable. All determinations, +interpretations and selections made by the Compensation +Committee regarding the Restated Annual Bonus Plan are final and +conclusive. +For each fiscal year or part thereof, the Compensation Committee +selects the executive officers (currently six persons), senior +corporate and divisional officers and other key employees +(currently approximately 443 persons) who would be participants +for the year. The Compensation Committee can limit the number of +executive officers and senior corporate and divisional officers +and other key employees who would be +10 +participants for a fiscal year or part thereof. Selection as a +participant for a fiscal year or part thereof by the +Compensation Committee is limited to that fiscal year or part +thereof. An individual is a participant for a fiscal year or +part thereof only if designated as a participant by the +Compensation Committee for such fiscal year or part thereof. The +amount of bonus any individual receives under the Restated +Annual Bonus Plan depends upon corporate +and/or +business unit performance for each fiscal year and is not +presently determinable for Wolverine’s 2007 fiscal year. +The benefits set forth in the table below were paid under the +Restated Annual Bonus Plan with respect to fiscal 2006. +Executive Short-Term Incentive Plan +Name and Position +Dollar Value +Timothy J. O’Donovan, Chief +Executive Officer and Chairman +$ +735,087 +Stephen L. Gulis, Jr., +Executive Vice President, Chief Financial Officer and Treasurer +$ +249,834 +Cheryl L. Johnson, Vice President +of Human Resources +$ +76,778 +Blake W. Krueger, President and +Chief Operating Officer +$ +408,000 +Nicholas P. Ottenwess, Vice +President — Finance +$ +95,739 +James D. Zwiers, +President — Hush Puppies U.S. Division +$ +94,072 +Executive Group +$ +1,659,510 +Non-Executive Director Group +$ +0 +Non-Executive Officer Employee +Group +$ +7,288,392 +Executive officers, senior corporate and divisional officers and +other key employees of Wolverine who are participants in the +Restated Annual Bonus Plan may be considered to have an interest +in the Restated Annual Bonus Plan. +The Compensation Committee pre-establishes performance goals for +each participant in the manner and within the time limits +specified below. A target bonus goal is established by the +Compensation Committee, expressed as a percentage of the +participant’s base salary or a specified dollar amount. The +Compensation Committee then establishes incentive bonus levels, +expressed as a percentage of the target bonus, that is paid to +the participant at specified levels of performance by Wolverine, +a subsidiary, division, or profit center. The term incentive +bonus, as used in the Restated Annual Bonus Plan, means an +annual bonus awarded and paid to a participant for services to +Wolverine during a fiscal year or part thereof that is based +upon achievement of pre-established financial objectives. The +Compensation Committee also establishes any specific conditions +under which an incentive bonus could be reduced or forfeited +(but not increased). +The incentive bonus levels described above can be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. +Under the Restated Annual Bonus Plan, performance of Wolverine +and/or its +subsidiaries, operating divisions or profit centers is +determined by reference to one or more of the following +objectively determinable factors, as selected by the +Compensation Committee: net earnings, net earnings before taxes, +operating income, revenues, net sales, net sales and other +operating income, return on sales, return on equity, earnings +per share, total stockholder return, economic value added +measurements, return on assets, return on invested capital or +any of the foregoing before the effect of acquisitions, +divestitures, accounting changes, restructuring, or other +special charges. These factors could be measured against +pre-determined levels or Wolverine’s relative performance +when compared to a pre-established peer group. +Payment of an incentive bonus to a participant for a fiscal year +or part thereof under the Restated Annual Bonus Plan is entirely +contingent upon achievement of the performance levels +established by the Compensation Committee. Pursuant to the +amendments under the Restated Annual Bonus Plan, all +determinations to be made by the Compensation Committee for a +performance period are made by the Compensation Committee during +the shorter of the first 90 days of such performance period +and the period ending on the date on which 25 percent of +the performance period has +11 +elapsed. An incentive bonus is based solely upon objective +criteria, from which an independent third party with knowledge +of the facts could determine whether the performance goal or +range of goals were met and from that determination could +calculate the incentive bonus to be paid. Although the +Compensation Committee has authority to exercise reasonable +discretion to interpret the Restated Annual Bonus Plan and the +criteria it specifies pursuant to the Restated Annual Bonus +Plan, it can not amend or waive such criteria after the shorter +of the period ending on the 90th day of a performance +period or the date on which 25 percent of the performance +period has elapsed. The Compensation Committee has no authority +or discretion to increase any incentive bonus or to construct, +modify or apply the measurement of performance in a manner that +would directly or indirectly increase the incentive bonus for +any participant for any fiscal year or part thereof above the +amount determined by the applicable objective standards +established within the time periods described above. +The incentive bonus for each eligible participant for a fiscal +year is determined on the basis of the target bonus and +performance criteria established by the Compensation Committee +for the fiscal year or part thereof. The Compensation Committee +determines, and certifies in writing prior to payment of the +incentive bonus, that performance for the fiscal year or part +thereof satisfied the criteria established by the Compensation +Committee for the year. The incentive bonus for any participant +for a fiscal year may not, in any event, exceed $1,800,000. The +incentive bonus of each participant is paid as soon as feasible +following the final determination and certification by the +Compensation Committee of the amount payable. +In the event of a termination of the employment prior to the end +of a fiscal year, the incentive bonus otherwise payable to a +participant for the fiscal year is adjusted as follows. If a +participant ceases to be a participant before the end of any +fiscal year and more than six months after the beginning of such +fiscal year because of death, normal or early retirement under +Wolverine’s retirement plan, as then in effect, or total +disability under Wolverine’s long-term disability plan, an +award is paid to the participant or the participant’s +beneficiary after the end of such fiscal year prorated as +follows: the award, if any, for such fiscal year is equal to +100% of the incentive bonus that the participant would have +received if the participant had been a participant during the +entire fiscal year, multiplied by the ratio of the +participant’s full months as a participant during that +fiscal year to the 12 months in that fiscal year. If an +employee ceases to be a participant during any fiscal year, or +prior to actual receipt of the award for a previous fiscal year, +because of the participant’s termination of employment for +any reason other than described above, the participant is not +entitled to any award for such fiscal year. +The Board of Directors can terminate the Restated Annual Bonus +Plan at any time or can from time to time amend the Restated +Annual Bonus Plan as it considers proper and in the best +interests of Wolverine. No amendment adopted after the shorter +of the period ending on the 90th day of a performance +period or the date on which 25 percent of a performance +period has elapsed can directly or indirectly increase any +incentive bonus for that fiscal year. Except as otherwise +provided in the Restated Annual Bonus Plan and the applicable +objective criteria established pursuant to the Restated Annual +Bonus Plan for determining the amount of any incentive bonus for +a fiscal year or part thereof, no incentive bonuses would be +payable for the fiscal year in which the Restated Annual Bonus +Plan was terminated or, if later, in which the termination was +effective. +If the Restated Annual Bonus Plan is approved by +Wolverine’s stockholders, the Restated Annual Bonus Plan +would terminate as of the date of the first meeting of +stockholders occurring in the fifth year following approval +(that is, 2012) or any subsequent reapproval. If the +Restated Annual Bonus Plan terminates due to lack of approval by +the stockholders, no incentive bonus would be awarded under the +plan for the fiscal year in which the Restated Annual Bonus Plan +terminates. +The vote of the stockholders holding a majority of the shares +present in person or represented by proxy and entitled to vote +on this proposal is required to approve the Restated Annual +Bonus Plan. For purposes of counting votes on this proposal, +abstentions will be counted as voted against the proposal. +Broker non-votes will not be counted as voted on the proposal +and will be deducted from the total shares of which a majority +is required. +Your Board of Directors recommends that you vote FOR +approval of the Amended and Restated Executive Short-Term +Incentive Plan (Annual Bonus Plan). +12 +Amended +And Restated Executive Long-Term Incentive Plan +(3-Year +Bonus Plan) +To provide incentives and rewards for long-term planning and +decision-making and the achievement of long-term corporate +performance goals, on February 8, 2007, the Board of +Directors adopted, subject to stockholder approval, the Amended +and Restated Executive Long-Term Incentive Plan +(3-Year +Bonus Plan) (the “Restated Long-Term Plan”). The +Restated Long-Term Plan would amend and restate the existing +Long-Term Incentive Plan +(3-Year +Bonus Plan) that was approved by the stockholders at the 2002 +Annual Meeting of Stockholders (the “LTIP”). +The Restated Long-Term Plan differs from the current LTIP in +four ways: (a) it would extend the term of the LTIP to the +first meeting of stockholders in 2012; (b) it would provide +greater flexibility to the Compensation Committee in allowing +new employees or an employee who is assigned new duties to +participate for a shorter performance period, which would begin +on the date the employee assumes his or her new duties; +(c) it would increase the maximum incentive bonus from +$1,500,000 to $1,800,000; and (d) it would require the +incentive bonus to be paid in cash unless the Compensation +Committee determined that the incentive bonus should be paid in +a mixture of cash and restricted stock. The LTIP expires at this +year’s Annual Meeting of Stockholders unless stockholders +approve the extension of the LTIP by approving the Restated +Long-Term Plan. +The Restated Long-Term Plan is designed to provide executive +officers and key management employees the opportunity for +additional compensation based upon the achievement of corporate +financial performance goals over a three-year period or part +thereof thereof. The primary purposes of the Restated Long-Term +Plan are to provide a significant incentive to substantially +improve the longer-term financial performance of Wolverine and +to foster cooperation among all business units. The target +financial performance goals are ambitious in nature and +generally require earnings growth that provide a significant +challenge to management. The Restated Long-Term Plan provides +performance-based compensation under Section 162(m) of the +Code and is interpreted and administered to achieve that +purpose. Wolverine also intends to continue its established +practice of paying incentive bonuses to officers and key +management employees based on individual performance goals. +Participants in the Restated Long-Term Plan may also receive +cash or other bonuses from Wolverine under other bonus programs, +which may or may not qualify for deductibility under +Section 162(m) of the Code. No payment under any such other +arrangement may be contingent upon failure to satisfy the +criteria for payment of an incentive bonus under the Restated +Long-Term Plan or otherwise designed to provide Restated +Long-Term Plan participants all or part of the compensation they +would receive under the Restated Long-Term Plan regardless of +whether the performance goal under the Restated Long-Term Plan +is attained. +The Board of Directors believes that it is in the best interests +of Wolverine and its stockholders to provide for a +stockholder-approved plan under which long-term incentive +compensation paid to its executive officers can qualify for +deductibility for federal income tax purposes. Accordingly, +Wolverine has structured the Restated Long-Term Plan in a manner +such that payments under it can satisfy the requirements for +“performance-based” compensation within the meaning of +Section 162(m) of the Code. One of the requirements of +“performance-based” compensation for purposes of +Section 162(m) is that the material terms of the +performance goal under which compensation may be paid be +disclosed to and approved by Wolverine’s stockholders. For +purposes of Section 162(m) the material terms include: +(a) the employees eligible to receive compensation; +(b) a description of the business criteria on which the +performance goal is based; and (c) the maximum amount of +compensation that can be paid to an employee under the +performance goal. Each of these aspects of the Restated +Long-Term Plan is discussed below and stockholder approval of +the Restated Long-Term Plan will be deemed to constitute +approval of each of these aspects of the Restated Long-Term Plan +for purposes of the approval requirements of Section 162(m) +of the Code. +The following is a summary of the principal features of the +Restated Long-Term Plan and is qualified in its entirety by +reference to the terms of the Restated Long-Term Plan as set +forth in Appendix C to this Proxy Statement. The Restated +Long-Term Plan is effective as of February 8, 2007. If the +Restated Long-Term Plan is not approved at the 2007 Annual +Stockholder Meeting, then it shall terminate without action by +the Board as of April 19, 2007. +The Restated Long Term Plan is administered by the Compensation +Committee, or such other committee as +13 +the Board designates to administer the Restated Long-Term Plan. +The Compensation Committee currently consists of four +independent members, all of whom are “non-employee +directors” as defined in +Rule 16b-3 +issued under the Securities Exchange Act and “outside +directors” as defined in the regulations issued under +Section 162(m) of the Internal Revenue Code. Except as +limited by the Restated Long-Term Plan, the Compensation +Committee has all of the express and implied powers and duties +set forth in the Restated Long-Term Plan and has full authority +and discretion to interpret the Restated Long-Term Plan and to +make all other determinations considered necessary or advisable +for the administration of the Restated Long-Term Plan. The +Compensation Committee can adopt such other rules, policies and +forms for the administration, interpretation and implementation +of the Restated Long-Term Plan as it considers advisable. All +determinations, interpretations and selections made by the +Compensation Committee regarding the Restated Long-Term Plan are +final and conclusive. +The primary concept of the Restated Long-Term Plan is to +establish financial performance goals for each overlapping +three-year time period or part thereof for Wolverine. +Performance periods begin every fiscal year and end three full +fiscal years later. +For each three-year period or part thereof, the Compensation +Committee selects the executive officers (currently six persons) +and other key management employees (currently approximately 31 +persons) who would be participants for the three-year period. +The Compensation Committee can limit the number of executive +officers and key management employees who would be participants +for a performance period. Selection as a participant for a +three-year period or part thereof by the Compensation Committee +is limited to that three-year period or part thereof. An +eligible executive officer or key management employee is a +participant for a performance period only if designated as a +participant by the Compensation Committee for such period. The +amount of bonus any individual receives under the Restated +Long-Term Plan depends upon corporate performance for each +performance period and is not presently determinable for fiscal +year 2007. The benefits set forth in the table below were paid +under the Restated Long-Term Plan with respect to the +2004 — 2006 performance period. +Executive Long-Term Incentive Plan +Name and Position +Dollar Value +Timothy J. O’Donovan, Chief +Executive Officer and Chairman +$ +623,567 +Stephen L. Gulis, Jr., +Executive Vice President, Chief Financial Officer and Treasurer +$ +208,696 +Cheryl L. Johnson, Vice President +of Human Resources +$ +22,559 +Blake W. Krueger, President and +Chief Operating Officer +$ +248,815 +Nicholas P. Ottenwess, Vice +President — Finance +$ +80,325 +James D. Zwiers, +President — Hush Puppies U.S. Division +$ +58,442 +Executive Group +$ +1,242,404 +Non-Executive Director Group +$ +0 +Non-Executive Officer Employee +Group +$ +1,892,771 +Executive officers and other key management employees of +Wolverine who are participants in the Restated Long-Term Plan +may be considered to have an interest in the Restated Long-Term +Plan. +The Compensation Committee pre-establishes performance goals for +each participant in the manner and within the time limits +specified in the Restated Long-Term Plan. For each participant +in each three-year period or part thereof, the Compensation +Committee specifies a target bonus goal established by the +Compensation Committee, expressed as a specified dollar amount +or as a percentage of the participant’s average annual +earned salary, and incentive bonus levels, expressed as a +percentage of the target bonus, that would be paid to the +participant at specified levels of performance. The term +incentive bonus, as used in the Restated Long-Term Plan, means a +bonus awarded and paid to a participant for services to +Wolverine during a three-year period or part thereof that is +based upon achievement of pre-established financial objectives +by Wolverine. The Compensation Committee can also specify any +specific conditions under which an incentive bonus would be +reduced or forfeited (but not increased). +14 +The incentive bonus levels described above can be expressed +either as (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. +Under the Restated Long-Term Plan, performance of Wolverine +and/or its +subsidiaries, operating divisions, or profit centers are +determined by reference to one or more of the following +objectively determinable factors, as selected by the +Compensation Committee: net earnings, net earnings before taxes, +operating income, revenues, net sales, net sales and other +operating income, return on sales, return on equity, earnings +per share, total stockholder return, economic value added +measurements, return on assets, return on invested capital or +any of the foregoing before the effect of acquisitions, +divestitures, accounting changes, restructuring, or other +special charges. These factors are measured against +pre-determined levels or Wolverine’s relative performance +when compared to a pre-established peer group. +Payment of an incentive bonus to a participant for a three-year +period or part thereof under the Restated Long-Term Plan is +entirely contingent upon the performance goals established by +the Compensation Committee, the satisfaction of which is +substantially uncertain when established by the Compensation +Committee for the three-year period or part thereof. +Pursuant to the amendments under the Restated Long-Term Plan, +all determinations to be made by the Compensation Committee for +a three-year period or part thereof are made by the Compensation +Committee during the shorter of the first 90 days of such +performance period and the period ending on the date on which +25 percent of the performance period has elapsed. An +incentive bonus is based solely upon objective criteria, from +which an independent third party with knowledge of the facts +could determine whether the performance goals or range of goals +were met and from that determination could calculate the +incentive bonus to be paid. Although the Compensation Committee +has authority to exercise reasonable discretion to interpret the +Restated Long-Term Plan and the criteria it would specify +pursuant to the Restated Long-Term Plan, it can not amend or +waive such criteria after the shorter of the period ending on +the 90th day of a performance period or the date on which +25 percent of the performance period has elapsed. The +Compensation Committee has no authority or discretion to +increase any incentive bonus or to construct, modify or apply +the measurement of performance in a manner that would directly +or indirectly increase the incentive bonus for any participant +for any three-year period or part thereof above the amount +determined by the applicable objective standards established +within the time periods described above. +The incentive bonus for each eligible participant for a +three-year period or part thereof is determined on the basis of +the target bonus and performance criteria established by the +Compensation Committee for such performance period. The +Compensation Committee determines, and certifies in writing +prior to payment of any incentive bonus, that Wolverine’s +performance for the three-year period or part thereof satisfied +the criteria established by the Compensation Committee for such +period. +In the event of a termination of employment prior to the end of +a three-year performance period, the incentive bonus otherwise +payable to a participant for the three-year period is adjusted +as follows. If a participant ceases to be a participant before +the end of any three-year period and more than 12 months +after the beginning of such +3-year +period because of death, normal or early retirement under +Wolverine’s retirement plan, as then in effect, or total +disability under Wolverine’s long-term disability plan, an +award is paid to the participant or the participant’s +beneficiary after the end of such three-year period prorated as +follows: the award, if any, for such three-year period is equal +to 100% of the incentive bonus that the participant would have +received if the participant had been a participant during the +entire performance period multiplied by the ratio of the +participant’s full months as a participant during that +performance period to the total number of months in that +performance period. The award, if any, would only be made in the +form of a cash payout. If an employee ceases to be a participant +during any three-year period(s), or prior to actual receipt of +the award for a previous period because of the +participant’s termination of employment for any reason +other than described above, the participant would not be +entitled to any award for such three-year period. If a +participant continued in Wolverine’s employment but no +longer was approved by the Compensation Committee to participate +in future three-year periods, the participant would be eligible +for a prorated award determined in the same manner set forth +above. +Under the Restated Long-Term Plan, the participant would receive +his or her incentive bonus in cash as soon as feasible following +final determination and certification by the Compensation +Committee of the +15 +amount payable unless the Compensation Committee determined that +the incentive bonus should be paid in a mixture of cash and +stock (restricted or unrestricted). If the Committee determined +to pay all or part of the incentive bonus using restricted or +unrestricted stock, each participant would receive the number of +shares of stock equal to the incentive bonus (or part thereof) +divided by the market value of Wolverine’s common stock on +the date of grant, rounded to the nearest whole share. It is +currently the Compensation Committee’s policy to pay 100% +of the incentive bonus in cash. The incentive bonus payable to +any participant with respect to any three-year period or part +thereof may not, in any event, exceed $1,800,000. +The Board of Directors can terminate the Restated Long-Term Plan +at any time or can from time to time amend the Restated +Long-Term Plan as it considers proper and in the best interests +of Wolverine. No amendment adopted after the shorter of the +period ending on the 90th day of a performance period or +the date on which 25 percent of a performance period has +elapsed can directly or indirectly increase the amount of any +incentive bonus, or alter the objective criteria in a manner +which would increase any incentive bonus, for that three-year +period or part thereof. Except as otherwise provided in the +Restated Long-Term Plan and the applicable objective criteria +established pursuant to the Restated Long-Term Plan for +determining the amount of any incentive bonus for a three-year +period or part thereof, no incentive bonuses are payable for the +three-year period or part thereof in which the Restated +Long-Term Plan was terminated or, if later, in which the +termination was effective. +If stockholders approve the Restated Long-Term Plan at the 2007 +Annual Meeting of Stockholders, the Restated Long-Term Plan +would terminate as of the date of the first meeting of the +stockholders in the fifth year following approval (that is, +2012) and each subsequent reapproval unless reapproved on +or before the termination date. +The vote of the stockholders holding a majority of the shares +present in person or represented by proxy and entitled to vote +on this proposal is required to approve the Restated Long-Term +Plan. For purposes of counting votes on this proposal, +abstentions will be counted as voted against the proposal. +Broker non-votes will not be counted as voted on the proposal +and will be deducted from the total shares of which a majority +is required. +Your Board of Directors recommends that you vote FOR +approval of the Amended and Restated Executive Long-Term +Incentive Plan +(3-Year +Bonus Plan). +16 +Ownership +of Wolverine Stock +Five +Percent Stockholders +The following table sets forth information concerning the number +of shares of Wolverine stock held by each entity known to +Wolverine to be the beneficial owner of more than five percent +of Wolverine’s outstanding shares of common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Shared Voting +Total +Name and Address +Sole Voting +Sole Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Franklin Resources, Inc.(1) +3,473,220 +3,473,220 +0 +3,473,220 +6.3 +% +One Franklin Parkway +San Mateo, California 94403 +FMR Corp.(2) +2,120,660 +3,454,160 +0 +3,454,160 +6.2 +% +82 Devonshire Street +Boston, Massachusetts 02109 +Barclays Global Investors, NA(3) +2,586,065 +2,836,058 +0 +2,836,058 +5.1 +% +45 Fremont Street +San Francisco, CA 94105 +(1) +Based on information set forth in Schedule 13G filed +February 5, 2007. The Schedule 13G indicates that +Franklin Resources, Inc. and one or more open- or closed-end +investment companies and other managed accounts that are +investment management clients of investment managers that are +direct and indirect subsidiaries of Franklin Resources, Inc. +beneficially own, in the aggregate, 3,473,220 shares of +Wolverine common stock. +(2) +Based on information set forth in Schedule 13G filed +February 14, 2007. The Schedule 13G indicates that FMR +Corp. and other related persons and entities (some of which are +investment advisors or banks) beneficially own, in the +aggregate, 3,454,160 shares of Wolverine common stock. +(3) +Based on information set forth in Schedule 13G filed +January 23, 2007. The Schedule 13G indicates that +Barclays Global Investors, NA and other related entities (some +of which are investment advisors or banks) beneficially own, in +the aggregate, 2,836,058 shares of Wolverine common stock. +17 +Stock +Ownership By Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 1, 2007, by each of +Wolverine’s directors and nominees for director, each of +the named executive officers and all of Wolverine’s +directors, nominees for director and executive officers as a +group. An asterisk in the column for “Percent of +Class” means the individual beneficially owns less than one +percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Jeffrey M. Boromisa +— +— +7,682 +7,682 +* +Alberto L. Grimoldi +6,157 +— +51,114 +57,271 +* +Stephen L. Gulis, Jr. +157,413 +— +269,544 +426,957 +* +Cheryl L. Johnson +6,100 +— +2,867 +8,967 +* +David T. Kollat +81,630 +— +59,303 +140,933 +* +Blake W. Krueger +211,772 +— +288,016 +499,788 +* +Brenda J. Lauderback +5,100 +— +7,986 +13,086 +* +Phillip D. Matthews(4) +34,238 +— +59,303 +93,541 +* +David P. Mehney +48,154 +49,250 +59,303 +156,707 +* +Timothy J. O’Donovan +452,806 +140,202 +539,299 +1,132,307 +2.1 +% +Nicholas P. Ottenwess +32,203 +190 +80,940 +113,333 +* +Shirley D. Peterson +3,000 +— +16,549 +19,549 +* +Paul D. Schrage +29,363 +— +59,689 +89,052 +* +Michael A. Volkema +5,000 +— +11,849 +16,849 +* +James D. Zwiers +33,213 +— +27,441 +60,654 +* +All directors and executive +officers as a group +1,109,349 +189,642 +1,540,885 +2,839,876 +5.1 +% +(1) +The numbers of shares stated are based on information provided +by each person listed and include shares personally owned of +record and shares that, under applicable regulations, are +considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the listed person is +legally entitled to share voting or dispositive power by reason +of joint ownership, trust or other contract or property right, +and shares held by spouses, children or other relatives over +whom the listed person may have influence by reason of +relationship. +(3) +The numbers in the Stock Options column represent shares that +may be acquired within 60 days after March 1, 2007, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +(4) +Mr. Matthews pledged 34,238 shares of Wolverine common +stock in connection with a post-paid variable forward sale +contact entered into on February 15, 2007 with an +unaffiliated third party buyer. +18 +Executive +Compensation +COMPENSATION +DISCUSSION AND ANALYSIS +Overview +The Compensation Committee assists the Board of Directors in +discharging its responsibilities relating to executive +compensation and in fulfilling its responsibilities relating to +Wolverine’s compensation and benefit programs and policies. +The Compensation Committee also administers and makes +recommendations with respect to Wolverine’s compensation +plans and reviews and approves (with input from independent +directors in the case of the Chief Executive Officer) the +compensation of key senior executives. The Compensation +Committee currently consists of four directors, none of whom is +a current or former employee of Wolverine or its subsidiaries +and all of whom are independent under the standards adopted by +the Board of Directors and applicable NYSE standards. The +Compensation Committee receives recommendations from the +Company’s Chief Executive Officer regarding the +compensation of senior executives (other than the Chief +Executive Officer). +The Compensation Committee consults with compensation consulting +firms as it deems necessary from time to time to: assist the +Compensation Committee in formulating Wolverine’s +compensation policies; provide advice to the Compensation +Committee concerning specific compensation packages and +appropriate levels of executive and Board of Director +compensation; provide advice about competitive levels of +compensation; and review and recommend changes in the +compensation system and programs of Wolverine. Wolverine +currently engages Watson Wyatt for compensation consulting. +Objectives +of the Company’s Compensation Programs +The basic compensation philosophy of the Compensation Committee +and Wolverine is to provide competitive salaries and incentives +to achieve superior financial performance. Wolverine’s +executive compensation policies are designed to achieve four +primary objectives: +• +attract and retain well-qualified executives who will lead +Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific short-term +individual, business unit and corporate goals and to reward +attainment of goals at established levels; +• +provide incentives for achievement of longer-term financial +goals and to reward attainment of goals at established levels; +and +• +align the interests of management with those of the stockholders +to encourage achievement of continuing increases in stockholder +value. +The Compensation Committee reviews and structures +Wolverine’s compensation programs to effectively balance +employee salaries with compensation that is performance-based +and also to reward annual performance while maintaining a focus +on longer-term objectives. The Company believes it serves the +needs of its stockholders and key management employees to +provide incentives commensurate with individual management +responsibilities and past and future contributions to corporate +objectives. The mix of compensation elements varies based on an +employee’s position and responsibilities. +To maximize stockholder value, the Company believes it is +necessary to deliver consistent, long-term sales and earnings +growth. Accordingly, the Compensation Committee reviews not only +the individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +cash, non-cash, long-term, short-term and currently paid +compensation in a way that meets the goals set forth above. +Elements +of Compensation +Executive compensation at Wolverine consists primarily of the +following elements: +• +base salary and benefits; +• +performance-based compensation, if any, under the Executive +Short-Term Incentive Plan (the “Annual Bonus Plan”); +• +amounts paid, if any, as individual-specific bonuses designed to +encourage achievement of individual goals; +19 +• +performance-based compensation, if any, under the LTIP; +• +participation in Wolverine’s equity-based incentive plans; +and +• +participation in Wolverine’s retirement plans. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +To attract and retain well-qualified executives, the +Compensation Committee seeks to establish competitive base +salaries. The Compensation Committee determines the base +salaries of executives by comparing each executive’s +position with similar positions in companies of similar type, +size and financial performance. Although some footwear companies +are among the companies included in the comparison group, this +group is not limited to footwear companies because Wolverine +competes for talent with a wide range of corporations. The +Company’s current comparison group includes: Jones Apparel +Group, Inc.; Brown Shoe Company, Inc.; The Timberland Company; +Genesco, Inc.; Columbia Sportswear Company; Skechers U.S.A., +Inc.; The Stride Rite Corp.; Kenneth Cole Productions, Inc.; +K-Swiss Inc.; Steven Madden, Ltd.; Rocky Brands, Inc.; Deckers +Outdoor Corporation; and Weyco Group, Inc. (the “Peer +Group”). In general, the Compensation Committee has +targeted salaries to be at the median to slightly below the +median percentile of base salaries paid for comparable positions +within the Peer Group. Other factors considered by the +Compensation Committee are the executive’s performance, the +executive’s current compensation, the executive’s +responsibilities and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). +Although the Compensation Committee does not give specific +weight to any particular factor, the most weight is given to the +executive’s performance (in determining whether to adjust +above or below the current salary level), and a significant but +lesser weight is generally given to the comparative data. In +general, base salaries for Wolverine’s executive officers +during 2006 were near the median of salaries paid by companies +included in the Peer Group. The 2006 average base salary of +executive officers increased over the previous year’s level +as a result of a combination of factors, including improved +individual performance, improved or continued high-level +performance by Wolverine, promotions and increased +responsibilities. +Annual +Incentive Bonus +The Annual Bonus Plan is designed to provide key employees with +the opportunity for bonuses based on the performance of +Wolverine +and/or the +performance of its subsidiaries, operating divisions or profit +centers. Stockholders most recently approved the Annual Bonus +Plan at the 2002 Annual Meeting of Stockholders and are being +asked to vote upon approval of an amended and restated Annual +Bonus Plan, as more fully described above, at this year’s +Annual Meeting of Stockholders. The Annual Bonus Plan continues +the annual bonus policy that Wolverine has used for many years. +A target bonus goal (the “target bonus”), expressed as +a percentage of the participant’s base salary, is +established by the Compensation Committee. The Compensation +Committee then establishes “incentive bonus” levels, +expressed as a percentage of the target bonus, that are paid to +the participant at specified levels of performance by Wolverine, +the subsidiary, operating division or profit center. +“Incentive bonus” as used in the Annual Bonus Plan +means an annual performance bonus awarded and paid to a +participant for services to Wolverine during a fiscal year that +is based upon achievement of pre-established financial +objectives of Wolverine or a subsidiary, operating division or +profit center. The incentive bonus levels may be expressed as +either: (i) a matrix of percentages of the target bonus +that would be paid at specified levels of performance; or +(ii) a mathematical formula that determines the percentage +of the target bonus that would be paid at varying levels of +performance. +Performance of Wolverine +and/or its +subsidiaries, operating divisions or profit centers is +determined by reference to one or more of the following +(collectively, the “Performance Factors”): net +earnings; net earnings before taxes; operating income; revenues; +net sales; net sales and other operating income; return on +sales; return on equity; earnings per share; total stockholder +return; economic value added measurements; return on assets; +return on invested capital; or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring or other special charges or extraordinary +items. +These factors may be measured against pre-determined levels or +Wolverine’s relative performance when compared to a +pre-established peer group. Payment of an incentive bonus to a +participant for a fiscal year +20 +under the Annual Bonus Plan is entirely contingent upon +achievement of the performance levels established by the +Compensation Committee. All determinations to be made by the +Compensation Committee for a fiscal year are made during the +first 90 days of each fiscal year. +The two primary measures of corporate and divisional performance +in 2006 were pre-tax profits and sales, with approximately 80% +of participants’ target amounts weighted on pre-tax +profits. The Compensation Committee determined that this +weighting reflected Wolverine’s goal to grow sales, but not +at the expense of profits and shareholder return. Performance +objectives for 2006 under the Annual Bonus Plan were in line +with the Company’s stated long-term goals for revenue +growth at the mid- to upper-single digit level and earnings +growth at one and one half times revenue growth, with the +threshold payout targeted at the low end of the range and the +maximum payout targeted at the high end of the range. During +fiscal 2006, the named executive officers were generally +targeted to receive from 20% to 48% of their annual salaries in +annual bonus compensation, which was determined to be +competitive in the marketplace for similar positions and +responsibilities. For executive officers, actual payouts, if +any, could range from 50% to 213% of the target percentage, +based on performance. In determining these percentages, the +Compensation Committee considered each named executive +officer’s position, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and sales and to put a larger percentage of their total +potential cash compensation “at risk.” Accordingly, +Mr. O’Donovan is at the top end of the range. +For 2006, Wolverine’s corporate sales performance and +corporate pre-tax profit performance exceeded maximum +performance goals. Accordingly, named executive officers +received bonuses related to corporate performance under the +Annual Bonus Plan at maximum levels. +The Annual Bonus Plan closely links the bonus opportunity for +key employees to the performance of the specific divisions and +operations over which they have substantial control and ability +to impact results. This structure provides clear incentives and +line-of-sight +management to drive operational performance and divisional +achievements on an annual basis. This complements the approach +of the LTIP described below, which is focused on +Wolverine’s long-term achievements in +earnings-per-share +and total stockholder return. +Discretionary +Bonus +In addition to performance-based compensation based on corporate +and/or +divisional performance pursuant to the Annual Bonus Plan, +Wolverine generally pays annual incentive bonuses to employees +based on individual performance goals. Bonuses based on +individual performance are paid on a discretionary basis based +on achievement of pre-established personal goals, which may +include executing strategies to support Wolverine’s vision, +developing people, supporting social and environmental +responsibility and driving operational excellence. The +performance bonus for the Chief Executive Officer is paid only +after the review and approval of the Compensation Committee. No +discretionary bonuses are paid to executive officers if +Wolverine (or the applicable division) does not achieve its +threshold goal under the Annual Bonus Plan. During 2006, +discretionary bonuses for named executive officers participating +in this plan were generally targeted at 5% to 12% of annual +salaries depending upon the named executive officer’s level +of responsibility, the achievement of threshold sales and +earnings requirements and actual graded performance against +pre-established personal objectives. Because Wolverine exceeded +its corporate threshold sales and earnings goals under the +Annual Bonus Plan for fiscal 2006, discretionary bonus payments +were made to Wolverine’s executive officers for this period +based upon achievement of individual performance goals. +Long-Term +Incentive Plan +(3-Year +Bonus Plan) +The LTIP provides the opportunity for performance-based +compensation based upon the achievement of company financial +performance goals over a three-year period. Stockholders most +recently approved the LTIP at the 2002 Annual Meeting of +Stockholders and are being asked to vote upon approval of an +amended and restated Long-Term Plan, as more fully described +above, at this year’s Annual Meeting of Stockholders. The +primary purposes of the LTIP are to provide significant +incentive and to foster cooperation among all business units so +the long-term earnings performance of Wolverine and total +stockholder return is substantially improved. The primary +concept of the LTIP is to establish financial performance goals +for each three-year time period for Wolverine. New performance +periods begin each fiscal year and end three full fiscal years +later. +21 +Awards under the LTIP are based on a percentage of average +annual earned salary during the three-year period. For each +participant in each three-year period, the Compensation +Committee specifies a target bonus goal (the “target +bonus”), expressed as a specified dollar amount or as a +percentage of the participant’s average annual earned +salary, and “incentive bonus” levels, expressed as a +percentage of the target bonus, that will be paid to the +participant at specified levels of performance. “Incentive +bonus” as used in the LTIP means a bonus awarded and paid +to a participant for services to Wolverine during a three-year +period, which bonus is based upon achievement of +previously-established financial objectives by Wolverine. The +incentive bonus levels may be expressed as either: (i) a +matrix of percentages of the target bonus that will be paid at +specified levels of performance; or (ii) a mathematical +formula that determines the percentage of the target bonus that +will be paid at varying levels of performance. +Performance is determined by reference to one or more of the +Performance Factors listed above. These factors may be measured +against pre-determined levels or Wolverine’s relative +performance when compared to the Peer Group. If the minimum +three-year targeted goal is not achieved, no bonus will be paid. +For the +2006-2008 +performance period, named executive officers are targeted to +receive long-term bonus compensation in amounts that range from +25% to 60% of their average annual earned base salaries. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each named executive officer’s +capacity to affect the long-term performance of Wolverine. +Actual payouts, if any, range from 50% to 200% of target. +For the +2004-2006 +performance period, performance was determined 50% by reference +to Wolverine’s earnings per share (“EPS”) and 50% +by reference to total stockholder return (“TSR”) +compared to the Peer Group. The Compensation Committee believes +it is important to provide a reward and incentive for increasing +EPS, but also believes that such reward must be gauged against +and superior to the results achieved by the Peer Group. +Performance objectives for the +2004-2006 +performance period under the LTIP relating to relative total +shareholder return against the Peer Group requires a ranking of +7th in total shareholder return among the Peer Group to +achieve a threshold payment and requires a ranking of +1st to achieve maximum payment, with prorated payment for +rankings between 1st and 7th. A ranking of 8th or +lower is below threshold and no credit is received with respect +to the total shareholder return under the LTIP. EPS performance +objectives for the +2004-2006 +period require EPS growth at rates greater than historical EPS +growth in equity markets to achieve maximum payment levels, with +EPS growth at mid-single-digit levels required to meet threshold +levels of payments. EPS performance was at the maximum level and +TSR performance was at the target level for the +2004-2006 +performance period under the LTIP. Based on EPS and TSR +performance, Wolverine paid cash incentive bonuses with respect +to the three-year performance period ended December 30, +2006, between target and maximum levels. +Equity-Based +Incentive Plans +Awards under Wolverine’s stock option and restricted stock +plans are designed to: +• +more closely align executive and stockholder interests; +• +reward executives and other key employees for building +stockholder value; and +• +encourage long-term investment in Wolverine by participating +executives. +The Compensation Committee believes that stock ownership by +management has been demonstrated to be beneficial to all +stockholders and stock incentives have been granted by Wolverine +to executives and other key employees pursuant to various +equity-based plans for several decades. The Compensation +Committee administers all aspects of these plans and determines +the amount of and terms applicable to any award under these +plans. +In determining the number of shares of restricted stock +and/or the +number of options to be awarded to executives in 2006, the +Compensation Committee took into consideration the +executive’s level of responsibility and compensation +practices of the companies within the Peer Group. The +Compensation Committee also considers the recommendations of +management (except for awards to the Chief Executive Officer), +the individual performance of the executive and the number of +shares previously awarded to the executive. The Compensation +Committee has reviewed the mix of restricted stock and stock +options and believes the mix is appropriate based on the +retentive nature of restricted stock and the incentive nature of +stock options. As a general practice, both the number of shares +granted and their proportion relative to the total number of +shares granted increase in some proportion to increases in each +executive’s responsibilities. Accordingly, +Mr. O’Donovan +22 +generally receives a greater amount of stock options and +restricted stock than the other named executive officers. +The Compensation Committee also maintains stock ownership +guidelines that apply to all executive management and require, +within certain time periods, ownership in amounts from one to +five times the executive’s base salary. The Compensation +Committee believes that these ownership guidelines bolster the +goal of aligning management’s interests with +stockholders’ interests under Wolverine’s restricted +stock plans by requiring continued levels of ownership of +Wolverine stock even after restrictions on the sale of stock +lapse. The Company’s policy has been to not allow hedging +by Company officers. +Wolverine generally awards stock options and restricted stock in +February of each year at the Compensation Committee’s +regularly schedule meeting. +Restricted +Stock +Under Wolverine’s plans that provide for awards of +restricted stock, all of which have been previously approved by +the stockholders, the Compensation Committee may grant shares of +restricted stock to executives and other key employees. These +shares are subject to certain restrictions that generally lapse +over a period of five years from the date of grant. This vesting +schedule encourages retention and long-term investment in +Wolverine by participating executives. +Stock +Options +The Compensation Committee administers Wolverine’s stock +option plans (all of which have been previously approved by +stockholders) and also has authority to determine the +individuals to whom and the terms upon which options are +granted, the number of shares subject to each option and the +form of consideration payable upon the exercise of an option. +The Chief Executive Officer makes recommendations of stock +option grants (other than for himself), which the Compensation +Committee then considers. The Compensation Committee takes final +action on the amount, timing, price and other terms of all +options granted to employees of Wolverine. The Compensation +Committee grants both incentive stock options and nonqualified +options within the meaning of the Internal Revenue Code. Under +the terms and conditions of all the plans other than 2001, 2003 +and 2005 plans, the Compensation Committee may grant +nonqualified options with an exercise price above or below the +market price on the date of grant. The 2001, 2003 and 2005 plans +require that all options have an exercise price equal to or +greater than the market value of Wolverine’s common stock +on the date of grant. Virtually all stock options granted under +all of Wolverine’s plans have had an exercise price equal +to the market value of common stock on the date of grant. +Stock options are generally granted for a term of 10 years. +All stock options permit the exercise price to be paid by +delivery of cash, and the Compensation Committee has also +approved the payment of the exercise price by surrendering +shares of common stock in certain circumstances. +Primarily to reduce non-cash compensation expense that Wolverine +would have had to record in future fiscal periods, the Board of +Directors accelerated the vesting of all unvested stock options +previously awarded to employees and officers of Wolverine under +Wolverine’s various stock option plans, effective +December 13, 2005. As a result of this action, all stock +options granted before that date are exercisable. All stock +options granted after that date are exercisable with respect to +one-third of the shares on each of the first three anniversaries +of the date of the grant, with full vesting occurring on the +third anniversary date of the grant. Vesting of such stock +options may be accelerated upon certain events, including a +change in control of Wolverine. +Certain senior executives are permitted to transfer nonqualified +stock options to a limited group of permissible transferees, +primarily for estate planning purposes. Stock options terminate, +with certain limited exercise provisions, in the event of +certain terminations of employment. +Retirement +Plans +The named executive officers participate in Wolverine’s +qualified pension plan and 401(k) savings plan covering most +salaried domestic employees and certain named executive officers +participate in a supplemental executive retirement plan covering +certain executive officers. The Compensation Committee believes +that, through vesting and participation requirements and +increased value based on years of service, Wolverine’s +retirement plans encourage long-term commitment by +Wolverine’s executives and assist Wolverine in attracting +and retaining talented executives. +Qualified +Pension Plan +Subject to the limitations imposed by the Internal Revenue Code, +the Wolverine employee pension plan provides monthly benefits +(computed on a straight life +23 +annuity basis without regard to any accrued grandfathered +benefits for earnings before January 1, 1994) at +normal retirement in an amount equal to the greater of: +(i) $24.00 multiplied by the participant’s number of +years of service up to 30 years; (ii) 1.6% of final +average earnings (as defined in the plan) multiplied by the +participant’s number of years of service up to +30 years reduced by the participant’s Social Security +allowance as defined in the pension plan; or (iii) for +certain designated executives, a percentage benefit multiplier +of 2.4% (for Messrs. O’Donovan, Krueger and Gulis) or +2.0% (for Messrs. Ottenwess and Zwiers) of final average +earnings multiplied by the participant’s number of years of +service up to 25 years. +Supplemental +Executive Retirement Plan (SERP) +In 1995, Wolverine adopted a Supplemental Executive Retirement +Plan (the “SERP”) which covers certain executive +officers. The SERP is maintained because the Compensation +Committee believes that the limit on compensation that can be +taken into account for Wolverine’s qualified pension plan +does not allow Wolverine to provide sufficient retirement +benefits that have the recruitment and retention value necessary +to attract and retain highly compensated executives who are +significantly responsible for Wolverine’s results of +operations. Additionally, the SERP contains a non-competition +component which is a significant benefit to Wolverine because it +provides a strong disincentive for executive officers to compete +with Wolverine if they leave Wolverine’s employment. +Under the SERP, a participating executive will be eligible for +an annual supplemental benefit once he or she has completed five +years of service after having been approved as a participant in +the SERP. Alternatively, a participating executive will be +eligible for a benefit with less than five years of service if +he or she retires at or after age 65. The supplemental +benefit is equal to the difference between the executive’s +retirement benefit under Wolverine’s qualified pension plan +and an amount equal to a designated percentage of the +executive’s average earnings multiplied by the +executive’s years of service under the pension plan, except +that the plan counts years during which the executive received a +disability benefit under the SERP (except in computing the +SERP’s disability benefit); excludes years that an +executive is designated as an inactive participant; and may +count deemed years of service granted by the Board of Directors +(up to a maximum of 25 years). +The designated percentage for benefits under the SERP is either +2.4% for each year of service or 2.0% per year of service. +The final SERP benefit is reduced by the amount of any pension +benefits to which a participant is entitled under the qualified +pension plan. +A retired SERP participant may draw the full benefit beginning +at age 65 and may elect to begin receiving a reduced +benefit at or after age 55. The reduction factor is 0.333% +for each month prior to age 60, and 0.1666% for each month +between age 60 and age 65. The SERP provides for a +disability benefit equal to 60% of the supplemental retirement +benefit (based on the executive’s years of service at the +date of disability). A disabled executive is still eligible for +a supplemental retirement benefit beginning at age 65 based +on all years of service (including years during which the +executive was receiving a disability benefit). The SERP also +provides for a death benefit to the executive’s designated +beneficiary if the executive dies before retiring. The death +benefit is a lump-sum equal to the present value of the benefit +the executive could have received beginning at age 65, +based on his or her years of service up to the date of death. +Benefits under the SERP are subject to forfeiture if the +executive’s employment is terminated for serious +misconduct, if the executive later competes with Wolverine or if +Wolverine cannot collect under an insurance policy purchased to +fund SERP benefits for certain reasons. Wolverine may +terminate the SERP or stop further accrual of SERP benefits for +a participating executive at any time, but termination will not +affect previously accrued benefits. +Under the non-competition provisions of the SERP, the +participant shall not be entitled to any benefit payment if, +prior to the date on which such benefit payment is due, the +participant has acquired any ownership interest in a competing +business (other than an ownership interest consisting of less +than 5% of a class of publicly traded securities), or has been +employed as director, officer, employee, consultant, adviser, +partner or owner of a competing business. +The SERP also includes a confidentially and non-solicitation +provision. Under the provision, each participant may not divulge +any confidential information such as trade secrets, operating +methods, the names of Wolverine customers and suppliers and the +relations of Wolverine with such customers and suppliers. +Additionally participants must refrain from using or permitting +the use of such information or confidences by any interests +competitive with Wolverine irrespective of whether or not the +participant is then employed by +24 +Wolverine, and must refrain from inducing Wolverine’s +employees to terminate employment with Wolverine or undertake +employment with its competitors. +As of December 30, 2006, the persons listed in the Summary +Compensation Table had the following years of credited service +under the pension plan and the SERP: Mr. O’Donovan, +25 years; Mr. Krueger, 11 years (pension plan) +and 14 years (SERP); Mr. Gulis, 21 years; +Mr. Ottenwess, 19 years; Mr. Zwiers, +9 years; and Ms. Johnson, 1 year (pension plan). +The +Impact of Accounting and Tax Treatments on +Compensation +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to +certain executive officers in excess of $1,000,000 annually, +with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and the 1997, 1999, 2001 2003 and 2005 stock incentive +plans to permit amounts payable under these plans to qualify as +“performance-based” compensation for purposes of +Section 162(m). Because incentives under these plans are +not included in the $1,000,000 limit for purposes of calculating +Wolverine’s deduction for compensation paid to its +executive officers, Wolverine’s deduction was not limited +in 2006 with respect to compensation paid to any named executive +officer. +Change in +Control Provisions +Severance +Agreements +Under individual agreements, Ms. Johnson and +Messrs. O’Donovan, Krueger, Gulis, Ottenwess and +Zwiers, will receive compensation if their employment is +terminated within two (Ms. Johnson and +Messrs. Ottenwess and Zwiers) or three +(Messrs. O’Donovan, Krueger and Gulis) years following +a change in control of Wolverine. The Compensation Committee +believes that this “double trigger” requirement +(change in control plus termination of employment rather than +just a change in control) for triggering the payment of benefits +is appropriate because the executive is not materially harmed if +there is no termination of employment. +No payment will be made under the Severance Agreement if: +• +the termination of the officer is due to death or retirement in +accordance with Wolverine’s policy or as otherwise agreed; +• +the termination is by Wolverine for cause or disability; or +• +the termination is by resignation of the officer for other than +“good reason.” +Good reason is defined in the agreements to include, among other +things, the assignment of duties inconsistent with the +executive’s status as a senior executive officer or the +duties performed by the executive immediately before a change in +control, a reduction in the executive’s annual base salary +or relocation of the executive. +The compensation payable if such a termination occurs after a +change in control includes: +• +Unpaid base salary, benefit awards (including both cash and +stock) and bonus payments that have been earned. +• +In lieu of a bonus payment under the Annual Bonus Plan, an +amount equal to the number of days the executive was employed by +Wolverine in the year of termination divided by the number of +days in the year multiplied by 100% of the greater of either +(a) the bonus awarded to the executive under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the executive over the preceding two-year period under an +Annual Bonus Plan. +• +In lieu of payments under the LTIPs, an amount equal to the +bonus the executive would have received based on actual and +assumed earnings per share calculations and total shareholder +return rankings, multiplied by the number of days the executive +participated in the LTIPs to the termination, divided by the +total number of days in the performance period. +• +Either two (Ms. Johnson and Messrs. Ottenwess and +Zwiers) or three (Messrs. O’Donovan, Krueger and +Gulis) times the sum of the following: +• +The executive’s highest annual rate of base salary during +the 12-month +period prior to termination; +• +The greater of the average amount earned by the executive during +the previous two years or the previous year under an Annual +Bonus Plan; and +• +The greater of the average amount earned during the previous two +years or the previous year under the LTIP. +25 +• +100% of the positive spread for any options held by the +executive whether or not vested. +• +The present value of an additional three years of deemed service +under the retirement plans. +• +Outplacement services paid for by Wolverine. +The severance agreements provide that Wolverine shall maintain +all employee benefit plans, programs and arrangements that the +executive was entitled to participate in for the longer of six +months after the date of termination or the date upon which the +executive receives comparable benefits from the new employer, +but Wolverine need not maintain the benefits after one year +following termination. +The severance payment would be adjusted upward or downward in +certain situations relating to excise taxes. If the executive is +entitled to receive a payment equal to or between 100% and 115% +of the amount that would trigger application of the excise tax, +then Wolverine must determine whether the executive would +receive a greater after-tax amount if the payment is reduced so +that the excise tax does not apply. If this is the case, then +Wolverine would reduce the payment by the appropriate amount. If +the payment exceeds 115% of the amount that would trigger +application of the excise tax, then the executive would receive +a gross-up +payment equal to the amount of the excise tax and the income +taxes applicable to the +gross-up +payment. +In all of the severance agreements, the executive has no +requirement to mitigate the payments by seeking employment, but +the compensation to be paid during the fourth and later months +after termination will be reduced to the extent of any +compensation earned by the officer during the applicable period. +A change in control is defined in the agreements to include the +acquisition of 20% or more of the common stock by any person or +group of persons acting together or a change in a majority of +the Board of Directors unless each new director was approved by +a vote of at least three-quarters of the directors then still in +office who were directors as of the date of the applicable +agreement, or whose election or nomination was so approved. +Stock +Plan Provisions +As mentioned above in this Compensation Discussion and Analysis +under the heading “Equity-Based Incentive Plans,” +Wolverine has granted certain stock options and awarded shares +of restricted stock that are subject to accelerated vesting upon +a change in control of Wolverine. +Wolverine’s stock incentive plans provide for restricted +stock awards. Except for any shares awarded in connection with +the payment of bonuses under the LTIP, the restrictions on 25% +of the shares received under an award normally lapse on the +third anniversary of the date of grant, with the restrictions on +an additional 25% of the shares lapsing on the fourth +anniversary and the restrictions with respect to the remaining +shares lapsing on the fifth anniversary. This vesting schedule +promotes the retention of executive officers. Restricted stock +becomes fully vested and nonforfeitable upon a change in control +of Wolverine. +A change in control is defined in the agreements under the 1993 +plan to include a change of control as set forth in the proxy +rules issued by the Securities and Exchange Commission, the +acquisition of 20% or more of the common stock by any person or +group of persons acting together; the sale, lease, exchange or +other transfer of substantially all of Wolverine’s assets +to, or the merger or consolidation of Wolverine with, a +corporation that is not controlled by Wolverine; or a change +during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved. Under the 1995, 1997, 1999, 2001, +2003 and 2005 plans, a change in control is defined as: +• +failure of the individuals who were directors at the time such +plan was adopted and those whose election or nomination to the +Board of Directors was approved by a three-quarters vote +(two-thirds vote under the 1995 Plan) of the directors then +still in office who were directors at the time such plan was +adopted, or whose election or nomination was so approved, to +constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% or more of the +common stock; +• +approval by the stockholders of a reorganization, merger or +consolidation (except with certain permitted entities); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (other than to +certain permitted entities). +26 +SERP +Pursuant to the SERP, for all participating named executive +officers, if, within two (Messrs. Ottenwess and Zwiers) or +three (Messrs. O’Donovan, Krueger and Gulis) years +after a “change in control” the executive resigns for +“good reason” or is terminated by Wolverine or at the +request of a third party who effectuates a change in control +(other than for “cause” or due to death or +“disability” as defined in the SERP), the executive +will be entitled to a lump-sum payment equal to 125% of the +present value of the benefit payments for which the executive +would have been eligible if the executive had retired at +age 55 (or at his or her actual age, if greater than +age 55), without applying the monthly early retirement +reduction factor, but based on years of service at the actual +date of termination. For purposes of the SERP, “change in +control” is defined as: +• +failure of the individuals who were directors at the time the +SERP was adopted and those whose election or nomination to the +Board of Directors was approved by a three-quarters vote of the +directors then still in office who were directors at the time +the SERP was adopted, or whose election or nomination was so +approved, to constitute a majority of the Board of Directors; +• +acquisition by certain persons or groups of 20% or more of the +common stock or combined outstanding voting power (excluding +certain transactions); +• +approval by the stockholders of a reorganization, merger or +consolidation (excluding certain permitted transactions); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (excluding certain +permitted transactions). +Benefit +Trust Agreement +In May 1987, Wolverine established a Benefit Trust +(“trust”) to ensure that payments to employees under +the severance agreements and the SERP (collectively, the +“agreements”) will not be improperly withheld after a +change in control of Wolverine, as defined in the agreement +establishing the trust. Under the trust, upon the occurrence of +a “potential change in control,” Wolverine will +deliver to the trustee, to be held in trust, cash, marketable +securities or insurance corresponding to an amount determined by +Wolverine to have a fair market value, together with any +existing amounts in the trust, equal to the value of the +benefits due to employees under the agreements given certain +assumptions set forth in the trust. Additional terms of the +trust provide for the return of the property to Wolverine upon +written request before a change in control or automatically if +no change in control has occurred within six months after +funding upon a potential change in control. Wolverine has +transferred to the trust insurance policies on the lives of +certain key employees. +27 +Summary +of Executive Compensation +The following Summary Compensation Table shows selected +information concerning the compensation earned during the fiscal +year ended December 30, 2006, to the Principal Executive +Officer, Principal Financial Officer, each of Wolverine’s +three most highly compensated executive officers who served in +positions other than Principal Executive Officer and Principal +Financial Officer at the end of the last completed fiscal year +as well as a former executive officer who would have been one of +the three most highly compensated executive officers serving in +a position other than Principal Executive Officer or Principal +Financial Officer if he had still been an executive officer at +the end of the last completed fiscal year (the “named +executive officers”). +Summary +Compensation Table +Change in +Pension +Value and +Non-Equity +Nonqualified +Stock +Option +Incentive Plan +Deferred +All other +Name and +Salary +Bonus(1) +Awards +Awards +Compensation +Compensation +Compensation +Total +Principal Position +Year +($)(1) +(2)($) +(3)($) +(3)($) +(4)($) +Earnings(5) +(6)($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +Timothy J. O’Donovan, +CEO and Chairman +2006 +$ +720,673 +$ +116,749 +$ +827,296 +$ +247,919 +$ +1,358,654 +$ +1,190,328 +$ +24,131 +$ +4,485,750 +Stephen L. Gulis, Jr., +Exec. Vice President, CFO and Treasurer +2006 +$ +367,404 +$ +39,680 +$ +302,836 +$ +69,160 +$ +458,530 +$ +204,881 +$ +9,446 +$ +1,451,937 +Cheryl L. Johnson,* +Vice President of Human Resources +2006 +$ +180,654 +$ +12,194 +$ +13,305 +$ +13,029 +$ +99,337 +$ +7,336 +(7) +$ +8,716 +$ +334,571 +Blake W. Krueger, +President and Chief Operating Officer +2006 +$ +480,000 +$ +64,800 +$ +479,772 +$ +181,959 +$ +656,815 +$ +237,730 +$ +11,342 +$ +2,112,418 +Nicholas P. Ottenwess, +Vice President — Finance, and Controller +2006 +$ +225,269 +$ +15,206 +$ +79,398 +$ +13,029 +$ +176,064 +$ +53,534 +$ +9,638 +$ +572,138 +James D. Zwiers,** +President — Hush Puppies U.S. Division +2006 +$ +221,346 +$ +14,941 +$ +58,780 +$ +13,029 +$ +152,514 +$ +25,826 +(8) +$ +9,585 +$ +496,021 +(1) +For information regarding determination of base salaries and +bonus, see the Compensation Discussion and Analysis section of +this Proxy Statement. +(2) +Includes amounts earned because of achievement of performance of +personal objectives for 2006. +(3) +Represents the expenses recognized by Wolverine in fiscal year +2006 for awards and options, except that the amounts in this +table do not reflect a reduction for estimated forfeitures. +Stock options were valued using the Black-Scholes model and +restricted stock was valued using the average of the high and +low price on the New York Stock Exchange on the date of grant. +For additional valuation assumptions, see the Stock-Based +Compensation heading under Note 1 and the fourth paragraph +of Note 5 to Wolverine’s Financial Statements for the +fiscal year ended December 30, 2006. +28 +(4) +Includes the amounts listed in the table below, which were +earned in 2006 and paid in February 2007 with respect to the +three-year performance period ending in 2006 under the LTIP and +amounts earned in 2006 and paid in February 2007 under the +Annual Bonus Plan. +Officer +LTIP +Annual Bonus Plan +Mr. O’Donovan +$ +623,567 +$ +735,087 +Mr. Gulis +$ +208,696 +$ +249,834 +Ms. Johnson +$ +22,559 +$ +76,778 +Mr. Krueger +$ +248,815 +$ +408,000 +Mr. Ottenwess +$ +80,325 +$ +95,739 +Mr. Zwiers +$ +58,442 +$ +94,072 +(5) +All amounts reflected in this column relate to the aggregate +change in the actuarial present value of the named executive +officers’ accumulated benefits under the Company’s +pension plan and, where applicable, SERP. +(6) +The compensation listed in this column for 2006 consisted of: +(i) Wolverine’s contributions to the accounts of the +named executive officers under Wolverine’s 401(k) Savings +Plan as follows: $7,500 for O’Donovan; $7,500 for +Mr. Krueger; $7,500 for Mr. Gulis; $7,500 for +Mr. Ottenwess; $7,500 for Mr. Zwiers; and $6,170 for +Ms. Johnson; and (ii) payments made by Wolverine for +the premiums on certain life insurance policies as follows: +$4,934 for Mr. O’Donovan; $1,946 for Mr. Gulis; +$3,842 for Mr. Krueger; $2,138 for Mr. Ottenwess; +$2,085 for Mr. Zwiers; and $1,216 for Ms. Johnson. +Wolverine also paid for tax and estate planning services for +Mr. O’Donovan, which cost $11,697. +(7) +Ms. Johnson is not yet vested in the pension plan, but the +amount reflected assumes that Ms. Johnson is fully vested +in the pension plan. +(8) +Mr. Zwiers is not yet vested in the SERP, but the amount +reflected assumes that Mr. Zwiers is fully vested in the +SERP. +* +Ms. Johnson joined Wolverine in January 2006. +** +Mr. Zwiers transitioned to an operational role as President +of Wolverine’s Hush Puppies U.S. Division in August +2006 and ceased being an executive officer in October 2006. +Grants of +Plan-Based Awards During 2006 +The following table provides information concerning each grant +of an award made to the named executive officers in the last +completed fiscal year. +Grants of Plan-Based +Awards +All Other +All Other +Stock +Option +Grant +Awards: +Awards: +Date +Number +Number +Exercise +Fair +Estimated Possible Payouts +of +of +or Base +Value of +Under Non-Equity Incentive +Estimated Future Payouts +Shares +Securities +Price of +Stock +Plan Awards(1) +Under Equity Incentive Plan Awards +of Stock +Underlying +Option +and +Grant +Threshhold +Target +Maximum +Threshhold +Target +Maximum +or Units +Options +Awards +Option +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#)(2) +(#)(3) +($/Sh)(4)(5) +Awards(6) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +Timothy J. O’Donovan +2/15/2006(7 +) +$ +227,012 +$ +454,024 +$ +908,048 +— +— +— +22,000 +54,500 +$ +22.47 +$ +778,901 +2/15/2006(8 +) +$ +172,962 +$ +345,923 +$ +735,087 +Stephen L. Gulis, Jr. +2/15/2006(7 +) +$ +77,155 +$ +154,310 +$ +308,620 +— +— +— +10,600 +26,200 +$ +22.47 +$ +374,980 +2/15/2006(8 +) +$ +58,785 +$ +117,569 +$ +249,834 +Cheryl L. Johnson +2/15/2006(7 +) +$ +23,686 +$ +47,371 +$ +94,742 +— +— +— +3,400 +8,600 +$ +22.47 +$ +121,301 +2/15/2006(8 +) +$ +18,065 +$ +36,131 +$ +76,778 +Blake W. Krueger +2/15/2006(7 +) +$ +126,000 +$ +252,000 +$ +504,000 +— +— +— +15,000 +40,000 +$ +22.47 +$ +545,902 +2/15/2006(8 +) +$ +96,000 +$ +192,000 +$ +408,000 +Nicholas P. Ottenwess +2/15/2006(7 +) +$ +29,567 +$ +59,133 +$ +118,266 +— +— +— +3,400 +8,600 +$ +22.47 +$ +121,301 +2/15/2006(8 +) +$ +22,527 +$ +45,054 +$ +95,739 +James D. Zwiers +2/15/2006(7 +) +$ +28,976 +$ +57,952 +$ +115,904 +— +— +— +3,400 +8,600 +$ +22.47 +$ +121,301 +2/15/2006(8 +) +$ +22,135 +$ +44,269 +$ +94,072 +29 +(1) +Under the LTIP, key management employees may earn incentive +compensation based upon achievement of specified performance +goals with respect to the performance of Wolverine +and/or its +subsidiaries, operating divisions or profit centers over a +three-year performance period. Performance goals under the LTIP +for the +2006-2008 +period are based 50% on total stockholder return (as compared to +a pre-established peer group) and 50% on earnings per share. The +Compensation Committee determined the threshold, target and +maximum compensation. Incentive compensation is conditioned on +achieving a minimum or “threshold” performance level +and no payment will be made if threshold performance levels are +not met. The Compensation Committee established the performance +goals at the beginning of 2006 for the period ending on the last +day of Wolverine’s 2008 fiscal year. Incentive compensation +payable under the LTIP is paid in cash. +Under the LTIP, amounts earned as performance-based incentive +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2006 as reported in the Summary Compensation Table, +adjusted for 5% estimated annual merit increases. +Under the Annual Bonus Plan, key management employees may earn +incentive compensation based upon achievement of specified +performance goals of Wolverine +and/or its +subsidiaries, operating divisions or profit centers for 2006. +Performance goals for 2006 were based 80% on Wolverine’s +pre-tax profits and 20% on Wolverine’s revenue. The +Compensation Committee determined the threshold, target and +maximum compensation. Incentive compensation is conditioned on +achieving a minimum or “threshold” performance level +and no payment is made if the threshold performance level is not +met. The Compensation Committee established the performance +goals under the Annual Bonus Plan at the beginning of 2006 and +actual incentive compensation paid to the named executive +officers under the Annual Bonus Plan for performance in 2006 is +reflected in the Summary Compensation Table. +(2) +Grants of restricted stock awards were made under the 2001 Stock +Incentive Plan for Messrs. O’Donovan, Gulis and +Krueger and under the 1999 Stock Incentive Plan for +Mr. Ottenwess, Mr. Zwiers and Ms. Johnson. The +restrictions on 25% of the shares received under the awards +reflected in this table normally lapse on the third anniversary +of the date of grant, with the restrictions on an additional 25% +of the shares lapsing on the fourth anniversary and the +restrictions with respect to the remaining shares lapsing on the +fifth anniversary. +(3) +Grants of stock options were made under the 2005 Stock Incentive +Plan for all named executive officers. +(4) +The Exercise Price is the mean of the highest and lowest sale +prices of shares of common stock on the date of grant. In +regards to the February 15, 2006 grant, the average of the +highest and lowest sale prices of shares of common stock on the +date of grant was greater than the closing price on the date of +grant. Wolverine’s stock option plans have been amended so +that the exercise price will be equal to the closing price. +(5) +These options are exercisable with respect to one-third of the +shares on each of the first three anniversaries of the date of +the grant, with full vesting occurring on the third anniversary +date of the grant. Vesting of such stock options may be +accelerated upon certain events, including a change in control +of Wolverine. +(6) +Represents the full grant date value for options and restricted +stock granted in fiscal year 2006 using the average of the high +and low price of Wolverine common stock on the New York Stock +Exchange on the date of grant of restricted stock and the +valuation assumptions for stock options set forth in the +Stock-Based Compensation heading under Note 1 to +Wolverine’s Financial Statements for the fiscal year ended +December 30, 2006. +(7) +Grant made under the LTIP. +(8) +Grant made under the Annual Bonus Plan. The amounts reflected in +columns (c)-(e) for the Annual Bonus Plan are ranges of possible +payments. Actual payments for the 2006 performance period have +been made and are reflected in the Summary Compensation Table. +30 +Outstanding +Equity Awards at December 30, 2006 +The following table provides information concerning unexercised +options; stock that has not vested; and equity incentive plan +awards for each named executive officer outstanding as of +December 30, 2006. +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Value of +Shares, +Shares, +of +of +Number +of Shares +Shares or +Units or +Units or +Securities +Securities +of +or Units +Units of +Other +Other +Underlying +Underlying +Securities +of Stock +Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +Timothy J. O’Donovan +2,106 +0 +0 +$ +20.50 +2/13/2012 +109,943 +$ +3,135,574 +0 +0 +1,935 +0 +$ +20.50 +3/4/2011 +4,552 +0 +$ +20.50 +2/23/2010 +54,500 +0 +$ +23.035 +2/18/2015 +1,929 +0 +$ +20.8033 +2/21/2009 +5,649 +0 +$ +20.8033 +3/2/2009 +1,285 +0 +$ +20.8033 +3/3/2009 +1,320 +0 +$ +20.8033 +3/2/2009 +5,829 +0 +$ +20.8033 +2/23/2010 +54,189 +0 +$ +20.8033 +2/23/2010 +1,516 +0 +$ +20.8033 +4/27/2007 +31,795 +0 +$ +20.8033 +2/23/2007 +13,803 +0 +$ +20.8033 +2/17/2014 +29,487 +0 +$ +20.8033 +2/11/2013 +51,039 +0 +$ +20.8033 +2/13/2012 +1,923 +0 +$ +20.8033 +3/4/2011 +3,622 +0 +$ +20.8033 +3/2/2009 +2,227 +0 +$ +20.8033 +2/23/2010 +2,796 +0 +$ +19.5033 +3/10/2009 +1,405 +0 +$ +19.5033 +3/9/2009 +1,651 +0 +$ +19.5033 +3/1/2009 +466 +0 +$ +19.5033 +2/24/2009 +466 +0 +$ +19.5033 +2/25/2009 +15,766 +0 +$ +19.5033 +3/2/2009 +24,034 +0 +$ +19.5033 +3/2/2009 +50,625 +0 +$ +15.3667 +2/18/2014 +45,000 +0 +$ +10.5067 +2/12/2013 +16,536 +0 +$ +10.2933 +2/14/2012 +3,451 +0 +$ +18.0627 +4/26/2008 +2,589 +0 +$ +19.9587 +3/9/2008 +2,589 +0 +$ +20.3753 +3/8/2008 +1,137 +0 +$ +18.7917 +2/26/2008 +850 +0 +$ +18.75 +2/23/2008 +39,637 +0 +$ +18.646 +2/24/2008 +544 +0 +$ +20.8033 +2/26/2008 +2,601 +0 +$ +20.8033 +2/22/2009 +1,353 +0 +$ +20.8033 +2/23/2010 +51,396 +0 +$ +20.8033 +3/4/2011 +2,814 +0 +$ +20.8033 +3/9/2010 +1,045 +0 +$ +20.8033 +2/28/2010 +1,305 +0 +$ +20.8033 +2/24/2010 +31 +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Value of +Shares, +Shares, +of +of +Number +of Shares +Shares or +Units or +Units or +Securities +Securities +of +or Units +Units of +Other +Other +Underlying +Underlying +Securities +of Stock +Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +466 +0 +$ +20.8033 +2/25/2010 +2,281 +0 +$ +20.8033 +2/23/2010 +1,449 +0 +$ +20.8033 +2/24/2007 +4,806 +0 +$ +20.8033 +3/4/2011 +964 +0 +$ +20.8033 +2/23/2007 +871 +0 +$ +20.8033 +2/26/2008 +181 +0 +$ +20.8033 +3/2/2009 +2,614 +0 +$ +20.8033 +2/23/2010 +1,015 +0 +$ +20.8033 +2/24/2010 +1,288 +0 +$ +20.8033 +2/24/2008 +643 +0 +$ +20.8033 +2/24/2008 +0 +54,500 +$ +22.47 +2/14/2016 +Stephen L. Gulis, Jr. +14,886 +0 +0 +$ +20.01670 +2/23/2010 +53,682 +$ +1,531,011 +0 +0 +574 +0 +$ +20.01670 +2/24/2010 +820 +0 +$ +20.01670 +3/3/2009 +1,390 +0 +$ +20.01670 +2/23/2010 +15,054 +0 +$ +20.01670 +2/11/2013 +1,114 +0 +$ +20.80330 +2/23/2010 +963 +0 +$ +20.80330 +3/4/2011 +6,288 +0 +$ +20.80330 +2/17/2014 +1,081 +0 +$ +20.50 +2/13/2012 +22,500 +0 +$ +10.50670 +2/12/2013 +2,474 +0 +$ +10.29330 +2/14/2012 +9,714 +0 +$ +10.29330 +2/14/2012 +26,200 +0 +$ +23.0350 +2/8/2015 +2,277 +0 +$ +20.50 +2/23/2010 +967 +0 +$ +20.50 +3/4/2011 +5,196 +0 +$ +20.01670 +3/4/2011 +26,067 +0 +$ +17.52670 +2/13/2012 +13,525 +0 +$ +17.52670 +3/5/2011 +307 +0 +$ +17.52670 +2/26/2008 +600 +0 +$ +17.52670 +2/26/2008 +1,837 +0 +$ +17.52670 +2/22/2009 +822 +0 +$ +17.52670 +2/23/2010 +1,356 +0 +$ +17.52670 +3/8/2010 +567 +0 +$ +17.52670 +2/27/2010 +261 +0 +$ +17.52670 +2/24/2010 +870 +0 +$ +17.52670 +2/23/2010 +657 +0 +$ +17.52670 +3/8/2009 +834 +0 +$ +17.52670 +2/28/2009 +252 +0 +$ +17.52670 +2/24/2009 +255 +0 +$ +17.52670 +2/23/2009 +23,063 +0 +$ +15.36670 +2/18/2014 +5,778 +0 +$ +20.01670 +3/2/2009 +1,725 +0 +$ +18.06270 +4/26/2008 +1,078 +0 +$ +19.95870 +3/9/2008 +32 +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Value of +Shares, +Shares, +of +of +Number +of Shares +Shares or +Units or +Units or +Securities +Securities +of +or Units +Units of +Other +Other +Underlying +Underlying +Securities +of Stock +Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +1,150 +0 +$ +20.37530 +3/8/2008 +510 +0 +$ +18.79170 +2/26/2008 +442 +0 +$ +18.7500 +2/23/2008 +24,637 +0 +$ +18.64600 +2/24/2008 +822 +0 +$ +20.01670 +2/24/2008 +1,182 +0 +$ +20.01670 +2/21/2009 +411 +0 +$ +20.01670 +2/24/2008 +24,250 +0 +$ +20.01670 +3/2/2009 +9,748 +0 +$ +20.80330 +3/5/2011 +2,265 +0 +$ +20.80330 +3/2/2009 +7,152 +0 +$ +20.01670 +2/23/2010 +5,760 +0 +$ +20.01670 +2/23/2010 +843 +0 +$ +20.01670 +3/2/2009 +0 +26,200 +$ +22.47 +2/14/2016 +Blake W. Krueger +15,642 +0 +0 +$ +20.72670 +2/23/2007 +58,323 +$ +1,663,372 +0 +0 +5,332 +0 +$ +20.72670 +2/23/2010 +222 +0 +$ +20.72670 +3/4/2011 +1,116 +0 +$ +20.72670 +2/23/2010 +1,081 +0 +$ +20.50 +2/13/2012 +2,277 +0 +$ +20.50 +2/23/2010 +274 +0 +$ +17.90670 +2/23/2009 +649 +0 +$ +17.90670 +3/8/2009 +1,924 +0 +$ +17.90670 +2/22/2009 +697 +0 +$ +17.90670 +2/23/2007 +682 +0 +$ +17.90670 +4/16/2010 +1,342 +0 +$ +17.90670 +3/8/2010 +418 +0 +$ +17.90670 +2/24/2010 +7,473 +0 +$ +17.90670 +2/23/2010 +883 +0 +$ +17.90670 +2/23/2010 +1,590 +0 +$ +17.90670 +2/22/2010 +664 +0 +$ +17.90670 +4/15/2009 +14,586 +0 +$ +20.07670 +2/24/2010 +841 +0 +$ +20.07670 +3/2/2009 +199 +0 +$ +20.07670 +2/24/2010 +1,441 +0 +$ +20.07670 +2/23/2010 +819 +0 +$ +20.07670 +3/3/2009 +628 +0 +$ +20.07670 +2/24/2010 +6,198 +0 +$ +20.07670 +3/3/2009 +4,872 +0 +$ +20.07670 +3/2/2009 +820 +0 +$ +20.07670 +2/24/2008 +22,500 +0 +$ +10.50670 +2/12/2013 +2,474 +0 +$ +10.29330 +2/14/2012 +9,714 +0 +$ +10.29330 +2/14/2012 +1,150 +0 +$ +20.37530 +3/8/2008 +481 +0 +$ +18.75 +2/23/2008 +24,637 +0 +$ +18.646 +2/24/2008 +33 +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Value of +Shares, +Shares, +of +of +Number +of Shares +Shares or +Units or +Units or +Securities +Securities +of +or Units +Units of +Other +Other +Underlying +Underlying +Securities +of Stock +Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +5,362 +0 +$ +18.646 +2/24/2008 +3,750 +0 +$ +18.41670 +7/6/2007 +14,818 +0 +$ +15.55560 +2/23/2007 +23,063 +0 +$ +15.36670 +2/18/2014 +1,276 +0 +$ +20.07670 +2/21/2009 +411 +0 +$ +20.07670 +2/24/2008 +985 +0 +$ +20.07670 +2/24/2007 +20,013 +0 +$ +17.90670 +3/2/2009 +24,180 +0 +$ +17.90670 +3/4/2011 +493 +0 +$ +17.90670 +2/26/2008 +592 +0 +$ +17.90670 +2/26/2008 +889 +0 +$ +17.90670 +2/23/2010 +4,824 +0 +$ +20.72670 +3/4/2011 +15,030 +0 +$ +20.07670 +2/11/2013 +24,153 +0 +$ +20.07670 +2/13/2012 +406 +0 +$ +17.90670 +2/24/2009 +26,200 +0 +$ +23.035 +2/8/2015 +967 +0 +$ +20.50 +3/4/2011 +6,303 +0 +$ +20.72670 +2/17/2014 +964 +0 +$ +20.72670 +3/4/2011 +2,269 +0 +$ +20.72670 +2/18/2014 +0 +40,000 +$ +22.47 +2/14/2016 +Nicholas P. Ottenwess +2,293 +0 +0 +$ +21.1333 +10/3/2009 +19,517 +$ +548,069 +0 +0 +441 +0 +$ +21.1333 +2/18/2014 +672 +0 +$ +21.1333 +3/2/2009 +393 +0 +$ +21.1333 +3/4/2011 +664 +0 +$ +21.1333 +2/17/2014 +456 +0 +$ +20.50 +2/13/2012 +399 +0 +$ +20.50 +3/4/2011 +910 +0 +$ +20.50 +2/23/2010 +8,600 +0 +$ +23.035 +2/8/2015 +85 +0 +$ +19.39 +2/24/2008 +178 +0 +$ +19.39 +2/24/2007 +5,234 +0 +$ +15.3667 +2/18/2014 +9,643 +0 +$ +10.5067 +2/11/2013 +10,482 +0 +$ +10.2933 +2/14/2012 +9,750 +0 +$ +10.10 +3/5/2011 +12,000 +0 +$ +7.3127 +2/24/2010 +1,500 +0 +$ +7.5833 +10/4/2009 +5,625 +0 +$ +10.00 +9/30/2008 +129 +0 +$ +19.39 +2/26/2008 +72 +0 +$ +19.39 +2/11/2013 +517 +0 +$ +19.39 +2/13/2012 +256 +0 +$ +19.39 +3/2/2009 +447 +0 +$ +19.39 +2/23/2010 +250 +0 +$ +19.39 +3/3/2009 +34 +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Value of +Shares, +Shares, +of +of +Number +of Shares +Shares or +Units or +Units or +Securities +Securities +of +or Units +Units of +Other +Other +Underlying +Underlying +Securities +of Stock +Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +115 +0 +$ +19.39 +2/24/2010 +166 +0 +$ +19.39 +2/24/2008 +109 +0 +$ +19.39 +2/21/2009 +3,663 +0 +$ +21.1333 +3/2/2009 +114 +0 +$ +19.39 +2/23/2007 +129 +0 +$ +19.39 +2/23/2010 +168 +0 +$ +19.39 +2/22/2009 +172 +0 +$ +19.39 +2/23/2010 +87 +0 +$ +19.39 +2/24/2010 +2,646 +0 +$ +15.3667 +2/18/2014 +0 +8,600 +$ +22.47 +2/14/2016 +James D. Zwiers +6,750 +0 +$ +10.5067 +2/11/2013 +15,050 +$ +429,226 +0 +0 +2,944 +0 +$ +15.3667 +2/18/2014 +94 +0 +$ +20.8033 +3/4/2011 +156 +0 +$ +20.8033 +2/23/2010 +228 +0 +$ +20.50 +2/13/2012 +1,606 +0 +$ +20.8033 +2/17/2014 +228 +0 +$ +20.8033 +3/2/2009 +114 +0 +$ +20.50 +3/4/2011 +273 +0 +$ +20.50 +2/23/2010 +8,600 +0 +$ +23.035 +2/8/2015 +3,581 +0 +$ +15.3667 +2/18/2014 +0 +8,600 +$ +22.47 +2/14/2016 +Cheryl L. Johnson +0 +8,600 +0 +$ +22.47 +2/14/2016 +3,400 +$ +96,968 +0 +0 +(1) +All exercisable options are fully vested. +(2) +All unexercisable options are exercisable and vested with +respect to one-third of the shares on each of the first three +anniversaries of the date of the grant, with full vesting +occurring on the third anniversary date of the grant. All +options in this column were granted on February 15, 2006. +Vesting of such stock options may be accelerated upon certain +events, including a change in control of Wolverine. +35 +(3) +The following table sets forth the vesting dates for the +unvested stock awards of each named executive officer as of +December 30, 2006: +Named Executive +Officer +Vesting Date +Number of Shares to +Vest +Timothy J. O’Donovan +2/18/2007 +5,755 +2/14/2007 +13,875 +2/12/2007 +6,937 +2/12/2008 +13,876 +2/15/2009 +5,500 +2/15/2010 +5,500 +2/15/2011 +11,000 +2/18/2007 +6,375 +2/18/2008 +6,375 +2/18/2009 +12,750 +2/9/2008 +5,500 +2/9/2009 +5,500 +2/9/2010 +11,000 +Stephen L. Gulis, Jr. +2/18/2007 +1,918 +2/14/2007 +7,126 +2/12/2007 +3,562 +2/12/2008 +7,126 +2/15/2009 +2,650 +2/15/2010 +2,650 +2/15/2011 +5,300 +2/18/2007 +3,188 +2/18/2008 +3,187 +2/18/2009 +6,375 +2/9/2008 +2,650 +2/9/2009 +2,650 +2/9/2010 +5,300 +Blake W. Krueger +2/18/2007 +2,159 +2/14/2007 +7,126 +2/12/2007 +3,562 +2/12/2008 +7,126 +2/15/2009 +3,750 +2/15/2010 +3,750 +2/15/2011 +7,500 +2/18/2007 +3,188 +2/18/2008 +3,187 +2/18/2009 +6,375 +2/9/2008 +2,650 +2/9/2009 +2,650 +2/9/2010 +5,300 +Nicholas P. Ottenwess +2/18/2007 +717 +2/14/2007 +3,000 +2/12/2007 +1,500 +2/12/2008 +3,000 +2/15/2009 +850 +2/15/2010 +850 +2/15/2011 +1,700 +2/18/2007 +1,125 +2/18/2008 +1,125 +2/18/2009 +2,250 +2/9/2008 +850 +2/9/2009 +850 +2/9/2010 +1,700 +36 +Named Executive +Officer +Vesting Date +Number of Shares to Vest +James D. Zwiers +2/14/2007 +1,500 +2/12/2007 +750 +2/12/2008 +1,500 +2/15/2009 +850 +2/15/2010 +850 +2/15/2011 +1,700 +2/18/2007 +1,125 +2/18/2008 +1,125 +2/18/2009 +2,250 +2/9/2008 +850 +2/9/2009 +850 +2/9/2010 +1,700 +Cheryl L. Johnson +2/15/2009 +850 +2/15/2010 +850 +2/15/2011 +1,700 +(4) +The market value reflected in this column is based on a closing +market price of $28.52 on December 29, 2006 and does not +reflect any discount based on the restrictions or the +possibility of forfeiture. +Option +Exercises and Stock Vested in 2006 +The following table provides information concerning each +exercise of stock options, SARs and similar instruments, and +each vesting of stock, including restricted stock, restricted +stock units and similar instruments, during the last completed +fiscal year for each of the named executive officers on an +aggregated basis. +Option +Exercises and Stock Vested +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired +Realized +Acquired +Realized +on +on +on +on +Exercise +Exercise +Vesting +Vesting +Name +(#) +($)(1) +(#) +($)(2) +(a) +(b) +(c) +(d) +(e) +Timothy J. O’Donovan +51,292 +$ +349,596 +32,379 +$ +701,416 +Stephen L. Gulis, Jr. +39,006 +$ +440,591 +15,418 +$ +334,294 +Cheryl L. Johnson +0 +$ +0 +0 +$ +0 +Blake W. Krueger +1,516 +$ +5,614 +15,659 +$ +339,447 +Nicholas P. Ottenwess +5,250 +$ +80,141 +6,343 +$ +137,560 +James D. Zwiers +12,375 +$ +221,177 +2,250 +$ +48,938 +(1) +The dollar values are calculated by determining the difference +between the average high and low price of the securities +underlying the options and the exercise prices of the options on +the dates of exercise. +(2) +The dollar values are calculated using the average high and low +price of the stock on the date of vesting. +37 +Equity +Compensation Plan Information +The following table provides information about Wolverine’s +equity compensation plans as of December 30, 2006: +Equity +Compensation Plan Information +Number of +Number of Securities +Securities to be +Weighted Average +Remaining Available for +Issued Upon +Exercise Price of +Future Issuance Under +Exercise of +Outstanding +Equity Compensation +Outstanding +Options, +Plans (Excluding +Options, Warrants +Warrants and +Securities Reflected in +and Rights +Rights +Column (a)) +Plan Category (1) +(a) +(b) +(c) +Equity compensation plans approved +by security holders +4,574,945 +(2)(3) +$ +16.53 +4,986,486 +(4) +Equity compensation plans not +approved by security holders +— +N/A +— +Total +4,574,945 +$ +16.53 +4,986,486 +(1) +Each plan for which aggregated information is provided contains +customary anti-dilution provisions that are applicable in the +event of a stock split, stock dividend or certain other changes +in Wolverine’s capitalization. +(2) +Includes 4,161,516 stock options awarded to employees under the +1993 Stock Incentive Plan, the 1995 Stock Incentive Plan, the +1997 Stock Incentive Plan, the Stock Incentive Plan of 1999, the +Stock Incentive Plan of 2001, the Stock Incentive Plan of 2003 +and the Stock Incentive Plan of 2005 and 413,429 stock options +awarded to non-employee directors under the Stock Incentive Plan +of 2005 and the Amended and Restated Directors’ Stock +Option Plan approved by stockholders in 2002 and the previous +Amended and Restated Directors’ Stock Option Plan initially +adopted in 1988. Column (a) does not include stock units +credited to outside directors’ fee accounts or retirement +accounts under the Outside Directors’ Deferred Compensation +Plan. Stock units do not have an exercise price. Each stock unit +credited to a director’s fee account and retirement account +under the Outside Directors’ Deferred Compensation Plan +will be converted into one share of common stock upon +distribution. Column (a) also does not include shares of +restricted or unrestricted common stock previously issued under +Wolverine’s equity compensation plans. +(3) +Of this amount, 677,800 options were not exercisable as of +December 30, 2006, due to vesting restrictions. +(4) +Comprised of: (i) 544,726 shares available for +issuance under the Outside Directors’ Deferred Compensation +Plan upon the retirement of the current directors or upon a +change in control; and (ii) 4,441,760 shares issuable +under the various employee stock incentive plans. Of these total +amounts available, the number of shares with respect to the +following plans may be issued other than upon the exercise of an +option, warrant or right as of December 30, 2006: +• +Outside Directors’ Deferred Compensation +Plan: 544,726 +• +1997 Stock Incentive Plan: 22,339 +• +Stock Incentive Plan of 1999: 56,056 +• +Stock Incentive Plan of 2001: 412,926 +• +Stock Incentive Plan of 2003: 28,961 +• +Stock Incentive Plan of 2005: 1,954,091 +The Outside Directors’ Deferred Compensation Plan is a +supplemental, unfunded, nonqualified deferred compensation plan +for non-employee directors. Beginning in 2006, Wolverine began +paying an annual equity retainer to non-management directors in +the form of a contribution under the Outside Directors’ +Deferred Compensation Plan. Participation in the plan beyond the +annual equity retainer is voluntary. The plan allows +participating directors to receive, in lieu of some or all +directors’ fees, a number of stock units equal to the +amount of the deferred directors’ fees divided by the fair +market value of Wolverine’s common stock on the date of +payment of the next cash dividend on Wolverine’s common +stock. These stock units are increased by a dividend equivalent +based on dividends paid by Wolverine and the amount of stock +units credited to the participating director’s fee account +and retirement account. Upon distribution, the participating +directors receive a number of shares of Wolverine’s common +stock equal to the +38 +number of stock units to be distributed at that time. +Distribution is triggered by termination of service as a +director or by a change in control of Wolverine and can occur in +a lump sum, in installments or on another deferred basis. Of the +544,726 shares issuable under the Outside Directors’ +Deferred Compensation Plan, 217,672 shares have been issued +to a trust to satisfy Wolverine’s obligations and are +included in shares reported as issued and outstanding as of the +record date. +The employee stock incentive plans listed above are equity-based +incentive plans for officers, key employees, and, under the +Stock Incentive Plan of 2005, directors. Those plans authorize +awards of stock options, restricted common stock, common stock +and, under certain plans, tax benefit rights, restricted stock +units, deferred stock units, +and/or stock +appreciation rights. The Stock Incentive Plans of 2001 and 2003 +specifically limit the number of shares that can be awarded as +restricted or unrestricted common stock to 40% and 15%, +respectively, of the shares authorized under the plan. The Stock +Incentive Plan of 2005 provides that each share of restricted or +unrestricted common stock, each restricted stock unit and each +stock appreciation right is counted as two shares against the +total number of shares authorized under the Stock Incentive Plan +of 2005. The number of securities listed as remaining available +in column (c) of the table assumes the grant of all stock +options, which count as only one share against the total number +of shares authorized under the Stock Incentive Plan of 2005. +Actual shares available under the Stock Incentive Plan of 2005 +will be less to the extent that awards of restricted or +unrestricted common stock, restricted stock units or stock +appreciation rights are issued from that plan. The numbers +provided in this footnote and in column (c) will increase +to the extent that options relating to the number of shares +listed in column (a) of the table or other outstanding +awards (e.g., shares of restricted or unrestricted stock, +restricted stock units or stock appreciation rights) previously +issued under a plan are canceled, surrendered, modified, +exchanged for substitutes or expire or terminate prior to +exercise or vesting because the number of shares underlying any +such awards will again become available for issuance under the +plan under which the award was granted. +Pension +Benefits in 2006 +The following table provides information concerning plans that +provide for payments or other benefits at, following, or in +connection with retirement. +Pension +Benefits +Payments +Number +Present +During +of Years +Value of +Last +Credited +Accumulated +Fiscal +Plan +Service +Benefit +Year +Name +Name(1) +(#) +($)(2) +($) +(a) +(b) +(c) +(d) +(e) +Timothy J. O’Donovan(3) +SERP +25 +$ +5,901,016 +0 +Pension Plan +25 +$ +1,071,080 +0 +Stephen L. Gulis, Jr. +SERP +21 +$ +722,405 +0 +Pension Plan +21 +$ +423,019 +0 +Cheryl L. Johnson +Pension Plan(4) +1 +$ +7,336 +0 +Blake W. Krueger +SERP(5) +14 +$ +800,900 +0 +Pension Plan +11 +$ +283,020 +0 +Nicholas P. Ottenwess +SERP +19 +$ +93,723 +0 +Pension Plan +19 +$ +240,350 +0 +James D. Zwiers +SERP(6) +9 +$ +12,358 +0 +Pension Plan +9 +$ +81,244 +0 +(1) +For a narrative description of the material terms and conditions +of the SERP and Pension Plan, see the Compensation Discussion +and Analysis section. +(2) +These values are as of September 30, 2006, and are +calculated assuming the participants will commence their +benefits at age 65 (in the form of life-only annuities) and +use the 1994 GAM Mortality Table and a 6.25% interest rate. +39 +(3) +Mr. O’Donovan is the only named executive officer who +is eligible to currently begin drawing early retirement benefits +under the Pension Plan and SERP. +Under the Pension Plan, an executive who begins receiving +payments after age 60 but before age 65 (normal +retirement age) or Social Security Retirement Age receives a +monthly benefit equal to the greatest of: +• +1.6% of average monthly compensation (highest four of the last +10 years) multiplied by years of benefit service reduced by +.3333% (1/3 of 1%) for each month for which the benefit +commencement date precedes normal retirement age offset by a +monthly social security allowance reduced by .5555% (5/9 of 1%) +for each month up to 60 that the benefit commencement date +precedes the participants social security retirement age and by +.2777% (5/18 of 1%) for any months more than 60 by which the +benefit commencement date precedes the participant’s social +security retirement age all of which is reduced pro rata if the +participant has less than 30 years of benefit service. +• +$24 multiplied by the participant’s years of benefit +service up to a maximum of 30 years reduced by .3333% (1/3 +of 1%) for each month for which the benefit commencement date +precedes normal retirement age. +• +2.4% (Messrs. O’Donovan, Gulis and Krueger) or 2.0% +(Messrs. Ottenwess and Zwiers) of final average monthly +compensation (highest four of the last ten years) multiplied by +the Participants years of benefit service not in excess of 25 +reduced by .3333% (1/3 of 1%) for each month for which the +benefit commencement date precedes normal retirement age. +Under the SERP, a participant may elect to begin receiving a +reduced benefit at or after age 55. The reduction factor is +0.333% for each month prior to age 60, and 0.1666% for each +month between age 60 and age 65. +(4) +Ms. Johnson is not yet vested in the pension plan, but the +amounts reflected assume that Ms. Johnson is fully vested +in the pension plan. +(5) +The present value of Mr. Krueger’s accumulated benefit +under the SERP has increased by $232,268 as a result of three +additional service years granted to him under the SERP in +recognition of his service as a member of Wolverine’s +executive team for three years before becoming a participant in +the SERP. The present value of Mr. Krueger’s benefit +would be $568,632 if 11 service years is used. +(6) +Mr. Zwiers is not yet vested in the SERP, but the amounts +reflected assume that Mr. Zwiers is fully vested in the +SERP. +Director +Compensation Table +The following table provides information concerning the +compensation of directors for Wolverine’s last completed +fiscal year. +Director +Compensation +Change in +Fees +Pension +Earned +Value and +or +Non-Equity +Nonqualified +Paid in +Stock +Option +Incentive Plan +Deferred +All Other +Cash +Awards +Awards +Compensation +Compensation +Compensation +Total +Name +($)(1) +($)(2) +($)(3)(4) +($) +Earnings +($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +Jeffrey M. Boromisa +— +$ +20,022 +$ +43,364 +0 +0 +0 +$ +63,386 +Donald V. Fites(5) +— +$ +24,667 +— +0 +0 +0 +$ +105,318 +Alberto L. Grimoldi +— +$ +55,000 +$ +22,192 +0 +0 +0 +$ +77,192 +David T. Kollat +$ +63,500 +$ +15,000 +$ +22,192 +0 +0 +0 +$ +100,692 +Brenda J. Lauderback +$ +42,000 +$ +29,000 +$ +22,192 +0 +0 +0 +$ +93,192 +Phillip D. Matthews +$ +52,500 +$ +32,500 +$ +22,192 +0 +0 +0 +$ +107,192 +David P. Mehney +— +$ +64,000 +$ +22,192 +0 +0 +0 +$ +86,192 +Shirley D. Peterson +$ +48,000 +$ +15,000 +$ +22,192 +0 +0 +0 +$ +85,192 +Paul D. Schrage +$ +54,000 +$ +15,000 +$ +22,192 +0 +0 +0 +$ +91,192 +Michael A. Volkema +$ +49,000 +$ +15,000 +$ +22,192 +0 +0 +0 +$ +86,192 +(1) +Represents cash payments received by directors. Directors may +defer director fees and receive phantom stock awards pursuant to +the Deferred Compensation Plan. +40 +(2) +Represents the dollar value of the shares of common stock that +underlie the phantom stock units on the date of the award grant +pursuant to the Deferred Compensation Plan described in the +narrative below. +(3) +At the end of fiscal 2006, each director had the following +number of securities underlying outstanding option awards, which +number includes those awards reflected in this column: +Jeffrey M. Boromisa +7,682 +Donald V. Fites +80,651 +Alberto L. Grimoldi +51,114 +David T. Kollat +59,303 +Brenda J. Lauderback +7,986 +Phillip D. Matthews +59,303 +David P. Mehney +59,303 +Shirley D. Peterson +16,549 +Paul D. Schrage +59,689 +Michael A. Volkema +11,849 +(4) +The grant date fair value of each equity award computed in +accordance with FAS 123R is the same as the amount +recognized by Wolverine for financial statement reporting +purposes in accordance with FAS 123R. For valuation +assumptions, see the Stock Based Compensation Note of +Wolverine’s Financial Statements for the fiscal year ended +December 30, 2006. +(5) +Mr. Fites retired at the 2006 Annual Meeting of +Stockholders. +Director +Compensation +Wolverine pays each non-employee director an annual cash +retainer of $30,000 plus $2,000 per day for attendance at +each regular meeting of the Board of Directors and +$1,000 per day for attendance at each committee meeting. In +addition, Wolverine pays the chairperson of the Audit Committee +an annual fee of $7,500 and the chairpersons of the Compensation +and Governance Committees annual fees of $5,000. Wolverine also +pays each non-employee director an annual equity retainer of +$15,000 on the date of each April meeting of the Board of +Directors. The equity retainer is in the form of a contribution +deferred under the Amended and Restated Outside Directors’ +Deferred Compensation Plan (the “Deferred Compensation +Plan”). Directors who are also employees of Wolverine or +any of its subsidiaries receive no annual cash or equity +retainer and are not compensated for attendance at Board or +committee meetings. Wolverine also pays director expenses +associated with attending Board and committee meetings and other +Wolverine matters (including spouse travel expenses in +connection with strategic planning meetings every other year). +Board members from time to time receive sample Wolverine +products of nominal value for review and assessment. Board +members are eligible to receive reimbursement for certain +approved expenses relating to director education. +Mr. Matthews serves as Lead Director of +Wolverine. For his service as Lead Director, +Mr. Matthews receives an annual fee of $60,000. These +payments are in lieu of the annual director retainer fee of +$30,000. Mr. Matthews receives the standard director fee +for attendance at Board meetings and standard director stock +options, but does not receive attendance fees for attending +committee meetings. +Under Wolverine’s current director compensation program, +each newly appointed or elected non-employee director is granted +an option to purchase a number of shares of common stock equal +to six times the annual cash retainer fee then in effect divided +by the market price of Wolverine’s stock on the date of his +or her initial election or appointment, and on the date of each +annual meeting after his or her initial appointment or election, +each non-employee director is granted an option to purchase a +number of shares equal to three times the annual cash retainer +fee then in effect divided by the market price of +Wolverine’s stock on the annual meeting date. The exercise +price of options granted is 100% of the market value of common +stock on the date each option is granted. The term of each +option may not exceed 10 years. Options were previously +granted under the Amended and Restated Directors’ Stock +Option Plan approved by stockholders in 2002. That plan was +terminated upon the approval by stockholders of the Stock +Incentive Plan of 2005 at the 2005 annual meeting, and the +options are now granted under the Stock Incentive Plan of 2005. +In 2002, Wolverine adopted and the stockholders approved the +Deferred Compensation Plan, a supplemental nonqualified deferred +compensation plan for directors who are not employees of +Wolverine or its +41 +subsidiaries. The Deferred Compensation Plan permits all +non-employee directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred and annual equity +retainer amounts described above are credited on the books of +Wolverine to an account established for that director as if the +amounts had been invested to purchase shares of Wolverine common +stock using the market price of common stock on the payment date +of the next cash dividend (“Stock Units”). Stock Units +are increased by a dividend equivalent based on dividends paid +by Wolverine, the number of Stock Units credited to each +director’s account and the market price of Wolverine’s +common stock on the payment date of the cash dividend. The +accumulated Stock Units in a director’s account under the +plan are distributed in shares of Wolverine common stock in a +single lump-sum or annual installments over a period of up to +10 years by converting each Stock Unit to one share of +Wolverine common stock upon termination of service as a director +or as of a date selected by the director. In 1996, under the +former Director Retirement Plan, certain non-employee directors +received an award of Stock Units that will be distributed in 10 +annual installments beginning the month following termination of +service as a director. +Upon a “change in control” as defined in the Deferred +Compensation Plan, Wolverine common stock equal to the Stock +Units credited to a director’s account will be distributed +to the director in a single lump sum. For purposes of the +Deferred Compensation Plan, “change in control” is +defined as: +• +failure of the individuals who were directors at the time the +Deferred Compensation Plan was adopted and those whose election +or nomination to the Board was approved by three-quarters of the +directors then still in office who were directors at the time +the Deferred Compensation Plan was adopted, or whose election or +nomination was so approved, to constitute a majority of the +Board; +• +acquisition by certain persons or groups of 20% or more of the +common stock or combined outstanding voting power (excluding +certain transactions); +• +approval by the stockholders of a reorganization, merger or +consolidation (excluding certain permitted transactions); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (excluding certain +permitted transactions). +42 +Potential +Payments Upon Termination or Change in Control +The following table summarizes the potential payments and +benefits payable to each of Wolverine’s named executive +officers upon termination of employment in connection with each +of the triggering events set forth in the table below, assuming, +in each situation, that the termination of employment took place +on December 30, 2006. +Triggering Event and +Stephen L. Gulis, +Nicholas P. +Payments/Benefits +Timothy J. O’Donovan +Blake W. Krueger +Jr. +Ottenwess +James D. Zwiers +Cheryl L. Johnson(1) +Change in Control +Termination(2) +Lump sum payment under Executive +Severance Agreement(3) +$ +19,066,977 +$ +12,892,208 +$ +10,892,546 +$ +4,274,235 +$ +2,550,465 +N/A +Benefits under Executive Severance +Agreement(4) +$ +39,313 +$ +38,184 +$ +33,854 +$ +31,868 +$ +31,753 +N/A +Lump sum payment under the SERP(5) +$ +11,982,989 +$ +2,839,460 +$ +2,697,663 +$ +372,783 +$ +53,115 +N/A +Stock Incentive Plans +(6 +) +(6 +) +(6 +) +(6 +) +(6 +) +(6 +) +Death +SERP(5)(7) +$ +7,324,240 +$ +1,086,574 +$ +1,032,312 +$ +142,653 +$ +20,325 +N/A +Pension Plan(8) +$ +53,132 +$ +21,908 +$ +41,967 +$ +31,439 +$ +15,052 +$ +0 +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +Disability +SERP(5)(10) +$ +727,241 +$ +98,614 +$ +113,612 +$ +19,559 +$ +3,614 +N/A +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +Retirement +SERP(5)(11) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +Pension Plan(11) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(1) +Ms. Johnson did not have an executive severance agreement +with the Company in 2006. Ms. Johnson entered into an +executive severance agreement with Wolverine in January 2007. +(2) +The payments and benefits are triggered after certain +terminations of employment (except for termination due to death, +retirement, disability and good reason) within two +(Messrs. Ottenwess and Zwiers) or three +(Messrs. O’Donovan, Krueger and Gulis) years following +a change in control of Wolverine. The definition of “Change +in Control” is discussed under the caption +“Compensation Discussion and Analysis” under the +heading “Elements of Compensation” under the +subheading “Supplemental Executive Retirement Plan +(SERP)” and under the heading “Change in Control +Provisions.” +(3) +The lump sum payment under the Executive Severance Agreement is +paid by Wolverine and is composed of the following: +• +Unpaid base salary, benefit awards (including both cash and +stock) and bonus payments that have been earned. +• +In lieu of a bonus payment under the Annual Bonus Plan, an +amount equal to the number of days the executive was employed by +Wolverine in the year of termination divided by the number of +days in the year multiplied by 100% of the greater of either +(a) the bonus awarded to the executive under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the executive over the preceding two-year period under an +Annual Bonus Plan. +• +In lieu of payments under the LTIPs, an amount equal to the +bonus the executive would have received based on actual and +assumed earnings per share calculations and total shareholder +return rankings, multiplied by the number of days the executive +participated in the LTIPs to the termination, divided by the +total number of days in the performance period. +43 +• +Either two (Messrs. Ottenwess and Zwiers) or three +(Messrs. O’Donovan, Gulis and Krueger) times the sum +of the following: +• +The executive’s highest annual rate of base salary during +the 12-month +period prior to termination; +• +The greater of the average amount earned by the executive during +the previous two years or the previous year under an Annual +Bonus Plan; and +• +The greater of the average amount earned during the previous two +years or the previous year under the LTIP. +• +100% of the positive spread for any options held by the +executive whether or not vested. +• +An excise tax +gross-up +adjustment. +• +The present value of an additional three years of deemed service +under the retirement plans. +(4) +Includes: (a) all employee benefit plans, programs or +arrangements that the executive was entitled to participate in +immediately prior to the termination date, and +(b) outplacement services. These estimates assume that +Wolverine would maintain the benefit plans for a period of one +year after termination. +(5) +The SERP contains non-competition, confidentiality and +non-solicitation provisions. The non-competition provision +provides that the participant shall not be entitled to any +benefit payment if, prior to the date on which such benefit +payment is due, the participant has acquired any ownership +interest in a competing business (other than an ownership +interest consisting of less than 5% of a class of publicly +traded securities), or has been employed as a director, officer, +employee, consultant, adviser, partner or owner of a competing +business. Under the confidentiality and non-solicitation +provisions, each participant may not divulge any confidential +information such as trade secrets, operating methods, the names +of Wolverine customers and suppliers and the relations of +Wolverine with such customers and suppliers. Additionally each +participant must refrain from using or permitting the use of +such information or confidences by any interests competitive +with Wolverine, irrespective of whether or not the participant +is then employed by Wolverine, and must refrain from inducing +Wolverine’s employees to terminate employment with +Wolverine or undertake employment with its competitors. +(6) +Upon a change in control of Wolverine, all of the named +executive officers’ outstanding stock options become +immediately exercisable in full and shall remain exercisable +during the remaining term, regardless of whether he or she +remains in the employ or service of Wolverine. The Compensation +Committee may determine that one or all of the named executive +officers shall receive cash in an amount equal to the positive +spread amount. All other outstanding incentive awards of the +named executive officers, including shares of restricted stock, +become immediately and fully vested and nonforfeitable upon a +change in control of Wolverine. +(7) +If an executive dies before beginning to receive benefits under +the SERP, Wolverine must pay the executive’s beneficiary a +lump sum death benefit equal to the present value of the benefit +computed as if the participant had retired on the date of death, +had begun receiving benefits at age 65 and had continued to +receive benefits for the remainder of the participant’s +life expectancy. If the participant dies after beginning to +receive benefit payments, benefits cease unless the participant +was receiving benefits in the form of a 50% joint and survivor +annuity or had elected benefits in a form that provides for a +continuation of benefits. +(8) +The Pension Plan provides a pre-retirement, vested participant a +death benefit payable to the participant’s surviving spouse +equal to the qualified pre-retirement survivor annuity as +defined in the Internal Revenue Code (generally 50% of the +participant’s accrued normal retirement benefit). This +benefit is paid annually to the participant’s surviving +spouse beginning when the participant would have turned 60 and +continues for the life of the participant’s spouse. Awards +in this row reflect the amount of such annual payment. +(9) +Under the 1993, 1995, 1997, 1999 and 2001 Stock Incentive Plans, +upon death, disability or retirement of the named executive +officer, the restrictions applicable to his or her shares of +restricted stock shall terminate automatically with respect to +that number of shares (rounded to the nearest whole number) +equal to the total number of shares of restricted stock granted +to him or her multiplied by the number of full months that have +elapsed since the date of +44 +grant divided by the maximum number of full months of the +restricted period (provided that the Compensation Committee may +waive the restrictions on the remaining shares). Under the 2003 +and 2005 Stock Incentive Plans, upon death, disability or +retirement of the named executive officer, the restrictions +applicable to the shares of restricted stock automatically +terminate. +(10) +The SERP provides a disability benefit to an executive who +becomes totally and permanently disabled equal to 60% of the +normal retirement accrued benefit based upon years of service up +to the date that the participant became disabled through the +date the participant reaches age 65 (at which point, the +participant would begin drawing full SERP benefits) or is no +longer disabled. The disability benefit is paid by Wolverine +annually in the form of a life annuity. Amounts in this row +reflect the amount of such annual payment. +(11) +See the Pension Benefit Table and footnotes thereto. +Compensation +Committee Report +Compensation Committee Report. The +Compensation Committee has reviewed and discussed with +management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this +review and discussion, the Compensation Committee recommended to +the Board of Directors that the Compensation Discussion and +Analysis be included in Wolverine’s annual report on +Form 10-K +and proxy statement on Schedule 14A. +Respectfully submitted, +David T. Kollat, Phillip D. Matthews, David P. Mehney and Paul +D. Schrage +Selection +of Auditors +The Audit Committee has reappointed the firm of Ernst & +Young LLP as independent auditors for the current fiscal year. +As a matter of good corporate governance, the Audit Committee +has determined to submit its appointment of Ernst & +Young LLP to our stockholders for ratification. If this +appointment is not ratified by the majority of shares present or +represented at the annual meeting and entitled to vote on the +matter, the Audit Committee will review its future selection of +an independent registered public accounting firm. +Ernst & Young LLP, certified public accountants, has +audited the financial statements of Wolverine and its +subsidiaries for the fiscal year ended December 30, 2006. +Representatives of Ernst & Young LLP are expected to be +present at the annual meeting, will have an opportunity to make +a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +Audit Fees. Ernst & Young LLP billed +Wolverine $1,021,600 in fiscal 2006 and $898,965 in fiscal 2005 +for the annual audit, reviews of the financial statements +included in Wolverine’s +Form 10-Q +filings, audit of internal control over financial reporting, +foreign statutory audits and consultations concerning account +matters associated with the annual audit. +Audit-Related Fees. Ernst & Young LLP +billed Wolverine $39,950 in fiscal 2006 and $39,000 in fiscal +2005 for assurance and related services that were reasonably +related to the performance of the audit or a review of the +financial statements and that are not reported as Audit Fees +above, including accounting research, employee benefit plan +audits and access to an online research database service. +Tax Fees. Ernst & Young LLP billed +Wolverine $582,984 in fiscal 2006 and $633,033 in fiscal 2005 +for tax compliance, advisory and planning services. +All Other Fees. Ernst & Young LLP did +not bill Wolverine in fiscal 2006 or fiscal 2005 for any +services other than those described above. +Pre-Approval Policy. Wolverine’s Audit +Committee has adopted a policy under which all audit and +non-audit services to be provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. Items +in this category are pre-approved within specific service +descriptions and budgets. All audit services, internal +control-related services, and other services that +45 +are not within the specifically pre-approved service +descriptions and budgets require engagement-specific +pre-approval. With certain exceptions such as pre-approval of +audit services, engagement-specific pre-approval may be +delegated to one or more Audit Committee members. Any services +approved by a designated Audit Committee member must be +communicated to the full Audit Committee at its next +regularly-scheduled meeting. The Audit Committee’s +pre-approval policy also prohibits Ernst & Young LLP +from providing any non-audit services that are prohibited by the +SEC or the Public Company Accounting Oversight Board +(“PCAOB”). All fees paid to Ernst & Young LLP +for services performed in 2006 and 2005 were pre-approved +pursuant to this policy. +Your +Board of Directors recommends that you vote FOR +ratification of the reappointment of Ernst & Young +LLP. +Audit +Committee Report +The Audit Committee of the Board of Directors consists of four +directors who are independent under the standards adopted by the +Board of Directors and applicable NYSE and SEC standards. The +Audit Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board of Directors for +appointing, retaining, compensating, overseeing, evaluating and +terminating (if appropriate) Wolverine’s independent +auditors. Wolverine’s management has primary responsibility +for the financial statements and the financial reporting +process, including the application of accounting and financial +principles, the preparation, presentation and integrity of the +financial statements, and the systems of internal controls and +other procedures designed to promote compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and attesting to +management’s assessment of internal control over financial +reporting and to the effectiveness of internal control over +financial reporting. +The Audit Committee has taken steps to provide assurances +regarding Audit Committee composition and procedures, the +independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) adopting an Audit +Committee Charter; (ii) adopting the Finance Ethics Code; +(iii) implementing an Accounting and Auditing Complaint +Procedure to allow employees, stockholders and the public to +report concerns regarding Wolverine’s financial statements, +internal controls and disclosures; (iv) establishing +procedures for the Audit Committee to pre-approve all audit and +nonaudit services provided by Wolverine’s independent +auditors; and (v) increasing the number, frequency and +length of Audit Committee meetings. +As part of its supervisory duties, the Audit Committee has +reviewed Wolverine’s audited financial statements for the +fiscal year ended December 30, 2006, and has discussed +those financial statements with Wolverine’s management, +internal financial staff, internal auditors and independent +auditors, with and without management present. The Audit +Committee has also reviewed and discussed the following with +Wolverine’s management, financial staff, internal auditors +and independent auditors, with and without management present: +• +accounting and financial principles and significant assumptions, +estimates and matters of judgment used in preparing the +financial statements; +• +allowances and reserves for accounts receivable, inventories and +taxes; +• +accounting for acquisitions, pension plans and equity-based +compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine’s +independent auditors the results of the independent +auditors’ examinations and the judgments of the independent +auditors concerning the quality, as well as the acceptability, +of Wolverine’s accounting principles and such other matters +that it is required to discuss with +46 +the independent auditors under applicable rules, regulations or +generally accepted auditing standards, including the matters +required to be discussed by the rules of the PCAOB. In addition, +the Audit Committee has received from the independent auditors +the written disclosures required by PCAOB rules and has +discussed their independence from Wolverine and Wolverine’s +management with them, including a consideration of the +compatibility of nonaudit services with their independence, the +scope of the audit and the scope of all fees paid to the +independent auditors during the year. After and in reliance upon +the reviews and discussions described above, the Audit Committee +recommended to Wolverine’s Board of Directors that the +audited financial statements for the fiscal year ended +December 30, 2006, be included in Wolverine’s Annual +Report on +Form 10-K +for the year then ended to be filed with the Securities and +Exchange Commission. +Respectfully submitted, +David T. Kollat, Brenda J. Lauderback, Phillip D. Matthews +and Michael A. Volkema +Related +Matters +Compensation +Committee Interlocks and Insider Participation +David T. Kollat, Phillip D. Matthews, David P. Mehney and Paul +D. Schrage served as members of the Compensation during the last +completed fiscal year and Donald V. Fites served on the +Compensation Committee during the last completed fiscal year +until his retirement in April 2006. None of the above members of +the Compensation Committee were, during the fiscal year, an +officer or employee of Wolverine or formerly an officer of +Wolverine. As more fully described below, in 2006, Wolverine +purchased promotional merchandise from Bullseye Group, LLC, +which is partially owned by the son of Mr. Mehney. +Certain +Relationships and Related Transactions +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is chairman and a 25% shareholder, +granting to Grimoldi, S.A. the exclusive rights to distribute +and sell footwear products in Argentina under the Hush +Puppies ® , +Caterpillar ® +and +Merrell ® +brand names. Under these agreements, Grimoldi, S.A. or its +subsidiary pays Wolverine royalties and certain sublicense fees +based on sales or purchases of footwear products in Argentina. +Under the agreements described above, Grimoldi, S.A. was +obligated to pay to Wolverine royalties, sublicense fees and +service fees relating to 2006 totaling $1,997,920. +In the ordinary course of business, Wolverine and its +subsidiaries sell footwear for resale, samples, components of +footwear products (such as leather and shoe soles), advertising +materials and miscellaneous items to licensees, distributors and +customers. In 2006, purchases of such items by Grimoldi, S.A. +totaled $193,322 (including any applicable sublicense fees for +products containing licensed proprietary technology). +All of the transactions described above occurred pursuant to +continuing contractual arrangements between Wolverine and +Grimoldi, S.A. Wolverine expects similar transactions to occur +between Grimoldi, S.A. and Wolverine and its subsidiaries during +2007. +During 2002, Wolverine and Grimoldi, S.A. agreed to payment +terms with respect to certain trade accounts owed by Grimoldi, +S.A. to Wolverine. Grimoldi, S.A. executed a three-year note +payable to Wolverine in the face amount of $635,761 bearing +interest at 10 percent per annum. The note was paid in full +in January 2006. The highest principal balance of the note +between January 1, 2006 and December 31, 2006 was +$40,520. Grimoldi, S.A. paid $477 in interest on the note during +2006. +In the ordinary course of its business, Wolverine purchases +promotional merchandise for use in connection with the sale of +its products. In 2006, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $582,238. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2007. +Related +Person Transactions Policy +Wolverine has adopted written policies and procedures regarding +related person transactions. Such policies and procedures +require the Governance Committee to review and either approve or +disapprove of entry into any Interested Transactions (defined +below). If advance approval of the Interested Transaction is not +feasible, then it must be considered and, if the Governance +Committee determines it to be appropriate, ratified at the +Governance Committee’s next meeting. +47 +An Interested Transaction is any transaction, arrangement or +relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of +indebtedness) in which (1) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(2) Wolverine is a participant, and (3) any Related +Person (defined below) has or will have a direct or indirect +interest (other than solely as a result of being a director or +less than ten percent beneficial owner of another entity). A +Related Person is, any (a) person who is or was at any +point during the last fiscal year for which Wolverine filed a +Form 10-K +and proxy statement, an executive officer, director or nominee +for election as a director, (b) greater than five percent +beneficial owner of Wolverine’s common stock, or +(c) immediate family member of any of the foregoing. +Immediate family member includes a person’s spouse, +parents, stepparents, children, stepchildren, siblings, mothers- +and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +In determining whether to approve or ratify an Interested +Transaction, the Governance Committee will take into account +whether the Interested Transaction is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances, the extent of the +Related Person’s interest in the transaction and other +factors that it deems relevant. No director shall participate in +any discussion or approval of an Interested Transaction for +which he or she is a Related Person, except to provide all +material information to the Governance Committee. The following +Interested Transactions are pre-approved under the policies and +procedures: +• +any transaction with another company at which a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +• +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +Wolverine’s policies and procedures for related party +transactions were adopted in December 2006. All of the +transactions described above were previously considered by the +Governance Committee under Wolverine’s Director +Independence Standards. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires Wolverine’s directors and executive officers, and +persons who beneficially own more than 10% of the outstanding +shares of common stock, to file reports of ownership and changes +in ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2006 +fiscal year, Wolverine believes that its officers and directors +complied with all applicable reporting requirements during +Wolverine’s last fiscal year. +Stockholder +Proposals +To be considered timely, any stockholder proposal intended to be +presented at the Annual Meeting of Stockholders in 2008 (whether +or not intended for inclusion in Wolverine’s proxy +statement and proxy card relating to that meeting) must be +received by Wolverine not later than November 15, 2007. +Stockholder proposals intended for inclusion in Wolverine’s +proxy statement and proxy card relating to that meeting should +be made as described in SEC +Rule 14a-8. +You should address all stockholder proposals to the attention of +the Secretary of Wolverine, 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Solicitation +of Proxies +We will initially seek proxies by mail. Wolverine directors, +officers and employees may also solicit proxies by telephone or +facsimile or personally without additional compensation. Proxies +may be solicited by nominees and other fiduciaries who may mail +materials to or otherwise communicate with the beneficial owners +of shares held by them. Wolverine will pay all costs of +solicitation of proxies, including the charges and expenses of +brokerage firms, banks, trustees or other nominees for +forwarding proxy materials to beneficial owners. We have engaged +Georgeson Inc. at an estimated cost of $6,500, plus expenses and +disbursements, to assist in solicitation of proxies. +48 +Appendix A +WOLVERINE +WORLD WIDE, INC. +DIRECTOR +INDEPENDENCE STANDARDS +The Board of Directors annually makes an affirmative +determination of the independence of each Director, based upon +the recommendation of the Governance Committee. A Director is +independent if the Director meets each of the following +standards unless the Board determines that the Director has a +material relationship with Wolverine (either directly or as a +partner, shareholder or officer of an organization that has a +relationship with Wolverine) that is not of a nature addressed +by these standards. For purposes of these standards, +(a) “Wolverine” means Wolverine World Wide, Inc. +and its consolidated subsidiaries and (b) “immediate +family member” means a person’s spouse, parents, +children, siblings, mother and +father-in-law, +sons and +daughters-in-law, +brothers and +sisters-in-law, +and anyone (other than domestic employees) who shares such +person’s home. +General +Standards +1. +The Director is not, and in the past three years has not been, +an employee of Wolverine. +2. +An immediate family member of the Director is not, and in the +past three years has not been, employed as an executive officer +of Wolverine. +3. +Neither the Director nor an immediate family member of the +Director has received, during any twelve-month period within the +last three years, any direct compensation from Wolverine in +excess of $100,000, other than compensation for Board service, +compensation received by the Director for former service as an +interim Chairman, CEO or other executive officer, compensation +received by the Director’s immediate family member for +service as a non-executive employee of Wolverine, and pension +and other forms of deferred compensation for prior service +(provided that such compensation is not contingent in any way on +continued service). +4. +(a) The Director is not a current employee or partner of a +firm that is Wolverine’s internal or external auditor +(“Company Auditor”). +(b) +Neither the Director nor an immediate family member of the +Director in the past three years has been a partner or employee +of a Company Auditor and personally worked on Wolverine’s +audit within that time. +(c) +No immediate family member of the Director is (i) a current +partner of a Company Auditor or (ii) a current employee of +a Company Auditor who participates in the firm’s audit, +assurance or tax compliance (but not tax planning) practice. +5. +Neither the Director nor an immediate family member of the +Director is, or in the past three years has been, part of an +interlocking directorate in which a current executive officer of +Wolverine served on the compensation committee of another +company where the Director or the Director’s immediate +family member concurrently served as an executive officer. +6. +(a) The Director is not an employee, majority owner or +person in control of another company that has made payments to, +or received payments from, Wolverine for property or services in +an amount which, in any of the last three fiscal years, exceeds +the lesser of $250,000 or 10% of the other company’s +consolidated gross revenues. +(b) +No immediate family member of the Director is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1 million or 2% of the other +company’s consolidated gross revenues. +7. +The Director is not an executive officer, trustee or board +member of a tax exempt organization to which Wolverine has made +in the past three fiscal years contributions that, in any single +fiscal year, exceeded the greater of $50,000 or 2% of the +non-profit organization’s, foundation’s or educational +institution’s consolidated gross revenues. +Any direct or indirect relationship between a Director and +Wolverine that is not of a nature addressed by these standards +will be reviewed by the Board on a +case-by-case +basis and any such relationship that is found to be material +will preclude +A-1 +the Director from being independent. In no event may a Director +be determined to be independent under these standards if such +Director does not qualify as independent under the applicable +standards of the New York Stock Exchange. +Audit +Committee Standards +In addition to meeting the General Standards set forth above, a +Director is not considered independent for purposes of serving +on the Audit Committee, and may not serve on that committee, if +the Director: (1) receives, either directly or indirectly, +any consulting, advisory or other compensatory fee from +Wolverine World Wide, Inc. or any of its subsidiaries other than +fees for service as a Director and fixed amounts of compensation +under a retirement plan (including deferred compensation) for +prior service with Wolverine or its subsidiaries (provided that +such compensation is not contingent in any way on continued +service); or (2) is an “affiliated person” of +Wolverine World Wide, Inc. or any of its subsidiaries; each as +determined in accordance with Securities and Exchange Commission +regulations. +A-2 +Appendix B +WOLVERINE +WORLD WIDE, INC. +AMENDED AND RESTATED +EXECUTIVE SHORT-TERM INCENTIVE PLAN +(ANNUAL BONUS PLAN) +SECTION 1 +Establishment +of Plan; Purpose of Plan +1.1 Establishment of Plan. The Company +hereby establishes the AMENDED AND RESTATED EXECUTIVE SHORT-TERM +INCENTIVE PLAN (ANNUAL BONUS PLAN) (the “Plan”), for +its executive officers, senior corporate and divisional officers +and other key employees. The Plan amends and restates the +Wolverine World Wide, Inc. Amended and Restated Executive +Short-Term Incentive Plan (Annual Bonus Plan) previously +approved by the stockholders at the 2002 Annual Meeting of +Stockholders. The Plan provides for the payment of bonuses to +participants based upon the financial performance of the +Company, or a Subsidiary, operating division or profit center of +the Company, in a particular fiscal year or part thereof. +1.2 Purpose of Plan. The purpose of the +Plan is to motivate Participants to improve the Company’s +profitability and growth by the attainment of carefully planned +goals, promote initiative and cooperation with awards based on +corporate and divisional performance and encourage outstanding +individuals to enter and continue in the employ of the Company. +Within that context, the Plan is intended to provide +performance-based compensation under Section 162(m) of the +Code and shall be interpreted and administered to achieve that +purpose. +1.3 Effective Date. The Plan is initially +effective as of February 8, 2007. Adoption of the Plan by +the Board and payment of Incentive Bonuses for Fiscal Year 2007 +shall be contingent upon approval by the stockholders at the +2007 Annual Meeting of Stockholders or any adjournment thereof +or at a Special Meeting of the Stockholders. In the absence of +such approval, this Plan shall be void. +SECTION 2 +Definitions +The following terms have the stated definitions unless a +different meaning is plainly required by the context: +2.1 “Act” means the Securities Exchange Act of +1934, as amended. +2.2 “Beneficiary” means the individual, trust or +other entity designated by the Participant to receive any amount +payable with respect to the Participant under the Plan after the +Participant’s death. A Participant may designate or change +a Beneficiary by filing a signed designation with the Committee +in a form approved by the Committee. A Participant’s will +is not effective for this purpose. If a designation has not been +completed properly and filed with the Committee or is +ineffective for any other reason, the Beneficiary shall be the +Participant’s Surviving Spouse. If there is no effective +designation and the Participant does not have a Surviving +Spouse, the remaining benefits, if any, shall be paid to the +Participant’s estate. +2.3 “Board” means the Board of Directors of the +Company. +2.4 “Code” means the Internal Revenue Code of +1986, as amended. +2.5 “Committee” means the Compensation Committee +of the Board or such other committee as the Board shall +designate to administer the Plan. The Committee shall consist of +at least 2 members and all of its members shall be +“non-employee directors” as defined in +Rule 16b-3 +issued under the Act and “outside directors” as +defined in the regulations issued under Section 162(m) of +the Code. +2.6 “Company” means Wolverine World Wide, Inc., a +Delaware corporation, and its successors and assigns. +B-1 +2.7 “Fiscal Year” means the fiscal year of the +Company for financial reporting purposes as the Company may +adopt from time to time. +2.8 “Incentive Bonus” means an annual bonus +awarded and paid to a Participant for services to the Company +during a Fiscal Year that is based upon achievement of +pre-established performance objectives by the Company, or a +Subsidiary, operating division or profit center. +2.9 “Participant” means an executive officer, +senior corporate or divisional officer or other key employee of +the Company or its Subsidiaries who is designated as a +Participant for a Fiscal Year. +2.10 “Performance” means the level of achievement +by the Company or its Subsidiaries, operating divisions or +profit centers of the financial performance criteria established +by the Committee pursuant to Section 5.2. +2.11 “Subsidiary” means any company or other +entity of which 50% or more of the outstanding voting stock or +voting ownership interest is directly or indirectly owned or +controlled by the Company or by one or more Subsidiaries of the +Company. +2.12 “Surviving Spouse” means the spouse of the +Participant at the time of the Participant’s death who +survives the Participant. If the Participant and spouse die +under circumstances which prevent ascertainment of the order of +their deaths, it shall be presumed for the Plan that the +Participant survived the spouse. +2.13 “Target Bonus” means the bonus goal +established by the Committee for each Participant under +Section 5.1(a). +SECTION 3 +Administration +3.1 Power and Authority. The Plan shall +be administered by the Committee. The Committee may delegate +recordkeeping, calculation, payment and other ministerial or +administrative functions to individuals designated by the +Committee, who may be employees of the Company or its +Subsidiaries. Except as limited in the Plan, the Committee shall +have all of the express and implied powers and duties set forth +in the Plan and shall have full authority and discretion to +interpret the Plan and to make all other determinations deemed +necessary or advisable for the administration of the Plan. +Action may be taken by a written instrument signed by a majority +of the members of the Committee and any action so taken shall be +as effective as if it had been taken at a meeting. The Committee +may make such other rules for the conduct of its business and +may adopt such other rules, policies and forms for the +administration, interpretation and implementation of the Plan as +it deems advisable. All determinations, interpretations and +selections made by the Committee regarding the Plan shall be +final and conclusive. +3.2 Indemnification of Committee +Members. Neither any member or former member of +the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each individual +who is or has been a member of the Committee, or delegated +authority by the Committee, shall be indemnified and held +harmless by the Company from and against any cost, liability or +expense imposed or incurred in connection with any act or +failure to act under the Plan. Each such individual shall be +justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or +persons. +SECTION 4 +Participation +4.1 Participation. For each Fiscal Year, +the Committee shall select the executive officers, senior +corporate and divisional officers and other key employees who +shall be the Participants for the Fiscal Year. The Committee may +limit the number of executive officers, senior corporate and +divisional officers and other key employees who will be +Participants for a Fiscal Year. Officers and key employees shall +be designated as Participants within the first 90 days of +any Fiscal Year; provided, that an officer or key employee who +is first employed by the Company or a Subsidiary during the +Fiscal Year or who is assigned new duties during the Fiscal Year +may be designated as a Participant for a performance period +commencing on the date the officer or key employee assumes his +or her new duties through the end of the Fiscal Year. +B-2 +4.2 Continuing Participation. Selection +as a Participant for a Fiscal Year or part thereof by the +Committee is limited to that Fiscal Year. An eligible executive +officer, senior corporate or divisional officer or key employee +will be a Participant for a Fiscal Year only if designated as a +Participant by the Committee for such Fiscal Year. +SECTION 5 +Performance +Goals and Criteria +5.1 Selection of Criteria. The Committee +shall pre-establish performance goals for each Participant or +group of Participants in the manner and within the time limits +specified in this Section 5. For each Participant or group +of Participants for each Fiscal Year or part thereof, the +Committee shall specify: +(a) Target Bonus. A Target Bonus, +expressed as a percentage of the Participant’s base salary +or a specified dollar amount; +(b) Incentive Bonus. The Incentive Bonus +levels, expressed as a percentage of the Target Bonus, that +shall be paid to the Participant at specified levels of +performance by the Company, division or profit center based on +the criteria established by the Committee pursuant to +Section 5.2; +(c) Performance Measurement. The +applicable measurement of Performance under Section 5.2; and +(d) Conditions on Incentive Bonus. Any +specific conditions under which an Incentive Bonus specified +under subsection (b) above may be reduced or forfeited +(but not increased). +The Incentive Bonus levels specified under +subsection (b) above may be expressed either as +(i) a matrix of percentages of the Target Bonus that will +be paid at specified levels of the Performance or (ii) a +mathematical formula that determines the percentage of the +Target Bonus that will be paid at varying levels of Performance. +5.2 Measurement of +Performance. Performance of the Company +and/or its +Subsidiaries, operating divisions or profit centers shall be +determined by reference to one or more of the following: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on assets, +return on invested capital or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges or +extraordinary items. These factors could be measured against +pre-determined levels or the Company’s relative performance +when compared to a pre-established peer group. +5.3 Incentive Bonus Conditioned on +Performance. Payment of an Incentive Bonus to a +Participant for a Fiscal Year or part thereof under this Plan +shall be entirely contingent upon achievement of the Performance +levels established by the Committee pursuant to this +Section 5, the satisfaction of which is substantially +uncertain when established by the Committee for the Fiscal Year +or part thereof. +5.4 Time of Determination by +Committee. All determinations to be made by the +Committee for a performance period pursuant to this +Section 5 shall be made by the Committee during the shorter +of the first 90 days of such performance period and the +period ending on the date on which 25 percent of the +performance period has elapsed. +5.5 Objective Standards. An Incentive +Bonus shall be based solely upon objective criteria, consistent +with this Section 5, from which an independent third party +with knowledge of the facts could determine whether the +performance goal or range of goals is met and from that +determination could calculate the Incentive Bonus to be paid. +Although the Committee has authority to exercise reasonable +discretion to interpret this Plan and the criteria it shall +specify pursuant to this Section 5 of the Plan, it may not +amend or waive such criteria after the shorter of the period +ending on the 90th day of a performance period or the date +on which 25 percent of the performance period has elapsed. +The Committee shall have no authority or discretion to increase +any Incentive Bonus or to construct, modify or apply the +measurement of Performance in a manner that will directly or +indirectly increase the Incentive Bonus for any Participant for +any Fiscal Year above the amount determined by the applicable +objective standards established within the time periods set +forth in this Section. The Committee may exercise negative +discretion to reduce or eliminate any Incentive Bonus. +B-3 +SECTION 6 +Determination +and Payment of Incentive Bonuses +6.1 Committee Certification. The +Incentive Bonus for each eligible Participant for a Fiscal Year +or part thereof shall be determined on the basis of the Target +Bonus and Performance criteria established by the Committee +pursuant to Section 5. The Committee shall determine, and +shall certify in writing prior to payment of the Incentive +Bonus, that the Company Performance for the Fiscal Year or part +thereof satisfied the Performance criteria established by the +Committee for the period. Approved minutes of the Committee +shall constitute sufficient written certification for this +purpose. +6.2 Eligibility for Payment. The +Incentive Bonus otherwise payable to a Participant for a Fiscal +Year or part thereof shall be adjusted as follows: +(a) Retirement, Death or Total +Disability. If a Participant ceases to be a +Participant before the end of any Fiscal Year and more than +6 months after the beginning of such Fiscal Year because of +death, normal or early retirement under the Company’s +retirement plan, as then in effect, or total disability under +the Company’s long-term disability plan, an award shall be +paid to the Participant or the Participant’s Beneficiary +after the end of such Fiscal Year prorated as follows: the +award, if any, for such Fiscal Year shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire Fiscal +Year, multiplied by the ratio of the Participant’s full +months as a Participant during that Fiscal Year to the +12 months in that Fiscal Year. Notwithstanding the +foregoing, the Committee shall have discretion to reduce or +eliminate any Incentive Bonus otherwise payable pursuant to this +Section 6.2(a). +(b) Reassignment of Duties. If a +Participant is reassigned employment duties before the end of +any Fiscal Year, an award shall be paid to the Participant after +the end of such Fiscal Year prorated as follows: the award shall +be equal to 100% of the Incentive Bonus that the Participant +would have received if the Participant had been a Participant +during the entire Fiscal Year, multiplied by the ratio of the +Participant’s full months as a Participant during the +Fiscal Year prior to the reassignment to the 12 months in +that Fiscal Year. If such Participant is designated as a +Participant in his or her new position, an additional award +shall be paid to the Participant after the end of such Fiscal +Year prorated as follows: the award shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire Fiscal +Year, multiplied by the ratio of the Participant’s months +as a Participant during that Fiscal Year after the reassignment +(rounded up to the next full month) to the 12 months in +that Fiscal Year. +(c) Other Termination. If an employee +ceases to be a Participant during any Fiscal Year, or prior to +actual receipt of the award for a previous Fiscal Year, because +of the Participant’s termination of employment for any +reason other than described in Section 6.2(a), the +Participant will not be entitled to any award for such Fiscal +Year. +6.3 Maximum Incentive Bonus. The +Incentive Bonus for any Participant for a Fiscal Year under this +Plan shall not, in any event, exceed $1,800,000. +6.4 Payment to Participant or +Beneficiary. The Incentive Bonus of each +Participant shall be paid to the Participant, or the Beneficiary +of any deceased Participant, by the Company as soon as feasible +following final determination and certification by the Committee +of the amount payable. +6.5 Manner of Payment. Each Participant +will receive his or her Incentive Bonus in cash. +SECTION 7 +General +Provisions +7.1 Benefits Not Guaranteed. Neither the +establishment and maintenance of the Plan nor participation in +the Plan shall provide any guarantee or other assurance that an +Incentive Bonus will be payable under the Plan. +7.2 No Right to Participate. Nothing in +this Plan shall be deemed or interpreted to provide a +Participant or any non-participating employee any contractual +right to participate in or receive benefits under the Plan. No +designation of an employee as a Participant for all or any part +of a Fiscal Year shall create a right to an Incentive Bonus +under the Plan for +B-4 +any other Fiscal Year. There is no obligation of uniformity of +treatment of employees, eligible officers or Participants under +the Plan. +7.3 No Employment Right. Participation in +this Plan shall not be construed as constituting a commitment, +guarantee, agreement or understanding of any kind that the +Company or any Subsidiary will continue to employ any individual +and this Plan shall not be construed or applied as an employment +contract or obligation. Nothing in this Plan shall abridge or +diminish the rights of the Company or any Subsidiary to +determine the terms and conditions of employment of any +Participant, officer or other employee or to terminate the +employment of any Participant, officer or other employee with or +without reason at any time. +7.4 No Assignment or Transfer. Neither a +Participant nor any Beneficiary or other representative of a +Participant shall have any right to assign, transfer, attach or +hypothecate any amount or credit, potential payment or right to +future payments of any amount or credit or any other benefit +provided under this Plan. Payment of any amount due or to become +due under this Plan shall not be subject to the claims of +creditors of the Participant or to execution by attachment or +garnishment or any other legal or equitable proceeding or +process. +7.5 No Limit on Other Compensation +Arrangements. Nothing contained in this Plan +shall prevent the Company or any Subsidiary from adopting or +continuing in effect other or additional compensation +arrangements. A Participant may have other targets under other +plans of the Company. However, no payment under any other plan +or arrangement shall be contingent upon failure to attain the +criteria for payment of an Incentive Bonus under this Plan. +7.6 Withholding and Payroll Taxes. The +Company shall deduct from any payment made under this Plan all +amounts required by federal, state, local and foreign tax laws +to be withheld and shall subject any payments made under the +Plan to all applicable payroll taxes and assessments. +7.7 Incompetent Payee. If the Committee +determines that an individual entitled to a payment under this +Plan is incompetent, it may cause benefits to be paid to another +individual for the use or benefit of the Participant or +Beneficiary at the time or times otherwise payable under this +Plan in total discharge of the Plan’s obligations to the +Participant or Beneficiary. +7.8 Governing Law. The validity, +construction and effect of the Plan shall be determined in +accordance with the laws of the State of Michigan and applicable +federal law. +7.9 Severability. In the event any +provision of the Plan shall be held illegal or invalid for any +reason, the remaining provisions of the Plan shall not be +affected and the Plan shall be construed and enforced as if the +illegal or invalid provision had not been included. +SECTION 8 +Termination +and Amendment +The Board may terminate the Plan at any time, or may from time +to time amend the Plan as it deems proper and in the best +interests of the Company. No amendment adopted after the shorter +of the period ending on the 90th day of a performance +period or the date on which 25 percent of a performance +period has elapsed may directly or indirectly increase any +Incentive Bonus for that Fiscal Year. Except as otherwise +provided in this Plan and the applicable objective criteria +established pursuant to this Plan for determining the amount of +any Incentive Bonus for a Fiscal Year or part thereof, no +Incentive Bonuses shall be payable for the Fiscal Year in which +the Plan is terminated, or, if later, in which the termination +is effective. +SECTION 9 +Duration +of the Plan +Subject to earlier termination by the Board, this Plan shall +terminate without action by the Board as of the date of the +first meeting of stockholders held in 2012, unless reapproved by +the stockholders at such meeting or earlier. If reapproval +occurs, the Plan will terminate as of the date of the first +meeting of stockholders in the fifth year following reapproval +or any subsequent reapproval. If the Plan terminates under this +provision due to lack of reapproval by the stockholders, no +Incentive Bonuses shall be awarded for the Fiscal Year in which +the Plan terminates. +B-5 +Appendix C +WOLVERINE +WORLD WIDE, INC. +AMENDED AND RESTATED +EXECUTIVE LONG-TERM INCENTIVE PLAN +(3-YEAR +BONUS PLAN) +SECTION 1 +Establishment +of Plan; Purpose of Plan +1.1 Establishment of Plan. The Company +hereby establishes the RESTATED AND AMENDED WOLVERINE WORLD +WIDE, INC. EXECUTIVE LONG-TERM INCENTIVE PLAN +(3-YEAR +BONUS PLAN) (the “Plan”) for its executive officers +and key management employees. The Plan amends and restates the +Wolverine World Wide, Inc. Amended and Restated Executive +Long-Term Incentive Plan +(3-Year +Bonus Plan) previously approved by the stockholders at the 2002 +Annual Meeting of Stockholders. The Plan provides for the +payment of bonuses to participants based upon the financial +performance of the Company, or a Subsidiary, operating division +or profit center, over a +3-year +period or part thereof. +1.2 Purpose of Plan. The purpose of the +Plan is to encourage longer range strategic planning and not +stress over-dependence on short-term performance which could +hinder long-term increases in stockholder value +and/or +achievement of a strategic position +and/or +advantage in the marketplace, to encourage cooperation among all +the units of the Company to foster a closer and more cooperative +association and sense of teamwork and to encourage executive +officers and key management individuals to enter and continue in +the employ of the Company. Within that context, the Plan is +intended to provide performance-based compensation under +Section 162(m) of the Code and shall be interpreted and +administered to achieve that purpose. +1.3 Effective Date. The Plan is initially +effective as of February 8, 2007. Adoption of the Plan by +the Board and payment of Incentive Bonuses pursuant to this Plan +shall be contingent upon approval of the Plan by the +stockholders of the Company at the 2007 Annual Meeting of +Stockholders or any adjournment thereof or at a Special Meeting +of the Stockholders. In the absence of such approval, this Plan +shall be void. +SECTION 2 +Definitions +The following terms have the stated definitions unless a +different meaning is plainly required by the context: +2.1 “Act” means the Securities Exchange Act of +1934, as amended. +2.2 “Beneficiary” means the individual, trust or +other entity designated by the Participant to receive any amount +payable with respect to the Participant under the Plan after the +Participant’s death. A Participant may designate or change +a Beneficiary by filing a signed designation with the Committee +in a form approved by the Committee. A Participant’s will +is not effective for this purpose. If a designation has not been +completed properly and filed with the Committee or is +ineffective for any other reason, the Beneficiary shall be the +Participant’s Surviving Spouse. If there is no effective +designation and the Participant does not have a Surviving +Spouse, the remaining benefits, if any, shall be paid to the +Participant’s estate. +2.3 “Board” means the Board of Directors of the +Company. +2.4 “Code” means the Internal Revenue Code of +1986, as amended. +2.5 “Committee” means the Compensation Committee +of the Board or such other committee as the Board shall +designate to administer the Plan. The Committee shall consist of +at least 2 members and all of its members shall be +“non-employee directors” as defined in +Rule 16b-3 +issued under the Act and “outside directors” as +defined in the regulations issued under Section 162(m) of +the Code. +2.6 “Company” means Wolverine World Wide, Inc., a +Delaware corporation, and its successors and assigns. +C-1 +2.7 “Fiscal Year” means the fiscal year of the +Company for financial reporting purposes as the Company may +adopt from time to time. +2.8 “Incentive Bonus” means a bonus awarded and +paid to a Participant for services to the Company during a +3-year +period that is based upon achievement of pre-established +financial objectives by the Company, or a Subsidiary, operating +division or profit center. +2.9 “Market Value” shall equal the closing market +price of shares of common stock of the Company on the New York +Stock Exchange (or any successor exchange that is the primary +stock exchange for trading of common stock of the Company) on +the date of grant or reference, or if the New York Stock +Exchange (or any such successor) is closed on that date, the +last preceding date on which the New York Stock Exchange (or any +such successor) was open for trading and on which shares of +common stock of the Company were traded. +2.10 “Participant” means an executive officer or +key management employee of the Company or its Subsidiaries who +is designated as a Participant for a +3-year +period. +2.11 “Performance” means the level of achievement +by the Company or its Subsidiaries, operating divisions or +profit centers of the financial performance criteria established +by the Committee pursuant to Section 5.3. +2.12 “Subsidiary” means any corporation or other +entity of which 50% or more of the outstanding voting stock or +voting ownership interest is directly or indirectly owned or +controlled by the Company or by one or more Subsidiaries of the +Company. +2.13 “Surviving Spouse” means the spouse of the +Participant at the time of the Participant’s death who +survives the Participant. If the Participant and spouse die +under circumstances which prevent ascertainment of the order of +their deaths, it shall be presumed for the Plan that the +Participant survived the spouse. +2.14 “Target Bonus” means the bonus goal +established by the Committee for each Participant under +Section 5.2(a). +SECTION 3 +Administration +3.1 Power and Authority. The Plan shall +be administered by the Committee. The Committee may delegate +recordkeeping, calculation, payment and other ministerial or +administrative functions to individuals designated by the +Committee, who may be employees of the Company or its +Subsidiaries. Except as limited in this Plan, the Committee +shall have all of the express and implied powers and duties set +forth in the Plan and shall have full authority and discretion +to interpret the Plan and to make all other determinations +deemed necessary or advisable for the administration of the +Plan. Action may be taken by a written instrument signed by a +majority of the members of the Committee and any action so taken +shall be as effective as if it had been taken at a meeting. The +Committee may make such other rules for the conduct of its +business and may adopt such other rules, policies and forms for +the administration, interpretation and implementation of the +Plan as it deems advisable. All determinations, interpretations +and selections made by the Committee regarding the Plan shall be +final and conclusive. +3.2 Indemnification of Committee +Members. Neither any member or former member of +the Committee nor any individual to whom authority is or has +been delegated shall be personally responsible or liable for any +act or omission in connection with the performance of powers or +duties or the exercise of discretion or judgment in the +administration and implementation of the Plan. Each individual +who is or has been a member of the Committee, or delegated +authority by the Committee, shall be indemnified and held +harmless by the Company from and against any cost, liability or +expense imposed or incurred in connection with any act or +failure to act under the Plan. Each such individual shall be +justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or +persons. +SECTION 4 +Participation +4.1 Participation. For each +3-year +period, the Committee shall select the executive officers and +key management employees who shall be the Participants for the +3-year +period. The Committee may limit the number of executive officers +C-2 +and key management employees who will be Participants for a +3-year +period. Executive officers and key management employees shall be +designated as Participants within the first 90 days of any +3-year +period; provided, that an officer or key employee who is first +employed by the Company or a Subsidiary during any +3-year +period or who is assigned new duties during any +3-year +period may be designated as a Participant for a performance +period commencing on the date the officer or key employee +assumes his or her new duties through the end of the +3-year +period. +4.2 Continuing Participation. Selection +as a Participant for a +3-year +period or part thereof by the Committee is limited to that +3-year +period. An eligible executive officer or key management employee +will be a Participant for a +3-year +period only if designated as a Participant by the Committee for +such 3-year +period. +SECTION 5 +Performance +Goals and Criteria +5.1 Concept. The primary concept of the +Plan is to establish financial performance goals for each +3-year time +period for the Company. The performance periods are overlapping, +beginning every Fiscal Year and ending 3 full Fiscal Years +later. The Plan provides for the payment of bonuses to +participants based upon the financial performance of the Company +over the +3-year +period or part thereof. +5.2 Selection of Criteria. The Committee +shall pre-establish performance goals for each Participant or +group of Participants in the manner and within the time limits +specified in this Section 5. For each Participant or group +of Participants for each +3-year +period or part thereof, the Committee shall specify: +(a) Target Bonus. A Target Bonus, +expressed as a specified dollar amount or as a percentage of the +Participant’s average annual earned salary; +(b) Incentive Bonus. The Incentive Bonus +levels, expressed as a percentage of the Target Bonus, that +shall be paid to the Participant at specified levels of +Performance by the Company based on the criteria established by +the Committee pursuant to Section 5.3; +(c) Performance Measurement. The +applicable measurement of Performance under Section 5.3; and +(d) Conditions on Incentive Bonus. Any +specific conditions under which an Incentive Bonus specified +under (b) above may be reduced or forfeited (but not +increased). +The Incentive Bonus levels specified under (b) above may be +expressed either as (i) a matrix of percentages of the +Target Bonus that will be paid at specified levels of +Performance or (ii) a mathematical formula that determines +the percentage of the Target Bonus that will be paid at varying +levels of Performance. +5.3 Measurement of +Performance. Performance of the Company +and/or its +Subsidiaries, operating divisions or profit centers shall be +determined by reference to one or more of the following: net +earnings, net earnings before taxes, operating income, revenues, +net sales, net sales and other operating income, return on +sales, return on equity, earnings per share, total stockholder +return, economic value added measurements, return on assets, +return on invested capital or any of the foregoing before or +after the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges or +extraordinary items. These factors could be measured against +pre-determined levels or the Company’s relative performance +when compared to a pre-established peer group. +5.4 Incentive Bonus Conditioned on +Performance. Payment of an Incentive Bonus to a +Participant for a +3-year +period or part thereof under this Plan shall be entirely +contingent upon the Performance criteria established by the +Committee pursuant to this Section 5, the satisfaction of +which is substantially uncertain when established by the +Committee for the +3-year +period or part thereof. +5.5 Time of Determination by +Committee. All determinations to be made by the +Committee for a +3-year +period or part thereof pursuant to this Section 5 shall be +made by the Committee during the shorter of the first +90 days of such performance period and the period ending on +the date on which 25 percent of the performance period has +elapsed. +5.6 Objective Standards. An Incentive +Bonus shall be based solely upon objective criteria, consistent +with this Section 5, from which an independent third party +with knowledge of the facts could determine whether the +performance goal or range of goals is met and from that +determination could calculate the Incentive Bonus to be paid. +Although the +C-3 +Committee has authority to exercise reasonable discretion to +interpret this Plan and the criteria it shall specify pursuant +to this Section 5 of the Plan, it may not amend or waive +such criteria after the shorter of the period ending on the +90th day of a performance period or part thereof or the +date on which 25 percent of the performance period has +elapsed. The Committee shall have no authority or discretion to +increase any Incentive Bonus or to construct, modify or apply +the measurement of Performance in a manner that will directly or +indirectly increase the Incentive Bonus for any Participant for +any 3-year +period or part thereof above the amount determined by the +applicable objective standards established within the time +periods set forth in this Section. The Committee may exercise +negative discretion to decrease or eliminate any Incentive Bonus. +SECTION 6 +Determination +and Payment of Incentive Bonuses +6.1 Committee Certification. The +Incentive Bonus for each eligible Participant for a +3-year +period or part thereof shall be determined on the basis of the +Target Bonus and Performance criteria established by the +Committee pursuant to Section 5. The Committee shall +determine, and shall certify in writing prior to payment of any +Incentive Bonus, that the Company Performance for the +3-year +period or part thereof satisfied the Performance criteria +established by the Committee for the period. Approved minutes of +the Committee shall constitute sufficient written certification +for this purpose. +6.2 Partial Period Performance +Adjustments. The Incentive Bonus otherwise +payable to a Participant for a +3-year +period or part thereof shall be adjusted as follows: +(a) Retirement, Death or Total +Disability. If a Participant ceases to be a +Participant before the end of any +3-year +period and more than 12 months after the beginning of such +3-year +period because of death, normal or early retirement under the +Company’s retirement plan, as then in effect, or total +disability under the Company’s long-term disability plan, +an award shall be paid to the Participant or the +Participant’s Beneficiary after the end of such +3-year +period prorated as follows: the award, if any, for such +3-year +period shall be equal to 100% of the Incentive Bonus that the +Participant would have received if the Participant had been a +Participant during the entire performance period, multiplied by +the ratio of the Participant’s full months as a Participant +during that performance period to the total number of months in +that performance period. The award, if any, shall only be made +in the form of a cash payout. Notwithstanding the foregoing, the +Committee shall have discretion to reduce or eliminate any +Incentive Bonus otherwise payable pursuant to this Section. +(b) Reassignment of Duties. If a +Participant is reassigned employment duties before the end of +any 3-year +period, an award shall be paid to the Participant after the end +of such +3-year +period prorated as follows: the award shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire +performance period, multiplied by the ratio of the +Participant’s full months as a Participant during that +performance period prior to the reassignment to the total number +of months in that performance period. If such Participant is +designated as a Participant in his or her new position, an +additional award shall be paid to the Participant after the end +of such +3-year +period prorated as follows: the award shall be equal to 100% of +the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire +performance period, multiplied by the ratio of the +Participant’s months as a Participant during that +performance period after the reassignment (rounded up to the +next full month) to the total number of months in that +performance period. +(c) Other Termination. If an employee +ceases to be a Participant during any +3-year +period(s), or prior to actual receipt of the award for a +previous period because of the Participant’s termination of +employment for any reason other than described in +Section 6.2(a), the Participant will not be entitled to any +award for such +3-year +period. If a Participant continues in Wolverine’s +employment but no longer is approved by the Committee to +participate in future +3-year +periods, the Participant shall be eligible for a prorated award +determined in the same manner set forth in Section 6.2(a). +Notwithstanding the foregoing, the Committee shall have +discretion to reduce or eliminate any Incentive Bonus otherwise +payable pursuant to this Section. +6.3 Maximum Incentive Bonus. The +Incentive Bonus for any Participant for a +3-year +period shall not, in any event, exceed $1,800,000. +C-4 +6.4 Payment to Participant or +Beneficiary. The Incentive Bonus of each +Participant shall be paid to the Participant, or the Beneficiary +of any deceased Participant, by the Company as soon as feasible +following final determination and certification by the Committee +of the amount payable. +6.5 Manner of Payment. Unless the +Committee determines otherwise, each Participant will receive +his or her Incentive Bonus in cash. The Committee may, in its +discretion, determine to pay all or part of a Participant’s +Incentive Bonus in the form of stock (restricted or +unrestricted). The Company will make the cash payment as soon as +feasible following final determination and certification by the +Committee of the amount payable. +6.6 Stock Payment. The Committee may +determine to pay all or part of an Incentive Bonus using +restricted or unrestricted stock. In such a case, each +Participant will receive a grant of stock under the +Company’s existing stockholder approved plans on the same +date the cash payment is made pursuant to Section 6.5. The +number of shares of stock a Participant shall receive will equal +the Incentive Bonus (or part thereof) divided by the Market +Value of the Company’s common stock on the date of grant, +rounded to the nearest whole share. Each award of stock shall be +evidenced by a stock agreement containing such terms and +conditions, including vesting schedules, consistent with the +provisions of this Plan and the plan under which the stock is so +awarded. +SECTION 7 +General +Provisions +7.1 Benefits Not Guaranteed. Neither the +establishment and maintenance of the Plan nor participation in +the Plan shall provide any guarantee or other assurance that an +Incentive Bonus will be payable under the Plan. +7.2 No Right to Participate. Nothing in +this Plan shall be deemed or interpreted to provide a +Participant or any non-participating employee any contractual +right to participate in or receive benefits under the Plan. No +designation of an employee as a Participant for any +3-year +period shall create a right to an Incentive Bonus under the Plan +for any other +3-year +period. There is no obligation of uniformity of treatment of +employees, eligible officers or Participants under the Plan. +7.3 No Employment Right. Participation in +this Plan shall not be construed as constituting a commitment, +guarantee, agreement or understanding of any kind that the +Company or any Subsidiary will continue to employ any individual +and this Plan shall not be construed or applied as an employment +contract or obligation. Nothing in this Plan shall abridge or +diminish the rights of the Company or any Subsidiary to +determine the terms and conditions of employment of any +Participant, officer or other employee or to terminate the +employment of any Participant, officer or other employee with or +without reason at any time. +7.4 No Assignment or Transfer. Neither a +Participant nor any Beneficiary or other representative of a +Participant shall have any right to assign, transfer, attach or +hypothecate any amount or credit, potential payment or right to +future payments of any amount or credit or any other benefit +provided under this Plan. Payment of any amount due or to become +due under this Plan shall not be subject to the claims of +creditors of the Participant or to execution by attachment or +garnishment or any other legal or equitable proceeding or +process. +7.5 No Limit on Other Compensation +Arrangements. Nothing contained in this Plan +shall prevent the Company or any Subsidiary from adopting or +continuing in effect other or additional compensation +arrangements. A Participant may have other targets under other +plans of the Company. However, no payment under any other plan +or arrangement shall be contingent upon failure to attain the +criteria for payment of an Incentive Bonus under this Plan. +7.6 Withholding and Payroll Taxes. The +Company shall deduct from any payment made under this Plan all +amounts required by federal, state, local and foreign tax laws +to be withheld and shall subject any payments made under the +Plan to all applicable payroll taxes and assessments. +7.7 Incompetent Payee. If the Committee +determines that an individual entitled to a payment under this +Plan is incompetent, it may cause benefits to be paid to another +individual for the use or benefit of the Participant or +Beneficiary at the time or times otherwise payable under this +Plan in total discharge of the Plan’s obligations to the +Participant or Beneficiary. +C-5 +7.8 Governing Law. The validity, +construction and effect of the Plan shall be determined in +accordance with the laws of the State of Michigan and applicable +federal law. +7.9 Severability. In the event any +provision of the Plan shall be held illegal or invalid for any +reason, the remaining provisions of the Plan shall not be +affected and the Plan shall be construed and enforced as if the +illegal or invalid provision had not been included. +SECTION 8 +Termination +and Amendment +The Board may terminate the Plan at any time or may from time to +time amend the Plan as it deems proper and in the best interests +of the Company. No amendment adopted after the shorter of the +period ending on the 90th day of a performance period or +the date on which 25 percent of the performance period has +elapsed may directly or indirectly increase the amount of any +Incentive Bonus, or alter the objective criteria in a manner +which will increase any Incentive Bonus, for that +3-year +period or part thereof. Except as otherwise provided in this +Plan and the applicable objective criteria established pursuant +to this Plan for determining the amount of any Incentive Bonus +for a 3-year +period or part thereof, no Incentive Bonuses shall be payable +for the +3-year +period in which the Plan is terminated, or, if later, in which +the termination is effective. +SECTION 9 +Duration +of the Plan +Subject to earlier termination by the Board, this Plan shall +terminate without action by the Board as of the date of the +first meeting of the stockholders in 2012 unless reapproved by +the stockholders at that meeting or any earlier meeting. If +reapproval occurs, the Plan will terminate as of the date of the +first meeting of the stockholders in the fifth year following +reapproval and each subsequent reapproval unless reapproved on +or before the termination date. If the Plan terminates under +this provision due to lack of reapproval by the stockholders, +Incentive Bonuses shall be paid for the +3-year +periods already commenced before the date of termination of the +Plan, except for the +3-year +period that initially began in the year the Plan terminates. +C-6 +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +WOLVERINE WORLD WIDE, INC. 9341 Courtland Drive, N.E. Rockford, Michigan 49351 Wolverine World +Wide, Inc. will be holding its Annual Meeting of Stockholders on April 19, 2007. The enclosed +Notice of Annual Meeting provides information regarding the matters that are expected to be voted +on at the meeting. Your vote is important to us. Even if you plan to attend the meeting, please +read the enclosed materials and vote through the Internet, by telephone or by mailing the Proxy +Card below. Telephone and Internet Voting. On the reverse side of this card are instructions on how +to vote through the Internet or by telephone. Please consider voting through one of these methods. +Your vote is recorded as if you mailed in your Proxy. We believe voting through the Internet or by +telephone is convenient, and it also saves money. Thank you in advance for your participation in +our 2007 Annual Meeting. Wolverine World Wide, Inc. D Please fold and detach card at perforation +before mailing. D WOLVERINE WORLD WIDE, INC. PROXY 1. ELECTION OF DIRECTORS Nominees: (1) Jeffrey +M. Boromisa (2) David T. Kollat (3) David P. Mehney (4) Timothy J. O’Donovan FOR all WITHHOLD all +FOR all except (*) *(INSTRUCTION: To withhold authority to vote for any individual nominee, strike +that nominee’s name in the list above.) Your Board of Directors Recommends that You Vote FOR ALL +NOMINEES 2. Proposal to approve the Amended and Restated Executive Short-Term Incentive Plan +(Annual Bonus Plan). FOR AGAINST ABSTAIN Your Board of Directors Recommends that You Vote FOR this +Proposal 3. Proposal to approve the Amended and Restated Executive Long-Term Incentive Plan (3-Year +Plan). FOR AGAINST ABSTAIN Your Board of Directors Recommends that You Vote FOR this Proposal 4. +Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current +fiscal year. FOR AGAINST ABSTAIN Your Board of Directors Recommends that You Vote FOR this Proposal +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +WOLVERINE WORLD WIDE, INC. V O T E B Y T E L E P H O N E c/o National City Bank Have your +proxy card available when you call Shareholder Services Operations the Toll-Free number +1-888-693-8683 using Locator 5352 a touch-tone phone and follow the simple P. O. Box 94509 +instructions to record your vote. Cleveland, OH 44101-4509 V O T E B Y I N T E R N E T Have your +proxy card available when you access the website http://www.cesvote.com, and follow the simple +instructions to record your vote. V O T E B Y M A I L Please mark, sign and date your proxy card +and return it in the postage-paid envelope provided or return it to: National City Bank, P.O. Box +535300, Pittsburgh, PA 15253-9837. Mailed proxies must be received no later than April 19, 2007, at +10:00 a.m. Eastern Daylight Time. Vote by Telephone Vote by Internet Vote by Mail Call toll-free +using a Access the website and Return your proxy touch-tone phone: cast your vote: in the +postage-paid 1-888-693-8683 http://www.cesvote.com envelope provided. Vote 24 hours a day, 7 days a +week! Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time on April +18, 2007, to assure that it is counted in the final tabulation. PLEASE DO NOT VOTE BY MORE THAN ONE +METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. DO NOT RETURN THIS PROXY IF YOU ARE +VOTING BY THE INTERNET OR BY TELEPHONE. I This Proxy must be signed and dated below. D Please fold +and detach card at perforation before mailing. D WOLVERINE WORLD WIDE, INC. PROXY This proxy is +solicited on behalf of the Board of Directors. The undersigned stockholder hereby appoints Phillip +D. Matthews and Timothy J. O’Donovan, and each of them, each with full power of substitution, +proxies to represent the undersigned stockholder and to vote all shares of Common Stock of +Wolverine World Wide, Inc. that the stockholder would be entitled to vote on all matters which come +before the Annual Meeting of Stockholders to be held at the Company’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, April 19, 2007, at 10 a.m. local time, and +any adjournment of that meeting. If this Proxy is properly executed, the shares represented by this +Proxy will be voted as specified. If no specification is made, the shares represented by this Proxy +will be voted for the election of all nominees named on this Proxy as directors and for approval of +the proposals identified on this Proxy. The shares represented by this Proxy will be voted in the +discretion of the proxies on any other matters that may come before the meeting. Signature(s) +Signature(s) Date: , 2007 IMPORTANT — Please sign exactly as your name(s) appears on this Proxy. +When signing on behalf of a corporation, partnership, estate or trust, indicate title or capacity +of person signing. If shares are held jointly, each holder must sign. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-07-001496/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-07-001496/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ce3a61c5fa592af76868569713819c8afdfd0074 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-07-001496/proxy_rpt.txt @@ -0,0 +1,64 @@ +related person transactions. Such policies and procedures +require the Governance Committee to review and either approve or +disapprove of entry into any Interested Transactions (defined +below). If advance approval of the Interested Transaction is not +feasible, then it must be considered and, if the Governance +Committee determines it to be appropriate, ratified at the +Governance Committee’s next meeting. +47 +An Interested Transaction is any transaction, arrangement or +relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of +indebtedness) in which (1) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(2) Wolverine is a participant, and (3) any Related +Person (defined below) has or will have a direct or indirect +interest (other than solely as a result of being a director or +less than ten percent beneficial owner of another entity). A +Related Person is, any (a) person who is or was at any +point during the last fiscal year for which Wolverine filed a +Form 10-K +and proxy statement, an executive officer, director or nominee +for election as a director, (b) greater than five percent +beneficial owner of Wolverine’s common stock, or +(c) immediate family member of any of the foregoing. +Immediate family member includes a person’s spouse, +parents, stepparents, children, stepchildren, siblings, mothers- +and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +In determining whether to approve or ratify an Interested +Transaction, the Governance Committee will take into account +whether the Interested Transaction is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances, the extent of the +Related Person’s interest in the transaction and other +factors that it deems relevant. No director shall participate in +any discussion or approval of an Interested Transaction for +which he or she is a Related Person, except to provide all +material information to the Governance Committee. The following +Interested Transactions are pre-approved under the policies and +procedures: +• +any transaction with another company at which a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +• +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +Wolverine’s policies and procedures for related party +transactions were adopted in December 2006. All of the +transactions described above were previously considered by the +Governance Committee under Wolverine’s Director +Independence Standards. \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-08-001231/proxy.txt b/raw/proxies/0000110471/0000950124-08-001231/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..17dba1d36583a672ad910bfbcd6d4d207871e4b7 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-08-001231/proxy.txt @@ -0,0 +1,5828 @@ +DEF 14A +1 +k24557ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1 +) +Title of each class of securities to which transaction applies: +(2 +) +Aggregate number of securities to which transaction applies: +(3 +) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4 +) +Proposed maximum aggregate value of transaction: +(5 +) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which +the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or +schedule and the date of its filing. +(1 +) +Amount previously paid: +(2 +) +Form, Schedule or Registration Statement No.: +(3 +) +Filing party: +(4 +) +Date filed: +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL +MEETING +To our Stockholders: +You are invited to attend Wolverine’s Annual Meeting of +Stockholders at Wolverine’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 17, 2008, at 10 a.m. local time. At the meeting, +we will: +(1) +Elect three directors for three-year terms expiring in 2011. +(2) +Vote on ratification of the Audit Committee’s appointment +of Ernst & Young LLP as independent auditors for the +current fiscal year. +(3) +Conduct such other business as may properly come before the +meeting. +You can vote at the meeting and any adjournment of the meeting +if you were a stockholder of record on March 3, 2008. A +list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan, +during ordinary business hours for the +10-day +period before the meeting. +A copy of Wolverine’s Annual Report to Stockholders for the +year ended December 29, 2007, is enclosed with this Notice. +The following proxy statement and enclosed proxy card are being +sent to stockholders on and after March 14, 2008. +By Order of the Board of Directors +Kenneth A. Grady, Secretary and General Counsel +March 14, 2008 +Your Vote is Important to Us. Even if You Plan to Attend the +Meeting, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR +VOTE BY TELEPHONE OR THE INTERNET. +IMPORTANT +NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE +ANNUAL +MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 17, 2008. +Wolverine’s +Proxy Statement for the 2008 Annual Meeting of Stockholders and +the Annual +Report to Stockholders for the fiscal year ended +December 29, 2007 are available at +www.wolverineworldwide.com/2008annualmeeting.asp +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Ownership of Wolverine Stock +Executive Compensation +COMPENSATION DISCUSSION AND ANALYSIS +Potential Payments Upon Termination or Change in Control +Compensation Committee Report +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +WOLVERINE WORLD WIDE, INC. DIRECTOR INDEPENDENCE STANDARDS +Table of Contents +WOLVERINE +WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL +MEETING OF STOCKHOLDERS +April 17, 2008 +Proxy +Statement +This proxy statement and enclosed proxy card are being furnished +to you in connection with the solicitation of proxies by the +Wolverine Board of Directors for use at the annual meeting. In +this proxy statement, “we,” “us,” +“our” and “Wolverine” refer to Wolverine +World Wide, Inc. and “you” and “your” refer +to Wolverine stockholders. +Questions +and Answers About the Proxy Materials and Our 2008 Annual +Meeting +Q: +Why am I receiving these materials? +A: +Wolverine’s Board of Directors is providing these proxy +materials to you in connection with its solicitation of proxies +for use at the Wolverine World Wide, Inc. 2008 Annual Meeting of +Stockholders, which will take place on April 17, 2008, at +Wolverine’s headquarters located at 9341 Courtland Drive, +N.E., Rockford, Michigan, at 10:00 a.m. local time. +Stockholders are invited to attend the annual meeting and are +requested to vote upon the proposals described in this Proxy +Statement. +Q: +What information is contained in these materials? +A: +The information included in this Proxy Statement relates to the +proposals to be voted upon at the annual meeting, the voting +process, the compensation of our directors and named executive +officers, and certain other required information. +Wolverine’s Annual Report to Stockholders for the year +ended December 29, 2007, which includes Wolverine’s +audited consolidated financial statements, is included in these +proxy materials. Your proxy, which you may use to vote, is also +enclosed. +Q: +What proposals will be voted upon at the annual meeting? +A: +There are two proposals scheduled to be voted upon at the annual +meeting: +• +election of three directors for three-year terms expiring in +2011; and +• +ratification of the appointment of Ernst & Young +LLP as independent auditors for Wolverine for the current fiscal +year. +In addition, such other business as may properly come before the +meeting will be considered and voted upon. We are not currently +aware of any other matters to be considered and voted upon at +the meeting. +Q: +How does Wolverine’s Board of Directors recommend that I +vote? +A: +Wolverine’s Board of Directors recommends that you vote +your shares “FOR” each of the nominees to the Board of +Directors and “FOR” each other proposal discussed in +this Proxy Statement. +Q: +Who may vote? +A: +You may vote at the meeting or by proxy if you were a +stockholder of record of Wolverine at the close of business on +March 3, 2008. Each stockholder is entitled to one vote per +share on each matter presented. As of March 3, 2008, there +were 49,698,472 shares of Wolverine common stock issued and +outstanding (excluding 11,486,065 shares of treasury stock). +Q: +How do I vote before the annual meeting? +A: +Wolverine offers the convenience of voting by mail-in proxy, +telephone or the Internet. See the enclosed proxy for voting +instructions. If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or the +Table of Contents +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +Q: +What if I return my proxy but do not provide voting +instructions? +A: +If you specify a choice, the proxy will be voted as specified. +If you return a signed proxy but do not specify a choice, your +shares will be voted in favor of the election of all nominees +named in this Proxy Statement and in favor of the proposal set +forth in this Proxy Statement. In all cases a proxy will be +voted in the discretion of the individuals named as proxies on +the proxy card with respect to any other matters that may come +before the meeting. +Q: +Can I change my mind after I vote? +A: +You may revoke your proxy at any time before it is exercised by +delivering written notice of revocation to the Secretary of +Wolverine or by attending and voting at the annual meeting. +Q: +How can I vote my shares in person at the annual meeting? +A: +Shares held directly in your name as the stockholder of record +may be voted in person at the annual meeting. If you choose to +vote in person, please bring the enclosed proxy card and proof +of identification. Even if you plan to attend the annual +meeting, Wolverine recommends that you vote your shares in +advance as described below so that your vote will be counted if +you later decide not to attend the annual meeting. Shares held +in “street name” through a brokerage account or by a +bank or other nominee may be voted in person by you if you +obtain a signed proxy from the record holder giving you the +right to vote the shares. +Q: +What is the quorum requirement for the annual meeting? +A: +The presence in person or by proxy of the holders of a majority +of the shares entitled to vote at the annual meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the annual meeting, all shares for which +a proxy or vote is received will be counted as present and +represented at the meeting, including abstentions and shares +represented by a broker vote on any matter. +Q: +What is the voting requirement to approve each of the +proposals? +A: +A plurality of the shares voting is required to elect directors. +This means that the nominees who receive the most votes will be +elected. In counting votes on the election of directors, only +votes “for” or “withheld” affect the +outcome. Broker non-votes will be counted as not voted and will +be deducted from the total shares of which a plurality is +required. +Each other matter to be voted upon at the annual meeting will be +approved if a majority of the shares present or represented at +the meeting and entitled to vote upon the proposal are voted in +favor of such matter. In counting votes on each such matter, +abstentions will be counted as voted against the matter and +broker non-votes will be counted as not voted upon the matter +and deducted from the total shares of which a majority is +required. +Q: +What are broker non-votes and what effect do they have on the +proposals? +A: +Generally, broker non-votes occur when shares held by a broker +in “street name” for a beneficial owner are not voted +with respect to a particular proposal because (1) the +broker has not received voting instructions from the beneficial +owner and (2) the broker lacks discretionary voting power +to vote those shares. A broker is entitled to vote shares held +for a beneficial owner on routine matters, such as the +ratification of the appointment of Ernst & Young LLP +as independent auditors, without instructions from the +beneficial owner of those shares. +Q: +What does it mean if I receive more than one proxy or voting +instruction card? +A: +It means your shares are registered differently or are in more +than one account. Please provide voting instructions for all +proxy and voting instruction cards you receive. +Q: +Where can I find the voting results of the annual meeting? +A: +Wolverine will announce preliminary voting results at the annual +meeting and publish final results in Wolverine’s quarterly +report on +Form 10-Q +for the second quarter of 2008. +2 +Table of Contents +Election +of Directors +As recommended by the Governance Committee, the Board of +Directors proposes that the following nominees be elected as +directors for terms expiring at the 2011 annual meeting: +William K. Gerber +Blake W. Krueger +Michael A. Volkema +All of the nominees are currently directors of Wolverine whose +terms will expire at the annual meeting. Each proposed nominee +is willing to be elected and serve as a director. However, if a +nominee is unable to serve or is otherwise unavailable for +election, which is not contemplated, the incumbent Wolverine +Board of Directors may or may not select a substitute nominee. +If a substitute nominee is selected, your shares will be voted +for the substitute nominee (unless you give other instructions). +If a substitute nominee is not selected, your shares will be +voted for the remaining nominees. Proxies will not be voted for +more than three nominees. +Wolverine’s Board of Directors currently consists of +11 directors. Phillip D. Matthews, age 69, is retiring +at this year’s annual meeting after 26 years of +service as a director. Mr. Matthews served as Chairman of +the Board of Wolverine from 1993 until 1996 and served as Lead +Director of Wolverine from 1996 until 2007. Mr. Matthews is +also Chairman of Zodiac Marine Holdings, Inc. and is a director +of Washington Mutual. +Wolverine’s Amended and Restated Bylaws provide that the +Board of Directors is divided into three classes, with each +class to be as nearly equal in number as possible. Each class +serves a term of office of three years, with the term of one +class expiring at the annual meeting in each successive year. +Biographical information for each nominee and each current +director who will continue to serve after the annual meeting is +presented below. Except as otherwise indicated, all have had the +same principal positions and employment for over five years. +Your Board of Directors recommends that you vote FOR each +nominee. +Wolverine’s +Board of Directors +Nominees +for Terms Expiring in 2011 +WILLIAM K. GERBER (age 54) was appointed to the +Company’s Board of Directors on February 7, 2008. +Mr. Gerber is Managing Director of Cabrillo Point Capital +LLC, a private investment fund. He has held that position since +2008. From 1998 to 2007, Mr. Gerber was Executive Vice +President and Chief Financial Officer of Kelley Services, Inc., +a staffing solutions company. Mr. Gerber is also a director +of AK Steel Corporation and Kaydon Corporation. +BLAKE W. KRUEGER (age 54) has been a director since +2006. Mr. Krueger is Chief Executive Officer and President +of Wolverine, a position he assumed at last year’s annual +meeting of stockholders. From October 2005 until April 2007, +Mr. Krueger served as President and Chief Operating Officer +of Wolverine. From 2004 to October 2005, he served as Executive +Vice President and Secretary of Wolverine and President of the +Heritage Brands Group. From 2003 to 2004, Mr. Krueger +served as Executive Vice President and Secretary of Wolverine +and President of the Caterpillar Footwear Group. He has also +previously served as Executive Vice President, General Counsel +and Secretary of Wolverine with various responsibilities +including the human resources, retail, business development, +accessory licensing, mergers and acquisitions, and legal areas. +MICHAEL A. VOLKEMA (age 52) has been a director since +2005. Mr. Volkema is Chairman of Herman Miller, Inc., a +leading designer and manufacturer of furnishings for the office +and home. He has held that position since 2000. Mr. Volkema +became President and Chief Executive Officer of Herman Miller in +1995 and held those positions until 2003 and 2004, respectively. +3 +Table of Contents +Continuing +Directors — Terms Expiring in 2010 +JEFFREY M. BOROMISA (age 53) has been a director since +2006. Mr. Boromisa is Executive Vice President of Kellogg +International, President of Asia Pacific and Senior Vice +President of Kellogg Company, a leading global cereal, snack and +specialty foods company. He has held these positions since 2006. +Mr. Boromisa is also a member of Kellogg Company’s +Global Leadership Team. From 2004 until 2006, he was Senior Vice +President and Chief Financial Officer of Kellogg Company. In +2002, Mr. Boromisa was promoted to Senior Vice President, +Corporate Controller and Chief Financial Officer of Kellogg +International. Mr. Boromisa served as Vice President and +Corporate Controller of Kellogg Company from November 1999 until +2002. In 1997, he was promoted to Vice President — +Purchasing of Kellogg North America, and since 1981, has served +Kellogg Company in various financial positions. +DAVID T. KOLLAT (age 69) has been a director since +1992. Mr. Kollat is Lead Director of Wolverine. +Mr. Kollat is also President and Chairman of 22, Inc., a +company specializing in research and management consulting for +retailers and consumer goods manufacturers. Mr. Kollat is +also a director of Limited Brands, Inc.; Big Lots, Inc.; and +Select Comfort Corporation. +DAVID P. MEHNEY (age 68) has been a director since +1977. Mr. Mehney is President of The KMW Group, Inc., an +importer and distributor of medical products, and distributor of +marine products in Michigan. +TIMOTHY J. O’DONOVAN (age 62) has been a director +since 1993. Mr. O’Donovan is Chairman of the Board of +Wolverine, and has served in that position since April 2005. +Effective as of April 19, 2007, Mr. O’Donovan +retired as Chief Executive Officer of Wolverine, a position +which he has held since April 2000. Mr. O’Donovan +served Wolverine as its Chief Executive Officer and President +from April 2000 until April 2005. Before April 2000, +Mr. O’Donovan was Chief Operating Officer and +President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. and Kaydon Corporation. +Continuing +Directors — Terms Expiring in 2009 +ALBERTO L. GRIMOLDI (age 66) has been a director since +1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a shoe +manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi was previously a member +of the Advisory Board of Ford Motor Company in Argentina, and +has also held various positions in the Argentinean government. +BRENDA J. LAUDERBACK (age 57) was appointed to the +Board of Directors in 2003. From 1995 until her retirement in +1998, Ms. Lauderback was president of the Wholesale and +Retail Group of Nine West Group, Inc., a footwear wholesaler and +distributor. She was previously the President of the Wholesale +Division of U.S. Shoe Corporation, a footwear manufacturer +and distributor, and a Vice President of Dayton Hudson +Corporation, a retailer. Ms. Lauderback is also a director +of Irwin Financial Corporation; Big Lots, Inc.; Denny’s +Corporation; and Select Comfort Corporation. +SHIRLEY D. PETERSON (age 66) has been a director since +2005. From 1995 until her retirement in 2000, Ms. Peterson +served as President of Hood College of Frederick, Maryland. From +1993 to 1995 she was a partner at the law firm +Steptoe & Johnson LLP. She was previously the +Commissioner of the Internal Revenue Service and an Assistant +Attorney General of the Tax Division for the +U.S. Department of Justice. Ms. Peterson is also a +director of The Goodyear Tire & Rubber Company; AK +Steel Holding Corporation; Champion Enterprises Inc.; and DWS +Scudder Funds. Ms. Peterson expects to retire as a Board +Member of the DWS Scudder Funds effective April 1, 2008. +Board +Committees and Meetings +During the 2007 fiscal year, the Board of Directors held five +regular meetings. Each of the directors attended 75% or more of +the aggregate of the total number of full Board meetings and the +total number of meetings of committees on which he or she served +(during the periods that he or she served). +4 +Table of Contents +The Board of Directors has three standing committees: the Audit +Committee, the Compensation Committee and the Governance +Committee. Members of each committee are appointed by the Board +of Directors and the authority, duties and responsibilities of +each committee are governed by written charters approved by the +Board of Directors. In addition to regular Board and Committee +meetings, Wolverine has regular scheduled executive sessions for +non-management directors. Wolverine’s independent Lead +Director, Mr. Kollat, presides at all non-management +executive sessions. Interested parties may make concerns known +to the non-management directors by communicating with +Mr. Kollat or with the non-management directors as a group, +through one of the Board communication mechanisms described +later in this proxy statement under the heading “Corporate +Governance Principles — Communication with the +Board.” +The table below shows current membership for each of the +standing committees: +Compensation +Governance +Audit Committee +Committee +Committee +Jeffrey M. Boromisa* +David T. Kollat +Brenda J. Lauderback* +David T. Kollat +Phillip D. Matthews* +David P. Mehney +Brenda J. Lauderback +David P. Mehney +Shirley D. Peterson +Shirley D. Peterson +Michael A. Volkema +Michael A. Volkema +* +Committee Chairman +Below is a description of each of the standing committees. +Audit Committee. The Audit Committee has been +established in accordance with Section 3(a)(58)(A) of the +Securities Exchange Act of 1934 and performs the following +duties: +• +represents and assists the Board in fulfilling its oversight +responsibility regarding Wolverine’s financial reporting +and accounting process; +• +appoints, retains, compensates, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance, effectiveness, objectivity and +independence of the independent auditors and Wolverine’s +internal audit function; +• +obtains and reviews the independent auditors’ internal +quality control report and other reports required by applicable +rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention and treatment +of complaints regarding accounting and auditing matters; +• +meets to review Wolverine’s financial statements, including +disclosures in Management’s Discussion and Analysis of +Financial Condition and Results of Operations, that are included +in Wolverine’s reports on +Form 10-Q +and +Form 10-K; +• +reviews Wolverine’s policies and systems with respect to +risk assessment and risk management and discusses significant +risks or exposures with management and the independent auditors; +• +discusses with internal auditors and the independent auditors +the overall scope and plans for their respective audits; +• +oversees Wolverine’s legal and regulatory compliance +systems; +• +reviews and discusses the adequacy and effectiveness of +Wolverine’s internal control over financial reporting and +disclosure controls and procedures; and +• +establishes policies and procedures relating to the engagement +of the independent auditors, including pre-approval policies and +procedures. +Only independent directors may serve on the Audit Committee. +Each member of the Audit Committee satisfies the independence +standards for such committee members established by the New York +Stock Exchange (“NYSE”) and the SEC. The Audit +Committee met eleven times in 2007. +Compensation Committee. The Compensation +Committee: +• +assists the Board of Directors in discharging its +responsibilities relating to executive compensation and +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +oversees the overall compensation structure, policies and +programs, and assesses whether the compensation structure +establishes appropriate incentives; +• +reviews and approves corporate and personal goals and objectives +relevant to Chief Executive Officer compensation, evaluates the +performance of the Chief Executive Officer in light of these +goals and objectives, and, together with the other independent +5 +Table of Contents +directors, approves the compensation of the Chief Executive +Officer based on the evaluation; +• +reviews and approves the compensation of elected corporate +officers and other executives, including bonuses and equity +compensation; +• +administers and makes recommendations with respect to +Wolverine’s stock option and other equity-based incentive +plans; and +• +reviews and discusses with management Wolverine’s +Compensation Discussion and Analysis and related disclosures +required by the rules of the Securities and Exchange Commission +(“SEC”) and recommends to the Board of Directors +whether such disclosures should be included in the annual report +and proxy statement. +Only independent directors may serve on the Compensation +Committee. Each member of the Compensation Committee satisfies +the independence standards for such committee members +established by NYSE. The Compensation Committee met five times +during 2007. +Governance Committee. The Governance Committee: +• +interviews each potential director nominee and recommends, +consistent with criteria approved by the Board, suitable +candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes qualification +standards for Board and committee membership; +• +develops and recommends to the Board an annual self-evaluation +process for the Board and its committees and oversees the +evaluation process; +• +establishes and recommends director independence guidelines to +the Board; +• +reviews and reports on all matters generally relating to +corporate governance and develops and recommends to the Board +corporate governance guidelines; +• +recommends to the Board key executives to serve as corporate +officers of Wolverine; and +• +annually reviews the compensation of directors for service on +the Board of Directors and committees and makes recommendations +to the Board of Directors regarding such compensation. +In evaluating the skills and characteristics required of Board +members, the Governance Committee addresses issues such as +experience, diversity, age and skills in the context of the +current +make-up of +the Board. The Governance Committee will consider candidates for +nomination that are recommended by stockholders, directors, +officers, third-party search firms and other sources. +Stockholders may recommend individual nominees for consideration +by the Governance Committee by communicating with the Governance +Committee through one of the Board communication mechanisms +described under the heading “Corporate Governance +Principles — Communication with the Board.” The +Board of Directors ultimately determines individuals to be +nominated at each annual meeting. Direct stockholder nominations +may be made through the procedure described below under the +subheading “Stockholder Nominations.” From time to +time, Wolverine or the Governance Committee engages third-party +search firms to assist with identifying and evaluating potential +nominees. +In making nominee recommendations to the Board, the Governance +Committee considers a potential nominee’s ability, judgment +and personal and professional integrity. The Governance +Committee seeks nominees who are likely to be most effective, in +conjunction with other nominees and Board members, in +collectively serving the long-term interests of the stockholders. +Only independent directors may serve on the Governance +Committee. Each member of the Governance Committee satisfies the +independence standards for such committee members established by +NYSE. The Governance Committee met five times during 2007. +Stockholder +Nominations +Nominations may be made by a stockholder entitled to vote for +the election of directors if, and only if, the stockholder +submits advance notice of the proposed nomination to the +Secretary of Wolverine and the notice is received by the +Secretary of Wolverine not less than 50 nor more than +75 days before the annual meeting. However, if the first to +occur of the notice of the meeting or public disclosure is given +or made to stockholders less than 65 days before the annual +meeting, the notice of the proposed nomination must be received +not later than the close of business on the 15th day after +the day on which the notice of the date of the meeting was +mailed or the public disclosure was made, whichever occurs +first. Each notice submitted by a stockholder must set forth +each nominee’s name, age, business address, residence +address and principal occupation and employment, the class and +number of shares of common stock beneficially owned by each +nominee, and any other information concerning each nominee +required to be included in a proxy statement soliciting proxies +for the election of the nominee under the rules of the SEC. In +addition, the notice must state the name, record address and the +class and number of shares of common stock beneficially owned by +the stockholder submitting the notice. If the chairman of the +6 +Table of Contents +meeting determines that a nomination was not made in accordance +with these procedures, he or she must announce that +determination at the meeting and the nomination will be +disregarded. +Corporate +Governance Principles +Wolverine has developed governance principles to assist the +Board in fulfilling its responsibilities to stockholders and to +provide a framework for the Board’s oversight +responsibilities regarding the management of Wolverine. +Wolverine’s governance principles are dynamic and have been +developed and revised over a period of many years to reflect +changing laws, regulations and best business practices. The +governance principles also provide guidance and transparency to +management, employees, investors and other stakeholders +regarding the Board’s philosophy, high ethical standards, +expectations for conducting business, and decision-making +processes. +The following is a summary of certain of Wolverine’s +policies, charters, guidelines and principles relating to +corporate governance and financial reporting. You may access +complete current copies of our Code of Conduct & +Compliance, Corporate Governance Guidelines, Director +Independence Standards, Accounting and Finance Code of Ethics, +Audit Committee Charter, Governance Committee Charter and +Compensation Committee Charter at our website, +www.wolverineworldwide.com. Each of these is also +available in print to any stockholder upon request, and the +Director Independence Standards are attached as Appendix A +to this Proxy Statement. +Independence +The Board believes that the independence of directors and Board +committee members is important to assure that the Board and its +committees operate only in the best interests of the +stockholders and to avoid any appearance of conflict of +interest. For over 14 years, Wolverine has functioned with +not more than two active or former management employees as +directors. The remainder of the Board’s 8 to +12 directors over this period have been non-management +directors. Only two current or former management employees, +Wolverine’s Chief Executive Officer and President, and +Wolverine’s Chairman and former Chief Executive Officer, +currently serve as directors. Wolverine’s formal Corporate +Governance Guidelines require that a substantial majority of the +directors be independent. +The Board has determined that the following 8 of its +11 directors meet the director independence standards +adopted by the Board and the applicable NYSE standards for +independence (including, with respect to audit committee +members, the heightened independence criteria applicable to +audit committee members under the NYSE and SEC independence +standards), have no material relationship with Wolverine, and +therefore are independent: +• +Jeffrey M. Boromisa +• +William K. Gerber +• +David T. Kollat +• +Brenda J. Lauderback +• +Phillip D. Matthews +• +David P. Mehney* +• +Shirley D. Peterson +• +Michael A. Volkema +Our Board of Directors has adopted categorical Independence +Standards, which are attached as Appendix A to this Proxy +Statement and which are also available at our website. These +Independence Standards comply with and, in some areas, exceed +the director independence standards required by NYSE. In +summary, under these standards a director is considered +independent only if the director and his or her immediate family +members do not have, and generally have not had in the most +recent three years, any material relationships with Wolverine, +its subsidiaries or affiliates (including certain relationships +with Wolverine’s independent auditors). The standards +establish thresholds at which such relationships are deemed to +be not material. In addition, the Board examines on a +case-by-case +basis transactions and relationships that are not of a nature +addressed by the categorical standards. +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set +forth the primary framework of governance principles applicable +to Wolverine. The Corporate Governance Guidelines outline the +general duties and functions of the Board and management, and +set forth general principles regarding Board composition, +independence, Board meetings and responsibilities, Board +committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +* See the discussion of indirect related party transactions +under the caption “Related Matters,” subheading +“Certain Relationships and Related Transactions.” +7 +Table of Contents +Stock +Ownership Requirements for Directors and Executive +Officers +For many years, the Board has believed that directors and +management should have a significant financial stake in +Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal requirements that directors and executive +management own specified amounts of Wolverine stock (including +ownership credit for stock units allocated to non-employee +directors under the Deferred Compensation Plan) within five +years of their respective election to the Board or appointment +as a member of executive management. The ownership requirements +are as follows: (i) for directors, five times the current +Board retainer, (ii) for the Chief Executive Officer, five +times base salary, (iii) for other executive officers, +between two and three times base salaries, and (iv) for +other executive management, between one and two times base +salaries. +Code of +Conduct & Compliance +For years, Wolverine and its employees and directors have +followed an extensive Code of Conduct & Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply with +applicable legal requirements and sets forth Wolverine’s +expectations regarding business ethics, integrity, honesty, +fairness and keeping commitments. The Code contains +Wolverine’s principles and procedures regarding conflicts +of interest, corporate opportunities, confidentiality, fair +dealing, protection and proper use of Wolverine’s assets, +compliance with laws, rules and regulations, engagement criteria +for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. Employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Accounting +and Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Finance Ethics Code”). This is an ethics code +focused on the financial reporting process and is intended to +protect the interests of all of Wolverine’s constituents, +including stockholders, employees, customers and the communities +in which Wolverine conducts business. Many of the basic tenets +of the Finance Ethics Code have been incorporated for many years +in the Code. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. The Finance Ethics Code and the Code are available +on the Corporate Governance section of the Investors section of +Wolverine’s website at www.wolverineworldwide.com , +where Wolverine will post any waiver of these codes for +directors or executive officers. +Board +Committee Charters +The Board has organized and formed three committees, the Audit +Committee, the Compensation Committee and the Governance +Committee. The Board has approved a committee charter for each +committee that contains basic principles regarding the +committee’s organization, purpose, authority and +responsibilities. The performance of each committee is reviewed +annually by committee members and the Board. +Leadership +Since 1993, the Board has operated with an independent Lead +Director, who is selected by the independent directors. The +duties of the independent Lead Director include: +(a) working closely with the Chairman regarding the agenda +and scheduling for Board and committee meetings; +(b) overseeing information sent to the Board; +(c) presiding over executive sessions; (d) serving as +a liaison between the Chairman and the independent Directors; +(e) presiding over Board meetings in the absence of the +Chairman; and (f) being available for consultation and +communications with stockholders as appropriate. +Attendance +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to attend every +Board meeting. Directors are also expected to attend the Annual +Meeting of Stockholders in person. All 11 then-current directors +attended the 2007 annual meeting. +8 +Table of Contents +Communication +with the Board +Stockholders and interested parties may communicate with members +of Wolverine’s Board of Directors through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General +Counsel, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. Any communications submitted by any of +the above means (or the means described below) are received by +Wolverine’s General Counsel and forwarded to the +appropriate person or persons. Complaints or concerns regarding +Wolverine’s financial statements and accounting, auditing, +internal control and reporting practices can be reported to the +audit committee (including anonymous and confidential +submissions) by sending an +e-mail to +financialconcerns@wwwinc.com or by writing to the audit +committee +c/o the +General Counsel at the above address. +Board and +Company Culture +Wolverine’s comprehensive governance guidelines and +principles are coupled with a robust, open and effective Board +environment that promotes respect, trust and candor, fosters a +culture of open dissent and permits each director to express +opinions and contribute to the Board process. Directors are +expected to have unrestricted access to management and any +company information they desire. The participation of Board +members and the open exchange of opinions is further encouraged +at the Board committee level through the periodic rotation of +Board members among its standing committees. This open and +candid operating environment is shared by management and the +Board and is essential to fully realize the benefits of +Wolverine’s formal governance guidelines, principles, +charters and policies. +9 +Table of Contents +Ownership +of Wolverine Stock +Five +Percent Stockholders +The following table sets forth information concerning the number +of shares of Wolverine stock held by each entity known to +Wolverine to be the beneficial owner of more than five percent +of Wolverine’s outstanding shares of common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Shared Voting +Total +Name and Address +Sole Voting +Sole Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Barclays Global Investors, NA(1) +2,326,764 +3,034,322 +0 +3,034,322 +5.8 +45 Fremont Street +San Francisco, CA 94105 +Franklin Resources, Inc.(2) +3,092,239 +3,092,239 +0 +3,092,239 +5.9 +One Franklin Parkway +San Mateo, CA 94403 +(1) +Based on information set forth in Schedule 13G filed +February 5, 2008. The Schedule 13G indicates that +Barclays Global Investors, NA and other related entities (some +of which are investment advisors or banks) beneficially own, in +the aggregate, 3,034,322 shares of Wolverine common stock. +(2) +Based on information set forth in Schedule 13G filed +February 8, 2008. The Schedule 13G indicates that +Franklin Resources, Inc. and one or more open- or close-end +investment companies and other managed accounts that are +investment management clients of investment managers that are +direct and indirect subsidiaries of Franklin Resources, Inc. +beneficially own, in the aggregate, 3,092,239. +10 +Table of Contents +Stock +Ownership By Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 3, 2008, by each of +Wolverine’s directors and nominees for director, each of +the named executive officers and all of Wolverine’s +directors, nominees for director and executive officers as a +group. An asterisk in the column for “Percent of +Class” means the individual beneficially owns less than one +percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Jeffrey M. Boromisa +— +— +10,736 +10,736 +* +Kenneth A. Grady +6,800 +— +3,034 +9,834 +* +William K. Gerber +500 +— +6,891 +7,391 +* +Alberto L. Grimoldi +10,168 +— +42,784 +52,952 +* +Stephen L. Gulis, Jr. +158,632 +1,890 +254,529 +415,051 +* +David T. Kollat +83,934 +— +56,665 +140,599 +* +Blake W. Krueger +234,899 +— +283,037 +517,936 +1.01 +Brenda J. Lauderback +5,100 +— +11,040 +16,140 +* +Phillip D. Matthews(4) +34,238 +— +56,665 +90,903 +* +David P. Mehney +50,520 +49,250 +56,665 +156,435 +* +Timothy J. O’Donovan +309,510 +125,821 +502,351 +937,682 +1.83 +Nicholas P. Ottenwess +33,291 +190 +85,961 +119,442 +* +Shirley D. Peterson +3,000 +— +19,603 +22,603 +* +Michael A. Volkema +5,000 +— +14,903 +19,903 +* +James D. Zwiers +37,641 +— +32,842 +70,483 +* +All directors and executive officers as a group +980,233 +177,151 +1,437,706 +2,595,090 +5.07 +(1) +The numbers of shares stated are based on information provided +by each person listed and include shares personally owned of +record and shares that, under applicable regulations, are +considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the listed person is +legally entitled to share voting or dispositive power by reason +of joint ownership, trust or other contract or property right, +and shares held by spouses, children or other relatives over +whom the listed person may have influence by reason of +relationship. +(3) +The numbers in the Stock Options column represent shares that +may be acquired within 60 days after March 3, 2008, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +(4) +Mr. Matthews pledged 34,238 shares of Wolverine common +stock in connection with a post-paid variable forward sale +contact entered into on February 15, 2007 with an +unaffiliated third party buyer. +11 +Table of Contents +Executive +Compensation +COMPENSATION +DISCUSSION AND ANALYSIS +Objectives +of Wolverine’s Compensation Programs +The basic compensation philosophy of the Compensation Committee +and Wolverine is to provide competitive salaries and incentives +to achieve superior financial performance. Wolverine’s +executive compensation policies are designed to achieve four +primary objectives: +• +attract and retain well-qualified executives who will lead +Wolverine and achieve and inspire superior performance; +• +provide incentives for achievement of specific near-term +individual, business unit and corporate goals and to reward +attainment of goals at established levels; +• +provide incentives for achievement of longer-term financial +goals and to reward attainment of goals at established +levels; and +• +align the interests of management with those of the stockholders +to encourage achievement of continuing increases in stockholder +value. +The Compensation Committee reviews and structures +Wolverine’s compensation programs to balance employee +salaries with compensation that is performance-based and also to +reward annual performance while maintaining a focus on +longer-term objectives. The mix of compensation elements varies +based on an employee’s position and responsibilities. +Wolverine’s objective is to balance the total compensation +package between cash, non-cash, long-term, short-term and +currently paid compensation in a way that meets the goals set +forth above. Wolverine believes it serves the needs of its +stockholders and key management employees to provide incentives +commensurate with individual management responsibilities and +past and future contributions to corporate objectives. +The Compensation Committee compares the base salaries and +overall compensation levels of Wolverine’s Chief Executive +Officer, Chief Operating Officer (through April 2007 when +Mr. Krueger was Chief Operating Officer), and Chief +Financial Officer with those of executives with similar +positions in companies of similar type, size and financial +performance. Although some footwear companies are among the +companies included in the comparison group, this group is not +limited to footwear companies because Wolverine competes for +talent with a wide range of corporations. Wolverine’s +current comparison group includes: Jones Apparel Group, Inc.; +Brown Shoe Company, Inc.; The Timberland Company; Genesco, Inc.; +Columbia Sportswear Company; Skechers U.S.A., Inc.; The Stride +Rite Corp.; Kenneth Cole Productions, Inc.; K-Swiss Inc.; Steven +Madden, Ltd.; Rocky Brands, Inc.; Deckers Outdoor Corporation; +and Weyco Group, Inc. (the “Peer Group”). For purposes +of comparative total shareholder return under the LTIP for the +2005-2007 +performance period, Nike, Inc. replaces The Stride Rite Corp. in +the Peer Group because of the acquisition of The Stride Rite +Corp. in 2007. +In general, the Compensation Committee has targeted base +salaries for the Chief Executive Officer, Chief Operating +Officer and Chief Financial Officer positions to be at the +median to slightly below the median percentile of base salaries +paid for comparable positions within the Peer Group. The +Compensation Committee targets this level of salary in +recognition of the need to provide competitive base salaries to +attract and retain executive talent, while allowing for a +greater portion of compensation to come in forms that are at +risk, and dependent upon performance. This “pay for +performance” approach allows potential overall compensation +to exceed or fall below the median Peer Group levels, depending +on Wolverine’s performance under the Annual Bonus Plan and +Long-Term Incentive Plan and depending on whether +Wolverine’s stock price has increased or decreased. +Implementation +of Wolverine’s Compensation Programs +The Compensation Committee administers and makes recommendations +with respect to Wolverine’s compensation plans and reviews +and approves (with input from the independent directors in the +case of the Chief Executive Officer) the compensation of key +senior executives. The Compensation Committee receives +recommendations from Wolverine’s Chief Executive Officer +regarding the compensation of senior executive officers (other +than the Chief Executive Officer). Wolverine did not engage a +compensation consultant in 2007. +12 +Table of Contents +In addition to reviewing comparative data from the Peer Group, +the Compensation Committee reviews aggregate compensation data +for U.S. publicly traded companies with revenues ranging +from $1 billion to $1.5 billion (excluding companies +with overall compensation in excess of certain dollar +thresholds). The Compensation Committee focuses its comparative +analysis primarily on the Peer Group since it believes that the +Peer Group represents companies that are most +similarly-positioned to Wolverine. +Elements +of Compensation +Executive compensation at Wolverine consists primarily of the +following elements: +• +base salary and benefits; +• +performance-based compensation, if any, under the Executive +Short-Term Incentive Plan (the “Annual Bonus Plan”); +• +amounts paid, if any, as individual-specific bonuses designed to +encourage achievement of individual goals; +• +performance-based compensation, if any, under the Long-Term +Incentive Plan (“LTIP”); +• +participation in Wolverine’s equity-based incentive +plans; and +• +participation in Wolverine’s retirement plans. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +To attract and retain well-qualified executives, the +Compensation Committee seeks to establish competitive base +salaries. In setting individual base salaries, the Compensation +Committee considers the executive’s performance, the +executive’s current compensation, the executive’s +responsibilities and Wolverine’s or the applicable business +unit’s performance (determined by reference to pre-tax +levels of profit and levels of sales). The Compensation +Committee also considers Peer Group base salary information for +the Chief Executive Officer, Chief Operating Officer and Chief +Financial Officer positions, and has generally targeted salaries +to be at the median to slightly below the median percentile of +base salaries paid for comparable positions within the Peer +Group. Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to the executive’s performance, and a significant but +lesser weight is generally given to the comparative data. +In general, base salaries for the Chief Executive Officer, Chief +Operating Officer (through April 2007 when Mr. Krueger was +Chief Operating Officer), and Chief Financial Officer were near +the median of salaries paid by companies included in the Peer +Group. The 2007 average base salary of executive officers +increased over the previous year’s level as a result of a +combination of factors, including improved individual +performance, improved or continued high-level performance by +Wolverine, promotions and increased responsibilities. +Annual +Incentive Bonus +The Annual Bonus Plan is designed to provide key employees with +the opportunity for bonuses based on the performance of +Wolverine, its subsidiaries, operating divisions +and/or +profit centers. A target bonus goal (the “target +bonus”), expressed as a percentage of the +participant’s base salary, is established by the +Compensation Committee. The Compensation Committee then +establishes “incentive bonus” levels, expressed as a +percentage of the target bonus, that are paid to the participant +at specified levels of performance. +The two primary measures of corporate and divisional performance +in 2007 were pre-tax profits and sales, with 80% of +participants’ target amounts weighted on pre-tax profits. +The Compensation Committee determined that the weighting between +sales and profits reflected Wolverine’s goal to grow sales, +but not at the expense of profits and shareholder return. With +the exception of Mr. Zwiers, the targets for named +executive officers were based solely on corporate performance. +Mr. Zwiers’ targets were based on a mix of corporate +performance and the performance of the Hush Puppies and Hush +Puppies U.S. businesses because of his role as President of +the Hush Puppies USA business during 2007. +During fiscal 2007, the named executive officers were targeted +to receive the following percentages of their annual salaries as +annual bonus compensation: Mr. Grady 20%; Mr. Gulis +32%; Mr. Krueger 48%; Mr. O’Donovan 48% (but +prorated to the period of time during 2007 when +Mr. O’Donovan was Chief Executive Officer); +Mr. Ottenwess 20%; and Mr. Zwiers 20%. Actual payouts, +if any, could range from 50% to 212.5% of the target percentage, +based on Wolverine’s performance. Maximum payout under this +annual incentive bonus and the annual discretionary bonus that +is based on individual performance (described below), on a +combined basis, is 200% of target. +13 +Table of Contents +In determining the target percentages, the Compensation +Committee considered each named executive officer’s +position, competitive incentives and the executive’s +aggregate incentive compensation potential under all of +Wolverine’s plans. The Compensation Committee determined +that these percentages were competitive in the marketplace for +similar positions and responsibilities. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and sales and to put a larger percentage of their total +potential cash compensation “at risk.” Accordingly, +the target for the Chief Executive Officer is at the top end of +the range. +For 2007, Wolverine’s corporate sales and corporate pre-tax +profit performance goals were as follows: +Performance Level +(Percentage of +Pre-Tax +Target Payout) +Sales +Earnings +Threshold (50)% +$ +1.19 Billion +$ +127.6 Million +Target (100)% +$ +1.205 Billion +$ +131.0 Million +Goal (150)% +$ +1.22 Billion +$ +134.4 Million +Maximum (212.5)% +$ +1.235 Billion +$ +137.8 Million +Wolverine’s sales for 2007 were between threshold and +target levels. Wolverine’s pre-tax earnings for 2007 +exceeded the maximum goal. Based on these corporate performance +levels, payments under the Annual Bonus Plan for +Messrs. Grady, Gulis, Krueger, O’Donovan (prorated) +and Ottenwess were at approximately 185% of each +individual’s respective target level. Because of the +comparative performance levels between pre-tax earnings and +sales and the weighting of the performance factors, +approximately 91% of the actual payout under the Annual Bonus +Plan for 2007 related to pre-tax earnings and approximately 9% +related to sales. +Mr. Zwiers’ annual bonus for 2007 was based partially +on corporate performance and partially on the sales and pre-tax +profit performance of the Hush Puppies and Hush Puppies +U.S. businesses. The sales and pre-tax profit performance +of the Hush Puppies and Hush Puppies U.S. businesses ranged +from below threshold level to goal level with the overall payout +to Mr. Zwiers based on all of his annual bonus components +between threshold and target levels. +The Annual Bonus Plan closely links the bonus opportunity for +key employees to the performance of the specific divisions and +operations over which they have substantial control and ability +to impact results. This structure provides clear incentives and +line-of-sight management to drive operational performance and +divisional achievements on an annual basis. This complements the +approach of the LTIP described below, which is focused on +Wolverine’s long-term achievements in +earnings-per-share +and total stockholder return. +Discretionary +Bonus +In addition to performance-based compensation under the Annual +Bonus Plan, Wolverine generally pays annual bonuses to key +employees based on individual performance goals. Wolverine uses +discretionary bonuses as a way to provide further incentive for +support of corporate initiatives. +Bonuses based on individual performance are paid on a +discretionary basis based on achievement of personal goals, +which may include elements such as executing strategies to +support Wolverine’s vision, developing people, supporting +social and environmental responsibility, growing new business +initiatives, and driving operational excellence. The performance +bonus for the Chief Executive Officer is paid only after the +review and approval of the Compensation Committee and the +independent Directors. Discretionary bonuses are generally not +paid to executive officers if Wolverine (or the applicable +division) does not achieve at least the threshold pre-tax +earnings goal under the Annual Bonus Plan. +During 2007, discretionary bonuses for named executive officers +were targeted at the following percentages of annual salary: +Mr. Grady 5%; Mr. Gulis 8%; Mr. Krueger 12%; +Mr. O’Donovan 12% (but prorated to the period of time +during 2007 when Mr. O’Donovan was Chief Executive +Officer); Mr. Ottenwess 5%; and Mr. Zwiers 5%. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each named executive officer’s +capacity to affect Wolverine’s performance. +Discretionary bonus payouts range from 75% of the target for +60-70% +achievement of personal goals, to 100% of the target for +70-80% +achievement of personal goals, to 135% of target for +80-90% +achievement of personal goals, to 150% of target for +90-100% +achievement of personal goals. Because Wolverine exceeded its +corporate threshold pre-tax earnings goal under the Annual Bonus +Plan for fiscal 2007, discretionary bonus payouts between target +and maximum levels were made to Messrs. Grady, Gulis, +Krueger, O’Donovan and Ottenwess for this period based upon +achievement of individual performance goals. In addition, +Wolverine awarded Mr. Zwiers a bonus, as reflected in the +Summary Compensation Table, +14 +Table of Contents +based on his performance of additional duties during 2007. +Long-Term +Incentive Plan +(3-Year +Bonus Plan) +The LTIP provides the opportunity for performance-based +compensation based upon the achievement of company financial +performance goals over a three-year period. The LTIP is intended +to foster cooperation among all business units and provide +significant incentive to achieve Wolverine’s long-term EPS +performance goals and strong total stockholder return. The +primary concept of the LTIP is to establish financial +performance goals for each three-year time period for Wolverine. +New performance periods begin each fiscal year and end three +full fiscal years later. +Awards under the LTIP are based on a percentage of average +annual earned salary during the three-year period, and +performance is determined by reference to one or more of the +performance factors listed in the plan. If the minimum +three-year targeted goal is not achieved, no bonus will be paid. +For the +2005-2007 +performance period, performance was determined 50% by reference +to Wolverine’s aggregate EPS over the three-year period and +50% by reference to TSR compared to the Peer Group. The +Compensation Committee believes it is important to provide a +reward and incentive for increasing EPS, but also believes that +such reward must be gauged against and superior to the results +achieved by the Peer Group. +Performance objectives for the +2005-2007 +performance period under the LTIP relating to relative TSR +against the Peer Group are as follows: +TSR Ranking Against +Percentage of Target +Peer Group +Payout +1st +200 +% +2nd +175 +% +3rd +150 +% +4th +125 +% +5th +100 +% +6th +75 +% +7th +50 +% +8th – 14th +0 +% +EPS performance objectives for the +2005-2007 +period under the LTIP were as follows: +Performance Level +(Percentage of Target +Aggregate EPS for the +Payout) +Three-Year Period +Threshold (50)% +$ +3.54 +Target (100)% +$ +3.68 +Goal (150)% +$ +3.82 +Maximum (200)% +$ +4.12 +EPS performance for the three year period exceeded the maximum +goal level and a TSR ranking of 7th was at the threshold +payout level of 50% of target for the +2005-2007 +performance period under the LTIP. Based on EPS and TSR +performance, Wolverine paid cash incentive bonuses with respect +to the three-year performance period ended December 29, +2007, at 125% of target levels. +Equity-Based +Incentive Plans +Wolverine grants restricted stock and stock options (including +incentive stock options) to its named executive officers. These +awards are designed to: +• +more closely align executive and stockholder interests; +• +reward executives and other key employees for building +stockholder value; and +• +encourage long-term investment in Wolverine by participating +executives. +The Compensation Committee believes that stock ownership by +management is beneficial to stockholders and stock incentives +have been granted by Wolverine to executives and other key +employees pursuant to various equity-based plans for several +decades. The Compensation Committee administers all aspects of +these plans and determines the amount of and terms applicable to +any award under these plans. +In determining the number of shares of restricted stock and the +number of options to be awarded to executives in 2007, the +Compensation Committee took into consideration the +executive’s level of responsibility and, with respect to +the Chief Executive Officer, Chief Operating Officer and Chief +Financial Officer positions, compensation practices of the +companies within the Peer Group. As a general practice, both the +number of shares and options granted and their proportion +relative to the total number of shares and options granted +increase in some proportion to increases in each +executive’s responsibilities. Accordingly, the Chief +Executive +15 +Table of Contents +Officer generally receives more stock options and restricted +stock than the other named executive officers. The Compensation +Committee also considers the recommendations of management +(except for awards to the Chief Executive Officer), the +individual performance of the executive and the number of shares +previously awarded to the executive. +The value of equity grants to the Chief Executive Officer and +Chief Operating Officer was generally targeted between 100% and +120% of base salary. The value of equity grants to the Chief +Financial Officer was generally targeted between 90% and 110% of +base salary. The value of equity grants to the other named +executive officers was generally targeted between 40% and 60% of +base salary. The different levels of equity compensation reflect +the ability of an individual to impact Wolverine’s +performance and stock price. +The Compensation Committee has reviewed the mix of restricted +stock and stock options and believes the mix is appropriate +based on the retentive nature of restricted stock and the +incentive nature of stock options. Due to the strong retentive +nature of restricted stock, considering the extended vesting +schedule, the value of equity award grants is weighted slightly +more heavily toward restricted stock grants. Restrictions lapse +with respect to 25% of the shares granted on the third +anniversary of the date of grant, with restrictions lapsing on +an additional 25% on the fourth anniversary. Restrictions on the +final 50% of a restricted award do not vest until the fifth +anniversary of the date of grant. This schedule encourages +retention and long-term investment in Wolverine by participating +executives. +The Compensation Committee also views the grant of stock options +as having a retentive element because +1 / 3 +of each option grant vests on each of the first three +anniversaries of the date of grant. The Compensation Committee +views stock options primarily as an incentive for the named +executive officers to increase stockholder value and drive +increased share prices. +Stock options vest and the restrictions on shares of restricted +stock lapse upon a change in control of Wolverine. Change in +control includes certain changes in the composition of the board +of directors, certain acquisitions of 20% of Wolverine’s +common stock and other specified reorganizations, mergers, +consolidations, liquidations, dissolutions or disposition of +substantial assets. Wolverine calculates the accounting cost of +equity-based awards under SFAS No. 123(R), Share Based +Payments. As such, the grant date accounting fair value, which +is fixed at date of grant, is expensed over the vesting period. +Consistent with SEC rules, the 2007 compensation expense +associated with any outstanding equity grants for the named +executive officers is presented in the Summary Compensation +Table. +The Compensation Committee also maintains stock ownership +guidelines that apply to all executive management, including the +named executive officers. The ownership guidelines require, +within certain time periods, ownership by the named executive +officers in the following amounts: two times base salary +(Messrs. Grady, Ottenwess and Zwiers); three times base +salary (Mr. Gulis); and five times base salary +(Mr. Krueger). The Compensation Committee believes that +these ownership guidelines bolster the goal of aligning +management’s interests with stockholders’ interests +under Wolverine’s restricted stock plans by requiring +continued levels of ownership of Wolverine stock even after +restrictions on the sale of stock lapse. Wolverine’s policy +does not allow hedging by Wolverine officers. +Wolverine generally awards stock options and restricted stock in +February of each year at the Compensation Committee’s +regularly scheduled meeting. The exercise price of stock options +is the fair market value of Wolverine’s common stock on the +grant date. +Retirement +Plans +The named executive officers participate in Wolverine’s +qualified pension plan and 401(k) savings plan (including +potential company matching) covering most salaried domestic +employees. Certain named executive officers also participate in +a supplemental executive retirement plan. The Compensation +Committee believes that, through vesting and participation +requirements and increased value based on years of service, +Wolverine’s retirement plans encourage long-term commitment +by Wolverine’s executives and assist Wolverine in +attracting and retaining talented executives. +Qualified +Pension Plan +The vesting period for participation in the qualified pension +plan is five years of service. Subject to the limitations +imposed by the Internal Revenue Code, the Wolverine employee +pension plan generally provides monthly benefits at normal +retirement in an amount equal to 1.6% of final average monthly +earnings (generally base salary and annual bonus, less social +security allowance) multiplied by the number of years of service +up to 30 years. For certain named executive officers, the +benefit is calculated using 2.4% (for +Messrs. O’Donovan, Krueger and Gulis) or 2.0% (for +Messrs. Ottenwess and Zwiers) of final average monthly +16 +Table of Contents +earnings multiplied by the participant’s number of years of +service up to 25 years. The higher percentages in place for +Messrs. O’Donovan, Krueger and Gulis reflect an +enhanced retention element of their compensation due to their +respective positions and ability to affect Wolverine’s +performance. +Supplemental +Executive Retirement Plan (SERP) +Wolverine also maintains a Supplemental Executive Retirement +Plan (the “SERP”) which covers certain officers of +Wolverine, including Messrs O’Donovan, Krueger, Gulis, +Ottenwess and Zwiers. The SERP is maintained because the +Compensation Committee believes that the limit on compensation +that can be taken into account for Wolverine’s qualified +pension plan does not allow Wolverine to provide sufficient +retirement benefits that have the recruitment and retention +value necessary to attract and retain highly compensated +executives who are significantly responsible for +Wolverine’s results of operations. +Under the SERP, a participating executive will be eligible for +an annual supplemental benefit once he or she has completed five +years of service after having been approved as a participant in +the SERP. This schedule is intended to provide significant +retention incentives for participating executives. +The supplemental benefit is generally equal to the difference +between the executive’s retirement benefit under +Wolverine’s qualified pension plan and the benefits the +executive would have received if there were no cap on earnings +when calculating the benefit under the pension plan. The SERP +caps years of service at 25 years rather than 30 years +(the pension plan cap for non-SERP participants). The SERP also +allows a retired executive to draw earlier (beginning at +55) and on different terms than under the pension plan. The +percentage multiplier is the same under the SERP as it is under +the Pension Plan. Wolverine may grant additional deemed years of +service under the SERP, subject to the overall limit of +25 years of service. The full benefit of any additional +years of deemed service is paid under the SERP. +A retired SERP participant may draw the full benefit beginning +at age 65 or may elect to begin receiving a reduced benefit +at or after age 55 (see the notes to the Pension Benefits +Table). The SERP also includes a disability benefit (See the +Disability Benefit calculation and related note under the +Potential Payments Upon Termination or Change in Control Table). +The SERP also provides for a death benefit to the +executive’s designated beneficiary if the executive dies +before retiring (See the Death Benefit calculation and related +note under the Potential Payments Upon Termination or Change in +Control Table). +The SERP provides for lump sum payments to participating +executives if, within two (Messrs. Ottenwess and Zwiers) or +three (Messrs. Krueger and Gulis) years after a change in +control the executive resigns for good reason or is terminated +by Wolverine other than for cause or due to death or disability, +all as defined in the SERP (See the SERP Change in Control +benefit calculation and related note under the Potential +Payments Upon Termination or Change in Control Table). +The SERP also contains non-competition, confidentiality and +employee non-solicitation provisions in favor of Wolverine. +Under the non-competition provisions of the SERP, the +participant shall not be entitled to any benefit payment if, +prior to the date on which such benefit payment is due, the +participant enters into certain relationships with a competing +business. Benefits under the SERP are also subject to forfeiture +if the executive’s employment is terminated for serious +misconduct or if Wolverine cannot collect under an insurance +policy purchased to fund SERP benefits for certain reasons. +Wolverine may terminate the SERP or stop further accrual of SERP +benefits for a participating executive at any time, but +termination will not affect previously accrued benefits. +As of December 29, 2007, the persons listed in the Summary +Compensation Table had the following years of credited service +under the pension plan and, unless otherwise indicated, the +SERP: Mr. O’Donovan, 25 years; Mr. Krueger, +12 years (pension plan) and 16 years (SERP); +Mr. Gulis, 22 years; Mr. Ottenwess, +20 years; Mr. Grady, 1 year (pension plan only); +and Mr. Zwiers, 10 years. Messrs. Gulis, Krueger +and Ottenwess are all vested in the SERP. Mr. Zwiers has +been designated as a participant in the SERP, but is not yet +vested in the SERP. Mr. O’Donovan is currently drawing +benefits under the SERP. +Other +Benefits +The named executive officers participate in Wolverine’s +medical and dental plans and are provided with life and +disability insurance. In addition, Wolverine provides for some +basic tax and estate planning services for the named executive +officers. +Mr. Grady’s 2007 compensation includes amounts +relating to relocation costs that were paid +and/or +reimbursed by Wolverine in connection with Mr. Grady’s +17 +Table of Contents +relocation to Michigan after being hired by Wolverine in October +2006. +Chief +Executive Officer Transition +On April 19, 2007, Mr. O’Donovan retired as Chief +Executive Officer of Wolverine and Mr. Krueger was +appointed as Chief Executive Officer of Wolverine. +Mr. O’Donovan retained his position as Chairman of the +Board of Directors. Below is a summary of some additional +arrangements with Messrs. O’Donovan and Krueger in +connection with this transition. +Mr. O’Donovan +Wolverine entered into a one-year consulting arrangement with +Mr. O’Donovan in April 2007 in order to retain his +services after retirement. Wolverine will pay +Mr. O’Donovan an annual fee of $350,000 under the +consulting arrangement. This payment is in lieu of any +remuneration (other than standard director stock option grants) +as Chairman of the Board of Wolverine. Under the consulting +arrangement, Wolverine will continue to provide +Mr. O’Donovan with office space, administrative +support and continued estate and financial planning and tax +preparation services. In addition, +Mr. O’Donovan’s 2007 restricted stock grant will +vest upon the successful conclusion of the consulting +arrangement. +In February 2008 Wolverine extended +Mr. O’Donovan’s term as Chairman through April +2009. Mr. O’Donovan will receive $150,000 for his +services as Chairman for the period from April 2008 to April +2009 and will also have office space and administrative staffing +at Wolverine’s headquarters. Mr. O’Donovan will +not receive any other compensation for his services as Chairman +and a director, other than normal annual director stock option +grants. +Mr. Krueger +In connection with the transition to his role as Chief Executive +Officer, Wolverine agreed to grant Mr. Krueger one +additional deemed year of service under the SERP for each year +he serves as Chief Executive Officer of Wolverine, beginning +with 2007. This additional grant is intended as an enhanced +retention element of Mr. Krueger’s compensation. +Mr. Krueger also entered into an agreement with Wolverine +in connection with his appointment as Chief Executive Officer +that, upon termination of his employment other than termination +by Wolverine for cause or termination by Mr. Krueger for +other than good reason, requires the following payments in +exchange for a general release in favor of Wolverine: +18 months’ base salary (reduced by payments he +receives if he is employed by a competing business); a pro rata +portion of the annual incentive bonus and the long-term bonus +for all uncompleted performance periods based on actual +corporate performance for the applicable performance periods; a +pro rata portion of the annual discretionary bonus relating to +personal performance objectives; and, with respect to any +triggering termination occurring before Mr. Krueger’s +60th birthday, either a waiver of the non-competition +clause in the SERP or a payment of 36 months’ base +salary. Mr. Krueger also will be paid any annual incentive +bonus and long-term incentive bonus earned but not paid prior to +his termination. +The +Impact of Accounting and Tax Treatments on +Compensation +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to +certain executive officers in excess of $1,000,000 annually, +with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and its stock incentive plans, which are intended to +permit certain amounts payable under these plans to qualify as +“performance-based” compensation for purposes of +Section 162(m). Incentives under these plans were not +included in the $1,000,000 limit for purposes of calculating +Wolverine’s deduction for compensation paid to its +executive officers, and Wolverine’s deduction was not +limited in 2007 with respect to compensation paid to any named +executive officer. However, Wolverine believes it is important +to preserve flexibility in administering compensation programs +in a manner designed to promote varying corporate goals. +Accordingly, Wolverine has not adopted a policy that all +compensation must be deductible under Section 162(m). +Certain compensation paid by Wolverine in the future may not +qualify as performance-based compensation excluded from the +limitation on deductibility. +Executive +Severance +Agreement s +Under individual agreements, Messrs. Grady, Gulis, Krueger, +Ottenwess and Zwiers will receive compensation if their +employment is terminated within two (Messrs. Grady, +Ottenwess and Zwiers) or three (Messrs. Krueger and Gulis) +years following a change in control of Wolverine. The +Compensation Committee believes that this “double +trigger” requirement (change in control plus termination of +employment rather than just a change in control) for triggering +the payment of +18 +Table of Contents +benefits is appropriate because the executive is not materially +harmed by a change in control if there is no termination of +employment. +Severance Agreements are intended to provide stability in +management during the transition period accompanying a change in +control by providing significant retention incentives for +executives to remain with Wolverine during the period following +a change in control. +No payment will be made under the Severance Agreement if: +• +the termination of the officer is due to death or retirement in +accordance with Wolverine’s policy or as otherwise agreed; +• +the termination is by Wolverine for cause or disability; or +• +the termination is by resignation of the officer for other than +“good reason,” which includes the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. +The executive has no requirement to mitigate the payments made +under the Severance Agreement by seeking employment, but the +compensation to be paid during the fourth and later months after +termination will be reduced to the extent of any compensation +earned by the officer during the applicable period. +You will find information on applicable payments to each named +executive officer and the specific elements comprising the +payment under the Severance Agreements in the Potential Payments +Upon Termination or Change in Control section of this Proxy +Statement. +Wolverine has established a Benefit Trust to ensure that +payments to employees under the Severance Agreements (as well as +the SERP) will not be improperly withheld after a change in +control of Wolverine, as defined in the agreement establishing +the trust. +19 +Table of Contents +Summary +of Executive Compensation +The following Summary Compensation Table shows selected +information concerning the compensation of the Principal +Executive Officer, Principal Financial Officer, each of +Wolverine’s three most highly compensated executive +officers who served in positions other than Principal Executive +Officer and Principal Financial Officer at the end of the last +completed fiscal year and the former Chief Executive Officer +(the “named executive officers”). +Summary +Compensation Table +Change in +Pension +Value and +Non-Equity +Nonqualified +Stock +Option +Incentive Plan +Deferred +All other +Name and +Salary +Bonus(1) +Awards +Awards +Compensation +Compensation +Compensation +Total +Principal Position +Year +($)(1) +(2)($) +(3)($) +(3)($) +(4)($) +Earnings(5) +(6)($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +Blake W. Krueger, +2007 +$ +646,539 +$ +104,739 +$ +580,364 +$ +304,289 +$ +831,345 +$ +389,885 +$ +11,592 +$ +2,868,753 +CEO and President* +2006 +480,000 +64,800 +479,772 +181,959 +656,815 +237,730 +11,342 +2,112,418 +Timothy J. O’Donovan, +2007 +$ +499,519 +$ +38,397 +$ +956,040 +$ +36,642 +$ +609,694 +$ +2,634,156 +$ +9,363 +$ +4,783,811 +Chairman** +2006 +720,673 +116,749 +827,296 +247,919 +1,358,654 +1,190,328 +24,131 +4,485,750 +Stephen L. Gulis, Jr., +2007 +$ +382,115 +$ +41,268 +$ +456,598 +$ +213,560 +$ +410,720 +$ +69,739 +$ +9,696 +$ +1,583,696 +Exec. Vice President, CFO and Treasurer +2006 +367,404 +39,680 +302,836 +69,160 +458,530 +204,881 +9,446 +1,451,937 +Kenneth A. Grady, +2007 +$ +236,058 +$ +15,934 +$ +17,303 +$ +18,704 +$ +112,370 +$ +12,568(7 +) +$ +37,641 +$ +450,578 +Secretary and General Counsel*** +Nicholas P. Ottenwess, +2007 +$ +233,462 +$ +15,759 +$ +69,824 +$ +33,200 +$ +157,011 +$ +15,855 +$ +9,888 +$ +534,999 +Vice President — Finance, and Controller +2006 +225,269 +15,206 +79,398 +13,029 +176,064 +53,534 +9,638 +572,138 +James D. Zwiers, +2007 +$ +242,115 +$ +20,000 +$ +65,217 +$ +33,200 +$ +101,350 +$ +18,162(8 +) +$ +10,106 +$ +490,150 +Senior Vice President +2006 +221,346 +14,941 +58,780 +13,029 +152,514 +25,826(8 +) +9,585 +496,021 +(1) +For information regarding determination of base salaries and +bonus, see the Compensation Discussion and Analysis section of +this Proxy Statement. The 2007 amount for +Mr. O’Donovan includes $237,019 in salary for the +portion of the year that he was Chief Executive Officer and +$262,500 paid to Mr. O’Donovan under the consulting +arrangement described in the Compensation Discussion and +Analysis section of this Proxy Statement. +(2) +Includes amounts earned because of achievement of performance of +personal objectives. +(3) +Represents the expenses recognized by Wolverine in the +respective fiscal year for awards and options, except that the +amounts in this table do not reflect a reduction for estimated +forfeitures. Wolverine expenses options and restricted stock +according to applicable vesting schedules and retirement +eligibility of the grantees. Stock options were valued using the +Black-Scholes model and restricted stock was valued using the +closing market price on the New York Stock Exchange on the date +of grant with respect to 2007 restricted stock grants and the +average of the high and low price on the New York Stock Exchange +for grants from 2006 and earlier. For additional valuation +assumptions, see the Stock-Based Compensation heading under +Note 1 to Wolverine’s Financial Statements for the +fiscal years ended December 30, 2006 and December 29, +2007. +20 +Table of Contents +(4) +Includes the amounts listed in the table below, which were +earned in 2006 and 2007 and paid in February 2007 and February +2008 with respect to the three-year performance periods ending +in 2006 and 2007 under the LTIP and amounts earned in 2006 and +2007 and paid in February 2007 and February 2008, respectively, +under the Annual Bonus Plan. +Officer +Year +LTIP +Annual Bonus Plan +Mr. Krueger +2007 +$ +254,173 +$ +577,172 +2006 +$ +248,815 +$ +408,000 +Mr. O’Donovan +2007 +$ +398,104 +$ +211,590 +2006 +$ +623,567 +$ +735,087 +Mr. Gulis +2007 +$ +183,308 +$ +227,412 +2006 +$ +208,696 +$ +249,834 +Mr. Grady +2007 +$ +24,565 +$ +87,805 +Mr. Ottenwess +2007 +$ +70,172 +$ +86,839 +2006 +$ +80,325 +$ +95,739 +Mr. Zwiers +2007 +$ +68,570 +$ +32,780 +2006 +$ +58,442 +$ +94,072 +(5) +All amounts reflected in this column relate to the aggregate +change in the actuarial present value of the named executive +officers’ accumulated benefits under the Company’s +pension plan and, where applicable, SERP. The 2007 amount for +Mr. O’Donovan also includes amounts paid to him under +the SERP and pension plan in fiscal 2007. +(6) +The compensation listed in this column for 2007 consisted of: +(i) Wolverine’s contributions to the accounts of the +named executive officers under Wolverine’s 401(k) Savings +Plan as follows: $7,750 for Mr. Krueger; $7,750 for +O’Donovan; $7,750 for Mr. Gulis; $3,541 for +Mr. Grady; $7,750 for Mr. Ottenwess; and $7,750 for +Mr. Zwiers; and (ii) payments made by Wolverine for +the premiums on certain life insurance policies as follows: +$3,842 for Mr. Krueger; $1,613 for Mr. O’Donovan; +$2,451 for Mr. Grady; $1,946 for Mr. Gulis; $2,138 for +Mr. Ottenwess; and $2,356 for Mr. Zwiers. Wolverine +also paid moving expenses in 2007 for Mr. Grady in the +amount of $31,649. +The compensation listed in this column for 2006 consisted of: +(i) Wolverine’s contributions to the accounts of the +named executive officers under Wolverine’s 401(k) Savings +Plan as follows: $7,500 for Mr. Krueger; $7,500 for +O’Donovan; $7,500 for Mr. Gulis; $7,500 for +Mr. Ottenwess; and $7,500 for Mr. Zwiers; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,842 for Mr. Krueger; +$4,934 for Mr. O’Donovan; $1,946 for Mr. Gulis; +$2,138 for Mr. Ottenwess; and $2,085 for Mr. Zwiers. +Wolverine also paid for tax and estate planning services for +Mr. O’Donovan in fiscal year 2006, which cost $11,697. +(7) +Mr. Grady is not yet vested in the pension plan, but the +amount reflected assumes that Mr. Grady is fully vested in +the pension plan. +(8) +Mr. Zwiers is not yet vested in the SERP, but the amount +reflected assumes that Mr. Zwiers is fully vested in the +SERP. +* +Effective April 19, 2007, the Board of Directors of the +Company appointed Blake W. Krueger as Chief Executive Officer +and President of the Company. +** +Effective April 19, 2007, Timothy J. O’Donovan retired +as Chief Executive Officer of the Company. +Mr. O’Donovan maintained his position as Chairman of +the Board. +*** +Mr. Grady’s employment with Wolverine began in October +2006. +21 +Table of Contents +Grants of +Plan-Based Awards During 2007 +The following table provides information concerning each grant +of an award made to the named executive officers in the last +completed fiscal year. +Grants of Plan-Based +Awards +All Other +All Other +Stock +Option +Grant +Awards: +Awards: +Date +Number +Number +Exercise +Fair +Estimated Possible Payouts +of +of +or Base +Value of +Under Non-Equity Incentive +Estimated Future Payouts +Shares +Securities +Price of +Stock +Plan Awards(1) +Under Equity Incentive Plan Awards +of Stock +Underlying +Option +and +Grant +Threshhold +Target +Maximum +Threshhold +Target +Maximum +or Units +Options +Awards +Option +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#)(2) +(#)(3) +($/Sh)(4)(5) +Awards(6) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +Blake W. Krueger +2/7/2007 +$ +203,660(7) +$ +407,320(7) +$ +814,639(7) +13,900 +40,200 +$ +30.26 +$ +697,423 +2/7/2007 +$ +155,169(8) +$ +310,339(8) +$ +659,470(8) +— +— +— +4/19/2007 +2,300 +6,700 +$ +29.47 +$ +112,338 +Timothy J. O’Donovan +2/7/2007 +$ +—(7)(9) +$ +—(7)(9) +$ +—(7)(9) +17,000 +0 +$ +30.26 +$ +514,420 +2/7/2007 +$ +56,885(8) +$ +113,769(8) +$ +241,759(8) +— +— +— +Stephen L. Gulis, Jr. +2/7/2007 +$ +80,244(7) +$ +160,488(7) +$ +320,977(7) +8,300 +23,800 +$ +30.26 +$ +415,040 +2/7/2007 +$ +61,138(8) +$ +122,277(8) +$ +259,838(8) +— +— +— +Kenneth A. Grady +2/7/2007 +$ +21,068(7) +$ +42,136(7) +$ +84,273(7) +2,700 +7,600 +$ +30.26 +$ +134,034 +2/7/2007 +$ +23,606(8) +$ +47,212(8) +$ +100,325(8) +— +— +— +Nicholas P. Ottenwess +2/7/2007 +$ +30,642(7) +$ +61,284(7) +$ +122,568(7) +2,700 +7,600 +$ +30.26 +$ +134,034 +2/7/2007 +$ +23,346(8) +$ +46,692(8) +$ +99,221(8) +— +— +— +James D. Zwiers +2/7/2007 +$ +31,778(7) +$ +63,555(7) +$ +127,110(7) +2,700 +7,600 +$ +30.26 +$ +134,034 +2/7/2007 +$ +24,212(8) +$ +48,423(8) +$ +102,899(8) +— +— +— +(1) +Under the LTIP, key management employees may earn incentive +compensation based upon achievement of specified performance +goals with respect to the performance of Wolverine and/or its +subsidiaries, operating divisions or profit centers over a +three-year performance period. Performance goals under the LTIP +for the +2007-2009 +period are based 50% on total stockholder return (as compared to +a pre-established peer group) and 50% on aggregate earnings per +share for the three-year period. The Compensation Committee +determined the threshold, target and maximum compensation. +Incentive compensation is conditioned on achieving a minimum or +“threshold” performance level and no payment will be +made if the threshold performance level is not met. The +Compensation Committee established the performance goals at the +beginning of 2007 for the period ending on the last day of +Wolverine’s 2009 fiscal year. Incentive compensation +payable under the LTIP is paid in cash. +Under the LTIP, amounts earned as performance-based incentive +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2007 as reported in the Summary Compensation Table, +adjusted for 5% estimated annual merit increases. +Under the Annual Bonus Plan, key management employees may earn +incentive compensation based upon achievement of specified +performance goals of Wolverine and/or its subsidiaries, +operating divisions or profit centers for 2007. Performance +goals for 2007 were based 80% on Wolverine’s pre-tax +profits and 20% on Wolverine’s revenue. The Compensation +Committee determined the threshold, target and maximum +compensation. Incentive compensation is conditioned on achieving +a minimum or “threshold” performance level and no +payment is made if the threshold performance level is not met. +The Compensation Committee established the performance goals +under the Annual Bonus Plan at the beginning of 2007 and actual +incentive compensation paid to the named executive officers +under the Annual Bonus Plan for performance in 2007 is reflected +in the Summary Compensation Table. +(2) +Grants of restricted stock awards were made under the 2001 Stock +Incentive Plan for Messrs. O’Donovan, Gulis and +Krueger and under the 1999 Stock Incentive Plan for +Messrs. Grady, Ottenwess and Zwiers. The restrictions on +25% of the shares received under the awards reflected in this +table normally lapse on the third anniversary of the date of +grant, with the restrictions on an additional 25% of the shares +lapsing on the fourth anniversary and the restrictions with +respect to the remaining shares lapsing on the fifth +anniversary. In connection with Mr. O’Donovan’s +retirement as Chief Executive Officer in April 2007, +1,417 shares of the restricted stock shown in the table +were vested. The remaining 15,583 shares will vest on +April 19, 2008, if Wolverine’s Board of Directors +determines that Mr. O’Donovan has successfully +completed his consulting arrangement with Wolverine. +22 +Table of Contents +(3) +Grants of stock options were made under the 2005 Stock Incentive +Plan for all named executive officers. +(4) +The Exercise Price is equal to the closing market price of +shares of Wolverine common stock on the date of grant. +(5) +These options are exercisable with respect to one-third of the +shares on each of the first three anniversaries of the date of +the grant, with full vesting occurring on the third anniversary +date of the grant. Vesting of such stock options may be +accelerated upon certain events, including retirement, death, +disability or a change in control of Wolverine. +(6) +Represents the full grant date value for options and restricted +stock granted in fiscal year 2007 using the closing market price +of Wolverine common stock on the New York Stock Exchange on the +date of grant of restricted stock and the valuation assumptions +for stock options set forth in the Stock-Based Compensation +heading under Note 1 to Wolverine’s Financial +Statements for the fiscal year ended December 29, 2007. +(7) +Estimated payout levels relating to each named executive +officer’s participation in the LTIP for the +2007-2009 +performance period. +(8) +Estimated payout levels relating to each named executive +officer’s participation in the Annual Bonus Plan for 2007. +The amounts reflected in columns (c)-(e) for the Annual Bonus +Plan are estimated ranges of possible payments. Actual payments +for the 2007 performance period have been made and are reflected +in the Summary Compensation Table. +(9) +Mr. O’Donovan will not be entitled to an LTIP payment +for the +2007-2009 +performance period because he served as Chief Executive Officer +for less than one year during the performance period. +23 +Table of Contents +Outstanding +Equity Awards at December 29, 2007 +The following table provides information concerning unexercised +options; stock that has not vested; and equity incentive plan +awards for each named executive officer outstanding as of +December 29, 2007. +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +Closing +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Price +Shares, +Shares, +of +of +Number +of Shares +of Shares +Units or +Units or +Securities +Securities +of +or Units +or Units +Other +Other +Underlying +Underlying +Securities +of Stock +of Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +Blake W. Krueger +5,332 +0 +0 +$ +20.72670 +2/23/2010 +58,488 +$ +1,432,956 +0 +0 +222 +0 +$ +20.72670 +3/4/2011 +1,116 +0 +$ +20.72670 +2/23/2010 +1,081 +0 +$ +20.50 +2/13/2012 +2,277 +0 +$ +20.50 +2/23/2010 +274 +0 +$ +17.90670 +2/23/2009 +649 +0 +$ +17.90670 +3/8/2009 +1,924 +0 +$ +17.90670 +2/22/2009 +682 +0 +$ +17.90670 +4/16/2010 +1,342 +0 +$ +17.90670 +3/8/2010 +418 +0 +$ +17.90670 +2/24/2010 +7,473 +0 +$ +17.90670 +2/23/2010 +883 +0 +$ +17.90670 +2/23/2010 +1,590 +0 +$ +17.90670 +2/22/2010 +664 +0 +$ +17.90670 +4/15/2009 +14,586 +0 +$ +20.07670 +2/24/2010 +841 +0 +$ +20.07670 +3/2/2009 +199 +0 +$ +20.07670 +2/24/2010 +1,441 +0 +$ +20.07670 +2/23/2010 +819 +0 +$ +20.07670 +3/3/2009 +628 +0 +$ +20.07670 +2/24/2010 +6,198 +0 +$ +20.07670 +3/3/2009 +4,872 +0 +$ +20.07670 +3/2/2009 +820 +0 +$ +20.07670 +2/24/2008 +22,500 +0 +$ +10.50670 +2/12/2013 +2,474 +0 +$ +10.29330 +2/14/2012 +9,714 +0 +$ +10.29330 +2/14/2012 +1,150 +0 +$ +20.37530 +3/8/2008 +481 +0 +$ +18.75 +2/23/2008 +24,637 +0 +$ +18.646 +2/24/2008 +5,362 +0 +$ +18.646 +2/24/2008 +23,063 +0 +$ +15.36670 +2/18/2014 +1,276 +0 +$ +20.07670 +2/21/2009 +411 +0 +$ +20.07670 +2/24/2008 +20,013 +0 +$ +17.90670 +3/2/2009 +24,180 +0 +$ +17.90670 +3/4/2011 +493 +0 +$ +17.90670 +2/26/2008 +592 +0 +$ +17.90670 +2/26/2008 +889 +0 +$ +17.90670 +2/23/2010 +4,824 +0 +$ +20.72670 +3/4/2011 +15,030 +0 +$ +20.07670 +2/11/2013 +24 +Table of Contents +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +Closing +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Price +Shares, +Shares, +of +of +Number +of Shares +of Shares +Units or +Units or +Securities +Securities +of +or Units +or Units +Other +Other +Underlying +Underlying +Securities +of Stock +of Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +24,153 +0 +$ +20.07670 +2/13/2012 +406 +0 +$ +17.90670 +2/24/2009 +26,200 +0 +$ +23.035 +2/8/2015 +967 +0 +$ +20.50 +3/4/2011 +6,303 +0 +$ +20.72670 +2/17/2014 +964 +0 +$ +20.72670 +3/4/2011 +2,269 +0 +$ +20.72670 +2/18/2014 +13,334 +26,666 +$ +22.47 +2/14/2016 +0 +40,200 +$ +30.26 +2/6/2017 +0 +6,700 +$ +29.47 +4/18/2017 +Timothy J. O’Donovan +2,106 +0 +0 +$ +20.50 +2/13/2012 +15,583 +$ +381,784 +0 +0 +1,935 +0 +$ +20.50 +3/4/2011 +4,552 +0 +$ +20.50 +2/23/2010 +54,500 +0 +$ +23.035 +2/18/2015 +1,929 +0 +$ +20.8033 +2/21/2009 +5,649 +0 +$ +20.8033 +3/2/2009 +1,285 +0 +$ +20.8033 +3/3/2009 +1,320 +0 +$ +20.8033 +3/2/2009 +5,829 +0 +$ +20.8033 +2/23/2010 +54,189 +0 +$ +20.8033 +2/23/2010 +13,803 +0 +$ +20.8033 +2/17/2014 +29,487 +0 +$ +20.8033 +2/11/2013 +51,039 +0 +$ +20.8033 +2/13/2012 +1,923 +0 +$ +20.8033 +3/4/2011 +3,622 +0 +$ +20.8033 +3/2/2009 +2,227 +0 +$ +20.8033 +2/23/2010 +2,796 +0 +$ +19.5033 +3/10/2009 +1,405 +0 +$ +19.5033 +3/9/2009 +1,651 +0 +$ +19.5033 +3/1/2009 +466 +0 +$ +19.5033 +2/24/2009 +466 +0 +$ +19.5033 +2/25/2009 +15,766 +0 +$ +19.5033 +3/2/2009 +24,034 +0 +$ +19.5033 +3/2/2009 +50,625 +0 +$ +15.3667 +2/18/2014 +45,000 +0 +$ +10.5067 +2/12/2013 +16,536 +0 +$ +10.2933 +2/14/2012 +3,451 +0 +$ +18.0627 +4/26/2008 +2,589 +0 +$ +19.9587 +3/9/2008 +2,589 +0 +$ +20.3753 +3/8/2008 +1,137 +0 +$ +18.7917 +2/26/2008 +850 +0 +$ +18.75 +2/23/2008 +39,637 +0 +$ +18.646 +2/24/2008 +544 +0 +$ +20.8033 +2/26/2008 +2,601 +0 +$ +20.8033 +2/22/2009 +1,353 +0 +$ +20.8033 +2/23/2010 +51,396 +0 +$ +20.8033 +3/4/2011 +25 +Table of Contents +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +Closing +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Price +Shares, +Shares, +of +of +Number +of Shares +of Shares +Units or +Units or +Securities +Securities +of +or Units +or Units +Other +Other +Underlying +Underlying +Securities +of Stock +of Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +2,814 +0 +$ +20.8033 +3/9/2010 +1,045 +0 +$ +20.8033 +2/28/2010 +1,305 +0 +$ +20.8033 +2/24/2010 +466 +0 +$ +20.8033 +2/25/2010 +2,281 +0 +$ +20.8033 +2/23/2010 +4,806 +0 +$ +20.8033 +3/4/2011 +871 +0 +$ +20.8033 +2/26/2008 +181 +0 +$ +20.8033 +3/2/2009 +2,614 +0 +$ +20.8033 +2/23/2010 +1,015 +0 +$ +20.8033 +2/24/2010 +1,288 +0 +$ +20.8033 +2/24/2008 +643 +0 +$ +20.8033 +2/24/2008 +18,167 +36,333 +$ +22.47 +2/14/2016 +Stephen L. Gulis, Jr. +14,886 +0 +0 +$ +20.01670 +2/23/2010 +46,188 +$ +1,131,606 +0 +0 +574 +0 +$ +20.01670 +2/24/2010 +820 +0 +$ +20.01670 +3/3/2009 +1,390 +0 +$ +20.01670 +2/23/2010 +15,054 +0 +$ +20.01670 +2/11/2013 +1,114 +0 +$ +20.80330 +2/23/2010 +963 +0 +$ +20.80330 +3/4/2011 +6,288 +0 +$ +20.80330 +2/17/2014 +1,081 +0 +$ +20.50 +2/13/2012 +22,500 +0 +$ +10.50670 +2/12/2013 +2,474 +0 +$ +10.29330 +2/14/2012 +26,200 +0 +$ +23.0350 +2/8/2015 +2,277 +0 +$ +20.50 +2/23/2010 +967 +0 +$ +20.50 +3/4/2011 +5,196 +0 +$ +20.01670 +3/4/2011 +26,067 +0 +$ +17.52670 +2/13/2012 +13,525 +0 +$ +17.52670 +3/5/2011 +307 +0 +$ +17.52670 +2/26/2008 +600 +0 +$ +17.52670 +2/26/2008 +1,837 +0 +$ +17.52670 +2/22/2009 +822 +0 +$ +17.52670 +2/23/2010 +1,356 +0 +$ +17.52670 +3/8/2010 +567 +0 +$ +17.52670 +2/27/2010 +261 +0 +$ +17.52670 +2/24/2010 +870 +0 +$ +17.52670 +2/23/2010 +657 +0 +$ +17.52670 +3/8/2009 +834 +0 +$ +17.52670 +2/28/2009 +252 +0 +$ +17.52670 +2/24/2009 +255 +0 +$ +17.52670 +2/23/2009 +23,063 +0 +$ +15.36670 +2/18/2014 +5,778 +0 +$ +20.01670 +3/2/2009 +1,725 +0 +$ +18.06270 +4/26/2008 +1,078 +0 +$ +19.95870 +3/9/2008 +26 +Table of Contents +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +Closing +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Price +Shares, +Shares, +of +of +Number +of Shares +of Shares +Units or +Units or +Securities +Securities +of +or Units +or Units +Other +Other +Underlying +Underlying +Securities +of Stock +of Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +1,150 +0 +$ +20.37530 +3/8/2008 +510 +0 +$ +18.79170 +2/26/2008 +442 +0 +$ +18.7500 +2/23/2008 +24,637 +0 +$ +18.64600 +2/24/2008 +822 +0 +$ +20.01670 +2/24/2008 +1,182 +0 +$ +20.01670 +2/21/2009 +411 +0 +$ +20.01670 +2/24/2008 +24,250 +0 +$ +20.01670 +3/2/2009 +9,748 +0 +$ +20.80330 +3/5/2011 +2,265 +0 +$ +20.80330 +3/2/2009 +7,152 +0 +$ +20.01670 +2/23/2010 +5,760 +0 +$ +20.01670 +2/23/2010 +843 +0 +$ +20.01670 +3/2/2009 +8,734 +17,466 +$ +22.47 +2/14/2016 +0 +23,800 +$ +30.26 +2/6/2017 +Kenneth A. Grady +500 +1,000 +0 +$ +27.705 +10/15/2016 +3,200 +$ +78,400 +0 +0 +0 +7,600 +$ +30.26 +2/6/2017 +Nicholas P. Ottenwess +2,293 +0 +0 +$ +21.1333 +10/3/2009 +15,875 +$ +388,938 +0 +0 +441 +0 +$ +21.1333 +2/18/2014 +672 +0 +$ +21.1333 +3/2/2009 +393 +0 +$ +21.1333 +3/4/2011 +664 +0 +$ +21.1333 +2/17/2014 +456 +0 +$ +20.50 +2/13/2012 +399 +0 +$ +20.50 +3/4/2011 +910 +0 +$ +20.50 +2/23/2010 +8,600 +0 +$ +23.035 +2/8/2015 +85 +0 +$ +19.39 +2/24/2008 +5,234 +0 +$ +15.3667 +2/18/2014 +9,643 +0 +$ +10.5067 +2/11/2013 +10,482 +0 +$ +10.2933 +2/14/2012 +9,750 +0 +$ +10.10 +3/5/2011 +12,000 +0 +$ +7.3127 +2/24/2010 +1,500 +0 +$ +7.5833 +10/4/2009 +5,625 +0 +$ +10.00 +9/30/2008 +129 +0 +$ +19.39 +2/26/2008 +72 +0 +$ +19.39 +2/11/2013 +517 +0 +$ +19.39 +2/13/2012 +256 +0 +$ +19.39 +3/2/2009 +447 +0 +$ +19.39 +2/23/2010 +250 +0 +$ +19.39 +3/3/2009 +115 +0 +$ +19.39 +2/24/2010 +166 +0 +$ +19.39 +2/24/2008 +109 +0 +$ +19.39 +2/21/2009 +3,663 +0 +$ +21.1333 +3/2/2009 +129 +0 +$ +19.39 +2/23/2010 +27 +Table of Contents +Outstanding Equity Awards at +Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Equity +Awards: +Incentive +Market +Plan +or +Option Awards +Awards: +Payout +Equity +Number +Value +Incentive +Closing +of +of +Plan +Market +Unearned +Unearned +Number +Number +Awards: +Number +Price +Shares, +Shares, +of +of +Number +of Shares +of Shares +Units or +Units or +Securities +Securities +of +or Units +or Units +Other +Other +Underlying +Underlying +Securities +of Stock +of Stock +Rights +Rights +Unexercised +Unexercised +Underlying +That +That +That +That +Options +Options +Unexercised +Option +Have +Have +Have +Have +(#) +(#) +Unearned +Exercise +Option +Not +Not +Not +Not +Exercisable +Unexercisable +Options +Price +Expiration +Vested(3) +Vested +Vested +Vested +Name +(1) +(2) +(#) +($) +Date +(#) +($)(4) +(#) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +168 +0 +$ +19.39 +2/22/2009 +172 +0 +$ +19.39 +2/23/2010 +87 +0 +$ +19.39 +2/24/2010 +2,646 +0 +$ +15.3667 +2/18/2014 +2,867 +5,733 +$ +22.47 +2/14/2016 +0 +7,600 +$ +30.26 +2/6/2017 +James D. Zwiers +6,750 +0 +0 +$ +10.5067 +2/11/2013 +14,375 +$ +352,188 +0 +0 +2,944 +0 +$ +15.3667 +2/18/2014 +94 +0 +$ +20.8033 +3/4/2011 +156 +0 +$ +20.8033 +2/23/2010 +228 +0 +$ +20.50 +2/13/2012 +1,606 +0 +$ +20.8033 +2/17/2014 +228 +0 +$ +20.8033 +3/2/2009 +114 +0 +$ +20.50 +3/4/2011 +273 +0 +$ +20.50 +2/23/2010 +8,600 +0 +$ +23.035 +2/8/2015 +3,581 +0 +$ +15.3667 +2/18/2014 +2,867 +5,733 +$ +22.47 +2/14/2016 +0 +7,600 +$ +30.26 +2/6/2017 +(1) +All exercisable options are fully vested. +(2) +All unexercisable options become exercisable on the vesting +date. Normal vesting of options are one-third of the shares on +each of the first three anniversaries of the date of the grant, +with full vesting occurring on the third anniversary date of the +grant. Vesting of such stock options may be accelerated upon +certain events, including retirement, death, disability or a +change in control of Wolverine. +28 +Table of Contents +(3) +The following table sets forth the vesting dates for the +unvested restricted stock awards of each named executive officer +as of December 29, 2007: +Named Executive +Officer +Vesting Date +Number of Shares to +Vest +Blake W. Krueger +2/12/2008 +7,126 +2/15/2009 +3,750 +2/15/2010 +3,750 +2/15/2011 +7,500 +2/18/2008 +3,187 +2/18/2009 +6,375 +2/9/2008 +2,650 +2/9/2009 +2,650 +2/9/2010 +5,300 +2/7/2010 +3,475 +2/7/2011 +3,475 +2/7/2012 +6,950 +4/19/2010 +575 +4/19/2011 +575 +4/19/2012 +1,150 +Timothy J. O’Donovan +4/19/2008 +15,583 +Stephen L. Gulis, Jr. +2/12/2008 +7,126 +2/15/2009 +2,650 +2/15/2010 +2,650 +2/15/2011 +5,300 +2/18/2008 +3,187 +2/18/2009 +6,375 +2/9/2008 +2,650 +2/9/2009 +2,650 +2/9/2010 +5,300 +2/7/2010 +2,075 +2/7/2011 +2,075 +2/7/2012 +4,150 +Kenneth A. Grady +10/16/2009 +125 +10/16/2010 +125 +10/16/2011 +250 +2/7/2010 +675 +2/7/2011 +675 +2/7/2012 +1,350 +Nicholas P. Ottenwess +2/12/2008 +3,000 +2/15/2009 +850 +2/15/2010 +850 +2/15/2011 +1,700 +2/18/2008 +1,125 +2/18/2009 +2,250 +2/9/2008 +850 +2/9/2009 +850 +2/9/2010 +1,700 +2/7/2010 +675 +2/7/2011 +675 +2/7/2012 +1,350 +29 +Table of Contents +Named Executive +Officer +Vesting Date +Number of Shares to Vest +James D. Zwiers +2/12/2008 +1,500 +2/15/2009 +850 +2/15/2010 +850 +2/15/2011 +1,700 +2/18/2008 +1,125 +2/18/2009 +2,250 +2/9/2008 +850 +2/9/2009 +850 +2/9/2010 +1,700 +2/7/2010 +675 +2/7/2011 +675 +2/7/2012 +1,350 +(4) +The market value reflected in this column is based on a closing +market price of $24.50 on December 28, 2007 and does not +reflect any discount based on the restrictions or the +possibility of forfeiture. +Option +Exercises and Stock Vested in 2007 +The following table provides information concerning each +exercise of stock options and each vesting of restricted stock +during the last completed fiscal year for each of the named +executive officers on an aggregated basis. +Option +Exercises and Stock Vested +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired +Realized +Acquired +Realized +on +on +on +on +Exercise +Exercise +Vesting +Vesting +Name +(#) +($)(1) +(#) +($)(2) +(a) +(b) +(c) +(d) +(e) +Blake W. Krueger +35,892 +$ +402,067 +16,035 +$ +473,032 +Timothy J. O’Donovan +35,724 +$ +301,968 +111,360 +$ +3,282,630 +Stephen L. Gulis, Jr. +0 +$ +0 +15,794 +$ +465,942 +Kenneth A. Grady +0 +$ +0 +0 +$ +0 +Nicholas P. Ottenwess +292 +$ +2,973 +6,342 +$ +187,122 +James D. Zwiers +0 +$ +0 +3,375 +$ +99,563 +(1) +The dollar values are calculated by determining the difference +between the closing price of the securities underlying the +options and the exercise prices of the options on the dates of +exercise. +(2) +The dollar values are calculated using the closing price of the +stock on the date of vesting. +30 +Table of Contents +Pension +Benefits in 2007 +The following table provides information concerning plans that +provide for payments or other benefits at, following, or in +connection with retirement. +Pension +Benefits +Payments +Number +Present +During +of Years +Value of +Last +Credited +Accumulated +Fiscal +Plan +Service +Benefit +Year +Name +Name(1) +(#) +($)(2) +($) +(a) +(b) +(c) +(d) +(e) +Blake W. Krueger +SERP(3) +16 +$ +1,175,688 +0 +Pension Plan +12 +$ +314,853 +0 +Timothy J. O’Donovan(4) +SERP +25 +$ +7,901,246 +$450,744 +Pension Plan +25 +$ +1,288,413 +$73,500 +Stephen L. Gulis, Jr. +SERP +22 +$ +788,570 +0 +Pension Plan +22 +$ +444,280 +0 +Kenneth A. Grady +Pension Plan(5) +1 +$ +12,568 +0 +Nicholas P. Ottenwess +SERP +20 +$ +106,402 +0 +Pension Plan +20 +$ +248,685 +0 +James D. Zwiers +SERP(6) +10 +$ +26,541 +0 +Pension Plan +10 +$ +86,669 +0 +(1) +For a narrative description of the material terms and conditions +of the SERP and Pension Plan, see the Compensation Discussion +and Analysis section. +(2) +These values are as of December 31, 2007, and are +calculated assuming the participants will commence their +benefits at age 65 (in the form of life-only annuities) and +use the 1994 GAM Mortality Table and a 6.7% interest rate. +(3) +The present value of Mr. Krueger’s accumulated benefit +under the SERP has increased by $372,636 as a result of three +additional service years granted to him under the SERP in +recognition of his service as a member of Wolverine’s +executive team for three years before becoming a participant in +the SERP and one additional deemed year of service granted as +part of Mr. Krueger’s CEO compensation. The present +value of Mr. Krueger’s benefit would be $803,052 if 12 +service years is used. +(4) +Mr. O’Donovan is the only named executive officer who +is eligible to currently begin drawing early retirement benefits +under the Pension Plan and SERP. +Under the Pension Plan, an executive who begins receiving +payments after age 60 but before age 65 (normal +retirement age) or Social Security Retirement Age receives a +monthly benefit equal to the greatest of : +• +1.6% of average monthly compensation (highest four of the last +10 years) multiplied by years of benefit service reduced by +.3333% (1/3 of 1%) for each month for which the benefit +commencement date precedes normal retirement age offset by a +monthly social security allowance reduced by .5555% (5/9 of 1%) +for each month up to 60 that the benefit commencement date +precedes the participants social security retirement age and by +.2777% (5/18 of 1%) for any months more than 60 by which the +benefit commencement date precedes the participant’s social +security retirement age all of which is reduced pro rata if the +participant has less than 30 years of benefit service. +• +$24 multiplied by the participant’s years of benefit +service up to a maximum of 30 years reduced by .3333% (1/3 +of 1%) for each month for which the benefit commencement date +precedes normal retirement age. +• +2.4% (Messrs. O’Donovan, Gulis and Krueger) or 2.0% +(Messrs. Ottenwess and Zwiers) of final average monthly +compensation (highest four of the last ten years) multiplied by +the Participants years of benefit service not in +31 +Table of Contents +excess of 25 reduced by .3333% (1/3 of 1%) for each month for +which the benefit commencement date precedes normal retirement +age. +Under the SERP, a participant may elect to begin receiving a +reduced benefit at or after age 55. The reduction factor is +0.333% for each month prior to age 60, and 0.1666% for each +month between age 60 and age 65. +(5) +Mr. Grady is not yet vested in the pension plan, but the +amounts reflected assume that Mr. Grady is fully vested in +the pension plan. +(6) +Mr. Zwiers is not yet vested in the SERP, but the amounts +reflected assume that Mr. Zwiers is fully vested in the +SERP. +Director +Compensation Table +The following table provides information concerning the +compensation of directors for Wolverine’s last completed +fiscal year. +Director +Compensation +Change in +Fees +Pension +Earned +Value and +or +Non-Equity +Nonqualified +Paid in +Stock +Option +Incentive Plan +Deferred +All Other +Cash +Awards +Awards +Compensation +Compensation +Compensation +Total +Name +($)(1) +($)(2) +($)(3)(4) +($) +Earnings +($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +Jeffrey M. Boromisa +— +$ +78,625 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +98,935 +William K. Gerber(5) +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +$ +0 +Alberto L. Grimoldi +— +$ +55,000 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +75,310 +David T. Kollat +$ +72,375 +$ +15,000 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +107,685 +Brenda J. Lauderback +$ +46,313 +$ +30,438 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +97,061 +Phillip D. Matthews +$ +62,250 +$ +30,563 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +113,123 +David P. Mehney +— +$ +63,000 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +83,310 +Shirley D. Peterson +$ +50,000 +$ +15,000 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +85,310 +Paul D. Schrage(6) +$ +22,577 +$ +0 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +42,887 +Michael A. Volkema +$ +54,000 +$ +15,000 +$ +20,310 +$ +0 +$ +0 +$ +0 +$ +89,310 +(1) +Represents cash payments received by directors. Directors may +defer director fees and receive Stock Units pursuant to the +Deferred Compensation Plan. +(2) +Represents the dollar value of the shares of common stock that +underlie the Stock Units on the date of the award grant pursuant +to the Deferred Compensation Plan described in the narrative +below. Amounts include the $15,000 that Wolverine contributed +and any additional amounts voluntarily deferred by the director +under the Deferred Compensation Plan. +(3) +At the end of fiscal 2007, each then current director had the +following number of securities underlying outstanding option +awards, which number includes those awards reflected in this +column: +Jeffrey M. Boromisa +10,736 +Alberto L. Grimoldi +48,476 +David T. Kollat +56,665 +Brenda J. Lauderback +11,040 +Phillip D. Matthews +56,665 +David P. Mehney +56,665 +Shirley D. Peterson +19,603 +Paul D. Schrage +31,217 +Michael A. Volkema +14,903 +(4) +The grant date fair value of each equity award computed in +accordance with FAS 123(R) is the same as the amount +recognized by Wolverine for financial statement reporting +purposes in accordance with FAS 123(R). For valuation +32 +Table of Contents +assumptions, see the Stock Based Compensation Note of +Wolverine’s Financial Statements for the fiscal year ended +December 29, 2007. +(5) +Mr. Gerber was appointed as a director by Wolverine’s +Board of Directors on February 7, 2008. +(6) +Mr. Schrage retired at the 2007 Annual Meeting of +Stockholders. +Director +Compensation +Wolverine pays each non-employee director an annual cash +retainer of $30,000 plus $2,000 per full day for attendance at +each regular meeting of the Board of Directors and $1,000 for +attendance at each committee meeting, including meetings by +teleconference. In addition, Wolverine pays the chairperson of +the Audit Committee an annual fee of $7,500 and the chairpersons +of the Compensation and Governance Committees annual fees of +$5,000. Wolverine also pays each non-employee director an annual +equity retainer on the date of each April meeting of the Board +of Directors. For 2007 the equity retainer was $15,000, and for +2008 the equity retainer will be $40,000. The equity retainer is +in the form of a contribution deferred under the Amended and +Restated Outside Directors’ Deferred Compensation Plan (the +“Deferred Compensation Plan”). Directors who are also +employees of Wolverine or any of its subsidiaries receive no +annual cash or equity retainer and are not compensated for +attendance at Board or committee meetings. Wolverine also pays +director expenses associated with attending Board and committee +meetings and other Wolverine matters (including spouse travel +expenses in connection with strategic planning meetings every +other year). Board members from time to time receive sample +Wolverine products of nominal value for review and assessment. +Board members are eligible to receive reimbursement for certain +approved expenses relating to director education. +Effective April 19, 2007, Mr. Kollat serves as Lead +Director of Wolverine. For his service as Lead Director, +Mr. Kollat receives an annual fee of $60,000. These +payments are in lieu of the annual director retainer fee of +$30,000. Mr. Kollat receives the standard director fee for +attendance at Board meetings and standard director stock +options, but does not receive attendance fees for attending +committee meetings. Prior to April 19, 2007 +Mr. Matthews served as Lead Director under the same +financial arrangement. Mr. O’Donovan’s +compensation as Chairman of the Board is discussed in the +Compensation Discussion & Analysis Section of the +Proxy Statement. +Under Wolverine’s current director compensation program, +each newly appointed or elected non-employee director is granted +an option to purchase a number of shares of common stock equal +to six times the annual cash retainer fee then in effect divided +by the market price of Wolverine’s stock on the date of his +or her initial election or appointment. On the date of each +annual meeting after his or her initial appointment or election, +each non-employee director is granted an option to purchase a +number of shares equal to three times the annual cash retainer +fee then in effect divided by the market price of +Wolverine’s stock on the annual meeting date. The exercise +price of options granted is 100% of the market value of common +stock on the date each option is granted. The term of each +option may not exceed 10 years. Options were previously +granted under the Amended and Restated Directors’ Stock +Option Plan approved by stockholders in 2002. That plan was +terminated upon the approval by stockholders of the Stock +Incentive Plan of 2005 at the 2005 annual meeting, and the +options are now granted under the Stock Incentive Plan of 2005. +In 2002, Wolverine adopted and the stockholders approved the +Deferred Compensation Plan, a supplemental nonqualified deferred +compensation plan for directors who are not employees of +Wolverine or its subsidiaries. The Deferred Compensation Plan +permits all non-employee directors to defer 25%, 50%, 75% or +100% of their directors’ fees. Amounts deferred and annual +equity retainer amounts described above are credited on the +books of Wolverine to an account established for that director +as if the amounts had been invested to purchase shares of +Wolverine common stock using the market price of common stock on +the payment date (“Stock Units”). Stock Units are +increased by a dividend equivalent based on dividends paid by +Wolverine, the number of Stock Units credited to each +director’s account and the market price of Wolverine’s +common stock on the payment date of the cash dividend. The +accumulated Stock Units in a director’s account under the +plan are distributed in shares of Wolverine common stock in a +single lump-sum or annual installments over a period of up to +10 years by converting each Stock Unit to one share of +Wolverine common stock upon termination of service as a director +or as of a date selected by the director. In 1996, under the +former Director Retirement Plan, certain non-employee directors +received an award of Stock Units that will be distributed in 10 +annual installments beginning the month following termination of +service as a director. +Upon a “change in control” as defined in the Deferred +Compensation Plan, Wolverine common stock equal to +33 +Table of Contents +the Stock Units credited to a director’s account will be +distributed to the director in a single lump sum. For purposes +of the Deferred Compensation Plan, “change in control” +is defined as: +• +failure of the individuals who were directors at the time the +Deferred Compensation Plan was adopted and those whose election +or nomination to the Board was approved by three-quarters of the +directors then still in office who were directors at the time +the Deferred Compensation Plan was adopted, or whose election or +nomination was so approved, to constitute a majority of the +Board; +• +acquisition by certain persons or groups of 20% or more of the +common stock or combined outstanding voting power (excluding +certain transactions); +• +approval by the stockholders of a reorganization, merger or +consolidation (excluding certain permitted transactions); or +• +approval by the stockholders of a complete liquidation or +dissolution of Wolverine or the sale or disposition of all or +substantially all of the assets of Wolverine (excluding certain +permitted transactions). +34 +Table of Contents +Potential +Payments Upon Termination or Change in Control +The following table summarizes the potential payments and +benefits payable to each of Wolverine’s named executive +officers upon termination of employment in connection with each +of the triggering events set forth in the table below, assuming, +in each situation, that the termination of employment took place +on December 29, 2007 +Triggering Event and +Timothy J. +Stephen L. Gulis, +Nicholas P. +Payments/Benefits +Blake W. Krueger +O’Donovan(1) +Jr. +Kenneth A. Grady +Ottenwess +James D. Zwiers +Change in Control +Termination +Lump sum payment under Executive Severance Agreement(2)(3) +$ +16,707,668 +N/A +$ +9,972,160 +$ +568,945 +$ +4,020,956 +$ +2,563,401 +Benefits under Executive Severance Agreement(2)(4) +$ +49,929 +N/A +$ +44,760 +$ +44,177 +$ +42,433 +$ +42,723 +Lump sum payment under the SERP(5) +$ +4,301,416 +N/A +$ +3,068,188 +N/A +$ +446,107 +$ +121,953 +Stock Incentive Plans +(6 +) +(6 +) +(6 +) +(6 +) +(6 +) +(6 +) +Death +SERP(7) +$ +1,625,867 +$ +338,058(12 +) +$ +1,159,726 +N/A +$ +168,621 +$ +46,096 +Pension Plan(8) +$ +24,443 +$ +55,125 +$ +44,965 +0 +$ +33,846 +$ +17,104 +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +Disability +SERP(5)(10) +$ +145,181 +N/A +$ +126,518 +N/A +$ +23,104 +$ +8,268 +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +Retirement +SERP(5)(11) +(11 +) +(11 +) +(11 +) +N/A +(11 +) +(11 +) +Pension Plan(11) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +(11 +) +Stock Incentive Plans(9) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(9 +) +(1) +Mr. O’Donovan’s executive severance agreement +with Wolverine expired according to its own terms upon his +retirement as Chief Executive Officer. +(2) +The payments and benefits are triggered after certain +terminations of employment (except for termination due to death, +retirement, disability and good reason) within two +(Messrs. Grady, Ottenwess and Zwiers) or three +(Messrs. Krueger and Gulis) years following a change in +control of Wolverine. +(3) +The lump sum payment under the Executive Severance Agreement is +paid by Wolverine and is composed of the following: +• +Unpaid base salary, benefit awards (including both cash and +stock) and bonus payments that have been earned. +• +In lieu of a bonus payment under the Annual Bonus Plan, an +amount equal to the number of days the executive was employed by +Wolverine in the year of termination divided by the number of +days in the year multiplied by 100% of the greater of either +(a) the bonus awarded to the executive under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the executive over the preceding two-year period under an +Annual Bonus Plan. +• +In lieu of payments under the LTIPs, an amount equal to the +bonus the executive would have received based on actual and +assumed earnings per share calculations and total shareholder +return rankings, multiplied by the number of days the executive +participated in the LTIPs prior to the termination, divided by +the total number of days in the performance period. +• +Either two (Messrs. Grady, Ottenwess and Zwiers) or three +(Messrs. Gulis and Krueger) times the sum of the following: +• +The executive’s highest annual rate of base salary during +the 12-month +period prior to termination; +• +The greater of the average amount earned by the executive during +the previous two years or the previous year under an Annual +Bonus Plan; and +• +The greater of the average amount earned during the previous two +years or the previous year under the LTIP. +35 +Table of Contents +• +100% of the positive spread for any options held by the +executive whether or not vested. +• +An excise tax +gross-up +adjustment. +• +The present value of an additional three years of deemed service +under the retirement plans. +(4) +Includes: (a) all employee benefit plans, programs or +arrangements that the executive was entitled to participate in +immediately prior to the termination date, and +(b) outplacement services. These estimates assume that +Wolverine would maintain the benefit plans for a period of one +year after termination. +(5) +Payments would be triggered after certain terminations of +employment within two (Messrs. Ottenwess and Zwiers) or +three (Messrs. Krueger and Gulis) following a change in +control. For a description of the SERP, see “Supplemental +Executive Retirement Plan (SERP)” under the heading +“Compensation Discussion and Analysis.” The timing of +the payment would be delayed to the extent earlier payment would +trigger Section 409A of the Tax Code. +(6) +Upon a change in control of Wolverine, all of the named +executive officers’ outstanding stock options become +immediately exercisable in full and shall remain exercisable +during the remaining term, regardless of whether he or she +remains in the employ or service of Wolverine. The Compensation +Committee may determine that one or all of the named executive +officers shall receive cash in an amount equal to the positive +spread amount. All other outstanding incentive awards of the +named executive officers, including shares of restricted stock, +become immediately and fully vested and nonforfeitable upon a +change in control of Wolverine. +(7) +If an executive dies before beginning to receive benefits under +the SERP, Wolverine must pay the executive’s beneficiary a +lump sum death benefit equal to the present value of the benefit +computed as if the participant had retired on the date of death, +had begun receiving benefits at age 65 and had continued to +receive benefits for the remainder of the participant’s +life expectancy. If the participant dies after beginning to +receive benefit payments, benefits cease unless the participant +was receiving benefits in the form of a 50% joint and survivor +annuity or had elected benefits in a form that provides for a +continuation of benefits. +(8) +The Pension Plan provides a pre-retirement, vested participant a +death benefit payable to the participant’s surviving spouse +equal to the qualified pre-retirement survivor annuity as +defined in the Internal Revenue Code (generally 50% of the +participant’s accrued normal retirement benefit). This +benefit is paid annually to the participant’s surviving +spouse beginning when the participant would have turned 60 and +continues for the life of the participant’s spouse. Awards +in this row reflect the amount of such annual payment. +(9) +Upon death, disability or early or normal retirement of the +named executive officer, the restrictions applicable to his or +her shares of restricted stock terminate automatically and stock +options vest in full if held for more than one year or, if +employed for less than one year after the grant, on a percentage +basis based on months employed after the grant divided by 12. +(10) +The SERP provides a disability benefit to an executive who +becomes totally and permanently disabled equal to 60% of the +normal retirement accrued benefit based upon years of service up +to the date that the participant became disabled through the +date the participant reaches age 65 (at which point, the +participant would begin drawing full SERP benefits) or is no +longer disabled. The disability benefit is paid by Wolverine +annually in the form of a life annuity. Amounts in this row +reflect the amount of such annual payment. +(11) +See the Pension Benefit Table and footnotes thereto. +(12) +Represents the annual benefit that would be paid to +Mr. O’Donovan’s surviving spouse for her lifetime +under a 50% survivor annuity. +Compensation +Committee Report +Compensation Committee Report. The +Compensation Committee has reviewed and discussed with +management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this +review and discussion, the Compensation Committee recommended to +the Board of Directors that the Compensation Discussion and +Analysis be included in Wolverine’s annual report on +Form 10-K +and proxy statement on Schedule 14A. +Respectfully submitted, +David T. Kollat, Phillip D. Matthews, David P. Mehney and +Michael A. Volkema +36 +Table of Contents +Selection +of Auditors +The Audit Committee has reappointed the firm of +Ernst & Young LLP as independent auditors for the +current fiscal year. As a matter of good corporate governance, +the Audit Committee has determined to submit its appointment of +Ernst & Young LLP to our stockholders for +ratification. If this appointment is not ratified by the +majority of shares present or represented at the annual meeting +and entitled to vote on the matter, the Audit Committee will +review its future selection of an independent registered public +accounting firm. +Ernst & Young LLP, certified public accountants, has +audited the financial statements of Wolverine and its +subsidiaries for the fiscal year ended December 29, 2007. +Representatives of Ernst & Young LLP are expected to +be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +In the years indicated, Ernst & Young LLP billed +Wolverine the fees set forth in the following table. +2007 +2006 +Audit Fees(1) +$ +972,586 +$ +1,021,600 +Audit Related Fees(2) +$ +41,550 +$ +39,950 +Tax Fees +Tax Compliance +$ +562,745 +$ +407,051 +Tax Planning & Advisory +$ +438,892 +$ +175,933 +Total Tax Fees +$ +1,001,637 +$ +582,984 +All Other Fees +$ +0 +$ +0 +Total Fees +$ +2,015,773 +$ +1,644,534 +(1) +Audit fees are comprised of fees for the annual audit, reviews +of the financial statements included in Wolverine’s +Form 10-Q +filings, audit of internal control over financial reporting, +foreign statutory audits and consultations concerning account +matters associated with the annual audit. +(2) +Audit Related Fees are comprised of fees for assurance and +related services that were reasonably related to the performance +of the audit or a review of the financial statements and that +are not reported as Audit Fees above, including accounting +research, employee benefit plan audits and access to an online +research database service. +Pre-Approval Policy. Wolverine’s Audit +Committee has adopted a policy under which all audit and +non-audit services to be provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. +Items in this category are pre-approved within specific service +descriptions and budgets. All audit services, internal +control-related services, and other services that are not within +the specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions such as pre-approval of audit services, +engagement-specific pre-approval may be delegated to one or more +Audit Committee members. Any services approved by a designated +Audit Committee member must be communicated to the full Audit +Committee at its next regularly-scheduled meeting. The Audit +Committee’s pre-approval policy also prohibits +Ernst & Young LLP from providing any non-audit +services that are prohibited by the SEC or the Public Company +Accounting Oversight Board (“PCAOB”). All fees paid to +Ernst & Young LLP for services performed in 2007 and +2006 were pre-approved pursuant to this policy. +Your +Board of Directors recommends that you vote FOR ratification of +the reappointment of Ernst & Young LLP. +Audit +Committee Report +The Audit Committee of the Board of Directors consists of four +directors who are independent under the standards adopted by the +Board of Directors and applicable NYSE and SEC standards. The +Audit Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. +37 +Table of Contents +The Audit Committee is directly responsible in its capacity as a +committee of the Board of Directors for appointing, retaining, +compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine’s independent auditors. +Wolverine’s management has primary responsibility for the +financial statements and the financial reporting process, +including the application of accounting and financial +principles, the preparation, presentation and integrity of the +financial statements, and the systems of internal controls and +other procedures designed to promote compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and for auditing the +effectiveness of Wolverine’s internal control over +financial reporting. +The Audit Committee has taken steps to provide assurances +regarding Audit Committee composition and procedures, the +independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) adopting an Audit +Committee Charter; (ii) adopting the Finance Ethics Code; +(iii) implementing an Accounting and Auditing Complaint +Procedure to allow employees, stockholders and the public to +report concerns regarding Wolverine’s financial statements, +internal controls and disclosures; (iv) establishing +procedures for the Audit Committee to pre-approve all audit and +nonaudit services provided by Wolverine’s independent +auditors; and (v) increasing the number, frequency and +length of Audit Committee meetings. +As part of its supervisory duties, the Audit Committee has +reviewed Wolverine’s audited financial statements for the +fiscal year ended December 29, 2007, and has discussed +those financial statements with Wolverine’s management, +internal financial staff, internal auditors and independent +auditors, with and without management present. The Audit +Committee has also reviewed and discussed the following with +Wolverine’s management, financial staff, internal auditors +and independent auditors, with and without management present: +• +accounting and financial principles and significant assumptions, +estimates and matters of judgment used in preparing the +financial statements; +• +allowances and reserves for accounts receivable, inventories and +taxes; +• +accounting for acquisitions, pension plans and equity-based +compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine’s +independent auditors the results of the independent +auditors’ examinations and the judgments of the independent +auditors concerning the quality, as well as the acceptability, +of Wolverine’s accounting principles and such other matters +that it is required to discuss with the independent auditors +under applicable rules, regulations or generally accepted +auditing standards, including the matters required to be +discussed by the rules of the PCAOB. In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by PCAOB rules and has discussed their +independence from Wolverine and Wolverine’s management with +them, including a consideration of the compatibility of nonaudit +services with their independence, the scope of the audit and the +scope of all fees paid to the independent auditors during the +year. After and in reliance upon the reviews and discussions +described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended December 29, 2007, be +included in Wolverine’s Annual Report on +Form 10-K +for the year then ended to be filed with the Securities and +Exchange Commission. +Respectfully submitted, +Jeffrey M. Boromisa, David T. Kollat, Brenda J. Lauderback and +Shirley D. Peterson. +38 +Table of Contents +Related +Matters +Compensation +Committee Interlocks and Insider Participation +David T. Kollat, Phillip D. Matthews, David P. Mehney and +Michael A. Volkema served as members of the Compensation during +the last completed fiscal year and Paul D. Schrage served on the +Compensation Committee during the last completed fiscal year +until his retirement in April 2007. None of the above members of +the Compensation Committee were, during the fiscal year, an +officer or employee of Wolverine or formerly an officer of +Wolverine. As more fully described below, in 2007, Wolverine +purchased promotional merchandise from Bullseye Group, LLC, +which is partially owned by the son of Mr. Mehney. +Certain +Relationships and Related Transactions +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is chairman and a 25% shareholder, +granting to Grimoldi, S.A. the exclusive rights to distribute +and sell footwear products in Argentina under the Hush +Puppies ® , +Caterpillar ® , +Patatgonia ® +and +Merrell ® +brand names. Grimoldi, S.A. is also authorized to sell +Merrell ® +brand apparel in Argentina. Under these agreements, +Grimoldi, S.A. or its subsidiary either purchases products from +Wolverine or pays Wolverine royalties and certain sublicense +fees based on sales or purchases of products in Argentina. +Under the agreements described above, Grimoldi, S.A. was +obligated to pay to Wolverine purchase prices, royalties, +sublicense fees and service fees relating to 2007 totaling +$2,628,599. +In the ordinary course of business, Wolverine and its +subsidiaries sell samples and components of footwear products +(such as leather and shoe soles), advertising materials and +miscellaneous items to licensees, distributors and customers. In +2007, purchases of such items by Grimoldi, S.A. totaled $198,331 +(including any applicable sublicense or other fees or charges). +All of the transactions described above occurred pursuant to +continuing contractual arrangements between Wolverine and +Grimoldi, S.A. Wolverine expects similar transactions to occur +between Grimoldi, S.A. and Wolverine and its subsidiaries during +2008. +In the ordinary course of its business, Wolverine purchases +promotional merchandise for use in connection with the sale of +its products. In 2007, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $640,163. One +third of Bullseye Group, LLC is owned by Daniel Mehney, the son +of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2008. +Related +Person Transactions Policy +Wolverine has adopted written policies and procedures regarding +related person transactions. Such policies and procedures +require the Governance Committee to review and either approve or +disapprove of entry into any Interested Transactions (defined +below). If advance approval of the Interested Transaction is not +feasible, then it must be considered and, if the Governance +Committee determines it to be appropriate, ratified at the +Governance Committee’s next meeting. +An Interested Transaction is any transaction, arrangement or +relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of +indebtedness) in which (1) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(2) Wolverine is a participant, and (3) any Related +Person (defined below) has or will have a direct or indirect +interest (other than solely as a result of being a director or +less than ten percent beneficial owner of another entity). A +Related Person is, any (a) person who is or was at any +point during the last fiscal year for which Wolverine filed a +Form 10-K +and proxy statement, an executive officer, director or nominee +for election as a director, (b) greater than five percent +beneficial owner of Wolverine’s common stock, or +(c) immediate family member of any of the foregoing. +Immediate family member includes a person’s spouse, +parents, stepparents, children, stepchildren, siblings, mothers- +and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +In determining whether to approve or ratify an Interested +Transaction, the Governance Committee will take into account +whether the Interested Transaction is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances, the extent of the +Related Person’s interest in the transaction and other +factors that it deems relevant. No director shall participate in +any discussion +39 +Table of Contents +or approval of an Interested Transaction for which he or she is +a Related Person, except to provide all material information to +the Governance Committee. The following Interested Transactions +are pre-approved under the policies and procedures: +• +any transaction with another company at which a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +• +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires Wolverine’s directors and executive officers, and +persons who beneficially own more than 10% of the outstanding +shares of common stock, to file reports of ownership and changes +in ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2007 +fiscal year, Wolverine believes that its officers and directors +complied with all applicable reporting requirements during +Wolverine’s last fiscal year. +Stockholder +Proposals +To be considered timely, any stockholder proposal intended to be +presented at the Annual Meeting of Stockholders in 2009 (whether +or not intended for inclusion in Wolverine’s proxy +statement and proxy card relating to that meeting) must be +received by Wolverine not later than November 14, 2008. +Stockholder proposals intended for inclusion in Wolverine’s +proxy statement and proxy card relating to that meeting should +be made as described in SEC +Rule 14a-8. +You should address all stockholder proposals to the attention of +the Secretary of Wolverine, 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Solicitation +of Proxies +We will initially seek proxies by mail. Wolverine directors, +officers and employees may also solicit proxies by telephone or +facsimile or personally without additional compensation. Proxies +may be solicited by nominees and other fiduciaries who may mail +materials to or otherwise communicate with the beneficial owners +of shares held by them. Wolverine will pay all costs of +solicitation of proxies, including the charges and expenses of +brokerage firms, banks, trustees or other nominees for +forwarding proxy materials to beneficial owners. We have engaged +Georgeson Inc. at an estimated cost of $7,000, plus expenses and +disbursements, to assist in solicitation of proxies. +40 +Table of Contents +Appendix A +WOLVERINE +WORLD WIDE, INC. +DIRECTOR +INDEPENDENCE STANDARDS +The Board of Directors annually makes an affirmative +determination of the independence of each Director, based upon +the recommendation of the Governance Committee. A Director is +independent if the Director meets each of the following +standards unless the Board determines that the Director has a +material relationship with Wolverine (either directly or as a +partner, shareholder or officer of an organization that has a +relationship with Wolverine) that is not of a nature addressed +by these standards. For purposes of these standards, +(a) “Wolverine” means Wolverine World Wide, Inc. +and its consolidated subsidiaries and (b) “immediate +family member” means a person’s spouse, parents, +children, siblings, mother and +father-in-law, +sons and +daughters-in-law, +brothers and +sisters-in-law, +and anyone (other than domestic employees) who shares such +person’s home. +General +Standards +1. +The Director is not, and in the past three years has not been, +an employee of Wolverine. +2. +An immediate family member of the Director is not, and in the +past three years has not been, employed as an executive officer +of Wolverine. +3. +Neither the Director nor an immediate family member of the +Director has received, during any twelve-month period within the +last three years, any direct compensation from Wolverine in +excess of $100,000, other than compensation for Board service, +compensation received by the Director for former service as an +interim Chairman, CEO or other executive officer, compensation +received by the Director’s immediate family member for +service as a non-executive employee of Wolverine, and pension +and other forms of deferred compensation for prior service +(provided that such compensation is not contingent in any way on +continued service). +4. (a) +The Director is not a current employee or partner of a firm that +is Wolverine’s internal or external auditor (“Company +Auditor”). +(b) +Neither the Director nor an immediate family member of the +Director in the past three years has been a partner or employee +of a Company Auditor and personally worked on Wolverine’s +audit within that time. +(c) +No immediate family member of the Director is (i) a current +partner of a Company Auditor or (ii) a current employee of +a Company Auditor who participates in the firm’s audit, +assurance or tax compliance (but not tax planning) practice. +5. +Neither the Director nor an immediate family member of the +Director is, or in the past three years has been, part of an +interlocking directorate in which a current executive officer of +Wolverine served on the compensation committee of another +company where the Director or the Director’s immediate +family member concurrently served as an executive officer. +6. (a) +The Director is not an employee, majority owner or person in +control of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the last three fiscal years, exceeds the +lesser of $250,000 or 10% of the other company’s +consolidated gross revenues. +(b) +No immediate family member of the Director is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1 million or 2% of the other +company’s consolidated gross revenues. +7. +The Director is not an executive officer, trustee or board +member of a tax exempt organization to which Wolverine has made +in the past three fiscal years contributions that, in any single +fiscal year, exceeded the greater of $50,000 or 2% of the +non-profit organization’s, foundation’s or educational +institution’s consolidated gross revenues. +Any direct or indirect relationship between a Director and +Wolverine that is not of a nature addressed by these standards +will be reviewed by the Board on a +case-by-case +basis and any such relationship that is found to be material +will preclude +A-1 +Table of Contents +the Director from being independent. In no event may a Director +be determined to be independent under these standards if such +Director does not qualify as independent under the applicable +standards of the New York Stock Exchange. +Audit +Committee Standards +In addition to meeting the General Standards set forth above, a +Director is not considered independent for purposes of serving +on the Audit Committee, and may not serve on that committee, if +the Director: (1) receives, either directly or indirectly, +any consulting, advisory or other compensatory fee from +Wolverine World Wide, Inc. or any of its subsidiaries other than +fees for service as a Director and fixed amounts of compensation +under a retirement plan (including deferred compensation) for +prior service with Wolverine or its subsidiaries (provided that +such compensation is not contingent in any way on continued +service); or (2) is an “affiliated person” of +Wolverine World Wide, Inc. or any of its subsidiaries; each as +determined in accordance with Securities and Exchange Commission +regulations. +A-2 +Table of Contents +Wolverine +World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Table of Contents +WOLVERINE WORLD WIDE, INC. +c/o National City Bank +Shareholder Services Operations +Locator 5352 +P. O. Box 94509 +Cleveland, OH 44101-4509 +V o t e b y T e l e p h o n e +Have your proxy card available when you +call the Toll-Free number 1-888-693-8683 using a touch-tone phone and follow the simple instructions to record your vote. +V o t e b y I n t e r n e t +Have your proxy card available when you +access the website www.cesvote.com , and +follow the simple instructions to record +your vote. +V o t e b y M a i l +Please mark, sign and date your proxy card +and return it in the postage-paid envelope +provided or return it to: National City +Bank, P.O. Box 535300, Pittsburgh, PA +15253-9837. Mailed proxies must be +received no later than April 17, 2008, at +10:00 a.m. Eastern Daylight Time. +Vote by +Telephone +Call toll-free using a +touch-tone phone: +1-888-693-8683 +Vote by +Internet +Access the +website and +cast your vote: +www.cesvote.com +Vote by +Mail +Return your proxy +in the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 16, 2008, to assure that it is counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. DO NOT +RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +è +This Proxy must be signed and dated below. +ê Please fold and detach card at perforation before mailing. ê +Wolverine World Wide, Inc. +Proxy +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints David T. Kollat and Timothy J. O’Donovan, and each of +them, each with full power of substitution, proxies to represent the undersigned stockholder and to +vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would be +entitled to vote on all matters which come before the Annual Meeting of Stockholders to be held at +the Company’s headquarters located at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 17, 2008, at 10 a.m. local time, and any adjournment of that meeting. +Signature(s) +Signature(s) +Dated: +, 2008 +IMPORTANT – Please sign exactly as your +name(s) appears on this Proxy. When +signing on behalf of a corporation, +partnership, estate or trust, indicate +title or capacity of person signing. If shares are held jointly, each holder must sign. +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on April 17, 2008. +The enclosed Notice of Annual Meeting provides information regarding the matters that are expected +to be voted on at the meeting. Your vote is important to us. Even if you plan to attend the +meeting, please read the enclosed materials and vote through the Internet, by telephone or by +mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by +telephone. Please consider voting through one of these methods. Your vote is recorded as if you +mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it +also saves money. +Thank you in advance for your participation in our 2008 Annual Meeting. +Wolverine World Wide, Inc. +ê Please fold and detach card at perforation before mailing. ê +Wolverine World Wide, Inc. +Proxy +If this Proxy is properly executed, the shares represented by this Proxy will be voted as specified. If no specification is made, the shares represented by this Proxy will be voted for the election of all nominees named on this Proxy as directors and for approval of the proposal identified on this Proxy. The shares represented by this Proxy will be voted in the discretion of the proxies on any other matters that may come before the meeting. +1. +ELECTION OF DIRECTORS +Nominees: +(1 +) +William K. Gerber +(2 +) +Blake W. Krueger +(3 +) +Michael A. Volkema +q +FOR all +q +WITHHOLD all +q +FOR all except (*) +*(INSTRUCTION: To withhold authority to vote for any individual nominee, strike that nominee’s name in the list above.) +Your Board of +Directors Recommends that You Vote FOR ALL NOMINEES +2. +Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current fiscal year. +q +FOR +q +AGAINST +q +ABSTAIN +Your Board of +Directors Recommends that You Vote FOR this Proposal +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950124-08-001231/proxy_rpt.txt b/raw/proxies/0000110471/0000950124-08-001231/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8611eefca6475e751d1909e7f320f64b06f1cfd1 --- /dev/null +++ b/raw/proxies/0000110471/0000950124-08-001231/proxy_rpt.txt @@ -0,0 +1,348 @@ +“Certain Relationships and Related Transactions.” +7 +Table of Contents +Stock +Ownership Requirements for Directors and Executive +Officers +For many years, the Board has believed that directors and +management should have a significant financial stake in +Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal requirements that directors and executive +management own specified amounts of Wolverine stock (including +ownership credit for stock units allocated to non-employee +directors under the Deferred Compensation Plan) within five +years of their respective election to the Board or appointment +as a member of executive management. The ownership requirements +are as follows: (i) for directors, five times the current +Board retainer, (ii) for the Chief Executive Officer, five +times base salary, (iii) for other executive officers, +between two and three times base salaries, and (iv) for +other executive management, between one and two times base +salaries. +Code of +Conduct & Compliance +For years, Wolverine and its employees and directors have +followed an extensive Code of Conduct & Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply with +applicable legal requirements and sets forth Wolverine’s +expectations regarding business ethics, integrity, honesty, +fairness and keeping commitments. The Code contains +Wolverine’s principles and procedures regarding conflicts +of interest, corporate opportunities, confidentiality, fair +dealing, protection and proper use of Wolverine’s assets, +compliance with laws, rules and regulations, engagement criteria +for Wolverine’s trading partners, “whistle +blower” protection provisions, expectations regarding the +integrity of books and records, and guidelines and procedures +for many other subjects. Employees are surveyed annually to +identify any areas of noncompliance with the Code, and the +results of this survey are reported to the Board. +Accounting +and Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Finance Ethics Code”). This is an ethics code +focused on the financial reporting process and is intended to +protect the interests of all of Wolverine’s constituents, +including stockholders, employees, customers and the communities +in which Wolverine conducts business. Many of the basic tenets +of the Finance Ethics Code have been incorporated for many years +in the Code. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. The Finance Ethics Code and the Code are available +on the Corporate Governance section of the Investors section of +Wolverine’s website at www.wolverineworldwide.com , +where Wolverine will post any waiver of these codes for +directors or executive officers. +Board +Committee Charters +The Board has organized and formed three committees, the Audit +Committee, the Compensation Committee and the Governance +Committee. The Board has approved a committee charter for each +committee that contains basic principles regarding the +committee’s organization, purpose, authority and +responsibilities. The performance of each committee is reviewed +annually by committee members and the Board. +Leadership +Since 1993, the Board has operated with an independent Lead +Director, who is selected by the independent directors. The +duties of the independent Lead Director include: +(a) working closely with the Chairman regarding the agenda +and scheduling for Board and committee meetings; +(b) overseeing information sent to the Board; +(c) presiding over executive sessions; (d) serving as +a liaison between the Chairman and the independent Directors; +(e) presiding over Board meetings in the absence of the +Chairman; and (f) being available for consultation and +communications with stockholders as appropriate. +Attendance +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to attend every +Board meeting. Directors are also expected to attend the Annual +Meeting of Stockholders in person. All 11 then-current directors +attended the 2007 annual meeting. +8 +Table of Contents +Communication +with the Board +Stockholders and interested parties may communicate with members +of Wolverine’s Board of Directors through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General +Counsel, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. Any communications submitted by any of +the above means (or the means described below) are received by +Wolverine’s General Counsel and forwarded to the +appropriate person or persons. Complaints or concerns regarding +Wolverine’s financial statements and accounting, auditing, +internal control and reporting practices can be reported to the +audit committee (including anonymous and confidential +submissions) by sending an +e-mail to +financialconcerns@wwwinc.com or by writing to the audit +committee +c/o the +General Counsel at the above address. +Board and +Company Culture +Wolverine’s comprehensive governance guidelines and +principles are coupled with a robust, open and effective Board +environment that promotes respect, trust and candor, fosters a +culture of open dissent and permits each director to express +opinions and contribute to the Board process. Directors are +expected to have unrestricted access to management and any +company information they desire. The participation of Board +members and the open exchange of opinions is further encouraged +at the Board committee level through the periodic rotation of +Board members among its standing committees. This open and +candid operating environment is shared by management and the +Board and is essential to fully realize the benefits of +Wolverine’s formal governance guidelines, principles, +charters and policies. +9 +Table of Contents +Ownership +of Wolverine Stock +Five +Percent Stockholders +The following table sets forth information concerning the number +of shares of Wolverine stock held by each entity known to +Wolverine to be the beneficial owner of more than five percent +of Wolverine’s outstanding shares of common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Shared Voting +Total +Name and Address +Sole Voting +Sole Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Barclays Global Investors, NA(1) +2,326,764 +3,034,322 +0 +3,034,322 +5.8 +45 Fremont Street +San Francisco, CA 94105 +Franklin Resources, Inc.(2) +3,092,239 +3,092,239 +0 +3,092,239 +5.9 +One Franklin Parkway +San Mateo, CA 94403 +(1) +Based on information set forth in Schedule 13G filed +February 5, 2008. The Schedule 13G indicates that +Barclays Global Investors, NA and other related entities (some +of which are investment advisors or banks) beneficially own, in +the aggregate, 3,034,322 shares of Wolverine common stock. +(2) +Based on information set forth in Schedule 13G filed +February 8, 2008. The Schedule 13G indicates that +Franklin Resources, Inc. and one or more open- or close-end +investment companies and other managed accounts that are +investment management clients of investment managers that are +direct and indirect subsidiaries of Franklin Resources, Inc. +beneficially own, in the aggregate, 3,092,239. +10 +Table of Contents +Stock +Ownership By Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 3, 2008, by each of +Wolverine’s directors and nominees for director, each of +the named executive officers and all of Wolverine’s +directors, nominees for director and executive officers as a +group. An asterisk in the column for “Percent of +Class” means the individual beneficially owns less than one +percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power +Power(2) +Options(3) +Ownership(3) +of Class +Jeffrey M. Boromisa +— +— +10,736 +10,736 +* +Kenneth A. Grady +6,800 +— +3,034 +9,834 +* +William K. Gerber +500 +— +6,891 +7,391 +* +Alberto L. Grimoldi +10,168 +— +42,784 +52,952 +* +Stephen L. Gulis, Jr. +158,632 +1,890 +254,529 +415,051 +* +David T. Kollat +83,934 +— +56,665 +140,599 +* +Blake W. Krueger +234,899 +— +283,037 +517,936 +1.01 +Brenda J. Lauderback +5,100 +— +11,040 +16,140 +* +Phillip D. Matthews(4) +34,238 +— +56,665 +90,903 +* +David P. Mehney +50,520 +49,250 +56,665 +156,435 +* +Timothy J. O’Donovan +309,510 +125,821 +502,351 +937,682 +1.83 +Nicholas P. Ottenwess +33,291 +190 +85,961 +119,442 +* +Shirley D. Peterson +3,000 +— +19,603 +22,603 +* +Michael A. Volkema +5,000 +— +14,903 +19,903 +* +James D. Zwiers +37,641 +— +32,842 +70,483 +* +All directors and executive officers as a group +980,233 +177,151 +1,437,706 +2,595,090 +5.07 +(1) +The numbers of shares stated are based on information provided +by each person listed and include shares personally owned of +record and shares that, under applicable regulations, are +considered to be otherwise beneficially owned. +(2) +These numbers include shares over which the listed person is +legally entitled to share voting or dispositive power by reason +of joint ownership, trust or other contract or property right, +and shares held by spouses, children or other relatives over +whom the listed person may have influence by reason of +relationship. +(3) +The numbers in the Stock Options column represent shares that +may be acquired within 60 days after March 3, 2008, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +(4) +Mr. Matthews pledged 34,238 shares of Wolverine common +stock in connection with a post-paid variable forward sale +contact entered into on February 15, 2007 with an +unaffiliated third party buyer. +11 +Table of Contents +Executive +Compensation +COMPENSATION \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950152-09-002580/proxy.txt b/raw/proxies/0000110471/0000950152-09-002580/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5391c7ffeeaed0baa4aa0a592458ca558cbc4bf1 --- /dev/null +++ b/raw/proxies/0000110471/0000950152-09-002580/proxy.txt @@ -0,0 +1,5746 @@ +DEF 14A +1 +k47545def14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to Section 240.14a-12 +WOLVERINE +WORLD WIDE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS FORM ARE +NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +Table of Contents +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +NOTICE OF ANNUAL +MEETING +To our Stockholders: +You are invited to attend Wolverine’s Annual Meeting of +Stockholders at Wolverine’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, +April 23, 2009, at 10 a.m. local time. At the meeting, +we will: +(1) Elect four directors for three-year terms expiring in +2012. +(2) +Vote on ratification of the Audit Committee’s appointment +of Ernst & Young LLP as independent auditors for the +current fiscal year. +(3) Conduct such other business as may properly come before +the meeting. +You can vote at the meeting and any adjournment of the meeting +if you were a stockholder of record on March 2, 2009. A +list of stockholders entitled to vote at the meeting will be +available for review by Wolverine stockholders at the office of +Kenneth A. Grady, Secretary and General Counsel of Wolverine, +located at 9341 Courtland Drive, N.E., Rockford, Michigan, +during ordinary business hours for the +10-day +period before the meeting. +A copy of Wolverine’s Annual Report to Stockholders for the +year ended January 3, 2009, is enclosed with this Notice. +The following proxy statement and enclosed proxy card are being +sent to stockholders on and after March 13, 2009. +By Order of the Board of Directors +Kenneth A. Grady, Secretary and General Counsel +March 13, 2009 +Your Vote is Important to Us. Even if You Plan to Attend the +Meeting in Person, +PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR +VOTE BY TELEPHONE OR THE INTERNET. +IMPORTANT +NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE +ANNUAL +MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 23, 2009. +Wolverine’s +Proxy Statement for the 2009 Annual Meeting of Stockholders and +the Annual +Report to Stockholders for the fiscal year ended January 3, +2009 are available at +www.wolverineworldwide.com/2009annualmeeting.asp +TABLE OF CONTENTS +Proxy Statement +Election of Directors +Wolverine’s Board of Directors +Corporate Governance Principles +Non-Employee Director Compensation +Director Compensation for Fiscal 2008 +Ownership of Wolverine Stock +Executive Compensation +COMPENSATION DISCUSSION AND ANALYSIS +Potential Payments Upon Termination or Change in Control +Estimated Payments on Termination or Change in Control +Compensation Committee Report +Selection of Auditors +Audit Committee Report +Related Matters +Appendix A +Table of Contents +WOLVERINE +WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +ANNUAL +MEETING OF STOCKHOLDERS +April 23, 2009 +Proxy +Statement +This proxy statement and enclosed proxy card are being furnished +to you in connection with the solicitation of proxies by the +Wolverine Board of Directors for use at the annual meeting. In +this proxy statement, “we,” “us,” +“our” and “Wolverine” refer to Wolverine +World Wide, Inc. and “you” and “your” refer +to Wolverine stockholders. +Questions +and Answers About the Proxy Materials and Our 2009 Annual +Meeting +Q: +Why am I receiving these materials? +A: +Wolverine’s Board of Directors is providing these proxy +materials to you in connection with its solicitation of proxies +for use at the Wolverine World Wide, Inc. 2009 Annual Meeting of +Stockholders, which will take place on April 23, 2009, at +Wolverine’s headquarters located at 9341 Courtland Drive, +N.E., Rockford, Michigan, at 10:00 a.m. local time. +Stockholders are invited to attend the annual meeting and are +requested to vote upon the proposals described in this Proxy +Statement. +Q: +What information is contained in these materials? +A: +The information included in this Proxy Statement relates to the +proposals to be voted upon at the annual meeting, the voting +process, the compensation of our directors and named executive +officers, and certain other required information. +Wolverine’s Annual Report to Stockholders for the year +ended January 3, 2009, which includes Wolverine’s +audited consolidated financial statements, is included in these +proxy materials. Your proxy, which you may use to vote, is also +enclosed. +Q: +What proposals will be voted upon at the annual meeting? +A: +There are two proposals scheduled to be voted upon at the annual +meeting: +• election of four directors for three-year terms +expiring in 2012; and +• ratification of the appointment of +Ernst & Young LLP as independent auditors for +Wolverine for the current fiscal year. +In addition, such other business as may properly come before the +meeting will be considered and voted upon. We are not currently +aware of any other matters to be considered and voted upon at +the meeting. +Q: +How does Wolverine’s Board of Directors recommend that I +vote? +A: +Wolverine’s Board of Directors recommends that you vote +your shares “FOR” each of the nominees to the Board of +Directors and “FOR” each other proposal discussed in +this Proxy Statement. +Q: +Who may vote? +A: +You may vote at the meeting or by proxy if you were a +stockholder of record of Wolverine at the close of business on +March 2, 2009. Each stockholder is entitled to one vote per +share on each matter presented. As of March 2, 2009, there +were 49,530,959 shares of Wolverine common stock issued and +outstanding (excluding 12,781,203 shares of treasury stock). +Q: +How do I vote before the annual meeting? +A: +Wolverine offers the convenience of voting by mail-in proxy, +telephone or the Internet. See the enclosed proxy for voting +instructions. If you properly sign and return the proxy in the +form we have provided or properly vote by telephone or the +Table of Contents +Internet, your shares will be voted at the annual meeting and at +any adjournment of that meeting. +Q: +What if I return my proxy but do not provide voting +instructions? +A: +If you specify a choice, the proxy will be voted as specified. +If you return a signed proxy but do not specify a choice, your +shares will be voted in favor of the election of all nominees +named in this Proxy Statement and in favor of the proposal set +forth in this Proxy Statement. In all cases a proxy will be +voted in the discretion of the individuals named as proxies on +the proxy card with respect to any other matters that may come +before the meeting. +Q: +Can I change my mind after I vote? +A: +You may revoke your proxy at any time before it is exercised by +delivering written notice of revocation to the Secretary of +Wolverine or by attending and voting at the annual meeting. +Q: +How can I vote my shares in person at the annual meeting? +A: +Shares held directly in your name as the stockholder of record +may be voted in person at the annual meeting. If you choose to +vote in person, please bring the enclosed proxy card and proof +of identification. Even if you plan to attend the annual meeting +in person, Wolverine recommends that you vote your shares in +advance as described below so that your vote will be counted if +you later decide not to attend the annual meeting. Shares held +in “street name” through a brokerage account or by a +bank or other nominee may be voted in person by you if you +obtain a signed proxy from the record holder giving you the +right to vote the shares. +Q: +What is the quorum requirement for the annual meeting? +A: +The presence in person or by proxy of the holders of a majority +of the shares entitled to vote at the annual meeting is +necessary to constitute a quorum. In determining the presence or +absence of a quorum for the annual meeting, all shares for which +a proxy or vote is received will be counted as present and +represented at the meeting, including abstentions and shares +represented by a broker vote on any matter. +Q: +What is the voting requirement to approve each of the +proposals? +A: +A plurality of the shares voting is required to elect directors. +This means that the nominees who receive the most votes will be +elected. In counting votes on the election of directors, only +votes “for” or “withheld” affect the +outcome. Broker non-votes (which are explained below) will be +counted as not voted and will be deducted from the total shares +of which a plurality is required. +Each other matter to be voted upon at the annual meeting will be +approved if a majority of the shares present or represented at +the meeting and entitled to vote upon the proposal are voted in +favor of such matter. In counting votes on each such matter, +abstentions will be counted as voted against the matter and +broker non-votes will be counted as not voted upon the matter +and deducted from the total shares of which a majority is +required. +Q: +What are broker non-votes and what effect do they have on the +proposals? +A: +Generally, broker non-votes occur when shares held by a broker +in “street name” for a beneficial owner are not voted +with respect to a particular proposal because (1) the +broker has not received voting instructions from the beneficial +owner and (2) the broker lacks discretionary voting power +to vote those shares. +Q: +What does it mean if I receive more than one proxy or voting +instruction card? +A: +It means your shares are registered differently or are in more +than one account. Please provide voting instructions for all +proxy and voting instruction cards you receive. +Q: +Where can I find the voting results of the annual meeting? +A: +Wolverine will announce preliminary voting results at the annual +meeting and publish final results in Wolverine’s quarterly +report on +Form 10-Q +for the second quarter of 2009. +2 +Table of Contents +Election +of Directors +As recommended by the Governance Committee, the Board of +Directors proposes that the following nominees be elected as +directors for terms expiring at the 2012 annual meeting: +Alberto L. Grimoldi +Joseph R. Gromek +Brenda J. Lauderback +Shirley D. Peterson +All of the nominees are currently directors of Wolverine whose +terms will expire at the annual meeting. Each proposed nominee +is willing to serve as a director if elected. However, if a +nominee is unable to serve or is otherwise unavailable for +election, which is not contemplated, the incumbent Wolverine +Board of Directors may or may not select a substitute nominee. +If a substitute nominee is selected, your shares will be voted +for the substitute nominee (unless you give other instructions). +If a substitute nominee is not selected, your shares will be +voted for the remaining nominees. Proxies will not be voted for +more than four nominees. +Wolverine’s Board of Directors currently consists of +11 directors. Wolverine’s Amended and Restated Bylaws +provide that the Board of Directors is divided into three +classes, with each class to be as nearly equal in number as +possible. Each class serves a term of office of three years, +with the term of one class expiring at the annual meeting in +each successive year. +Biographical information for each nominee and each current +director who will continue to serve after the annual meeting is +presented below. Except as otherwise indicated, all have had the +same principal positions and employment for over five years. +Your +Board of Directors recommends that you vote FOR each +nominee. +Wolverine’s +Board of Directors +Nominees +for Terms Expiring in 2012 +ALBERTO L. GRIMOLDI (age 67) has been a director since +1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a shoe +manufacturer and retailer in Argentina. He has held that +position since 1986. Mr. Grimoldi was previously a member +of the Advisory Board of Ford Motor Company in Argentina, and +has also held various positions in the Argentinean government. +JOSEPH R. GROMEK (age 62) was appointed to +Wolverine’s Board of Directors on April 17, 2008. +Mr. Gromek is President, Chief Executive Officer and a +director of The Warnaco Group, Inc., which designs, sources, +manufactures, markets, licenses and distributes a broad line of +intimate apparel, sportswear and swimwear worldwide. He has held +that position since 2003. +BRENDA J. LAUDERBACK (age 58) was appointed to the +Board of Directors in 2003. From 1995 until her retirement in +1998, Ms. Lauderback was president of the Wholesale and +Retail Group of Nine West Group, Inc., a footwear wholesaler and +distributor. She was previously the President of the Wholesale +Division of U.S. Shoe Corporation, a footwear manufacturer +and distributor, and a Vice President of Dayton Hudson +Corporation, a retailer. Ms. Lauderback is also a director +of: Irwin Financial Corporation; Big Lots, Inc.; Denny’s +Corporation; and Select Comfort Corporation. +SHIRLEY D. PETERSON (age 67) has been a director since +2005. From 1995 until her retirement in 2000, Ms. Peterson +served as President of Hood College of Frederick, Maryland. From +1993 to 1995 she was a partner at the law firm +Steptoe & Johnson LLP. She was previously the +Commissioner of the Internal Revenue Service and an Assistant +Attorney General of the Tax Division for the +U.S. Department of Justice. Ms. Peterson is also a +director of: The Goodyear Tire & Rubber Company; AK +Steel Holding Corporation; and Champion Enterprises Inc. +3 +Table of Contents +Continuing +Directors — Terms Expiring in 2011 +WILLIAM K. GERBER (age 55) has been a director since +2008. Mr. Gerber is Managing Director of Cabrillo Point +Capital LLC, a private investment fund. He has held that +position since 2008. From 1998 to 2007, Mr. Gerber was +Executive Vice President and Chief Financial Officer of Kelley +Services, Inc., a global staffing solutions company. +Mr. Gerber is also a director of AK Steel Corporation and +Kaydon Corporation. +BLAKE W. KRUEGER (age 55) has been a director since +2006. Mr. Krueger is Chief Executive Officer and President +of Wolverine, a position he assumed in April 2007. From October +2005 until April 2007, Mr. Krueger served as President and +Chief Operating Officer of Wolverine. From 2004 to October 2005, +he served as Executive Vice President and Secretary of Wolverine +and President of the Heritage Brands Group. From 2003 to 2004, +Mr. Krueger served as Executive Vice President and +Secretary of Wolverine and President of the Caterpillar Footwear +Group. He has also previously served as Executive Vice +President, General Counsel and Secretary of Wolverine with +various responsibilities including the human resources, retail, +business development, accessory licensing, mergers and +acquisitions, and legal areas. +MICHAEL A. VOLKEMA (age 53) has been a director since +2005. Mr. Volkema is Chairman of Herman Miller, Inc., a +leading designer and manufacturer of furnishings for the office +and home. He has held that position since 2000. Mr. Volkema +became President and Chief Executive Officer of Herman Miller in +1995 and held those positions until 2003 and 2004, respectively. +Continuing +Directors — Terms Expiring in 2010 +JEFFREY M. BOROMISA (age 54) has been a director since +2006. Mr. Boromisa is Executive Vice President of Kellogg +International, President of Latin America and Senior Vice +President of Kellogg Company, a leading global cereal, snack and +specialty foods company. He has held these positions since 2008. +Mr. Boromisa is also a member of Kellogg Company’s +Global Leadership Team. From 2006 until 2008, Mr. Boromisa +served as Executive Vice President of Kellogg International, +President of Asia Pacific and Senior Vice President of the +Kellogg company. From 2004 until 2006, he was Senior Vice +President and Chief Financial Officer of Kellogg Company. In +2002, Mr. Boromisa was promoted to Senior Vice President, +Corporate Controller and Chief Financial Officer of Kellogg +International. Mr. Boromisa served as Vice President and +Corporate Controller of Kellogg Company from November 1999 until +2002. In 1997, he was promoted to Vice President — +Purchasing of Kellogg North America, and since 1981, has served +Kellogg Company in various financial positions. +DAVID T. KOLLAT (age 70) has been a director since +1992. Mr. Kollat is Lead Director of Wolverine. +Mr. Kollat is also President and Chairman of 22, Inc., a +company specializing in research and management consulting for +retailers and consumer goods manufacturers. Mr. Kollat is +also a director of Limited Brands, Inc.; Big Lots, Inc.; and +Select Comfort Corporation. +DAVID P. MEHNEY (age 69) has been a director since +1977. Mr. Mehney is President of The KMW Group, Inc., an +importer and distributor of medical products and distributor of +marine products in Michigan. +TIMOTHY J. O’DONOVAN (age 63) has been a director +since 1993. Mr. O’Donovan is Chairman of the Board of +Wolverine, and has served in that position since April 2005. In +April 2007, Mr. O’Donovan retired as Chief Executive +Officer of Wolverine, a position which he held since April 2000. +Mr. O’Donovan served Wolverine as its Chief Executive +Officer and President from April 2000 until April 2005. Before +April 2000, Mr. O’Donovan was Chief Operating Officer +and President of Wolverine since 1996. Before 1996, +Mr. O’Donovan was Executive Vice President of +Wolverine. Mr. O’Donovan is also a director of Spartan +Stores, Inc. and Kaydon Corporation. +Board +Committees and Meetings +During the 2008 fiscal year, the Board of Directors held five +regular meetings. Each of the directors attended 75% or more of +the aggregate of the total number of full Board meetings and the +total number of meetings of committees on which he or she served +(during the periods that he or she served). +4 +Table of Contents +The Board of Directors has three standing committees: the Audit +Committee, the Compensation Committee and the Governance +Committee. Members of each committee are appointed by the Board +of Directors and the authority, duties and responsibilities of +each committee are governed by written charters approved by the +Board of Directors. In addition to regular Board and Committee +meetings, Wolverine has regular scheduled executive sessions for +non-management directors. Wolverine’s independent Lead +Director, Mr. Kollat, presides at all non-management +executive sessions. Interested parties may make concerns known +to the non-management directors by communicating with +Mr. Kollat or with the non-management directors as a group, +through one of the Board communication mechanisms described +later in this proxy statement under the heading “Corporate +Governance Principles — Communication with the +Board.” +The table below shows current membership for each of the +standing committees: +Compensation +Governance +Audit Committee +Committee +Committee +Jeffrey M. Boromisa* +Joseph R. Gromek +Brenda J. Lauderback* +William K. Gerber +David T. Kollat +Shirley D. Peterson +Brenda J. Lauderback +Michael A. Volkema* +Michael A. Volkema +Shirley D. Peterson +* +Committee Chair +Below is a description of each of the standing committees. +Audit Committee. The Audit Committee has been +established in accordance with Section 3(a)(58)(A) of the +Securities Exchange Act of 1934 and performs the following +duties: +• +represents and assists the Board in fulfilling its oversight +responsibility regarding Wolverine’s financial reporting +and accounting process; +• +appoints, retains, compensates, oversees, evaluates and, if +appropriate, terminates the independent auditors; +• +annually reviews the performance, effectiveness, objectivity and +independence of the independent auditors and Wolverine’s +internal audit function; +• +obtains and reviews the independent auditors’ internal +quality control report and other reports required by applicable +rules, regulations and standards; +• +assesses auditor independence; +• +establishes procedures for the receipt, retention and treatment +of complaints regarding accounting and auditing matters; +• +meets to review Wolverine’s financial statements, including +disclosures in Management’s Discussion and Analysis of +Financial Condition and Results of Operations, that are included +in Wolverine’s reports on +Form 10-Q +and +Form 10-K; +• +reviews Wolverine’s policies and systems with respect to +risk assessment and risk management and discusses significant +risks or exposures with management and the independent auditors; +• +discusses with internal auditors and the independent auditors +the overall scope and plans for their respective audits; +• +oversees Wolverine’s legal and regulatory compliance +systems; +• +reviews and discusses the adequacy and effectiveness of +Wolverine’s internal control over financial reporting and +disclosure controls and procedures; and +• +establishes policies and procedures relating to the engagement +of the independent auditors, including pre-approval policies and +procedures. +Only independent directors may serve on the Audit Committee. +Each member of the Audit Committee satisfies the independence +standards for such committee members established by the New York +Stock Exchange (“NYSE”) and the Securities and +Exchange Commission (“SEC”). Wolverine’s Board of +Directors has determined that Jeffrey M. Boromisa and William K. +Gerber are audit committee financial experts, as defined by the +SEC. The Audit Committee met twelve times in 2008. +Compensation Committee. The Compensation +Committee: +• +assists the Board of Directors in discharging its +responsibilities relating to executive compensation and +5 +Table of Contents +fulfilling its responsibilities relating to Wolverine’s +compensation and benefit programs and policies; +• +oversees the overall compensation structure, policies and +programs, and assesses whether the compensation structure +establishes appropriate incentives; +• +reviews and approves corporate and personal goals and objectives +relevant to Chief Executive Officer compensation, evaluates the +performance of the Chief Executive Officer in light of these +goals and objectives, and, together with the other independent +directors, approves the compensation of the Chief Executive +Officer based on the evaluation; +• +reviews and approves the compensation of elected corporate +officers and other executives, including bonuses and equity +compensation; +• +administers and makes recommendations with respect to +Wolverine’s stock option and other equity-based incentive +plans; and +• +reviews and discusses with management Wolverine’s +Compensation Discussion and Analysis and related disclosures +required by the rules of the SEC and recommends to the Board of +Directors whether such disclosures should be included in the +annual report and proxy statement. +Only independent directors may serve on the Compensation +Committee. Each member of the Compensation Committee satisfies +the independence standards for such committee members +established by the NYSE. The Compensation Committee met five +times during 2008. +Governance Committee. The Governance Committee: +• +interviews each potential director nominee and recommends, +consistent with criteria approved by the Board, suitable +candidates for nomination or appointment to the Board; +• +in conjunction with the Board, establishes qualification +standards for Board and committee membership; +• +develops and recommends to the Board an annual self-evaluation +process for the Board and its committees and oversees the +evaluation process; +• +establishes and recommends director independence guidelines to +the Board; +• +reviews and reports on all matters generally relating to +corporate governance and develops and recommends to the Board +corporate governance guidelines; +• +recommends to the Board key executives to serve as corporate +officers of Wolverine; and +• +annually reviews the compensation of directors for service on +the Board of Directors and committees and makes recommendations +to the Board of Directors regarding such compensation. +In evaluating the skills and characteristics required of Board +members, the Governance Committee addresses issues such as +experience, diversity, age and skills in the context of the +current +make-up of +the Board. The Governance Committee will consider candidates for +nomination that are recommended by stockholders, directors, +officers, third-party search firms and other sources. +Stockholders may recommend individual nominees for consideration +by the Governance Committee by communicating with the Governance +Committee through one of the Board communication mechanisms +described under the heading “Corporate Governance +Principles — Communication with the Board.” The +Board of Directors ultimately determines individuals to be +nominated at each annual meeting. Direct stockholder nominations +may be made through the procedure described below under the +subheading “Stockholder Nominations.” From time to +time, Wolverine or the Governance Committee engages third-party +search firms to assist with identifying and evaluating potential +nominees. +In making nominee recommendations to the Board, the Governance +Committee considers a potential nominee’s ability, judgment +and personal and professional integrity. The Governance +Committee seeks nominees who it believes are likely to be most +effective, in conjunction with other nominees and Board members, +in collectively serving the long-term interests of the +stockholders. Based on the Governance Committee’s +recommendation, the Board of Directors appointed Joseph R. +Gromek as a new director in April 2008. Mr. Gromek was +identified by a third-party search firm and recommended by the +Governance Committee for appointment to the Board. +Only independent directors may serve on the Governance +Committee. Each member of the Governance Committee satisfies the +independence standards for such committee members established by +the NYSE. The Governance Committee met five times during 2008. +Stockholder +Nominations +Nominations may be made by a stockholder entitled to vote for +the election of directors if, and only if, the stockholder +submits advance notice of the proposed nomination to the +Secretary of Wolverine and the notice is received by the +Secretary of Wolverine not earlier than the +6 +Table of Contents +close of business on the +120 th day +and not later than the close of business on the +90 th day +prior to the anniversary of the prior year’s annual +meeting. If Wolverine did not hold an annual meeting within the +last year or the date of the upcoming annual meeting changed by +more than 30 days from the date of the last preceding +annual meeting, stockholders must give notice by the close of +business not more than 10 days after the public disclosure +of the date of the meeting. Each notice submitted by a +stockholder must set forth each nominee’s name, age, +business address, residence address and principal occupation and +employment, the class and number of shares of common stock +beneficially owned by each nominee, and any other information +concerning each nominee required to be included in a proxy +statement soliciting proxies for the election of the nominee +under the rules of the SEC. In addition, the notice must state +the name, record address and the class and number of shares of +common stock beneficially owned by the stockholder submitting +the notice, along with information, as of the date of notice and +the record date for the annual meeting, about any agreement, +arrangement or understanding that has the effect or intent of +mitigating loss, managing risk or benefit from changes in the +share price of any class or series of shares of Wolverine, or +increasing or decreasing voting power with respect to shares of +Wolverine, including any derivative or short positions, profit +interests, options, hedging transactions, and borrowed or loaned +shares. If the chairman of the meeting determines that a +nomination was not made in accordance with these procedures, he +or she must announce that determination at the meeting and the +nomination will be disregarded. +Corporate +Governance Principles +Wolverine has developed governance principles to assist the +Board in fulfilling its responsibilities to stockholders and to +provide a framework for the Board’s oversight +responsibilities regarding the management of Wolverine. +Wolverine’s governance principles are dynamic and have been +developed and revised over a period of many years to reflect +changing laws, regulations and best business practices. The +governance principles also provide guidance and transparency to +management, employees, investors and other stakeholders +regarding the Board’s philosophy, high ethical standards, +expectations for conducting business, and decision-making +processes. +The following is a summary of certain of Wolverine’s +policies, charters, guidelines and principles relating to +corporate governance and financial reporting. You may access +complete current copies of our Code of Conduct & +Compliance, Corporate Governance Guidelines, Director +Independence Standards, Accounting and Finance Code of Ethics, +Audit Committee Charter, Governance Committee Charter and +Compensation Committee Charter on the Corporate Governance +section of the Investors section of Wolverine’s website at +www.wolverineworldwide.com . Each of these is also +available in print to any stockholder upon request to the +Secretary of Wolverine, and the Director Independence Standards +are attached as Appendix A to this Proxy Statement. +Independence +The Board believes that the independence of directors and Board +committee members is important to assure that the Board and its +committees operate only in the best interests of the +stockholders and to avoid any appearance of conflict of +interest. For over 15 years, Wolverine has functioned with +not more than two active or former management employees as +directors. The remainder of the Board’s 8 to +12 directors over this period have been non-management +directors. Only two current or former management employees, +Wolverine’s Chief Executive Officer and President, and +Wolverine’s Chairman and former Chief Executive Officer, +currently serve as directors. Wolverine’s formal Corporate +Governance Guidelines require that a substantial majority of the +directors be independent. +The Board has determined that the following 8 of its +11 directors meet the director independence standards +adopted by the Board and the applicable NYSE standards for +independence (including, with respect to audit committee +members, the heightened independence criteria applicable to +audit committee members under the NYSE and SEC independence +standards), have no material relationship with Wolverine, and +therefore are independent: +• +Jeffrey M. Boromisa +• +William K. Gerber +• +Joseph R. Gromek +• +David T. Kollat +• +Brenda J. Lauderback +• +David P. Mehney* +• +Shirley D. Peterson +• +Michael A. Volkema +* See the discussion of indirect related party transactions +under the caption “Related Matters,” subheading +“Certain Relationships and Related Transactions.” +7 +Table of Contents +Mr. Phillip D. Matthews served as a director in 2008 until +his retirement as a director in April 2008, and was determined +to be independent by the Board of Directors in February 2008. +Our Board of Directors has adopted categorical Independence +Standards, which are attached as Appendix A to this Proxy +Statement and which are also available at our website. These +Independence Standards comply with and, in some areas, exceed +the director independence standards required by the NYSE. In +summary, under these standards a director is considered +independent only if the director and his or her immediate family +members do not have, and generally have not had in the most +recent three years, any material relationships with Wolverine, +its subsidiaries or affiliates (including certain relationships +with Wolverine’s independent auditors). The standards +establish thresholds at which such relationships are deemed to +be not material. In addition, the Board examines on a +case-by-case +basis transactions and relationships that are not of a nature +addressed by the categorical standards. +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set +forth the primary framework of governance principles applicable +to Wolverine. The Corporate Governance Guidelines outline the +general duties and functions of the Board and management, and +set forth general principles regarding Board composition, +independence, Board meetings and responsibilities, Board +committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Stock +Ownership Requirements for Directors and Executive +Officers +For many years, the Board has believed that directors and +management should have a significant financial stake in +Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal requirements that directors and executive +management own specified amounts of Wolverine stock (including +ownership credit for stock units allocated to non-employee +directors under the Deferred Compensation Plan) within five +years of their respective election to the Board or appointment +as a member of executive management. The ownership requirements +necessitate holdings of a number of shares (including ownership +credit for stock units allocated to non-employee directors under +the Deferred Compensation Plan) of Wolverine stock with a value +equal to at least (i) for directors, five times the current +Board retainer, (ii) for the Chief Executive Officer, five +times base salary, (iii) for other executive officers, +between two and three times base salaries, and (iv) for +other executive management, between one and two times base +salaries. +Code of +Conduct & Compliance +For years, Wolverine and its employees and directors have +followed an extensive Code of Conduct & Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply with +applicable legal requirements and sets forth Wolverine’s +expectations regarding business ethics, integrity, honesty and +fairness. The Code contains Wolverine’s principles and +procedures regarding conflicts of interest, corporate +opportunities, confidentiality, fair dealing, protection and +proper use of Wolverine’s assets, compliance with laws, +rules and regulations, engagement criteria for Wolverine’s +trading partners, “whistle blower” protection +provisions, expectations regarding the integrity of books and +records, and guidelines and procedures for many other subjects. +Employees are surveyed annually to identify any areas of +noncompliance with the Code, and the results of this survey are +reported to the Board. +Accounting +and Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Finance Ethics Code”). This is an ethics code +focused on the financial reporting process and is intended to +protect the interests of all of Wolverine’s constituents, +including stockholders, employees, customers and the communities +in which Wolverine conducts business. Many of the basic tenets +of the Finance Ethics Code have been incorporated for many years +in the Code. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. The Finance Ethics Code and the Code are available +on the Corporate Governance section of the Investors section of +Wolverine’s website at www.wolverineworldwide.com , +where Wolverine will post any waiver of or amendment to these +codes for directors or executive officers. +Board +Committee Charters +The Board has organized and formed three committees, the Audit +Committee, the Compensation Committee and the Governance +Committee. The Board has approved a committee charter for each +committee that contains +8 +Table of Contents +basic principles regarding the committee’s organization, +purpose, authority and responsibilities. The performance of each +committee is reviewed annually by committee members and the +Board. +Leadership +Since 1993, the Board has operated with an independent Lead +Director, who is selected by the independent directors. The +duties of the independent Lead Director include: +(a) working closely with the Chairman regarding the agenda +and scheduling for Board and committee meetings; +(b) overseeing information sent to the Board; +(c) presiding over executive sessions; (d) serving as +a liaison between the Chairman and the independent Directors; +(e) presiding over Board meetings in the absence of the +Chairman; and (f) being available for consultation and +communications with stockholders as appropriate. +Attendance +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to attend every +Board meeting. Directors are also expected to attend the Annual +Meeting of Stockholders in person. All then-current directors +attended the 2008 annual meeting. +Communication +with the Board +Stockholders and interested parties may communicate with members +of Wolverine’s Board of Directors through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General +Counsel, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. Any communications submitted by any of +the above means (or the means described below) are received by +Wolverine’s General Counsel and forwarded to the +appropriate person or persons. Any suggestions, concerns or +reports of misconduct at Wolverine or complaints or concerns +regarding Wolverine’s financial statements and accounting, +auditing, internal control and reporting practices can be +reported (including anonymous and confidential submissions) by +submitting a report on www.WolverineReportLine.com or by +writing to the audit committee +c/o the +General Counsel at the above address. +Board and +Company Culture +Wolverine’s comprehensive governance guidelines and +principles are coupled with a robust, open and effective Board +environment that promotes respect, trust and candor, fosters a +culture of open dissent and permits each director to express +opinions and contribute to the Board process. Directors are +expected to have unrestricted access to management and any +company information they desire. The participation of Board +members and the open exchange of opinions is further encouraged +at the Board committee level through the periodic rotation of +Board members among its standing committees. This open and +candid operating environment is shared by management and the +Board and is essential to fully realize the benefits of +Wolverine’s formal governance guidelines, principles, +charters and policies. +9 +Table of Contents +Non-Employee +Director Compensation +Wolverine pays each non-employee director an annual cash +retainer of $30,000 plus $2,000 per full day for attendance at +each regular meeting of the Board of Directors and $1,000 for +attendance at each committee meeting, including meetings by +teleconference. In addition, Wolverine pays the chairperson of +the Audit Committee an annual fee of $7,500 and the chairpersons +of the Compensation and Governance Committees annual fees of +$5,000. +Wolverine also pays each non-employee director an annual equity +retainer equal to $40,000 (increased from $15,000 in fiscal +2007) in the form of a contribution deferred in the form of +Stock Units under the Amended and Restated Outside +Directors’ Deferred Compensation Plan (the “Deferred +Compensation Plan”). The terms of the Deferred Compensation +Plan and Stock Units are described below. For fiscal year 2008, +non-employee directors were credited with 1,402 Stock Units. +Under Wolverine’s current director compensation program, +each newly appointed or elected non-employee director is also +granted an option to purchase a number of shares of Wolverine +common stock equal to six times the annual cash retainer fee +then in effect divided by the closing market price of +Wolverine’s stock on the date of his or her initial +election or appointment. For 2008, newly appointed directors +Mr. Gerber and Mr. Gromek received 6,891 and 6,309 +options, respectively. On the date of each annual meeting after +his or her initial appointment or election, each non-employee +director is granted an option to purchase a number of shares +equal to three times the annual cash retainer fee then in effect +divided by the closing market price of Wolverine’s stock on +the annual meeting date. For 2008, each non-management director +received 3,155 options granted under the Stock Incentive Plan of +2005. These options were fully vested on the grant date and have +a term of 10 years. The exercise price of options granted +is equal to the closing market price of Wolverine’s common +stock on the date each option is granted. +Directors who are also employees of Wolverine or any of its +subsidiaries do not receive an annual cash or equity retainer +and are not compensated for attendance at Board or committee +meetings. Wolverine also pays director expenses associated with +attending Board and committee meetings and other Wolverine +matters (including spouse travel expenses in connection with +strategic planning meetings every other year). Board members +from time to time receive sample Wolverine products of nominal +value for review and assessment. Board members are eligible to +receive reimbursement for certain approved expenses relating to +director education. +Mr. Kollat serves as Lead Director of Wolverine. For his +service as Lead Director, Mr. Kollat receives an annual fee +of $60,000. These payments are in lieu of the annual director +cash retainer fee of $30,000. Mr. Kollat receives the +standard director fee for attendance at Board meetings and +standard director stock options, but does not receive attendance +fees for attending committee meetings. +In connection with his retirement as Chief Executive Officer in +April 2007, Wolverine entered into a one-year consulting +agreement with Mr. O’Donovan in order to retain his +services after retirement. Under the consulting arrangement, +Mr. O’Donovan received an annual fee of $350,000 in +lieu of any director remuneration other than the standard +director stock option grant for his services as Chairman of the +Board. Under the consulting agreement, Wolverine continued to +provide Mr. O’Donovan with office space, +administrative support and continued estate and financial +planning and tax preparation services. In addition, +Mr. O’Donovan’s 2007 restricted stock grant +vested upon his successful completion of his first year of +duties as non-officer Chairman of the Board on April 17, +2008. In February 2008, Wolverine extended +Mr. O’Donovan’s term as Chairman through April +2009. For the period from April 2008 to April 2009 +Mr. O’Donovan received $150,000 for his services as +Chairman and will also have office space and administrative +staffing at Wolverine’s headquarters. He also received the +standard annual non-management director stock option award for +his services in fiscal 2008. +Deferred Compensation Plan . In 2008, Wolverine adopted +the Deferred Compensation Plan, a supplemental nonqualified +deferred compensation plan for directors who are not employees +of Wolverine or its subsidiaries. Wolverine continues to +maintain a prior plan that applies to benefits accrued before +January 1, 2005. The Deferred Compensation Plan permits all +non-employee directors to defer 25%, 50%, 75% or 100% of their +directors’ fees. Amounts deferred and annual equity +retainer amounts described above are credited on the books of +Wolverine to an account established for that director as if the +amounts had been invested in shares of Wolverine common stock +using the closing +10 +Table of Contents +market price of common stock on the payment date (“Stock +Units”). Stock Units are credited with dividend equivalents. +The accumulated Stock Units in a director’s account under +the plan are distributed in shares of Wolverine common stock in +a single lump-sum or annual installments over a period of up to +20 years (10 years under the prior plan) by converting +each Stock Unit to one share of Wolverine common stock upon +termination of service as a director or as of a date selected by +the director. +Upon a “change in control” as defined in the current +Deferred Compensation Plan, Wolverine shares of common stock +equal to the Stock Units credited to a director’s account +will be distributed to the director in a single lump sum +payment. For purposes of the Deferred Compensation Plan, +“change in control” is defined as: +• +the acquisition by any person, or more than one person acting as +a group, of more than 50% of either (i) the then +outstanding shares of common stock of Wolverine or (ii) the +total fair market value of Wolverine; +• +the acquisition by any person, or more than one person acting as +a group, during the +12-month +period from and including the date of the most recent +acquisition, of ownership of 30% or more of the outstanding +common stock of Wolverine; +• +the replacement of a majority of the individuals who constitute +the Board during any +12-month +period by directors whose appointment or election is not +endorsed by a majority of the directors prior to the date of the +appointment or election; or +• +the acquisition, during any +12-month +period ending on the date of the most recent acquisition, by any +person of assets from Wolverine having a gross fair market value +of at least 40% of the gross fair market value of all the assets +of Wolverine immediately before the acquisition. +11 +Table of Contents +Director +Compensation for Fiscal 2008 +The following table provides information concerning the +compensation of directors for Wolverine’s last completed +fiscal year. +Fees +Earned +or +Stock +Option +All Other +Paid in +Awards +Awards +Compensation +Total +Name +Cash(1)($) +(2)(3)($) +(3)($) +($) +($) +Jeffrey M. Boromisa +— +99,682 +20,724 +0 +120,406 +William K. Gerber(4) +41,500 +40,309 +61,032 +0 +142,841 +Alberto L. Grimoldi +— +96,695 +20,724 +0 +117,419 +Joseph R. Gromek(4) +— +74,936 +62,166 +0 +137,102 +David T. Kollat +70,000 +48,937 +20,724 +0 +139,661 +Brenda J. Lauderback +45,750 +57,327 +20,724 +0 +123,801 +Phillip D. Matthews(5) +25,222 +4,353 +— +0 +29,575 +David P. Mehney +— +105,846 +20,724 +0 +126,570 +Timothy J. O’Donovan(6) +87,500 +56,375 +20,724 +0 +164,599 +Shirley D. Peterson +57,000 +40,794 +20,724 +0 +118,518 +Michael A. Volkema +52,500 +40,794 +20,724 +0 +114,018 +(1) +Represents cash payments received by directors in fiscal 2008. +Directors may defer director fees and receive Stock Units +pursuant to the Deferred Compensation Plan. These deferrals are +indicated in note (2) below. +(2) +For directors other than Mr. O’Donovan, amounts shown +represent the dollar value of the shares of common stock that +underlie the Stock Units credited to the Deferred Compensation +Plan on the date of the award pursuant to the Deferred +Compensation Plan described in the narrative above. Amounts +include the $40,000 that Wolverine credited as part of the +annual equity retainer to non-management directors, any +additional annual retainer fees voluntarily deferred by the +director to a Stock Unit account held by these directors under +the Deferred Compensation Plan, as well as any dividend +equivalents that were credited as Deferred Stock Units in fiscal +2008. Cash amounts voluntarily deferred related to fiscal 2008 +were as follows: Mr. Boromisa ($57,500), Mr. Grimoldi +($40,000), Mr. Gromek ($34,500), Ms. Lauderback +($15,250) and Mr. Mehney ($46,000). The value attributable +to any dividend equivalents credited as Deferred Stock Units +were as follows: Mr. Boromisa ($2,182); Mr. Gerber +($309); Mr. Grimoldi ($16,695); Mr. Gromek ($436); +Mr. Kollat ($8,937); Ms. Lauderback ($2,077); +Mr. Matthews ($4,353) ; Mr. Mehney ($19,846); +Ms. Peterson ($794); and Mr. Volkema ($794). +The amount in this column for Mr. O’Donovan represents +the compensation cost recognized during fiscal 2008 for +financial statement purposes in accordance with SFAS 123(R) +for restricted stock granted in prior years, except no +assumptions for forfeitures related to service-based vesting +conditions were included. For a description of the methodology +and assumptions used in determining the compensation cost, see +the Stock-Based Compensation Note to Wolverine’s Financial +Statements for the fiscal year ended January 3, 2009. +(3) +Listed below are the SFAS 123(R) fair values of the option +awards granted to non-management directors in fiscal 2008 and +the aggregate outstanding unexercised option awards held by +non-management directors at the end of fiscal year 2008. The +grant date fair value of each equity award computed in +accordance with SFAS 123(R) is the same as the amount +recognized by Wolverine for financial statement reporting +purposes in accordance with SFAS 123(R). For valuation +assumptions, see the Stock-Based Compensation Note to +Wolverine’s Financial Statements for the fiscal year ended +January 3, 2009. +12 +Table of Contents +Fiscal 2008 Option +Option Awards +Awards +Outstanding at +Grant Date +January 3, +Name +Fair Value +2009 +Jeffrey M. Boromisa +$ +20,724 +13,891 +William K. Gerber +61,032 +10,046 +Alberto L. Grimoldi +20,724 +45,939 +Joseph R. Gromek +62,166 +9,464 +David T. Kollat +20,724 +54,128 +Brenda J. Lauderback +20,724 +14,195 +Phillip D. Matthews +— +50,973 +David P. Mehney +20,724 +54,128 +Timothy J. O’Donovan +20,724 +380,811 +Shirley D. Peterson +20,724 +22,758 +Michael A. Volkema +20,724 +18,058 +(4) +Mr. Gerber and Mr. Gromek were appointed as directors +by Wolverine’s Board of Directors on February 7, 2008 +and April 17, 2008, respectively. +(5) +Mr. Matthews retired at the 2008 Annual Meeting. Due to his +retirement, he did not receive any stock or option award for +fiscal 2008. +(6) +In fiscal 2008, Mr. O’Donovan was party to a +consulting agreement with Wolverine for his services as director +in fiscal 2008, as described above. The amount reflected in the +Fees Earned or Paid in Cash column for Mr. O’Donovan +represents fees paid under this agreement through April 2008. +Fees for the April 2008 to April 2009 period were paid in 2009. +13 +Table of Contents +Ownership +of Wolverine Stock +Five +Percent Stockholders +The following table sets forth information concerning the number +of shares of Wolverine stock held by each entity known to +Wolverine to be the beneficial owner of more than five percent +of Wolverine’s outstanding shares of common stock: +Five Percent Stockholders +Amount and Nature of Beneficial +Ownership of Common Stock +Shared Voting +Total +Name and Address +Sole Voting +Sole Dispositive +or Dispositive +Beneficial +Percent +of Beneficial Owner +Power +Power +Power +Ownership +of Class +Barclays Global Investors, NA(1) +400 Howard St. San Francisco, +CA 94105 +2,349,499 +3,106,708 +0 +3,106,708 +6.35 +% +Franklin Resources, Inc.(2) +One Franklin Parkway +San Mateo, CA 94403 +2,864,451 +2,864,451 +0 +2,864,451 +5.9 +% +(1) +Based on information set forth in Schedule 13G filed +February 5, 2009. The Schedule 13G indicates that +Barclays Global Investors, NA and other related entities (some +of which are investment advisors or banks) beneficially own, in +the aggregate, 3,106,708 shares of Wolverine common stock. +(2) +Based on information set forth in Schedule 13G/A filed +February 9, 2009. The Schedule 13G/A indicates that +Franklin Resources, Inc. and one or more open- or close-end +investment companies and other managed accounts that are +investment management clients of investment managers that are +direct and indirect subsidiaries of Franklin Resources, Inc. +beneficially own, in the aggregate, 2,864,451 shares of +Wolverine common stock. +14 +Table of Contents +Stock +Ownership By Management +The following table sets forth the number of shares of common +stock beneficially owned as of March 2, 2009, by each of +Wolverine’s directors and nominees for director, each of +the named executive officers and all of Wolverine’s +directors, nominees for director and executive officers as a +group. An asterisk in the column for “Percent of +Class” means the individual beneficially owns less than one +percent of the common stock: +Stock Ownership By Management +Amount and Nature of Beneficial +Ownership of Common Stock(1) +Sole Voting +Shared Voting +Total +Name of +and/or Dispositive +or Dispositive +Stock +Beneficial +Percent +Beneficial Owner +Power(2) +Power(3) +Options(4) +Ownership(4) +of Class +Jeffrey M. Boromisa +— +— +13,891 +13,891 +* +Kenneth A. Grady +19,413 +— +9,401 +28,814 +* +William K. Gerber +1,000 +— +10,046 +11,046 +* +Donald T. Grimes +38,991 +— +— +38,991 +* +Alberto L. Grimoldi +10,168 +— +45,939 +56,107 +* +Joseph R. Gromek +— +— +9,464 +9,464 +* +Stephen L. Gulis, Jr. +2,260 +500 +251,966 +254,726 +* +David T. Kollat +86,135 +— +54,128 +140,263 +* +Blake W. Krueger +333,426 +— +302,397 +635,823 +1.3% +Brenda J. Lauderback +5,100 +— +14,195 +19,295 +* +Pamela L. Linton +27,156 +— +5,334 +32,490 +* +Phillip D. Matthews(5) +5,692 +— +50,973 +56,665 +* +David P. Mehney +77,452 +73,889 +54,128 +205,469 +* +Timothy J. O’Donovan +288,358 +136,265 +380,811 +805,434 +1.6% +Nicholas P. Ottenwess +33,813 +190 +82,701 +116,704 +* +Shirley D. Peterson +3,000 +— +22,758 +25,758 +* +Michael A. Volkema +5,000 +— +18,058 +23,058 +* +James D. Zwiers +56,678 +— +43,347 +100,025 +* +All directors and executive officers as a group +(17 people)(6) +996,496 +210,154 +996,756 +2,203,406 +4.4% +(1) +The numbers of shares stated are based on information provided +by each person listed and include shares personally owned of +record and shares that, under applicable regulations, are +considered to be otherwise beneficially owned. +(2) +These numbers include restricted shares and performance shares +held, which are subject to forfeiture if the terms of their +grant are not satisfied. +(3) +These numbers include shares over which the listed person is +legally entitled to share voting or dispositive power by reason +of joint ownership, trust or other contract or property right +and shares held by spouses, children or other relatives over +whom the listed person may have influence by reason of +relationship. +(4) +The numbers in the Stock Options column represent shares that +may be acquired within 60 days after March 2, 2009, by +the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in +the Total Beneficial Ownership column. +(5) +Mr. Matthews served as a director in 2008 until his +retirement as a director in April 2008. +(6) +This number excludes the 428,095 shares beneficially owned +by Messrs. Gulis, Matthews and Ottenwess. +15 +Table of Contents +Executive +Compensation +COMPENSATION +DISCUSSION AND ANALYSIS +Objectives +of Wolverine’s Compensation Programs +The basic compensation philosophy of the Compensation Committee +and Wolverine is to provide competitive salaries and incentives +to achieve superior financial performance. Wolverine’s +executive compensation policies are designed to achieve four +primary objectives: +• +attract and retain talented executives who will lead Wolverine +and achieve and inspire superior performance; +• +provide incentives for achievement of specific near-term +individual, business unit and corporate goals and to reward +attainment of goals at established levels; +• +provide incentives for achievement of longer-term financial +goals and to reward attainment of goals at established +levels; and +• +align the interests of management with those of the stockholders +to encourage achievement of continuing increases in stockholder +value. +The Compensation Committee reviews and structures +Wolverine’s compensation programs to balance employee +salaries with compensation that is performance-based and reward +annual performance while maintaining a focus on longer-term +objectives. The mix of compensation elements varies based on an +employee’s position and responsibilities. Wolverine’s +objective is to balance the total compensation package among +cash, non-cash, long-term, short-term and currently paid +compensation in a way that meets the goals set forth above. +Wolverine believes it serves the needs of its stockholders and +key management employees to provide incentives commensurate with +individual management responsibilities and past and future +contributions to corporate objectives. +Comparison +Group +In reviewing 2008 compensation, the Compensation Committee +compared the base salaries and total compensation levels of +Wolverine’s Chief Executive Officer and Chief Financial +Officer with those of executives with similar positions in +companies of similar type, size and financial performance. +Although some footwear companies are among the companies +included in the comparison group, this group was not limited to +footwear companies because Wolverine competes for executive +talent with a wide range of corporations. The Compensation +Committee reviews the group annually and updates the members in +consideration of any mergers, acquisitions or business-related +changes. Wolverine’s comparison group for fiscal 2008 +included: Jones Apparel Group, Inc.; Brown Shoe Company, Inc.; +The Timberland Company; Genesco, Inc.; Columbia Sportswear +Company; Skechers U.S.A., Inc.; The Stride-Rite Corp.; Kenneth +Cole Productions, Inc.; K-Swiss Inc.; Steven Madden, Ltd.; Rocky +Brands, Inc.; Deckers Outdoor Corporation; and Weyco Group, Inc. +(the “Peer Group”). For purposes of comparative total +shareholder return under the Long-Term Incentive Plan for the +2006-2008 +performance period, Puma AG replaces The Stride Rite Corp. in +the Peer Group because of the acquisition of The Stride Rite +Corp. by Collective Brands Inc. in 2007. +At the Compensation Committee’s direction, management +collected and assembled the data from the Peer Group and +provided the information to the Committee. In general, the +Compensation Committee targeted 2008 base salaries for the Chief +Executive Officer and Chief Financial Officer positions to be at +the median to slightly below the median percentile of base +salaries paid for comparable positions within the Peer Group. +The Compensation Committee targeted this level of salary in +recognition of the need to provide competitive base salaries to +attract and retain executive talent, while allowing for a +greater portion of compensation to come in forms that are at +risk and dependent upon performance. This “pay for +performance” approach allows potential overall compensation +to exceed or fall below the median Peer Group levels, depending +on Wolverine’s performance under the Annual Bonus Plan and +Long-Term Incentive Plan and depending on whether +Wolverine’s stock price has increased or decreased. +In addition to reviewing comparative data from the Peer Group +when establishing the 2008 compensation of Wolverine’s +Chief Executive Officer and Chief Financial Officer, the +Compensation Committee reviewed aggregate compensation data +publicly available for U.S. publicly traded companies with +revenues ranging from $1 billion to $1.5 billion +(excluding companies with overall compensation in excess of +certain dollar +16 +Table of Contents +thresholds). The Compensation Committee focused its comparative +analysis primarily on the Peer Group since it believed that the +Peer Group represents companies that are most +similarly-positioned to Wolverine. +Implementation +of Wolverine’s Compensation Programs +The Compensation Committee administers and makes recommendations +with respect to Wolverine’s compensation plans and reviews +and approves (with input from the independent directors in the +case of the Chief Executive Officer) the compensation of key +senior executives. The Compensation Committee receives +recommendations from Wolverine’s Chief Executive Officer +regarding the compensation of senior executive officers (other +than the Chief Executive Officer). Periodically, the +Compensation Committee will engage a compensation consultant to +conduct an assessment of the executive compensation program. The +Compensation Committee did not engage a compensation consultant +to assist the Compensation Committee with determining 2008 +compensation of Wolverine’s named executive officers. +However, the Compensation Committee engaged Towers Perrin in +fiscal 2008 to conduct a market-based assessment of the primary +elements of Wolverine’s executive compensation program for +2009. Towers Perrin did not provide any other services to +Wolverine in 2008. +Elements +of Compensation and Fiscal 2008 Amounts +Executive compensation at Wolverine consists primarily of the +following elements: +• +base salary and benefits; +• +performance-based compensation, if any, under the Executive +Short-Term Incentive Plan (the “Annual Bonus Plan”); +• +amounts paid, if any, as individual-specific bonuses designed to +encourage achievement of individual goals; +• +performance-based compensation, if any, under the Long-Term +Incentive Plan (“LTIP”); +• +participation in Wolverine’s equity-based incentive +plans; and +• +participation in Wolverine’s retirement plans. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +To attract and retain well-qualified executives, the +Compensation Committee seeks to establish competitive base +salaries. In setting individual base salaries, the Compensation +Committee considers the executive’s performance, the +executive’s current compensation, the executive’s +responsibilities and position within Wolverine and +Wolverine’s or the applicable business unit’s +performance (determined by reference to pre-tax levels of +earnings and levels of revenue) and expected contributions to +Wolverine. Management (including the Chief Executive Officer) +recommends annual merit increases for consideration by the +Compensation Committee. +The Compensation Committee also considers Peer Group base salary +information for the Chief Executive Officer and Chief Financial +Officer positions, and has generally sought to place these base +salaries at the median to slightly below the median percentile +of base salaries paid for comparable positions within the Peer +Group. Although the Compensation Committee does not give +specific weight to any particular factor, the most weight is +given to an executive’s performance, and a significant but +lesser weight is generally given to the comparative data. In +general, a market review prepared by management for the +Compensation Committee’s consideration showed that 2007 +base salary levels for the Chief Executive Officer +(Mr. Krueger) and the Chief Financial Officer +(Mr. Gulis, at the time of review) were below the median +compared to the Peer Group. +The following information summarizes each named executive +officer’s annualized base salary for fiscal years 2007 and +2008: +2007 +2008 +% Increase +Annualized +Annualized +Compared to +Name +Base Salary +Base Salary +Fiscal 2007 +Blake W. Krueger +$ +700,000 +$ +735,000 +5 +% +Donald T. Grimes(1) +N/A +385,000 +N/A +Kenneth A. Grady +237,500 +245,500 +3.4 +% +Pamela L. Linton(1) +280,000 +292,000 +4.3 +% +James D. Zwiers +245,000 +285,000 +16.3 +% +Stephen L. Gulis, Jr. +385,000 +420,000 +9.1 +% +Nicholas P. Ottenwess +235,000 +250,000 +6.4 +% +(1) +Mr. Grimes commenced employment in 2008, as a result no +base salary is shown for fiscal 2007. +Mr. Zwiers received a 16.3% base salary increase due to his +promotion to Senior Vice President and the additional +responsibilities he assumed in that role. +Mr. Ottenwess’s base salary was increased by 6.4%, +reflecting his move to an operational role in connection +17 +Table of Contents +with his transition to Senior Vice President — +Operations of Wolverine’s Outdoor Group in fiscal 2008. +Mr. Gulis’ increase before his retirement reflected +his move to an operational role as President of Wolverine’s +Global Operations Group. All other base salary increases reflect +merit increases based on individual performance. +In January 2009, the Compensation Committee determined to freeze +the fiscal year 2009 base salary levels for any named executive +officer as a result of a company-wide salary freeze for +non-union employees. The length of the current salary freeze +will depend on a number of factors, including general economic +conditions. +Annual +Incentive Bonus +Target +Bonus and Plan Design. +The Annual Bonus Plan is designed to provide key employees with +the opportunity for bonuses based on the performance of +Wolverine, its subsidiaries, operating divisions +and/or +profit centers. A target bonus goal (the “target +bonus”), expressed as a percentage of the +participant’s base salary, is established by the +Compensation Committee. The target opportunities for the named +executive officers under the plan in fiscal 2008 were as follows: +2008 Target Bonus +Name +(% of Base Salary) +Blake W. Krueger +48 +% +Donald T. Grimes +28 +% +Kenneth A. Grady +20 +% +Pamela L. Linton +24 +% +James D. Zwiers +24 +% +Stephen L. Gulis, Jr. +32 +% +Nicholas P. Ottenwess +20 +% +In determining the target percentages, the Compensation +Committee considered each named executive officer’s +position and responsibilities, competitive incentives and the +executive’s aggregate incentive compensation potential +under all of Wolverine’s plans. The percentage of total +compensation represented by annual bonuses is generally higher +for more senior executives to reflect their greater influence on +profits and sales and to put a larger percentage of their total +potential cash compensation “at risk.” Accordingly, +the target percentage for Wolverine’s Chief Executive +Officer is larger than the target percentages for the other +named executive officers. +The Compensation Committee did not increase the target bonus of +any named executive officer from fiscal 2007 levels with the +exception of the target bonus for Mr. Zwiers. For fiscal +2008 year, the Compensation Committee determined to +increase Mr. Zwiers’ target bonus from 20% to 24% of +base salary based on his promotion to Senior Vice President. +Within the first quarter of each fiscal year, the Compensation +Committee establishes corporate and divisional performance +objectives and the funding level for each objective based on the +performance level. Actual payouts under the Annual Bonus Plan, +if any, may range from 50% to 212.5% of the target percentage, +based on performance. The performance levels required to achieve +various payout levels in 2008 are set forth in the table below. +Maximum payout under the Annual Bonus Plan and the annual +discretionary bonus that is based on individual performance +(described below), on a combined basis, is 200% of a named +executive officer’s target bonus opportunity. The +“Grants of Plan-Based Awards in Fiscal Year 2008” +table following this Compensation Discussion and Analysis shows +the range of possible awards under the Annual Bonus Plan for +each named executive officer. +The Compensation Committee selected pre-tax earnings and revenue +as the two primary measures of corporate and divisional +performance for the Outdoor and Retail Group, with 80% of +participants’ target amounts weighted on pre-tax earnings. +The divisional performance measures selected for the Global +Operations Group were pre-tax earnings and expense control, each +with equal weighting. +The Compensation Committee determined that the weighting between +revenue and earnings metrics reflected Wolverine’s goal to +grow sales, but not at the expense of profits and shareholder +return. Bonuses for Messrs. Krueger, Grimes and Grady and +Ms. Linton were based solely on corporate performance. The +annual bonus award for named executive officers heading an +operational unit are based both on corporate and divisional +performance objectives. The Annual Bonus Plan is designed to +closely link the target bonus opportunity for the named +executive officers to the performance of the specific divisions +and operations over which they have substantial control and +ability to impact results. This structure provides clear +incentives and line-of-sight management to drive operational +performance and divisional achievements on an annual basis. This +complements the approach of the LTIP described below, which is +focused on Wolverine’s long-term achievements in +earnings-per-share +and total stockholder return. +18 +Table of Contents +The target bonus for Mr. Ottenwess, who is Senior Vice +President of Operations for the Outdoor Group, was based 75% on +the performance of the Outdoor Group and 25% on corporate +performance. The bonus opportunity for Mr. Zwiers, whose +responsibilities include leading the Retail Group, was based +62.5% on corporate performance while 37.5% was based on +performance of the Retail Group. The bonus opportunity for +Mr. Gulis, who was President of the Global Operations Group +before his retirement, was based 62.5% on the performance of the +Global Operations Group and 37.5% on corporate performance. +For 2008, Wolverine’s corporate revenue and corporate +pre-tax earnings performance goals were as follows: +Performance Level +(Percentage of +Pre-Tax +Target Payout) +Revenue(1) +Earnings(1) +Threshold (50)% +$ +1.215 Billion +$ +144.6 Million +Target (100)% +$ +1.230 Billion +$ +145.9 Million +Goal (150)% +$ +1.245 Billion +$ +147.1 Million +Stretch (212.5)% +$ +1.260 Billion +$ +148.4 Million +(1) +Before the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges or +extraordinary items. +Corporate performance goals are based on branded division +performance goals. The level of difficulty in attaining +threshold, target, goal and maximum performance goals for a +division is intended to be substantially similar to the level of +difficulty in attaining the comparable corporate goal. +Performance goals for the Global Operations Group, the Outdoor +Group and the Retail Group, which determine a portion of the +bonus awarded to Messrs. Gulis, Ottenwess and Zwiers, +respectively, (the “Divisions”) were set using this +level-of-difficulty standard. Target performance goals for the +Divisions were set at levels that the Compensation Committee +believed to be achievable with strong management performance +absent a change in overall economic or market conditions. Target +goals for each Division were set based on a review of historical +performance of the Division and the Division’s 2008 +operating plan, with maximum performance goals set higher than +the Division’s 2008 operating plan. +2008 +Performance Results and Payout. +Based on the achievement of the corporate and divisional +measures, the named executive officers received the following +payments under the Annual Bonus Plan for fiscal 2008 performance: +% Target Bonus +Name +Bonus Paid +Earned +Blake W. Krueger +$ +642,201 +184 +% +Donald T. Grimes +114,255 +184 +% +Kenneth A. Grady +89,637 +184 +% +Pamela L. Linton +124,472 +184 +% +James D. Zwiers +78,113 +115 +% +Stephen L. Gulis, Jr. +110,106 +152 +% +Nicholas P. Ottenwess +90,175 +181 +% +Wolverine’s revenue for fiscal year 2008 was +$1.221 billion, falling between threshold and target level, +resulting in a payout of 70% of target for this performance +measure. Wolverine’s pre-tax earnings before the effect of +acquisition divestitures, accounting changes, restructuring and +other special charges or extraordinary items exceeded the +stretch performance level, resulting in a payout of 212.5% of +target for this performance measure. Because of the comparative +performance levels and the weighting of revenue and pre-tax +earnings, approximately 7.5% of the actual payout relating to +corporate performance for these named executive officers related +to revenue and approximately 92.5% related to pre-tax earnings. +For the Outdoor Group, the pre-tax earnings result was near the +stretch goal, resulting in a payout of approximately 199% of +target for this performance measure. The revenue result for the +Outdoor Group fell between the threshold and target levels, +resulting in a payout of 56% of target for this performance +measure. +Mr. Zwiers’ bonus was based on both corporate +performance and performance of the Retail Group. The Retail +Group’s revenue and pre-tax earnings results fell below the +threshold performance level, so there was no payout relating to +Retail Group performance. +Mr. Gulis’ bonus was based on both corporate +performance and performance of the Global Operations Group. The +Global Operations Group pre-tax earnings fell slightly above +threshold, resulting in a payout of 54.5% of target for this +performance measure. The expense result of the Global Operations +Group exceeded the maximum performance level, resulting in a +payout of 212.5% of target for this performance measure. +Discretionary +Bonus +In addition to performance-based compensation under the Annual +Bonus Plan, Wolverine generally pays annual +19 +Table of Contents +bonuses to key employees based on individual performance goals. +In 2008, the Compensation Committee awarded a discretionary +bonus to each named executive officer. Wolverine uses +discretionary bonuses as a way to provide further incentive for +support of corporate initiatives. +Bonuses based on individual performance are paid on a +discretionary basis based on achievement of personal goals, +which may include elements such as executing strategies to +support Wolverine’s vision, developing people, supporting +social and environmental responsibility, growing new business +initiatives and driving operational excellence. The performance +bonus for the Chief Executive Officer is paid only after the +review and approval of the Compensation Committee and the +independent directors. +During 2008, discretionary bonuses for named executive officers +were targeted at the following percentages of annual salary: +2008 Target Discretionary +Name +Bonus (% of Base Salary) +Blake W. Krueger +12 +% +Donald T. Grimes +7 +% +Kenneth A. Grady +5 +% +Pamela L. Linton +6 +% +James D. Zwiers +6 +% +Stephen L. Gulis, Jr. +8 +% +Nicholas P. Ottenwess +5 +% +These target bonus percentages remained the same for all named +executive officers other than Mr. Zwiers, who received an +increase from 5% of base salary for fiscal 2007 to 6% of base +salary for fiscal 2008 due to his promotion to Senior Vice +President and the additional duties he assumed in that role. In +determining the percentages, the Compensation Committee +considered the factors discussed above in connection with the +Annual Bonus Plan and each named executive officer’s +capacity to affect Wolverine’s performance. +Discretionary bonus payouts range from 75% of the target for +60-70% +achievement of personal goals, to 100% of the target for +70-80% +achievement of personal goals, to 135% of target for +80-90% +achievement of personal goals, to 150% of target for +90-100% +achievement of personal goals. +The Compensation Committee awarded the following discretionary +bonuses to named executive officers for fiscal year 2008 +performance, which are reflected in the “Bonus” column +of the Summary Compensation Table: +Discretionary Bonus +% Target Bonus +Name +Paid +Awarded +Blake W. Krueger +$ +117,980 +135 +% +Donald T. Grimes +20,990 +135 +% +Kenneth A. Grady +18,297 +150 +% +Pamela L. Linton +22,867 +135 +% +James D. Zwiers(1) +25,512 +150 +% +Stephen L. Gulis, Jr. +24,395 +135 +% +Nicholas P. Ottenwess +16,836 +135 +% +(1) +In addition to the discretionary bonus of $25,512 that was based +on the achievement of personal goals, the Compensation Committee +awarded Mr. Zwiers an additional bonus of $25,000 due to +increased duties he assumed during the fiscal year. The total of +these two awards is reflected in the “Bonus” column of +the Summary Compensation Table. +Long-Term +Incentive Plan +The LTIP provides the opportunity for performance-based cash +compensation based upon the achievement of company financial +performance goals over a three-year period. The LTIP is intended +to foster cooperation among all business units and provide +significant incentive to achieve Wolverine’s long-term EPS +performance goals and strong total stockholder return. The +primary concept of the LTIP is to establish financial +performance goals for each three-year time period for Wolverine. +New performance periods begin each fiscal year and end three +full fiscal years later. +Awards under the LTIP are based on a percentage of average +annual earned salary during the three-year period, and +performance is determined by reference to one or more of the +performance factors listed in the plan. If the minimum +three-year targeted goal is not achieved, no bonus will be paid. +Fiscal +2006-2008 +Performance and LTIP Payout. +For the +2006-2008 +performance period, performance was determined 50% by reference +to Wolverine’s aggregate Earnings Per Share (EPS) over the +three-year period and 50% by reference to Total Shareholder +Return (TSR) compared to the Peer Group. The Compensation +Committee selected these performance goals as it believes it is +important to provide a reward and incentive for increasing EPS, +but also believes that such +20 +Table of Contents +reward must be gauged against the results achieved by the Peer +Group. +Performance objectives for the +2006-2008 +performance period under the LTIP relating to relative TSR +against the Peer Group are as follows: +TSR Ranking Against +Percentage of Target +Peer Group +Payout +1st +200 +% +2nd +175 +% +3rd +150 +% +4th +125 +% +5th +100 +% +6th +75 +% +7th +50 +% +8th – 14th +0 +% +EPS performance objectives for the +2006-2008 +period under the LTIP were as follows: +Performance Level +(Percentage of Target +Aggregate EPS for the +Payout) +Three-Year Period +Threshold (50)% +$ +3.96 +Target (100)% +$ +4.11 +Goal (150)% +$ +4.28 +Maximum (200)% +$ +4.61 +Wolverine exceeded maximum EPS performance and achieved a TSR +ranking of fourth in its Peer Group, resulting in a performance +level payout equal to 162.5%. Based on the achievement of the +TSR and EPS long-term goals, the named executive officers +received the following payments under the LTIP for the +2006-2008 +performance period: +% Target Bonus +Name +LTIP Bonus Paid +Earned +Blake W. Krueger +$ +502,344 +162.5 +% +Donald T. Grimes +42,067 +162.5 +% +Kenneth A. Grady +64,938 +162.5 +% +Pamela L. Linton +45,829 +162.5 +% +James D. Zwiers +101,146 +162.5 +% +Stephen L. Gulis, Jr. +202,995 +162.5 +% +Nicholas P. Ottenwess +95,896 +162.5 +% +Fiscal +2008 LTIP Opportunities. +The Compensation Committee established the bonus opportunities +and the performance criteria for the +2008-2010 +performance cycle at the beginning of fiscal 2008. The target +bonus opportunity is based on job responsibilities and ability +to affect EPS and add shareholder value. For the +2008-2010 +performance cycle, the award targets for the named executive +officers were as follows: +Target Bonus +Name +(% of Base Salary) +Blake W. Krueger +60 +% +Donald T. Grimes +35 +% +Kenneth A. Grady +25 +% +Pamela L. Linton +30 +% +James D. Zwiers +30 +% +Stephen L. Gulis, Jr. +40 +% +Nicholas P. Ottenwess +25 +% +Similar to the prior two performance periods, the Compensation +Committee established performance goals for the +2008-2010 +period based 50% on aggregate Earnings Per Share (EPS) over the +three-year period and 50% by reference to TSR compared to +Wolverine’s peer group. The performance objectives and +performance level payouts for the +2008-2010 +performance period relative to TSR are the same as those for the +prior two performance periods. The EPS performance goals for the +performance period reflect a range of aggregate EPS, before the +effect of acquisitions, divestitures, accounting changes, +restructuring or other special charges or extraordinary items, +from a threshold of $5.52 to a maximum goal of $6.42. +Fiscal +2009 LTIP Plan Design. +Wolverine has historically provided cash-based incentive bonus +programs to certain executives based on Wolverine’s +achievement of pre-determined performance goals over a +three-year period. For the +2009-2011 +performance period, the Compensation Committee determined to +offer equity-based incentives under the three-year bonus program +rather than cash-based incentives. Under the equity-based +incentive program, shares of restricted Wolverine common stock +were granted at the start of the performance period to +Wolverine’s named executive officers. Instead of receiving +a cash payment at the end of the +2009-2011 +performance period based on Wolverine’s performance during +the period, restrictions on these shares will lapse if, and only +to the extent that, Wolverine meets certain +21 +Table of Contents +performance criteria for the period. In addition to meeting the +performance criteria, the restrictions on the performance shares +will only lapse if the executive continues to be employed by +Wolverine at the time the restrictions would otherwise lapse, +except in limited circumstances such as death, disability or +retirement. Any remaining performance shares with respect to +which the restrictions do not lapse will be forfeited. The +Compensation Committee made this change to equity-based LTIP +awards to further align management and shareholder interests. +The awards for the +2009-2011 +performance period were granted in February 2009 pursuant to +performance share award agreements under Wolverine’s +Amended and Restated Stock Incentive Plan of 2005. The +pre-determined performance goals for the +2009-2011 +performance period are based on cumulative earnings per share +and cumulative business value added (BVA), weighted 65% and 35%, +respectively. BVA is a measure of economic value based on net +after-tax operating income and asset utilization. A +determination of the number of shares, if any, upon which the +restrictions will lapse is scheduled to be made in February 2012. +Equity-Based +Incentive Plans +Wolverine generally grants restricted stock and stock options +(including incentive stock options) to its named executive +officers on an annual basis. These awards are designed to: +• +more closely align executive and stockholder interests; +• +reward executives and other key employees for building +stockholder value; and +• +encourage long-term investment in Wolverine by participating +executives. +The Compensation Committee believes that stock ownership by +management is beneficial to stockholders and stock incentives +have been granted by Wolverine to executives and other key +employees pursuant to various equity-based plans for several +decades. The Compensation Committee administers all aspects of +these plans and determines the amount of and terms applicable to +any award under these plans. In additional to annual grants, the +Compensation Committee may consider special grants to executives +in connection with a new hire or promotion. +In determining the number of equity awards to be awarded to +executives in fiscal 2008, the Compensation Committee took into +consideration the executive’s level of responsibility and, +with respect to the Chief Executive Officer and Chief Financial +Officer positions, compensation practices of the companies +within the Peer Group. As a general practice, both the number of +shares and options granted and their proportion relative to the +total number of shares and options granted under the plan in a +fiscal year increase in some proportion to increases in each +executive’s responsibilities. A named executive +officer’s position and responsibilities are the primary +factors that determine the number of equity awards granted to a +named executive officer in the annual grant. Accordingly, the +Chief Executive Officer generally receives more stock options +and restricted stock than the other named executive officers. +The Compensation Committee also considers the recommendations of +management (except for awards to the Chief Executive Officer), +the individual performance of the executive and the number of +shares previously awarded to the executive. +Equity grants to named executive officers were targeted at +approximately the following percentages of their respective +annualized base salary: Mr. Grady: 60%; Mr. Gulis: +105%; Mr. Krueger: 115%; Ms. Linton: 80%; +Mr. Ottenwess: 60%; and Mr. Zwiers: 80%. As +Mr. Grimes commenced employment after the annual equity +award grant, he received the same number of stock option and +restricted stock awards granted to other executives with similar +positions within Wolverine. The different levels of equity +compensation reflect the level of responsibility and ability of +an individual to impact Wolverine’s performance and stock +price. +The number of stock option and restricted stock awards granted +to named executive officers in fiscal 2008 are shown in the +“Grants of Plan Based Awards” table on page 27. +For fiscal 2008, approximately 60% of the value of the named +executive officers’ total annual equity award was granted +in the form of restricted stock and approximately 40% was +granted in the form of stock options. The Compensation Committee +has reviewed the mix of restricted stock and stock options and +believes the mix is appropriate based on the retentive nature of +restricted stock and the incentive nature of stock options. Due +to the strong retentive nature of restricted stock, considering +the extended vesting schedule, the value of equity award grants +is weighted slightly more heavily toward restricted stock +grants. Restrictions lapse with respect to 25% of the shares +granted on the third anniversary of the date of grant, with +restrictions lapsing on an additional 25% on the fourth +anniversary. Restrictions on the final 50% of a restricted award +do not lapse until the fifth anniversary of the date of grant. +This schedule encourages retention +22 +Table of Contents +and long-term investment in Wolverine by participating +executives. +The Compensation Committee also views the grant of stock options +as having a retentive element because 1/3 of each option grant +vests on each of the first three anniversaries of the date of +grant. The Compensation Committee views stock options primarily +as an incentive for the named executive officers to increase +stockholder value and drive increased share prices. +Stock options vest and the restrictions on shares of restricted +stock lapse upon a change in control of Wolverine. Change in +control includes certain changes in the composition of the board +of directors, certain acquisitions of 20% of Wolverine’s +common stock and other specified reorganizations, mergers, +consolidations, liquidations, dissolutions or disposition of +substantial assets. +The Compensation Committee also maintains stock ownership +guidelines that apply to all executive management, including the +named executive officers. The ownership guidelines require, +within certain time periods, ownership by the named executive +officers of shares of Wolverine common stock with a value equal +to the following amounts: two times base salary +(Messrs. Grady, Grimes, Ottenwess and Zwiers and +Ms. Linton) and five times base salary (Mr. Krueger). +The Compensation Committee believes that these ownership +guidelines bolster the goal of aligning management’s +interests with stockholders’ interests under +Wolverine’s restricted stock plans by requiring continued +levels of ownership of Wolverine stock even after restrictions +on the sale of stock lapse. Wolverine’s policy does not +allow hedging by Wolverine officers. +Wolverine generally awards stock options and restricted stock in +February of each year at the Compensation Committee’s +regularly scheduled meeting. Scheduling decisions are made +without regard to anticipated earnings or other major +announcements by Wolverine. The exercise price of stock options +is the fair market value of Wolverine’s common stock on the +grant date. The fair market value is the closing price of our +common stock on the grant date. When the Compensation Committee +approves a special grant outside the annual-grant framework, +such grants are made at a regularly scheduled meeting. +Retirement +Plans +The named executive officers participate in Wolverine’s +qualified pension plan and 401(k) savings plan (including +potential company matching) covering most salaried domestic +employees. Certain named executive officers also participate in +a supplemental executive retirement plan. The Compensation +Committee believes that, through vesting and participation +requirements and increased value based on years of service, +Wolverine’s retirement plans encourage long-term commitment +by Wolverine’s executives and assist Wolverine in +attracting and retaining talented executives. For a description +of the benefits under Wolverine’s qualified pension plan +and SERP see the “Pension Benefits” table and the +discussion thereafter. +Other +Benefits +The named executive officers participate in Wolverine’s +medical and dental plans and are provided with life and +disability insurance. In addition, Wolverine provides some basic +tax and estate planning services for the named executive +officers. +Mr. Grimes’ 2008 compensation includes amounts +relating to relocation costs that were paid +and/or +reimbursed by Wolverine in connection with Mr. Grimes’ +relocation to Michigan after being hired by Wolverine in May +2008. +The +Impact of Accounting and Tax Treatments on +Compensation +Section 162(m) of the Internal Revenue Code provides that +publicly held companies may not deduct compensation paid to the +Chief Executive Officer and the three next highly-paid executive +officers (other than the Chief Financial Officer) in excess of +$1,000,000 annually, with certain exceptions for qualified +“performance-based” compensation. Wolverine has +obtained stockholder approval of the Annual Bonus Plan, the +LTIP, and its stock incentive plans, which are intended to +permit certain amounts payable under these plans to qualify as +“performance-based” compensation for purposes of +Section 162(m). Incentives under these plans, other than +restricted stock awards, were not included in the $1,000,000 +limit for purposes of calculating Wolverine’s deduction for +compensation paid to its executive officers. Wolverine does not +require all of its compensation programs to be fully deductible +under Section 162(m) because Wolverine believes it is +important to preserve flexibility in administering compensation +programs in a manner designed to promote varying corporate +goals. Certain compensation paid by Wolverine may not qualify as +performance-based compensation that is excluded from the +limitation on deductibility. +23 +Table of Contents +Post-Employment +Compensation +All named executive officers who are currently employed by +Wolverine are parties to an Executive Severance Agreement that +provides for certain payments and benefits upon termination of +employment after a change of control of Wolverine. +Under their respective Executive Severance Agreements, the named +executive officers who are currently employed by Wolverine are +eligible to receive compensation if their employment is +terminated within two (Messrs. Grady, Grimes, Ottenwess and +Zwiers and Ms. Linton) or three (Mr. Krueger) years +following a change in control of Wolverine. The Compensation +Committee believes that this “double trigger” +requirement (change in control plus termination of employment +rather than just a change in control) for triggering the payment +of benefits is appropriate because the executive is not +materially harmed by a change in control if there is no +termination of employment. +The Executive Severance Agreements are intended to provide +stability in management during the transition period +accompanying a change in control by providing significant +retention incentives for executives to remain with Wolverine +during the period following a change in control. +No payment will be made under the Severance Agreement if: +• +the termination of the officer is due to death or retirement in +accordance with Wolverine’s policy or as otherwise agreed; +• +the termination is by Wolverine for cause or disability; or +• +the termination is by resignation of the officer for other than +“good reason,” which includes the assignment of duties +inconsistent with the executive’s status as a senior +executive officer or the duties performed by the executive +immediately before a change in control, a reduction in the +executive’s annual base salary or relocation of the +executive. +The executive has no requirement to mitigate the payments made +under the Executive Severance Agreement by seeking employment, +but the compensation to be paid during the fourth and later +months after termination will be reduced to the extent of any +compensation earned by the officer during the applicable period. +Mr. Krueger also has a Separation Agreement that provides +for certain payments and benefits to be paid upon termination of +his employment by Wolverine other than for “cause” or +voluntarily by him for “good reason.” These benefits +are described in the Potential Payments Upon Termination or +Change in Control section of this Proxy Statement. +In addition to benefits provided under the Executive Severance +Agreement, named executive officers may also be eligible to +receive certain payments and benefits upon termination of +employment or in connection with a change in control under +Wolverine’s retirement plans or equity plans. You will find +information on benefits payable to each named executive officer +and the specific elements comprising the payment under the +Executive Severance Agreements and other retirement and equity +plans of Wolverine in the Potential Payments Upon Termination or +Change in Control section of this Proxy Statement. +24 +Table of Contents +Summary +Compensation Table +Change in +Pension +Value and +Nonqualified +Non-Equity +Deferred +Bonus +Stock +Option +Incentive Plan +Compensation +All other +Name and Principal +Salary +(1)(2) +Awards +Awards +Compensation +Earnings(5) +Compensation +Total +Position +Year +(1)($) +($) +(3)($) +(3)($) +(4)($) +($) +(6)($) +($) +Blake W. Krueger, +2008 +728,269 +117,980 +588,493 +348,518 +1,144,545 +537,240 +11,592 +3,476,637 +CEO and President +2007 +646,539 +104,739 +580,364 +304,289 +831,345 +389,885 +11,592 +2,868,753 +2006 +480,000 +64,800 +479,772 +181,959 +656,815 +237,730 +11,342 +2,112,418 +Donald T. Grimes, +Senior Vice President, CFO, Treasurer and Chief Accounting +Officer(7) +2008 +222,115 +20,990 +18,825 +21,761 +156,322 +11,392 +(8) +138,943 +590,348 +Kenneth A. Grady, +2008 +243,962 +18,297 +35,802 +42,495 +154,575 +10,749 +8,035 +513,915 +Secretary and +2007 +236,058 +15,934 +17,303 +18,704 +112,370 +12,568 +(8) +37,641 +450,578 +General Counsel(9) +Pamela L. Linton, +Senior Vice President, +Human Resources(10) +2008 +282,308 +22,867 +71,648 +27,120 +170,301 +39,409 +(8) +7,750 +621,403 +James D. Zwiers, +2008 +283,462 +50,512 +79,134 +63,196 +179,259 +10,896 +10,395 +676,854 +Senior Vice President +2007 +242,115 +20,000 +65,217 +33,200 +101,350 +18,162 +10,106 +490,150 +2006 +221,346 +14,941 +58,780 +13,029 +152,514 +25,826 +9,585 +496,021 +Stephen L. Gulis, Jr., +2008 +225,880 +24,395 +337,939 +175,309 +313,101 +— +8,723 +1,085,347 +Former Exec. Vice +2007 +382,115 +41,268 +456,598 +213,560 +410,720 +69,739 +9,696 +1,583,696 +President, President of +2006 +367,404 +39,680 +302,836 +69,160 +458,530 +204,881 +9,446 +1,451,937 +Global Operations(11) +Nicholas P. Ottenwess, +2008 +249,423 +16,836 +73,208 +57,880 +186,071 +8,239 +10,093 +601,750 +Senior Vice President — +2007 +233,462 +15,759 +69,824 +33,200 +157,011 +15,855 +9,888 +534,999 +Operations, Outdoor +2006 +225,269 +15,206 +79,398 +13,029 +176,064 +53,534 +9,638 +572,138 +Group(12) +(1) +The amount in the base salary column represents the base salary +paid to named executive officers in fiscal 2008. For information +regarding the annualized base salary for each named executive +officer and process for determining base salaries and bonus, see +the Compensation Discussion and Analysis section of this Proxy +Statement. Includes any amounts deferred under our qualified +401(k) plan. +(2) +Includes amounts earned because of achievement of personal +performance goals. Mr. Zwiers’ bonus includes an +additional bonus of $25,000 awarded as a result of increased +duties he assumed on behalf of Wolverine in fiscal 2008. +(3) +Represents the expense recognized by Wolverine in the respective +fiscal year for stock and option awards in accordance with +SFAS 123(R), except that the amounts in this table do not +reflect a reduction for estimated forfeitures. Stock options +were valued using the Black-Scholes model and restricted stock +was valued using the closing market price on the New York Stock +Exchange on the date of grant with respect to 2007 and 2008 and +for grants in 2006 and earlier, using the average of the high +and low price on the New York Stock Exchange. For additional +valuation assumptions, see the Stock-Based Compensation heading +under Note 1 to Wolverine’s Financial Statements for +the fiscal years ended December 30, 2006; December 29, +2007 and January 3, 2009. Wolverine expenses options and +restricted stock according to applicable vesting schedules and +retirement eligibility of the grantees. The entire value of any +stock award granted to a retirement-eligible named executive +officer is recognized as an expense over the twelve month period +following the date of the grant. Otherwise, the expense is +recognized over the shorter of the vesting period or when the +named executive officer becomes eligible for retirement. +25 +Table of Contents +(4) +Includes the amounts listed in the table below, which were +earned in 2008 and paid in February 2009 with respect to the +three-year performance period ending in 2008 under the LTIP and +amounts earned in 2008 and paid in February 2009 under the +Annual Bonus Plan. +Total Non-Equity +LTIP Payout +2008 Annual Bonus +Incentive Plan +Name +(2006-2008) +Plan Payout +Compensation +Blake W. Krueger +$ +502,344 +$ +642,201 +$ +1,144,545 +Donald T. Grimes +42,067 +114,255 +156,322 +Kenneth A. Grady +64,938 +89,637 +154,575 +Pamela L. Linton +45,829 +124,472 +170,301 +James D. Zwiers +101,146 +78,113 +179,259 +Stephen L. Gulis, Jr. +202,995 +110,106 +313,101 +Nicholas P. Ottenwess +95,896 +90,175 +186,071 +(5) +All amounts reflected in this column reflect the aggregate +change in the actuarial present value of the named executive +officer’s accumulated benefits under Wolverine’s +pension plan and, where applicable, SERP. The present value of +the benefits under the Pension Plan and the SERP for +Mr. Gulis decreased by $10,248 between fiscal 2007 and +2008. The amounts in the table were determined using assumptions +consistent with those used in Wolverine’s Financial +Statements for the fiscal year ended January 3, 2009. See +“Fiscal 2008 Pension Benefits” table on page 33. +(6) +The compensation listed in this column for 2008 includes: +(i) Wolverine’s matching contributions to the accounts +of the named executive officers under Wolverine’s 401(k) +Savings Plan as follows: $7,750 for Mr. Krueger; $1,500 for +Mr. Grimes; $5,584 for Mr. Grady; $7,750 for +Ms. Linton; $7,750 for Mr. Zwiers; $7,750 for +Mr. Gulis; and $7,750 for Mr. Ottenwess; and +(ii) payments made by Wolverine for the premiums on certain +life insurance policies as follows: $3,842 for Mr. Krueger; +$2,451 for Mr. Grady; $2,645 for Mr. Zwiers; $973 for +Mr. Gulis; and $2,343 for Mr. Ottenwess. Wolverine +also paid moving expenses in 2008 for Mr. Grimes in the +amount of $137,443 in connection with his relocation to +Wolverine’s corporate office. +(7) +Effective May 27, 2008, the Board of Directors of Woverine +appointed Donald T. Grimes as Senior Vice-President, Chief +Financial Officer, Treasurer and Chief Accounting Officer. +(8) +Mr. Grady, Mr. Grimes and Ms. Linton are not yet +vested in the pension plan, or, where applicable, the SERP, but +the amount reflected assumes that each is fully vested. +(9) +Mr. Grady’s employment with Wolverine began in October +2006. +(10) +Ms. Linton’s employment with Wolverine began in +December 2007. +(11) +On May 27, 2008, Mr. Gulis transitioned from his +position as Chief Financial Officer and Treasurer to President +of Wolverine’s Global Operations Group. In July 2008, +Mr. Gulis retired from his employment with Wolverine. +(12) +On May 27, 2008, Mr. Ottenwess transitioned from his +position as Wolverine’s Vice President of Finance, +Controller and Principal Accounting Officer to Senior Vice +President — Operations of Wolverine’s Outdoor +Group. +26 +Table of Contents +Grants of +Plan-Based Awards During Fiscal 2008 +The following table provides information concerning each grant +of an award made to the named executive officers in the last +completed fiscal year. +All Other +All Other +Grant +Stock +Option +Date +Awards: +Awards: +Fair +Number +Number +Exercise +Value of +of +of +or Base +Stock +Estimated Possible Payouts +Shares +Securities +Price of +and +Under Non-Equity Incentive Plan Awards(1) +of Stock +Underlying +Option +Option +Grant +Approval +Threshold +Target +Maximum +or Units +Options +Awards +Awards +Name +Award Type +Date +Date +($) +($) +($) +(2)(#) +(3)(#) +(4)($/Sh) +(5)($) +Blake W. Krueger +Annual Bonus +2/6/2008 +2/6/2008 +174,785 +349,569 +742,834 +FY08-FY10 LTIP +2/6/2008 +2/6/2008 +219,827 +439,654 +879,308 +Stock Option +2/6/2008 +2/6/2008 +60,000 +25.05 +335,736 +Restricted Stock +2/6/2008 +2/6/2008 +20,000 +501,000 +Donald T. Grimes +Annual Bonus +5/27/2008 +4/16/2008 +31,096 +62,192 +132,158 +FY08-FY10 LTIP +5/27/2008 +4/16/2008 +57,873 +115,747 +231,494 +Stock Option +5/27/2008 +4/16/2008 +16,000 +28.28 +107,819 +Restricted Stock +5/27/2008 +4/16/2008 +5,500 +155,540 +Kenneth A. Grady +Annual Bonus +2/6/2008 +2/6/2008 +24,396 +48,792 +103,684 +FY08-FY10 LTIP +2/6/2008 +2/6/2008 +30,623 +61,247 +122,494 +Stock Option +2/6/2008 +2/6/2008 +10,000 +25.05 +55,956 +Restricted Stock +2/6/2008 +2/6/2008 +3,600 +90,180 +Pamela L. Linton +Annual Bonus +2/6/2008 +2/6/2008 +33,877 +67,754 +143,977 +FY08-FY10 LTIP +2/6/2008 +2/6/2008 +43,315 +86,631 +173,262 +Stock Option +2/6/2008 +2/6/2008 +16,000 +25.05 +89,930 +Restricted Stock +2/6/2008 +2/6/2008 +5,500 +137,375 +James D. Zwiers +Annual Bonus +2/6/2008 +2/6/2008 +34,015 +68,031 +144,566 +FY08-FY10 LTIP +2/6/2008 +2/6/2008 +42,673 +85,346 +170,692 +Stock Option +2/6/2008 +2/6/2008 +16,000 +25.05 +89,930 +Restricted Stock +2/6/2008 +2/6/2008 +5,500 +137,375 +Stephen L. Gulis, Jr. +Annual Bonus(6) +2/6/2008 +2/6/2008 +67,200 +134,400 +285,600 +FY08-FY10 LTIP(7) +2/6/2008 +2/6/2008 +84,000 +168,000 +336,000 +Stock Option +2/6/2008 +2/6/2008 +31,000 +25.05 +173,464 +Restricted Stock +2/6/2008 +2/6/2008 +11,000 +275,550 +Nicholas P. Ottenwess +Annual Bonus +2/6/2008 +2/6/2008 +24,942 +49,885 +106,005 +FY08-FY10 LTIP +2/6/2008 +2/6/2008 +31,226 +62,452 +124,904 +Stock Option +2/6/2008 +2/6/2008 +10,000 +25.05 +55,956 +Restricted Stock +2/6/2008 +2/6/2008 +3,600 +90,180 +(1) +Estimated payout levels relating to each named executive +officer’s participation in the Annual Bonus Plan and the +LTIP for the +2008-2010 +performance period. +Under the Annual Bonus Plan, named executive officers may earn +incentive compensation based upon achievement of specified +performance goals of Wolverine and/or its subsidiaries, +operating divisions or profit centers for 2008. Performance +goals for 2008 were based 80% on Wolverine’s pre-tax +earnings and 20% on Wolverine’s revenue. The Compensation +Committee determined the threshold, target and maximum +compensation. Incentive compensation is conditioned on achieving +a minimum or “threshold” performance level and no +payment is made if the threshold performance level is not met. +The Compensation Committee established the performance goals +under the Annual Bonus Plan at the beginning of 2008 and actual +incentive compensation paid to the named executive officers +under the Annual Bonus Plan for performance in 2008 is reflected +in the Summary Compensation Table. +Under the LTIP, named executive officers may earn cash +compensation based upon achievement of specified performance +goals with respect to the performance of Wolverine and/or its +subsidiaries, operating divisions or profit centers over a +three-year performance period. Performance goals under the LTIP +for the +2008-2010 +period are based 50% on total stockholder return (as compared to +a pre-established peer group) and 50% on aggregate earnings per +share for the three-year period. The Compensation Committee +determined the threshold, target and maximum compensation. +Incentive compensation is conditioned on achieving a minimum or +“threshold” performance level and no payment will be +made if the threshold performance level is not met. The +Compensation Committee established the performance goals at the +beginning of 2008 for the period ending on the last day of +Wolverine’s 2010 fiscal year. No amounts are earned under +the plan for the +2008-2010 +performance period until the conclusion of the three-fiscal-year +period. +27 +Table of Contents +Under the LTIP, amounts earned as performance-based incentive +compensation are calculated based on each participant’s +average annual earned salary during the three-year performance +period. For purposes of illustration, the “Threshold,” +“Target” and “Maximum” amounts in the table +have been calculated using each named individual’s base +salary for 2008 as reported in the Summary Compensation Table +and, with the exception of Mr. Gulis, the officer’s +current annualized base salary for 2009 and 2010. +Mr. Gulis’ estimate is based on his annualized salary +at the time of his retirement. +(2) +Grants of restricted stock awards were made under the 2001 Stock +Incentive Plan for all named executive officers other than +Mr. Grimes. Mr. Grimes’ restricted stock awards +were granted under the 2003 Stock Incentive Plan. The +restrictions on 25% of the shares received under the awards +reflected in this table normally lapse on the third anniversary +of the date of grant, with the restrictions on an additional 25% +of the shares lapsing on the fourth anniversary and the +restrictions with respect to the remaining 50% of the shares +lapsing on the fifth anniversary. All restrictions on shares of +restricted stock lapse upon a named executive officer’s +death, disability or voluntary termination after attaining age +62 or age 50 with seven years of service. In the event of a +change in control, as defined on page 37 all shares become +fully vested. Holders of restricted stock are entitled to +receive dividends and to vote. +(3) +Grants of stock options were made under the 2005 Stock Incentive +Plan for all named executive officers. Stock options granted to +named executive officers vest ratably over three years beginning +on the first anniversary of the grant date and have a term of +ten years. Vesting of such stock options may be accelerated upon +certain events, including retirement, death, disability or a +change in control of Wolverine. +(4) +The Exercise Price is equal to the closing market price of +shares of Wolverine common stock on the date of grant. +(5) +Represents the full grant date value for stock option and +restricted stock awards granted in fiscal year 2008, computed in +accordance with SFAS 123(R). The applicable assumptions for +determining the grant date fair value of these awards are +described in footnote 3 to the Summary Compensation Table. +(6) +Mr. Gulis retired from his employment with Wolverine +effective as of July 1, 2008. He received a pro rated +portion of the award earned under the Annual Bonus Plan based on +his service during fiscal 2008. See footnote 4 to the Summary +Compensation Table for the actual amount paid to Mr. Gulis +under the Annual Bonus Plan. +(7) +Upon his retirement, Mr. Gulis was no longer eligible for +an award for the +2008-2010 +LTIP performance period. +28 +Table of Contents +Outstanding +Equity Awards at Fiscal Year-End +The following table provides information concerning unexercised +options, stock awards that have not vested and equity incentive +plan awards for each named executive officer outstanding as of +January 3, 2009. +Stock Awards +Closing +Option Awards +Market +Number +Number +Price +Number +of +of Shares +of Shares +of +Securities +or Units +or Units +Securities +Underlying +of Stock +of Stock +Underlying +Unexercised +That +That +Unexercised +Options +Option +Have +Have +Options +(#) +Exercise +Option +Not +Not +(#) +Unexercisable +Price +Expiration +Vested(2) +Vested(3) +Name +Grant Date +Exercisable +(1) +($) +Date +(#) +($) +Blake W. Krueger +Various +65,525 +$ +1,410,098 +12/27/2004 +6,448 +— +$ +20.73 +2/23/2010 +12/27/2004 +6,010 +— +$ +20.73 +3/4/2011 +12/14/2004 +1,081 +— +$ +20.50 +2/13/2012 +12/14/2004 +2,277 +— +$ +20.50 +2/23/2010 +4/22/2004 +274 +— +$ +17.91 +2/23/2009 +4/22/2004 +649 +— +$ +17.91 +3/8/2009 +4/22/2004 +1,924 +— +$ +17.91 +2/22/2009 +4/22/2004 +682 +— +$ +17.91 +4/16/2010 +4/22/2004 +1,342 +— +$ +17.91 +3/8/2010 +4/22/2004 +418 +— +$ +17.91 +2/24/2010 +4/22/2004 +9,245 +— +$ +17.91 +2/23/2010 +4/22/2004 +1,590 +— +$ +17.91 +2/22/2010 +4/22/2004 +664 +— +$ +17.91 +4/15/2009 +10/25/2004 +15,413 +— +$ +20.08 +2/24/2010 +10/25/2004 +841 +— +$ +20.08 +3/2/2009 +10/25/2004 +1,441 +— +$ +20.08 +2/23/2010 +10/25/2004 +7,017 +— +$ +20.08 +3/3/2009 +10/25/2004 +4,872 +— +$ +20.08 +3/2/2009 +2/12/2003 +22,500 +— +$ +10.51 +2/12/2013 +2/14/2002 +12,188 +— +$ +10.29 +2/14/2012 +2/18/2004 +23,063 +— +$ +15.37 +2/18/2014 +10/25/2004 +1,276 +— +$ +20.08 +2/21/2009 +4/22/2004 +20,013 +— +$ +17.91 +3/2/2009 +4/22/2004 +24,180 +— +$ +17.91 +3/4/2011 +10/25/2004 +15,030 +— +$ +20.08 +2/11/2013 +10/25/2004 +24,153 +— +$ +20.08 +2/13/2012 +4/22/2004 +406 +— +$ +17.91 +2/24/2009 +2/09/2005 +26,200 +— +$ +23.04 +2/8/2015 +12/14/2004 +967 +— +$ +20.50 +3/4/2011 +12/27/2004 +6,303 +— +$ +20.73 +2/17/2014 +12/27/2004 +2,269 +— +$ +20.73 +2/18/2014 +2/15/2006 +26,667 +13,333 +$ +22.47 +2/14/2016 +2/7/2007 +13,400 +26,800 +$ +30.26 +2/6/2017 +4/19/2007 +2,234 +4,466 +$ +29.47 +4/18/2017 +2/06/2008 +— +60,000 +$ +25.05 +2/5/2018 +Donald T. Grimes +5/27/2008 +5,500 +$ +118,360 +5/27/2008 +— +16,000 +$ +28.28 +5/26/2018 +Kenneth A. Grady +Various +6,800 +$ +146,336 +10/16/2006 +1,000 +500 +$ +27.71 +10/15/2016 +2/7/2007 +2,534 +5,066 +$ +30.26 +2/6/2017 +2/06/2008 +— +10,000 +$ +25.05 +2/5/2018 +29 +Table of Contents +Stock Awards +Closing +Option Awards +Market +Number +Number +Price +Number +of +of Shares +of Shares +of +Securities +or Units +or Units +Securities +Underlying +of Stock +of Stock +Underlying +Unexercised +That +That +Unexercised +Options +Option +Have +Have +Options +(#) +Exercise +Option +Not +Not +(#) +Unexercisable +Price +Expiration +Vested(2) +Vested(3) +Name +Grant Date +Exercisable +(1) +($) +Date +(#) +($) +Pamela L. Linton +Various +7,000 +$ +150,640 +2/6/2008 +— +16,000 +$ +25.05 +2/5/2018 +James D. Zwiers +Various +16,400 +$ +352,928 +2/12/2003 +6,750 +— +$ +10.51 +2/11/2013 +2/18/2004 +6,525 +— +$ +15.37 +2/18/2014 +12/20/2004 +94 +— +$ +20.80 +3/4/2011 +12/20/2004 +156 +— +$ +20.80 +2/23/2010 +12/20/2004 +228 +— +$ +20.50 +2/13/2012 +12/20/2004 +1,606 +— +$ +20.80 +2/17/2014 +12/14/2004 +228 +— +$ +20.80 +3/2/2009 +12/14/2004 +114 +— +$ +20.50 +3/4/2011 +12/14/2004 +273 +— +$ +20.50 +2/23/2010 +12/09/2005 +8,600 +— +$ +23.04 +2/8/2015 +2/15/2006 +5,734 +2,866 +$ +22.47 +2/14/2016 +2/7/2007 +2,534 +5,066 +$ +30.26 +2/6/2017 +2/6/2008 +— +16,000 +$ +25.05 +2/5/2018 +Stephen L. Gulis, Jr. +10/22/2004 +29,188 +— +$ +20.02 +2/23/2010 +10/22/2004 +574 +— +$ +20.02 +2/24/2010 +10/22/2004 +820 +— +$ +20.02 +3/3/2009 +10/22/2004 +15,054 +— +$ +20.02 +2/11/2013 +12/20/2004 +1,114 +— +$ +20.80 +2/23/2010 +12/20/2004 +963 +— +$ +20.80 +3/4/2011 +12/20/2004 +6,288 +— +$ +20.80 +2/17/2014 +12/14/2004 +1,081 +— +$ +20.50 +2/13/2012 +2/13/2003 +22,500 +— +$ +10.51 +2/12/2013 +2/14/2002 +2,474 +— +$ +10.29 +2/14/2012 +2/09/2005 +26,200 +— +$ +23.04 +2/8/2015 +12/14/2004 +2,277 +— +$ +20.50 +2/23/2010 +12/14/2004 +967 +— +$ +20.50 +3/4/2011 +10/22/2004 +5,196 +— +$ +20.02 +3/4/2011 +4/21/2004 +26,067 +— +$ +17.53 +2/13/2012 +4/21/2004 +13,525 +— +$ +17.53 +3/5/2011 +4/21/2004 +1,837 +— +$ +17.53 +2/22/2009 +4/21/2004 +1,692 +— +$ +17.53 +2/23/2010 +4/21/2004 +1,356 +— +$ +17.53 +3/8/2010 +4/21/2004 +567 +— +$ +17.53 +2/27/2010 +4/21/2004 +261 +— +$ +17.53 +2/24/2010 +4/21/2004 +657 +— +$ +17.53 +3/8/2009 +4/21/2004 +834 +— +$ +17.53 +2/28/2009 +4/21/2004 +252 +— +$ +17.53 +2/24/2009 +4/21/2004 +255 +— +$ +17.53 +2/23/2009 +2/18/2004 +23,063 +— +$ +15.37 +2/18/2014 +10/22/2004 +1,182 +— +$ +20.02 +2/21/2009 +10/22/2004 +30,871 +— +$ +20.02 +3/2/2009 +12/20/2004 +9,748 +— +$ +20.80 +3/5/2011 +12/20/2004 +2,265 +— +$ +20.80 +3/2/2009 +2/15/2006 +26,200 +— +$ +22.47 +2/14/2016 +2/7/2007 +23,800 +— +$ +30.26 +2/6/2017 +2/06/2008 +10,334 +— +$ +25.05 +2/5/2018 +30 +Table of Contents +Stock Awards +Closing +Option Awards +Market +Number +Number +Price +Number +of +of Shares +of Shares +of +Securities +or Units +or Units +Securities +Underlying +of Stock +of Stock +Underlying +Unexercised +That +That +Unexercised +Options +Option +Have +Have +Options +(#) +Exercise +Option +Not +Not +(#) +Unexercisable +Price +Expiration +Vested(2) +Vested(3) +Name +Grant Date +Exercisable +(1) +($) +Date +(#) +($) +Nicholas P. Ottenwess +Various +— +14,500 +$ +312,040 +12/17/2004 +2,293 +— +$ +21.13 +10/3/2009 +12/17/2004 +4,104 +— +$ +21.13 +2/18/2014 +12/17/2004 +672 +— +$ +21.13 +3/2/2009 +12/17/2004 +393 +— +$ +21.13 +3/4/2011 +12/17/2004 +664 +— +$ +21.13 +2/17/2014 +12/14/2004 +456 +— +$ +20.50 +2/13/2012 +12/14/2004 +399 +— +$ +20.50 +3/4/2011 +12/14/2004 +910 +— +$ +20.50 +2/23/2010 +2/9/2005 +8,600 +— +$ +23.04 +2/8/2015 +2/18/2004 +5,234 +— +$ +15.37 +2/18/2014 +2/12/2003 +9,643 +— +$ +10.51 +2/11/2013 +2/14/2002 +10,482 +— +$ +10.29 +2/14/2012 +3/5/2001 +9,750 +— +$ +10.10 +3/5/2011 +2/24/2000 +12,000 +— +$ +7.31 +2/24/2010 +10/11/2004 +72 +— +$ +19.39 +2/11/2013 +10/11/2004 +517 +— +$ +19.39 +2/13/2012 +10/11/2004 +256 +— +$ +19.39 +3/2/2009 +10/11/2004 +748 +— +$ +19.39 +2/23/2010 +10/11/2004 +250 +— +$ +19.39 +3/3/2009 +10/11/2004 +202 +— +$ +19.39 +2/24/2010 +10/11/2004 +109 +— +$ +19.39 +2/21/2009 +10/11/2004 +168 +— +$ +19.39 +2/22/2009 +2/18/2004 +2,646 +— +$ +15.37 +2/18/2014 +2/15/2006 +5,734 +2,866 +$ +22.47 +2/14/2016 +2/7/2007 +2,534 +5,066 +$ +30.26 +2/6/2017 +2/6/2008 +— +10,000 +$ +25.05 +2/5/2018 +(1) +All unexercisable options become exercisable on the vesting +date. Normal vesting of options are one-third of the shares on +each of the first three anniversaries of the date of the grant, +with full vesting occurring on the third anniversary date of the +grant. Vesting of such stock options may be accelerated upon +certain events, including retirement, death, disability or a +change in control of Wolverine as further described in the +“Grants of Plan Based Awards” section. +31 +Table of Contents +(2) +The following table sets forth the vesting dates for the +unvested restricted stock awards of each named executive officer +as of January 3, 2009. +Named Executive +Officer +Vesting Date +Number of Shares to +Vest +Blake W. Krueger +2/9/2009 +2,650 +2/15/2009 +3,750 +2/18/2009 +6,375 +2/7/2010 +3,475 +2/9/2010 +5,300 +2/15/2010 +3,750 +4/19/2010 +575 +2/6/2011 +5,000 +2/7/2011 +3,475 +2/15/2011 +7,500 +4/19/2011 +575 +2/6/2012 +5,000 +2/7/2012 +6,950 +4/19/2012 +1,150 +2/6/2013 +10,000 +Donald T. Grimes +5/27/2011 +1,375 +5/27/2012 +1,375 +5/27/2013 +2,750 +Kenneth A. Grady +10/16/2009 +125 +2/7/2010 +675 +10/16/2010 +125 +2/6/2011 +900 +2/7/2011 +675 +10/16/2011 +250 +2/6/2012 +900 +2/7/2012 +1,350 +2/6/2013 +1,800 +Pamela L. Linton +1/15/2009 +1,500 +2/6/2011 +1,375 +2/6/2012 +1,375 +2/6/2013 +2,750 +James D. Zwiers +2/9/2009 +850 +2/15/2009 +850 +2/18/2009 +2,250 +2/7/2010 +675 +2/9/2010 +1,700 +2/15/2010 +850 +2/6/2011 +1,375 +2/7/2011 +675 +2/15/2011 +1,700 +2/6/2012 +1,375 +2/7/2012 +1,350 +2/6/2013 +2,750 +Stephen L. Gulis, Jr. +— +— +Nicholas P. Ottenwess +2/9/2009 +850 +2/15/2009 +850 +2/18/2009 +2,250 +2/7/2010 +675 +2/9/2010 +1,700 +2/15/2010 +850 +2/6/2011 +900 +2/7/2011 +675 +2/15/2011 +1,700 +2/6/2012 +900 +2/7/2012 +1,350 +2/6/2013 +1,800 +(3) +The market value reflected in this column is based on a closing +market price of $21.52 on January 2, 2009 and does not +reflect any discount based on the restrictions or the +possibility of forfeiture. +32 +Table of Contents +Option +Exercises and Stock Vested in Fiscal 2008 +The following table provides information concerning stock option +exercises and each restricted stock vesting during the last +completed fiscal year for each of the named executive officers +on an aggregated basis. +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired +Realized +Acquired +Realized +on +on +on +on +Exercise +Exercise +Vesting +Vesting +Name +(#) +($)(1) +(#) +($)(2) +Blake W. Krueger +33,946 +268,027 +12,963 +344,452 +Donald T. Grimes +— +— +— +— +Kenneth A. Grady +— +— +— +— +Pamela L. Linton +— +— +— +— +James D. Zwiers +— +— +3,475 +92,296 +Stephen L. Gulis, Jr. +31,682 +249,756 +49,855 +1,335,371 +Nicholas P. Ottenwess +7,505 +136,701 +4,975 +132,241 +(1) +Represents the difference between the exercise price of the +options and the market price of Wolverine’s common stock on +the date of exercise. +(2) +The dollar values are calculated using the closing price of +Wolverine common stock on the date of vesting. +Pension +Benefits in 2008 +The following table provides for each named executive officer +certain information concerning each plan that provides for +payments or other benefits at, following, or in connection with +retirement. +Payments +Number +Present +During +of Years +Value of +Last +Credited +Accumulated +Fiscal +Plan +Service +Benefit +Year +Name +Name +(#) +($)(1) +($) +Blake W. Krueger +Pension Plan +13 +339,496 +0 +SERP(2) +18 +1,688,285 +0 +Donald T. Grimes +Pension Plan(3) +1 +11,458 +0 +SERP(3) +1 +— +0 +Kenneth A. Grady +Pension Plan(3) +2 +23,199 +0 +Pamela L. Linton +Pension Plan(3) +1 +32,107 +0 +SERP(3) +1 +7,302 +0 +James D. Zwiers +Pension Plan +11 +88,296 +0 +SERP +11 +35,809 +0 +Stephen L. Gulis, Jr. +Pension Plan +23 +453,973 +0 +SERP +23 +768,628 +0 +Nicholas P. Ottenwess +Pension Plan +21 +249,165 +0 +SERP +21 +114,161 +0 +(1) +These values are as of January 3, 2009, and are calculated +assuming the participants will commence their benefits at +age 65 (in the form of life-only annuities) and use the +1994 GAM Mortality Table and a 7.25% interest rate. +(2) +The present value of Mr. Krueger’s accumulated benefit +under the SERP has increased by $563,273 as a result of three +additional service years granted to him under the SERP in +recognition of his service as a member of Wolverine’s +executive team for three years before becoming a participant in +the SERP and two additional deemed +33 +Table of Contents +years of service granted as part of Mr. Krueger’s CEO +compensation. The present value of Mr. Krueger’s SERP +benefit would be $1,125,012 if 13 service years is used to +calculate his benefit. +(3) +Messrs. Grady and Grimes and Ms. Linton are not yet +vested in the pension plan, or, where applicable, the SERP, but +the amount reflected assumes that each of them is fully vested. +Summary +of Pension Plans +Wolverine maintains the following defined benefit retirement +plans: (1) the Wolverine Employees’ Pension Plan (the +Pension Plan), which is a funded and tax-qualified defined +benefit plan under the Internal Revenue Code that covers +eligible employees and (2) the Wolverine World Wide, Inc. +409A Supplemental Executive Retirement Plan (the SERP), which is +an unfunded non-qualified plan. The following describes the +material features of the pensions plans presented in the +“Pension Benefits” table. +Qualified +Pension Plan +Employees vest in the Pension Plan after five years of +qualifying service. The plan provides benefits based on a +formula that takes into account the named executive +officer’s earnings and years of service. Subject to the +limitations imposed by the Internal Revenue Code, the pension +plan generally provides a monthly benefit in an amount equal to +1.6% of final average monthly earnings multiplied by the number +of years of service up to 30 years. An employee’s +monthly earnings taken into account under this formula generally +include base salary and annual bonus, less social security +allowance, but may not exceed the IRS limit applicable to +tax-qualified plans ($230,000 for 2008). For certain named +executive officers, the benefit is calculated using 2.4% (for +Messrs. Krueger and Gulis) or 2.0% (for +Messrs. Grimes, Ottenwess and Zwiers and Ms. Linton) +of final average monthly earnings multiplied by the +participant’s number of years of service up to +25 years. +The accumulated benefit an employee earns is payable starting +after retirement on a monthly basis. Upon retirement, a +participant may elect to receive the benefit in the form of a +life annuity, 5- and +10-year +certain annuities and joint and 50% and 100% survivor annuities. +The normal retirement age under the plan is age 65. An +executive who begins receiving payments after age 60 but +before age 65 will receive a monthly benefit equal to the +greatest of : +• +1.6% of average monthly compensation (highest four of the last +10 years) multiplied by years of benefit service reduced by +.3333% (1/3 of 1%) for each month for which the benefit +commencement date precedes normal retirement age offset by a +monthly social security allowance reduced by .5555% (5/9 of 1%) +for each month up to 60 that the benefit commencement date +precedes the participants social security retirement age and by +.2777% (5/18 of 1%) for any months more than 60 by which the +benefit commencement date precedes the participant’s social +security retirement age, all of which is reduced pro rata if the +participant has less than 30 years of benefit service. +• +$24 multiplied by the participant’s years of benefit +service up to a maximum of 30 years reduced by .3333% (1/3 +of 1%) for each month for which the benefit commencement date +precedes normal retirement age. +• +2.4% (Messrs. Krueger and Gulis) or 2.0% +(Messrs. Grimes, Ottenwess and Zwiers and Ms. Linton) +of final average monthly compensation (highest four of the last +ten years) multiplied by the participants’ years of benefit +service not in excess of 25 reduced by .3333% (1/3 of 1%) for +each month for which the benefit commencement date precedes +normal retirement age. +None of the named executive officers are currently eligible to +begin drawing early retirement benefits under the Pension Plan. +Supplemental +Executive Retirement Plan (SERP) +Wolverine also maintains the SERP, which covers certain officers +of Wolverine, including Messrs. Krueger, Gulis, Grimes, +Ottenwess and Zwiers and Ms. Linton. Wolverine adopted the +SERP in fiscal 2008 to replace a prior Supplemental Executive +Retirement Plan in order to adopt required changes to bring the +SERP into compliance with Section 409A of the Code. The +SERP is maintained because the Compensation Committee believes +that the limit on compensation that can be taken into account +for Wolverine’s qualified pension plan does not allow +Wolverine to provide sufficient retirement benefits that have +the recruitment and retention value necessary to attract and +retain highly compensated executives who are significantly +responsible for Wolverine’s results of operations. +Wolverine has established a Benefit Trust to ensure that +34 +Table of Contents +payments to employees participating in the SERP will not be +improperly withheld after a change in control of Wolverine, as +defined in the agreement establishing the trust. +Under the SERP, a participating executive will be eligible for +an annual supplemental benefit once he or she has completed five +years of service after having been approved as a participant in +the SERP. This benefit is intended to provide significant +retention incentives for participating executives. +The supplemental benefit is generally equal to the difference +between the executive’s retirement benefit under Pension +Plan and the benefits the executive would have received if there +were no cap on earnings when calculating the benefit under the +pension plan. The SERP caps years of service at 25 years +rather than 30 years (the pension plan cap for non-SERP +participants). The SERP also allows a retired executive to draw +earlier (beginning at 55) and on different terms than under +the pension plan. The percentage multiplier for earnings is the +same for the participating named executive officers under the +SERP as it is under the Pension Plan. The Compensation Committee +may grant additional deemed years of service to a named +executive officer under the SERP, subject to the overall limit +of 25 years of service. The full benefit of any additional +years of deemed service is paid under the SERP. By agreement, +Mr. Krueger currently receives credit for an additional +deemed year of service under SERP for each year he serves as +Chief Executive Officer. +A retired SERP participant may draw the full benefit beginning +at age 65 or may elect to begin receiving a reduced benefit +at or after age 55. The reduction factor is 0.333% for each +month prior to age 60, and 0.1666% for each month between +age 60 and age 65. At fiscal year-end, only +Mr. Krueger would be eligible to retire and begin drawing +early retirement benefits under the SERP. Normal retirement +benefits under the SERP are generally payable in the same manner +as the Pension Plan, except that a lump sum payment option is +available in the event of death or upon a change in control. The +SERP also includes a disability benefit (see the Disability +Benefit calculation and related note under the Potential +Payments Upon Termination or Change in Control Table). The SERP +also provides for a death benefit to the executive’s +designated beneficiary if the executive dies before retiring +(see the Death Benefit calculation and related note under the +Potential Payments Upon Termination or Change in Control Table). +The SERP provides for lump sum payments to participating +executives if, within two (Messrs. Grimes, Ottenwess and +Zwiers and Ms. Linton) or three (Mr. Krueger) years +after a change in control the executive resigns for good reason +or is terminated by Wolverine other than for cause or due to +death or disability, all as defined in the SERP. For additional +information, see the SERP Change in Control benefit calculation +and related note under the Potential Payments Upon Termination +or Change in Control Table. +The SERP also contains non-competition, confidentiality and +employee non-solicitation provisions in favor of Wolverine. +Under the non-competition provisions of the SERP, a named +executive officer will not be entitled to any benefit payment +if, prior to the date on which such benefit payment is due, the +participant enters into certain relationships with a competing +business. Benefits under the SERP are also subject to forfeiture +if the named executive officer’s employment is terminated +for serious misconduct or if Wolverine cannot collect under an +insurance policy purchased to fund SERP benefits for +certain reasons. Wolverine may terminate the SERP or stop +further accrual of SERP benefits for a participating executive +at any time, but termination will not affect previously accrued +benefits. +Director +Compensation +For Information on non-employee director compensation, see the +information under the headings “Non-Employee Director +Compensation” on page 10 and “Director +Compensation for Fiscal 2008” on page 12. +35 +Table of Contents +Potential +Payments Upon Termination or Change in Control +This section provides information regarding payments and +benefits to the named executive officers that would be triggered +by termination of the named executive officer’s employment. +As described in the Compensation Discussion and Analysis, the +named executive officers do not have employment agreements with +Wolverine. However, Wolverine has entered into an Executive +Severance Agreement with each of the named executive officers +that provides certain rights or the right to receive payments in +the event of the termination of employment in connection with a +change in control and has entered into an agreement with +Mr. Krueger regarding certain termination benefits in the +event of certain terminations of his employment. +Benefits +Triggered by Termination for Cause or Voluntary +Termination. +A named executive officer is not entitled to receive any +additional forms of severance payments or benefits upon +termination for cause or upon the officer’s voluntary +decision to terminate employment with Wolverine prior to being +eligible for retirement. +Benefits +Triggered by Termination Other Than for Cause or by the Named +Executive Officer for Good Reason. +Severance Payable to +Mr. Krueger. Mr. Krueger entered into a +Separation Agreement on March 13, 2008, stating that upon +termination of his employment other than termination by +Wolverine for Cause or termination by Mr. Krueger for other +than Good Reason, as such terms are defined in the Separation +Agreement, Wolverine will pay Mr. Krueger the following +payments in exchange for a general release in favor of +Wolverine: (1) 18 months’ base salary (reduced by +payments he receives if he is employed by a Competing Business, +as defined in the Separation Agreement); (2) a pro rata +portion of the annual incentive bonus and the long-term bonus +for all uncompleted performance periods based on actual +corporate performance for the applicable performance periods; +(3) a pro rata portion of the annual discretionary bonus +relating to personal performance objectives; (4) retiree +medical benefits for Mr. Kruger, his spouse and dependents +for a period starting on the day after the termination date and +ending on the last day of the 18th month following the +month in which the termination date falls; and (5) with +respect to any triggering termination occurring before +Mr. Krueger’s 60th birthday, either a waiver of +the non-competition clause in the Supplemental Executive +Retirement Plan (“SERP”) or a payment of +36 months’ base salary. Mr. Krueger also will be +paid any annual incentive bonus and long-term incentive bonus +earned but not paid prior to his termination. +“Cause” is defined generally in +Mr. Krueger’s Separation Agreement to mean: +(1) any act or omission knowingly undertaken or omitted +with the intent of causing material damage to Wolverine; +(2) any intentional act involving fraud, misappropriation +or embezzlement, that causes material damage to Wolverine; +(3) repeated willful failure to substantially perform any +of his significant duties as reasonably directed by the Board of +Directors of Wolverine; (4) a conviction (including any +plea of guilty or nolo contendere ) of any criminal act +that (a) results in the executive serving prison time and +not being able to perform the normal duties of his position for +more than thirty (30) days; or (b) causes material +damage to Wolverine; or (5) chronic or habitual use or +consumption of drugs or alcohol that causes material damage to +Wolverine. +“Good Reason” is generally defined under +Mr. Krueger’s Separation Agreement to mean: (1) a +material reduction in base compensation, including a reduction +in base salary or opportunities under Wolverine’s bonus +plans or equity plans (other than these implemented for the +executive team as a whole); (2) a material reduction in +authority, duties, or responsibilities; (3) a requirement +to report to a Company officer or employee instead of reporting +directly to the Board of Directors; or (4) certain +relocations, other than those related to a change in the +location of Wolverine’s headquarters affecting a majority +of the executive team. +Benefits +Triggered upon a Change in Control. +Benefits Upon Termination Following a Change in +Control. Under the Executive Severance Agreements +entered into with the named executive officers, payments and +benefits under the Change in Control Arrangements are triggered +when Wolverine terminates employment without “cause” +or when an executive terminates employment for “good +reason” within two (Messrs. Grimes, Grady, Ottenwess +and Zwiers and Ms. Linton) or three (Mr. Krueger) years +following a change in +36 +Table of Contents +control of Wolverine. The Executive Severance Agreement with +Mr. Gulis expired upon his retirement effective +July 1, 2008. +The lump sum payment under the Executive Severance Agreement is +paid by Wolverine and is composed of the following: +(1) unpaid base salary, benefit awards (including both cash +and stock) and bonus payments that have been earned; (2) in +lieu of a bonus payment under the Annual Bonus Plan, an amount +equal to the number of days the executive was employed by +Wolverine in the year of termination divided by the number of +days in the year multiplied by 100% of the greater of either +(a) the bonus awarded to the executive under an Annual +Bonus Plan for the preceding year or (b) the average paid +to the executive over the preceding two-year period under an +Annual Bonus Plan; (3) in lieu of payments under the +various LTIP performance periods, an amount equal to the bonus +the executive would have received based on actual and assumed +earnings per share calculations and total shareholder return +rankings, multiplied by the number of days the executive +participated in the LTIP prior to the termination, divided by +the total number of days in the performance period (in +determining the earnings per share for any year subsequent to +the year of termination, the earnings per share will equal the +earnings per share required to attain the maximum goal under the +three year plan for that year); (4) either two +(Mr. Grady, Mr. Grimes, Ms. Linton, +Mr. Ottenwess and Mr. Zwiers) or three +(Mr. Krueger) times the sum of (a) the +executive’s highest annual rate of base salary during the +12-month +period prior to termination; and (b) the greater of the +average amount earned by the executive during the previous two +years or the previous year under the Annual Bonus Plan; +(5) 100% of the positive spread for any options held by the +executive whether or not vested; (6) an excise tax +gross-up +adjustment; and (7) the present value of an additional +three years of deemed service under the retirement plans. +Benefits awarded upon a termination of employment in connection +with a change of control include all accrued benefits under +employee benefit plans, programs or arrangements that the +executive was entitled to participate in immediately prior to +the termination date, and outplacement services. The +Compensation Committee has determined that Wolverine will not +provide excise tax +gross-up +payments in future employment agreements. +“Change in control” under the Executive Severance +Agreement generally means certain changes in composition of the +Board of Directors, certain acquisitions of 20% or more of +Wolverine’s common stock or combined outstanding voting +power of Wolverine, and other specified reorganizations, +mergers, consolidations, liquidations, dissolutions or +disposition of substantial assets (unless such transactions +result in the creation of an entity in which at least 50% of the +common stock and combined voting power is owned by the owners of +record prior to the transaction, no single stockholder owns more +than 20% of the combined voting power and a majority of the +board remains unchanged). +“Cause” is defined under the Executive Severance +Agreement to generally mean the willful and continued failure to +substantially perform duties or willfully engaging in gross +misconduct that is injurious to Wolverine. +“Good Reason” is defined under the Executive Severance +Agreement generally to mean: (1) any materially adverse +change in position, duties, responsibilities or title or any +removal, involuntary termination or failure to re-elect an +officer; (2) a reduction in annual base salary; +(3) any relocation or requirement to substantially increase +business travel; (4) the failure to continue providing any +executive incentive plans or bonus plans; (5) the failure +to continue any employee benefit plan or compensation plan +unless a comparable plan is available; (6) the failure to +pay any salary, bonus, deferred compensation or other +compensation; (7) the failure to obtain an assumption +agreement from any successor; (8) any purported termination +of the employment which is not effected in a manner prescribed +by the Executive Severance Agreement; or (9) any other +material breach by Wolverine or a successor of its obligations +under the Executive Severance Agreement. +Benefits Upon a Change in Control Only. Upon a +change in control of Wolverine, all of the named executive +officers’ outstanding stock options become immediately +exercisable in full and shall remain exercisable during the +remaining term, regardless of whether he or she remains in the +employ or service of Wolverine. The Compensation Committee may +determine that one or all of the named executive officers shall +receive cash in an amount equal to the positive spread amount. +All other outstanding incentive awards of the named executive +officers, including shares of restricted stock, become +immediately and fully vested and nonforfeitable upon a change in +control of Wolverine. Change in control for this purpose +generally means certain changes in the composition of the board +of directors, certain acquisitions of 20% of Wolverine’s +common stock and other specified reorganizations, mergers, +consolidations, liquidations, dissolutions or disposition of +substantial assets. +37 +Table of Contents +Benefits +Triggered by Retirement, Death or Permanent +Disability. +Pension Plan. In the event of death before +retirement, the Pension Plan provides the surviving spouse of a +vested participant a death benefit equal to the qualified +pre-retirement survivor annuity as defined in the Internal +Revenue Code (generally 50% of the participant’s accrued +normal retirement benefit). This benefit is paid annually to the +surviving spouse beginning when the participant would have +turned 60 and continues for the life of the surviving spouse. +For participants with at least three years of service as of +December 31, 2003, and who have at least 10 years of +service and are employed by Wolverine at the time of death, the +amount of the survivor benefit under the Pension Plan is +calculated as though the participant had continued as an +employee of Wolverine until age 65 at the compensation +level as of the date of death and the benefit begins upon the +date of death, unreduced for early commencement. The survivor +benefit for participants who meet all the criteria set forth in +the preceding sentence, but who die when they are not employed +by Wolverine are entitled to a joint and survivor benefit +commencing upon the date of death, unreduced for early +commencement. +SERP. If a named executive officer dies before +beginning to receive benefits under the SERP, Wolverine, under +the current plan elections of the named executive officers, must +pay the executive’s beneficiary a lump sum death benefit +equal to the present value of the benefit computed as if the +participant had retired on the date of death, had begun +receiving benefits at age 55 and had continued to receive +benefits for the remainder of the participant’s life +expectancy. If the participant dies after beginning to receive +benefit payments, benefits cease unless the participant was +receiving benefits in the form of one of the joint and survivor +annuity optional elections under the plan or had elected +benefits in a form that provides for a continuation of benefits. +If a named executive officer becomes totally and permanently +disabled, the SERP provides a disability benefit equal to 60% of +the normal retirement accrued benefit based upon years of +service up to the date that the participant became disabled +through the date the participant reaches age 65 (at which +point, the participant would begin drawing full SERP benefits) +or is no longer disabled. +Incentive Compensation Plans. Upon termination +of employment at least six months after the beginning of a +fiscal year due to death, disability or early or normal +retirement, an executive is entitled to receive a pro rata +portion of any bonus award earned under the Annual Bonus Plan +based on their service during such fiscal year. The bonus is +payable at the same time and in the same manner as awards are +paid to other named executive officers for the fiscal year. +Under the LTIP, upon death, disability or early or normal +retirement, a named executive officer will be eligible to +receive a pro rata portion of any award payable under each open +performance cycle for which the named executive officer served +at least 12 months. If an award is payable at the end of +the performance period, the award is pro rated for service +during the applicable performance cycle. Any pro rated award is +payable at the time awards are paid to other named executive +officers. +Stock Incentive Plans. Upon death, disability +or early or normal retirement of the named executive officer, +the restrictions applicable to his or her shares of restricted +stock terminate automatically and stock options vest in full if +held for more than one year or, if employed for less than one +year after the grant, on a percentage basis based on months +employed after the grant divided by 12. A named executive +officer is eligible for early retirement under the stock +incentive plans upon attaining age 50 with seven years of +service. +Description +of Restrictive Covenants that Apply During and After Termination +of Employment. +The SERP contains non-competition, confidentiality and employee +non-solicitation provisions in favor of Wolverine. Under the +non-competition provisions of the SERP, the participant shall +not be entitled to any benefit payment if, prior to the date on +which such benefit payment is due, the participant enters into +certain relationships with a competing business. +38 +Table of Contents +Estimated +Payments on Termination or Change in Control +The following table summarizes the potential payments and +benefits payable to each of Wolverine’s named executive +officers, with the exception of Mr. Gulis, upon a change in +control or termination of employment in connection with each of +the triggering events set forth in the table below, assuming, in +each situation, that the termination of employment or change in +control of Wolverine took place on January 3, 2009. As +Mr. Gulis retired on July 1, 2008, the amounts shown +in the table for Mr. Gulis reflect the amounts paid and +payable upon his retirement. The amounts described below are in +addition to benefits that are generally available to our +employees such as distributions under our 401(k) savings plan, +disability or life insurance benefits and accrued vacation. Due +to the many factors that affect the nature and amount of any +benefits provided upon the termination events discussed below, +any actual amounts paid or distributed to named executive +officers may be different. Factors that may affect these amounts +include timing during the year of the occurrence of the event, +our stock price and the named executive officer’s age. +The value of the accelerated vesting of unvested equity-based +compensation awards was computed using the closing market price +of Wolverine’s common stock on January 2, 2009, the +last business day in the fiscal year ($21.52). The value for +unvested restricted stock is computed by multiplying $21.52 by +the number of unvested shares of restricted stock held by the +officer. The value of unvested stock options equals the +difference between the exercise price of each option and $21.52. +No value was attributed to accelerated vesting of a stock option +if its exercise price was greater than $21.52. +Termination Event and +Blake W. +Donald T. +Kenneth A. +Pamela L. +James D. +Stephen L. +Nicholas P. +Payments/Benefits +Krueger +Grimes +Grady +Linton +Zwiers +Gulis, Jr. +Ottenwess +Termination by Company for Cause or Voluntary Termination +— +— +— +— +— +— +— +Termination by Company Other Than for Cause or by Executive +for Good Reason +$ +2,796,576 +(1) +— +— +— +— +— +— +Change in Control Termination (2) +Lump sum payment under Executive Severance Agreement +$ +18,945,203 +$ +1,221,676 +$ +1,396,115 +$ +1,815,318 +$ +2,274,678 +— +$ +3,478,640 +Benefits under Executive Severance Agreement(3) +$ +43,346 +$ +39,989 +$ +38,824 +$ +40,224 +$ +38,367 +— +$ +37,487 +Lump sum payment under the SERP(4) +$ +6,122,186 +$ +47,510 +— +$ +89,964 +$ +165,296 +— +$ +475,451 +Stock Incentive Plans +$ +1,410,098 +$ +118,360 +$ +146,336 +$ +150,640 +$ +352,928 +— +$ +312,040 +Death +SERP(5) +$ +3,331,513 +$ +29,906 +— +$ +62,855 +0 +— +$ +114,807 +Pension Plan(6) +$ +60,151 +— +— +— +$ +54,893 +— +$ +54,320 +Stock Incentive Plans +$ +1,338,372 +$ +69,036 +$ +133,424 +$ +130,906 +$ +333,194 +— +$ +299,128 +Earned Incentive Compensation +$ +1,560,955 +$ +209,233 +$ +214,281 +$ +226,706 +$ +250,682 +— +$ +246,487 +Disability +SERP(7) +$ +214,114 +$ +2,665 +— +$ +3,388 +$ +12,313 +— +$ +26,556 +Stock Incentive Plans +$ +1,338,372 +$ +69,036 +$ +133,424 +$ +130,906 +$ +333,194 +— +$ +299,128 +Earned Incentive Compensation +$ +1,560,955 +$ +209,233 +$ +214,281 +$ +226,706 +$ +250,682 +— +$ +246,487 +Retirement +SERP(8) +(8 +) +(8 +) +— +(8 +) +(8 +) +(8 +) +(8 +) +Pension Plan(8) +(8 +) +(8 +) +(8 +) +(8 +) +(8 +) +(8 +) +(8 +) +Stock Incentive Plans(9) +$ +1,338,372 +— +— +— +— +$ +1,047,960 +— +Earned Incentive +Compensation(10) +$ +1,560,955 +— +— +— +— +$ +389,524 +— +Change in Control Only +Stock Incentive Plans +$ +1,410,098 +$ +118,360 +$ +146,336 +$ +150,640 +$ +352,928 +— +$ +312,040 +(1) +The estimate for Mr. Krueger assumes that the +non-competition clause in Mr. Krueger’s SERP will be +waived. This amount also includes the value of continued retiree +medical benefits for 18 months at an estimated cost of +$11,356 to Wolverine. +39 +Table of Contents +(2) +Payments would be triggered after certain terminations of +employment within two (Messrs. Grady, Grimes, Ottenwess and +Zwiers and Ms. Linton) or three (Mr. Krueger) years +following a change in control. The timing of the payment would +be delayed to the extent earlier payment would trigger +Section 409A of the Tax Code. +(3) +These estimates assume that Wolverine would maintain the benefit +plans for a period of up to one year after termination and the +out-placement services for a period beginning with the date of +termination and ending on the last day of the second calendar +year following the calendar year in which the date of +termination occurred. +(4) +Amounts in this row reflect the entire lump sum benefit payable +to a participating named executive officer’s beneficiary, +including any accumulated benefit. For a description of the +SERP, see “Supplemental Executive Retirement Plan +(SERP)” under the heading “Pension Benefits” +table. The timing of the payment would be delayed to the extent +earlier payment would trigger Section 409A of the Tax Code. +(5) +Amounts in this row reflect the entire lump sum death benefit +payable to a participating named executive officer’s +beneficiary, including any accumulated benefit. +(6) +Amounts in this row reflect the annual amounts payable for the +life of the surviving spouse. In accordance with the terms of +the Pension Plan, the death benefit for Messrs. Krueger, +Zwiers and Ottenwess was calculated as though the executive had +continued as an employee of Wolverine until age 65 at the +compensation level as of the date of death. Messrs. Grimes +and Grady and Ms. Linton were not vested in the Pension +Plan as January 3, 2009, so no death benefit would be +payable to any surviving spouse. +(7) +Amounts in this row reflect the annual annuity disability +benefit payable to a named executive officer until the officer +is no longer disabled or reaches age 65. Upon reaching +age 65, the named executive officer will receive their +normal retirement benefit under the SERP. See the Pension +Benefit Table and footnotes thereto for each named executive +officer’s accumulated SERP benefit assuming payment begins +at age 65. +(8) +See the Pension Benefit table and footnotes thereto. The Pension +Benefits table describes the general terms of each pension plan +in which the named executive officers participate, the years of +credited service and the present value of each named executive +officer’s accumulated pension benefit assuming payment +begins at age 65. +(9) +Messrs. Grimes, Grady, Ottenwess and Zwiers and +Ms. Linton are not eligible for retirement acceleration +under Wolverine’s stock incentive plans as described in the +narrative above the table. The value attributed to accelerated +vesting of Mr. Gulis’ unvested equity-based +compensation awards was computed using the closing market price +of Wolverine’s common stock on July 1, 2008, the +effective date of his retirement ($26.86). The value for +unvested restricted stock is computed by multiplying $26.86 by +the number of unvested shares of restricted stock that vested +upon Mr. Gulis’ retirement. The value of unvested +stock options equals the difference between the exercise price +of each option and $26.86. +(10) +Under the Annual Bonus Plan and the LTIP, a named executive +officer may be eligible to receive a pro rata portion of any +earned award if the executive is retirement eligible. +Mr. Kreuger is the only named executive officer (other than +Mr. Gulis) who was retirement eligible at fiscal year end. +The amount reported for Mr. Krueger represents his actual +payout under the Annual Bonus Plan for fiscal year 2008, his +actual payout under the +2006-2008 +performance cycle of the LTIP and an estimated pro rata award +that may be payable under the +2007-2009 +and +2008-2010 +performance cycles of the LTIP, each based on target level +performance. For Mr. Gulis, who retired effective +July 1, 2008, the amount represents his actual payout under +the Annual Bonus Plan for fiscal year 2008, his actual payout +under the +2006-2008 +LTIP performance cycle and an estimate of his pro rata award +under the +2007-2009 +LTIP performance cycle based on target level performance. +Compensation +Committee Report +Compensation Committee Report. The +Compensation Committee has reviewed and discussed with +management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this +review and discussion, the Compensation Committee recommended to +the Board of Directors that the Compensation Discussion and +Analysis be included in Wolverine’s annual report on +Form 10-K +and proxy statement on Schedule 14A. +Respectfully submitted, +Joseph R. Gromek, David T. Kollat and Michael A. Volkema +40 +Table of Contents +Selection +of Auditors +The Audit Committee has reappointed the firm of +Ernst & Young LLP as independent auditors for the +current fiscal year. As a matter of good corporate governance, +the Audit Committee has determined to submit its appointment of +Ernst & Young LLP to our stockholders for +ratification. If this appointment is not ratified by the holders +of a majority of shares present or represented at the annual +meeting and entitled to vote on the matter, the Audit Committee +will review its future selection of an independent registered +public accounting firm. +Ernst & Young LLP, certified public accountants, has +audited the financial statements of Wolverine and its +subsidiaries for the fiscal year ended January 3, 2009. +Representatives of Ernst & Young LLP are expected to +be present at the annual meeting, will have an opportunity to +make a statement if they desire to do so and are expected to be +available to respond to appropriate questions from stockholders. +In the years indicated, Ernst & Young LLP billed +Wolverine the fees set forth in the following table. +2008 +2007 +Audit Fees(1) +$ +1,004,540 +$ +972,586 +Audit Related Fees(2) +— +$ +41,550 +Total Audit and Audit Related Fees +$ +1,004,540 +$ +1,014,136 +Tax Fees +Tax Compliance +$ +503,534 +$ +562,745 +Tax Planning & Advisory +$ +302,235 +$ +438,892 +Total Tax Fees +$ +805,769 +$ +1,001,637 +All Other Fees +$ +0 +$ +0 +Total Fees +$ +1,810,309 +$ +2,015,773 +(1) +Audit fees are comprised of fees for the annual audit, reviews +of the financial statements included in Wolverine’s +Form 10-Q +filings, audit of internal control over financial reporting, +foreign statutory audits and consultations concerning accounting +matters associated with the annual audit. +(2) +Audit Related Fees are comprised of fees for assurance and +related services that were reasonably related to the performance +of the audit or a review of the financial statements and that +are not reported as Audit Fees above, including accounting +research, employee benefit plan audits and access to an online +research database service. +Pre-Approval Policy. Wolverine’s Audit +Committee has adopted a policy under which all audit and +non-audit services to be provided to Wolverine by +Ernst & Young LLP require pre-approval by the Audit +Committee. The Audit Committee provides categorical pre-approval +before the beginning of each fiscal year for routine and +recurring services provided by Ernst & Young LLP. +Items in this category are pre-approved within specific service +descriptions and budgets. All audit services, internal +control-related services, and other services that are not within +the specifically pre-approved service descriptions and budgets +require engagement-specific pre-approval. With certain +exceptions such as pre-approval of audit services, +engagement-specific pre-approval may be delegated to one or more +Audit Committee members. Any services approved by a designated +Audit Committee member must be communicated to the full Audit +Committee at its next regularly-scheduled meeting. The Audit +Committee’s pre-approval policy also prohibits +Ernst & Young LLP from providing any non-audit +services that are prohibited by the SEC or the Public Company +Accounting Oversight Board (“PCAOB”). All fees paid to +Ernst & Young LLP for services performed in 2008 and +2007 were pre-approved pursuant to this policy. +Your +Board of Directors recommends that you vote FOR ratification of +the reappointment of Ernst & Young LLP. +Audit +Committee Report +The Audit Committee of the Board of Directors consists of four +directors who are independent under the standards adopted by the +Board of Directors and applicable NYSE and SEC standards. The +Audit Committee represents and assists the Board of Directors in +fulfilling its oversight responsibility regarding the integrity +of Wolverine’s financial statements and the financial +reporting and accounting process, the systems of internal +accounting and financial controls, the performance of the +internal audit function and the independent auditors, the +41 +Table of Contents +qualifications and independence of the independent auditors, the +annual independent audit of Wolverine’s financial +statements and compliance with legal and regulatory +requirements. The Audit Committee is directly responsible in its +capacity as a committee of the Board of Directors for +appointing, retaining, compensating, overseeing, evaluating and +terminating (if appropriate) Wolverine’s independent +auditors. Wolverine’s management has primary responsibility +for the financial statements and the financial reporting +process, including the application of accounting and financial +principles, the preparation, presentation and integrity of the +financial statements, and the systems of internal controls and +other procedures designed to promote compliance with accounting +standards and applicable laws and regulations. Wolverine’s +independent auditors are responsible for expressing an opinion +on the conformity of Wolverine’s financial statements with +generally accepted accounting principles and for auditing the +effectiveness of Wolverine’s internal control over +financial reporting. +The Audit Committee has taken steps to provide assurances +regarding Audit Committee composition and procedures, the +independence of Wolverine’s outside auditors and the +integrity of Wolverine’s financial statements and +disclosures. These steps include: (i) reviewing the Audit +Committee Charter; (ii) reviewing the Finance Ethics Code; +(iii) maintaining an Accounting and Auditing Complaint +Procedure to allow employees, stockholders and the public to +report concerns regarding Wolverine’s financial statements, +internal controls and disclosures; and (iv) revising +procedures for the Audit Committee to pre-approve all audit and +nonaudit services provided by Wolverine’s independent +auditors. +As part of its supervisory duties, the Audit Committee has +reviewed Wolverine’s audited financial statements for the +fiscal year ended January 3, 2009, and has discussed those +financial statements with Wolverine’s management, internal +financial staff, internal auditors and independent auditors, +with and without management present. The Audit Committee has +also reviewed and discussed the following with Wolverine’s +management, and with the financial staff, internal auditors and +independent auditors, with and without management present: +• +accounting and financial principles and significant assumptions, +estimates and matters of judgment used in preparing the +financial statements; +• +allowances and reserves for accounts receivable, inventories and +taxes; +• +accounting for acquisitions, pension plans and equity-based +compensation plans; +• +goodwill impairment analysis; and +• +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine’s +independent auditors the results of the independent +auditors’ examinations and the judgments of the independent +auditors concerning the quality, as well as the acceptability, +of Wolverine’s accounting principles and such other matters +that it is required to discuss with the independent auditors +under applicable rules, regulations or generally accepted +auditing standards, including the matters required to be +discussed by the rules of the PCAOB. The Audit Committee has +discussed with the independent auditors the matters required to +be discussed by the statement on Auditing Standards No. 61, +as amended (AICPA, Professional Standards, Vol. 1, AU +section 380), as adopted by the PCAOB in Rule 3200T. +In addition, the Audit Committee has received from the +independent auditors the written disclosures and the letter +required by the applicable requirements of the PCAOB regarding +the independent accountant’s communications with the Audit +Committee concerning independence rules and has discussed their +independence from Wolverine and Wolverine’s management with +them, including a consideration of the compatibility of nonaudit +services with their independence, the scope of the audit and the +scope of all fees paid to the independent auditors during the +year. After and in reliance upon the reviews and discussions +described above, the Audit Committee recommended to +Wolverine’s Board of Directors that the audited financial +statements for the fiscal year ended January 3, 2009, be +included in Wolverine’s Annual Report on +Form 10-K +for the year then ended to be filed with the Securities and +Exchange Commission. Respectfully submitted, +Jeffrey M. Boromisa, William K. Gerber, Brenda J. Lauderback and +Shirley D. Peterson. +42 +Table of Contents +Related +Matters +Compensation +Committee Interlocks and Insider Participation +Joseph R. Gromek, David T. Kollat, and Michael A. Volkema served +as members of the Compensation Committee during the last +completed fiscal year and Phillip D. Matthews served on the +Compensation Committee during the last completed fiscal year +until his retirement in April 2008. David P. Mehney served on +the Compensation Committee until April, 2008. None of the above +members of the Compensation Committee were, during the fiscal +year, an officer or employee of Wolverine or formerly an officer +of Wolverine. +Certain +Relationships and Related Transactions +Wolverine has entered into agreements with Grimoldi, S.A., an +Argentinean corporation of which Mr. Alberto Grimoldi, a +director of Wolverine, is chairman and a 35% shareholder, +granting to Grimoldi, S.A. the exclusive rights to distribute +and sell footwear products in Argentina under the Hush +Puppies ® , +Caterpillar ® , +Patatgonia ® +and +Merrell ® +brand names. Grimoldi, S.A. is also authorized to sell +Merrell ® +brand apparel in Argentina. Under these agreements, Grimoldi, +S.A. or its subsidiary either purchases products from Wolverine +or pays Wolverine royalties and certain sublicense fees based on +sales or purchases of products in Argentina. +Under the agreements described above, Grimoldi, S.A. was +obligated to pay to Wolverine purchase prices, royalties, +sublicense fees and service fees relating to 2008 totaling +$3,213,439. +In the ordinary course of business, Wolverine and its +subsidiaries sell samples and components of footwear products +(such as leather), advertising materials and miscellaneous items +to licensees, distributors and customers. In 2008, purchases of +such items by Grimoldi, S.A. totaled $195,004 (including any +applicable licenses or other fees or charges). +All of the transactions described above occurred pursuant to +continuing contractual arrangements between Wolverine and +Grimoldi, S.A. Wolverine expects similar transactions to occur +between Grimoldi, S.A. and Wolverine and its subsidiaries during +2009. +In the ordinary course of its business, Wolverine purchases +promotional merchandise for use in connection with the sale of +its products. In 2008, Wolverine purchased promotional +merchandise from Bullseye Group, LLC totaling $228,738. +One-third of Bullseye Group, LLC is owned by Daniel Mehney, the +son of David P. Mehney, a director of Wolverine. Wolverine +anticipates purchasing promotional materials from Bullseye +Group, LLC in 2009. +Related +Person Transactions Policy +Wolverine has adopted written policies and procedures regarding +related person transactions. Such policies and procedures +require the Governance Committee to review and either approve or +disapprove of entry into any Interested Transactions (defined +below). If advance approval of the Interested Transaction is not +feasible, then it must be considered and, if the Governance +Committee determines it to be appropriate, ratified at the +Governance Committee’s next meeting. +An Interested Transaction is any transaction, arrangement or +relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of +indebtedness) in which (1) the aggregate amount involved is +or is expected to exceed $100,000 since the beginning of +Wolverine’s last completed fiscal year, (2) Wolverine +is a participant, and (3) any Related Person (defined +below) has or will have a direct or indirect interest (other +than solely as a result of being a director or less than ten +percent beneficial owner of another entity). A Related Person is +any (a) person who is or was at any point during the last +fiscal year for which Wolverine filed a +Form 10-K +and proxy statement, an executive officer, director or nominee +for election as a director, (b) greater than five percent +beneficial owner of Wolverine’s common stock, or +(c) immediate family member of any of the foregoing. +Immediate family member includes a person’s spouse, +parents, stepparents, children, stepchildren, siblings, mothers- +and +fathers-in-law, +sons- and +daughters-in-law, +and brothers- and +sisters-in-law +and anyone residing in such person’s home (other than a +tenant or employee). +In determining whether to approve or ratify an Interested +Transaction, the Governance Committee will take into account +whether the Interested Transaction is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances, the extent of the +Related Person’s interest in the transaction and other +factors that it deems relevant. No Director will participate in +any discussion or approval of an Interested Transaction for +which he or +43 +Table of Contents +she is a Related Person, except to provide all material +information to the Governance Committee. The following +Interested Transactions are pre-approved under the policies and +procedures: +• +any transaction with another company at which a Related +Person’s only relationship is as an employee, director or +beneficial owner of less than ten percent of that company’s +shares, if the aggregate amount involved does not exceed the +greater of $1,000,000, or two percent of that company’s +total revenues. +• +any charitable contribution by Wolverine to a charitable +organization where a Related Person is an employee, if the +aggregate amount involved does not exceed the lesser of +$100,000, or two percent of the charitable organization’s +total annual receipts. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires Wolverine’s directors and executive officers, and +persons who beneficially own more than 10% of the outstanding +shares of common stock, to file reports of ownership and changes +in ownership of shares of common stock with the Securities and +Exchange Commission. Directors, executive officers and greater +than 10% beneficial owners are required by Securities and +Exchange Commission regulations to furnish Wolverine with copies +of all Section 16(a) reports they file. Based on its review +of the copies of such reports received by it, or written +representations from certain reporting persons that no reports +on Form 5 were required for those persons for the 2008 +fiscal year, except as described in the following sentence, +Wolverine believes that its officers and directors complied with +all applicable reporting requirements during Wolverine’s +last fiscal year. It has come to Wolverine’s attention that +there is a 25 share inconsistency between Mr. Mehney’s +reports of ownership of shares of common stock and +Wolverine’s records. Wolverine is reviewing this +inconsistency and will report any Section 16(a) reports +that were not filed on a timely basis in Wolverine’s proxy +statement for the 2010 Annual Meeting. +Stockholder +Proposals +To be considered timely, any stockholder proposal intended to be +presented at the Annual Meeting of Stockholders in 2010 must be +received by Wolverine no later than January 23, 2010 and no +earlier than December 24, 2009. +Pursuant to applicable rules under the Exchange Act, some +stockholder proposals may be eligible for inclusion in +Wolverine’s 2010 proxy statement and proxy card. Any such +stockholder proposals must be submitted in writing to the +Secretary of Wolverine no later than November 13, 2009. +You should address all stockholder proposals to the attention of +the Secretary of Wolverine, 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. +Solicitation +of Proxies +We will initially seek proxies by mail. Wolverine directors, +officers and employees may also solicit proxies by telephone or +facsimile or personally without additional compensation. Proxies +may be solicited by nominees and other fiduciaries who may mail +materials to or otherwise communicate with the beneficial owners +of shares held by them. Wolverine will pay all costs of +solicitation of proxies, including the charges and expenses of +brokerage firms, banks, trustees or other nominees for +forwarding proxy materials to beneficial owners. We have engaged +Georgeson Inc. at an estimated cost of $7,000, plus expenses and +disbursements, to assist in solicitation of proxies. +44 +Table of Contents +Appendix A +WOLVERINE +WORLD WIDE, INC. +DIRECTOR +INDEPENDENCE STANDARDS +The Board of Directors annually makes an affirmative +determination of the independence of each Director, based upon +the recommendation of the Governance Committee. A Director is +independent if the Director meets each of the following +standards unless the Board determines that the Director has a +material relationship with Wolverine (either directly or as a +partner, shareholder or officer of an organization that has a +relationship with Wolverine) that is not of a nature addressed +by these standards. For purposes of these standards, +(a) “Wolverine” means Wolverine World Wide, Inc. +and its consolidated subsidiaries and (b) “immediate +family member” means a person’s spouse, parents, +children, siblings, mother and +father-in-law, +sons and +daughters-in-law, +brothers and +sisters-in-law, +and anyone (other than domestic employees) who shares such +person’s home. +General +Standards +1. +The Director is not, and in the past three years has not been, +an employee of Wolverine. +2. +An immediate family member of the Director is not, and in the +past three years has not been, employed as an executive officer +of Wolverine. +3. +Neither the Director nor an immediate family member of the +Director has received, during any twelve-month period within the +last three years, any direct compensation from Wolverine in +excess of $100,000, other than compensation for Board service, +compensation received by the Director for former service as an +interim Chairman, CEO or other executive officer, compensation +received by the Director’s immediate family member for +service as a non-executive employee of Wolverine, and pension +and other forms of deferred compensation for prior service +(provided that such compensation is not contingent in any way on +continued service). +4. (a) +The Director is not a current employee or partner of a firm that +is Wolverine’s internal or external auditor (“Company +Auditor”). +(b) +Neither the Director nor an immediate family member of the +Director in the past three years has been a partner or employee +of a Company Auditor and personally worked on Wolverine’s +audit within that time. +(c) +No immediate family member of the Director is (i) a current +partner of a Company Auditor or (ii) a current employee of +a Company Auditor who participates in the firm’s audit, +assurance or tax compliance (but not tax planning) practice. +5. +Neither the Director nor an immediate family member of the +Director is, or in the past three years has been, part of an +interlocking directorate in which a current executive officer of +Wolverine served on the compensation committee of another +company where the Director or the Director’s immediate +family member concurrently served as an executive officer. +6. (a) +The Director is not an employee, majority owner or person in +control of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the last three fiscal years, exceeds the +lesser of $250,000 or 10% of the other company’s +consolidated gross revenues. +(b) +No immediate family member of the Director is an executive +officer of another company that has made payments to, or +received payments from, Wolverine for property or services in an +amount which, in any of the past three fiscal years, exceeds the +greater of $1 million or 2% of the other +company’s consolidated gross revenues. +7. +The Director is not an executive officer, trustee or board +member of a tax exempt organization to which Wolverine has made +in the past three fiscal years contributions that, in any single +fiscal year, exceeded the greater of $50,000 or 2% of the +non-profit organization’s, foundation’s or educational +institution’s consolidated gross revenues. +Any direct or indirect relationship between a Director and +Wolverine that is not of a nature addressed by these standards +will be reviewed by the Board on a +case-by-case +basis and any such relationship that is found to be material +will preclude +A-1 +Table of Contents +the Director from being independent. In no event may a Director +be determined to be independent under these standards if such +Director does not qualify as independent under the applicable +standards of the New York Stock Exchange. +Audit +Committee Standards +In addition to meeting the General Standards set forth above, a +Director is not considered independent for purposes of serving +on the Audit Committee, and may not serve on that committee, if +the Director: (1) receives, either directly or indirectly, +any consulting, advisory or other compensatory fee from +Wolverine World Wide, Inc. or any of its subsidiaries other than +fees for service as a Director and fixed amounts of compensation +under a retirement plan (including deferred compensation) for +prior service with Wolverine or its subsidiaries (provided that +such compensation is not contingent in any way on continued +service); or (2) is an “affiliated person” of +Wolverine World Wide, Inc. or any of its subsidiaries; each as +determined in accordance with Securities and Exchange Commission +regulations. +A-2 +Table of Contents +WOLVERINE WORLD WIDE, INC. +c/o National City Bank +Shareholder Services Operations +Locator 5352 +P. O. Box 94509 +Cleveland, OH 44101-4509 +V o t e b y T e l e p h o n e +Have your proxy card available when you call the Toll-Free number 1-888-693-8683 using a touch-tone phone and follow the simple instructions to record your vote. +V o t e b y I n t e r n e t +Have your proxy card available when you access the website www.cesvote.com , and follow the simple instructions to record your vote. +V o t e b y M a i l +Please mark, sign and date your proxy card and return it in the postage-paid envelope provided or return it to: National City Bank, P.O. Box 535300, Pittsburgh, PA 15253-9837. Mailed proxies must be received no later than April 23, 2009, at 10:00 a.m. Eastern Daylight Time. +Vote by +Telephone +Call toll-free using a +touch-tone phone: +1-888-693-8683 +Vote by +Internet +Access the +website and +cast your vote: +www.cesvote.com +Vote by +Mail +Return your proxy +in the postage-paid +envelope provided. +Vote 24 hours a day, 7 days a week! +Your telephone or Internet vote must be received by 11:59 p.m. Eastern Daylight Time +on April 22, 2009, to assure that it is counted in the final tabulation. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. DO NOT +RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +è +This Proxy must be signed and dated below. +ê Please fold and detach card at perforation before mailing. ê +Wolverine World Wide, Inc. +Proxy +This proxy is solicited on behalf of the Board of Directors. +The undersigned stockholder hereby appoints David T. Kollat and Timothy J. O’Donovan, and each of them, each with full power of substitution, proxies to represent the undersigned stockholder and to vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would be entitled to vote on all matters that properly come before the Annual Meeting of Stockholders to be held at the Company’s headquarters located at 9341 Courtland Drive, N.E., Rockford, Michigan, +on Thursday, April 23, 2009, at 10 a.m. local time, and any adjournment of that meeting. +Signature(s) +Signature(s) +Dated: +, 2009 +IMPORTANT – Please sign exactly as your name(s) appears on this Proxy. When signing on behalf of a corporation, partnership, estate or trust, indicate title or capacity of person signing. If shares are held jointly, each holder must sign. +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of Stockholders on April 23, 2009. The enclosed Notice of Annual Meeting provides information regarding the matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you plan to attend the meeting, please read the enclosed materials and vote through the Internet, by telephone or by mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by telephone. Please consider voting through one of these methods. Your vote is recorded as if you mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it also saves money. +Thank you in advance for your participation in our 2009 Annual Meeting. +Wolverine World Wide, Inc. +ê Please fold and detach card at perforation before mailing. ê +Wolverine World Wide, Inc. +Proxy +If this Proxy is properly executed, the shares represented by this Proxy will be voted as specified. If no specification is made, the shares represented by this Proxy will be voted for the election of all nominees named on this Proxy as directors and for approval of the proposal identified on this Proxy. The shares represented by this Proxy will be voted in the discretion of the proxies on any other matters that may properly come before the meeting. +1. ELECTION OF DIRECTORS +Nominees: +(1) Alberto L. Grimoldi +(2) Joseph R. Gromek +(3) Brenda J. Lauderback +(4) Shirley D. Peterson +q FOR all +q WITHHOLD all +q FOR all except (*) +*(INSTRUCTION: To withhold authority to vote for any individual nominee, strike that nominee’s name in the list above.) +Your Board of Directors Recommends that You Vote FOR ALL NOMINEES . +2. Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current fiscal year. +q FOR +q AGAINST +q ABSTAIN +Your Board of Directors Recommends that You Vote FOR this Proposal. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0000950152-09-002580/proxy_rpt.txt b/raw/proxies/0000110471/0000950152-09-002580/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a587e899a7914190f4a6a8bb4745e57d4d502f52 --- /dev/null +++ b/raw/proxies/0000110471/0000950152-09-002580/proxy_rpt.txt @@ -0,0 +1,172 @@ +“Certain Relationships and Related Transactions.” +7 +Table of Contents +Mr. Phillip D. Matthews served as a director in 2008 until +his retirement as a director in April 2008, and was determined +to be independent by the Board of Directors in February 2008. +Our Board of Directors has adopted categorical Independence +Standards, which are attached as Appendix A to this Proxy +Statement and which are also available at our website. These +Independence Standards comply with and, in some areas, exceed +the director independence standards required by the NYSE. In +summary, under these standards a director is considered +independent only if the director and his or her immediate family +members do not have, and generally have not had in the most +recent three years, any material relationships with Wolverine, +its subsidiaries or affiliates (including certain relationships +with Wolverine’s independent auditors). The standards +establish thresholds at which such relationships are deemed to +be not material. In addition, the Board examines on a +case-by-case +basis transactions and relationships that are not of a nature +addressed by the categorical standards. +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set +forth the primary framework of governance principles applicable +to Wolverine. The Corporate Governance Guidelines outline the +general duties and functions of the Board and management, and +set forth general principles regarding Board composition, +independence, Board meetings and responsibilities, Board +committees, expectations of directors, annual performance +evaluations, management succession and ethical expectations. +Stock +Ownership Requirements for Directors and Executive +Officers +For many years, the Board has believed that directors and +management should have a significant financial stake in +Wolverine to align their interests with those of the +stockholders. For that reason, several years ago the Board +adopted formal requirements that directors and executive +management own specified amounts of Wolverine stock (including +ownership credit for stock units allocated to non-employee +directors under the Deferred Compensation Plan) within five +years of their respective election to the Board or appointment +as a member of executive management. The ownership requirements +necessitate holdings of a number of shares (including ownership +credit for stock units allocated to non-employee directors under +the Deferred Compensation Plan) of Wolverine stock with a value +equal to at least (i) for directors, five times the current +Board retainer, (ii) for the Chief Executive Officer, five +times base salary, (iii) for other executive officers, +between two and three times base salaries, and (iv) for +other executive management, between one and two times base +salaries. +Code of +Conduct & Compliance +For years, Wolverine and its employees and directors have +followed an extensive Code of Conduct & Compliance +(“Code”). This comprehensive Code establishes basic +guidelines to help employees and directors comply with +applicable legal requirements and sets forth Wolverine’s +expectations regarding business ethics, integrity, honesty and +fairness. The Code contains Wolverine’s principles and +procedures regarding conflicts of interest, corporate +opportunities, confidentiality, fair dealing, protection and +proper use of Wolverine’s assets, compliance with laws, +rules and regulations, engagement criteria for Wolverine’s +trading partners, “whistle blower” protection +provisions, expectations regarding the integrity of books and +records, and guidelines and procedures for many other subjects. +Employees are surveyed annually to identify any areas of +noncompliance with the Code, and the results of this survey are +reported to the Board. +Accounting +and Finance Code of Ethics +The Board has adopted an Accounting and Finance Code of Ethics +(“Finance Ethics Code”). This is an ethics code +focused on the financial reporting process and is intended to +protect the interests of all of Wolverine’s constituents, +including stockholders, employees, customers and the communities +in which Wolverine conducts business. Many of the basic tenets +of the Finance Ethics Code have been incorporated for many years +in the Code. The Finance Ethics Code is applicable to +Wolverine’s Chief Executive Officer, Chief Financial +Officer and Corporate Controller and sets forth specific rules +of conduct and expectations regarding the financial reporting +process, protection of Wolverine’s assets, compliance with +rules and regulations and honest and ethical conduct in +connection with the financial reporting process and related +disclosures. The Finance Ethics Code and the Code are available +on the Corporate Governance section of the Investors section of +Wolverine’s website at www.wolverineworldwide.com , +where Wolverine will post any waiver of or amendment to these +codes for directors or executive officers. +Board +Committee Charters +The Board has organized and formed three committees, the Audit +Committee, the Compensation Committee and the Governance +Committee. The Board has approved a committee charter for each +committee that contains +8 +Table of Contents +basic principles regarding the committee’s organization, +purpose, authority and responsibilities. The performance of each +committee is reviewed annually by committee members and the +Board. +Leadership +Since 1993, the Board has operated with an independent Lead +Director, who is selected by the independent directors. The +duties of the independent Lead Director include: +(a) working closely with the Chairman regarding the agenda +and scheduling for Board and committee meetings; +(b) overseeing information sent to the Board; +(c) presiding over executive sessions; (d) serving as +a liaison between the Chairman and the independent Directors; +(e) presiding over Board meetings in the absence of the +Chairman; and (f) being available for consultation and +communications with stockholders as appropriate. +Attendance +The Board prides itself on its ability to recruit and retain +directors who have a diversity of experience, who have the +highest personal and professional integrity, who have +demonstrated exceptional ability and judgment and who are +effective (in conjunction with the other members of the Board) +in collectively serving the long-term interests of the +stockholders. Board and committee attendance is central to the +proper functioning of the Board of Directors and is a priority. +Directors are expected to make every effort to attend every +Board meeting. Directors are also expected to attend the Annual +Meeting of Stockholders in person. All then-current directors +attended the 2008 annual meeting. +Communication +with the Board +Stockholders and interested parties may communicate with members +of Wolverine’s Board of Directors through various links +provided on the Corporate Governance section of the Investors +section of Wolverine’s website at +www.wolverineworldwide.com or by sending correspondence +to the Board, a specific Board committee or a Board member +c/o General +Counsel, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351. Any communications submitted by any of +the above means (or the means described below) are received by +Wolverine’s General Counsel and forwarded to the +appropriate person or persons. Any suggestions, concerns or +reports of misconduct at Wolverine or complaints or concerns +regarding Wolverine’s financial statements and accounting, +auditing, internal control and reporting practices can be +reported (including anonymous and confidential submissions) by +submitting a report on www.WolverineReportLine.com or by +writing to the audit committee +c/o the +General Counsel at the above address. +Board and +Company Culture +Wolverine’s comprehensive governance guidelines and +principles are coupled with a robust, open and effective Board +environment that promotes respect, trust and candor, fosters a +culture of open dissent and permits each director to express +opinions and contribute to the Board process. Directors are +expected to have unrestricted access to management and any +company information they desire. The participation of Board +members and the open exchange of opinions is further encouraged +at the Board committee level through the periodic rotation of +Board members among its standing committees. This open and +candid operating environment is shared by management and the +Board and is essential to fully realize the benefits of +Wolverine’s formal governance guidelines, principles, +charters and policies. +9 +Table of Contents +Non-Employee \ No newline at end of file diff --git a/raw/proxies/0000110471/0001104659-14-018712/proxy.txt b/raw/proxies/0000110471/0001104659-14-018712/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0566770fe2ccc7513a45d8aee6dce662217fcf47 --- /dev/null +++ b/raw/proxies/0000110471/0001104659-14-018712/proxy.txt @@ -0,0 +1,3394 @@ +DEF 14A +1 +a14-6570_1def14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant S +Filed by a Party other than the Registrant £ +Check the appropriate box: +£ +Preliminary Proxy Statement +£ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +S +Definitive Proxy Statement +£ +Definitive Additional Materials +£ +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLD WIDE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +S +No fee required. +£ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +£ +Fee paid previously with preliminary materials. +£ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Table of Contents +LETTER TO STOCKHOLDERS +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 12, 2014 +Dear Stockholder, +You are invited to attend the 2014 Annual Meeting of Stockholders, on Wednesday, April 23, 2014, at Wolverine Worldwide’s headquarters in Rockford, Michigan. +The annual meeting will begin with an introduction of management attendees and directors, followed by voting on the matters set forth in the accompanying Notice of Annual Meeting and Proxy Statement and any other business matters properly brought before the meeting. The meeting will adjourn for a presentation on the Company’s business operations, and then resume for a report on the voting. +Whether or not you plan to attend, you can ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. +Sincerely, +Blake W. Krueger +Chairman +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 1 +Table of Contents +NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS +10:00 a.m., April 23, 2014 +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 12, 2014 +To our Stockholders: +We invite you to attend Wolverine Worldwide’s Annual Meeting of Stockholders at the Company’s headquarters located at 9341 Courtland Drive, N.E., Rockford, Michigan, on Wednesday, April 23, 2014, at 10:00 a.m. Eastern Daylight Time. The annual meeting will begin with an introduction of management attendees and directors, after which stockholders will: +(1) vote on the election of the four director nominees named in the proxy statement for three-year terms expiring in 2017; +(2) vote on an amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock; +(3) vote on the ratification of the Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014; +(4) vote on an advisory resolution approving compensation for the Company’s named executive officers; and +(5) transact other business that may properly come before the meeting. +The meeting will adjourn for a presentation on the Company’s business operations, then resume for a report on the voting results. You can vote at the meeting and any adjournment of the meeting if you were a stockholder of record on March 3, 2014. +By Order of the Board of Directors +Timothy E. Foley +Assistant Secretary +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on April 23, 2014. +Wolverine’s Proxy Statement for the 2014 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 28, 2013, are available at www.wolverineworldwide.com/2014annualmeeting . +Page 2 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Table o f Contents +Notice of 2014 Annual Meeting of Stockholders +2 +Stock Hedging and Pledging Policies +48 +Proxy Statement +4 +Impact of Accounting and Tax Treatments on Compensation +49 +Board of Directors +4 +Board Composition +4 +Post-Employment Compensation +49 +Item 1 – Election of Directors for Terms Expiring in 2017 +6 +Compensation Committee Report +51 +Continuing Directors Elected in 2015 +11 +Summary Compensation Table +52 +Continuing Directors Elected in 2016 +15 +Grants of Plan-Based Awards in Fiscal Year 2013 +54 +Corporate Governance +19 +Outstanding Equity Awards at 2013 Fiscal Year-End +56 +Risk Oversight +19 +Option Exercises and Stock Vested in Fiscal Year 2013 +60 +Risk Considerations in Compensation Programs +20 +Pension Plans and 2013 Pension Benefits +60 +Board Leadership +20 +Qualified Pension Plan +60 +Director Independence +21 +Supplemental Executive Retirement Plan +61 +Board Committees +22 +Pension Benefits in Fiscal Year 2013 +61 +Audit Committee +22 +Potential Payments Upon Termination or Change in Control +62 +Compensation Committee +24 +Benefits Triggered by Termination for Cause or Voluntary Termination +62 +Finance Committee +25 +Governance Committee +25 +Benefits Triggered by Termination Other Than for Cause or by the NEO for Good Reason +62 +Code of Conduct & Compliance and Accounting and Finance Code of Ethics +26 +Benefits Triggered Upon a Change in Control +63 +Stockholder Communications Policy +26 +Benefits Triggered by Retirement, Death or Permanent Disability +64 +Non-Employee Director Compensation in Fiscal Year 2013 +27 +Non-Employee Director Stock Ownership Guidelines +29 +Description of Restrictive Covenants that Apply During and After Termination of Employment +65 +Securities Ownership of Officers and Directors and Certain Beneficial Owners +30 +Estimated Payments on Termination or Change in Control +65 +Five Percent Stockholders +30 +Stock Ownership by Management and Others +31 +Audit Committee Report +68 +Item 2 – Amendment of the Certificate of Incorporation +32 +Independent Registered Public Accounting Firm +70 +Compensation Discussion and Analysis +34 +Item 3 – Ratification of Appointment of Independent Registered Public Accounting Firm +71 +Section 1 – 2013: An Integration Year +34 +Strong Financial Performance +35 +Item 4 – Advisory Resolution to Approve Executive Compensation +72 +Executive Compensation Overview for 2013 +36 +Section 2 – Compensation Program Overview +37 +Related Party Matters +73 +Compensation Philosophy and Objectives +37 +Certain Relationships and Related Transactions +73 +Compensation Program Summary +38 +Related Person Transactions Policy +73 +Purposes of Compensation Program Elements +39 +Additional Information +74 +Compensation Committee Role +40 +Stockholders List +74 +CEO Role +40 +Director and Officer Indemnification +74 +Compensation Consultant Role +40 +Section 16(a) Beneficial Ownership Reporting Compliance +74 +Competitive Data Use +41 +Section 3 – 2013 Compensation +41 +Stockholder Proposals for Inclusion in Next Year’s Proxy Statement +74 +Base Salary +41 +Annual Incentive Compensation +42 +Annual Incentive Compensation – Annual Bonus +43 +Other Stockholder Proposals for Presentation at Next Year’s Annual Meeting +74 +Annual Incentive Compensation – Individual Performance Bonus +45 +Voting Securities +Conduct of Business +75 +Long-Term Incentive Compensation +45 +Vote Required for Election and Approval +75 +Long-Term Incentive Compensation – Performance Share Bonuses +46 +Voting Results of the Annual Meeting +75 +Attending the Annual Meeting +75 +Long-Term Incentive Compensation – Stock Option Grants and Restricted Stock Awards +47 +Manner for Voting Proxies +75 +Revocation of Proxies +76 +Solicitation of Proxies +76 +Benefits +48 +Delivery of Documents to Stockholders Sharing an Address +76 +Section 4 – Other Compensation Policies and Practices +48 +NEO Stock Ownership Guidelines +48 +Access to Proxy Statement and Annual Report +76 +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 3 +Table of Contents +2014 PROXY STATEMENT +We are furnishing you this proxy statement and enclosed proxy card in connection with the solicitation of proxies by the Board of Directors of Wolverine World Wide, Inc. (“Wolverine Worldwide” or the “Company”) to be used at the Annual Meeting of Stockholders of the Company. Distribution of this proxy statement and enclosed proxy card to stockholders is scheduled to begin on or about March 12, 2014. +You can ensure that your shares are voted at the meeting by submitting your instructions by telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Submitting your instructions or proxy by any of these methods will not affect your right to attend and vote at the meeting. We encourage stockholders to submit proxies in advance. A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy or by notifying the inspectors of election in writing of such revocation. In order to vote any shares at the meeting that are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot. +References to “2013” or “fiscal year 2013” in this proxy statement are to the Company’s fiscal year ending December 28, 2013, unless otherwise noted in the text. References to “2014” or “fiscal year 2014” in this proxy statement are to the Company’s fiscal year ending January 3, 2015, unless otherwise noted in the text. +Board of Directors +The stockholders elect the directors who serve on the Board of Directors (the “Board” or “Board of Directors”) to oversee Company management. The Board delegates authority to the Chief Executive Officer (“CEO”) and senior management to pursue the Company’s mission and oversees the CEO’s and senior management’s conduct of the Company’s business. In addition to its general oversight function, the Board reviews and assesses the Company’s strategic and business planning and senior management’s approach to addressing significant risks, and has additional responsibilities including, but not limited to, the following: +» approving the Company’s key objectives and plans for achieving such objectives and monitoring implementation of those plans and the Company’s success in meeting identified objectives; +» reviewing the Company’s financial objectives and major corporate plans, business strategies and actions; +» selecting, evaluating and compensating the CEO and overseeing CEO succession planning; +» providing advice and oversight regarding the selection, evaluation, development and compensation of senior management; +» reviewing significant risks confronting the Company and alternatives for their mitigation; and +» assessing whether adequate policies and procedures are in place to safeguard the integrity of the Company’s business operations and financial reporting and to promote compliance with applicable laws and regulations, and monitoring management’s administration of those policies and procedures. +The Company expects directors to attend every meeting of the Board and the committees on which they serve and attend the annual meeting of stockholders. In 2013, 11 directors (all directors then serving on the Board) attended the 2013 Annual Meeting of Stockholders and all directors attended at least 75% of the meetings of the Board and the committees on which they served. +BOARD COMPOSITION +The Board prides itself on its ability to recruit and retain directors who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment and effectively serve the stockholders’ long-term interests. Wolverine Worldwide seeks to achieve diversity in its Board membership by assembling a Board that has a broad range of skills, expertise, knowledge and contacts to benefit +Page 4 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +the Company’s business. This goal is incorporated in the Company’s Corporate Governance Guidelines. The Board, with the assistance of the Governance Committee, annually assesses the current composition of the Board considering diversity across many dimensions. The Board and Governance Committee use this assessment when defining the criteria for a director search. +The Board’s Governance Committee acts as its nominating committee. The Governance Committee, in anticipation of upcoming director elections and other potential or expected Board vacancies, searches for qualified individuals and recommends candidates for director openings to the full Board. At the Company’s expense, the Committee may retain a search firm or other external parties to assist it in identifying candidates. The Committee delegates day-to-day management and oversight of the external parties to the CEO and the Company’s Human Resources leadership. The Committee considers candidates suggested by directors, senior management and stockholders, and evaluates all candidates in the same manner. Stockholders may recommend individuals as potential director candidates by communicating with the Committee through one of the Board communication mechanisms described under the heading “ Stockholder Communications Policy .” Stockholders that wish to nominate a director candidate must comply with the procedures set forth in the by-laws posted on the Company’s website. Ultimately, the Board selects the Company nominees for election at each annual meeting. +As stated in the Company’s Corporate Governance Guidelines, Wolverine Worldwide seeks to achieve diversity in its Board membership by assembling a group of directors who have a broad range of skills, expertise, knowledge and contacts to benefit the Company’s business. The Governance Committee and the Board annually assess the current make-up of the Board, considering diversity across many dimensions, and the Committee uses this assessment when defining the criteria for a director search. The Committee, along with the Board, assesses the effectiveness of the diversity objective when reviewing the Board composition. Among other things, the Board has determined that it is important to have individuals with one or a combination of the following skills and experiences on the Board: +» FOOTWEAR, APPAREL AND RETAIL EXPERIENCE. The Company’s business focuses on the global marketing and sale of footwear and apparel, both in wholesale and retail markets. The Company has identified expanding its apparel and retail businesses as two important growth initiatives. The Board believes it is important to have directors with experience in the footwear, apparel and retail industries to provide insights into these and other areas that are critical to the Company’s success. +» LEADERSHIP EXPERIENCE. The Board believes that directors with significant leadership experience, including Chief Executive Officer experience, provide it with special insights, including organization development and leadership practices, and individuals with this experience help the Company identify and develop its own leadership talent. They demonstrate a practical understanding of organizations, process, strategy, risk management and the methods to drive change and growth. These individuals also provide the Company with a valuable network of contacts and relationships. +» GLOBAL EXPERIENCE. The Company’s products are marketed in approximately 200 countries and territories, reflecting the global nature of its business. In fiscal year 2013, approximately 26% of the Company’s revenues came from outside the U.S. and more than 98% of the Company’s products were sourced from outside the U.S. Directors familiar with the challenges and opportunities faced by a global business add value to the Board. +» FINANCE EXPERIENCE. The Company uses financial metrics in managing its overall operations and the operations of its business units. The Company and its stockholders value accurate and insightful financial tracking and reporting. The Board seeks directors that understand finance and financial reporting processes, including directors who qualify as audit committee financial experts. Experience as members of audit committees of other boards of directors also gives directors insight into best audit committee practices. +» PUBLIC AND PRIVATE COMPANY EXPERIENCE. The Company has been listed on the NYSE since 1965. Although the Company’s brand leaders operate as part of a public company, management expects them to drive growth in their business units using the entrepreneurial spirit of private company leadership. The Board believes it is important to have directors who are familiar with the regulatory requirements and environment for publicly traded companies, and to have directors who have experience applying an entrepreneurial focus to building a company or business unit. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 5 +Table of Contents +2014 PROXY STATEMENT +» GOVERNMENT EXPERIENCE. A portion of the Company’s business involves government contracting, and the Company interacts with domestic and foreign governments routinely. The Board recognizes the importance of working constructively with governments around the world and believes it is helpful to have directors who have experience working in or with government. +The Governance Committee also considers an individual’s relative skills, background and characteristics, their exemplification of the highest standards of personal and professional integrity, independence under NYSE listing standards and the Company’s Director Independence Standards, potential contribution to the composition and culture of the Board, and ability and willingness to actively participate in the Board and committee meetings and to otherwise devote sufficient time to Board duties. +ITEM 1 – Election of Directors for Terms Expiring in 2017 +Wolverine Worldwide’s Board consists of 12 directors. The Company’s Amended and Restated By-laws (the “By-laws”) divide the Board into three classes as nearly equal in number as possible. Each class serves a three-year term of office. At each annual meeting, the term of one class expires. The Company’s Corporate Governance Guidelines state that a director must retire and resign from the Board at the Annual Meeting of Stockholders following his or her 72 nd birthday, subject to the Board waiving this requirement under exceptional circumstances. The Board has nominated four directors for election at the annual meeting to be held on April 23, 2014: William K. Gerber, Blake W. Krueger, Nicholas T. Long and Michael A. Volkema. Each director is nominated for a three-year term expiring at the annual meeting of stockholders to be held in 2017 or until his or her successor, if any, has been elected and is qualified. Alberto L. Grimoldi and Shirley D. Peterson are both 72 years of age and are expected to retire as of the date of the Annual Meeting. Upon the Board’s acceptance of their respective offers to retire, the number of Directors will be reduced to reflect their retirement. +Messrs. Gerber, Long and Volkema are independent directors, as determined by the Board under the applicable rules for companies whose securities are traded on the New York Stock Exchange (“NYSE”) and the Company’s Director Independence Standards. Each director nominee currently serves on the Board and the stockholders elected Messrs. Gerber, Krueger and Volkema at the Company’s 2010 annual meeting. Mr. Long was appointed to the Board in July 2011. The Company is not aware of any nominee who will be unable to or will not serve as a director. However, if a nominee is unable to serve or is otherwise unavailable for election, the incumbent directors may or may not select a substitute nominee. If the directors select a substitute nominee, the proxy holder will vote the shares represented by all valid proxies for the substitute nominee (unless you give other instructions). +The biographies of the four nominees and the other directors of the Company are printed below, along with a discussion of the above-described skills and qualifications for each director. Following the biographies is a chart that summarizes the skills and qualifications of the nominees and directors. +Page 6 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +WILLIAM K. GERBER +Age: 60 +Director since: 2008 +Managing Director of Cabrillo +Point Capital LLC +Board Committees: +Audit +Finance +Public Directorships: +AK Steel Holding Corporation +Mr. Gerber is Managing Director of Cabrillo Point Capital LLC, a private investment fund. He has held that position since 2008. From 1998 to 2007, Mr. Gerber was Executive Vice President and Chief Financial Officer of Kelly Services, Inc., a publicly traded global staffing solutions company with operations in more than 35 countries. During the preceding five years, Mr. Gerber was, but no longer is, a director of Kaydon Corporation. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for 15 years in leadership positions with L Brands, Inc. (formerly Limited Brands, Inc.), a publicly traded multinational apparel and retail company, in addition to service as a director of the Company. +Leadership Experience – Served for 24 collective years in leadership roles for L Brands, Inc. and Kelly Services, Inc., both publicly traded companies, including as Chief Financial Officer of Kelly Services, Inc. +Global Experience – Served for 24 collective years as a senior executive for L Brands, Inc. and Kelly Services, Inc., both multinational companies, and service for more than five years as a director for the Company. +Finance Experience – Served for 10 years as Chief Financial Officer of Kelly Services, Inc. where he was responsible for investor relations, mergers and acquisitions and purchasing in addition to core Chief Financial Officer functions; and served for 15 years in various finance roles, including Vice President, Finance, and Vice President, Corporate Controller, for L Brands, Inc. +Public and Private Company Experience – Service as a director of AK Steel Holding Company, an integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products, and Kaydon Corporation, a publicly traded company that designed and manufactured custom-engineered products, including 20 collective years of experience serving as a member of the audit committees of AK Steel Holding Corporation, Kaydon Corporation, and the Company, and experience as the chair of the audit committees of the Company, AK Steel Holding Corporation and Kaydon Corporation. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 7 +Table of Contents +2014 PROXY STATEMENT +BLAKE W. KRUEGER +Age: 60 +Director since: 2006 +Chairman, Chief Executive +Officer and President of +Wolverine World Wide, Inc. +Mr. Krueger is Chairman of Wolverine Worldwide, a position he assumed in January 2010, and Chief Executive Officer and President of Wolverine Worldwide, positions he assumed in April 2007. From October 2005 until April 2007, Mr. Krueger served as President and Chief Operating Officer of Wolverine World Wide, Inc. From 2004 to October 2005, he served as Executive Vice President and Secretary of Wolverine Worldwide and President of the Heritage Brands Group. From 2003 to 2004, Mr. Krueger served as Executive Vice President and Secretary of Wolverine Worldwide and President of the Company’s Caterpillar Footwear Group. He also previously served as Executive Vice President, General Counsel and Secretary of Wolverine Worldwide with various responsibilities including the human resources, retail, business development, accessory licensing, mergers and acquisitions, and legal areas. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 15 years in senior leadership roles with the Company, including seven years as Chief Executive Officer, with responsibilities for all aspects of the business including brand leadership, apparel and accessories development, footwear wholesale, retail business development, international operations, mergers and acquisitions, manufacturing, and sourcing. +Leadership Experience – Service for more than 15 years in senior leadership roles with the Company with responsibilities for operational and staff areas of the business, including brand, manufacturing and sourcing operations, and corporate governance, legal, human resources and mergers and acquisitions, and service for seven years as Chief Executive Officer. +Global Experience – Service for more than 15 years in senior leadership roles with the Company, including seven years as Chief Executive Officer with responsibility for international operations. +Public and Private Company Experience – Service for more than 15 years with the Company, including seven years as Chief Executive Officer and eight years as a director, and as a director of Bissell, Inc., a privately held vacuum cleaner and floor care product manufacturing company; and served as a director of Professionals Direct, Inc., a then publicly traded insurance company. +Page 8 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +NICHOLAS T. LONG +Age: 55 +Director since: 2011 +Chief Executive Officer of +MillerCoors LLC +Board Committees: +Compensation +Governance +Mr. Long has been Chief Executive Officer of MillerCoors LLC (“MillerCoors”), a joint venture between two publicly traded beverage companies, since 2011. From 2008 to 2011, Mr. Long served as President and Chief Commercial Officer of MillerCoors. From 2007 to 2008, Mr. Long served as Chief Executive Officer of Miller Brewing Company, a beverage company, and he served as Chief Marketing Officer of Miller Brewing Company from 2005 to 2007. Prior to joining Miller Brewing Company, Mr. Long spent 17 years in various senior leadership positions at The Coca-Cola Company, a beverage company, including Vice President of Strategic Marketing Global Brands, Vice President Strategic Marketing Research and Trends, President of Coca-Cola’s Great Britain and Ireland Division and President of the Northwest Europe Division. +Skills and Qualifications +Leadership Experience – Service for more than 20 years as a senior executive in the beverage industry, including experience in senior leadership positions with The Coca-Cola Company and Miller Brewing Company and as Chief Executive Officer of MillerCoors LLC. +Global Experience – Served in senior leadership positions with multinational companies, including management responsibility for Northwest Europe while with The Coca-Cola Company, and as a member of the 12-person Executive Committee of SABMiller, a global brewer. +Public and Private Company Experience – Service as Chief Executive Officer of a joint venture formed by two publicly traded beverage companies, and served in senior leadership positions with The Coca-Cola Company, a multinational publicly traded company, and Miller Brewing Company, a domestic subsidiary of SABMiller plc, a multinational publicly traded company. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 9 +Table of Contents +2014 PROXY STATEMENT +MICHAEL A. VOLKEMA +Age: 58 +Director since: 2005 +Chairman of Herman Miller, Inc. +Board Committees: +Compensation +Governance +Public Directorships: +Herman Miller, Inc. +Mr. Volkema has been Chairman of Herman Miller, Inc., a publicly traded multinational furniture manufacturer, since 2000. Mr. Volkema became President and Chief Executive Officer of Herman Miller in 1995 and held those positions until 2003 and 2004, respectively. Mr. Volkema has more than 30 collective years of experience on public company boards, including 13 years as Chairman of the Board at Herman Miller, Inc., and including service on the compensation and audit committees of boards of publicly traded companies. Mr. Volkema also is a director at Milliken & Company, a privately held, innovation-based company serving textile, chemical, and floor covering markets. +Skills and Qualifications +Leadership Experience – Service for more than 20 years in senior leadership positions with Herman Miller, Inc., a publicly traded multinational company, including nine years as Chief Executive Officer and 13 years as Chairman. +Global Experience – Service for more than 20 years in senior leadership positions and as a director of Herman Miller, Inc., a publicly traded multinational company, in addition to experience as a director of the Company. +Public and Private Company Experience – Service for more than 30 collective years on public and private company boards, including as Chairman of the Board for 13 years at Herman Miller, Inc., a publicly traded corporation, service as a director of Milliken & Company, a privately held company, including nine collective years of experience serving on compensation committees and five collective years of experience serving on audit committees of boards of publicly traded companies. +BOARD RECOMMENDATION +The Board recommends that you vote “FOR” the election of the above nominees for terms expiring in 2017. +Page 10 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Di rectors with Terms Expiring in 2015 +ALBERTO L. GRIMOLDI +Age: 72 +Director since: 1994 +Chairman of Grimoldi, S.A. +Mr. Grimoldi has been Chairman of Grimoldi, S.A., a manufacturer and retailer of footwear and accessories, since 1986. Mr. Grimoldi also was a member of the Advisory Board of Ford Motor Company Argentina, a multinational automotive company; Vice Chairman of Banco Privado de Inversiones, S.A., an investment bank; and in Argentina, Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry and a member of the board of the Central Bank of Argentina. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 25 years in the footwear and retail industries, including as Chairman of Grimoldi S.A. +Leadership Experience – Service for more than 25 years as Chairman of a publicly traded Argentinean company and service in senior leadership positions of the Argentine government including as Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry. +Global Experience – Service for more than 25 years as Chairman of an Argentinean company, more than 19 years as director of the Company, and served as a member of the Advisory Board of Ford Motor Company Argentina, a multinational company. +Finance Experience – Service as a member of the Advisory Board of Ford Motor Company Argentina, a multinational company, Vice Chairman of an investment bank, Banco Privado de Inversiones, S.A., as well as leadership and finance experience from government service in Argentina as Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry and a member of the board of the Central Bank of Argentina. +Public and Private Company Experience – Service as Chairman of Grimoldi S.A., a publicly traded company, for more than 25 years and as a director of the Company for more than 19 years. +Government Experience – Service as Argentina’s Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry and a member of the board of the Central Bank of Argentina. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 11 +Table of Contents +2014 PROXY STATEMENT +JOSEPH R. GROMEK +Age: 67 +Director since: 2008 +Retired President, Chief Executive Officer +and a Director of +The Warnaco Group, Inc. +Board Committees: +Compensation +Finance +Governance +Public Directorships: +The Children’s Place Retail Stores, Inc. +Tumi, Inc. +From 2003 until his retirement in 2012, Mr. Gromek served as President, Chief Executive Officer and a director of The Warnaco Group, Inc., a publicly traded company. Mr. Gromek also served as Chief Executive Officer of Brooks Brothers, Inc. from 1995 until 2002. Mr. Gromek also is a director of Stanley M. Proctor Company and J. McLaughlin, both privately held companies. He is currently the Chairman of the Board of Tumi, Inc., a publicly traded company featuring the leading global brand of premium travel, business and lifestyle products and accessories. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for more than 30 years managing and marketing apparel brands and more than 40 years in the retail and apparel industry, including a collective 15 years as Chief Executive Officer of two apparel companies, Brooks Brothers, Inc. and The Warnaco Group, Inc. +Leadership Experience – Served in leadership positions at several companies, including as Chief Executive Officer at two apparel companies. Global Experience – Served as the Chief Executive Officer of two multinational companies, Brooks Brothers, Inc. and The Warnaco Group. +Public and Private Company Experience – Service as a director of three publicly traded companies, The Children’s Place Retail Store, Inc., a children’s clothing retail company, Tumi, Inc., a wholesaler and retailer of luxury travel, business and lifestyle accessories, and the Company; service as a director of Stanley M. Proctor Company, a privately held company; service as a director of J. McLaughlin, a privately held retail company; service as Chief Executive Officer of The Warnaco Group, Inc. and Brooks Brothers, Inc. and as Chairman of the Board of Tumi, Inc. +Page 12 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +BRENDA J. LAUDERBACK +Age: 63 +Director since: 2003 +Retired President of the Wholesale and Retail Group of Nine West Group, Inc. +Board Committees: +Audit +Governance +Public Directorships: +Big Lots, Inc. +Denny’s Corporation +Select Comfort Corporation +From 1995 until her retirement in 1998, Ms. Lauderback was President of the Wholesale and Retail Group of Nine West Group, Inc., a footwear wholesaler and distributor. She previously was the President of the Wholesale Division of U.S. Shoe Corporation, a footwear manufacturer and distributor, a position that included responsibility for offices in China, Italy and Spain, and was a Vice President/General Merchandise Manager of Dayton Hudson Corporation, a retailer (now Target Corporation). During the preceding five years, Ms. Lauderback also was, but no longer is, a director of Irwin Financial Corporation, a publicly traded bank holding company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for more than 25 years in the retail industry and more than 20 years in the footwear, apparel, and accessories industry, including senior leadership positions with Nine West Group, Inc., U.S. Shoe Corporation and Dayton Hudson Corporation. +Leadership Experience – Served in senior leadership positions for two publicly traded companies and service for more than 50 collective years on publicly traded company boards, including Big Lots, Inc., a retail company, Denny’s Corporation, a restaurant company, and Select Comfort Corporation, a bed manufacturer and retailer, and as a director of the Company. +Public and Private Company Experience – Service for more than 50 collective years on publicly traded company boards, including 28 collective years of experience serving on audit committees and 31 collective years of experience serving on governance committees, and chair of three governance committees of boards of publicly traded companies. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 13 +Table of Contents +2014 PROXY STATEMENT +SHIRLEY D. PETERSON +Age: 72 +Director since: 2005 +Retired Partner of Steptoe & Johnson LLP +Board Committees: +Audit +Governance +Public Directorships: +AK Steel Holding Corporation +The Goodyear Tire & Rubber Company +From 1995 until her retirement in 2000, Ms. Peterson served as President of Hood College in Frederick, Maryland. Prior to serving as President of Hood College, Ms. Peterson also served as Commissioner of the Internal Revenue Service and Assistant Attorney General of the Tax Division for the U.S. Department of Justice, and had 20 years in private law practice as a tax attorney with the law firm Steptoe & Johnson LLP. During the preceding five years, Ms. Peterson also was, but no longer is, a director of Champion Enterprises, Inc., a factory-built modular home manufacturer. +Skills and Qualifications +Leadership Experience – Served as President of Hood College, as Commissioner of the Internal Revenue Service, and for 20 years in private law practice, including as a Partner of Steptoe & Johnson LLP. +Public and Private Company Experience – Service for more than 40 collective years on publicly traded company boards, including AK Steel Holding Corporation, an integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products, and The Goodyear Tire & Rubber Company, a multinational developer, manufacturer, marketer and distributor of tires, rubber-related chemicals, and operator of commercial truck service and tire retreading centers and tire and auto service center outlets, and more than 30 collective years of experience serving on publicly traded company audit committees, more than 35 collective years of experience serving on publicly traded company governance committees, and an additional 13 years of experience serving on the governance committee of a mutual fund complex. +Government Experience – Served as Commissioner of the Internal Revenue Service and Assistant Attorney General of the Tax Division for the U.S. Department of Justice. +Page 14 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +D irectors with Terms Expiring in 2016 +JEFFREY M. BOROMISA +Age: 59 +Director since: 2006 +Retired Executive Vice President of Kellogg International, President of Latin America; Senior Vice President of Kellogg Company +Board Committees: +Audit +Compensation +Finance +Mr. Boromisa was Executive Vice President of Kellogg International, President of Latin America; Senior Vice President of Kellogg Company, a global food manufacturing company, and a member of Kellogg Company’s Global Leadership Team from 2004 through his retirement in May 2009. From 2007 until 2008, Mr. Boromisa served as Executive Vice President of Kellogg International, President of Asia Pacific and Senior Vice President of the Kellogg Company. From 2004 through 2006, he was Senior Vice President and Chief Financial Officer of Kellogg Company. In 2002, Mr. Boromisa was promoted to Senior Vice President, Corporate Controller and Chief Financial Officer of Kellogg International. Mr. Boromisa served as Vice President and Corporate Controller of Kellogg Company from November 1999 until 2002. In 1997, he was promoted to Vice President – Purchasing of Kellogg North America, and from 1981 to 1997, served Kellogg Company in various financial positions. Mr. Boromisa also is a director at Haworth International, Inc., a privately held, multinational, office furniture design and manufacturing company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than seven years as a director of the Company. +Leadership Experience – Served in senior roles involving executive management, brand management, marketing and international operations, for more than 25 years at Kellogg Company, a publicly traded multinational company. +Global Experience – Served in senior leadership positions at Kellogg Company, responsible for Latin American and Asia Pacific operations. +Finance Experience – Served as Chief Financial Officer and in various other senior finance roles at Kellogg Company. +Public and Private Company Experience – Served in senior leadership roles at Kellogg Company, a publicly traded multinational company, and serves as a director of Haworth International, Inc., a privately held company. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 15 +Table of Contents +2014 PROXY STATEMENT +GINA R. BOSWELL +Age: 51 +Director since: 2013 +Executive Vice President, Personal Care for Unilever PLC / Unilever N.V. +Public Directorships: +ManpowerGroup Inc. +Since 2011, Ms. Boswell has been Executive Vice President, Personal Care for Unilever PLC / Unilever N.V., a global food, personal care, and household products company whose products are sold in more than 190 countries and include such well-known global brands as Dove, Lipton and Hellman’s. From 2008 to 2011, Ms. Boswell served as President, Global Brands, for The Alberto-Culver Company, a consumer goods company. Ms. Boswell has held numerous other senior leadership positions with other leading global companies, including Avon Products, Inc., Ford Motor Company, and Estee Lauder Companies, Inc. +Skills and Qualifications +Leadership Experience – Served in numerous senior leadership positions with leading global companies including Unilever PLC / Unilever N.V., The Alberto-Culver Company, Avon Products, Inc., Ford Motor Company and Estee Lauder Companies, Inc. +Global Experience – Served in global leadership roles at The Alberto-Culver Company, Avon Products, Inc., Ford Motor Company and Estee Lauder Companies, Inc. +Finance Experience – Currently Chair of ManpowerGroup Inc.’s audit committee. +Public and Private Company Experience – Served in senior leadership roles at publicly traded companies, most recently at Unilever PLC / Unilever N.V. Service as a public company director with ManpowerGroup Inc. and Applebee’s International, Inc. +Page 16 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +DAVID T. KOLLAT +Age: 75 +Director since: 1992 +President and Chairman of 22, Inc. +Public Directorships: +L Brands, Inc. +Select Comfort Corporation +Mr. Kollat has been Chairman and President of 22, Inc., a company specializing in research and management consulting for retailers and consumer goods manufacturers, since 1987. In addition to his marketing and management experience as Chairman and President of 22, Inc., Mr. Kollat has 11 years of experience as Executive Vice President, Marketing, and a member of the executive committee of L Brands, Inc. (formerly Limited Brands, Inc.), a publicly traded multinational apparel and retail company, and three years at L Brands, Inc. as President of Victoria’s Secret Direct. In 2009 and again in 2012 prior to Mr. Kollat’s re-nomination as a director, the Board decided to waive the Company’s age 72 resignation requirement for Mr. Kollat, allowing him to serve additional terms ending in 2013 and 2016, respectively. Mr. Kollat is Lead Director of Wolverine Worldwide. Mr. Kollat has been a director of L Brands, Inc. since 1976 and a director of Select Comfort Corporation since 1994. During the preceding five years, Mr. Kollat was, but no longer is, a director of Big Lots, Inc., a publicly traded retail company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 20 years as a director of the Company, for more than 25 years as a consultant to retailers and consumer goods manufacturers, and continuing service as a director of L Brands, Inc.; and served for more than 11 years in senior leadership roles at L Brands, Inc. +Leadership Experience – Service as a director of two publicly traded companies, L Brands, Inc. and Select Comfort Corporation, in addition to service as a director of the Company, and served as a director of Big Lots, Inc. and served for more than 11 years in senior leadership roles at L Brands, Inc. +Finance Experience – Has 16 collective years serving on audit committees and 11 collective years serving on finance committees of publicly traded companies. +Public and Private Company Experience – Has more than 90 collective years serving on public company boards, including 16 years of experience on audit committees, 22 years of service on compensation committees, 12 years of service on governance committees and 11 years of service on finance committees. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 17 +Table of Contents +2014 PROXY STATEMENT +TIMOTHY J. O’DONOVAN +Age: 68 +Director since: 1993 +Retired Chairman of the Board and Chief Executive Officer of Wolverine World Wide, Inc. +Public Directorships: +SpartanNash Company +Mr. O’Donovan is a former Chairman of the Board of Wolverine Worldwide and served in that position from April 2005 through December 2009. In April 2007, Mr. O’Donovan retired as Chief Executive Officer of Wolverine Worldwide, a position that he held since April 2000. Mr. O’Donovan served Wolverine Worldwide as its Chief Executive Officer and President from April 2000 until April 2005, and as Chief Operating Officer and President from 1996 until April 2000. Prior to 1996, Mr. O’Donovan held various positions with the Company, including Executive Vice President of Wolverine Worldwide. During the preceding five years, Mr. O’Donovan was, but no longer is, a director of Kaydon Corporation. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 40 years in various positions with the Company, including seven years as Chief Executive Officer with responsibilities for all aspects of the business, including brand leadership, apparel and accessories development, footwear wholesale, retail business development, international operations, mergers and acquisitions, manufacturing and sourcing; and two years of service as non-executive Chairman of the Board. +Leadership Experience – Service for more than 40 years in a variety of positions with the Company, including seven years as Chief Executive Officer. +Global Experience – Service for more than 40 years in a variety of positions at the Company, including seven years as Chief Executive Officer, with responsibility for all aspects of the business, including international operations. +Finance Experience – Service in various roles with the Company responsible for financial operations, including seven years as Chief Executive Officer, and service for seven years on the audit committee of a publicly traded company. +Public and Private Company Experience – Service for more than 30 collective years on the boards of the Company, SpartanNash Company, a publicly traded company in the food distribution industry, and Kaydon Corporation and as lead director of Kaydon Corporation and SpartanNash Company. +Page 18 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Summary of Director +Skills and Qualifications +Jeffrey M. +Boromisa +Gina R. +Boswell +William K. +Gerber +Alberto L. +Grimoldi +Joseph R. +Gromek +David T. +Kollat +Blake W. +Krueger +Brenda J. +Lauderback +Nicholas T. +Long +Timothy J. +O’Donovan +Shirley D. +Peterson +Michael A. +Volkema +FOOTWEAR, APPAREL AND RETAIL EXPERIENCE +LEADERSHIP EXPERIENCE +GLOBAL EXPERIENCE +FINANCE EXPERIENCE +PUBLIC AND PRIVATE COMPANY EXPERIENCE +GOVERNMENT EXPERIENCE +n indicates the director has that skill or qualification. +Corporate Governance +The Board and each standing committee conduct an annual self-assessment. Each director also evaluates the performance of the other directors as part of the Board self-assessment. Mr. Kollat, as the Lead Director working with the Governance Committee, reviews the Board self-assessment with directors following the end of each fiscal year. Committee Chairpersons review the committee self-assessments with their respective committee members and discuss them with the Board. The Lead Director, working with the Governance Committee, develops and implements guidelines evaluating all directors standing for nomination and re-election. +The Corporate Governance Guidelines (including the Director Independence Standards); the Charter for each Board standing committee (Audit, Compensation, Finance and Governance); the Company’s Certificate of Incorporation; By-laws; Code of Conduct & Compliance and its Accounting and Finance Code of Ethics all are available on the Wolverine Worldwide website at: +http://www.wolverineworldwide.com/investor-relations/corporate-governance/ +The Board and committees annually review and update these and other key governance documents. +RISK OVERSIGHT +The Board oversees the Company’s risk management and mitigation activities directly through presentations by and discussions with the CEO, Chief Financial Officer (“CFO”), General Counsel, brand and department leaders, and other members of management. The Vice President of Internal Audit and Risk Compliance coordinates management’s day-to-day risk management and mitigation processes, and reports directly to the CFO and also reports directly to the Audit Committee. The Vice President of Internal Audit and Risk Compliance reviews with the Audit Committee quarterly and with the full Board annually management’s risk assessments and mitigation strategies for +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 19 +Table of Contents +2014 PROXY STATEMENT +significant risks. In addition to the above processes, the Board has delegated the following risk management and mitigation oversight responsibilities to its standing committees, which meet regularly to review and discuss risk topics and then report to the full Board: +» The Audit Committee oversees the Company’s risk policies and processes relating to its financial statements and financial reporting processes, credit risks, and liquidity risks. The Committee also reviews the Company’s policies and systems with respect to risk assessment and risk management. The Committee discusses with management and the independent auditors significant risks or exposures and the steps taken by management to resolve them. The Committee oversees the Company’s procedures for the receipt, retention and treatment of complaints relating to accounting and auditing matters and oversees the Company’s management of legal and regulatory compliance systems. +» The Compensation Committee monitors the risks associated with management resources; organization structure; +succession planning, hiring, development and retention processes; and reviews and evaluates what effects the Company’s compensation structure may have on risk decisions. +» The Finance Committee advises and assists the Board with respect to Company policies and practices relating to the management of certain financial matters delegated by the Board to the Finance Committee. +» The Governance Committee oversees risks related to the Company’s governance structure and processes and risks arising from related person transactions. +RISK CONSIDERATIONS IN COMPENSATION PROGRAMS +The Company reviewed its employee compensation programs to assess whether any of those programs included incentives that created risks likely to have a material adverse impact on the Company. As part of this review, the Company compiled information about the Company’s incentive plans, including reviewing the Company’s compensation philosophy, evaluating key incentive plan design features, and reviewing historic payout levels and pay mix. The Compensation Committee reviewed the executive compensation programs, with management’s assistance, and managers from the Company’s human resources and legal departments reviewed the non-executive compensation programs. +BOARD LEADERSHIP +The Company’s CEO currently also serves as the Chairman of the Board. Since 1993, the Company has had an independent Lead Director who functions in many ways similar to how an independent Chairman would function. This long-established structure provides the Board with independent oversight of the CEO’s leadership. The Board believes that it should decide whether to separate the roles of Chairman and CEO based upon the Company’s circumstances at the time and considers the Board’s leadership structure as part of the succession planning process. The Company’s business currently focuses on the development of its footwear, apparel and retail business. Because the Company does not operate multiple, unrelated businesses and given the size of the Company, the Board believes that separating the Chairman and CEO roles at this time would add unnecessary complexity to the organization structure without adding materially to Board oversight of the CEO function. The Company’s independent directors annually select an independent Lead Director. As outlined in the Corporate Governance Guidelines, the duties of the Lead Director include: +» reviewing and approving the agenda and scheduling for Board and committee meetings; +» overseeing and approving information sent to the Board; +» presiding over executive sessions and having the authority to call executive sessions; +» serving as a liaison between the Chairman and the independent directors; +» presiding over Board meetings in the absence of the Chairman; and +» being available for consultation and communication with stockholders, as appropriate. +Page 20 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +DIRECTOR INDEPENDENCE +The Board annually assesses the independence of all directors. No director qualifies as “independent” unless the Board affirmatively determines that the director is independent under the Company’s Director Independence Standards and the listing standards of the NYSE. Under the Company’s Director Independence Standards, and in conformity with the listing standards of the NYSE, the Board has determined that ten of the Company’s twelve directors are independent. For over 16 years, Wolverine Worldwide has not had more than two active or former management employees as directors. All of the Board’s committees are comprised entirely of independent directors. The non-management directors meet periodically each year in executive session. The Board believes that this structure provides for meaningful and effective oversight of management by the non-management directors. +Mr. Krueger is not independent because he currently is the Company’s CEO and President. Mr. Grimoldi is not independent because he is the Chairman and 35% owner of a company that made payments to Wolverine in excess of $1,000,000 per year in the last three years. +Name +Management +Non-Management +Independent +Boromisa +X +X +Boswell +X +X +Gerber +X +X +Grimoldi +X +Gromek +X +X +Kollat +X +X +Krueger +X +Lauderback +X +X +Long +X +X +O’Donovan +X +X +Peterson +X +X +Volkema +X +X +The Director Independence Standards define an “Independent Director” as a director who: +» is not, and in the past three years has not been, an employee of the Company; +» does not have, and has not had within the last three years, an immediate family member employed as an executive officer of the Company; +» has not received, and has not had an immediate family member receive during any twelve-month period within the last three years, any direct compensation from the Company in excess of $120,000 (other than compensation for Board service; compensation received by the director for former service as an interim Chairman, CEO or other executive officer; compensation received by the director’s immediate family member for service as a non-executive employee; or pension and other forms of deferred compensation for prior service if such compensation is not contingent in any way on continued service); +» is not a current employee or partner of a firm that is the Company’s internal or external auditor; +» has not been, and has not had an immediate family member who has been within the last three years, a partner or employee of the Company’s internal or external auditor and personally worked on the Company’s audit within that time; +» has not had an immediate family member who is (i) a current partner of the Company’s internal or external auditor, or (ii) a current employee of the Company’s internal or external auditor who personally works on Wolverine Worldwide’s audit; +» is not, and has not been within the last three years, part of an interlocking directorate in which a current executive officer of Wolverine Worldwide serves or served on the compensation committee of another company where the director or the director’s immediate family member concurrently serves or served as an executive officer; +» is not an employee, majority owner or person in control of another company that has made payments to, or received payments from, Wolverine Worldwide for property or services in an amount which, in any of the last three fiscal years, +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 21 +Table of Contents +2014 PROXY STATEMENT +exceeds the lesser of $250,000 or 10% of the other company’s consolidated gross revenues; +» does not have an immediate family member who is an executive officer of another company that has made payments to, or received payments from, Wolverine Worldwide for property or services in an amount which, in any of the past three fiscal years, exceeds the greater of $1,000,000 or 2% of the other company’s consolidated gross revenues; +» is not an executive officer, trustee or board member of a tax exempt organization to which Wolverine Worldwide has +made in the past three fiscal years contributions that, in any single fiscal year, exceeded the greater of $50,000 or 2% of the non-profit organization’s, foundation’s or educational institution’s consolidated gross revenues; or +» has not had any other direct or indirect relationship with Wolverine Worldwide, which the Board determines is material. +“Immediate Family Member” covers spouses, parents, children, siblings, in-laws, and any person (other than domestic employees) sharing the household of any director, nominee for director, executive officer, or significant stockholder of a company. +BOARD COMMITTEES +The following table identifies the current members of the Board and its standing committees and the number of meetings the Board and each committee held in 2013. +BOARD OF DIRECTORS +( 6 Meetings) +Audit Committee +(13 Meetings) +Gerber (Chair) +Boromisa +Lauderback +Peterson +Compensation Committee +(7 Meetings) +Gromek (Chair) +Boromisa +Long +Volkema +Finance Committee +(5 Meetings) +Boromisa (Chair) +Gerber +Gromek +Governance Committee +(6 Meetings) +Lauderback (Chair) +Gromek +Long +Peterson +Volkema +Audit Committee +The Board has determined that each Audit Committee member is “independent” as defined by NYSE rules and the Sarbanes-Oxley Act of 2002, as applicable to audit committee members, and that all satisfy the NYSE “financial literacy” requirement. Mr. Boromisa and Mr. Gerber are “audit committee financial experts” under Securities and Exchange Commission (“SEC”) rules. The Audit Committee: +» represents and assists the Board in fulfilling its oversight responsibility regarding the Company’s financial statements and the financial reporting process, the Company’s internal control over financial reporting, the performance of the internal audit function and the independent auditors, the qualifications and independence of the independent auditors, the annual independent audit of the Company’s financial statements and internal control over financial reporting, the Company’s compliance with legal and regulatory requirements, and the Company’s policies and systems with respect to risk assessment and risk management; +» appoints, retains (subject to ratification by the Company’s stockholders), compensates, oversees, evaluates and, if appropriate, terminates the independent auditors; +» approves in advance all audit and permissible non-audit services to be provided by the independent auditors and establishes policies and procedures for the engagement of the independent auditors to provide audit and permissible non-audit services; +» annually reviews the performance, effectiveness, objectivity and independence of the independent auditors and the Company’s internal audit function; +Page 22 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +» annually obtains and reviews the independent auditors’ internal quality control report and other reports required by applicable rules, regulations and standards; +» annually obtains and reviews the independent auditors’ report regarding the auditors’ independence; +» annually assesses auditor independence; +» discusses with the internal audit staff and the independent auditors the overall scope and plans for their respective audits; +» receives, reviews and discusses reports from management, the internal finance and auditing staff and the independent auditors regarding the adequacy and effectiveness of the Company’s internal control over financial reporting; +» receives, reviews and discusses reports from management regarding the adequacy and effectiveness of the Company’s disclosure controls and procedures; +» oversees the Company’s risk policies and processes relating to its financial statements and financial reporting processes, credit risks and liquidity risks; +» discusses with management and the independent auditors significant risks or exposures and steps taken by management to mitigate them; +» meets separately, periodically with management, internal audit staff, the independent auditors and the General Counsel; +» reviews and discusses with the independent auditors matters required to be discussed by the independent auditors under Accounting Standard No. 16, as adopted by the Public Company Accounting Oversight Board and amended from time to time; +» meets to review with management and the Company’s independent auditors the Company’s interim and annual audited financial statements, including disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are included in the Company’s Quarterly reports on Form 10-Q and Annual Reports on Form 10-K; +» recommends to the Board whether the Company’s audited financial statements should be included in the company’s Annual Report on Form 10-K; +» establishes and oversees procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing or federal securities law matters, and for the confidential, anonymous submission by the Company’s employees of concerns regarding questionable accounting, auditing or federal securities law matters; +» reviews with management and the independent auditors the Company’s earnings press releases and financial information and earnings guidance provided by the Company to analysts and rating agencies; +» oversees the preparation of the audit committee report required by the SEC rules to be included in the Company’s proxy statement for the annual meeting of stockholders; +» establishes the Company’s hiring policies for employees and former employees of the independent auditors; +» engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, including having the sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms and receiving appropriate funding, as determined by the Committee, from the Company for payment of compensation to any such consultants and advisors; +» oversees the Company’s legal and regulatory compliance systems and reviews the Company’s codes of conduct and programs to monitor compliance with such codes; +» at least annually receives a report on the Company’s compliance programs, and reviews and discusses the implementation and effectiveness of the Company’s compliance programs with the General Counsel, who has the authority to communicate promptly and directly to the Audit Committee and the Board, about reports that involve actual and alleged violations of law or the Company’s codes of conduct; and +» conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 23 +Table of Contents +2014 PROXY STATEMENT +Compensation Committee +The Board has determined that each Compensation Committee member is “independent” as defined by NYSE rules, as applicable to compensation committee members. The Compensation Committee: +» assists the Board in discharging its responsibilities relating to executive compensation and fulfilling its responsibilities relating to Wolverine Worldwide’s compensation and benefit programs and policies; +» oversees the overall compensation structure, policies and programs, and assesses whether the compensation structure establishes appropriate incentives for management and employees; +» oversees the risks associated with management resources, organization structure, and succession planning, hiring, development and retention processes, and oversees the assessment of the risks associated with the Company’s compensation structure, policies and programs; +» administers and makes recommendations with respect to incentive compensation plans, including stock incentive plans; +» assesses the results of the Company’s most recent advisory vote on executive compensation; +» reviews and approves corporate and personal goals and objectives relevant to CEO compensation, evaluates the performance of the CEO in light of these goals and objectives, and, together with the other independent directors, approves the compensation of the CEO based on the evaluation; +» oversees the evaluation of other appointed corporate officers and other executives, and reviews and approves their compensation; +» makes stock incentive grants and determines the terms and conditions of any equity compensation or stock incentive arrangements; +» reviews and discusses with management Wolverine Worldwide’s Compensation Discussion and Analysis and related disclosures required by the SEC rules and recommends to the Board whether such disclosures should be included in the annual report and proxy statement; +» oversees the preparation of the compensation committee report required by the SEC rules to be included in the annual report and proxy statement; +» reviews and approves the design of benefit plans pertaining to executives; +» reviews and recommends employment agreements and severance arrangements for executives, including change in control provisions, plans or agreements; +» establishes stock ownership guidelines for directors and executive officers and monitors compliance with the guidelines; +» considers and recommends to the Board the frequency of the Company’s advisory vote on executive compensation; +» engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, having the sole authority to retain and terminate and obtain the advice of any consultants and advisors and to approve all fees and other retention terms, and receiving appropriate funding, as determined by the Committee, from the Company for payment of compensation to any such consultants and advisors; +» appoints, determines compensation for and oversees the work of any consultants and advisors retained by the Committee and oversees compliance with any applicable requirements relating to the independence of such consultants or advisors; +» at least annually, assesses whether the work of compensation consultants involved in determining or recommending executive or director compensation has raised any conflict of interest that is required to be disclosed in the Company’s annual report and proxy statement; and +» conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Compensation Committee Interlocks and Insider Participation. During fiscal year 2013, none of the members of the Compensation Committee was an officer or employee of the Company, was a former officer of the Company, nor had a relationship with the Company requiring disclosure as a related party transaction under Item 404 of Regulation S-K of the Securities Act of 1933. None of the Company’s executive officers served on the compensation committee or board of directors of another entity whose executive officer(s) served as a director on the Company’s Board or on the Compensation Committee. +See the “Compensation Discussion and Analysis” section below for more information regarding the Compensation Committee’s processes and procedures. +Page 24 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Finance Committee +The Board has determined that each Finance Committee member is “independent” as defined by NYSE rules. The Finance Committee: +» provides assistance to the Board in reviewing and evaluating management’s assessment of the Company’s cash needs and cash flow performance, management’s evaluation of the capital markets and other options to assist in addressing capital needs, and management’s recommendations with respect to those options; +» reviews and makes recommendations to the Board with respect to the Company’s capital structure and liquidity, including credit facilities, as well as proposed debt, equity and other securities issuances and guarantees; +» reviews and makes recommendations to the Board with respect to the Company’s current and future compliance with debt covenant requirements; +» reviews and makes recommendations to the Board with respect to the Company’s exposure to short- and long-term financial risks and management’s strategies, plans and procedures to manage such risks, including its hedging strategies; +» at least annually, reviews and approves on behalf of the Company and its applicable subsidiaries, the Company’s decision +to enter into swaps that are exempt from applicable clearing and trade execution requirements, and, at least annually and more often as may be deemed necessary or appropriate, review and discuss with management applicable Company policies governing the use of swaps subject to the “end-user exception” under regulations established by the Commodity Futures Trading Commission; +» reviews and makes recommendations to the Board with respect to financial risks facing the Company, as may be requested by the Board; +» engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions. The Committee shall have sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms; and +» conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Governance Committee +The Board has determined that each Governance Committee member is “independent” as defined by NYSE rules. The Governance Committee: +» assists the Board in fulfilling its responsibilities on matters and issues related to the Company’s corporate governance practices; +» in conjunction with the Board, establishes qualification standards for membership on the Board and its committees; +» establishes procedures for the consideration of candidates for the Board recommended for the Committee’s consideration by the Company’s stockholders; +» leads the search for individuals qualified to become members of the Board, reviews the qualifications of candidates for election to the Board and assesses the contributions and independence of incumbent directors eligible to stand for reelection to the Board; +» selects and recommends to the Board the Company’s nominees for election or reelection by the stockholders at the annual meeting, and fills vacancies and newly created directorships on the Board; +» develops and recommends to the Board corporate governance guidelines, reviews the guidelines on an annual basis, and recommends any changes to the guidelines as necessary; +» periodically reviews the Board’s leadership structure as part of the succession planning process and recommends changes to the Board as appropriate, and makes recommendations to the independent directors regarding the appointment of the Lead Director; +» establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the independence of directors; +» considers applicable rules, regulations and disclosure obligations regarding the presence of an “audit committee financial expert” on the Audit Committee and recommends to the Board actions to address such requirements; +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 25 +Table of Contents +2014 PROXY STATEMENT +» reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval and ratification of related person transactions; +» oversees risks related to the Company’s governance structure and processes and risks arising from related person transactions; +» annually reviews the compensation of directors for service on the Board and committees and makes recommendations to the Board regarding such compensation; +» recommends to the Board key executives to serve as corporate officers; +» annually reviews and makes recommendations to the Board concerning the structure, composition and functioning of the Board and its committees and recommends to the Board directors to serve as committee members and chairpersons; +» reviews and recommends to the Board retirement and other tenure policies for directors; +» reviews directorships in other public companies held by or offered to directors and senior officers of the Company; +» reviews and assesses channels through which the Board receives information, and the quality and timeliness of information received; +» develops and recommends to the Board for its approval an annual self-evaluation process for the Board and its committees, and oversees the evaluation process; +» engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, including having the sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms; and +» conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +CODE OF CONDUCT & COMPLIANCE AND ACCOUNTING AND FINANCE CODE OF ETHICS +The Board has adopted a Code of Conduct & Compliance for the Company’s directors, officers and employees. The Board also has adopted an Accounting and Finance Code of Ethics (“Accounting and Finance Code”). This Accounting and Finance Code focuses on the financial reporting process and applies to the Company’s CEO, CFO and Corporate Controller. +The Company will disclose, in accordance with all applicable laws and regulations, amendments to or waivers from its Code of Conduct & Compliance or its Accounting and Finance Code, on its website at: +www.wolverineworldwide.com/investor-relations/corporate-governance . +STOCKHOLDER COMMUNICATIONS POLICY +Stockholders and other interested parties may communicate with members of Wolverine Worldwide’s Board by sending correspondence to the Board, the independent directors as a group, a specific Board committee or a director (including the Lead +Director). The Secretary reviews all communications to determine whether the contents include a message to a specific director and will provide a summary and copies of all correspondence (other than solicitations for services, products or publications) to the applicable directors at each regularly scheduled meeting. The Secretary will alert individual directors to items that warrant a prompt response from the individual director prior to the next regularly scheduled meeting. The Secretary will route items warranting prompt response, but not addressed to a specific director, to the applicable committee chairperson. You may submit any suggestions, concerns or reports of misconduct at Wolverine Worldwide or complaints or +Communications should be sent c/o Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351, or through various links provided on Wolverine Worldwide’s website at: +www.wolverineworldwide.com/investor-relations/corporate-governance/ . +concerns regarding Wolverine Worldwide’s financial statements and accounting, auditing, internal control and reporting practices on www.WolverineReportLine.com (anonymously, if desired) or by writing to the Audit Committee, c/o the Secretary, at the above address. +Page 26 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Non-Employee Director Compensation in Fiscal Year 2013 +Wolverine Worldwide’s director compensation philosophy is to pay compensation competitive with compensation paid by companies of similar size in the same industries and with whom Wolverine Worldwide competes for director candidates. Each year, the Governance Committee, with input from management and from Towers Watson, reviews director compensation and compares it to market data, including a comparison to director compensation data for the 2013 Peer Group, as defined on page 36. The following table provides information concerning the compensation of the Company’s non-employee directors for its fiscal year 2013. Mr. Krueger receives compensation for his services as the Company’s CEO and President, but does not receive any additional compensation for his services as a director. Except as otherwise specified, share and per share data within this proxy statement have been adjusted to reflect the two-for-one stock split in the form of a stock dividend which was paid on November 1, 2013 to stockholders of record as of October 1, 2013. +Fees Paid in +Cash +Cash Amounts +Voluntarily +Deferred +Cash Amounts +Deferred +Through Annual +Equity Retainers +Fees Earned or +Paid in Cash 1 +Option +Awards 2 +Total +Boromisa +$123,000 ++ +- ++ +$65,000 += +$188,000 ++ +$45,000 += +$233,000 +Boswell +- ++ +- ++ +- += +- ++ +$65,000 += +$65,000 +Gerber +$108,000 ++ +- ++ +$65,000 += +$173,000 ++ +$45,000 += +$218,000 +Grimoldi +- ++ +$65,000 ++ +$65,000 += +$130,000 ++ +$45,000 += +$175,000 +Gromek +- ++ +$108,500 ++ +$65,000 += +$173,500 ++ +$45,000 += +$218,500 +Kollat +$120,000 ++ +- ++ +$86,000 += +$206,000 ++ +$59,000 += +$265,000 +Lauderback +$80,250 ++ +$26,750 ++ +$65,000 += +$172,000 ++ +$45,000 += +$217,000 +Long +$83,000 ++ +- ++ +$65,000 += +$148,000 ++ +$45,000 += +$193,000 +O’Donovan +$65,000 ++ +- ++ +$65,000 += +$130,000 ++ +$45,000 += +$175,000 +Peterson +$92,000 ++ +- ++ +$65,000 += +$157,000 ++ +$45,000 += +$202,000 +Volkema +- ++ +$96,500 ++ +$65,000 += +$161,500 ++ +$45,000 += +$206,500 +1 +Represents cash payments received or deferred by directors in fiscal year 2013. Directors may defer director fees and receive stock units pursuant to the Deferred Compensation Plan. The table shows the Fees Earned or Paid in Cash separated into Fees Paid in Cash, Cash Amounts Voluntarily Deferred, and Cash Amounts Deferred Through Annual Equity Retainers (required as part of the compensation program for directors) that will be paid out in stock. +2 +Represents the aggregate grant date fair value of stock options granted to non-employee directors in fiscal year 2013, calculated in accordance with Accounting Standard Codification (“ASC”) Topic 718. The chart below lists the aggregate outstanding option awards held by non-employee directors at the end of fiscal year 2013. For valuation assumptions, see the Stock-Based Compensation footnote to Wolverine Worldwide’s Consolidated Financial Statements for fiscal year 2013. +Name +Option Awards Outstanding at +December 28, 2013 +(#) +Name +Option Awards Outstanding at +December 28, 2013 +(#) +Boromisa +63,852 +Lauderback +55,970 +Boswell +8,941 +Long +24,848 +Gerber +46,100 +O’Donovan +42,380 +Grimoldi +74,512 +Peterson +55,970 +Gromek +54,998 +Volkema +26,200 +Kollat +77,150 +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 27 +Table of Contents +2014 PROXY STATEMENT +The following table shows the non-employee director compensation program for 2013: +Compensation Plan for 2013 +Component +Cash +Options +Stock Units +Newly Appointed or Elected Director +$0 +Number of options equal to $65,000, determined using Black-Scholes valuation. 1 +Annual Director Fee +$65,000 +Quantity of options equivalent to $45,000, determined by dividing the dollar grant amount by the Black-Scholes value per option. 2 +Quantity of stock units equivalent to $65,000, determined by dividing the dollar grant amount by the closing market price of the Company’s common stock on the date of the grant. 3 Units are credited to the Amended and Restated Outside Directors’ Deferred Compensation Plan. +Audit Committee Annual Fee +$15,000 +Audit Committee Chairperson Annual Fee +$20,000 +Compensation Committee Annual Fee +$12,000 +Compensation Committee Chairperson Annual Fee +$15,000 +Finance Committee Annual Fee +$12,000 +Finance Committee Chairperson Annual Fee +$15,000 +Governance Committee Annual Fee +$12,000 +Governance Committee Chairperson Annual Fee +$15,000 +Lead Director Annual Fee +In lieu of the standard Annual Director Fee, the Lead Director is paid a Cash Retainer of $120,000. +In lieu of the standard stock option grant, the Lead Director receives a quantity of stock options equal to $59,000, calculated in the same manner as the standard grant. 2 +In lieu of the standard stock unit grant, the Lead Director receives stock units equivalent to $86,000, calculated and credited in the same manner as the standard grant. 3 +1 +Upon her appointment on December 12, 2013, Ms. Boswell received 8,941 options under the Stock Option Plan of 2013. The exercise price of options granted is equal to the closing market price of Wolverine Worldwide’s common stock on the date each option is granted. +2 +For fiscal year 2013, each non-employee director other than the Lead Director received 8,484 options (11,122 for the lead director) granted in April 2013 under the Stock Incentive Plan of 2010. The exercise price of options granted is equal to the closing market price of Wolverine Worldwide’s common stock on the date each option is granted. +3 +For fiscal year 2013, one grant was made on the first business day of each calendar quarter. For fiscal year 2013, the Company credited each non-employee director other than the Lead Director with an aggregate of 2,692 stock units (3,562 for the Lead Director). Stock units are fully vested on the grant date and are credited under the Amended and Restated Outside Directors’ Deferred Compensation Plan (described below). +The Company also: +» pays director expenses associated with Board and committee meetings, other Company functions, and industry functions; +» pays spouse travel expenses associated with international Board strategic planning meetings (there were no such meetings in 2013); +» provides office space and administrative assistance to directors who visit Company locations; +» occasionally provides to directors for review and assessment samples of its products that have nominal value; and +» reimburses directors for some expenses relating to director education. +Page 28 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Management directors do not receive an annual cash or equity retainer or director stock option grant. +Deferred Compensation Plan . In 2008, Wolverine Worldwide adopted the Amended and Restated Outside Directors’ Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a supplemental nonqualified deferred compensation plan for non-employee directors. A separate non-employee director deferred compensation plan applies to benefits accrued under that plan before January 1, 2005. The Deferred Compensation Plan permits all non-employee directors to defer, at their option, 25%, 50%, 75% or 100% of their director fees. The Company establishes a book account for each non-employee director and treats deferred compensation as if invested in Wolverine Worldwide common stock. The Company credits the director’s account with the annual equity retainer amount described above and with a number of stock units equal to the amounts deferred, each divided by the closing market price of common stock on the payment date. The Company also credits director accounts with dividend equivalents in the form of additional stock units. +Upon a director’s termination of service, or such later date as a director selects, the Company distributes the stock units in the director’s book account in shares of Wolverine Worldwide common stock. The distribution is a single, lump-sum payment or annual installment payments over a period of up to 20 years (10 years under the plan for benefits accrued before January 1, 2005). The Company converts each stock unit to one share of Wolverine Worldwide common stock. +Upon a “change in control,” the Company distributes to the director, in a single lump sum payment, Wolverine Worldwide common stock in a number of shares equal to the stock units credited to a director’s book account. The Deferred Compensation Plan defines “change in control” as: +» the acquisition by any person, or by more than one person acting as a group, of more than 50% of either (i) the then outstanding shares of common stock of Wolverine Worldwide or (ii) the total fair market value of Wolverine Worldwide; +» the acquisition by any person, or more than one person acting as a group, during the 12-month period from and including the date of the most recent acquisition, of ownership of 30% or more of the outstanding common stock of Wolverine Worldwide; +» the replacement of a majority of the individuals who constitute the Board during any 12-month period by directors whose appointment or election is not endorsed by a majority of the directors prior to the date of the appointment or election; or +» the acquisition, during any 12-month period ending on the date of the most recent acquisition, by any person of assets from Wolverine Worldwide having a gross fair market value of at least 40% of the gross fair market value of all the assets of Wolverine Worldwide immediately before the acquisition. +NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP GUIDELINES +Wolverine Worldwide has stock ownership guidelines that require that each non-employee director maintain a stock ownership level equal to five times the non-employee director cash retainer. Stock units under the Deferred Compensation Plan count toward the ownership requirements. Stock options do not count toward the ownership requirement. These guidelines further align the interests of the directors with the stockholders. Each non-employee director must meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. All non-employee directors who have been Wolverine Worldwide directors for at least five years meet the ownership requirement. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 29 +Table of Contents +2014 PROXY STATEMENT +Securities Ownership of Officers and Directors and Certain Beneficial Owners +FIVE PERCENT STOCKHOLDERS +The following table sets forth information about those holders known by Wolverine Worldwide to be the beneficial owners of more than five percent of Wolverine Worldwide’s outstanding shares of common stock as of March 3, 2014: +Amount and Nature of Beneficial Ownership of Common Stock +Name and Address +of Beneficial Owner +Sole Voting +Power +Sole +Investment +Power +Shared Voting +or Investment +Power +Total +Beneficial +Ownership +Percent +of Class 5 +BlackRock, Inc. 1 +40 East 52 nd Street +New York, NY 10022 +8,345,822 +8,633,428 +0 +8,633,428 +8.52% +FMR LLC 2 +245 Summer Street +Boston, MA 02210 +18,400 +5,894,788 +0 +5,894,788 +5.82% +Janus Capital Management LLC 3 +151 Detroit Street +Denver, CO 80206 +10,357,035 +10,357,035 +647,120 +11,004,155 +10.86% +The Vanguard Group, Inc. 4 +100 Vanguard Boulevard +Malvern, PA 19355 +141,232 +6,086,487 +134,732 +6,221,219 +6.14% +1 +Based on information set forth in a Schedule 13G/A filed on January 31, 2014. The Schedule 13G/A indicates that BlackRock, Inc. beneficially owns, in the aggregate, 8,633,428 shares of Wolverine Worldwide common stock. +2 +Based on information set forth in a Schedule 13G filed on February 14, 2014. The Schedule 13G indicates that FMR LLC beneficially owns, in the aggregate, 5,894,788 shares of Wolverine Worldwide common stock. +3 +Based on information set forth in a Schedule 13G/A filed on February 14, 2014. The Schedule 13G/A indicates that Janus Capital Management LLC, beneficially owns, in the aggregate, 11,004,155 shares of Wolverine Worldwide common stock. +4 +Based on information set forth in a Schedule 13G/A filed on February 12, 2014. The Schedule 13G/A indicates that The Vanguard Group, Inc., beneficially owns, in the aggregate, 6,221,219 shares of Wolverine Worldwide common stock. +5 +As of March 3, 2014, based on 101,337,689 shares outstanding on that date. +Page 30 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +STOCK OWNERSHIP BY MANAGEMENT AND OTHERS +The following table sets forth the number of shares of common stock beneficially owned as of March 3, 2014, by each of the Company’s director nominees, directors and named executive officers and all of the Company’s directors and executive officers as a group: +Amount and Nature of Beneficial Ownership of Common Stock 1 +Sole Voting +and/or +Investment +Power 2 +Shared Voting or +Investment +Power 3 +Stock Options 4 +Total +Beneficial +Ownership 4 +Percent +of Class 5 +Jeffrey M. Boromisa +4,000 +- +63,852 +67,852 +* +Gina R. Boswell +- +- +8,941 +8,941 +* +William K. Gerber +6,000 +- +46,100 +52,100 +* +Donald T. Grimes +178,750 +- +96,108 +274,858 +* +Alberto L. Grimoldi +48,874 +- +26,200 +75,074 +* +Joseph R. Gromek +35,000 +- +54,998 +89,998 +* +David T. Kollat +215,344 +- +67,098 +282,442 +* +Blake W. Krueger +919,685 +75,012 +293,176 +1,287,873 +1.25% +Michael Jeppesen +92,853 +- +23,347 +116,200 +* +Brenda J. Lauderback +10,200 +- +38,618 +48,818 +* +Pamela L. Linton +102,832 +- +152,725 +255,557 +* +Nicholas T. Long +- +- +24,848 +24,848 +* +Timothy J. O’Donovan +713,208 +59,772 +42,380 +815,360 +* +Shirley D. Peterson +3,000 +- +55,970 +58,970 +* +Michael A. Volkema +10,000 +- +26,200 +36,200 +* +James D. Zwiers +258,911 +21,972 +203,102 +483,985 +* +All directors and executive officers as a group (18 people) +2,680,553 +156,756 +1,336,664 +4,173,973 +4.07% +* +Represents beneficial ownership of less than 1%. +1 +The numbers of shares stated are based on information provided by each person listed and include shares personally owned of record and shares that, under applicable regulations, are considered to be otherwise beneficially owned. +2 +These numbers include restricted shares and performance shares held, which are subject to forfeiture if the terms of the award are not satisfied. +3 +These numbers include shares over which the listed person is legally entitled to share voting or investment power by reason of joint ownership, trust or other contract or property right and shares held by spouses, children or other relatives over whom the listed person may have influence by reason of such relationship. +4 +The numbers represent shares that may be acquired within 60 days after March 3, 2014, by the exercise of stock options granted under Wolverine’s various stock option plans. These numbers are also included in the Total Beneficial Ownership column. +5 +As of March 3, 2014, based on 101,337,689 shares outstanding on that date plus 1,336,664 stock options exercisable by the specified person(s) within 60 days of March 3, 2014, as indicated in the “Stock Options” column. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 31 +Table of Contents +2014 PROXY STATEMENT +ITEM 2 – Amendment of the Certificate of Incorporation +AMENDMENT OF THE CERTIFICATE OF INCORPORATION +The Board proposes to amend the Fourth Article of the Company’s Certificate of Incorporation to increase the Company’s authorized capital stock from 162,000,000 shares, of which 160,000,000 are shares of common stock, $1.00 par value per share (“Common Stock”), to 322,000,000 shares, of which 320,000,000 would be shares of Common Stock. The purpose of the amendment is to provide additional shares for possible future issuance. +As of March 3, 2014, there were 101,337,689 authorized shares of Common Stock issued and outstanding, excluding 383,709 shares of treasury stock. If all outstanding stock options were exercised, there would have been approximately 108,298,412 shares of Common Stock issued and outstanding as of March 3, 2014. A significant number of the Company’s existing authorized shares were used in connection with the two-for-one stock split in the form of a stock dividend paid on November 1, 2013. +The Board believes that it is advisable to have additional authorized shares of Common Stock available to give the Company the ability to react quickly to opportunities. Although the Board has no present plans, proposals, arrangements or commitments for the issuance of any of the additional shares that would be authorized upon approval of this amendment, such shares would be available for possible future stock splits and stock dividends, public or private offerings of Common Stock or securities convertible into Common Stock, awards made under employee benefit plans, equity-based acquisitions and other corporate purposes that might be proposed. If the Company’s authorized capital stock is not increased, as of March 3, 2014, it would have approximately only 39,884,377 shares available for such uses due to the number of shares outstanding, outstanding stock options and shares reserved under existing equity plans. +All of the additional shares resulting from the increase in the Company’s authorized Common Stock would be of the same class with the same dividend, voting and liquidation rights as the shares of Common Stock presently outstanding. The Company’s authorized capital stock also includes, and will continue to include without increase, 2,000,000 shares of preferred stock, none of which is currently outstanding. Stockholders have no preemptive rights to acquire shares issued by the Company under its Certificate of Incorporation and stockholders would not acquire preemptive rights with respect to additional shares under the proposed amendment to the Company’s Certificate of Incorporation. Under some circumstances, the issuance of additional shares of Common Stock could dilute the voting rights, equity and earnings per share of existing stockholders. +If the proposed amendment is adopted, the newly authorized shares would be unreserved and available for issuance by the Company without further stockholder authorization. +Although the Board has no present intention of issuing any additional shares of Common Stock as an anti-takeover measure, the proposed increase in authorized but unissued Common Stock could have an anti-takeover effect because the additional authorized but unissued shares of Common Stock could be used by the Board to make a change in control of the Company more difficult. For example, the Board could issue additional shares of Common Stock (within the limits imposed by applicable law) to dilute the stock ownership or voting rights of persons seeking to obtain control of the Company, even if the persons seeking to obtain control of the Company offer an above-market premium that is favored by a majority of the independent stockholders. Similarly, the issuance of additional shares to persons allied with the Company’s management could have the effect of making it more difficult to remove the Company’s current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. +The Company’s Certificate of Incorporation and By-laws contain other provisions that could have an anti-takeover effect. For example, the Certificate of Incorporation authorizes undesignated preferred stock, which makes it possible for the Board to issue preferred stock with +Page 32 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +voting or other rights or preferences designated by the Board at the time of issuance that could impede the success of an attempt to obtain control of the Company. The Company’s By-laws provide for a classified Board with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board or could deter the accumulation of large blocks of Common Stock by limiting the voting power of such blocks. The By-laws also contain advance notice provisions that impose procedural limitations on stockholders’ ability to present proposals at stockholder meetings. The By-laws further provide that vacancies in the Board may be filled only by the vote of a majority of directors then in office, which could limit the ability of a potential acquiror to obtain representation on the Board prior to the annual meeting of stockholders. +The first paragraph of the Fourth Article of the Company’s Certificate of Incorporation, as amended, would read as follows: +FOURTH: The total number of shares that the corporation shall have authority to issue and have outstanding is Three Hundred Twenty-two Million (322,000,000) shares, of which Two Million (2,000,000) shares shall be Preferred Stock, par value One Dollar ($1.00) per share, and Three Hundred Twenty Million (320,000,000) shares shall be Common Stock, par value One Dollar ($1.00) per share. +The affirmative vote of a majority of the outstanding shares entitled to vote at the annual meeting of stockholders is required to approve the proposed amendment to the Company’s Certificate of Incorporation. For the purpose of counting votes on this proposal, abstentions, and broker non-votes, if any, have the same effect as a vote against the proposal. The NYSE has advised the Company that shares of Common Stock held by NYSE member organizations, or their nominees, may be voted on this proposal without specific instructions from the beneficial owners of such shares. +BOARD RECOMMENDATION +The Board recommends that you vote “FOR” approval of the amendment to the Company’s Certificate of Incorporation. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 33 +Table of Contents +2014 PROXY STATEMENT +Compensation Discussion and Analysis +This section of the proxy statement provides an overview and analysis of Wolverine Worldwide’s executive compensation program and policies, the material compensation decisions made about fiscal year 2013 compensation, and the material factors considered in making those decisions. This section refers only to the compensation of Wolverine Worldwide’s “named executive officers” (“NEOs”) unless noted otherwise: +Blake W. Krueger, Chairman, Chief Executive Officer and President +Donald T. Grimes, Senior Vice President, Chief Financial Officer and Treasurer +Michael Jeppesen, President, Global Operations Group +Pamela L. Linton, Senior Vice President of Global Human Resources +James D. Zwiers, Senior Vice President and President, Performance Group +It is divided into the following four Sections: +Section 1 - 2013: An Integration Year +Section 2 - Compensation Program Overview +Section 3 - 2013 Compensation +Section 4 - Other Compensation Policies and Practices +SECTION 1 - 2013: AN INTEGRATION YEAR +In October 2012, Wolverine Worldwide acquired the Performance + Lifestyle Group (“PLG”) business from Collective Brands, Inc. The Company expanded its existing 12-brand portfolio by adding the iconic Sperry Top-Sider, Stride-Rite, Keds and Saucony brands. The acquisition transformed Wolverine Worldwide into a 16-brand Company, with revenues for fiscal year 2013, the first full year of operation for the combined companies, of $2.69 billion. Fiscal year 2013 is the first full year of operation for the 16-brand Company. Highlights for the year include: +» the successful integration of the four new brands and businesses; +» revenues of $2.69 billion, marking record full year revenue for Wolverine Worldwide; +» fully diluted earnings per share of $0.99, not adjusted for non-recurring transaction and integration expenses associated with the Performance + Lifestyle Group acquisition and other non-recurring charges; and +» one and three year total shareholder return in the 90 th and 78 th percentile, respectively, compared to the 2013 Peer Group (defined below). +2013 was a transformative year for the Company as it integrated the Sperry Top-Sider, Stride-Rite, Keds and Saucony businesses while delivering record revenue, strong financial performance and outstanding shareholder return. +Page 34 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Strong Financial Performance +Wolverine Worldwide has a history of delivering strong financial performance. The current challenging macroeconomic conditions, including the continuing economic difficulties in Europe, have created significant challenges for global companies. The brand portfolio approach and the diversified geographic and customer base served by those brands are key strengths of the Company’s business model and have helped it continue delivering strong financial performance in difficult economic times. The 16 brands offered in approximately 200 countries and territories around the world help buffer the Company against challenges in any economic region or demographic sector. +Revenue Growth * +* +As reported in Item 6 of the Wolverine Worldwide Annual Report on Form 10-K for fiscal year 2013. The reported revenue for fiscal year 2013 includes a full year of revenue from the Performance + Lifestyle Group business acquired in 2012. The reported revenue for fiscal year 2012 includes revenues for the Performance + Lifestyle Group from the acquisition date of October 9, 2012, through the end of fiscal year 2012. +The Company’s portfolio also has enabled it to consistently deliver strong financial results compared to other companies of similar size or in the same industry. Over the past five years, the Company’s performance, based on cumulative total stockholder return, compared to the S&P SmallCap Index and the S&P Footwear Index, is as shown in the following table: +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 35 +Table of Contents +2014 PROXY STATEMENT +Executive Compensation Overview for 2013 +Peer Group +After the Performance + Lifestyle Group acquisition, the Compensation Committee, with Towers Watson’s input, established in late 2012 an updated peer group comprised of the companies set out in the accompanying table (the “2013 Peer Group”) for use in setting 2013 NEO compensation. The Committee and Towers Watson used three criteria to screen companies for the 2013 Peer Group: (1) Global Industry Classification Standard (“GICS”) code; (2) revenues; and (3) market capitalization. In applying the screens, Towers Watson used projected full year operations of the Company (post the Performance + Lifestyle Group acquisition). All 2013 Peer Group companies fall within the same 2-digit GICS code as Wolverine Worldwide, and seven share the same 6-digit GICS code. As of the end of the 2013 Fiscal Year, companies in the 2013 Peer Group had market capitalizations ranging from 0.2 times to 4.6 times Wolverine Worldwide’s market capitalization and Wolverine Worldwide’s market capitalization placed it at the 53 rd percentile of the 2013 Peer Group. +The following companies comprise the 2013 Peer Group: +Aéropostale, Inc. +Carter’s, Inc. +DSW Inc. +The Jones Group Inc. +American Eagle Outfitters Inc. +Chico’s FAS, Inc. +Foot Locker, Inc. +PVH Corp. +ANN Inc. +Coach, Inc. +Genesco Inc. +The Warnaco Group, Inc. +Ascena Retail Group, Inc. +Deckers Outdoor Corporation +Guess?, Inc. +Williams-Sonoma, Inc. +Brown Shoe Company, Inc. +Dick’s Sporting Goods, Inc. +Hanesbrands Inc. +CEO Compensation Alignment +The Company believes that stockholders view total stockholder return (“TSR”) as a useful measure of long-term performance. As the following charts show, the Company’s TSR performance outpaces the total compensation for its CEO, as reported in the Summary Compensation Table on pages 52-53, and shows a strong relationship between pay and performance when compared to the companies in the 2013 Peer Group over one- and three-year periods. However, because there is no direct causal link between the Company’s TSR and NEO compensation, as reported in the Summary Compensation Table, the degree of alignment could vary significantly in future years due to factors other than the design of the Company’s compensation programs. +1 Year: Wolverine Worldwide vs. Updated Peer Group 1 +3 Year: Wolverine Worldwide vs. Updated Peer Group 2 +1 The red diamond represents Wolverine Worldwide. The 1 Year TSR data is from Standard & Poor’s Research Insight. The 1 Year Average CEO Pay data is from the Company’s Summary Compensation Table and from the Summary Compensation Table in the most recent proxy statement of each company in the 2013 Peer Group. +2 The red diamond represents Wolverine Worldwide. The 3 Year TSR data is from Standard & Poor’s Research Insight. The 3 Year Average CEO Pay data is from the Company’s Summary Compensation Table and from the Summary Compensation Table in the three most recent proxy statements of each company in the 2013 Peer Group. +Page 36 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Demonstrated Pay-for-Performance +The Board and the Compensation Committee believe that the Company’s executive compensation program should pay for performance. The Compensation Committee reviewed the results of the stockholder advisory vote on executive compensation that was held at the Annual Meeting of Stockholders in April 2013. The vote was with respect to the 2012 compensation actions and decisions for the Company’s NEOs. Over ninety percent of the votes cast on the proposal were voted in support of the compensation of the Company’s NEOs set forth in the Compensation Discussion and Analysis, the summary +KEY COMPENSATION AND CORPORATE GOVERNANCE POLICIES AND PRACTICES +The Company’s executive compensation program includes many beneficial corporate governance practices: +» authorizing the Compensation Committee to hire an independent consultant; +» implementing Stock Ownership Guidelines covering all NEOs; +» limiting perquisites to tax advisory and estate planning services; +» not paying tax gross ups on perquisites; +» prohibiting hedging involving securities of the Company; +» restricting pledging securities of the Company; and +» requiring a double-trigger for change-in-control benefits under the Company’s Executive Severance Agreements. +compensation table and the related compensation tables and narratives in the 2013 proxy statement. Based on the results of the “say-on-pay” vote, the Committee concluded that the Company’s executive compensation policies and practices enjoy stockholder support. Taking into account the results of the say-on-pay vote, along with other factors such as the Company’s corporate business objectives and the Committee’s review of competitive data (as discussed in more detail on page 41), the Committee did not make any changes to the structure of the executive compensation program for 2013. +Other Relevant Factors +CEO and other NEO compensation for fiscal year 2013, and, in the case of the long-term incentive bonuses for the three year period ending with fiscal year 2013, reflected the Company’s consistent financial performance and cumulative return to stockholders over the past three years: +» approximately 80% of the CEO’s total compensation as reported in the Summary Compensation Table is tied to the Company’s stock and/or performance measures; +» the ratio of performance-based equity awards (including stock options) to time-based equity awards for the CEO is 1.9 to 1; and +» each NEO’s bonus opportunity was capped at 200% of his or her Target Percentage for that opportunity, limiting the incentive to take risks that could have a material adverse impact on the Company. +SECTION 2 +- +COMPENSATION PROGRAM OVERVIEW +Compensation Philosophy and Objectives +Wolverine Worldwide’s compensation philosophy is to provide competitive salaries and incentives to achieve superior financial performance. The Board’s Compensation Committee oversees the Company’s executive compensation program. The Committee reviews and approves NEO compensation, other than the CEO’s compensation, which it approves together with the Board’s other independent directors. The NEO compensation program has four primary objectives: +» attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» provide incentives for achieving specific near term individual, business unit and corporate goals and reward the attainment of those goals at pre-established levels; +» provide incentives for achieving longer-term financial goals and to reward the attainment of those goals at pre-established levels; and +» align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 37 +Table of Contents +2014 PROXY STATEMENT +The program balances fixed compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives), and rewards annual performance while maintaining emphasis on longer-term objectives. The program also blends cash, non-cash, long- and short-term compensation components, and current and future compensation components. The Committee considers qualitative and quantitative factors when setting compensation. Each NEO’s compensation mix and cash-to-equity ratio depends on his or her responsibilities, experience, skills, and potential to affect Wolverine Worldwide’s overall performance. In general, an NEO’s compensation and the proportion of compensation that is variable increases as the NEO’s level of responsibilities increases. The Committee believes the CEO has the broadest scope of responsibilities and typically approves higher compensation for the CEO (with a higher proportion of variable compensation) than for any other NEO. The Board believes this executive compensation philosophy has successfully generated sustained superior performance over the long term. +Compensation Program Summary +The Company’s executive compensation program consists of four key elements, as shown in the accompanying table. First, each +NEO receives a base salary. Second, each NEO is eligible to receive Annual Incentive Compensation. The Annual Incentive Compensation has two parts: (i) an annual bonus based on performance measured against +EXECUTIVE COMPENSATION PROGRAM +Base +Salary +Annual Incentive Compensation +Long-Term Incentive Compensation +Benefits +Annual +Bonus +Individual +Performance +Bonus +Long-Term +Incentive +Bonus +Equity +Retirement and +Welfare Plans +Perquisites +criteria established by the Compensation Committee at the beginning of the fiscal year (the “Annual Bonus”), and (ii) a bonus determined by performance measured against individual criteria. Third, each NEO is eligible to receive Long-Term Incentive Compensation. The Long-Term Incentive Compensation has two parts: (i) a long-term incentive bonus based on performance measured against criteria set for a three-year period (the “3-Year Bonus”), and (ii) equity in the form of time-vested restricted stock awards and stock option grants. Fourth, each NEO may (i) participate in the Company’s defined-benefit plan (subject to certain vesting criteria); participate, at the discretion of the Committee, in a supplemental executive retirement plan; and participate in various Company welfare plans, and (ii) receive assistance with tax and estate planning and a matching contribution to his or her 401(k) account. The executive compensation program is set out in more detail in the remainder of the Compensation Discussion and Analysis section. +Page 38 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Purposes of Compensation Program Elements +Pay Element +What the Pay Element Rewards +Purpose of the Pay Element +Base Salary +» Core responsibilities, years of service with the Company and experience in similar positions at other companies, skills, and knowledge +» Provide a regular and stable source of income to NEOs +Annual Incentive Compensation +» Achieving specific corporate business objectives over which the NEO has reasonable control +» Achieving specific division business objectives over which the NEO has reasonable control +» Achieving specific personal objectives +» Focus NEOs on specific annual goals that contribute to the Company’s long-term success +» Provide annual performance-based cash compensation +» Align participants on important annual performance metrics +Long Term Incentive Compensation +» Focusing on long-term corporate business objectives +» Focusing on driving long-term stockholder value +» Continuing employment with the Company during the vesting period +» More closely align NEOs’ interests with stockholders’ interests +» Reward NEOs for building stockholder value +» Encourage long-term investment in the Company by participating NEOs +» Retain NEOs +Retirement and Welfare Benefits +» Focusing on long-term corporate business objectives +» Continuing long-term employment with the Company during the retirement plan five-year vesting period and long-term value accumulation period +» In the case of retirement and welfare benefits that are part of Wolverine Worldwide’s broad-based total compensation program available to full-time employees of the Company, providing for welfare of employee and his or her family during employment +» In the case of the Supplemental Executive Retirement Plan, provide retirement benefits that NEO participants would have received under the broad-based plan in the absence of the IRS limits +» Provide retirement security +» Attract and retain NEOs +» Encourage long-term commitment to Wolverine Worldwide by NEOs and assist Wolverine Worldwide in attracting and retaining talented NEOs +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 39 +Table of Contents +2014 PROXY STATEMENT +Compensation Committee Role +The Compensation Committee is responsible to the Company’s Board for overseeing the development and administration of the Company’s compensation and benefits policies and programs. The Committee consists of four independent directors. Among its other responsibilities, the Committee formulates the compensation recommendations to the independent directors of the Board for the Company’s CEO and reviews and approves all aspects of the Company’s NEO compensation program, including: +» reviewing and approving the Company’s incentive goals and objectives relevant to compensation; +» evaluating individual performance results in light of these goals and objectives; +» evaluating the competitiveness of each NEO’s total compensation package; and +» approving (or in the case of the CEO, recommending to the independent directors of the Board) any changes to the NEO’s total compensation package, including, but not limited to, base salary, annual incentive bonus, long-term incentive bonus, and payouts and retention programs. +When making compensation recommendations or decisions, the Compensation Committee considers the CEO’s assessment of each individual’s performance, the performance of the individual’s respective business unit or function, the scope of each NEO’s responsibilities, years of service with the Company and in similar positions at other companies, skills, knowledge, market conditions, retention considerations, economic conditions, and Wolverine Worldwide’s compensation philosophy. The Committee considers these factors subjectively and no single factor or combination of factors is determinative. Following its review and discussion, the Committee approves compensation for all NEOs except the CEO. The Committee recommends compensation for the CEO to the independent directors of the Board, and those independent directors approve the CEO’s compensation. The Committee and the independent directors of the Board meet with the CEO at the end of the year to evaluate his performance compared to his personal objectives set at the beginning of the year. The Committee is supported in its work by senior Global Human Resources staff and an executive compensation consultant as described below. +CEO Role +Within the framework of the compensation programs approved by the Compensation Committee, the CEO recommends the level of base salary, annual incentive bonus, long-term incentive bonus, equity awards and other compensation package components for his direct reports, including the other NEOs. The CEO bases his recommendation upon his assessment of each individual’s performance, the performance of the individual’s respective business unit or function, the scope of each NEO’s responsibilities, years of service with the Company and in similar positions at other companies, skills, knowledge, market conditions, retention considerations, economic conditions, and Wolverine Worldwide’s compensation philosophy. The CEO considers these factors subjectively and no single factor is determinative. The Committee reviews the CEO’s recommendations and approves any compensation changes affecting these individuals it determines are appropriate, in its sole discretion. +Compensation Consultant Role +The Compensation Committee has retained Towers Watson as its executive compensation consultant. Towers Watson reports directly to the Committee and the Committee may replace it or hire additional consultants at any time. The Committee has evaluated Towers Watson’s independence under the rules established by the NYSE and has determined that Towers Watson is “independent” as defined by NYSE rules. In addition, the Committee has evaluated whether the engagement of Towers Watson raises any conflicts of interest and has determined that no such conflicts of interest exist. In making this determination the Committee reviewed the following factors (as outlined by the SEC): (i) the provision of other services to the Company by Towers Watson, (ii) the amount of fees received by Towers Watson from the Company as a percentage of Towers Watson’s total revenue, (iii) Towers Watson’s policies and procedures regarding conflicts of interest, (iv) the existence of any business or personal relationships between the consultants at Towers Watson involved in its engagement by the Company and members of the Committee, (v) stock ownership in the Company by the consultants at Towers Watson involved in its engagement by the Company and (vi) the existence of any business or personal relationships between Towers Watson and/or the consultants at Towers Watson involved in its engagement by the Company and the Company’s executive officers. At the Committee’s invitation, a representative of Towers Watson attends Committee meetings. The Committee retains sole authority to hire the consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance, and terminate its engagement. A representative of Towers Watson also +Page 40 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +communicates with the Chairperson of the Committee between meetings. However, the Committee makes all decisions regarding NEO compensation. Towers Watson provides various executive compensation services to the Committee pursuant to a written consulting agreement with the Committee. Generally, these services include advising the Committee on the principal aspects of the Company’s executive compensation program, evolving industry practices, and providing market information and analysis regarding the competitiveness of the Company’s program design. During 2013, Towers Watson performed the following specific services: +» advised the Committee on management proposals, as requested; +» attended Committee meetings, as requested; +» reviewed the Company’s peer group and advised the Committee on the composition of the peer group given the Company’s acquisition of the Performance + Lifestyle Group; +» reviewed survey data for competitive comparisons, including competitive comparisons based on the Company’s acquisition of the Performance + Lifestyle Group; +» provided market data and recommendations on CEO and other NEO compensation; +» reviewed the Compensation Discussion and Analysis and other executive compensation-related disclosures included in the Company’s proxy statement; +» advised the Committee on legislative and regulatory developments and market trends related to compensation policies and programs; and +» proactively advised the Committee on best-practice approaches for governance of executive compensation. +The total fees the Company paid to Towers Watson for services to the Committee in 2013 was $153,000. Towers Watson also was engaged by Wolverine Worldwide in 2013 to perform actuarial services, pension plan consulting and risk and financial services that are not part of the executive compensation services provided to the Committee. These services were performed on an interim and annual basis for financial reporting purposes. The total annual expense for this work was approximately $301,000. The total fees the Company paid to Towers Watson ($454,000) represent less than two one hundredths of one percent (0.02%) of Towers Watson’s revenue for its 2013 fiscal year ($3.6 billion). +Competitive Data Use +The Committee uses surveys and peer group information as a market reference point. The Committee believes that compensation levels in the footwear, apparel and retail industries typically exceed levels reported in general industry surveys. The Committee also considers information the Company learns through recruiting NEOs and the experience levels and responsibilities of NEOs prior to joining the Company as reference points in setting NEO compensation. +As part of its competitive data review in connection with determining 2013 compensation, the Committee considered information presented by Towers Watson based on three published compensation surveys: (1) 2012 Towers Watson Data Services Survey Report on Top Management Compensation – Retail and Wholesale Trade Industry Cut, (2) 2012 Towers Watson Compensation Database Executive Database – Retail/Wholesale Executive Database, and (3) 2012 US Mercer Benchmark Database, Executive – General, Retail Industry Cut. +SECTION 3 - 2013 COMPENSATION +Base Salary +EXECUTIVE COMPENSATION PROGRAM +Base +Salary +Annual Incentive +Compensation +Long-Term Incentive +Compensation +Benefits +Annual +Bonus +Individual +Performance +Bonus +Long-Term +Incentive +Bonus +Equity +Retirement +and Welfare +Plans +Perquisites +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 41 +Table of Contents +2014 PROXY STATEMENT +The Compensation Committee approved the 2013 base salaries for NEOs set out in the accompanying table. As part of approving an NEO’s base salary, the Compensation Committee considers the scope of his or her responsibilities, years of service with the Company and in similar positions at other companies, skills, and knowledge. The Committee also considers market conditions, economic conditions, and Wolverine Worldwide’s compensation philosophy, the acquisition of the Performance + Lifestyle Group in 2012 and resulting increase in the Company’s revenue and scope of operations, and the NEO’s scope of responsibilities. Based on these factors, the Compensation Committee determined to adjust 2013 base salaries as noted in the table. +Name +2013 Base Salary +2012 Base Salary +Krueger +$1,100,000 +$862,600 +Grimes +$560,000 +$431,000 +Jeppesen +$410,000 +$375,000 +Linton +$331,000 +$321,000 +Zwiers +$590,000 +$451,000 +Annual Incentive Compensation +EXECUTIVE COMPENSATION PROGRAM +B ase +Salary +Annual Incentive +Compensation +Long-Term Incentive +Compensation +Benefits +Annual +Bonus +Individual +Performance +Bonus +Long-Term +Incentive +Bonus +Equity +Retirement +and Welfare +Plans +Perquisites +In 2013, each NEO had the opportunity to earn annual incentive compensation, consisting of two parts: (1) an annual bonus (“Annual Bonus”) under the Annual Bonus Plan, and (2) an individual performance bonus (“Individual Performance Bonus”) under the Individual Performance Bonus Plan. Each NEO’s payout under the two parts was determined by comparing his or her performance against specific criteria set at the beginning of each year. Under the Annual Bonus Plan, the NEO’s payout was determined by comparing his or her performance against four performance levels set for each criterion: threshold (50% payout), target (100% payout), goal (150% payout) and stretch (200% payout). Under the Individual Performance Bonus Plan, the NEO’s payout was determined by comparing his or her performance against each criterion and scoring it on a scale of 0% to 100%. As shown in further detail below under the heading “Individual Performance Bonus,” payouts under the Individual Performance Bonus Plan can range from 0% to 200% depending on the NEO’s cumulative weighted performance score on his or her individual performance objectives. +The Compensation Committee set a percentage of the NEO’s 2013 base salary as his or her annual incentive compensation target percentage (the “Target Percentage”). The Target Percentage represented the percentage of the NEO’s salary he or she could earn as annual incentive compensation at a “target” performance level (100% payout) under the Annual Bonus Plan and Individual Performance Bonus. Generally, the Committee set higher Target Percentages for individuals with greater influence on business strategy, profits or sales. This put a larger percentage of an NEO’s total potential cash compensation “at risk.” +Consistent with the 2012 bonus opportunity, each NEO’s total annual incentive compensation opportunity for 2013 ranged from 0% to 200% of his or her Target Percentage. The accompanying table shows the total annual incentive compensation payout earned by each NEO for 2013. As part of approving an NEO’s 2013 target percentage, the Compensation Committee considers the scope of his or her responsibilities, years of service with the Company and in similar positions at other companies, skills, and knowledge. The Committee also considers market +Page 42 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +conditions, economic conditions, and Wolverine Worldwide’s compensation philosophy, the acquisition of the Performance + Lifestyle Group in 2012 and resulting increase in the Company’s revenue and scope of operations, and the NEO’s scope of responsibilities. +Annual Incentive Compensation Component +as a Percentage of Target Performance +Annual Bonus Percentage By +Company or Business unit as a Percentage of +Target Percentage +2013 +Target +Percentage +2012 +Target +Percentage +Total +Individual +Performance +Bonus +as a +Percentage +of Target +Percentage +Company 1 +Global +Operations +Group 2 +Human +Resources 3 +Performance +Group 4 +Total +2013 +Actual +Annual +Incentive +Compensation 5 +2013 +Annual +Bonus +2013 +Individual +Performance +Bonus +Krueger +125% +100% +15% +85% +$2,321,983 +$1,512,608 +$309,375 +Grimes +60% +55% +15% +85% +$557,827 +$369,627 +$88,200 +Jeppesen +50% +50% +15% +10% +75% +$309,985 +$256,172 +$53,813 +Linton +45% +45% +15% +65% +20% +$217,001 +$183,701 +$33,300 +Zwiers +55% +55% +15% +20% +65% +$488,050 +$340,037 +$73,013 +1 The Committee approved revenue and pretax earnings performance criteria for the Company, as described below under “ Annual Incentive Compensation – Annual Bonus .” +2 The Committee approved an array of metrics as performance criteria for the Global Operations Group: pretax earnings and net sales (Leathers 20%); financial performance, quality goal and productivity (Owned Manufacturing 30%); and actual expenses, speed-to-market, product costs and quality measurements compared to 2013 planned targets (Sourcing 25%) +3 The Committee approved actual Department expenses compared to budgeted expenses in the Human Resources Department’s fiscal year 2013 operating plan as the 2013 performance criterion for the Human Resources Department. +4 The Committee approved revenue and pretax earnings as the performance criteria for the Performance Group. +5 Includes the NEO’s 2013 Annual Bonus, the 2013 Individual Performance Bonus and the following additional bonus amounts paid in recognition of contributions to the successful efforts integrating the Performance + Lifestyle Group business and strong individual and Company performance: Mr. Krueger ($500,000); Mr. Grimes ($100,000); and Mr. Zwiers ($75,000). +Annual Incentive Compensation - Annual Bonus +At the same time it set Target Percentages, the Compensation Committee established the performance criteria for the Company and business units under the Annual Bonus Plan. Each NEO’s Annual Bonus was based on performance criteria for the Company, or for the Company and a business unit. The Committee set fiscal year 2013 revenue (weighted 35% of the Company component) and pretax earnings (weighted 65%) as the Company’s performance +Company +Performance Level +(% of Target Payout) 1 +Revenue 2 +Pretax Earnings 2 +Threshold (50%) +$2,600,000,000 +$155,400,000 +Target (100%) +$2,700,000,000 +$170,500,000 +Goal (150%) +$2,850,000,000 +$191,700,000 +Stretch (200%) +$2,950,000,000 +$207,700,000 +criteria. The Committee selected these criteria because it believed a strong correlation exists between performance on these financial measures and increases in stockholder value. As shown in the accompanying table, the Committee also set four performance levels for each criterion: threshold (50% payout), target (100% payout), goal (150% payout) and stretch (200% payout). The Committee set the revenue and pretax earnings goals for these performance levels (shown in the accompanying table) following discussion with management and a review of +1 The maximum payout an NEO can receive is 200% of the payment earned at his or her Target Percentage, even if performance is above Stretch, and an NEO would receive 0% of his or her Target Percentage if performance is below Threshold. +2 Not including the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges or extraordinary items excluded by the Compensation Committee. Pretax earnings for 2013 exclude transaction and integration expenses related to the PLG acquisition, restructuring charges related to the Company’s owned manufacturing operations, store impairment charges and expenses relating to the October 2013 debt refinancing. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 43 +Table of Contents +2014 PROXY STATEMENT +the Company’s operating plan, historical performance, and economic conditions facing the Company. +Two of the NEOs, Messrs. Krueger and Grimes, have significant influence on the Company’s overall business strategy and their respective Annual Bonus opportunities (85% of their total Annual Incentive Compensation opportunities) are based on the Company performance criteria. Three of the NEOs, Messrs. Jeppesen and Zwiers and Ms. Linton, are directly responsible for business units and exert a more significant influence on those business units than on the Company’s overall business strategy. For each of those three NEOs, the Committee based the following percentages of the overall Annual Bonus opportunity on the Company’s performance: Mr. Jeppesen (10%); Ms. Linton (65%) and Mr. Zwiers (20%). The remaining portions of the Annual Bonus opportunities for each of these three NEOs were based on the performance of their respective business units. Those percentages were: Mr. Jeppesen (75% Global Operations Group); Ms. Linton (20% Human Resources); and Mr. Zwiers (65% Performance Group). For each of the NEOs, the remaining 15% of their Annual Incentive Compensation opportunity was determined by his or her respective Individual Performance Bonus criteria. +The Committee set the same four performance levels for each criterion as it set for the Company. It set the goals for each performance level for each business unit criteria at substantially similar difficulty levels as the goals for each performance level for the Company criteria. The Committee believed the +Historical Group Performance +2013 +2012 +2011 +2010 +2009 +Global Operations Group +Between target and goal +Between target and goal +Between threshold and target +Between goal and stretch +N/A +Human Resources Department +Above stretch +Between target and goal +Above stretch +Between goal and stretch +Above stretch +Performance Group +Between target and goal +Below threshold +Above stretch +Above stretch +Between goal and stretch +business units could achieve these goals under strong management performance, based on a review of each business unit’s historical performance and its fiscal year 2013 operating plan. The accompanying table shows historical performance levels achieved by the business units using these performance criteria, for those years when the performance criteria were the same as the 2013 performance criteria. +In early 2014, the Committee certified actual 2013 performance compared to the performance levels for the Company and business unit criteria. The Company’s fiscal year 2013 revenue was $2,691.1 million which was near Target performance level. The Company’s adjusted pretax earnings for fiscal year 2013 were $190.7 million which was between Target and Goal performance level. The weighted average results for the applicable performance criterion are shown in the accompanying table: +2013 Performance +Overall Weighted +Payout as a +Percent of Target +Global Operations Group +Between Target and Goal +142% +Human Resources Department +Above Stretch +200% +Performance Group +Between Target and Goal +121% +Wolverine Worldwide +Between Target and Goal +129% +For 2013, the Company paid the NEOs the following amounts under the Annual Bonus Plan. +Name +Annual Bonus Opportunity +(as a % of an NEO’s +Target Percentage) +Annual Bonus Percentage +Earned +Annual Bonus Paid 1 +Other Bonus 2 +Krueger +0 – 200% +129% +$1,512,608 +$500,000 +Grimes +0 – 200% +129% +$369,627 +$100,000 +Jeppesen +0 – 200% +147% +$256,172 +Linton +0 – 200% +146% +$183,701 +Zwiers +0 – 200% +123% +$340,037 +$75,000 +1 Not including Individual Performance Bonus or any other bonus paid. +2 Reflects additional bonuses paid in recognition of contributions to the successful efforts integrating the Performance + Lifestyle Group business and strong individual and Company performance. +Page 44 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Annual Incentive Compensation – Individual Performance Bonus +Also at the same time Target Percentages are set, the CEO approves for each NEO other than himself, Individual Performance Bonus personal objectives. The CEO recommends, and the +Committee approves, personal objectives for himself. Personal objectives may include elements such as executing strategies supporting Wolverine Worldwide’s vision, developing employees, supporting social and environmental responsibility, growing new business initiatives and driving operational excellence. Each NEO has personal objectives specific to him or her. Performance under the Individual Performance Bonus Plan is evaluated subjectively, generally based on qualitative and quantitative factors. +NEO +2013 Personal Objectives +Krueger +Employee development, revenue growth, acquisition integration and cash flow +Grimes +Employee development, acquisition integration, productivity initiatives, and business analytics +Jeppesen +Employee development, streamlined distribution, owned and sourced manufacturing enhancement, increased profitability and realization of synergies +Linton +Employee development, enhancing organization structure, acquisition integration +Zwiers +Employee development, acquisition integration, brand initiatives, asset management and financial metrics +Each personal objective is given a weight from 0% to 100%. The sum of the weights for each NEO’s personal objectives equals 100%. An NEO’s cumulative weighted personal objectives score is calculated by multiplying the score for each objective by its weight, and summing those results for all of the NEO’s personal objectives. The Individual Performance Bonus payout level ranges from 0% to 200%, determined by the cumulative weighted personal objectives score. +Personal Objectives Score +2013 Payout Level +95-100% +200% +90-95% +175% +80-90% +150% +70-80% +100% +60-70% +50% +Less than 60% +0% +The CEO recommended to the Committee the 2013 cumulative weighted personal objectives scores and payout levels for each of the +NEOs other than himself. The Committee and the other independent directors of the Board met with the CEO at the end of the year to evaluate his performance compared to his personal objectives. The Committee determined the cumulative weighted personal +objectives score for the CEO and recommended to the independent directors of the Board the CEO’s payout level. The Committee also determined the Individual Performance Bonus payout for each NEO, as shown in the accompanying table, by multiplying his or her cumulative weighted performance score payout level by fifteen percent (representing the percentage of the Individual Performance Bonus to the total annual incentive compensation opportunity) of his or her Target Percentage. +Name +2013 Individual +Performance Bonus +Opportunity +(as a % of an NEO’s Target +Percentage) +Personal Objectives +Score +2013 +Individual +Performance Bonus +Percentage Awarded +2013 +Individual +Performance +Bonus Paid +Krueger +0 – 200% +86.75% +150% +$309,375 +Grimes +0 – 200% +90% +175% +$88,200 +Jeppesen +0 – 200% +90.25% +175% +$53,813 +Linton +0 – 200% +81% +150% +$33,300 +Zwiers +0 – 200% +85% +150% +$73,013 +Long -Term Incentive Compensation +EXECUTIVE COMPENSATION PROGRAM +Base +Salary +Annual Incentive +Compensation +Long-Term Incentive +Compensation +Benefits +Annual +Bonus +Individual +Performance +Bonus +Long-Term +Incentive +Bonus +Equity +Retirement +and Welfare +Plans +Perquisites +In 2013, each NEO had the opportunity to earn long-term incentive compensation, consisting of two parts: (1) performance shares under the Company’s stock incentive plan, and (2) equity awards in the form of stock option grants and/or restricted stock awards under the stock incentive plan. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 45 +Table of Contents +2014 PROXY STATEMENT +Long-Term Incentive Compensation - Performance Share Bonuses +Each NEO had the opportunity to earn long-term incentive compensation in the form of performance shares issued under the Company’s stock incentive plan based on performance criteria covering three-year periods (“3-Year Bonus”). The Committee established two performance criteria for the performance period 2011-2013: (1) business value added (“BVA”), and (2) fully diluted earnings per share (“EPS”). BVA is calculated by starting with operating income determined in accordance with U.S. generally accepted accounting principles (“GAAP”), and then reducing operating income by (1) an amount for income taxes where the effective tax rate used to calculate the income tax amount is determined in accordance with GAAP (adjusted as described in the footnote to the table below), and (2) a capital charge equal to a 2-point average of “net operating assets” during the fiscal year (with “net operating assets” defined as the net of trade receivables (net of reserves), inventory (net of reserves), other current assets, property, plant and equipment, trade payables and accrued liabilities), multiplied by 10%. The Committee believes that BVA is useful for determining incentive compensation, because it ties the income statement (profit delivery) to the balance sheet (effective asset utilization) and does not focus on one to the exclusion of the other. The Committee further believes that focusing NEOs’ interests on increasing BVA aligns their interests more closely with stockholder interests, and that BVA is superior to total shareholder return (which the Company used before BVA as a metric for incentive compensation) in measuring management’s long-term influence over the Company’s performance. The Committee believes the EPS is a key metric that plays an important role in driving the Company’s stock price and that it further aligns the interests of the NEOs with other stockholders. Using BVA and EPS balances the NEOs’ focus on near-term profitability with longer-term shareholder value. The Committee weights EPS 65% and BVA 35% when determining the overall performance level. +3-Year Performance Share Bonus (Fiscal 2011-2013) +The following table lists performance levels set by the Committee for the 2011-2013 performance period: +Performance level +(Percentage of Target +Payout) +Cumulative EPS for the +2011-2013 period * +Cumulative BVA for the +2011-2013 period +(Millions) * +Threshold (50%) +$7.33 +$251.2 +Target (100%) +$7.53 +$258.6 +Goal (150%) +$7.75 +$266.6 +Stretch (200%) +$7.93 +$273.1 +* As adjusted to account for and excluding the effects of acquisitions, divestitures, accounting changes, restructing, or other special charges or extraordinary items excluded by the Compensation Committee. EPS is presented and calculated on a pre-stock split basis. EPS for 2013 excludes transaction and integration expenses related to the PLG acquisition, restructuring charges related to the Company’s owned manufacturing operations, store impairment charges and expenses relating to the October 2013 debt refinancing. +The Committee evaluated Wolverine Worldwide’s performance for the 2011-2013 performance period against these criteria and certified that Wolverine Worldwide’s performance on the EPS criterion as noted above fell between Target and Goal performance levels, and Wolverine Worldwide’s performance on the BVA criterion as noted above, fell between Goal and Stretch performance levels. The earnings per share performance (123%) was weighted 65% and the BVA performance (170%) was weighted 35%, for a weighted average performance of 139% resulting in a number of shares on which restrictions lapsed under the awards (on a weighted average basis) equal to 139% of the number of shares on which restrictions would have lapsed under Target performance. The restrictions lapsed on the number of shares shown for each NEO in the accompanying table under the 3-Year Bonus for the 2011-2013 performance period. +Name +Shares Vesting +(#) +Krueger +59,571 +Grimes +19,174 +Jeppesen +8,056 +Linton* +6,120 +Zwiers +18,456 +*Reflects the exercise of negative discretion by the Committee with respect to 2,405 shares that would otherwise have vested, which reduced the vesting to Target level payout. The Committee determined to exercise negative discretion with respect to a broad range of employees, including Ms. Linton, based on its review of the targets, corporate and business unit performance and consideration of performance in connection with the PLG acquisition. Only top-level business unit contribution and/or top-level contribution in connection with the PLG acquisition led to full vesting or the minimal adjustment down to Target payout received by Ms. Linton. +Page 46 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +3-Year Performance Share Bonus (Fiscal 2013-2015) +In 2013, the Committee evaluated each NEO’s long-term incentive target payout opportunity expressed as a percentage of base salary. It considered the Company’s recruiting experiences; each NEO’s experience and responsibilities; the NEO’s performance; and competition with other footwear, apparel and retail companies for candidates. The Committee considers these factors subjectively, and no single factor or combination of factors was determinative for any NEO. The Committee decided to set the NEOs’ Target Percentage (expressed as a percentage of the NEO’s base salary, similar to the Annual Bonus) for the 2013-2015 3-Year Bonus opportunity, as set out in the accompanying table. +Name +2013-2015 +Percent +2012-2014 +Percent +Krueger +100% +75% +Grimes +60% +50% +Jeppesen +45% +45% +Linton +35% +35% +Zwiers +50% +50% +In February 2013, the Committee awarded performance shares to each NEO with a value equal to the estimated maximum bonus payout the NEO could earn as the 3-Year Bonus for the 2013-2015 performance period. The Committee weighted the EPS criterion at 65% of the total payout and weighted the BVA performance criterion at 35% of the total payout for the 2013-2015 performance period, which was consistent with the 2011 and 2012 performance share grants. The Committee intended the level of difficulty in attaining Threshold, Target, Goal and Stretch performance levels it set for the 2013-2015 performance period to be substantially similar to the level of difficulty in attaining the performance levels for the 2012-2014 performance period. The Committee granted the awards under the Company’s Stock Incentive Plan of 2010. The award details are in the table “ Grants of Plan-Based Awards ” on pages 54-55. The Company accrues, but does not pay, dividends on the performance shares during the performance period. Once the Committee certifies the Company’s performance compared to the performance criteria, the restrictions on none, some or all of the performance shares awarded to each NEO will lapse at that time, and the NEO will receive accrued dividends only on the shares actually earned. +Long-Term Incentive Compensation - Stock Option Grants and Restricted Stock Awards +The Compensation Committee believes that NEO stock ownership benefits stockholders. The Company has granted stock options and +awarded restricted stock to NEOs and other executives for many decades. The Committee +administers the stock incentive plans for stock option grants and restricted stock awards. It approves the amount of and terms applicable to all grants and awards (except for grants to the CEO, which the Committee approves together with the other independent directors). In addition to annual grants and awards, the Committee may approve special grants or awards to NEOs, such as a grant or award to a new hire or for a promotion. +When granting equity awards, the Committee considers the NEO’s position, responsibilities, years of service, performance, previous equity grants, and market information. Management provides input to the Committee regarding equity award decisions. The Committee compares NEO equity awards to market information as part of evaluating NEO total long-term incentive compensation and overall compensation at target to broader compensation trends. In general, the Committee gives more weight to an NEO’s position and responsibilities. +Name +2013 +Actual % of Base +Salary Awarded +Krueger +238% +Grimes +100% +Jeppesen +80% +Linton +86% +Zwiers +86% +For 2013, the actual total value of the equity award to each NEO (the combined total grant date fair value for the stock options and restricted stock, not including the performance share awards) was determined based upon a review of the factors listed in the preceding paragraph as well as the amount of the prior year’s total equity award to each NEO, the percentage of the NEO’s total compensation that would be reflected by the equity award, the change in total compensation for the NEO compared to the prior year, and equity awards to each NEO in recent years, but no single factor or combination of factors was determinative in setting the percentage. The “ Grants of Plan-Based Awards ” table on pages 54-55 shows the actual grants and awards for 2013. +A stock option’s exercise price is set at the closing price of the Company’s common stock on the grant date. The Committee grants annual equity awards at its regularly scheduled February meeting. The independent directors of the Board approve equity grants to the CEO at the same time. A stock option grant typically vests one-third each year over three years. The restrictions on restricted stock awards typically lapse 25% on each of the third and fourth anniversary and 50% on the fifth anniversary of the award. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 47 +Table of Contents +2014 PROXY STATEMENT +The restricted stock award, not including performance shares, was approximately 60%, and the stock option grants were approximately 40%, of the combined value of the equity awarded to each NEO. These were the same approximate percentages as in 2012 and in the past five years. The Committee believed this mix was appropriate based on the fact that restricted stock promotes retention and stock options incentivize stock price performance. +Benefits +EXECUTIVE COMPENSATION PROGRAM +Base Salary +Annual Incentive +Compensation +Long-Term Incentive +Compensation +Benefits +Annual Bonus +Individual Performance Bonus +Long-Term Incentive Bonus +Equity +Retirement and Welfare Plans +Perquisites +Retirement and Welfare Plans +The NEOs participate in Wolverine Worldwide’s medical and dental plans and receive life and disability insurance. Subject to variations to account for requirements in local jurisdictions, variances in local compensation structure (for example, as applicable to Wolverine Worldwide’s employees in the United States versus certain overseas offices), and to requirements under collective bargaining agreements, all Wolverine Worldwide employees receive the same health and welfare benefit opportunities. The NEOs also participate in the Wolverine Worldwide Employees’ Pension Plan (a defined benefit plan) and the Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (an unfunded, non-qualified plan). For a description of the benefits under Wolverine Worldwide’s retirement plans, see “ Pension Plans and 2013 Pension Benefits ” below. +Perquisites +The Company provides limited perquisites to NEOs in order to provide a competitive total compensation package. The Company reimbursed NEOs for tax, financial planning and estate planning services, and made 401(k) matching payments in the amounts set forth in footnote 7 to the “ Summary Compensation Table ” on pages 52-53. The Company did not provide gross ups to the NEOs for the taxes due on the value of the perquisites. +SECTION 4 +– OTHER COMPENSATION POLICIES AND PRACTICES +The dates of the Compensation Committee’s and Board’s February meetings at which annual grants are made generally are scheduled at least one year in advance. The Compensation Committee also delegated to the CEO the authority to award restricted stock or grant stock options to employees during the period from the February 2013 regular meeting of the Compensation Committee until the February 2014 meeting of the Compensation Committee. The CEO may not make such grants or awards to himself or other NEOs. The grants and awards are intended to recognize outstanding performance by employees. The restricted stock awards for the February 2013 to February 2014 period could not exceed 17,000 shares in aggregate and the stock option awards could not exceed 12,294 options in aggregate. +NEO Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that NEOs maintain a minimum stock ownership level (including, for up to 50% of the applicable ownership requirement, restricted stock awards and performance shares but not stock options) to align further the interests of these individuals with the stockholders. Each NEO must +Covered Positions +Guideline +CEO +5x Annual Base Salary +Other NEOs +2x Annual Base Salary +meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. The CEO and all other NEOs who have been with Wolverine Worldwide for at least five years meet the ownership requirement. +Stock Hedging and Pledging Policies +The Company has adopted a policy covering hedging transactions involving the Company’s common stock or pledging of the Company’s common stock by directors or executive officers. Under the policy, no director or executive officer of the Company may (1) enter into any transaction involving pledging as collateral for a loan, or holding on margin, any securities of the Company beneficially owned by the director +Page 48 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +or executive officer unless pre-cleared with the Company’s General Counsel, and (2) enter into or maintain any hedging transaction or position involving securities of the Company beneficially owned by the directors or executive officer. +Impact of Accounting and Tax Treatments on Compensation +Section 162(m) of the Internal Revenue Code provides that publicly held companies may not deduct compensation paid to the CEO and the three next most highly-paid executive officers (other than the CFO) in excess of $1,000,000 annually, with certain exceptions for qualified “performance-based” compensation. Wolverine Worldwide has designed its Annual Bonus Plan, Long-Term Incentive Plan, and stock incentive plans, to permit certain awards payable under these plans that are intended to qualify as “performance-based” compensation for purposes of Section 162(m). Wolverine Worldwide does not require all of its compensation programs to be fully deductible under Section 162(m) because Wolverine Worldwide believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Wolverine Worldwide may pay compensation that does not qualify as performance-based compensation. +Post-Employment Compensation +Each NEO is party to an Executive Severance Agreement that provides for certain payments and benefits upon termination of employment after a change in control of Wolverine Worldwide. The Board believes Executive Severance Agreements will promote management stability during the transition period accompanying a change in control. Each NEO is eligible to receive compensation if his or her employment is terminated within two years (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) following a change in control of Wolverine Worldwide. The Compensation Committee believes this “double trigger” requirement of (1) change in control, and (2) termination of employment, is appropriate because a change in control does not, in many circumstances, materially harm an NEO unless his or her employment with the Company is terminated. None of the Executive Severance Agreements requires an NEO to mitigate payments by seeking employment, but they do reduce compensation paid during the fourth and later months after termination by an amount equal to any other compensation earned by the NEO during that period. An NEO does not receive payment under the Executive Severance Agreement if his or her employment terminates: +» due to death or retirement in accordance with Wolverine Worldwide’s policy or as otherwise agreed; +» for cause or disability; or +» by resignation of the NEO for other than “good reason,” which includes the assignment of duties inconsistent with the NEO’s status as a senior executive officer or the duties performed by the NEO immediately before a change in control, a reduction in the NEO’s annual base salary or relocation of the NEO. +All NEOs also may be eligible under Wolverine Worldwide’s retirement plans or equity plans to receive certain payments and benefits upon termination of employment or in connection with a change in control. The Compensation Committee believes that single-trigger accelerated vesting is appropriate in some circumstances, because by protecting a significant component of the NEO’s total compensation, the acceleration of equity vesting (1) mitigates potential conflicts of interest that might arise between the NEOs and the stockholders, and (2) serves as a substantial incentive for those NEOs to obtain the highest possible value for the stockholders if the Company becomes an acquisition target. The Compensation Committee also retains the discretion to modify or eliminate the accelerated vesting. +Mr. Krueger also is party to a Separation Agreement under which he receives certain payments and benefits if the Company terminates his employment other than for “cause” or if he terminates his employment for “good reason.” The Compensation Committee determined upon appointing Mr. Krueger as CEO that, given the Company’s strategic initiatives the Board had asked him to lead, it was appropriate for the Company to enter into a separation arrangement. You will find information on benefits payable to Mr. Krueger and each other NEO and the specific elements comprising the payment under the Separation Agreement, Executive Severance Agreements, and other retirement and equity plans of Wolverine Worldwide, in the “ Potential Payments Upon Termination or Change in Control ” section of this proxy statement. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 49 +Table of Contents +(This page has been left blank intentionally.) +Page 50 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the information provided under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Company include the Compensation Discussion and Analysis section in this proxy statement and incorporate it by reference into the Company’s Annual Report on Form 10-K. +Respectfully submitted, +Joseph R. Gromek (Chairperson) +Jeffrey M. Boromisa +Nicholas T. Long +Michael A. Volkema +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 51 +Table of Contents +2014 PROXY STATEMENT +Summary Compensation Table +Name and Principal Position +Year +Salary 1 +Bonus 1,2 +Stock Awards 3 +Blake W. Krueger +Chairman, CEO and President +2013 +$1,090,869 +$500,000 +$3,550,125 +2012 +$853,906 +$2,638,485 +2011 +$812,558 +$1,675,335 +Donald T. Grimes +Senior Vice President, CFO, Treasurer and Chief Accounting Officer +2013 +$555,038 +$100,000 +$816,866 +2012 +2011 +$427,827 +$412,923 +$50,000 +$826,172 +$524,643 +Michael Jeppesen +President, Global Operations Group 8 +2013 +$408,654 +$463,023 +2012 +$359,135 +$603,254 +Pamela L. Linton +Senior Vice President, Global Human Resources +2013 +$328,885 +$340,130 +2012 +$318,885 +$386,469 +2011 +$309,269 +$304,200 +James D. Zwiers +Senior Vice President and President, Performance Group +2013 +$584,654 +$75,000 +$728,005 +2012 +2011 +$445,500 +$420,192 +$1,108,664 +$531,335 +1 +Includes any amounts deferred under the Company’s qualified 401(k) plan. +2 +For 2013, reflects bonuses paid in recognition of contributions to the successful efforts integrating the Performance + Lifestyle Group and strong individual and Company performance. +3 +Includes restricted stock awards and performance share awards. Restricted stock was valued using the Wolverine Worldwide common stock closing market price on the NYSE on the grant award date. Performance shares awarded in 2013 were valued using the closing market price of Wolverine common stock on the NYSE on the date of the award and assuming performance between Target (100% payout) and Goal (150% payout) level, consistent with the assumptions used at the time of the award under ASC Topic 718. Assuming payout at Stretch performance, the aggregate award date fair value of performance shares awarded in 2013 for each NEO (and, in parenthesis, the award date fair value of the sum of performance share awards assuming (Stretch) performance assumptions and award date fair value of restricted stock awards for 2013) would have been: $3,178,782 ($4,757,437) for Mr. Krueger; $776,760 ($1,111,848) for Mr. Grimes; $426,550 ($625,025) for Mr. Jeppesen; $267,813 ($438,794) for Ms. Linton; and $681,990 ($987,006) for Mr. Zwiers. Restrictions on the shares issued under the 2013 performance share award will lapse in 2016, if at all, based on the Company’s performance for 2013-2015. For additional valuation assumptions, see the “ Stock-Based Compensation ” heading under Note 1 to Wolverine Worldwide’s Consolidated Financial Statements for the fiscal year ended December 28, 2013. +4 +Represents the aggregate grant date fair value of stock options granted in the years shown, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. For additional valuation assumptions, see the “ Stock-Based Compensation ” heading under Note 1 to Wolverine Worldwide’s Consolidated Financial Statements for the fiscal year ended December 28, 2013. +Page 52 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Summary Compensation Table (continued) +Change in Pension Value +and Nonqualified +Non-Equity Incentive +Deferred Compensation +Option Awards 4 +Plan Compensation 1,5 +Earnings 6 +All Other Compensation 7 +Total +$1,044,046 +$1,821,983 +$0 +$30,264 +$8,037,287 +$615,287 +$192,129 +$3,366,911 +$18,772 +$7,685,490 +$509,899 +$1,238,247 +$2,696,772 +$34,032 +$6,966,843 +$222,144 +$457,827 +$33,418 +$19,573 +$2,204,886 +$170,553 +$52,944 +$253,321 +$12,810 +$1,793,627 +$146,726 +$346,087 +$108,411 +$12,975 +$1,551,765 +$131,248 +$309,985 +$72,041 +$7,650 +$1,392,601 +$120,898 +$166,692 +$57,147 +$155,961 +$1,463,087 +$113,100 +$217,001 +$88,744 +$7,650 +$1,095,510 +$104,707 +$92,182 +$258,275 +$7,685 +$1,168,203 +$94,696 +$225,216 +$144,408 +$7,635 +$1,085,424 +$201,760 +$413,050 +$0 +$19,424 +$2,021,893 +$170,553 +$81,351 +$509,767 +$16,866 +$2,332,701 +$146,726 +$366,800 +$230,137 +$16,611 +$1,711,801 +5 +Reflects amounts earned in 2013, 2012 and 2011, respectively, under the Annual Bonus Plan and Individual Performance Bonus Plan and paid in 2014, 2013 and 2012, respectively. +6 +All amounts in this column reflect the aggregate change in the actuarial present value of the NEOs’ accumulated benefits under the Wolverine Worldwide Employees’ Pension Plan (“Pension Plan”) and Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (“SERP”). The amounts in the table were determined using assumptions consistent with those used in Wolverine Worldwide’s Consolidated Financial Statements for each respective year. See the “ Pension Plan and 2013 Pension Benefits ” section starting on page 60 . +7 +The amounts listed in this column for 2013 include Wolverine Worldwide’s matching contributions to the accounts of the NEOs under Wolverine Worldwide’s 401(k) Money Accumulation Plan, payments made by Wolverine Worldwide for the premiums on certain life insurance policies, and tax and estate planning services in the amounts listed in the table below. The NEOs did not receive tax gross ups on these payments. +Name +401(k) Match +Life Insurance Premiums +Tax and Estate Planning +Krueger +$7,650 +$7,684 +$14,930 +Grimes +$7,650 +- +$11,923 +Jeppesen +$7,650 +- +Linton +$7,650 +- +Zwiers +$7,650 +$5,703 +$6,071 +8 +Mr. Jeppesen started employment with the Company on January 3, 2012, and is not vested in the Pension Plan or the SERP. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 53 +Table of Contents +2014 PROXY STATEMENT +Grants of Plan-Based Awards in Fiscal Year 2013 +The following table provides information concerning each grant of an award made to the NEOs in fiscal year 2013: +All +Other +All +Other +Stock +Option +Estimated Possible Payouts +Awards: +Awards: +Exercise +Estimated Possible Payouts Under +Non-Equity Incentive Plan Awards 1 +Under Equity Incentive Plan +Awards 2 +Number of +Shares of +Number of +Securities +or Base +Price of +Name +Award Type +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Stock or +Units 3 +(#) +Underlying +Options 4 +(#) +Option +Awards 5 +($/Share) +Grant +Date Fair +Value 6 ($) +Krueger +Annual Bonus +$545,435 +$1,090,869 +$2,181,738 +FY13-FY15 Performance Shares +36,997 +73,994 +147,988 +$1,971,560 +Stock Options +2/6/13 +200,778 +$21.48 +$1,044,046 +Restricted Stock +2/6/13 +73,490 +$1,578,565 +Grimes +Annual Bonus +$166,512 +$333,023 +$666,046 +FY13-FY15 Performance Shares +9,040 +18,081 +36,162 +$481,778 +Stock Options +2/6/13 +42,720 +$21.48 +$222,144 +Restricted Stock +2/6/13 +15,600 +$335,088 +Jeppesen +Annual Bonus +$102,164 +$204,327 +$408,654 +FY13-FY15 Performance Shares +4,964 +9,929 +19,858 +$264,548 +Stock Options +2/6/13 +25,240 +$21.48 +$131,248 +Restricted Stock +2/6/13 +9,240 +$198,475 +Linton +Annual Bonus +$73,999 +$147,998 +$295,996 +FY13-FY15 Performance Shares +3,117 +6,234 +12,468 +$169,149 +Stock Options +2/6/13 +21,750 +$21.48 +$113,100 +Restricted Stock +2/6/13 +7,960 +$170,981 +Zwiers +Annual Bonus +$160,780 +$321,560 +$643,120 +FY13-FY15 Performance Shares +7,937 +15,875 +31,750 +$422,989 +Stock Options +2/6/13 +38,800 +$21.48 +$201,760 +Restricted Stock +2/6/13 +14,200 +$305,016 +1 +Estimated payout levels relating to each NEO’s participation in the Annual Bonus Plan and Individual Performance Bonus Plan. For a description of these Plans and the payouts under them, see pages 42-45. +Page 54 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +2 +Estimated payout levels of performance shares granted under the Stock Incentive Plan of 2010 relating to each NEO’s participation in the 3-Year Bonus Plan for the 2013-2015 performance period. Following the end of the 2013-2015 performance period, restrictions may lapse on some, all or none of the performance shares depending upon the Company’s achievement of the relevant performance criteria. The Company accrues, but does not pay, dividends on the performance shares during the performance period. At the end of the performance period, the Company will pay to the NEO the accrued dividends (if any) on the performance shares for which the restrictions lapse. For a description of this Plan and the payout under it, see pages 45-47. +3 +The Company awarded restricted stock awards under the Stock Incentive Plan of 2010 for all NEOs. The restrictions on 25% of the shares received under the awards reflected in this column lapse on the third anniversary of the date of the award, with the restrictions on an additional 25% of the shares lapsing on the fourth anniversary and the restrictions with respect to the remaining 50% of the shares lapsing on the fifth anniversary. All restrictions on shares of restricted stock lapse upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain conditions. In the event of a change in control, as described under the “Benefits Upon a Change in Control Only” sub-heading on page 64, restrictions lapse on all shares. Holders of restricted stock are entitled to receive dividends and to vote the restricted shares. +4 +The Company granted stock options under the Stock Incentive Plan of 2010 to all NEOs. Stock options granted to NEOs vest ratably over three years beginning on the first anniversary of the grant date and have a term of ten years. All stock options vest upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain conditions. In the event of a change in control, as described under the “Benefits Upon a Change in Control Only” sub-heading on page 64, all stock options vest. +5 +The exercise price is equal to the closing market price of shares of Wolverine Worldwide common stock on the date of the grant. +6 +Represents the grant date fair value for stock options, and award date fair value for performance share and restricted stock awards made in fiscal year 2013, determined as described in footnotes 3 and 4 to the “Summary Compensation Table .” +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 55 +Table of Contents +2014 PROXY STATEMENT +Outstanding Equity Awards at 2013 Fiscal Year-End +The following table provides information concerning unexercised options and stock awards that have not vested for each NEO outstanding as of December 28, 2013: +Option Awards +Stock Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +Exercisable +(#) +Number of +Securities +Underlying +Unexercised +Options +Unexercisable 1 +(#) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested 3 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested 4 +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other rights +That Have +Not Vested 3 +($) +Krueger +Various +277,990 +$9,284,866 +Various +301,160 +$10,058,744 +2/6/08 +7,984 +- +$12.53 +2/5/18 +2/10/10 +44,266 +- +$12.50 +2/10/20 +2/9/11 +65,333 +32,667 +$18.25 +2/8/21 +2/8/12 +38,000 +76,000 +$19.92 +2/7/22 +2/6/13 +- +200,778 +$21.48 +2/5/23 +Grimes +Various +76,500 +$2,555,100 +Various +87,534 +$2,923,636 +5/27/08 +32,000 +- +$14.14 +5/26/18 +2/10/09 +60,000 +- +$8.56 +2/9/19 +2/10/10 +40,600 +- +$12.50 +2/10/20 +2/9/11 +18,800 +9,400 +$18.25 +2/8/21 +2/8/12 +10,534 +21,066 +$19.92 +2/7/22 +2/6/13 +- +42,720 +$21.48 +2/5/23 +Jeppesen +Various +18,240 +$609,216 +Various +52,186 +$1,743,012 +2/8/12 +7,467 +14,933 +$19.92 +2/7/22 +2/6/13 +- +25,240 +$21.48 +2/5/23 +Page 56 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Option Awards +Stock Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +Exercisable +(#) +Number of +Securities +Underlying +Unexercised +Options +Unexercisable 1 +(#) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested 3 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested 4 +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other rights +That Have +Not Vested 3 +($) +Linton +Various +42,710 +$1,426,514 +Various +39,302 +$1,312,687 +2/6/08 +32,000 +- +$12.53 +2/5/18 +2/10/09 +38,000 +- +$8.56 +2/9/19 +2/10/10 +27,000 +- +$12.50 +2/10/20 +2/9/11 +12,133 +6,067 +$18.25 +2/8/21 +2/8/12 +6,467 +12,933 +$19.92 +2/7/22 +2/6/13 +- +21,750 +$21.48 +2/5/23 +Zwiers +Various +86,100 +$2,875,740 +Various +84,854 +$2,834,124 +2/9/05 +17,200 +- +$11.52 +2/9/15 +2/7/07 +8,100 +- +$15.13 +2/6/17 +2/6/08 +32,000 +- +$12.53 +2/5/18 +2/10/09 +38,000 +- +$8.56 +2/9/19 +4/22/09 +4,000 +- +$10.90 +4/21/19 +2/10/10 +40,600 +- +$12.50 +2/10/20 +2/9/11 +18,800 +9,400 +$18.25 +2/8/21 +2/8/12 +10,534 +21,066 +$19.92 +2/7/22 +2/6/13 +- +38,800 +$21.48 +2/5/23 +1 +All options become exercisable on the vesting date. The normal vesting period for options is one-third of the shares on each of the first three anniversaries of the date of the grant. Stock option vesting may accelerate upon certain events, including death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain conditions, as further described in the “Grants of Plan Based Awards” section. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 57 +Table of Contents +2014 PROXY STATEMENT +2 +The following table sets forth the vesting dates for the unvested restricted stock awards of each NEO as of December 28, 2013: +Named +Executive +Officer +Vesting Date +Number of Shares to Vest +Krueger +1/1/14 +36,000 +2/9/14 +10,400 +2/10/14 +53,500 +2/8/15 +11,600 +2/9/15 +10,400 +2/10/15 +27,000 +2/6/16 +18,372 +2/8/16 +11,600 +2/9/16 +20,800 +2/6/17 +18,373 +2/8/17 +23,200 +2/6/18 +36,745 +Grimes +1/1/14 +12,000 +2/9/14 +2,950 +2/10/14 +16,100 +2/8/15 +3,200 +2/9/15 +2,950 +2/10/15 +8,200 +2/6/16 +3,900 +2/8/16 +3,200 +2/9/16 +5,900 +2/6/17 +3,900 +2/8/17 +6,400 +2/6/18 +7,800 +Jeppesen +2/8/15 +2,250 +2/6/16 +2,310 +2/8/16 +2,250 +2/6/17 +2,310 +2/8/17 +4,500 +2/6/18 +4,620 +Page 58 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Named +Executive +Officer +Vesting Date +Number of Shares to Vest +Linton +1/1/14 +3,000 +2/9/14 +1,950 +2/10/14 +10,650 +2/8/15 +2,000 +2/9/15 +1,950 +2/10/15 +5,300 +2/6/16 +1,990 +2/8/16 +2,000 +2/9/16 +3,900 +2/6/17 +1,990 +2/8/17 +4,000 +2/6/18 +3,980 +Zwiers +1/1/14 +6,000 +2/9/14 +2,950 +2/10/14 +12,100 +4/22/14 +1,000 +2/8/15 +8,200 +2/9/15 +2,950 +2/10/15 +8,200 +2/6/16 +3,550 +2/8/16 +8,200 +2/9/16 +5,900 +2/6/17 +3,550 +2/8/17 +16,400 +2/6/18 +7,100 +3 +The dollar values are calculated using a per share stock price of $ 33.40 , the closing price of Wolverine Worldwide common stock as of the end of fiscal year 2013. +4 +Following the end of the applicable three-year performance period, restrictions may lapse on some, all or none of the performance shares depending upon the Company’s achievement of the relevant performance criteria. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 59 +Table of Contents +2014 PROXY STATEMENT +Option Exercises and Stock Vested in Fiscal Year 2013 +Option Awards +Stock Awards +Number of +Shares +Acquired +on +Exercise +(#) +Value +Realized +on +Exercise +($) +Number of +Shares +Acquired +on +Vesting +(#) +Value +Realized +on +Vesting* +($) +Krueger +- +- +- +- +Grimes +- +- +5,500 +$143,495 +Jeppesen +- +- +- +- +Linton +- +- +- +- +Zwiers +17,474 +$318,324 +500 +$11,525 +* The Company calculates the dollar values using the closing price of Wolverine Worldwide common stock on the date of vesting. +Pension Plans and 2013 Pension Benefits +Wolverine Worldwide maintains the following defined benefit retirement plans covering NEOs: (1) the Wolverine Worldwide Employees’ Pension Plan (“Pension Plan”), which is a funded and tax-qualified defined benefit plan under the Internal Revenue Code that covers eligible employees, and (2) the Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (“SERP”), which is an unfunded non-qualified plan that covers individuals recommended by the CEO and approved by the Compensation Committee for participation in the SERP. The following describes the material features of the Pension Plan and SERP. +QUALIFIED PENSION PLAN +NEOs vest in the Pension Plan after five years of qualifying service. Subject to the limitations imposed by the Internal Revenue Code, the Pension Plan generally pays an NEO a monthly benefit in an amount equal to a percentage of the NEO’s final average monthly earnings multiplied by his or her number of years of service. The Pension Plan caps years of service at 25 (30 for non-SERP participants). The percentages are 2.4% for Mr. Krueger and 2.0% for Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton. “Earnings” as used in this formula generally includes base salary and annual bonus, less Social Security allowance, and for 2013 was capped at $255,000, the IRS limit applicable to tax-qualified plans. +Upon retirement, an NEO participant may elect to receive the benefit in the form of a life annuity, 5- or 10-year certain annuities, or joint and 50%, joint and 75%, or joint and 100% survivor annuities. The payments are actuarially adjusted based on the election. Any election, other than an election to receive life annuity benefits, reduces the monthly benefit payable. The “normal” retirement age under the plan is age 65. Mr. Krueger is currently the only NEO eligible to begin drawing early retirement benefits under the Pension Plan. +Page 60 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN +All NEOs participate in the SERP, which provides retirement benefits above amounts available under the Company’s tax-qualified pension programs. An NEO’s SERP benefit generally equals the difference between the NEO’s retirement benefit under Pension Plan and the benefits the NEO would have received if there were no cap on earnings when calculating the Pension Plan benefit. The SERP caps years of service at 25. The SERP also allows a retired NEO who has five years of service to draw earlier (beginning at age 55) and on different terms than under the Pension Plan. An NEO’s earnings percentage multiplier is the same under the SERP as it is under the Pension Plan. The Compensation Committee may grant additional deemed years of service to an NEO, subject to the cap of 25 years. The full benefit of any additional years of deemed service is paid under the SERP. Mr. Krueger reached the 25-year cap in 2012. +If a retired NEO draws the SERP benefit prior to age 65, the reduction factor is 0.333% for each month prior to age 60, and 0.1666% for each month between age 60 and age 65. As of the end of fiscal year 2013, Mr. Krueger and Ms. Linton were the only NEOs eligible to retire and begin drawing early retirement benefits under the SERP. +SERP benefits are paid monthly, and the SERP has a lump sum payment option in the event of death or termination of employment after a change in control. The SERP also includes a disability benefit and a death benefit payable to the NEO’s designated beneficiary if the NEO dies before retiring. The SERP provides for lump sum payments to participating NEOs if the NEO resigns for good reason or is terminated by Wolverine other than for cause or due to death or disability within two years (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) after a change in control. +The SERP also contains non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine Worldwide. Under the SERP non-competition provisions, an NEO is not entitled to any benefit payment if the participant enters into certain relationships with a competing business prior to the date on which such benefit payment is due. If the NEO’s employment is terminated for serious misconduct or if Wolverine Worldwide cannot collect under an insurance policy purchased to fund SERP benefits for certain reasons, the Company may terminate an NEO’s benefits under the SERP. Wolverine Worldwide may terminate the SERP or stop further accrual of SERP benefits for a participating NEO at any time, but termination will not affect previously accrued benefits. +PENSION BENEFITS IN FISCAL YEAR 2013 +The following table provides for each NEO certain information concerning each plan that provides for payments or other benefits at, following, or in connection with retirement: +Name +Plan +Name +Number +of Years +Credited +Service +(#) +Present +Value of +Accumulated +Benefit 1 +($) +Payments +During +Last +Fiscal +Year +($) +Krueger +Pension Plan +18 +$1,024,345 +- +SERP 2 +25 +$9,324,217 +- +Grimes +Pension Plan +6 +$179,209 +- +SERP +6 +$332,797 +- +Jeppesen +Pension Plan 3 +2 +$70,505 +- +SERP 3 +2 +$58,683 +- +Linton +Pension Plan +6 +$358,054 +- +SERP +6 +$355,249 +- +Zwiers +Pension Plan +16 +$359,628 +- +SERP +16 +$651,611 +- +1 These values are as of December 28, 2013, and are calculated assuming the participants will commence their benefits at age 65 (in the form of the annuity elected by the NEO) and use the 2013 PPA static mortality tables and a 5.26% interest rate (compared to 4.30% used the prior year). +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 61 +Table of Contents +2014 PROXY STATEMENT +2 The present value of Mr. Krueger’s accumulated benefit under the SERP has increased by $2,897,598 as a result of three additional service years that were granted to him under the SERP in 1996 in recognition of his service as a member of Wolverine Worldwide’s executive team for three years before becoming a participant in the SERP, and additional deemed years of service granted as part of Mr. Krueger’s CEO compensation. The present value of Mr. Krueger’s SERP benefit would be $6,426,619 if 18 service years were used to calculate his benefit. Mr. Krueger reached 25 years of service in 2012, the maximum years of service permitted under the SERP, and will not accrue any further years of service under the SERP. +3 Mr. Jeppesen is not vested in the pension plan or the SERP. The amounts in the table were calculated using the assumption that he was fully vested. +Potential Payments Upon Termination or Change in Control +Wolverine Worldwide has entered into an Executive Severance Agreement with each of the NEOs that provides certain rights including the right to receive payments in the event of a termination of employment in connection with a change in control. The Company also has entered into an agreement with Mr. Krueger regarding certain termination benefits in the event of termination of his employment under certain circumstances. +BENEFITS TRIGGERED BY TERMINATION FOR CAUS E OR VOLUNTARY TERMINATION +An NEO is not entitled to receive any additional forms of severance payments or benefits upon termination for cause or upon the NEO’s voluntary decision to terminate employment with Wolverine Worldwide prior to being eligible for retirement. +BENEFITS TRIGGERED BY TERMINATION OTHER TH AN FOR CAUSE OR BY THE NEO FOR GOOD REASON +Mr. Krueger entered into a Separation Agreement on March 13, 2008, which states that upon termination of his employment other than termination by Wolverine Worldwide for Cause or termination by Mr. Krueger without Good Reason, as such terms are defined in the Separation Agreement, Wolverine Worldwide will pay Mr. Krueger the following payments in exchange for a general release in favor of Wolverine Worldwide: (1) continued base salary for 18 months (reduced by payments he receives if he is employed by a Competing Business, as defined in the Separation Agreement); (2) a lump sum pro rata portion of the annual incentive bonus and the long-term bonus for all uncompleted performance periods based on actual corporate performance for the applicable performance periods; (3) a lump sum pro rata portion of the annual individual performance bonus relating to personal performance objectives; and (4) retiree medical benefits for Mr. Krueger, his spouse and dependents for a period starting on the day after the termination date and ending on the last day of the 18th month following the month in which the termination date falls. +“Cause” generally is defined in Mr. Krueger’s Separation Agreement to mean: (1) any act or omission knowingly undertaken or omitted with the intent of causing material damage to Wolverine Worldwide; (2) any intentional act involving fraud, misappropriation or embezzlement, that causes material damage to Wolverine Worldwide; (3) repeated willful failure to substantially perform any of his significant duties as reasonably directed by the Board of Directors of Wolverine Worldwide; (4) a conviction (including any plea of guilty or nolo contendere) of any criminal act that (a) results in the executive serving prison time and not being able to perform the normal duties of his position for more than thirty (30) days; or (b) causes material damage to Wolverine Worldwide; or (5) chronic or habitual use or consumption of drugs or alcohol that causes material damage to Wolverine Worldwide. +Page 62 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +“Good Reason” generally is defined in Mr. Krueger’s Separation Agreement to mean: (1) a material reduction in base compensation, including a reduction in base salary or opportunities under Wolverine Worldwide’s bonus plans or equity plans (other than those implemented for the executive team as a whole); (2) a material reduction in authority, duties, or responsibilities; (3) a requirement to report to a Company officer or employee instead of reporting directly to the Board of Directors; or (4) certain relocations, other than those related to a change in the location of Wolverine Worldwide’s headquarters affecting a majority of the executive team. +BENEFITS TRIGGERED UPON A CHANGE IN CONTROL +Benefits Upon Termination Following a Change in Control. Under the Executive Severance Agreements entered into with the NEOs, payments and benefits are triggered when Wolverine terminates employment without “cause” or when an executive terminates employment for “good reason” within two years (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) following a change in control of Wolverine Worldwide. +Wolverine Worldwide pays the lump sum severance payment under the Executive Severance Agreement, and the payment is composed of the following: (1) unpaid base salary, benefit awards (including both cash and stock) and bonus payments that have been earned; (2) in lieu of a bonus payment under the Annual Bonus Plan, an amount equal to the number of days the NEO was employed by Wolverine Worldwide in the year of termination divided by the number of days in the year multiplied by 100% of the greater of either (a) the bonus awarded to the NEO under an Annual Bonus Plan for the preceding year or (b) the average paid to the NEO over the preceding two-year period under an Annual Bonus Plan; (3) in lieu of payments under the various three-year performance periods, an amount equal to the bonus the NEO would have received based on actual and assumed performance measures, multiplied by the number of days the NEO participated in the performance period prior to the termination, divided by the total number of days in the performance period (in determining the earnings per share or other performance measures that can be determined annually for any year subsequent to the year of termination, performance will equal the level required to attain the maximum goal under the three year plan for that year); (4) either two (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three (Mr. Krueger) times the sum of (a) the NEO’s highest annual rate of base salary during the 12-month period prior to termination; and (b) the greater of the average amount earned by the NEO during the previous two years or the previous year under the Annual Bonus Plan; (5) 100% of the positive spread for any options held by the NEO whether or not vested; (6) an excise tax gross-up adjustment (Mr. Jeppesen’s agreement was entered into after 2008 and does not include an excise tax gross-up adjustment); and (7) the present value of an additional three years of deemed service under the retirement plans. Upon a termination of employment in connection with a change of control, Wolverine Worldwide will maintain for up to six months the employee benefit plans, programs or arrangements that the NEO was entitled to participate in immediately prior to the termination date. Wolverine Worldwide will provide outplacement services through the last day of the second calendar year following the calendar year of termination. +“Change in control” under the Executive Severance Agreements generally means certain changes in composition of the Board of Directors, certain acquisitions of 20% or more of Wolverine Worldwide’s common stock or combined outstanding voting power of Wolverine Worldwide, and other specified reorganizations, mergers, consolidations, liquidations, dissolutions or distributions of substantial assets (unless such transactions result in the creation of an entity in which at least 50% of the common stock and combined voting power is owned by the owners of record prior to the transaction, no single stockholder owns more than 20% of the combined voting power and a majority of the board remains unchanged). +“Cause” is defined under the Executive Severance Agreements to generally mean the willful and continued failure to substantially perform duties or willfully engaging in gross misconduct that is injurious to Wolverine Worldwide. +“Good Reason” is defined under the Executive Severance Agreements generally to mean: (1) any materially adverse change in position, duties, responsibilities or title or any removal, involuntary termination or failure to re-elect an officer; (2) a reduction in annual base salary; (3) any relocation or requirement to substantially increase business travel; (4) the failure to continue providing any executive incentive plans or bonus plans; (5) the failure to continue any employee benefit plan or compensation plan unless a comparable plan is available; (6) the failure to pay any salary, bonus, deferred compensation or other compensation; (7) the failure to obtain an assumption agreement from any successor; (8) any purported termination of the employment which is not effected in a manner prescribed by the Executive Severance Agreement; or (9) any other material breach by Wolverine Worldwide or a successor of its obligations under the Executive Severance Agreement. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 63 +Table of Contents +2014 PROXY STATEMENT +Excise Tax Gross-Up. The Compensation Committee previously determined that Wolverine Worldwide would not provide excise tax gross-up payments in employment agreements entered into after 2008. +Benefits Upon a Change in Control Only. Under the stockholder-approved equity plans, upon a change in control of Wolverine Worldwide, all of each NEO’s outstanding stock options become immediately exercisable in full and will remain exercisable during their remaining term, regardless of whether the NEO remains in the employ or service of Wolverine Worldwide. The Compensation Committee may determine that one or all of the NEOs shall receive cash in an amount equal to the positive spread amount. In addition, all other outstanding incentive awards of the NEOs, including shares of restricted stock, become immediately and fully vested and non-forfeitable upon a change in control of Wolverine Worldwide. Change in control for this purpose generally means certain changes in the composition of the Board of Directors, certain acquisitions of 20% of Wolverine Worldwide’s common stock and other specified reorganizations, mergers, consolidations, liquidations, dissolutions or dispositions of substantial assets. +BENEFITS TRIGGERED BY RETIREMENT, DEATH OR PERMANENT DISABILITY +Pension Plan . In the event of death before retirement, the Pension Plan provides the surviving spouse of a vested NEO participant a death benefit equal to the qualified pre-retirement survivor annuity as defined in the Internal Revenue Code (generally 50% of the participant’s accrued normal retirement benefit). This benefit is paid annually to the surviving spouse beginning when the NEO participant would have turned 60 and continues for the life of the surviving spouse. For NEO participants with at least three years of service as of December 31, 2003, and who have at least 10 years of service and are employed by Wolverine Worldwide at the time of death, the amount of the survivor benefit under the Pension Plan is calculated as though the NEO participant had continued as an employee of Wolverine Worldwide until age 65 at the compensation level as of the date of death and the benefit begins upon the date of death, unreduced for early commencement. The survivor benefit for NEO participants who meet all the criteria set forth in the preceding sentence, but who die when they are not employed by Wolverine Worldwide are entitled to a joint and survivor benefit commencing upon the date of death, unreduced for early commencement. +SERP . If an NEO dies before beginning to receive benefits under the SERP, Wolverine Worldwide must (based on the current elections by all of the NEOs) pay the beneficiary a lump sum death benefit equal to the present value of the benefit computed as if the NEO participant had retired on the date of death, had begun receiving benefits at age 55 and had continued to receive benefits for the remainder of the participant’s life expectancy. If the participant dies after beginning to receive benefit payments, benefits cease unless the NEO participant was receiving benefits in the form of one of the joint and survivor annuity optional elections under the plan or had elected benefits in a form that provides for a continuation of benefits. +If an NEO becomes totally and permanently disabled, the SERP provides a disability benefit equal to 60% of the normal retirement accrued benefit based upon years of service up to the date that the NEO participant became disabled through the date the NEO participant reaches age 65 (at which point, the NEO participant would begin drawing full SERP benefits) or is no longer disabled. +Annual Bonus Plan . Upon termination of employment at least six months after the beginning of a fiscal year due to death, disability or early or normal retirement, an NEO is entitled to receive a pro rata portion of any Annual Bonus award earned under the Annual Bonus Plan based on the NEO’s service during such fiscal year. The Annual Bonus is payable at the same time and in the same manner as awards are paid to other NEOs for the fiscal year. +Stock Incentive Plans . Upon death, disability or early or normal retirement of the NEO, the restrictions applicable to his or her shares of restricted stock (excluding performance shares) terminate automatically and stock options vest in full if held for more than one year or, if employed for less than one year after the grant, on a percentage basis based on months employed after the grant divided by 12. An NEO is eligible for early retirement under the stock incentive plans upon voluntarily terminating employment after attaining age 62 or age 50 with seven years of service, subject to certain conditions. Upon death, disability or early or normal retirement of the NEO, the restrictions on performance shares lapse on a prorated basis, based on months employed in the performance period and actual Company performance during the performance period. Any prorated award is payable at the time awards are paid to other NEOs. +Page 64 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +DESCRIPTION OF RESTRICTIVE COVENANTS THAT APP LY DURING AND AFTER TERMINATION OF EMPLOYMENT +The SERP contains non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine Worldwide. Under the non-competition provisions of the SERP, the NEO participant will not be entitled to any benefit payment if, prior to the date on which such benefit payment is due, the NEO participant enters into certain relationships with a competing business. +ESTIMATED PAYMENTS ON TERMINATION OR CHANGE I N CONTROL +The following table summarizes the potential payments and benefits payable to each of Wolverine Worldwide’s NEOs upon a change in control or termination of employment in connection with each of the triggering events set forth in the table, assuming in each situation that the termination of employment or change in control of Wolverine Worldwide took place on December 28, 2013. The amounts set out below are in addition to benefits that are generally available to the Company’s employees such as distributions under the Company’s 401(k) savings plan, disability or life insurance benefits and accrued vacation. Due to the many factors that affect the nature and amount of any benefits provided upon the termination events discussed below, any actual amounts paid or distributed to NEOs may be different. Factors that may affect these amounts include timing during the year of the occurrence of the event, Wolverine Worldwide’s stock price and the NEO’s age. +The value of the accelerated vesting of unvested equity-based compensation awards was computed using the closing market price ($33.40) of Wolverine Worldwide’s common stock on December 27, 2013, the last business day in the fiscal year. The value for unvested restricted stock is computed by multiplying $33.40 by the number of shares of the NEO’s restricted stock that would vest as a result of an event. The value of stock options that would vest as a result of an event equals the difference between the exercise price of each option and $33.40. No value was attributed to accelerated vesting of a stock option if its exercise price was greater than $33.40. +Each of the hypothetical events described in the following table (the highlighted blue headings in the left-hand column) is calculated and reported as a discreet event. For example, the amounts disclosed under the “Change in Control Only” heading are not cumulative with the amounts disclosed under the “Change in Control Termination” heading. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 65 +Table of Contents +2014 PROXY STATEMENT +Termination Event and Payments/Benefits +Krueger +Grimes +Jeppesen 13 +Linton +Zwiers +Termination by Company for Cause or Voluntary Termination +- +- +- +- +- +Termination by Company Other Than for Cause or by Executive for Good Reason +$7,129,864 1 +- +- +- +- +Change in Control Termination 2 +Executive Severance Agreement 3 +$19,822,625 +$6,835,865 +$3,231,968 +$3,870,742 +$7,912,544 +Benefits under Executive Severance Agreement 4 +$51,520 +$46,923 +$51,370 +$47,217 +$49,797 +Stock Incentive Plans 5 +$13,197,525 +$3,490,702 +$1,111,374 +$1,952,026 +$3,764,616 +Lump sum payment under the SERP 6 +$17,724,505 +$900,566 +$346,746 +$491,617 +$1,715,817 +Death +SERP 7 +$13,271,876 +$747,694 +$202,068 +$779,189 +$1,119,073 +Pension Plan 8 +$909,088 +$102,061 +- +- +$971,910 +Stock Incentive Plans 5 +$12,389,552 +$3,318,992 +$1,009,794 +$1,864,505 +$3,608,486 +Earned Incentive Compensation 9 +$6,822,150 +$1,969,665 +$1,182,532 +$817,321 +$1,892,848 +Disability +SERP 10 +$12,170,153 +$640,901 +$211,106 +$366,064 +$1,667,271 +Stock Incentive Plans 5 +$12,389,552 +$3,318,992 +$1,009,794 +$1,864,505 +$3,608,486 +Earned Incentive Compensation 9 +$6,822,150 +$1,969,665 +$1,182,532 +$817,321 +$1,892,848 +Retirement +SERP 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Pension Plan 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Stock Incentive Plans 5, 12 +$12,389,552 +- +- +$1,864,505 +- +Earned Incentive Compensation 9,12 +$6,822,150 +- +- +$817,321 +- +Change in Control Only +Stock Incentive Plans 5 +$13,197,525 +$3,490,702 +$1,111,374 +$1,952,026 +$3,764,616 +1 +The estimate for Mr. Krueger assumes Target performance for the 2012-2014 and 2013-2015 performance periods. Actual payout or vesting, if any, would be determined and made at the end of the period. The amount reflected in the table also includes an estimated cost of $14,212 for retiree medical benefits for 18 months and the estimated cost of $25,000 for out-placement services. +2 +Payments would be triggered after termination of employment under certain circumstances within two years (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) following a change in control. The timing of the payment would be delayed to the extent earlier payment would trigger Section 409A of the Tax Code. +3 +Includes amounts payable in cash under the terms of the Executive Severance Agreement, excluding the value of the cash payout to each NEO of the option spread for already vested options. See the “ Outstanding Equity Awards at Fiscal Year-End ” table above for more information regarding each NEO’s vested options as of December 28, 2013. The value of unvested options and time-vested restricted shares that vest upon a change in control under the terms of the Company’s stock incentive plans are included in the Stock Incentive Plans row. +4 +These estimates assume that Wolverine Worldwide maintains the benefit plans for a period of one year after termination and the out-placement services for a period beginning with the date of termination and ending on the last day of the second calendar year following the calendar year in which the date of termination occurred. +5 +Reflects the value of unvested stock options and shares of restricted stock that would vest because of the event. +6 +Amounts in this row reflect the entire lump sum benefit payable to each NEO, including any accumulated benefit. For a description of the SERP, see “ Supplemental Executive Retirement Plan ” under the heading “ Pension Plans and 2013 Pension Benefits. ” The timing of the payment would be delayed to the extent earlier payment would trigger Section 409A of the Tax Code. +7 +Amounts in this row reflect the entire lump sum death benefit payable to a participating NEO’s beneficiary, including any accumulated benefit. +8 +Amounts reflect the net present value of the annuity paid to the surviving spouse calculated using the same discount rate and mortality assumptions used in the Pension Benefits table. In accordance with the terms of the Pension Plan, the death benefit for Messrs. Krueger and Zwiers was calculated as though the NEO had continued as an employee of Wolverine Worldwide until age 65 at the compensation level as +Page 66 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +of the date of death. Mr. Jeppesen was not vested in the Pension Plan as of December 31, 2013, so no death benefit would be payable to any surviving spouse. +9 +Under the Annual Bonus Plan and the terms of performance share awards, each NEO may be eligible to receive a pro rata portion of any award if employment is terminated as a result of the event. The amount reported represents actual payout under the Annual Bonus Plan for fiscal year 2013, actual payout under the 2011-2013 performance cycle, and for the 2012-2014 and 2013-2015 performance cycles, an estimated value of performance shares that would vest at the end of the performance period. Performance shares would vest on a prorated basis based on actual Company performance. For purposes of this estimate, the calculation uses target performance. +10 +Amounts in this row reflect the net present value of the annuity using the same discount rate and mortality assumptions used in the Pension Benefits table and assuming the NEO drew the disability benefit until age 65 and then the normal retirement benefit. +11 +See the Pension Benefits table and associated footnotes. The Pension Benefits table describes the general terms of each pension plan in which the NEOs participate, the years of credited service and the present value of each NEO’s accumulated pension benefit assuming payment begins at age 65. +12 +Mr. Krueger and Ms. Linton are the only NEOs who were retirement eligible at fiscal year end. +13 +Mr. Jeppesen started employment with the Company on January 3, 2012, and his Executive Severance Agreement does not include an excise tax gross-up adjustment. Under the provisions of his Agreement, if payments to Mr. Jeppesen under the Agreement would trigger application of an excise tax, the Company shall reduce the payment to an amount that avoids application of the excise tax and minimizes the impact on the payments to Mr. Jeppesen. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 67 +Table of Contents +2014 PROXY STATEMENT +Audit Committee Report +The Audit Committee of the Board of Directors consists of four directors who are independent under the Company’s Director Independence Standards, the NYSE listed company standards, and applicable SEC standards. The Audit Committee represents and assists the Board in fulfilling its oversight responsibility regarding the Company’s financial statements and the financial reporting process, the internal control over financial reporting, the performance of the internal audit function and the independent auditors, the qualifications and independence of the independent auditors, the annual independent audit of Wolverine Worldwide’s financial statements and internal control over financial reporting, and compliance with legal and regulatory requirements. The Audit Committee is directly responsible in its capacity as a committee of the Board for appointing, retaining, compensating, overseeing, evaluating and terminating (if appropriate) Wolverine Worldwide’s independent auditors. Wolverine Worldwide’s management has primary responsibility for the financial statements and the financial reporting process, including the application of accounting and financial principles, the preparation, presentation and integrity of the financial statements, and the systems of internal controls and other procedures designed to promote compliance with accounting standards and applicable laws and regulations. Wolverine Worldwide’s independent auditors are responsible for expressing an opinion on the conformity of Wolverine Worldwide’s financial statements with generally accepted accounting principles and for auditing the effectiveness of Wolverine Worldwide’s internal control over financial reporting. +The Audit Committee has taken steps to provide assurances regarding Audit Committee composition and procedures, the independence of Wolverine Worldwide’s outside auditors and the integrity of Wolverine Worldwide’s financial statements and disclosures. These steps include: (i) reviewing the Audit Committee Charter; (ii) reviewing the Accounting and Finance Code; (iii) maintaining an Accounting and Auditing Complaint Procedure to allow employees, stockholders and the public to report concerns regarding Wolverine Worldwide’s financial statements, internal controls and disclosures; and (iv) reviewing procedures for the Audit Committee to pre-approve all audit and non-audit services provided by Wolverine Worldwide’s independent auditors. +As part of its supervisory duties, the Audit Committee has reviewed Wolverine Worldwide’s audited financial statements for the fiscal year ended December 28, 2013, and has discussed those financial statements with Wolverine Worldwide’s management, internal financial staff, and the internal auditors and independent auditors with and without management present. The Audit Committee has also reviewed and discussed the following with Wolverine Worldwide’s management, the financial staff, and the internal auditors and independent auditors with and without management present: +» +accounting and financial principles and significant assumptions, estimates and matters of judgment used in preparing the financial statements; +» +allowances and reserves for accounts receivable, inventories and taxes; +» +accounting for acquisitions, pension plans and equity-based compensation plans; +» +goodwill impairment analysis; and +» +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine Worldwide’s independent auditors the results of the independent auditors’ examinations and the judgments of the independent auditors concerning the quality, as well as the acceptability, of Wolverine Worldwide’s accounting principles and such other matters that it is required to discuss with the independent auditors under applicable rules, regulations or generally accepted auditing standards, including the matters required to be discussed by applicable rules of the Public Company Accounting Oversight Board (“PCAOB”). In addition, the Audit Committee has received from the independent auditors the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence rules and has discussed their independence from Wolverine Worldwide and Wolverine Worldwide’s management with them, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the scope of all fees paid to the independent auditors during the year. After and in reliance upon the reviews and discussions described above, the Audit +Page 68 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Committee recommended to Wolverine Worldwide’s Board of Directors that the audited financial statements for the fiscal year ended December 28, 2013, be included in Wolverine Worldwide’s Annual Report on Form 10-K for the year then ended to be filed with the SEC. +Respectfully submitted, +William K. Gerber (Chairperson) +Jeffrey M. Boromisa +Brenda J. Lauderback +Shirley D. Peterson +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 69 +Table of Contents +2014 PROXY STATEMENT +Independent R egistered Public Accounting Firm +Wolverine Worldwide’s Audit Committee has adopted a policy under which the Audit Committee must approve all audit and non-audit services provided by the Company’s independent registered public accounting firm, Ernst & Young LLP and which prohibits Ernst & Young LLP from providing any non-audit services that are prohibited by the SEC or the PCAOB. The Company’s Audit Committee provides categorical pre-approval before the beginning of each fiscal year for routine and recurring services, with specific service descriptions and budgets. All audit services, internal control-related services, and other services not within the specifically pre-approved service descriptions and budgets require engagement-specific pre-approval. With certain exceptions (such as pre-approval of audit services), the Audit Committee may delegate engagement-specific pre-approval to one or more Committee members. Management must communicate to the Audit Committee at its next regularly scheduled meeting any services approved by a Committee member. Wolverine Worldwide’s Audit Committee pre-approved all fees paid to Ernst & Young LLP for services performed in 2013 and 2012. The aggregate fees billed by Ernst & Young LLP for audit and non-audit services were: +2013 +2012 +Audit Fees 1 +$1,618,331 +$1,366,500 +Audit Related Fees 2 +- +$552,200 +Total Audit and Audit Related +$1,618,331 +$1,918,700 +Tax Fees +Tax Compliance +$691,100 +$524,905 +Tax Planning & Advisory +$115,000 +$19,379 +Tax Planning & Advisory Other 3 +- +$1,092,035 +Total Tax Fees +$806,100 +$1,636,319 +All Other Fees 4 +- +$569,476 +Total Fees +$2,424,431 +$4,124,495 +1 “Audit Fees” is comprised of fees for the annual audit, reviews of the financial statements included in Wolverine Worldwide’s Quarterly Reports on Form 10-Q, audit of internal control over financial reporting, foreign statutory audits and consultations concerning accounting matters associated with the annual audit. +2 “Audit Related Fees” is comprised of fees for audit services related to the acquisition of the Performance + Lifestyle Group. +3 “Tax Planning & Advisory Other” is comprised of fees in connection with the acquisition of the Performance + Lifestyle Group. +4 “All Other Fees” is comprised of due diligence fees in connection with the acquisition of the Performance + Lifestyle Group. +Wolverine Worldwide’s Audit Committee has adopted a policy restricting the Company’s hiring of current or former partners or employees of the independent registered public accounting firm retained by the Company. +Page 70 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Item 3 – Ratification of Appointment of Independent Registered Public Accounting Firm +The Audit Committee has reappointed Ernst & Young LLP as the Company’s independent registered public accounting firm for the current fiscal year. As a matter of good corporate governance, the Audit Committee has determined to submit its appointment of Ernst & Young LLP to the Company’s stockholders for ratification. If this appointment is not ratified by the holders of a majority of shares present or represented at the annual meeting and entitled to vote on the matter, the Audit Committee will review its future selection of an independent registered public accounting firm. Even if the appointment is ratified, the Audit Committee in its discretion may select different independent auditors any time during the year if it determines that such a change would be in the best interests of the Company and the Company’s stockholders. +The Audit Committee reviewed Ernst & Young LLP’s performance prior to appointing them as the Company’s independent registered public accounting firm, and considered: +» +the historical and recent performance of Ernst & Young LLP on the Company’s audit, including the quality of the engagement team and Ernst & Young LLP’s experience, client service, responsiveness and technical expertise; +» +the PCAOB report of selected Ernst & Young LLP audits; +» +Ernst & Young LLP’s financial strength and performance; +» +the appropriateness of fees charged; and +» +Ernst & Young LLP’s familiarity with the Company’s accounting policies and practices and internal control over financial reporting. +Ernst & Young LLP, a registered public accounting firm, was the Company’s independent registered public accounting firm for the fiscal year ended December 28, 2013. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions from stockholders. +Board Recommendation +The Board recommends that you vote “FOR” ratification of the Audit Committee’s selection of the firm of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 71 +Table of Contents +2014 PROXY STATEMENT +Item 4 – Advisory Resolution To Approve Executive Compensation +The Company is asking its stockholders to indicate their support for Wolverine Worldwide’s NEO compensation, as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives the Company’s stockholders the opportunity to express their view on compensation for the Company’s NEOs. The say-on-pay vote is advisory and, therefore, not binding on the Company, the Compensation Committee or the Board. The Board and Compensation Committee value the opinions of Wolverine Worldwide’s stockholders and will review and consider the voting results when making future decisions regarding the Company’s executive compensation program. +As described above in the “ Compensation Discussion and Analysis ” section of this proxy statement, the Compensation Committee has structured the executive compensation program to achieve the following key objectives: +» attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» provide incentives for achieving specific near-term individual, business unit and corporate goals and reward the attainment of those goals at pre-established levels; +» provide incentives for achieving longer-term financial goals and reward attaining those goals at pre-established levels; and +» align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +The executive compensation program achieves these objectives, in part, by: +» balancing fixed compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives); +» rewarding annual performance while maintaining emphasis on longer-term objectives; and +» blending cash, non-cash, long- and short-term compensation components, and current and future compensation components. +The Company performed strongly in 2013. The stock price increased to $33.40 at the end of fiscal year 2013 from $20.09 at the end of fiscal year 2012. Over the past five years, the Company’s performance, based on cumulative total stockholder return, has outperformed the S&P SmallCap 600 Index and S&P 600 Footwear Index. +The Company urges stockholders to read the “ Compensation Discussion and Analysis ” beginning on page 34 of this proxy statement, which describes in more detail how the Company’s executive compensation policies and procedures operate and are designed to achieve the Company’s compensation objectives. The Company also encourages stockholders to read the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 52 through 60, which provide detailed information on the compensation of the Company’s NEOs. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the “ Compensation Discussion and Analysis ” section are effective in achieving the Company’s goals and that the compensation of the Company’s NEOs reported in this proxy statement has supported and contributed to the Company’s recent and long-term success. +In accordance with the rules under Section 14A of the Exchange Act, and as a matter of good corporate governance, the Company asks stockholders to approve the following advisory resolution at the 2014 Annual Meeting of Stockholders: +RESOLVED, that the stockholders of Wolverine World Wide, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis section, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2014 Annual Meeting of Stockholders. +Board Recommendation +The Board recommends that you vote “FOR” approval of the advisory resolution to approve executive compensation. +Page 72 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Related Party Matters +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Wolverine Worldwide has entered into agreements with Grimoldi S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a director of Wolverine Worldwide, is chairman and a 35% shareholder. The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies®, Caterpillar®, and Patagonia® brand names, and footwear and apparel under the Merrell® brand name. Grimoldi S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest relating to purchases made or royalties and fees incurred in fiscal year 2013 totaling $5,660,001. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi S.A. Wolverine Worldwide expects similar transactions to occur between Grimoldi S.A. and Wolverine Worldwide and its subsidiaries during fiscal year 2014. The Governance Committee reviewed and approved or ratified each of these transactions in accordance with Wolverine Worldwide’s related person transactions policy, as described below. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide’s Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $50,000 since the beginning of Wolverine Worldwide’s last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest (other than solely as a result of being a director or less than ten percent beneficial owner of another entity or a limited partner in a partnership in which a Related Person, together with all other Related Persons, has an interest of less than ten percent). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or nominee for election as a director; +(b) +greater than five percent beneficial owner of Wolverine Worldwide’s common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the Related Person’s interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to provide all material information to the Governance Committee. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 73 +Table of Contents +2014 PROXY STATEMENT +The following Interested Transactions are pre-approved under the policies and procedures: +(a) any transaction with another company where a Related Person’s only relationship is as an employee (other than an executive officer), if the aggregate amount involved does not exceed the lesser of $250,000, or ten percent of that company’s total revenues. +(b) any charitable contribution by Wolverine Worldwide to a charitable organization where a Related Person is an employee, if the aggregate amount involved does not exceed the greater of $50,000, or two percent of the charitable organization’s total annual receipts. +Additional Information +STOCKHOLDERS LIST +A list of stockholders entitled to vote at the meeting will be available for review by Wolverine Worldwide stockholders at the office of Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351, during ordinary business hours for the 10-day period before the meeting. +DIRECTOR AND OFFICER INDEMNIFICATION +The Company indemnifies its directors and NEOs to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s directors and NEOs, and persons who beneficially own more than 10% of the outstanding shares of the Company’s common stock, to file reports of ownership and changes in ownership of shares of common stock with the SEC. Directors, NEOs and greater than 10% beneficial owners are required by SEC regulations to furnish Wolverine Worldwide with copies of all Section 16(a) reports they file. Based on its review of the copies of such reports received by it, or written representations from certain reporting persons that no reports on Form 5 were required for those persons for fiscal year 2013, except as set forth below, the Company believes that during fiscal year 2013, its officers and directors filed the required reports under Section 16(a) on a timely basis. On February 12, 2013, a Form 4 was filed on behalf of each non-management director for an award of deferred stock units made on February 1, 2013, to each non-management director (Messrs. Boromisa, Gerber, Grimoldi, Gromek, Kollat, Long, O’Donovan and Volkema and Mses. Lauderback and Peterson). +STOCKHOLDER PROPOSALS FOR INCLUSION IN NEXT YEAR’S PROXY STATEMENT +Pursuant to SEC Rule 14a-8, some stockholder proposals may be eligible for inclusion in Wolverine Worldwide’s 2015 proxy statement and proxy card. Any such stockholder proposals must be submitted in writing to the Secretary of Wolverine Worldwide no later than the close of business on November 12, 2014. You should address all stockholder proposals to the attention of Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351. +OTHER STOCKHOLDER PROPOSALS FOR PRESENTATION AT NEXT YEAR’S ANNUAL MEETING +The By-laws require that any stockholder proposal that is not submitted for inclusion in next year’s proxy statement under SEC Rule 14a-8, but is instead sought to be presented directly at the 2015 Annual Meeting of Stockholders, must be received at the Company’s principal executive offices by the close of business not less than 90 days nor more than 120 days prior to the first anniversary of the 2014 Annual +Page 74 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2014 PROXY STATEMENT +Meeting. As a result, proposals, including director nominations, submitted pursuant to these provisions of the By-laws must be received between December 24, 2014, and the close of business on January 23, 2015. You should address a proposal to Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, and include the information and comply with the requirements set forth in those By-laws, which the Company has posted on its website. SEC rules permit management to vote proxies in its discretion in certain cases if the stockholder does not comply with this deadline, and in certain other cases notwithstanding the stockholder’s compliance with this deadline. +VOTING SECURITIES +Stockholders of record at the close of business on March 3, 2014, are eligible to vote at the meeting. The Company’s voting securities consist of its $1.00 par value common stock, and there were 101,337,689 shares outstanding and entitled to vote on the record date. Each share outstanding on the record date will be entitled to one vote on each director nominee and one vote on each other matter. Treasury shares are not voted. Individual votes of stockholders are kept private, except as appropriate to meet legal requirements. Access to proxies and other individual stockholder voting records is limited to the independent inspectors of election and certain employees of the Company and its agents who acknowledge their responsibility to comply with this policy of confidentiality. +CONDUCT OF BUSINESS +A majority of the outstanding shares of common stock as of the record date must be present at the meeting in order to hold the meeting and conduct business. This is called a “quorum.” Your shares are counted as present at the meeting if you are present at the meeting and vote in person, a proxy card has been properly submitted by you or on your behalf, or you have submitted your proxy by telephone or by Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Both abstentions and broker non-votes (defined below in “ Vote Required for Election and Approval ”) are counted as present for the purpose of determining the presence of a quorum. +VOTE REQUIRED FOR ELECTION AND APPROVAL +A plurality of the shares voted is required to elect directors. This means that the four nominees who receive the most votes will be elected. In counting votes on the election of directors, only votes cast “for” or “withheld” affect the outcome. Item 2, Amendment of the Certificate of Incorporation, requires for approval the affirmative vote of a majority of the outstanding shares entitled to vote at the meeting. Item 3, Ratification of Appointment of Independent Registered Public Accounting Firm, and Item 4, Advisory Resolution To Approve Executive Compensation, require for approval the affirmative vote of a majority of shares present or represented at the meeting and entitled to vote on the applicable matter. The results of Item 4 are not binding on the Board of Directors. +With respect to the election of directors, abstentions and broker non-votes, if any, will not be counted as votes cast and therefore will have no effect. With respect to Item 2, abstentions and broker non-votes, if any, will have the same effect as votes “against” the matter. With respect to Item 3 and Item 4, abstentions will have the same effect as votes “against” the matter, and broker non-votes, if any, will have no effect on Item 3 and Item 4. Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial owner, and (2) the broker lacks discretionary voting power to vote those shares. Brokers do not have discretionary authority with respect to any of the proposals except for Item 2 and Item 3. +VOTING RESULTS OF THE ANNUAL MEETING +The Company will announce preliminary voting results at the annual meeting and publish final results in a Form 8-K within four business days following the meeting. If final results are not known within four business days of the annual meeting, then the Company will file a Current Report on Form 8-K with the preliminary results and file an amended Current Report on Form 8-K within four business days of the availability of the final results. +ATTENDING THE ANNUAL MEETING +You may vote shares held directly in your name as the stockholder of record in person at the annual meeting. If you choose to vote in person, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting in person, Wolverine +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 75 +Table of Contents +2014 PROXY STATEMENT +Worldwide recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the annual meeting. You may vote shares held in “street name” through a brokerage account or by a bank or other nominee in person if you obtain a proxy from the record holder giving you the right to vote the shares. +MANNER FOR VOTING PROXIES +The shares represented by all valid proxies received by telephone, by Internet or by mail will be voted in the manner specified. Where the stockholder has not indicated a specific choice, the shares represented by all valid proxies received will be voted in accordance with the Board’s recommendations as follows: (1) for each of the nominees for directors named earlier in this proxy statement, (2) for the amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock, (3) for ratification of the appointment of the independent registered public accounting firm, and (4) for the advisory vote to approve executive compensation. The Board has not received timely notice of any matter that may come before the annual meeting. However, should any matter not described above be properly presented at the annual meeting, the persons named in the proxy form will vote in accordance with their judgment as permitted. +REVOCATION OF PROXIES +A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy or by notifying the inspectors of election in writing of such revocation. If your Wolverine Worldwide shares are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot, in order to be able to vote your shares at the meeting. +SOLICITATION OF PROXIES +The Company will pay the expenses of solicitation of proxies for the annual meeting. Solicitations may be made in person or by telephone, by officers and employees of the Company, or by nominees or other fiduciaries who may mail materials to or otherwise communicate with the beneficial owners of shares held by the nominees or other fiduciaries. These individuals will not be paid any additional compensation for any such solicitation. Upon request, the Company will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding material to beneficial owners of the Company’s common stock. The Company has engaged Georgeson Inc. at an estimated cost of $9,000, plus expenses and disbursements, to assist in solicitation of proxies. +DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS +If you are the beneficial owner, but not the record holder, of shares of Wolverine Worldwide stock, your broker, bank or other nominee may only deliver one copy of this proxy statement and the Company’s 2013 Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. The Company will deliver promptly, upon written or oral request, a separate copy of this proxy statement and its 2013 Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. A stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, or stockholders who share an address and receive multiple copies of the proxy statement and annual report but would like to receive a single copy, should submit this request by writing to Investor Relations, Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, or by calling (616) 866-5500 and asking for Investor Relations. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and who wish to receive a single copy of such materials in the future should make a request directly to their broker, bank or other nominee. +ACCESS TO PROXY STATEMENT AND ANNUAL REPORT +Wolverine Worldwide’s financial statements for the fiscal year ended December 28, 2013, are included in the Company’s 2013 Annual Report, which the Company is providing to stockholders at the same time as this proxy statement. Wolverine Worldwide’s Proxy Statement for the 2014 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 28, 2013, are available at www.wolverineworldwide.com/2014annualmeeting . If you have not received or do not have access to the 2013 Annual Report, write to Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, Attn: Investor Relations or call (616) 866-5500 and ask for Investor Relations, and the Company will send a copy to you without charge. +Page 76 | +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 01RWPB 4 3 A V + . Authorized +Signatures — This section must be completed for your vote to be counted. — +Date and Sign Below C IMPORTANT - Please sign exactly as your name(s) appears +on this Proxy. When signing on behalf of a corporation, partnership, estate +or trust, indicate title or capacity of person signing. If shares are held +jointly, each holder must sign. Signature 1 — Please keep signature within +the box. Signature 2 — Please keep signature within the box. Date +(mm/dd/yyyy) — Please print date below. + B Non-Voting Items A Proposals — +The Board of Directors recommends a vote FOR all the nominees listed and FOR +Proposals 2, 3 and 4. Change of Address — Please print new address below. +IMPORTANT ANNUAL MEETING INFORMATION Annual Meeting Proxy Card For Against +Abstain 2. Proposal to approve an amendment to the Certificate of +Incorporation to increase the number of authorized shares of Common Stock. 4. +An advisory resolution approving compensation for the Company’s named +executive officers. For Against Abstain 3. Proposal to ratify the appointment +of Ernst & Young LLP as the Company’s independent registered public +accounting firm for fiscal year 2014. 01 - William K. Gerber 02 - Blake W. +Krueger 03 - Nicholas T. Long 1. Election of Directors: For Withhold For +Withhold For Withhold 04 - Michael A. Volkema IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE +BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Electronic Voting Instructions +Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you +may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by +the Internet or telephone must be received by 11:59 p.m., Eastern Daylight +Time, on April 22, 2014. Vote by Internet • Go to www.investorvote.com/WWW • +Or scan the QR code with your smartphone • Follow the steps outlined on the +secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) +within the USA, US territories & Canada on a touch tone telephone • +Follow the instructions provided by the recorded message +This proxy is +solicited on behalf of the Board of Directors The undersigned stockholder +hereby appoints Blake W. Krueger and Donald T. Grimes, and each of them, each +with full power of substitution, as proxies to represent the undersigned +stockholder and to vote all shares of Common Stock of Wolverine World Wide, +Inc. that the stockholder would be entitled to vote on all matters that +properly come before the Annual Meeting of Stockholders to be held at the +Company’s headquarters located at 9341 Courtland Drive N.E., Rockford, +Michigan, 49351, on Wednesday, April 23, 2014, at 10 a.m. Eastern Daylight +Time, and any adjournment of that meeting. If this Proxy is properly +executed, the shares represented by this Proxy will be voted as specified. If +this Proxy is properly executed but no specification is made, the shares +represented by this Proxy will be voted for the election of all nominees +named on this Proxy as directors and for approval of Proposals 2, 3 and 4 +identified on this Proxy. The shares represented by this Proxy will be voted +in the discretion of the proxies on any other matters that may properly come +before the meeting. PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE +RECEIVED WILL BE THE OFFICIAL VOTE. DO NOT RETURN THIS PROXY IF YOU ARE +VOTING BY THE INTERNET OR BY TELEPHONE. (CONTINUED AND TO BE SIGNED ON +REVERSE SIDE.) Proxy — WOLVERINE WORLD WIDE, INC. WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. Rockford, Michigan 49351 Wolverine World Wide, +Inc. will be holding its Annual Meeting of Stockholders on April 23, 2014. +The enclosed Notice of 2014 Annual Meeting of Stockholders provides +information regarding the matters that are expected to be voted on at the +meeting. Your vote is important to us. Even if you plan to attend the +meeting, please read the enclosed materials and vote through the Internet, by +telephone or by mailing the Proxy Card below. Telephone and Internet Voting. +On the reverse side of this card are instructions on how to vote through the +Internet or by telephone. Please consider voting through one of these +methods. Your vote is recorded as if you mailed in your Proxy. We believe +voting through the Internet or by telephone is convenient, and it also saves +money. Thank you in advance for your participation in our 2014 Annual +Meeting. Wolverine World Wide, Inc. IF YOU HAVE NOT VOTED VIA THE INTERNET OR +TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION +IN THE ENCLOSED ENVELOPE.q \ No newline at end of file diff --git a/raw/proxies/0000110471/0001104659-14-018712/proxy_rpt.txt b/raw/proxies/0000110471/0001104659-14-018712/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..335985ff734170805465ebbe918a51a082474e96 --- /dev/null +++ b/raw/proxies/0000110471/0001104659-14-018712/proxy_rpt.txt @@ -0,0 +1,25 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Wolverine Worldwide has entered into agreements with Grimoldi S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a director of Wolverine Worldwide, is chairman and a 35% shareholder. The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies®, Caterpillar®, and Patagonia® brand names, and footwear and apparel under the Merrell® brand name. Grimoldi S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest relating to purchases made or royalties and fees incurred in fiscal year 2013 totaling $5,660,001. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi S.A. Wolverine Worldwide expects similar transactions to occur between Grimoldi S.A. and Wolverine Worldwide and its subsidiaries during fiscal year 2014. The Governance Committee reviewed and approved or ratified each of these transactions in accordance with Wolverine Worldwide’s related person transactions policy, as described below. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide’s Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $50,000 since the beginning of Wolverine Worldwide’s last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest (other than solely as a result of being a director or less than ten percent beneficial owner of another entity or a limited partner in a partnership in which a Related Person, together with all other Related Persons, has an interest of less than ten percent). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or nominee for election as a director; +(b) +greater than five percent beneficial owner of Wolverine Worldwide’s common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the Related Person’s interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to provide all material information to the Governance Committee. +Wolverine Worldwide Notice of 2014 Annual Meeting of Stockholders and Proxy Statement +| Page 73 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000110471/0001193125-12-108604/proxy.txt b/raw/proxies/0000110471/0001193125-12-108604/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e5175ac5c5274fb0f3ed69e7a660e2149ec879a6 --- /dev/null +++ b/raw/proxies/0000110471/0001193125-12-108604/proxy.txt @@ -0,0 +1,4636 @@ +DEF 14A +1 +d313183ddef14a.htm +DEF 14A +Def 14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under Rule 14a-12 +WOLVERINE WORLD WIDE, INC. +(Name of registrant as specified in its charter) +(Name of person(s) filing proxy statement, if other than the registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Proxy Statement +Notice of 2012 +Annual Meeting of +Stockholders +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held +on April 19, 2012. +Wolverine’s Proxy Statement for the 2012 Annual Meeting of Stockholders and the Annual Report to Stockholders for +the fiscal year ended December 31, 2011, are available at www.wolverineworldwide.com/2012annualmeeting . +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 12, 2012 +Dear Stockholder, +You are invited to attend the 2012 Annual Meeting of Stockholders, that will be held on Thursday, April 19, 2012, at the Company’s headquarters in +Rockford, Michigan. +The annual meeting will begin with an introduction of management attendees and directors, followed by voting on the matters set +forth in the accompanying Notice of Annual Meeting and Proxy Statement and any other business matters properly brought before the meeting. The meeting will adjourn for a presentation on the Company’s business operations, and then resume for a +report on the voting. +Whether or not you plan to attend, you can ensure that your shares are represented at the meeting by promptly voting and +submitting your proxy by telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. +Sincerely, +Blake W. Krueger +Chairman +Page 1 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Summary +The following discussion highlights key information from the proxy statement of Wolverine World Wide, Inc. (“Wolverine +Worldwide” or the “Company”). This is only a summary. You should review the complete 2012 Proxy Statement and the Company’s Annual Report on Form 10-K to learn more about these topics. +2011 Performance Highlights +Financial Highlights. 2011 was another year of record financial performance by the Company: +The Company had record full-year revenues of $1,409.1 million, growth of 12.9% over the prior full-year revenue. This record +performance follows record revenue for 2010 of $1,248.5 million, 13.4% growth over 2009 revenues, and is the second consecutive year of double-digit revenue growth. The very strong 2011 results were driven by strong double-digit growth from each of +the Company’s branded operating groups (the Outdoor Group, Lifestyle Group and Heritage Group), the Company’s consumer direct business, and favorable changes in foreign exchange rates. +The Company also had record full-year diluted earnings per share of $2.48, compared to reported full-year diluted earnings per +share of $2.11 in 2010. +In addition, the Company: +» +had gross margin of 39.5%, equal to gross margin for 2010 despite the challenging product cost environment in 2011; +» +had record operating gross margin of 12.1%, compared to reported operating margin of 11.4% for 2010; and +Given the continued strong financial performance of the Company, the Board of Directors increased the Company’s dividend rate in 2011 to $0.12 +per share, from $0.11 per share in 2010, resulting in a total dividend payout to stockholders of $22.6 million. +The Company also +repurchased $65.3 million of its shares on the open market. +Page 2 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Compensation Highlights +The Company’s strong performance in 2011 is reflected in the compensation received by its +named executive officers, as described in the Compensation Discussion and Analysis section of this proxy statement. +The Compensation Committee recommended, and the independent Directors of the Board of Directors unanimously approved, incentive +compensation to the Company’s CEO, Blake W. Krueger, in an amount that reflected the Company’s strong 2011 financial performance. Consistent with the Company’s executive compensation philosophy, over 80% of Mr. Krueger’s +total direct compensation was performance based and/or at risk. +Shareholder Actions +Election of Directors (Item 1) – Page 7 +We have included key information about each of the directors standing for election, and his or her qualifications and experience relevant to the +Company’s business and strategic objectives. For 2012, each director standing for election has previously served as a director of Wolverine Worldwide. +Ratification of Appointment of Independent Registered Public Accounting Firm (Item 2) – Page 55 +We are asking the Company’s stockholders to ratify the Audit Committee’s selection of Ernst & Young LLP as the Company’s independent auditor for fiscal year 2012. +Advisory Vote on Executive Compensation (Item 3) – Page 55 +We are asking the Company’s stockholders to indicate their support for Wolverine Worldwide’s NEO compensation, as +described in this proxy statement, by casting a non-binding advisory vote in favor of the Company’s executive compensation program. Pages 24-27 set out a comparison of the Company’s financial performance to NEO compensation. +Approval of Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan)(Item 4) – Page 56 +We are asking the Company’s stockholders to approve this plan, which was most recently approved by the stockholders at the 2007 +Annual Meeting of Stockholders. +Approval of Amended and Restated Short-Term Incentive Plan (Annual Bonus Plan) (Item 5) – Page +59 +We are asking the Company’s stockholders to approve this plan, which was most recently +approved by the stockholders at the 2007 Annual Meeting of Stockholders. +Page 3 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +CONTENTS +NOTICE OF 2012 ANNUAL MEETING OF STOCKHOLDERS +5 +PROXY STATEMENT +5 +DIRECTORS +6 +n ITEM 1 – ELECTION OF DIRECTORS – TERMS EXPIRING IN 2015 +7 +CORPORATE GOVERNANCE +12 +NON-EMPLOYEE DIRECTOR COMPENSATION IN FISCAL YEAR 2011 +18 +SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS AND CERTAIN BENEFICIAL OWNERS +22 +COMPENSATION DISCUSSION AND ANALYSIS +24 +COMPENSATION COMMITTEE REPORT +38 +SUMMARY COMPENSATION TABLE +40 +GRANTS OF PLAN-BASED AWARDS IN FISCAL 2011 +42 +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END +44 +OPTION EXERCISES AND STOCK VESTED IN FISCAL 2011 +47 +PENSION PLANS AND 2011 PENSION BENEFITS +47 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +48 +AUDIT COMMITTEE REPORT +53 +INDEPENDENT AUDITOR +54 +n ITEM +2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +55 +n ITEM 3 – ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION +55 +n ITEM +4 – APPROVAL OF AMENDED AND RESTATED EXECUTIVE LONG-TERM INCENTIVE PLAN +(3-YEAR BONUS PLAN) +56 +n ITEM +5 – APPROVAL OF AMENDED AND RESTATED SHORT-TERM INCENTIVE PLAN +(ANNUAL BONUS PLAN) +59 +RELATED PARTY MATTERS +63 +ADDITIONAL INFORMATION +64 +APPENDIX A – AMENDED AND RESTATED EXECUTIVE LONG-TERM INCENTIVE PLAN (3-YEAR BONUS +PLAN) +67 +APPENDIX B – AMENDED AND RESTATED EXECUTIVE SHORT-TERM INCENTIVE PLAN (ANNUAL BONUS +PLAN) +73 +Page 4 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +NOTICE OF 2012 ANNUAL MEETING OF STOCKHOLDERS +10:00 a.m., April 19, 2012 +Wolverine World +Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, +Michigan 49351 +March 12, 2012 +To our +Stockholders: +We invite you to attend Wolverine Worldwide’s Annual Meeting of Stockholders at the Company’s headquarters located at 9341 +Courtland Drive, N.E., Rockford, Michigan, on Thursday, April 19, 2012, at 10:00 a.m. Eastern Daylight Time. The annual meeting will begin with an introduction of management attendees and directors, after which stockholders will: +(1) +vote on the election of the four director nominees named in the proxy statement for three-year terms expiring in 2015; +(2) +vote on the ratification of the Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent auditor for the fiscal year 2012; +(3) +vote on an advisory resolution approving compensation for the Company’s named executive officers; +(4) +vote on Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan); +(5) +vote on Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan); and +(6) +transact other business that may properly come before the meeting. +The meeting will adjourn for a presentation on the Company’s business operations, then resume for a report on the voting results. You can vote at the meeting +and any adjournment of the meeting if you were a stockholder of record on March 1, 2012. +By Order of the Board of Directors +R. Paul Guerre, Secretary +PROXY STATEMENT +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +We are furnishing you this proxy +statement and enclosed proxy card in connection with the solicitation of proxies by the Board of Directors of Wolverine World Wide, Inc. to be used at the Annual Meeting of Stockholders of the Company. Distribution of this proxy statement and +enclosed proxy card to stockholders is scheduled to begin on or about March 12, 2012. +You can ensure that your shares are voted at the meeting by +submitting your instructions by telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Submitting your instructions or proxy by any of these methods will not affect your right to +attend and vote at the meeting. We encourage stockholders to submit proxies in advance. A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy or +by notifying the inspectors of election in writing of such revocation. In order to vote any shares at that meeting that are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with +you to hand in with your ballot. +Page 5 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +DIRECTORS +The Company’s Board of Directors (the “Board” or “Board of Directors”) consists of 12 +directors. Wolverine Worldwide’s Amended and Restated By-laws (“By-laws”) divide the Board into three classes as nearly equal in number as possible. Each class serves a three-year term of office. At each annual meeting, the term of +one class expires. Subject to Board approved exceptions, a director must retire and resign from the Board at the Annual Meeting of Stockholders following his or her 72 nd birthday. The Board prides itself on its ability to recruit and retain directors who have the highest personal and professional +integrity, have demonstrated exceptional ability and judgment and effectively serve the stockholders’ long-term interests. The Board’s Governance Committee acts as its nominating committee. The Committee, in anticipation of upcoming +director elections and other potential or expected Board vacancies, searches for qualified individuals and recommends candidates for director openings to the full Board. At the Company’s expense, the Committee may retain a search firm or other +external parties to assist it in identifying candidates. The Committee delegates day-to-day management and oversight of the external parties to the Chief Executive Officer (“CEO”) and the Company’s Senior Vice President of Global +Human Resources. The Committee considers candidates suggested by directors, senior management and stockholders, and evaluates all candidates in the same manner. Stockholders may recommend individuals as potential director candidates by communicating +with the Committee through one of the Board communication mechanisms described under the heading “ Stockholders Communications Policy .” Stockholders that wish to recommend a director candidate must comply with the procedures set +forth in the By-laws, posted on the Company’s website. Ultimately, the Board selects the Company nominees for election at each annual meeting. +Board Composition +As stated in the Company’s Corporate +Governance Guidelines, Wolverine Worldwide seeks to achieve diversity in its Board membership by assembling a group of directors who have a broad range of skills, expertise, knowledge and contacts to benefit the Company’s business. The +Governance Committee and the Board annually assess the current make-up of the Board, considering diversity across many dimensions, and the Committee uses this assessment when defining the criteria for a director search. The Committee, along with the +Board, assesses the effectiveness of the diversity objective when reviewing Board composition. Among other things, the Board has determined that it is important to have individuals with one or a combination of the following skills and experiences on +the Board: +» +Footwear, apparel and retail experience. The Company’s business focuses on the international marketing and sale of footwear and apparel, +both in wholesale and retail markets. The Company has identified expanding its apparel and retail businesses as two important growth initiatives. The Board believes it is important to have directors with experience in the footwear, apparel and +retail industries to provide insights into these and other areas that are critical to the Company’s success. +» +Leadership experience. The Board believes that directors with significant leadership experience, including CEO experience, provide it with +special insights, including organization development and leadership practices, and individuals with this experience help the Company identify and develop its own leadership talent. They demonstrate a practical understanding of organizations, +process, strategy, risk management and the methods to drive change and growth. These individuals also provide the Company with a valuable network of contacts and relationships. +» +Global experience. The Company’s products are sold in more than 190 countries and territories, reflecting the global nature of its +business. In fiscal year 2011, approximately 40% of the Company’s revenues came from outside the U.S. and approximately 95% of the Company’s products were sourced from outside the U.S. Directors familiar with the challenges and +opportunities faced by a global business add value to the Board. +» +Finance experience. The Company uses financial metrics in managing its overall operations and the operations of its business units. The Company +and its stockholders value accurate financial tracking and reporting. The Board seeks directors that understand finance and financial reporting processes, including directors who qualify as audit committee financial experts. Experience as members of +audit committees of other boards of directors also gives directors insight into best audit committee practices. +Page 6 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +Public and private company experience. The Company has been listed on the New York Stock Exchange (“NYSE”) since 1965. Although the +Company’s brand leaders operate as part of a public company, management expects them to drive growth in their business units using the entrepreneurial spirit of private company leadership. The Board believes it is important to have directors +who are familiar with the regulatory requirements and environment for publicly held corporations, and to have directors who have experience applying an entrepreneurial focus to building a company or business unit. +» +Government experience. A portion of the Company’s business involves government contracting, and the Company interacts with domestic and +foreign governments routinely. The Board recognizes the importance of working constructively with governments around the world and believes it is helpful to have directors who have experience working in or with government. +We have set out below under “Item 1: Election of Directors” the specific qualifications and experience of the +individual director nominees and directors. The Committee also considers an individual’s relative skills, background and characteristics, their exemplification of the highest standards of personal and professional integrity, independence under +NYSE listing standards and the Company’s Director Independence Standards, potential contribution to the composition and culture of the Board, and ability and willingness to actively participate in the Board and committee meetings and to +otherwise devote sufficient time to Board duties. +ITEM 1: ELECTION OF DIRECTORS – TERMS EXPIRING +IN 2015 +The Board has nominated four directors for election at the annual meeting on April 19, 2012: Mmes. Brenda J. Lauderback and Shirley D. +Peterson and Messrs. Alberto L. Grimoldi and Joseph R. Gromek. Each director is nominated for a three-year term expiring at the annual meeting of stockholders to be held in 2015 or until his or her successor, if any, has been elected and is +qualified. The Board’s nominees include three independent directors, as determined by the Board under the applicable rules for companies whose securities are traded on NYSE and the Company’s Director Independence Standards. Each director +nominee currently serves on the Board and the shareholders elected each nominee at the Company’s 2009 annual meeting. The Company is not aware of any nominee who will be unable to or will not serve as a director. However, if a nominee is unable +to serve or is otherwise unavailable for election, the incumbent directors may or may not select a substitute nominee. If the directors select a substitute nominee, the proxy holder will vote the shares represented by all valid proxies for the +substitute nominee (unless you give other instructions). +ALBERTO L. GRIMOLDI +Director since 1994 +Age 70 +Chairman of Grimoldi, S.A. +Mr. Grimoldi’s experience includes footwear, apparel and retail industry experience, corporate leadership, international operations, government and branded marketing +experience. Mr. Grimoldi has more than 25 years of experience in the footwear and retail industries with Grimoldi, S.A., a publicly traded company in Argentina that sells footwear and apparel in both wholesale and retail markets. Mr. Grimoldi +has been Chairman of Grimoldi, S.A. since 1986. Mr. Grimoldi has significant additional international operations and finance experience in the private sector, including as a member of the Advisory Board of Ford Motor Company and as Vice Chairman of +Banco Privado de Inversiones, S.A., an investment bank, as well as leadership and finance experience earned while in government service in Argentina as Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry and +a member of the board of the Central Bank of Argentina. +JOSEPH R. GROMEK +Director since 2008 +Age 65 +Retired President, Chief Executive Officer and a Director of The Warnaco Group, Inc. +Mr. Gromek’s experience includes footwear, apparel and retail industry, corporate leadership, international operations, public company officer and branded marketing +experience. Mr. Gromek has more than 30 years of experience managing and marketing brands and 40 years of experience in the retail and apparel industry, including 15 years as a chief executive officer. From 2003 until his retirement in 2012, Mr. +Gromek served as President, Chief Executive Officer and a Director of The Warnaco Group, Inc., a publicly traded company which designs, sources, manufactures, markets, retails, licenses and distributes a broad line of intimate apparel, sportswear +and swimwear worldwide. +Page 7 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +As Chief Executive Officer of The Warnaco Group, Inc., Mr. Gromek oversaw extensive U.S. and international branded operations and points of distribution. Mr. Gromek also served +as Chief Executive Officer of Brooks Brothers, Inc. from 1995 until 2002. Mr. Gromek is a Director of The Children’s Place Retail Stores, Inc. and Stanley M. Proctor Company. +BRENDA J. LAUDERBACK +Director since 2003 +Age 61 +Retired President of the Wholesale and Retail Group of Nine West Group, Inc. +Ms. Lauderback’s experience includes footwear, apparel and retail industry, corporate leadership, branded marketing, international operations, public company board and +public company finance and accounting experience through audit committee service. Ms. Lauderback has more than 25 years of experience in the retail industry and more than 20 years of footwear, apparel, and accessories industry experience. From 1995 +until her retirement in 1998, Ms. Lauderback was president of the Wholesale and Retail Group of Nine West Group, Inc., a footwear wholesaler and distributor. She previously was the President of the Wholesale Division of U.S. Shoe Corporation, a +footwear manufacturer and distributor, a position that included responsibility for offices in China, Italy and Spain, and was a Vice President/General Merchandise Manager of Dayton Hudson Corporation, a retailer. Ms. Lauderback has more than 45 +collective years of experience on public company boards and collective experience of more than 20 years on both audit committees and governance committees of public company boards and is chair of three governance committees. Ms. Lauderback is a +director of Big Lots, Inc.; Denny’s Corporation and Select Comfort Corporation. During the preceding five years, Ms. Lauderback also was, but no longer is, a director of Irwin Financial Corporation. +SHIRLEY D. PETERSON +Director since 2005 +Age 70 +Retired Partner of Steptoe & Johnson LLP +Ms. Peterson’s experience includes legal, financial and executive management experience from both the public and private sectors, public company board, government and +public company finance and accounting experience through audit committee service. Ms. Peterson has diverse management experience in various private and public sector roles, including President of Hood College, Assistant Attorney General of the Tax +Division for the U.S. Department of Justice, Commissioner of the Internal Revenue Service and more than 20 years in private law practice as a tax attorney at the law firm Steptoe & Johnson LLP. From 1995 until her retirement in 2000, Ms. +Peterson served as President of Hood College in Frederick, Maryland. Ms. Peterson has more than 35 collective years of experience on public company boards, including experience on boards of companies with significant international, retail, brand +development, manufacturing and sourcing operations, as well as more than 25 collective years of experience serving on public company audit committees and more than 35 collective years of experience serving on public company governance committees, +with an additional 13 years of experience serving on the governance committee of the DWS Fund Complex. Ms. Peterson is currently a director of The Goodyear Tire & Rubber Company and of AK Steel Holding Corporation. During the preceding five +years, Ms. Peterson also was, but no longer is, a director of Federal-Mogul Corporation and Champion Enterprises, Inc., and was a director or trustee of various funds within the DWS Fund Complex. +Board Recommendation +The Board recommends that you vote “FOR” the election of the above nominees for terms expiring in 2015. +Page 8 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +CONTINUING DIRECTORS – ELECTED IN 2011 WITH TERMS EXPIRING IN 2014 +WILLIAM K. GERBER +Director since 2008 +Age 58 +Managing Director of Cabrillo Point Capital LLC +Mr. Gerber’s experience includes public company, finance and accounting, apparel and retail industry, corporate leadership, international operations and public company +officer and director experience. Mr. Gerber is Managing Director of Cabrillo Point Capital LLC, a private investment fund. He has held that position since 2008. From 1998 to 2007, Mr. Gerber was Executive Vice President and Chief Financial +Officer of Kelly Services, Inc., a publicly traded global staffing solutions company with operations in more than 35 countries. In this role, Mr. Gerber was responsible for investor relations, mergers and acquisitions and purchasing in addition to +core Chief Financial Officer functions. In addition to Mr. Gerber’s 10 years of experience as Chief Financial Officer of Kelly Services, Inc., he has 15 years of experience in various finance roles, including Vice President, Finance, and Vice +President, Corporate Controller, for Limited Brands, Inc., a publicly traded company in the apparel and retail industry. Mr. Gerber is a director of and Chairman of the Audit Committees of AK Steel Holding Corporation and Kaydon +Corporation. +BLAKE W. KRUEGER +Director since 2006 +Age 58 +Chairman, Chief Executive Officer and President of Wolverine World Wide, Inc. +Mr. Krueger’s experience includes footwear, apparel and retail industry, corporate leadership, branded marketing, international operations, legal, and public company +officer and board experience. Mr. Krueger has more than 15 years of experience as an executive officer of Wolverine World Wide, Inc., including nearly five years as Chief Executive Officer with responsibility for all aspects of the business, +including international operations, brand management, apparel and accessories and retail development, footwear wholesale, manufacturing, sourcing, corporate governance, human resources and mergers and acquisitions. Mr. Krueger is currently Chairman +of Wolverine World Wide, Inc., a position he assumed in January 2010, and Chief Executive Officer and President of Wolverine World Wide, Inc., positions he assumed in April 2007. From October 2005 until April 2007, Mr. Krueger served as President +and Chief Operating Officer of Wolverine World Wide, Inc. From 2004 to October 2005, he served as Executive Vice President and Secretary of Wolverine World Wide, Inc. and President of the Heritage Brands Group. From 2003 to 2004, Mr. Krueger served +as Executive Vice President and Secretary of Wolverine World Wide, Inc. and President of the Caterpillar Footwear Group. He has also previously served as Executive Vice President, General Counsel and Secretary of Wolverine World Wide, Inc. with +various responsibilities including the human resources, retail, business development, accessory licensing, mergers and acquisitions, and legal areas. During the preceding five years, Mr. Krueger was, but no longer is, a director of +Professionals Direct, Inc. +NICHOLAS T. LONG +Director since 2011 +Age 53 +Chief Executive Officer of MillerCoors LLC +Mr. Long’s experience includes corporate leadership, branded marketing and international operations. Mr. Long has more than 20 years of experience as a senior executive in +the beverage industry, including senior assignments in more than 60 countries. Mr. Long has been Chief Executive Officer of MillerCoors LLC since 2011. From 2008 to 2011, Mr. Long served as President and Chief Commercial Officer of MillerCoors. From +2007 to 2008, Mr. Long served as Chief Executive Officer of Miller Brewing Company and he served as Chief Marketing Officer of Miller Brewing Company from 2005 to 2007. Prior to joining Miller Brewing Company, Mr. Long spent 17 years in various +senior leadership positions at The Coca-Cola Company, including Vice President of Strategic Marketing Global Brands, Vice President Strategic Marketing Research and Trends, President of Coca-Cola’s Great Britain and Ireland Division and +President of the Northwest Europe Division. +Page 9 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +MICHAEL A. VOLKEMA +Director since 2005 +Age 56 +Chairman of Herman Miller, Inc. +Mr. Volkema’s experience includes corporate leadership, branded marketing, international operations, public company officer and board experience and public company finance +and accounting experience through audit committee service. Mr. Volkema has more than 20 years of experience as a senior executive in the home and office furnishings industry, including nine years as Chief Executive Officer of Herman Miller, Inc., a +leading designer and manufacturer of furnishings for the office and home, and a publicly traded company with international, branded operations. Mr. Volkema has been Chairman of Herman Miller, Inc. since 2000. Mr. Volkema became President and Chief +Executive Officer of Herman Miller in 1995 and held those positions until 2003 and 2004, respectively. Mr. Volkema has more than 25 collective years of experience on public company boards, including 11 years as Chairman of the Board at Herman +Miller, Inc., and including service on public company compensation and audit committees. Mr. Volkema also is a director at Milliken & Company, a privately held, innovation-based company serving textile, chemical, and floor covering markets. +During the preceding five years, Mr. Volkema was, but no longer is, a director of Champion Enterprises, Inc. and Applebee’s International, Inc. +CONTINUING DIRECTORS – ELECTED IN 2010 WITH TERMS EXPIRING IN 2013 +JEFFREY M. BOROMISA +Director since 2006 +Age 57 +Retired Executive Vice President of Kellogg International, President of Latin America; Senior Vice +President of Kellogg Company, and member of Kellogg Company’s +Global Leadership Team +Mr. Boromisa’s experience includes public company officer, finance and accounting, corporate leadership, branded marketing and international operations experience. This +experience includes service as Chief Financial Officer, other senior finance roles and in senior roles involving executive management, brand management, marketing and international operations, during his more than 25 year career at Kellogg Company, +a publicly traded, multinational company and leading global cereal, snack and specialty foods company. Mr. Boromisa was Executive Vice President of Kellogg International, President of Latin America; Senior Vice President of Kellogg Company, and a +member of Kellogg Company’s Global Leadership Team from 2008 through his retirement in March 2009. From 2006 until 2008, Mr. Boromisa served as Executive Vice President of Kellogg International, President of Asia Pacific and Senior Vice +President of the Kellogg Company, as well as serving as a member of Kellogg Company’s Global Leadership Team. From 2004 until 2006, he was Senior Vice President and Chief Financial Officer of Kellogg Company. In 2002, Mr. Boromisa was promoted +to Senior Vice President, Corporate Controller and Chief Financial Officer of Kellogg International. Mr. Boromisa served as Vice President and Corporate Controller of Kellogg Company from November 1999 until 2002. In 1997, he was promoted to Vice +President – Purchasing of Kellogg North America, and from 1981 to 1997, served Kellogg Company in various financial positions. Mr. Boromisa also is a director at Haworth, Inc., a privately held, international, office furniture design and +manufacturing company. +DAVID T. KOLLAT +Director since 1992 +Age 73 +President and Chairman of 22, Inc. +Mr. Kollat’s experience includes apparel and retail industry, branded marketing, corporate leadership, public company officer and board experience and public company +finance and accounting experience through audit committee service. Mr. Kollat has been President and Chairman of 22, Inc., a company specializing in research and management consulting for retailers and consumer goods manufacturers, since 1987. +In addition to his marketing and management experience as President and Chairman of 22, Inc., Mr. Kollat has 11 years of experience as Executive Vice President, Marketing, and a member of the executive committee of Limited Brands, Inc., a publicly +traded company operating in the apparel +Page 10 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +and retail industry, and three years at Limited Brands, Inc. as President of Victoria’s Secret Direct. Mr. Kollat has 90 collective years of experience serving on +public company boards, including experience on audit (13 years), compensation (17 years), governance (9 years) and finance (9 years) committees of public company boards. Mr. Kollat is Lead Director of Wolverine and currently serves as a director of +Limited Brands, Inc.; Big Lots, Inc.; and Select Comfort Corporation. In 2009, prior to Mr. Kollat’s re-election as a director, the Board decided to waive the Company’s age 72 resignation requirement for Mr. Kollat, allowing him to serve +an additional term ending in 2013. +DAVID P. MEHNEY +Director since 1977 +Age 72 +President of The KMW Group, Inc. +Mr. Mehney’s experience includes corporate leadership, branded marketing and international operations experience. Mr. Mehney has been President of The KMW Group, Inc. +since 1966. The KMW Group, Inc. and its subsidiaries import and distribute medical products in the United States, Canada, Europe and Asia and distribute marine products in Michigan. Mr. Mehney’s experience with The KMW Group, Inc. includes +establishing foreign-owned brands in the United States market and the distribution of sourced products in the United States, Canada, Europe and Asia. Mr. Mehney has been associated with Wolverine’s business and industry for nearly 35 years as a +member of Wolverine’s Board of Directors. +TIMOTHY J. O’DONOVAN +Director since 1993 +Age 66 +Retired Chairman of the Board and Chief Executive Officer of Wolverine World Wide, Inc. +Mr. O’Donovan’s experience includes footwear, apparel and retail industry, corporate leadership, branded marketing, international operations, public company officer +and board experience and public company finance and accounting experience through audit committee service. Mr. O’Donovan has more than forty years of experience with Wolverine Worldwide, including two years as non-executive Chairman of the +Board and seven years as Chief Executive Officer, with responsibility for all aspects of the business, including international operations, brand management, apparel and accessories and retail development, footwear wholesale, manufacturing, sourcing, +corporate governance, human resources and mergers and acquisitions. Mr. O’Donovan is a former Chairman of the Board of Wolverine Worldwide, and served in that position from April 2005 through December 2009. In April 2007, +Mr. O’Donovan retired as Chief Executive Officer of Wolverine Worldwide, a position which he held since April 2000. Mr. O’Donovan served Wolverine Worldwide as its Chief Executive Officer and President from April 2000 until April +2005, and as Chief Operating Officer and President from 1996 until April 2000. Before 1996, Mr. O’Donovan was Executive Vice President of Wolverine Worldwide. Mr. O’Donovan has more than 30 collective years of experience on +public company boards and service on both audit (six years) and compensation (seven years) committees of public company boards. Mr. O’Donovan is currently a director of Spartan Stores, Inc. and Kaydon Corporation. +Page 11 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +CORPORATE +GOVERNANCE +GOVERNANCE PRINCIPLES +The Board’s Corporate Governance Guidelines (including the Director Independence Standards); the Charter for each Board standing committee (Audit, Compensation +and Governance); the Company’s Certificate of Incorporation; By-laws; Code of Conduct & Compliance and its Accounting and Finance Code of Ethics all are available on the Wolverine Worldwide website at +http://www.wolverineworldwide.com/investor-relations/corporate-governance/ . The Board and committees annually review and update these and other key governance documents. +The Board and each standing committee conduct an annual self-assessment. Each director also evaluates the performance of the other directors as part of the Board self-assessment. The Lead Director, currently +Mr. Kollat, working with the Governance Committee, reviews the Board self-assessment with directors following the end of each fiscal year. Committee Chairpersons review the committee self-assessments with their respective committee members and +discuss them with the Board. The Lead Director, working with the Governance Committee, develops and implements guidelines evaluating all directors standing for nomination and re-election. +Risk Oversight +The Board oversees the Company’s risk management and mitigation activities directly +through presentations by and discussions with the CEO, Chief Financial Officer (“CFO”), General Counsel, brand and department leaders, and other members of management. The Company’s management Risk Advisory Committee, consisting of +the CFO and other senior level functional executives, meets periodically and leads management’s risk management and mitigation processes. These processes include reviews of long-term strategic and operational planning, executive development and +evaluation, regulatory and litigation compliance, financial reporting and control, and information technology and security. The Director of Risk Management and Director of Internal Audit jointly coordinate management’s day-to-day risk +management and mitigation processes and report directly to the CFO. The Director of Internal Audit also reports directly to the Audit Committee. The Director of Internal Audit also reviews with the Audit Committee quarterly and the full Board +annually management’s risk assessments and mitigation strategies for significant risks. The Board also has delegated the following risk management and mitigation oversight responsibilities to its standing committees, which meet regularly to +review and discuss risk topics and then report to the full Board: +» +The Audit Committee oversees the Company’s risk policies and processes relating to its financial statements and financial reporting processes, credit risks, +and liquidity risks. The Committee also reviews the Company’s policies and systems with respect to risk assessment and risk management. The Committee discusses with management and the independent auditors significant risks or exposures and the +steps taken by management to resolve them. The Committee oversees the Company’s procedures for the receipt, retention and treatment of complaints relating to accounting and auditing matters and oversees the Company’s management of legal +and regulatory compliance systems. +» +The Compensation Committee monitors the risks associated with management resources; organization structure; succession planning, hiring, development and +retention processes; and reviews and evaluates what effects the Company’s compensation structure may have on risk decisions. +» +The Governance Committee oversees risks related to the Company’s governance structure and processes and risks arising from related person transactions. +Risk Considerations in Compensation Programs +The Company reviewed its employee compensation programs to assess whether any of those programs included incentives that created risks likely to have a material adverse impact on the Company. As part of this +review, the Company compiled comprehensive information about the Company’s incentive plans, including identifying all incentive plans, reviewing the Company’s compensation philosophy, evaluating key incentive plan design features, and +reviewing historic payout levels and pay mix. The Compensation Committee reviewed the executive compensation programs, with management’s assistance, and managers from the Company’s human resources and legal departments reviewed the +non-executive compensation programs. +Page 12 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Board Leadership +The Company’s CEO currently also serves as the Chairman of the Board. Since 1993, the Company has had an independent Lead Director who functions in many ways similar to how an independent Chairman would +function. This long-established structure provides the Board with independent oversight of the CEO’s leadership. The Board believes that it should decide whether to separate the roles of Chairman and CEO based upon the Company’s +circumstances at the time and considers the Board’s leadership structure as part of the succession planning process. The Company’s business currently focuses on the development of its footwear, apparel and retail business. Because the +Company does not operate multiple, unrelated business segments and given the size of the Company, the Board believes that separating the Chairman and CEO roles at this time would add unnecessary complexity to the organization structure without +adding materially to Board oversight of the CEO function. The Company’s independent directors annually select an independent Lead Director. As outlined in the Corporate Governance Guidelines, the duties of the Lead Director include: +» +reviewing and approving the agenda and scheduling for Board and committee meetings; +» +overseeing and approving information sent to the Board; +» +presiding over executive sessions and having the authority to call executive sessions; +» +serving as a liaison between the Chairman and the independent directors; +» +presiding over Board meetings in the absence of the Chairman; and +» +being available for consultation and communication with stockholders, as appropriate. +Director Independence +The Board annually assesses the independence of all directors. The Board has nine +independent directors out of twelve directors representing a substantial majority (75%) of the Board, and eleven non-management directors. The non-management directors meet periodically each year in executive session. All of the Board’s +committees are comprised entirely of independent directors. The Board believes that this structure provides for meaningful and effective oversight of management by the independent directors. No director qualifies as “independent” unless +the Board affirmatively determines that the director is independent under the Company’s Director Independence Standards and the listing standards of the NYSE. For over 15 years, Wolverine Worldwide has not had more than two active or former +management employees as directors. When determining whether a director is independent, the Board considers the factors identified below and such other factors that the Board deems relevant. The Director Independence Standards define an +“Independent Director” as a director who: +» +is not, and in the past three years has not been, an employee of the Company; +» +does not have, and has not had within the last three years, an immediate family member employed as an executive officer of the Company; +» +has not received, and has not had an immediate family member receive during any twelve-month period within the last three years, any direct compensation from the +Company in excess of $120,000 (other than compensation for Board service; compensation received by the director for former service as an interim Chairman, CEO or other executive officer; compensation received by the director’s immediate family +member for service as a non-executive employee; or pension and other forms of deferred compensation for prior service if such compensation is not contingent in any way on continued service); +» +is not a current employee or partner of a firm that is the Company’s internal or external auditor (“Company Auditor”); +» +has not been, and has not had an immediate family member who has been within the last three years, a partner or employee of a Company Auditor and personally +worked on the Company’s audit within that time; +Page 13 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +has not had an immediate family member who is (i) a current partner of a Company Auditor, or (ii) a current employee of a Company Auditor who +personally works on Wolverine Worldwide’s audit; +» +is not, and has not been within the last three years, part of an interlocking directorate in which a current executive officer of Wolverine Worldwide serves or +served on the compensation committee of another company where the director or the director’s immediate family member concurrently serves or served as an executive officer; +» +is not an employee, majority owner or person in control of another company that has made payments to, or received payments from, Wolverine Worldwide for property +or services in an amount which, in any of the last three fiscal years, exceeds the lesser of $250,000 or 10% of the other company’s consolidated gross revenues; +» +does not have an immediate family member who is an executive officer of another company that has made payments to, or received payments from, Wolverine Worldwide +for property or services in an amount which, in any of the past three fiscal years, exceeds the greater of $1,000,000 or 2% of the other company’s consolidated gross revenues; +» +is not an executive officer, trustee or board member of a tax exempt organization to which Wolverine Worldwide has made in the past three fiscal years +contributions that, in any single fiscal year, exceeded the greater of $50,000 or 2% of the non-profit organization’s, foundation’s or educational institution’s consolidated gross revenues; or +» +has not had any other direct or indirect relationship with Wolverine Worldwide, which the Board determines is material. +“Immediate Family Member” covers spouses, parents, children, siblings, in-laws, and any person (other than domestic employees) sharing the household of +any director, nominee for director, executive officer, or significant stockholder of a company. +Under these standards, and in conformity with the +listing standards of the NYSE, the Board has determined that the following directors are independent: Jeffrey M. Boromisa, William K. Gerber, Joseph R. Gromek, David T. Kollat, Brenda J. Lauderback, Nicholas T. Long, David P. Mehney, Shirley D. +Peterson, and Michael A. Volkema. Mr. Krueger is not independent because he currently is the Company’s CEO and President. Mr. Grimoldi is not independent because he is the Chairman and 35% owner of a company that made payments to +Wolverine in excess of $1,000,000 per year in the last three years. Mr. O’Donovan is not independent because he serves as a director of a foundation board and the Company contributes to the foundation. In evaluating Mr. Mehney’s +independence, the Board considered the transactions between a company partly owned by Mr. Mehney’s son and the Company, as set forth in the “Certain Relationships and Related Transactions” section. +Board of Directors and Committees +The stockholders elect +the Board to oversee Company management. The Board delegates authority to the CEO and senior management to pursue the Company’s mission, and oversees the CEO’s and senior management’s conduct of the Company’s business. In +addition to its general oversight function, the Board reviews and assesses the Company’s strategic and business planning, senior management’s approach to addressing significant risks, and has additional responsibilities including, but not +limited to, the following: +» +reviewing and approving the Company’s key objectives and strategic business plans and monitoring implementation of those plans and the Company’s +success in meeting identified objectives; +» +reviewing the Company’s financial objectives and major corporate plans, business strategies and actions; +» +selecting, evaluating and compensating the CEO and overseeing CEO succession planning; +» +providing advice and oversight regarding the selection, evaluation, development and compensation of senior management; +» +reviewing significant risks confronting the Company and alternatives for their mitigation; and +Page 14 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +assessing whether adequate policies and procedures are in place to safeguard the integrity of the Company’s business operations and financial reporting and +to promote compliance with applicable laws and regulations, and monitoring management’s administration of those policies and procedures. +During 2011, the Board held six meetings. The Company expects directors to attend every meeting of the Board and the committees on which they serve and attend the annual meeting of stockholders. In 2011, each +director then serving on the Board attended the 2011 Annual Meeting of Stockholders and all directors attended at least 75% of the meetings of the Board and the committees on which they served. The following table identifies the current committee +members of each of the Board’s three standing committees and the number of meetings each committee held in 2011. +Name +Audit +Compensation +Governance +Jeffrey M. Boromisa +X* +William K. Gerber +X +X +Alberto L. Grimoldi +Joseph R. Gromek +X +X +David T. Kollat +X +Blake W. Krueger +Brenda J. Lauderback +X +X* +Nicholas T. Long +David P. Mehney +Timothy J. O’Donovan +Shirley D. Peterson +X +X +Michael A. Volkema +X* +X +Number of Meetings +12 +8 +6 +* +Current Committee Chairperson +Audit +Committee. The Board has determined that each Audit Committee member is “independent” as defined by NYSE rules and the Sarbanes-Oxley Act of 2002, as applicable to audit committee members, and that all satisfy the NYSE +“financial literacy” requirement. Mr. Boromisa and Mr. Gerber are “audit committee financial experts” under Securities and Exchange Commission (“SEC”) rules. The Audit Committee: +» +represents and assists the Board in fulfilling its oversight responsibility regarding Wolverine Worldwide’s financial reporting and accounting process; +» +appoints, retains, compensates, oversees, evaluates and, if appropriate, terminates the independent auditors; +» +annually reviews the performance, effectiveness, objectivity and independence of the independent auditors and Wolverine Worldwide’s internal audit function; +» +obtains and reviews the independent auditors’ internal quality control report and other reports required by applicable rules, regulations and standards; +» +assesses auditor independence; +» +establishes procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters; +» +meets to review with management and Wolverine Worldwide’s independent auditors Wolverine Worldwide’s financial statements, including disclosures in +Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are included in Wolverine Worldwide’s reports on Form 10-Q and Form 10-K; +Page 15 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +reviews Wolverine Worldwide’s policies and systems with respect to risk assessment and risk management and discusses with management and the independent +auditors significant risks or exposures and the steps taken by management to mitigate them; +» +discusses with internal auditors and the independent auditors the overall scope and plans for their respective audits; +» +oversees Wolverine Worldwide’s legal and regulatory compliance systems and reviews the Company’s codes of conduct and programs to monitor compliance +with such codes; +» +receives reports on, reviews and discusses the implementation and effectiveness of the Company’s compliance programs; +» +reviews and discusses the adequacy and effectiveness of Wolverine Worldwide’s internal control over financial reporting and disclosure controls and +procedures; and +» +establishes policies and procedures relating to the engagement of the independent auditors, including pre-approval policies and procedures. +Compensation Committee. The Board has determined that each Compensation Committee member is “independent” +as defined by NYSE rules. The Compensation Committee: +» +assists the Board of Directors in discharging its responsibilities relating to executive compensation and fulfilling its responsibilities relating to Wolverine +Worldwide’s compensation and benefit programs and policies; +» +oversees the overall compensation structure, policies and programs, and assesses whether the compensation structure establishes appropriate incentives for +management and employees; +» +administers and makes recommendations with respect to incentive compensation plans, including stock option and other equity-based incentive plans; +» +reviews and approves the compensation of elected corporate officers and other executives, including bonuses and equity compensation; +» +oversees the risks associated with management resources, organization structure, and succession planning, hiring, development and retention processes; +» +oversees the Company’s management of any material risk associated with its compensation structure, policies and programs; +» +reviews and approves corporate and personal goals and objectives relevant to CEO compensation, evaluates the performance of the CEO in light of these goals and +objectives, and, together with the other independent directors, approves the compensation of the CEO based on the evaluation; +» +reviews and discusses with management Wolverine Worldwide’s Compensation Discussion and Analysis and related disclosures required by the rules of the SEC +and recommends to the Board of Directors whether such disclosures should be included in the annual report and proxy statement; +» +reviews and approves the design of benefit plans pertaining to executives; +» +reviews and recommends employment agreements and severance arrangements for executives, including change in control provisions, plans or agreements; +» +establishes stock ownership guidelines for directors and executive officers and monitors compliance with the guidelines; and +Page 16 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +considers and recommends to the Board of Directors the frequency of the Company’s advisory vote on executive compensation. +Compensation Committee Interlocks and Insider Participation. During fiscal year 2011, none of the members of the Compensation Committee, which +consisted of Messrs. Gerber, Gromek, Kollat and Volkema, was an officer or employee of the Company, was a former officer of the Company, nor had a relationship with the Company requiring disclosure as a related party transaction under Item 404 +of Regulation S-K. None of the Company’s executive officers served on the compensation committee or board of directors of another entity whose executive officer(s) served as a director on the Company’s Board of Directors or on the +Compensation Committee. +See the “Compensation Discussion and Analysis” section below for more information regarding the Compensation +Committee’s processes and procedures. +Governance Committee. The Board has determined that each Governance Committee member is +“independent” as defined by NYSE rules. The Governance Committee: +» +assists the Board of Directors in fulfilling its responsibilities on matters and issues related to the Company’s corporate governance practices; +» +in conjunction with the Board of Directors, establishes qualification standards for membership on the Board of Directors and its committees; +» +leads the search for individuals qualified to become members of the Board of Directors, reviews the qualifications of candidates for election to the Board of +Directors and assesses the contributions and independence of incumbent directors eligible to stand for reelection to the Board; +» +establishes procedures for the consideration of candidates for the Board of Directors recommended for the Committee’s consideration by the Company’s +stockholders; +» +selects and recommends to the Board of Directors the Company’s nominees for election or reelection by the stockholders at the annual meeting, and fills +vacancies and newly created directorships on the Board of Directors; +» +develops and recommends to the Board of Directors corporate governance guidelines, reviews the guidelines on an annual basis, and recommends any changes to the +guidelines as necessary; +» +establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the independence of +directors; +» +considers applicable rules, regulations and disclosure obligations regarding the presence of an “audit committee financial expert” on the Audit +Committee and recommends to the Board of Directors actions to address such requirements; +» +reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval and +ratification of related person transactions; +» +oversees risks related to the Company’s governance structure and processes and risks arising from related person transactions; +» +annually reviews the compensation of directors for service on the Board of Directors and committees and makes recommendations to the Board of Directors regarding +such compensation; +» +recommends to the Board of Directors key executives to serve as corporate officers; +» +annually reviews and makes recommendations to the Board of Directors concerning the structure, composition and functioning of the Board of Directors and its +committees and recommends to the Board of Directors, directors to serve as committee members and chairpersons; +Page 17 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +reviews and recommends to the Board of Directors retirement and other tenure policies for directors; +» +reviews directorships in other public companies held by or offered to directors and senior officers of the Company; +» +reviews and assesses channels through which the Board of Directors receives information, and the quality and timeliness of information received; and +» +develops and recommends to the Board of Directors for its approval an annual self-evaluation process for the Board and its committees, and oversees the +evaluation process. +Code of Conduct & Compliance and Accounting and Finance Code of Ethics +The Board has adopted a Code of Conduct & Compliance for the Company’s directors, officers and employees. The Board also has adopted an Accounting and +Finance Code of Ethics (“Accounting and Finance Code”). This Accounting and Finance Code focuses on the financial reporting process and applies to the Company’s CEO, CFO and Corporate Controller. The Company will disclose on its +website at www.woverineworldwide.com/investor-relations/corporate-governance , in accordance with all applicable laws and regulations, amendments to, or waivers from, its Code of Conduct & Compliance or its Accounting and +Finance Code. +Stockholder Communications Policy +Stockholders and other interested parties may communicate with members of Wolverine Worldwide’s Board through various links provided on Wolverine +Worldwide’s website at www.wolverineworldwide.com/investor-relations/corporate-governance/ , or by sending correspondence to the Board, the independent directors as a group, a specific Board committee or a director (including the +Lead Director) c/o Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351. The Secretary reviews all communications to determine whether the contents include a message to a specific director and will provide a +summary and copies of all correspondence (other than solicitations for services, products or publications) to the applicable directors at each regularly scheduled meeting. The Secretary will alert individual directors to items that warrant a prompt +response from the individual director prior to the next regularly scheduled meeting. The Secretary will route items warranting prompt response, but not addressed to a specific director, to the applicable committee chairperson. You may submit any +suggestions, concerns or reports of misconduct at Wolverine Worldwide or complaints or concerns regarding Wolverine Worldwide’s financial statements and accounting, auditing, internal control and reporting practices on +www.WolverineReportLine.com (anonymously, if desired) or by writing to the Audit Committee c/o the Secretary at the above address. +NON-EMPLOYEE +DIRECTOR COMPENSATION IN FISCAL YEAR 2011 +Wolverine Worldwide’s director compensation philosophy is to pay compensation +competitive with compensation paid by companies of similar size in the same industries, same region and with whom Wolverine Worldwide competes for director candidates. Each year, the Governance Committee, with input from management, reviews director +compensation and compares it to market data for companies of similar size in the same industries, and companies of similar size in the geographic region of Wolverine Worldwide’s headquarters. The following table provides information concerning +the compensation of the Company’s non-employee directors for its fiscal year ended December 31, 2011 (“fiscal year 2011”). Mr. Krueger does not receive any compensation for his services as a director other than his +compensation as CEO. +Page 18 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Name +Fees +Earned +or Paid +in +Cash 1 +($) +Option +Awards 2 +($) +Total +($) +Jeffrey M. Boromisa +$ +125,000 +$ +29,573 +$ +154,573 +William K. Gerber +$ +117,000 +$ +29,573 +$ +146,573 +Alberto L. Grimoldi +$ +100,000 +$ +29,573 +$ +129,573 +Joseph R. Gromek +$ +114,000 +$ +29,573 +$ +143,573 +David T. Kollat +$ +135,000 +$ +29,573 +$ +164,573 +Brenda J. Lauderback +$ +127,000 +$ +29,573 +$ +156,573 +Nicholas T. Long +$ +50,000 +$ +59,008 +$ +109,008 +David P. Mehney +$ +100,000 +$ +29,573 +$ +129,573 +Timothy J. O’Donovan +$ +100,000 +$ +29,573 +$ +129,573 +Shirley D. Peterson +$ +117,000 +$ +29,573 +$ +146,573 +Michael A. Volkema +$ +129,000 +$ +29,573 +$ +158,573 +1 +Represents cash payments received or deferred by directors in fiscal year 2011. Directors may defer director fees and receive stock units pursuant to the +Deferred Compensation Plan. The following table shows the Fees Earned or Paid in Cash separated into amounts received in cash, the cash amounts Directors voluntarily deferred, and amounts required to be deferred under the annual equity retainer that +will be paid out in stock: +Name +Fees Paid in Cash +Cash Amounts Voluntarily +Deferred +Cash Amounts Deferred +Through Annual Equity +Retainers +Jeffrey M. Boromisa +- +$ +75,000 +$ +50,000 +William K. Gerber +$ +67,000 +- +$ +50,000 +Alberto Grimoldi +- +$ +50,000 +$ +50,000 +Joseph R. Gromek +- +$ +64,000 +$ +50,000 +David T. Kollat +$ +85,000 +- +$ +50,000 +Brenda J. Lauderback +$ +57,750 +$ +19,250 +$ +50,000 +Nicholas T. Long +$ +25,000 +- +$ +25,000 +David P. Mehney +- +$ +50,000 +$ +50,000 +Timothy J. O’Donovan +$ +50,000 +- +$ +50,000 +Shirley D. Peterson +$ +67,000 +- +$ +50,000 +Michael A. Volkema +$ +79,000 +- +$ +50,000 +2 +Represents the aggregate grant date fair value of stock options granted to non-employee directors in fiscal year 2011, calculated in accordance with FASB +Accounting Standard Codification (“ASC”) Topic 718. The chart below lists the aggregate outstanding option awards held by non-employee directors at the end of fiscal year 2011. For valuation assumptions, see the Stock-Based Compensation +footnote to Wolverine Worldwide’s Consolidated Financial Statements for fiscal year 2011. +Name +Option Awards +Outstanding at +December 31, 2011 +(#) +Jeffrey M. Boromisa +24,853 +William K. Gerber +21,008 +Alberto Grimoldi +43,442 +Joseph R. Gromek +20,426 +David T. Kollat +43,442 +Brenda J. Lauderback +20,912 +Nicholas T. Long +5,351 +David P. Mehney +15,977 +Page 19 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Name +Option Awards +Outstanding at +December 31, 2011 +(#) +Timothy J. O’Donovan* +262,032 +Shirley D. Peterson +20,912 +Michael A. Volkema +29,020 +* The Company granted +Mr. O’Donovan 247,915 of these stock options when he was an executive officer of the Company. +For fiscal year 2011, the Company compensated non-employee directors as follows: +Component +Cash +Options +Stock Units +Newly Appointed or Elected Director +$0 +Number of options equal to $210,000 divided by closing market price of the Company’s common stock on date of initial election or +appointment 1 +Annual Director Fee +$35,000 +Number of options equal to $105,000 divided by closing market price of the Company’s common stock on date of Annual Meeting 1 +Number of stock units equivalent to $50,000 determined by dividing the dollar grant amount by the closing market price of the Company’s common stock on the date of the grant 2 +Board Meeting Annual Fee 3 +$15,000 +Audit Committee Meeting Annual Fee 3 +$10,000 +Audit Committee Chairperson Annual Fee +$15,000 +Compensation Committee Meeting Annual Fee 3 +$7,000 +Compensation Committee Chairperson Annual Fee +$15,000 +Governance Committee Meeting Annual Fee 3 +$7,000 +Governance Committee Chairperson Annual Fee +$10,000 +Lead Director Annual Fee 4 +$70,000 +1 +For fiscal year 2011, each non-employee director, except Mr. Long, received 2,693 options granted in April 2011 under the Stock Incentive Plan of 2010. +Mr. Long joined the Board of Directors in July 2011 and received 5,351 options granted under the Stock Incentive Plan of 2010. These options were fully vested on the grant date and have a term of 10 years. The exercise price of options granted +is equal to the closing market price of Wolverine’s common stock on the date each option is granted. +2 +For fiscal year 2011, one grant was made on the first business day of each calendar quarter, and a grant was made to Mr. Long in the fourth quarter based on +his joining the Board in July 2011. For fiscal year 2011, the Company credited each non-employee director with an aggregate of 1,375 (722 for Mr. Long, based on partial-year service) stock units. Stock units are fully vested on the grant +date and are credited under the Amended and Restated Outside Directors’ Deferred Compensation Plan (the “Deferred Compensation Plan”). The terms of the Deferred Compensation Plan and stock units are described below. For fiscal year +2011, the Company increased the number of stock units to an amount equal to $50,000. Beginning in 2012, the Annual Equity Award for each non-employee director will increase from $50,000 to $52,000. +3 +Directors also receive, for each meeting during the year in excess of the trigger listed below, an additional per-meeting fee. No excess meeting fees were paid +in 2011. +Trigger +Meeting Fee +Board +10 +$ +3,000 +Audit +15 +$ +1,000 +Compensation +10 +$ +1,000 +Governance +10 +$ +1,000 +Page 20 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +4 +Lead Director Annual Fee is in lieu of the annual cash retainer. The Lead Director also receives the standard director fee for attendance at Board meetings and +the annual grant of stock options, but does not receive attendance fees for committee meetings. +Wolverine Worldwide also pays +director expenses associated with attending Board and committee meetings and other Wolverine Worldwide functions, and industry functions such as trade shows. It also pays spouse travel expenses in connection with international Board strategic +planning meetings, which typically happen every other year and did happen in 2011. In addition, the Company provides office space and administrative assistance to directors who visit the Company’s headquarters or other locations. From +time-to-time, Wolverine Worldwide provides directors with samples of Wolverine Worldwide products of nominal value for review and assessment. Wolverine Worldwide reimburses directors for some approved expenses relating to director education. +Directors who are also employees of Wolverine Worldwide or any of its subsidiaries do not receive an annual cash or equity retainer and do not receive compensation for attendance at Board or committee meetings. +Deferred Compensation Plan . In 2008, Wolverine Worldwide adopted the Deferred Compensation Plan, a supplemental nonqualified deferred +compensation plan for directors who are not employees of Wolverine Worldwide or its subsidiaries. Wolverine Worldwide continues to maintain a separate non-employee director deferred compensation plan that applies to benefits accrued under that plan +before January 1, 2005. The Deferred Compensation Plan permits all non-employee directors to defer 25%, 50%, 75% or 100% of their director fees. Deferred compensation is deemed to be invested in Wolverine Worldwide common stock. Wolverine +Worldwide establishes an account on its books for such director. Wolverine Worldwide credits such account with a number of stock units equal to the amounts deferred and annual equity retainer amounts described above, divided by the closing market +price of common stock on the payment date. The Company also credits director accounts with dividend equivalents in the form of additional stock units. +Upon a director’s termination of service or such later date as a director selects, the Company distributes accumulated stock units in the director’s +account in shares of Wolverine Worldwide common stock. The distribution is a single, lump-sum payment, or is annual installment payments over a period of up to 20 years (10 years under the prior plan). The Company converts each stock unit to one +share of Wolverine Worldwide common stock. +Upon a “change in control”, the Company distributes to the director, in a single lump sum payment, +Wolverine Worldwide common stock in a number of shares equal to the stock units credited to a director’s account. The Deferred Compensation Plan defines “change in control” as: +» +the acquisition by any person, or by more than one person acting as a group, of more than 50% of either (i) the then outstanding shares of common stock of +Wolverine Worldwide or (ii) the total fair market value of Wolverine Worldwide; +» +the acquisition by any person, or more than one person acting as a group, during the 12-month period from and including the date of the most recent acquisition, +of ownership of 30% or more of the outstanding common stock of Wolverine Worldwide; +» +the replacement of a majority of the individuals who constitute the Board during any 12-month period by directors whose appointment or election is not endorsed +by a majority of the directors prior to the date of the appointment or election; or +» +the acquisition, during any 12-month period ending on the date of the most recent acquisition, by any person of assets from Wolverine Worldwide having a gross +fair market value of at least 40% of the gross fair market value of all the assets of Wolverine Worldwide immediately before the acquisition. +Non-Employee Director Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that +each non-employee director maintain a stock ownership level (including stock units under the Deferred Compensation Plan, but excluding stock options) equal to five times the non-employee director cash retainer to align further the interests of these +individuals with the stockholders. Each non-employee director must meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. All non-employee directors who have been Wolverine Worldwide directors +for at least five years meet the ownership requirement. +Page 21 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +SECURITIES +OWNERSHIP OF OFFICERS AND DIRECTORS AND CERTAIN BENEFICIAL OWNERS +Five Percent Stockholders +The following table sets forth information as to those holders known to Wolverine Worldwide to be the beneficial owners of more than five percent of Wolverine +Worldwide’s outstanding shares of common stock as of March 1, 2012: +Amount and Nature of Beneficial Ownership of Common +Stock +Name and Address +of Beneficial Owner +Sole Voting +Power +Sole +Investment +Power +Shared Voting +or Investment +Power +Total +Beneficial +Ownership +Percent +of Class 3 +BlackRock, Inc. 1 +40 East 52 nd Street +New York, NY 10022 +3,553,203 +3,553,203 +- +3,553,203 +7.3% +The Vanguard Group, Inc. 2 +100 Vanguard Boulevard +Malvern, PA 19355 +68,755 +2,462,087 +68,755 +2,530,842 +5.2% +1 +Based on information set forth in a Schedule 13G/A filed on February 10, 2012. The Schedule 13G/A indicates that BlackRock, Inc. beneficially +owns, in the aggregate, 3,353,203 shares of Wolverine common stock. +2 +Based on information set forth in a Schedule 13G/A filed on February 10, 2012. The Schedule 13G/A indicates that The Vanguard Group, Inc., beneficially +owns, in the aggregate, 2,530,842 shares of Wolverine common stock. +3 +As of March 1, 2012, based on 48,666,594 shares outstanding on that date. +Stock Ownership by Management +The +following table sets forth the number of shares of common stock beneficially owned as of March 1, 2012, by each of the Company’s director nominees, directors and named executive officers and all of the Company’s directors and +executive officers as a group. +Amount and Nature of Beneficial Ownership of Common Stock 1 +Name of Beneficial Owner +Sole Voting and/or +Investment Power 2 +Shared Voting or +Investment +Power 3 +Stock Options 4 +Total +Beneficial +Ownership 4 +Percent +of Class 5 +Jeffrey M. Boromisa +2,000 +- +24,853 +26,853 +- +William K. Gerber +2,000 +- +18,008 +20,008 +- +Kenneth A. Grady +38,869 +- +23,094 +61,963 +- +Donald T. Grimes +91,180 +- +64,234 +155,414 +- +Alberto L. Grimoldi +18,077 +- +43,442 +61,519 +- +Joseph R. Gromek +17,500 +- +20,426 +37,926 +- +David T. Kollat 6 +107,672 +- +37,663 +147,145 +- +Blake W. Krueger +456,996 +50,000 +382,212 +889,208 +1.8% +Brenda J. Lauderback +5,100 +- +20,912 +26,012 +- +Pamela L. Linton +56,584 +- +47,034 +103,618 +- +Nicholas T. Long +- +- +5,351 +5,351 +- +David P. Mehney 7 +82,591 +68,827 +15,977 +167,395 +- +Michael F. McBreen +- +- +- +- +- +Timothy J. O’Donovan +275,062 +64,627 +262,032 +601,721 +1.2% +Shirley D. Peterson +3,000 +- +20,912 +23,912 +- +Michael A. Volkema +5,000 +- +29,020 +34,020 +- +James D. Zwiers +114,685 +- +88,165 +202,850 +- +All directors and executive officers as a +group (20 people) +1,310,410 +183,454 +1,124,236 +2,605,355 +5.2% +Page 22 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +* +Represents beneficial ownership of less than 1%. +1 +The numbers of shares stated are based on information provided by each person listed and include shares personally owned of record and shares that, under +applicable regulations, are considered to be otherwise beneficially owned. +2 +These numbers include restricted shares and performance shares held, which are subject to forfeiture if the terms of the award are not satisfied. +3 +These numbers include shares over which the listed person is legally entitled to share voting or investment power by reason of joint ownership, trust or other +contract or property right and shares held by spouses, children or other relatives over whom the listed person may have influence by reason of such relationship. +4 +The numbers represent shares that may be acquired within 60 days after March 1, 2012, by the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in the Total Beneficial Ownership column. +5 +As of March 1, 2012, based on 48,666,594 shares outstanding on that date plus the number of stock options exercisable by the specified person(s) within 60 +days of March 1, 2012, as indicated in the “Stock Options” column. +6 +Includes 65,735 shares pledged by Mr. Kollat as security for a loan. +7 +Includes 20,223 shares pledged by Mr. Mehney as security for a loan. +Page 23 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +COMPENSATION +DISCUSSION AND ANALYSIS +This section of the proxy statement provides an overview and analysis of Wolverine Worldwide’s executive +compensation program and policies, the material compensation decisions made about fiscal year 2011 compensation, and the material factors considered in making those decisions. It is divided into six parts: +Executive Summary +Compensation Philosophy and Objectives +NEO Compensation Program Components +2011 Compensation Actions +Compensation Consultant and Market Comparisons +Other Compensation Policies and Practices +This section refers only to the compensation of Wolverine Worldwide’s “named executive officers” (“NEOs”) +unless noted otherwise: +Blake W. Krueger, Chairman, Chief Executive Officer +and President +Kenneth A. Grady, General Counsel and Secretary +Donald T. Grimes, Senior Vice President, Chief Financial Officer and Treasurer +Pamela L. Linton, Senior Vice President of Global Human Resources +Michael F. McBreen, Former President, Global Operations Group +James D. Zwiers, Senior Vice President and President, Outdoor Group +Executive Summary +The +Company’s executive compensation program consists of four key elements. First, each NEO receives a base salary. Second, each NEO is eligible to receive Annual Incentive Compensation in the form of (i) an annual bonus based on performance +measured against criteria established by the Compensation Committee at the beginning of the fiscal year (the “Annual Bonus”), and (ii) a bonus determined by performance against individual criteria set by the Committee (for the CEO) +and by the CEO (for other NEOs) at the beginning of the fiscal year. Third, each NEO is eligible to receive Long-Term Incentive Compensation in the form of (i) a long-term incentive bonus based on performance measured against criteria +established by the Committee for a three-year period (the “3-Year Bonus”), and (ii) equity in the form of restricted stock awards and stock option grants. Fourth, each NEO may (i) participate in the Company’s defined-benefit +plan (subject to certain vesting criteria), (ii) participate in various Company welfare plans, and (iii) at the discretion of the Committee, participate in the Company’s supplemental executive retirement plan. The executive +compensation program is set out in more detail in the remainder of the Compensation Discussion and Analysis section. +There is a close correlation +between the company’s financial performance (as measured by total shareholder return, “TSR”) and the CEO pay that results from the executive compensation program described above. As the chart below shows, the Company’s +performance as measured by total shareholder return each year after 2006 (the beginning of the index period shown) tracks very closely to the total compensation for the CEO as reported in the Company’s proxy statement for the relevant years. +Indexed TSR represents the value of a hypothetical $100 investment in the Company, assuming reinvestment of dividends. +Page 24 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +The chart below shows that, after excluding “All Other Compensation” and “Change in Pension Value and +Nonqualified Deferred Compensation Earnings,” the CEO’s compensation compares even more favorably to the Company’s performance measured by total shareholder return. The Committee believes this distinction is important because most +companies included in peer group comparisons do not have a defined benefit pension plan, but have other long-term or retirement compensation arrangements or are a controlling shareholder in their respective Peer Group company. +2011 Highlights +Operating performance of the Company continued improving in 2011 despite the challenging global business environment, especially in Europe. Under Mr. Krueger’s leadership, management delivered the +following financial performance in 2011: +» +record revenues of $1,409.1 million, 12.9% above fiscal year 2010 revenue of $1,248.5 million, reflecting strong double-digit growth from each of the +Company’s three branded operating groups and the second consecutive year of double-digit revenue growth for the Company; +» +record diluted earnings per share of $2.48, compared to $2.11 per share for fiscal year 2010, representing 14.3% growth; +» +$22.6 million in dividends to stockholders; +» +$65.3 million of its shares repurchased on the open market; and +» +ended fiscal year 2011 with $140.0 million of cash and cash equivalents and interest-bearing debt of only $11.5 million. +The Company delivered a 75.7% cumulative return to stockholders during the period fiscal year 2009 through fiscal year 2011. +Page 25 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Consistent Financial Performance +The Company’s record revenues and record diluted earnings per share for 2011 marked the second year in a row of record results on both measures. Over the past +five years, the Company’s performance, based on cumulative total stockholder return, has exceeded the S&P SmallCap Index and the S&P Footwear Index, as shown in the following table. +In addition to Wolverine Worldwide’s strong total shareholder return performance, it has historically performed well +financially compared to its Peer Group (as described on pages 35-36). The following chart shows the Company’s rank compared to the 20 companies in its Peer Group for Return on Assets and Return on Equity. The rank for 2010 compares the metric +for Wolverine Worldwide’s fiscal year 2010 results to the metric for each Peer Group company’s fiscal year 2010 results. The same methodology was applied to determine the 2009 rankings. As of March 1, 2012, most companies in Wolverine +Worldwide’s Peer Group had not reported their fiscal year 2011 results. +Wolverine Worldwide Rank Included With Its 20 Company Peer Group +2010 +2009 +Return on Assets 1 +4 +8 +Return on Equity 2 +6 +7 +1 +Return on Assets is net income divided by average total assets. +2 +Return on Equity is net income available for shareholders divided by average total common equity. +Pay-for-Performance Alignment and Compensation Practices +NEO compensation for fiscal year 2011, and in the case of the long-term incentive bonuses for the three year period ending fiscal year 2011, reflected the Company’s strong fiscal year 2011 financial +performance and cumulative return to stockholders over the past three years: +» +over 80% of the CEO’s compensation is tied to the Company’s stock and/or performance measures; +» +each NEO’s bonus opportunity was capped at 200% of his or her Target Percentage for that opportunity, limiting the incentive to take risks that could have a +material adverse impact on the Company; and +Page 26 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +each NEO’s Annual Bonus and 3-Year Bonus was linked to performance metrics established at the beginning of the bonus period. +The Company also has previously implemented many good corporate governance practices as part of its executive compensation program, including: +» +authorizing the Compensation Committee to hire an independent consultant; +» +implementing Stock Ownership Guidelines, which cover all NEOs; +» +not paying tax gross ups on perquisites; and +» +requiring a double-trigger for change-in-control benefits under the Company’s Executive Severance Agreements. +Compensation Philosophy and Objectives +Wolverine +Worldwide’s compensation philosophy is to provide competitive salaries and incentives to achieve superior financial performance. The Board’s Compensation Committee oversees the Company’s executive compensation program. The Committee +reviews and approves NEO compensation, other than the CEO’s compensation, which it approves together with the Board’s other independent directors. The NEO compensation program has four primary objectives: +» +attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» +provide incentives for achieving specific near-term individual, business unit and corporate goals and reward the attainment of those goals at pre-established +levels; +» +provide incentives for achieving longer-term financial goals and to reward the attainment of those goals at pre-established levels; and +» +align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +The program balances fixed compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives), and rewards annual +performance while maintaining emphasis on longer-term objectives. The program also blends cash, non-cash, long- and short-term compensation components, and current and future compensation components. The Committee considers qualitative and +quantitative factors when setting compensation. Each NEO’s compensation mix and cash-to-equity ratio depends on his or her responsibilities, experience, skills, and potential to affect Wolverine Worldwide’s overall performance. In general, +an NEO’s compensation and the proportion of compensation that is variable increases as the NEO’s level of responsibilities increases. The Committee believes the CEO has the broadest scope of responsibilities and typically approves higher +compensation for the CEO than for any other NEO. The Board believes this executive compensation philosophy has successfully generated sustained superior performance over the long term. +NEO Compensation Program Components +Pay Element +What the Pay Element Rewards +Purpose of the Pay Element +Base Salary +» Core +responsibilities, years of service with the Company and experience in similar positions at other companies, skills, and knowledge +» Provide a regular and stable source of income to +NEOs +Page 27 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Pay Element +What the Pay Element Rewards +Purpose of the Pay Element +Annual Incentive Compensation +» Achieving +specific corporate business objectives over which the NEO has reasonable control +» Achieving specific division business objectives over which the NEO has +reasonable control +» Achieving specific personal +objectives +» Focus NEOs on +specific annual goals that contribute to Wolverine’s long-term success +» Provide annual performance-based cash compensation +» Align participants on important annual performance metrics +Long Term Incentive +Compensation +» Focusing on +long-term corporate business objectives +» Focusing on driving +long-term stockholder value +» Continuing employment with the +Company during the vesting period +» More closely +align NEOs’ interests with stockholders’ interests +» Reward NEOs for building stockholder value +» Encourage long-term investment in Wolverine by participating +NEOs +» Retain NEOs +Supplemental Employee +Retirement Plan +» Focusing on +long-term corporate business objectives +» Continuing long-term +employment with the Company during the five-year vesting period and long-term value accumulation period +» Provide +retirement benefits that NEO participants would have received under the broad-based plan in the absence of the IRS limits +» Provide retirement security +» Attract and retain NEOs +Retirement and Welfare Benefits +» The other retirement and welfare benefits are part +of Wolverine Worldwide’s broad-based total compensation program available to full-time employees of the Company. +» Encourage long-term commitment to Wolverine +Worldwide by NEOs and assist Wolverine Worldwide in attracting and retaining talented NEOs. +2011 Compensation Actions +The Company provided stockholders a “say-on-pay” advisory vote on its executive compensation in 2011 under recently adopted rules under Section 14A +of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. At the Company’s 2011 Annual Meeting of Stockholders, stockholders expressed substantial support for the compensation of the Company’s NEOs, with almost 97% +of the votes cast for approval of the “say-on-pay” advisory vote. The Committee carefully evaluated the results of the 2011 advisory vote, in connection with its evaluation of the Company’s executive compensation programs more +generally. Taking into account the results of the say-on-pay vote, along with other factors such as the Company’s corporate business objectives and the Committee’s review of peer group data (as discussed in more detail below), the +Committee did not make any changes to the Company’s executive compensation program and policies as a result of the 2011 “say-on-pay” advisory vote. +Base Salary +As part of approving an NEO’s base salary, the Compensation Committee considers the +scope of his or her responsibilities, years of service with the Company and in similar positions at other companies, skills, and knowledge. The Committee also considers market conditions, economic conditions, and Wolverine Worldwide’s +compensation philosophy. For NEOs who are promoted and Wolverine Worldwide employees who are promoted to NEO positions, the Committee approves the NEO’s base salary after considering the above factors. For NEOs hired from outside the Company, +the Committee sets the NEO’s base salary, based on management’s arms-length negotiation with the NEO. After hiring or promotion, the Committee approves changes to an NEO’s base salary to reflect increased experience, changes in +responsibilities, years of service, and market information. The CEO provides input to all these decisions, except in the case of his own compensation. The Committee, with management’s assistance, reviews NEO base salaries approximately every 12 +months. In setting each NEO’s base salary for 2011, the Committee considered, in addition to the factors listed above, the NEO’s current base salary, base salary in comparison to Peer Group data (as discussed in more detail below), +total +Page 28 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +direct compensation, performance, and target percent increases for the Company’s employees as a group. These factors are considered by the Committee subjectively, and no single factor +or combination of factors was determinative in setting each NEO’s base salary. Base salary increases for the NEOs were consistent with base salary increases for the Company’s employees generally. For 2011, the Committee approved +base salary increases for the NEOs as follows: +Name +2011 Base Salary +2010 Base Salary +Krueger +$ +821,500 +$ +775,000 +Grady +$ +260,500 +$ +250,500 +Grimes +$ +416,000 +$ +400,000 +Linton +$ +311,000 +$ +302,000 +McBreen +$ +359,000 +$ +350,000 +Zwiers +$ +425,000 +$ +400,000 +Annual Incentive Compensation +Each NEO has the opportunity to earn an annual bonus (“Annual Bonus”) under the Annual Bonus Plan and an individual performance bonus (“Individual Performance Bonus”) under the Individual +Performance Bonus Plan. The Committee believes these annual incentive compensation opportunities should stay competitive with comparable opportunities at companies of similar size to Wolverine Worldwide and companies with whom Wolverine Worldwide +competes to hire NEOs. +Early each year, the Committee sets Annual Bonus performance criteria, with input from the CEO, based on performance criteria +for the Company, a business unit, or a combination. The specific criteria for each NEO depend on which parts of the business the NEO reasonably influences and his or her experience level. Early each year, the Committee certifies actual performance +achieved with respect to the prior year criteria. In addition, the CEO recommends, and the Committee approves, an Individual Performance Bonus for each NEO other than the CEO. The Committee determines the CEO’s Individual Performance Bonus. In +any given year, an NEO might earn one, both, or neither of the bonuses. +Also early each year, the Committee sets the CEO’s Individual Performance +Bonus personal objectives and the CEO approves the other NEOs’ personal objectives. Personal objectives may include elements such as executing strategies supporting Wolverine Worldwide’s vision, developing employees, supporting social and +environmental responsibility, growing new business initiatives and driving operational excellence. Performance under the Individual Performance Bonus Plan is evaluated subjectively, generally based on a number of qualitative factors. +At the same time, the Committee sets an annual incentive compensation target percentage for each NEO, expressed as a percentage of the NEO’s base salary (the +“Target Percentage”). In setting annual bonus levels and annual bonuses as a percentage of total direct compensation, the Committee considers experiences with job candidates during compensation negotiations, and each NEO’s experience +level and responsibilities compared to other NEOs. The Committee considers these factors subjectively, and no single factor or combination of factors was determinative in setting each NEO’s Target Percentage. In 2011, the Committee increased +Mr. Zwiers’ Target Percentage because it believed it was appropriate to compensate Mr. Zwiers at a higher level given his responsibilities as President of the Outdoor Group. +Generally, the Committee sets higher Target Percentages for individuals with greater influence on business strategy and/or profits and sales. This puts a larger percentage of an NEO’s total potential cash +compensation “at risk.” At “target” performance under both Plans, an NEO could receive 100% of his or her Target Percentage bonus opportunity. For 2011, each NEO’s total bonus opportunity under the Plans ranged from 0% to +200% of his or her Target Percentage. This range was consistent with the 2010 bonus opportunity. +The Committee based the 2011 Annual Bonus for each NEO +on actual performance against the criteria, weighted by the applicable percentages, and then multiplied the result by the Target Percentage. The Committee based the 2011 Individual Performance Bonus on each NEO’s performance compared to his or +her personal objectives, weighted by the applicable percentage, and then multiplied the result by the Target Percentage. +Page 29 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Annual Incentive Compensation +Component as a Percentage of Target Percentage +Annual Bonus Percentage By +Company or Business Unit as a Percentage of Target Percentage +Name +Total 2011 +Actual Annual +Incentive +Compensation 1 +2011 +Target +Percentage +2010 +Target +Percentage +Total Individual +Performance +Bonus as a +Percentage of +Target Percentage +Company 2 +Global +Operations +Group 3 +Human +Resources 4 +Outdoor +Group 5 +Retail +Group 5 +Krueger +$1,238,247 +100% +100% +15% +85% +Grady +$118,212 +30% +30% +15% +85% +Grimes +$346,087 +55% +55% +15% +85% +Linton +$225,216 +45% +45% +15% +65% +20% +McBreen 6 +- +50% +50% +15% +20% +65% +Zwiers +$366,800 +55% +50% +15% +20% +50% +15% +1 +Includes the NEO’s Annual Bonus payout and the Individual Performance Bonus payout. +2 +The Committee approved revenue and pre-tax earnings performance criteria for the Company, as described below under “ 2011 Annual Bonuses. ” +3 +The Committee approved a combination of metrics as performance criteria for the Global Operations Group: pretax profit and net sales (Leathers 10%); financial +performance, quality goal and productivity (US Manufacturing – Bates 10%); financial performance, quality goal and productivity (Dominican Republic Manufacturing 10%); and actual expenses, speed-to-market, product costs and quality measurements +compared to 2011 planned targets (Sourcing 35%). +4 +The Committee approved actual Department expenses compared to projected expenses in the Human Resources Department’s fiscal year 2011 operating plan as the +2011 performance criterion for the Human Resources Department. +5 +The Committee approved revenue and pre-tax earnings as the performance criteria for each of the Outdoor Group and the Retail Group. +6 +Mr. McBreen’s employment with the Company ceased on September 9, 2011, and, therefore, he was not entitled to an Individual Performance Bonus +payout or Annual Bonus under the Company’s Annual Bonus Plan. +2011 Annual Bonuses +The Compensation Committee set fiscal year 2011 revenue and pre-tax earnings as the Company’s 2011 performance criteria, using four performance levels: +threshold (50% payout), target (100% payout), goal (150% payout) and stretch (200% payout). Revenue is weighted 35% and pre-tax earnings 65% of the Company component (as shown in the above table) of the annual incentive compensation opportunity. The +Committee selected these criteria, with input from management and the independent compensation consultant, because it believed there is a strong correlation between performance on these financial measures and stockholder value. The Committee set the +2011 performance levels following discussion with management and a review of the Company’s operating plan, historical performance, and economic conditions facing the Company. +Performance Level +(% of Target Payout) 1 +Revenue 2 +Pre-tax Earnings 2 +Threshold (50%) +$ +1,329.6 Million +$ +156.6 Million +Target (100%) +$ +1,369.6 Million +$ +164.4 Million +Goal (150%) +$ +1,394.6 Million +$ +170.8 Million +Stretch (200%) +$ +1,415.0 Million +$ +177.9 Million +1 +The maximum payout an NEO can receive is 200% of the payment earned at his or her Target Percentage, even if performance is above stretch, and an NEO would +receive 0% of his or her Target Percentage if performance is below threshold. +2 +Not including the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges or extraordinary items excluded by the +Compensation Committee. +The Committee also approved performance criteria based on revenue and pre-tax earnings for the +Global Operations Group, Outdoor Group, Retail Group and Human Resources Department based on the criteria described above. The Committee approved four performance levels for each business unit performance criteria: threshold (50% payout), target +(100% payout), goal (150% +Page 30 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +payout) and stretch (200% payout). These metrics are used to determine a portion of the bonus awarded to Mr. Zwiers and Ms. Linton. The performance levels for the business unit +performance criteria were set at substantially similar difficulty levels as the levels set for the Company performance criteria. The Committee approved target performance goals for the business units at levels that it believed the units could +achieve under strong management performance, based on a review of each business unit’s historical performance and its fiscal year 2011 operating plan. The following table shows historical achievement levels for the business unit on the blended +performance criteria, for those years when the performance criteria were the same as the 2011 performance criteria: +2011 +2010 +2009 +2008 +2007 +Global Operations Group * +Between +threshold and +target +Between goal +and stretch +N/A +N/A +N/A +Human Resources Department +Above stretch +Between goal +and stretch +Above stretch +N/A +N/A +Outdoor Group +Above stretch +Above stretch +Between goal +and stretch +Between goal +and stretch +Between goal +and stretch +Retail Group +Between zero +and threshold +Above stretch +Above stretch +Between +threshold and +target +Below +threshold +* +Mr. McBreen’s employment with the Company ceased on September 9, 2011, and, therefore, he was not eligible for an Annual Bonus under the Company’s Annual +Bonus Plan. +Wolverine Worldwide’s fiscal year 2011 revenue was $1,409.1 million which was between the goal and stretch performance +levels, resulting in a payout of 185% of target for this performance measure. Wolverine’s pre-tax earnings for fiscal year 2011 were $168.9 million, which was between the target and goal performance levels, resulting in a payout of 135% of +target for this performance measure. The Outdoor Group’s revenue of $582.4 million and pre-tax earnings both exceeded stretch, resulting in an overall payout of 200% of target. The Retail Group’s revenue was between target and goal, +resulting in an overall payout of 108% of target, and its performance on pre-tax earnings was below threshold (which corresponds to a payout of 0% of target), resulting in an overall payout of 38% of target. The Human Resource Department’s +performance was above stretch on actual Department expenses compared to projected expenses in the Department’s 2011 operating plan, resulting in an overall payout of 200% of target. For 2011, the Company paid the NEOs the following bonuses +under the Annual Bonus Plan: +Name +Annual Bonus +Opportunity +(as a % of an NEO’s Target +Percentage) +Annual Bonus +Percentage Earned +Annual Bonus Paid * +Krueger +0 – 200% +153% +$1,055,422 +Grady +0 – 200% +153% +$100,758 +Grimes +0 – 200% +153% +$294,988 +Linton +0 – 200% +164% +$193,902 +McBreen +0 – 200% +0% +- +Zwiers +0 – 200% +160% +$314,801 +* +Not including Individual Performance Bonus. Mr. McBreen’s employment with the Company ceased on September 9, 2011, and, therefore, he was not eligible for an +Annual Bonus under the Company’s Annual Bonus Plan. +Page 31 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +2011 Individual Performance Bonuses +The Individual Performance Bonus payout ranges from 0% to 200% of an NEO’s Target Percentage: +Personal Objectives Score +2011 Payout Level +95-100% +200% +90-95% +175% +80-90% +150% +70-80% +100% +60-70% +50% +Less than 60% +0% +The Committee approves Individual Performance Bonuses for NEOs other than the CEO, based on the CEO’s recommendation, and the +Committee and the independent directors of the Board approve the Individual Performance Bonus for the CEO. The Committee and the independent directors of the Board met with the CEO at the end of the year to evaluate his performance compared to his +personal objectives set at the beginning of the year. At the end of the year, NEOs other than the CEO provide to the CEO self-evaluations of their performance against their personal objectives for the year. The CEO evaluates NEOs’ performance +against their personal objectives and recommends to the Compensation Committee an Individual Performance Bonus award for each NEO. The CEO provides his self-evaluation to the Compensation Committee and the other independent directors of the Board, +and the Compensation Committee and other independent directors approve an Individual Performance Bonus for the CEO. The personal objectives are specific to each NEO and are subjective. The personal objectives for fiscal 2011 for the NEOs were: +NEO +Personal Objectives +Krueger +Employee development, revenue growth, consumer-direct business expansion, supply chain improvements, and new business development +Grady +Management of legal expense, process improvements, compliance program development, and employee development +Grimes +Employee development, investor relations, new business development, productivity initiatives, and business analytics +Linton +Employee development, enhancing organization structure, process improvements +McBreen * +Operations performance, streamlining supply chain management, employee development +Zwiers +Employee development, revenue growth, retail expansion, and operational improvements +* +Mr. McBreen’s employment with the Company ceased on September 9, 2011. +For 2011, the Compensation Committee (and the independent directors, as applicable) approved the following NEO Individual Performance Bonuses: +Name +2011 +Individual Performance +Bonus Opportunity +(as a % of an NEO’s Target +Percentage) +Personal Objectives Score +2011 +Individual Performance Bonus +Percentage Awarded +2011 +Individual +Performance +Bonus Paid * +Krueger +0 – 200% +85.0% +150% +$182,825 +Grady +0 – 200% +85.9% +150% +$17,454 +Grimes +0 – 200% +82.5% +150% +$51,099 +Linton +0 – 200% +88.5% +150% +$31,314 +McBreen +0 – 200% +- +- +- +Zwiers +0 – 200% +82.4% +150% +$51,999 +* +Does not include Annual Bonus. Mr. McBreen’s employment with the Company ceased on September 9, 2011, and, therefore, he was not +eligible for an Individual Performance Bonus. +Page 32 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Long-Term Incentive Compensation +Each NEO has the opportunity to earn long-term incentive compensation in the form of (1) performance shares under the Company’s Long-Term Incentive Plan +and stock incentive plans, (2) stock option grants, and (3) restricted stock awards. +Long-Term Incentive Performance +Share Bonuses +Each NEO has the opportunity to earn long-term incentive compensation under the Company’s Long-Term Incentive Plan +(“LTIP”), stock incentive plans, or both based on performance criteria covering three-year periods (“3-Year Bonus”). The Compensation Committee believes that NEO long-term incentive compensation opportunities should stay +competitive with comparable opportunities at companies of similar size to Wolverine Worldwide and companies with whom Wolverine Worldwide competes to hire NEOs. Early in the first year of each three-year period, the Committee approves the three-year +period performance criteria. Early in the year following the end of the three-year period, the Committee certifies actual performance compared to the period performance criteria. +3-Year Performance Share Bonus (Fiscal 2009-2011) +In February 2009, the Committee established two +performance criteria for the performance period 2009-2011: (1) business value added (“BVA”), and (2) fully diluted earnings per share. BVA is calculated by starting with operating income determined in accordance with U.S. +generally accepted accounting principles (“GAAP”), and then reducing operating income by (1) an amount for income taxes where the effective tax rate used to calculate the income tax amount is determined accordance with GAAP, and +(2) a capital charge equal to a 14-point average of “net operating assets” during the fiscal year (with “net operating assets” defined as the net of trade receivables (net of reserves), inventory (net of reserves), other +current assets, property, plant and equipment, trade payables and accrued liabilities), multiplied by 10%. The Committee believes that BVA is useful for determining incentive compensation, because it ties the income statement (profit delivery) to +the balance sheet (effective asset utilization) and does not focus on one to the exclusion of the other. The Committee further believes that focusing NEOs’ interests on increasing BVA would align their interests more closely with +stockholder interests, and that BVA is superior to total shareholder return (which the Company used before BVA as a metric for incentive compensation) in measuring management’s long-term influence over the Company’s performance. The +Committee believed using BVA and EPS would balance the NEOs’ focus on near-term profitability with longer-term shareholder value. The Committee weights EPS 65% and BVA 35% when determining the overall performance level. The following table +lists performance levels set by the Committee in February 2009: +Performance Level +(Percentage of Target Payout) +Cumulative EPS +for the 2009- +2011 Period* +Cumulative BVA +for the 2009-2011 +Period +(Millions) * +Threshold (50%) +$ +4.71 +$ +131.1 +Target (100%) +$ +4.96 +$ +140.1 +Goal (150%) +$ +5.22 +$ +149.3 +Stretch (200%) +$ +5.49 +$ +159.9 +* +Not including the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges or extraordinary items excluded by the Compensation +Committee. +The Committee evaluated Wolverine Worldwide’s performance for the period 2009-2011 against +these criteria and certified that Wolverine Worldwide’s performance on the EPS criterion was $6.42 (adjusted to exclude restructuring and other transition and non-recurring costs), falling above the stretch performance level, and Wolverine +Worldwide’s performance on the BVA criterion was $204.4 (adjusted to exclude restructuring and other transition and non-recurring costs), also falling above the stretch performance level. The earnings per share performance (200%) was +weighted 65% and the BVA performance (200%) was weighted 35%, for an overall performance of 200% resulting in a number of shares vesting under the awards (on a weighted average basis) equal to 200% +Page 33 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +of the number of shares that would have vested under target performance. The NEOs received the following number of vested shares under the 3-Year Bonus for the performance period 2009-2011: +Name +Shares Vesting +(#) +Krueger +63,821 +Grady +7,341 +Grimes +21,491 +Linton +12,156 +McBreen * +- +Zwiers +15,768 +* +Mr. McBreen’s employment with the Company ceased on September 9, 2011, and, therefore, he was not eligible for a 3-Year Bonus with respect to the +performance period 2009-2011 under the Company’s 3-Year Bonus Plan. +3-Year Performance Share Bonus (Fiscal 2011-2013) +In 2011, the Committee evaluated each NEO’s long-term incentive target payout opportunity expressed as a percentage of base salary. It considered the +Company’s recruiting experiences; each NEO’s experience and responsibilities; the NEO’s performance; and competition with other footwear, apparel and retail companies for candidates. The Committee considers these factors subjectively, +and no single factor or combination of factors was determinative for any NEO. The Committee decided to set the NEOs’ Target Percentage (expressed as a percentage of the NEO’s base salary, similar to the Annual Bonus) for the 2011-2013 +3-Year Bonus opportunity, as follows: +Name +2011-2013 +Percent +2010-2012 +Percent +Krueger +75 +% +75 +% +Grady +25 +% +25 +% +Grimes +50 +% +50 +% +Linton +35 +% +35 +% +McBreen +45 +% +45 +% +Zwiers +50 +% +50 +% +In February 2011, the Committee awarded performance shares to each NEO with a value equal to the maximum bonus payout the NEO could +earn as the 3-Year Bonus for the performance period 2011-2013. The Committee weighted the earnings per share criterion at 65% of the total payout and weighted the BVA performance criterion at 35% of the payout of the three-year performance share +bonus for the performance period 2011-2013, which was consistent with the 2010 performance share grant. The Committee intended the level of difficulty in attaining threshold, target, goal and stretch performance levels it set for the performance +period 2011-2013 to be substantially similar to the level of difficulty in attaining the performance levels for the performance period 2010-2012. The Committee granted the awards under the Company’s Stock Incentive Plan of 2010. The award +details are in the table “ Grants of Plan-Based Awards ” on page 42. The Company accrues, but does not pay, dividends on +the performance shares during the performance period. Early in the year following the end of the performance period 2011-2013, the Committee will certify the Company’s performance compared to the performance criteria. The restrictions on none, +some or all of the performance shares awarded to each NEO will lapse at that time, and the NEO will receive accrued dividends only on the shares actually earned. +Stock Option Grants and Restricted Stock Awards +The Compensation Committee believes that NEO stock +ownership benefits stockholders. The Company has granted stock options and awarded restricted stock to NEOs and other executives for many decades. The Committee administers the stock incentive plans for stock option grants and restricted stock +awards. It approves the amount of and terms applicable to all grants and awards (except for grants to the CEO, which the Committee approves together with the other independent directors). In addition to annual grants and awards, the Committee may +approve special grants or awards to NEOs, such as a grant or award to a new hire or for a promotion. +Page 34 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +When granting equity awards, the Committee considers the NEO’s position, +responsibilities, service years, performance, previous equity grants, and market information. Management provides input to the Committee regarding equity award decisions. The Committee compares NEO equity awards to market information as part of +evaluating NEO total long-term incentive compensation at target to broader compensation trends. In general, the Committee gives more weight to position and responsibilities. +A stock option’s exercise price is set at the closing price of the Company’s common stock on the grant date. The Committee grants annual equity awards at its regularly scheduled February meeting. The +independent directors of the Board approve equity grants to the CEO at the same time. A stock option grant typically vests one-third each year over three years. The restrictions on restricted stock awards typically lapse 25% on each of the third and +fourth anniversary and 50% on the fifth anniversary of the award. +The total value of the equity award to each NEO (the combined total grant date fair +value for the stock options and restricted stock, not including the performance share awards) is based on the prior year’s equity award, adjusted by a percentage determined by the Committee. In 2011, the Committee used the percentage ranges of +base salary set out in the table below as guidelines for the total value of the equity award as a percentage of each NEO’s base salary. The ranges used as guidelines did not change from 2010. For 2011, the actual total value of the equity award +was determined using a percentage increase over the prior year’s award. When setting the percentage increase, the Committee considered the amount of the prior year’s total equity award to each NEO, the percentage of the NEO’s total +compensation that would be reflected by the equity award, the change in total compensation for the NEO compared to the prior year, equity awards to each NEO in recent years, and whether the total value of the equity award fell within the guidelines, +but no single factor or combination of factors was determinative in setting the percentage increase. For 2011, the Committee used a 10% increase for Mr. Krueger, and a 3% increase for each of the other NEOs, in the total value of the equity +award, based on the Committee’s evaluation of Mr. Krueger’s performance and his total compensation package, including his compensation compared to market information and peer group data provided by Towers Watson. The “ Grants +of Plan-Based Awards ” table on page 42 shows the actual grants and awards for 2011. +Name +2011 +Actual % of Base Salary +Awarded +2011 +% of Base Salary +Guideline Range +Krueger +154.5 +% +130-170 +% +Grady +59.6 +% +50-70 +% +Grimes +87.0 +% +80-110 +% +Linton +76.2 +% +50-80 +% +McBreen +73.9 +% +50-80 +% +Zwiers +85.2 +% +80-110 +% +The restricted stock award, not including performance shares, was approximately 60%, and the stock option grants were approximately +40%, of the combined value of the equity awarded to each NEO. These were the same approximate percentages as in 2010 and in the past five years. The Committee believed this mix was appropriate based on the fact that restricted stock promotes +retention and stock options incentivize stock price performance. +Compensation Consultant and Market Comparisons +The Compensation Committee has authority under its Charter to engage the services of outside advisors, experts and others to assist the Committee. In accordance +with this authority, in 2008 the Committee, with input from management, retained Towers Watson as an independent executive compensation consultant to advise the Committee on all matters related to executive compensation. Towers Watson reports +directly to the Compensation Committee for executive compensation services, and the Committee approves their services, and has the authority to terminate Towers Watson with respect to such services. Towers Watsons’s services to the Committee +are limited to those matters on which Towers Watson has specifically been engaged and may include executive compensation trends, equity grant philosophies and practices, tally sheet design and specific position competitive data. +In 2011, the Committee asked Towers Watson to review and provide assistance for developing peer groups from which compensation data was collected to assist the +Committee in setting NEO compensation, competitive market assessment, pay-for-performance assessment, review of the Company’s long-term incentive plan design, review of the compensation discussion and analysis portion of the proxy statement, as +well as provide briefings from time to time on legislative and regulatory matters related to executive compensation. +Page 35 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +With Towers Watson’s input, the Compensation Committee established a Peer Group +comprised of the following companies: +Ann, Inc. +Brown Shoe Co., Inc. +Carter’s, Inc. +Chico’s FAS, Inc. +Collective Brands, Inc. +Columbia Sportswear Company +Deckers Outdoor Corp. +DSW, Inc. +G-III Apparel Group, Ltd. +Genesco, Inc. +The Jones Group, Inc. +Kenneth Cole Productions, Inc. +Maidenform Brands, Inc. +Perry Ellis International, Inc. +Quiksilver, Inc. +Skechers USA, Inc. +Steven Madden, Ltd. +The Talbots, Inc. +Under Armour, Inc. +Warnaco Group, Inc. +The Company and Towers Watson used three criteria to screen companies for the Peer Group. The three criteria +were: (1) Global Industry Classification Standard (“GICS”) code; (2) revenues; and (3) market capitalization. All Peer Group companies fall within the same 2-digit GICS code as Wolverine Worldwide, and 13 share the same +6-digit GICS code. Peer Group companies have revenue ranging from 0.5 times to 2.1 times Wolverine Worldwide’s revenue, and Wolverine Worldwide’s revenue places it at the 37 th percentile of the Peer Group. The Peer Group companies have market capitalizations ranging from 0.2 times to 5 times Wolverine +Worldwide’s market capitalization, and Wolverine Worldwide’s market capitalization places it at the 67 th percentile of the Peer Group. +The Committee also considered information presented by Towers Watson based on four +published compensation surveys: (1) 2011/2012 Towers Watson Data Services Survey Report on Top Management Compensation – Retail and Wholesale Trade Industry Cut, (2) 2011 Towers Watson Compensation Database Executive Database – +Retail/Wholesale Executive Database, (3) 2011 US Mercer Benchmark Database, Executive – Retail Industry Cut; and (4) Towers Watson Data Services 2010/2011 Database on Long-Term Incentives, Policies & Practices. +When the Committee established the CEO’s compensation package for 2012, it was advised by Towers Watson that the projected compensation for the CEO at the +target performance level would be below the projected 2012 median compensation for CEOs of companies in an adjusted Peer Group at target performance levels by approximately 18%. The Committee excluded six companies from the Peer Group when +making the comparison, as these companies have CEO compensation packages which reflect the status of the CEO as a major shareholder of the company (such as a founder) and the Committee believes such compensation packages do not reflect market +comparable compensation for the Company’s CEO. The 2012 CEO compensation approved by the Committee is approximately 12% below the projected 2012 median compensation of the CEOs compensation for the adjusted Peer Group. +The Committee uses surveys and Peer Group information as a market reference point. The Committee believes that compensation levels in the footwear, apparel and +retail industries typically exceed levels reported in general industry surveys. The Committee also considers information the Company learns through recruiting NEOs and the experience levels and responsibilities of NEOs prior to joining the Company +as reference points in setting NEO compensation. The total annual expense for Towers Watson’s executive compensation work in 2011 was approximately $82,600. +In 2011, Towers Watson also was engaged by Wolverine Worldwide to perform actuarial services and pension plan consulting that are not part of the executive compensation services provided to the Committee. These +services were performed on an interim and annual basis for financial reporting purposes. The total annual expense for this work was approximately $267,800. +Other Compensation Policies and Practices +The dates of the Compensation Committee’s and Board’s +February meetings at which annual grants are made generally are scheduled at least one year in advance. The Compensation Committee also has delegated to the CEO the authority to award restricted stock and grant stock options to employees, other than +himself and other NEOs, during the period from the February 2011 regular meeting of the Compensation Committee until the February 2012 meeting of the Compensation Committee, to recognize outstanding performance by employees. The restricted stock +awards for the February 2011 to February 2012 period could not exceed 17,000 shares in aggregate and the stock options 11,067 options in aggregate. +Page 36 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +NEO Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that NEOs maintain a minimum stock ownership level (including, for up to 50% of the applicable ownership +requirement, restricted stock awards and performance shares but not stock options) to align further the interests of these individuals with the stockholders. +Covered Positions +Guideline +CEO +5x Annual Base Salary +Other NEOs +2x Annual Base Salary +Each NEO must meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. The +CEO and all other NEOs who have been with Wolverine Worldwide for at least five years meet the ownership requirement. +Perquisites +The Company provides limited perquisites to NEOs in order to provide a competitive total compensation package. These include reimbursement for tax, +financial planning and estate planning services. The Company did not provide gross ups to the NEOs for the taxes due on the value of the perquisites. +Retirement and Welfare Benefits +The NEOs participate in Wolverine Worldwide’s medical and dental plans +and receive life and disability insurance. Subject to variations to account for requirements in local jurisdictions, variances in local compensation structure (for example, as applicable to Wolverine Worldwide’s employees in the United States +versus certain overseas offices), and to requirements under collective bargaining agreements, all Wolverine Worldwide employees receive the same health and welfare benefit opportunities. The NEOs also participate in the Wolverine Worldwide +Employees’ Pension Plan (a defined benefit plan) and the Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (an unfunded, non-qualified plan). For a description of the benefits under Wolverine Worldwide’s retirement +plans, see “ Pension Plans and 2011 Pension Benefits ” below. +Impact of Accounting and Tax Treatments on Compensation +Section 162(m) of the Internal Revenue Code provides that publicly held companies may not deduct compensation paid to the CEO and the three +next most highly-paid executive officers (other than the CFO) in excess of $1,000,000 annually, with certain exceptions for qualified “performance-based” compensation. Wolverine Worldwide has designed its Annual Bonus Plan, LTIP, and stock +incentive plans, to permit certain awards payable under these plans that are intended to qualify as “performance-based” compensation for purposes of Section 162(m). Incentives under these plans, other than time-based restricted stock +awards, were not included in the $1,000,000 limit for purposes of calculating Wolverine Worldwide’s deduction for compensation paid to its NEOs for 2011. Wolverine Worldwide does not require all of its compensation programs to be fully +deductible under Section 162(m) because Wolverine Worldwide believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Wolverine Worldwide may pay +compensation that does not qualify as performance-based compensation. +Post-Employment Compensation +Each NEO is party to an Executive Severance Agreement that provides for certain payments and benefits upon termination of employment after a change in control of +Wolverine Worldwide. The Board believes Executive Severance Agreements will promote management stability during the transition period accompanying a change in control. Each NEO is eligible to receive compensation if his or her employment is +terminated within two years (Messrs. Grady, Grimes, Zwiers and Ms. Linton) or three years (Mr. Krueger) following a change in control of Wolverine Worldwide. The Compensation Committee believes this “double trigger” requirement of +(1) change in control, and (2) termination of employment, is appropriate because a change in control does not, in many circumstances, materially harm an NEO unless his or her employment with the Company is terminated. None of the Executive +Severance Agreements requires an NEO to mitigate payments by seeking employment, but they do reduce compensation paid +Page 37 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +during the fourth and later months after termination by an amount equal to any other compensation earned by the NEO during that period. An NEO does not receive payment under the Executive +Severance Agreement if his or her employment terminates: +» +due to death or retirement in accordance with Wolverine Worldwide’s policy or as otherwise agreed; +» +for cause or disability; or +» +by resignation of the NEO for other than “good reason,” which includes the assignment of duties inconsistent with the NEO’s status as a senior +executive officer or the duties performed by the NEO immediately before a change in control, a reduction in the NEO’s annual base salary or relocation of the NEO. +All NEOs also may be eligible under Wolverine Worldwide’s retirement plans or equity plans to receive certain payments and benefits upon termination of employment or in connection with a change in control. The +Compensation Committee believes that single-trigger accelerated vesting is appropriate in some circumstances, because by protecting a significant component of the NEO’s total compensation, the acceleration of equity vesting (1) mitigates +potential conflicts of interest that might arise between the NEOs and the stockholders, and (2) serves as a substantial incentive for those NEOs to obtain the highest possible value for the stockholders if the Company becomes an acquisition +target. The Compensation Committee also retains the discretion to modify or eliminate the accelerated vesting. +Mr. Krueger also is party to a +Separation Agreement under which he receives certain payments and benefits if the Company terminates his employment other than for “cause” or if he terminates his employment for “good reason.” The Compensation Committee +determined upon appointing Mr. Krueger as CEO that, given the Company’s strategic initiatives the Board had asked him to lead, it was appropriate for the Company to enter into a separation arrangement. You will find information on benefits +payable to Mr. Krueger and each other NEO and the specific elements comprising the payment under the Separation Agreement, Executive Severance Agreements, and other retirement and equity plans of Wolverine Worldwide, in the “ Potential +Payments Upon Termination or Change in Control ” section of this proxy statement. +COMPENSATION +COMMITTEE REPORT +The Compensation Committee has reviewed and discussed with management the information provided under the heading +“Compensation Discussion and Analysis.” Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Company include the Compensation Discussion and Analysis section in this proxy statement +and incorporate it by reference into the Company’s Annual Report on Form 10-K. +Respectfully submitted, +Michael A. Volkema (Chairperson), William K. Gerber, Joseph R. Gromek, David T. Kollat +Page 38 +Table of Contents +[THIS PAGE INTENTIONALLY LEFT +BLANK] +Page 39 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +SUMMARY +COMPENSATION TABLE +Name and Principal Position +Year +Salary 1 +Stock +Awards 2 +Blake W. Krueger +Chairman, CEO and President +2011 +$ +812,558 +$1,675,335 +2010 +$ +767,308 +$1,437,675 +2009 +$ +735,000 +$1,591,179 +Kenneth A. Grady +General Counsel and Secretary +2011 +$ +258,577 +$188,083 +Donald T. Grimes +Senior Vice President, CFO, Treasurer and Chief Accounting Officer 7 +2011 +$ +412,923 +$524,643 +2010 +$ +397,115 +$467,425 +2009 +$ +385,000 +$510,665 +Pamela L. Linton +Senior Vice President, Global Human +Resources 7 +2011 +$ +309,269 +$304,200 +2010 +$ +300,077 +$271,200 +2009 +$ +292,000 +$309,588 +Michael F. McBreen 8 +Former President, Global Operations Group +2011 +$ +260,615 +$397,175 +2010 +$ +345,192 +$354,175 +2009 +$ +325,000 +$383,110 +James D. Zwiers +Senior Vice President and President, Outdoor Group +2011 +$ +420,192 +$531,335 +2010 +$ +388,462 +$467,425 +2009 +$ +327,308 +$382,708 +1 +Includes any amounts deferred under the Company’s qualified 401(k) plan. +2 +Includes restricted stock grants and performance share grants. Restricted stock was valued using the Wolverine Worldwide common stock closing market price on the +NYSE on the grant date. Performance shares granted in 2011 were valued in the table above using the closing market price of Wolverine common stock on the NYSE on the date of grant assuming performance between target (100% payout) and goal (150% +payout) level, consistent with the assumptions used at the time of grant under FASB ASC Topic 718. The aggregate grant date fair value of performance shares granted in 2011, assuming payout at maximum (stretch) performance, for each NEO (and, in +parenthesis, the grant date fair value of performance share grants for 2011 using maximum (stretch) performance assumptions plus grant date fair value of restricted stock grants for 2011) would have been: $1,424,387 ($2,183,379) for +Mr. Krueger; $150,558 ($241,783) for Mr. Grady; $480,865 ($696,156) for Mr. Grimes; $251,635 ($393,946) for Ms. Linton; $373,475 ($530,382) for Mr. McBreen; and $491,265 ($706,556) for Mr. Zwiers. Restrictions on the +shares issued under the 2011 performance share grant will lapse in 2014, if at all, based on the Company’s performance for 2011-2013. For additional valuation assumptions, see the “ Stock-Based Compensation ” heading under Note 1 +to Wolverine Worldwide’s Consolidated Financial Statements for the fiscal year ended December 31, 2011. +3 +Represents the aggregate grant date fair value of stock options granted in the years shown, calculated in accordance with FASB ASC Topic 718. Stock options were +valued using the Black-Scholes model. For additional valuation assumptions, see the “Stock-Based Compensation” heading under Note 1 to Wolverine Worldwide’s Consolidated Financial Statements for the fiscal year ended December 31, +2011. +Page 40 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +SUMMARY COMPENSATION +TABLE (CONTINUED) +Option Awards 3 +Non-Equity Incentive Plan +Compensation 1,4 +Change in Pension Value +and Nonqualified +Deferred Compensation +Earnings 5 +All Other Compensation 6 +Total +$509,899 +$1,238,247 +$2,696,772 +$34,032 +$6,966,843 +$452,264 +$2,044,138 +$1,605,769 +$16,212 +$6,323,366 +$409,584 +$1,484,262 +$1,568,139 +$12,792 +$5,800,596 +$63,998 +$118,212 +$38,801 +$9,521 +$677,192 +$146,726 +$346,087 +$108,411 +$12,975 +$1,551,765 +$138,267 +$595,910 +$61,859 +$13,400 +$1,673,986 +$127,995 +$376,952 +$43,539 +$45,970 +$1,490,121 +$94,696 +$225,216 +$144,408 +$7,635 +$1,085,424 +$91,951 +$364,765 +$100,096 +$7,635 +$1,135,724 +$81,064 +$281,825 +$82,369 +$9,776 +$1,056,622 +$108,223 +- +- +$4,177 +$770,190 +$103,530 +$419,723 +$38,577 +$9,753 +$1,270,950 +$89,567 +$209,682 +$27,476 +$21,549 +$1,056,414 +$146,726 +$366,800 +$230,137 +$16,611 +$1,711,801 +$138,267 +$531,493 +$112,175 +$19,341 +$1,657,163 +$92,290 +$361,189 +$111,020 +$14,066 +$1,288,581 +4 +For 2011, reflects amounts earned in 2011 and paid in 2012 under both the Annual Bonus Plan and the Individual Performance Bonus Plan. For 2010, reflects amounts +earned in 2010 and paid in 2011, and for 2009, reflects amounts earned in 2009 and paid in 2010, under the Annual Bonus Plan, Individual Performance Bonus Plan and 3-Year Bonus Plan. +5 +All amounts in this column reflect the aggregate change in the actuarial present value of the NEOs’ accumulated benefits under the Wolverine Worldwide +Employees’ Pension Plan and Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (“SERP”). The amounts in the table were determined using assumptions consistent with those used in Wolverine Worldwide’s +Consolidated Financial Statements for each respective year. See the “ Pension Plan and 2011 Pension Benefits ” section starting on page 47. The changes in the pension and SERP amounts from 2010 to 2011 are the result of changes in +each NEO’s years of service, various accounting assumptions, and salary changes. +6 +The amounts listed in this column for 2011 include Wolverine Worldwide’s matching contributions to the accounts of the NEOs under Wolverine Worldwide’s +401(k) Money Accumulation Plan, payments made by Wolverine Worldwide for the premiums on certain life insurance policies, and tax and estate planning services in the amounts listed in the table below. The NEOs did not receive tax gross ups on these +payments. +Name +401(k) Match +Life Insurance Premiums +Tax and Estate Planning +Krueger +$ +7,350 +$ +3,842 +$ +22,840 +Grady +$ +7,070 +$ +2,451 +- +Grimes +$ +7,350 +- +$ +5,625 +Linton +$ +7,350 +- +$ +285 +McBreen +- +$ +1,802 +$ +2,375 +Zwiers +$ +7,350 +$ +2,851 +$ +6,410 +7 +Mr. Grimes and Ms. Linton are not vested in their benefits under the Wolverine Worldwide Employees’ Pension Plan or Wolverine World Wide, Inc. +409A Supplemental Executive Retirement Plan, but the amount reported under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” assumes that each is fully vested. +8 +Mr. McBreen’s employment with the Company ceased on September 9, 2011. +Page 41 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +GRANTS +OF PLAN-BASED AWARDS IN FISCAL 2011 +The following table provides information concerning each grant of an award made to the NEOs in +fiscal year 2011: +Estimated Possible Payouts Under +Non-Equity Incentive Plan +Awards 1 +Estimated Possible Payouts Under +Equity Incentive Plan +Awards 2 +Name +Award +Type +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +All Other +Stock +Awards: +Number of +Shares +of +Stock or +Units 3 +(#) +All Other +Option +Awards: +Number +of +Securities +Underlying +Options 4 +(#) +Exercise or +Base Price +of Option +Awards 5 +($/Share) +Grant Date +Fair Value 6 +($) +Krueger +Annual Bonus +$410,750 +$821,500 +$1,643,000 +FY11-FY13 +Performance +Shares +2/9/11 +9,759 +19,518 +39,035 +$916,343 +Stock Options +2/9/11 +49,000 +$36.49 +$509,899 +Restricted +Stock +2/9/11 +20,800 +$758,992 +Grady +Annual Bonus +$39,075 +$78,150 +$156,300 +FY11-FY13 +Performance +Shares +2/9/11 +1,032 +2,063 +4,126 +$96,858 +Stock Options +2/9/11 +6,150 +$36.49 +$63,998 +Restricted +Stock +2/9/11 +2,500 +$91,225 +Grimes +Annual Bonus +$114,400 +$228,800 +$457,600 +FY11-FY13 +Performance +Shares +2/9/11 +3,295 +6,589 +13,178 +$309,352 +Stock Options +2/9/11 +14,100 +$36.49 +$146,726 +Restricted +Stock +2/9/11 +5,900 +$215,291 +Linton +Annual Bonus +$69,975 +$139,950 +$279,900 +FY11-FY13 +Performance +Shares +2/9/11 +1,724 +3,448 +6,896 +$161,889 +Stock Options +2/9/11 +9,100 +$36.49 +$94,696 +Restricted +Stock +2/9/11 +3,900 +$142,311 +Page 42 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Estimated Possible Payouts Under +Non-Equity Incentive Plan +Awards 1 +Estimated Possible Payouts Under +Equity Incentive Plan +Awards 2 +Name +Award +Type +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +All Other +Stock +Awards: +Number of +Shares +of +Stock or +Units 3 +(#) +All +Other +Option +Awards: +Number of +Securities +Underlying +Options 4 +(#) +Exercise or +Base Price +of Option +Awards 5 +($/Share) +Grant Date +Fair Value 6 +($) +McBreen 7 +Annual Bonus +$89,750 +$179,500 +$359,000 +FY11-FY13 Performance Shares +2/9/11 +2,559 +5,118 +10,235 +$240,268 +Stock Options +2/9/11 +10,400 +$36.49 +$108,223 +Restricted +Stock +2/9/11 +4,300 +$156,907 +Zwiers +Annual Bonus +$116,875 +$233,750 +$467,500 +FY11-FY13 Performance Shares +2/9/11 +3,366 +6,732 +13,463 +$316,044 +Stock Options +2/9/11 +14,100 +$36.49 +$146,726 +Restricted +Stock +2/9/11 +5,900 +$215,291 +1 +Estimated payout levels relating to each NEO’s participation in the Annual Bonus Plan and Individual Performance Bonus Plan. For a description of these +Plans and the payout under them, see pages 29-32. +2 +Estimated payout levels of performance shares granted under the Stock Incentive Plan of 2010 relating to each NEO’s participation in the 3-Year Bonus +(Fiscal 2011-2013). Following the end of the performance period 2011-2013, restrictions may lapse on some, all or none of the performance shares depending upon the Company’s achievement of the relevant performance criteria. The Company accrues, +but does not pay, dividends on the performance shares during the performance period. At the end of the performance period, the Company will pay to the NEO the accrued dividends (if any) on the performance shares for which the restrictions lapse. For +a description of this Plan and the payout under it, see pages 33-35. +3 +The Company awarded restricted stock awards under the Stock Incentive Plan of 2010 for all NEOs. The restrictions on 25% of the shares received under the +awards reflected in this column normally lapse on the third anniversary of the date of the award, with the restrictions on an additional 25% of the shares lapsing on the fourth anniversary and the restrictions with respect to the remaining 50% of +the shares lapsing on the fifth anniversary. All restrictions on shares of restricted stock lapse upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service. In the event of a change in +control, as described under the “ Benefits Upon a Change in Control Only ” heading on page 50, restrictions lapse on all shares. Holders of restricted stock are entitled to receive dividends and to vote the restricted shares. +4 +The Company granted stock options under the Stock Incentive Plan of 2010 for all NEOs. Stock options granted to NEOs vest ratably over three years beginning on +the first anniversary of the grant date and have a term of ten years. All stock options vest upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service. In the event of a change in +control, as described under the “ Benefits Upon a Change in Control Only ” heading on page 50, all stock options vest. +5 +The exercise price is equal to the closing market price of shares of Wolverine Worldwide common stock on the date of grant. +6 +Represents the grant date fair value for stock options, and award date fair value for performance share and restricted stock awards, made in fiscal year 2011, +computed as described in footnotes 3 and 4 to the “ Summary Compensation Table .” +7 +Mr. McBreen’s employment with the Company ceased on September 9, 2011. +Page 43 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +OUTSTANDING +EQUITY AWARDS AT 2011 FISCAL YEAR-END +The following table provides information concerning unexercised options and stock awards that +have not vested for each NEO outstanding as of December 31, 2011: +Option Awards +Stock Awards +Name +Grant Date +Number of +Securities +Underlying +Unexercised +Options +Exercisable +(#) +Number of +Securities +Underlying +Unexercised +Options +Unexercisable 1 +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units +of +Stock That +Have Not +Vested 2 +(#) +Market Value +of Shares or +Units of +Stock +That Have Not +Vested 3 +($) +Equity Incentive +Plan Awards: +Number +of +Unearned Shares, +Units or Other +Rights That Have +Not Vested 4 +(#) +Equity Incentive +Plan Awards: +Market +or +Payout Value of +Unearned +Shares, Units or +Other rights +That Have Not +Vested 3 +($) +Krueger +Various +110,900 +$ +3,952,476 +Various +150,765 +$ +5,373,265 +2/12/2003 +22,500 +- +$ +10.51 +2/12/2013 +2/18/2004 +23,063 +- +$ +15.37 +2/18/2014 +10/25/2004 +15,030 +- +$ +20.08 +2/11/2013 +2/9/2005 +26,200 +- +$ +23.04 +2/8/2015 +12/27/2004 +6,303 +- +$ +20.73 +2/17/2014 +12/27/2004 +2,269 +- +$ +20.73 +2/18/2014 +2/15/2006 +26,650 +- +$ +22.47 +2/14/2016 +2/7/2007 +36,896 +- +$ +30.26 +2/6/2017 +4/19/2007 +6,700 +- +$ +29.47 +4/18/2017 +2/6/2008 +60,000 +- +$ +25.05 +2/5/2018 +2/10/2009 +64,000 +32,000 +$ +17.11 +2/9/2019 +2/10/2010 +22,134 +44,266 +$ +25.00 +2/9/2020 +2/9/2011 +- +49,000 +$ +36.49 +2/8/2021 +Grady +Various +15,150 +$ +539,946 +Various +16,901 +$ +602,352 +10/16/2006 +1,500 +- +$ +27.71 +10/15/2016 +2/7/2007 +7,600 +- +$ +30.26 +2/6/2017 +2/6/2008 +4,644 +- +$ +25.05 +2/5/2018 +2/10/2009 +- +4,500 +$ +17.11 +2/9/2019 +2/10/2010 +- +5,600 +$ +25.00 +2/9/2020 +2/9/2011 +- +6,150 +$ +36.49 +2/8/2021 +Grimes +Various +30,225 +$ +1,077,219 +Various +51,154 +$ +1,823,129 +5/27/2008 +16,000 +- +$ +28.28 +5/26/2018 +2/10/2009 +20,000 +10,000 +$ +17.11 +2/9/2019 +2/10/2010 +6,767 +13,533 +$ +25.00 +2/9/2020 +2/9/2011 +- +14,100 +$ +36.49 +2/8/2021 +Linton +Various +21,325 +$ +760,023 +Various +27,764 +$ +989,509 +2/6/2008 +16,000 +- +$ +25.05 +2/5/2018 +2/10/2009 +12,667 +6,333 +$ +17.11 +2/9/2019 +2/10/2010 +4,500 +9,000 +$ +25.00 +2/9/2020 +2/9/2011 +- +9,100 +$ +36.49 +2/8/2021 +McBreen 5 +- +- +- +- +- +- +- +- +- +Page 44 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Option Awards +Stock Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +Exercisable +(#) +Number of +Securities +Underlying +Unexercised +Options +Unexercisable 1 +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units +of +Stock That +Have Not +Vested 2 +(#) +Market Value +of Shares or +Units of +Stock +That +Have Not +Vested 3 +($) +Equity Incentive +Plan Awards: +Number +of +Unearned Shares, +Units or Other +Rights That Have +Not Vested 4 +(#) +Equity Incentive +Plan Awards: +Market +or +Payout Value of +Unearned Shares, +Units or Other +rights That Have +Not Vested 3 +($) +Zwiers +Various +28,575 +$ +1,018,413 +Various +45,716 +$ +1,629,318 +2/12/2003 +3,175 +- +$ +10.51 +2/11/2013 +2/18/2004 +6,525 +- +$ +15.37 +2/18/2014 +12/20/20.04 +1,606 +- +$ +20.80 +2/17/2014 +12/9/2005 +8,600 +- +$ +23.04 +2/8/2015 +2/15/2006 +8,600 +- +$ +22.47 +2/14/2016 +2/7/2007 +7,600 +- +$ +30.26 +2/6/2017 +2/6/2008 +16,000 +- +$ +25.05 +2/5/2018 +2/10/2009 +12,667 +6,333 +$ +17.11 +2/9/2019 +4/22/2009 +1,334 +666 +$ +21.79 +4/21/2019 +2/10/2010 +6,767 +13,533 +$ +25.00 +2/9/2020 +2/9/2011 +- +14,100 +$ +36.49 +2/8/2021 +1 +All unexercisable options become exercisable on the vesting date. The normal vesting period for options is one-third of the shares on each of the first three +anniversaries of the date of the grant. Full vesting occurs on the third anniversary date of the grant. Stock option vesting may accelerate upon certain events, including death, disability or voluntary termination after attaining age 62 or age 50 +with seven years of service, as further described in the “ Grants of Plan Based Awards ” section. +2 +The following table sets forth the vesting dates for the unvested restricted stock awards of each NEO as of December 31, 2011: +Named +Executive +Officer +Vesting Date +Number of Shares to Vest +Krueger +2/6/2012 +5,000 +2/7/2012 +6,950 +2/10/2012 +10,000 +4/19/2012 +1,150 +2/6/2013 +10,000 +2/10/2013 +16,750 +2/10/2014 +26,750 +2/9/2014 +5,200 +2/9/2015 +5,200 +2/10/2015 +13,500 +2/9/2016 +10,400 +Grady +2/6/2012 +900 +2/7/2012 +1,350 +2/10/2012 +1,250 +2/6/2013 +1,800 +2/10/2013 +1,250 +2/10/2013 +900 +2/9/2014 +625 +2/10/2014 +2,500 +2/10/2014 +900 +2/9/2015 +625 +2/10/2015 +1,800 +2/9/2016 +1,250 +Page 45 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Named +Executive +Officer +Vesting Date +Number of Shares to Vest +Grimes +2/10/2012 +3,000 +5/27/2012 +1,375 +2/10/2013 +5,050 +5/27/2013 +2,750 +2/9/2014 +1,475 +2/10/2014 +8,050 +2/9/2015 +1,475 +2/10/2015 +4,100 +2/9/2016 +2,950 +Linton +2/6/2012 +1,375 +2/10/2012 +2,000 +2/6/2013 +2,750 +2/10/2013 +3,325 +2/9/2014 +975 +2/10/2014 +5,325 +2/9/2015 +975 +2/10/2015 +2,650 +2/9/2016 +1,950 +McBreen +n/a 5 +n/a +5 +Zwiers +2/6/2012 +1,375 +2/7/2012 +1,350 +2/10/2012 +2,000 +4/22/2012 +250 +2/6/2013 +2,750 +2/10/2013 +4,050 +4/22/2013 +250 +2/9/2014 +1,475 +2/10/2014 +6,050 +4/22/2014 +500 +2/9/2015 +1,475 +2/10/2015 +4,100 +2/9/2016 +2,950 +3 +The dollar values are calculated using a per share stock price of $35.64, the closing price of Wolverine Worldwide common stock as of the end of fiscal year +2011. +4 +Following the end of the applicable three-year performance period, restrictions may lapse on some, all or none of the performance shares depending upon the +Company’s achievement of the relevant performance criteria. +5 +Mr. McBreen’s employment with the Company ceased on September 9, 2011, and he had no outstanding unvested grants as of December 31, 2011. +Page 46 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +OPTION +EXERCISES AND STOCK VESTED IN FISCAL 2011 +Option Awards +Stock Awards +Number of +Shares +Acquired +on +Exercise +(#) +Value +Realized +on +Exercise +($) +Number of +Shares +Acquired +on +Vesting +(#) +Value +Realized +on +Vesting* +($) +Krueger +58,865 +$1,037,447 +16,550 +$596,987 +Grady +17,156 +$264,605 +2,325 +$83,470 +Grimes +- +- +1,375 +$53,460 +Linton +- +- +1,375 +$48,290 +McBreen +35,067 +$567,378 +1,375 +$58,699 +Zwiers +2,936 +$82,444 +3,750 +$134,619 +* +The Company calculates the dollar values using the closing price of Wolverine Worldwide common stock on the date of vesting. +PENSION +PLANS AND 2011 PENSION BENEFITS +Wolverine Worldwide maintains the following defined benefit retirement plans covering NEOs: +(1) the Wolverine Worldwide Employees’ Pension Plan (“Pension Plan”), which is a funded and tax-qualified defined benefit plan under the Internal Revenue Code that covers eligible employees, and (2) the Wolverine World Wide, +Inc. 409A Supplemental Executive Retirement Plan (“SERP”), which is an unfunded non-qualified plan that covers individuals recommended by the CEO and approved by the Compensation Committee for participation in the SERP. The following +describes the material features of the pension plans presented in the “ Pension Benefits ” table. +Qualified Pension Plan +NEOs vest in the Pension Plan after five years of qualifying service. Subject to the limitations imposed by the Internal Revenue Code, the Pension +Plan generally pays an NEO a monthly benefit in an amount equal to a percentage of the NEO’s final average monthly earnings multiplied by his or her number of years of service. The Pension Plan caps years of service at 25 (30 for non-SERP +participants). The percentages are 2.4% for Mr. Krueger and 2.0% for Messrs. Grimes, McBreen, Zwiers and Ms. Linton, and 1.6% for Mr. Grady. “Earnings” as used in this formula generally includes base salary and annual bonus, +less social security allowance, and for 2011 was capped at $245,000, the IRS limit applicable to tax-qualified plans. +Upon retirement, an NEO +participant may elect to receive the benefit in the form of a life annuity, 5- or 10-year certain annuities, or joint and 50%, joint and 75%, or joint and 100% survivor annuities. The payments are actuarially adjusted based on the election. Any +election, other than an election to receive life annuity benefits, reduces the monthly benefit payable. The “normal” retirement age under the plan is age 65. None of the NEOs currently are eligible to begin drawing early retirement +benefits under the Pension Plan. +Supplemental Executive Retirement Plan +Wolverine Worldwide offers NEOs the opportunity to participate in the SERP, which provides retirement benefits above amounts available under the Company’s tax-qualified pension programs. An NEO’s SERP +benefit generally equals the difference between the NEO’s retirement benefit under Pension Plan and the benefits the NEO would have received if there were no cap on earnings when calculating the pension plan benefit. The SERP caps years of +service at 25. The SERP also allows a retired NEO who has five years of service to draw earlier (beginning at age 55) and on different terms than under the Pension Plan. An NEO’s earnings percentage multiplier is the same under the SERP as it +is under the Pension Plan. The Compensation Committee may grant additional deemed years of service to an NEO, subject to the cap of 25 years. Under Mr. Krueger’s compensation arrangement as CEO, he is credited with an additional deemed +year of service under the SERP for each year he serves as CEO until he reaches the 25-year cap, which he will reach in 2012. The full benefit of any additional years of deemed service is paid under the SERP. +If a retired NEO draws the SERP benefit prior to age 65, the reduction factor is 0.333% for each month prior to age 60, and 0.1666% for each month between age 60 +and age 65. As of the end of fiscal year 2011, Mr. Krueger was the only NEO eligible to retire and begin drawing early retirement benefits under the SERP. +Page 47 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +SERP benefits are paid monthly, and the SERP has a lump sum payment option in the event +of death or termination of employment after a change in control. The SERP also includes a disability benefit and a death benefit payable to the NEO’s designated beneficiary if the NEO dies before retiring. The SERP provides for lump sum +payments to participating NEOs if, within two years (Messrs. Grimes, McBreen, Zwiers and Ms. Linton) or three years (Mr. Krueger) after a change in control the NEO resigns for good reason or is terminated by Wolverine other than for cause or +due to death or disability. Mr. Grady is not a participant in the SERP. +The SERP also contains non-competition, confidentiality and employee +non-solicitation provisions in favor of Wolverine Worldwide. Under the SERP non-competition provisions, an NEO is not entitled to any benefit payment if, prior to the date on which such benefit payment is due, the participant enters into certain +relationships with a competing business. If the NEO’s employment is terminated for serious misconduct or if Wolverine Worldwide cannot collect under an insurance policy purchased to fund SERP benefits for certain reasons, the Company may +terminate an NEO’s benefits under the SERP. Wolverine Worldwide may terminate the SERP or stop further accrual of SERP benefits for a participating NEO at any time, but termination will not affect previously accrued benefits. +Pension Benefits in Fiscal Year 2011 +The following table +provides for each NEO certain information concerning each plan that provides for payments or other benefits at, following, or in connection with retirement: +Name +Plan +Name +Number +of Years +Credited +Service +(#) +Present +Value of +Accumulated +Benefit 1 +($) +Payments +During +Last +Fiscal +Year +($) +Krueger +Pension Plan +16 +$765,924 +- +SERP 2 +24 +$7,132,537 +- +Grady +Pension Plan +5 +$123,832 +- +SERP 3 +- +- +- +Grimes +Pension +Plan 3 +4 +$99,235 +- +SERP 3 +4 +$126,032 +- +Linton +Pension +Plan 3 +4 +$202,776 +- +SERP 3 +4 +$163,507 +- +McBreen +Pension +Plan 3 +4 +- +- +SERP 3 +4 +- +- +Zwiers +Pension Plan +14 +$259,342 +- +SERP +14 +$318,094 +- +1 +These values are as of December 31, 2011, and are calculated assuming the participants will commence their benefits at age 65 (in the form of the annuity +elected by the NEO) and use the 2011 PPA static mortality tables and a 5.42% interest rate. +2 +The present value of Mr. Krueger’s accumulated benefit under the SERP has increased by $2,632,820 as a result of three additional service years that +were granted to him under the SERP in 1996 in recognition of his service as a member of Wolverine Worldwide’s executive team for three years before becoming a participant in the SERP, and five additional deemed years of service granted as part +of Mr. Krueger’s CEO compensation. The present value of Mr. Krueger’s SERP benefit would be $4,499,717 if 16 service years were used to calculate his benefit. Mr. Krueger will reach 25 years of service in 2012, the maximum +years of service permitted under the SERP, and will not accrue any further years of service under the SERP. +3 +Messrs. Grimes and Ms. Linton are not vested in the pension plan or the SERP. The amount in the table was calculated using the assumption that each of them +was fully vested. Mr. Grady is vested in the pension plan, but is not a participant in the SERP. Mr. McBreen’s employment with the Company ceased on September 9, 2011, and he was not vested in the pension plan or SERP at the time +he left the Company. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +Wolverine Worldwide has entered into an Executive Severance Agreement with each of the +NEOs that provides certain rights including the right to receive payments in the event of a termination of employment in connection with a change in control. The Company also has entered into an agreement with Mr. Krueger regarding certain +termination benefits in the event of termination of his employment under certain circumstances. +Page 48 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Benefits Triggered by Termination for Cause or Voluntary Termination +An NEO is not entitled to receive any additional forms of severance payments or benefits upon termination for cause or upon the NEO’s voluntary decision to +terminate employment with Wolverine Worldwide prior to being eligible for retirement. +Benefits Triggered by Termination Other Than for Cause or by +the NEO for Good Reason +Mr. Krueger entered into a Separation Agreement on March 13, 2008, which states that upon termination of his +employment other than termination by Wolverine Worldwide for Cause or termination by Mr. Krueger without Good Reason, as such terms are defined in the Separation Agreement, Wolverine Worldwide will pay Mr. Krueger the following payments in +exchange for a general release in favor of Wolverine Worldwide: (1) continued base salary for 18 months (reduced by payments he receives if he is employed by a Competing Business, as defined in the Separation Agreement); (2) a lump sum pro +rata portion of the annual incentive bonus and the long-term bonus for all uncompleted performance periods based on actual corporate performance for the applicable performance periods; (3) a lump sum pro rata portion of the annual individual +performance bonus relating to personal performance objectives; (4) retiree medical benefits for Mr. Krueger, his spouse and dependents for a period starting on the day after the termination date and ending on the last day of the 18th month +following the month in which the termination date falls; and (5) with respect to any triggering termination occurring before Mr. Krueger’s 60th birthday, either a waiver of the three-year non-competition clause in the SERP or a lump +sum payment of 36 months’ base salary. Mr. Krueger also will be paid any annual incentive bonus and long-term incentive bonus earned but not paid prior to his termination. +“Cause” generally is defined in Mr. Krueger’s Separation Agreement to mean: (1) any act or omission knowingly undertaken or omitted with the intent of causing material damage to Wolverine +Worldwide; (2) any intentional act involving fraud, misappropriation or embezzlement, that causes material damage to Wolverine Worldwide; (3) repeated willful failure to substantially perform any of his significant duties as reasonably +directed by the Board of Directors of Wolverine Worldwide; (4) a conviction (including any plea of guilty or nolo contendere) of any criminal act that (a) results in the executive serving prison time and not being able to perform the +normal duties of his position for more than thirty (30) days; or (b) causes material damage to Wolverine Worldwide; or (5) chronic or habitual use or consumption of drugs or alcohol that causes material damage to Wolverine Worldwide. +“Good Reason” generally is defined in Mr. Krueger’s Separation Agreement to mean: (1) a material reduction in base +compensation, including a reduction in base salary or opportunities under Wolverine Worldwide’s bonus plans or equity plans (other than those implemented for the executive team as a whole); (2) a material reduction in authority, duties, or +responsibilities; (3) a requirement to report to a Company officer or employee instead of reporting directly to the Board of Directors; or (4) certain relocations, other than those related to a change in the location of Wolverine +Worldwide’s headquarters affecting a majority of the executive team. +Benefits Triggered Upon a Change in Control +Benefits Upon Termination Following a Change in Control. Under the Executive Severance Agreements entered into with the NEOs, payments and +benefits are triggered when Wolverine terminates employment without “cause” or when an executive terminates employment for “good reason” within two years (Messrs. Grady, Grimes, Zwiers and Ms. Linton) or three years (Mr. +Krueger) following a change in control of Wolverine Worldwide. Mr. McBreen’s employment with the Company ceased on September 9, 2011, and his Executive Severance Agreement terminated as of the date he left the Company. +Wolverine Worldwide pays the lump sum severance payment under the Executive Severance Agreement, and the payment is composed of the following: (1) unpaid base +salary, benefit awards (including both cash and stock) and bonus payments that have been earned; (2) in lieu of a bonus payment under the Annual Bonus Plan, an amount equal to the number of days the NEO was employed by Wolverine Worldwide in +the year of termination divided by the number of days in the year multiplied by 100% of the greater of either (a) the bonus awarded to the NEO under an Annual Bonus Plan for the preceding year or (b) the average paid to the NEO over the +preceding two-year period under an Annual Bonus Plan; (3) in lieu of payments under the various three-year performance periods, an amount equal to the bonus the NEO would have received based on actual and assumed performance measures, +multiplied by the number of days the NEO participated in the performance period prior to the termination, divided by the total number of days in the performance period (in determining the earnings per share or other performance measures that can be +determined annually for any year subsequent to the year of termination, performance will equal the level required to attain the maximum goal under the three year plan for that year); (4) either two (Messrs. Grady, Grimes, Zwiers and +Ms. Linton) or three +Page 49 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +(Mr. Krueger) times the sum of (a) the NEO’s highest annual rate of base salary during the 12-month period prior to termination; and (b) the greater of the average amount +earned by the NEO during the previous two years or the previous year under the Annual Bonus Plan; (5) 100% of the positive spread for any options held by the NEO whether or not vested; (6) an excise tax gross-up adjustment; and +(7) the present value of an additional three years of deemed service under the retirement plans. Upon a termination of employment in connection with a change of control, Wolverine Worldwide will maintain for up to six months the employee +benefit plans, programs or arrangements that the NEO was entitled to participate in immediately prior to the termination date. Wolverine Worldwide will provide outplacement services through the last day of the second calendar year following the +calendar year of termination. +Excise Tax Gross-Up. The Compensation Committee previously determined that Wolverine Worldwide would +not provide excise tax gross-up payments in employment agreements entered into after 2008. +“Change in control” under the Executive Severance +Agreements generally means certain changes in composition of the Board of Directors, certain acquisitions of 20% or more of Wolverine Worldwide’s common stock or combined outstanding voting power of Wolverine Worldwide, and other specified +reorganizations, mergers, consolidations, liquidations, dissolutions or distributions of substantial assets (unless such transactions result in the creation of an entity in which at least 50% of the common stock and combined voting power is owned by +the owners of record prior to the transaction, no single stockholder owns more than 20% of the combined voting power and a majority of the board remains unchanged). +“Cause” is defined under the Executive Severance Agreements to generally mean the willful and continued failure to substantially perform duties or willfully engaging in gross misconduct that is injurious +to Wolverine Worldwide. +“Good Reason” is defined under the Executive Severance Agreements generally to mean: (1) any materially adverse +change in position, duties, responsibilities or title or any removal, involuntary termination or failure to re-elect an officer; (2) a reduction in annual base salary; (3) any relocation or requirement to substantially increase business +travel; (4) the failure to continue providing any executive incentive plans or bonus plans; (5) the failure to continue any employee benefit plan or compensation plan unless a comparable plan is available; (6) the failure to pay any +salary, bonus, deferred compensation or other compensation; (7) the failure to obtain an assumption agreement from any successor; (8) any purported termination of the employment which is not effected in a manner prescribed by the Executive +Severance Agreement; or (9) any other material breach by Wolverine Worldwide or a successor of its obligations under the Executive Severance Agreement. +Benefits Upon a Change in Control Only. Under the stockholder-approved equity plans, upon a change in control of Wolverine Worldwide, all of each NEO’s outstanding stock options become +immediately exercisable in full and will remain exercisable during their remaining term, regardless of whether the NEO remains in the employ or service of Wolverine Worldwide. The Compensation Committee may determine that one or all of the NEOs +shall receive cash in an amount equal to the positive spread amount. In addition, all other outstanding incentive awards of the NEOs, including shares of restricted stock, become immediately and fully vested and non-forfeitable upon a change in +control of Wolverine Worldwide. Change in control for this purpose generally means certain changes in the composition of the Board of Directors, certain acquisitions of 20% of Wolverine Worldwide’s common stock and other specified +reorganizations, mergers, consolidations, liquidations, dissolutions or dispositions of substantial assets. +Benefits Triggered by Retirement, Death +or Permanent Disability +Pension Plan . In the event of death before retirement, the Pension Plan provides the surviving spouse of a +vested NEO participant a death benefit equal to the qualified pre-retirement survivor annuity as defined in the Internal Revenue Code (generally 50% of the participant’s accrued normal retirement benefit). This benefit is paid annually to the +surviving spouse beginning when the NEO participant would have turned 60 and continues for the life of the surviving spouse. For NEO participants with at least three years of service as of December 31, 2003, and who have at least 10 years of +service and are employed by Wolverine Worldwide at the time of death, the amount of the survivor benefit under the Pension Plan is calculated as though the NEO participant had continued as an employee of Wolverine Worldwide until age 65 at the +compensation level as of the date of death and the benefit begins upon the date of death, unreduced for early commencement. The survivor benefit for NEO participants who meet all the criteria set forth in the preceding sentence, but who die when +they are not employed by Wolverine Worldwide are entitled to a joint and survivor benefit commencing upon the date of death, unreduced for early commencement. +Page 50 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +SERP . If an NEO dies before beginning to receive benefits under the +SERP, Wolverine Worldwide must (based on the current elections by all of the NEOs) pay the beneficiary a lump sum death benefit equal to the present value of the benefit computed as if the NEO participant had retired on the date of death, had begun +receiving benefits at age 55 and had continued to receive benefits for the remainder of the participant’s life expectancy. If the participant dies after beginning to receive benefit payments, benefits cease unless the NEO participant was +receiving benefits in the form of one of the joint and survivor annuity optional elections under the plan or had elected benefits in a form that provides for a continuation of benefits. +If an NEO becomes totally and permanently disabled, the SERP provides a disability benefit equal to 60% of the normal retirement accrued benefit based upon years of service up to the date that the NEO participant +became disabled through the date the NEO participant reaches age 65 (at which point, the NEO participant would begin drawing full SERP benefits) or is no longer disabled. +Incentive Compensation Plans . Upon termination of employment at least six months after the beginning of a fiscal year due to death, disability or early or normal retirement, an NEO is entitled to +receive a pro rata portion of any Annual Bonus award earned under the Annual Bonus Plan based on the NEO’s service during such fiscal year. The Annual Bonus is payable at the same time and in the same manner as awards are paid to other NEOs for +the fiscal year. With respect to performance shares, upon death, disability or early or normal retirement, an NEO will be eligible to receive a pro rata portion of any shares upon which restrictions lapse under each open performance cycle for which +the NEO served at least 12 months. If an award is payable at the end of the performance period, the award is prorated for service during the applicable performance cycle. Any prorated award is payable at the time awards are paid to other NEOs. +Stock Incentive Plans . Upon death, disability or early or normal retirement of the NEO, the restrictions applicable to his or her +shares of restricted stock (excluding performance shares) terminate automatically and stock options vest in full if held for more than one year or, if employed for less than one year after the grant, on a percentage basis based on months employed +after the grant divided by 12. An NEO is eligible for early retirement under the stock incentive plans upon voluntarily terminating employment after attaining age 50 with seven years of service. Upon death, disability or early or normal retirement +of the NEO, the restrictions on performance shares lapse on a prorated basis, based on months employed in the performance period and actual Company performance during the performance period. +Description of Restrictive Covenants that Apply During and After Termination of Employment +The SERP contains +non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine Worldwide. Under the non-competition provisions of the SERP, the NEO participant will not be entitled to any benefit payment if, prior to the date on +which such benefit payment is due, the NEO participant enters into certain relationships with a competing business. +Estimated Payments on +Termination or Change in Control +The following table summarizes the potential payments and benefits payable to each of Wolverine Worldwide’s +NEOs upon a change in control or termination of employment in connection with each of the triggering events set forth in the table, assuming in each situation that the termination of employment or change in control of Wolverine Worldwide took place +on December 31, 2011. The amounts described below are in addition to benefits that are generally available to the Company’s employees such as distributions under the Company’s 401(k) savings plan, disability or life insurance benefits +and accrued vacation. Due to the many factors that affect the nature and amount of any benefits provided upon the termination events discussed below, any actual amounts paid or distributed to NEOs may be different. Factors that may affect these +amounts include timing during the year of the occurrence of the event, Wolverine Worldwide’s stock price and the NEO’s age. +The value of the +accelerated vesting of unvested equity-based compensation awards was computed using the closing market price ($35.64) of Wolverine Worldwide’s common stock on December 30, 2011, the last business day in the fiscal year. The value for +unvested restricted stock is computed by multiplying $35.64 by the number of unvested shares of restricted stock held by the NEO. The value of unvested stock options equals the difference between the exercise price of each option and $35.64. No +value was attributed to accelerated vesting of a stock option if its exercise price was greater than $35.64. +Page 51 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Termination Event and Payments/Benefits +Krueger +Grady +Grimes +Linton +McBreen 13 +Zwiers +Termination by Company for Cause or Voluntary Termination +- +- +- +- +- +- +Termination by Company Other Than for Cause or by Executive for Good Reason +$5,565,238 +1 +- +- +- +- +- +Change in Control Termination 2 +Executive Severance Agreement 3 +$28,866,751 +$1,725,816 +$5,616,672 +$3,843,383 +- +$5,997,871 +Benefits under Executive Severance +Agreement 4 +$49,200 +$47,677 +$45,782 +$46,683 +- +$49,186 +Stock Incentive Plans 5 +$5,016,426 +$682,915 +$1,406,510 +$973,133 +- +$1,288,979 +Lump sum payment under the SERP 6 +$15,834,373 +- +$620,390 +$590,022 +- +$865,073 +Death +SERP 7 +$10,669,808 +- +$447,447 +$446,859 +- +$258,161 +Pension Plan 8 +$886,777 +$64,716 +- +- +- +$932,324 +Stock Incentive Plans 5 +$4,892,898 +$668,089 +$1,371,476 +$949,967 +- +$1,253,945 +Earned Incentive Compensation 9 +$4,131,029 +$448,224 +$1,335,046 +$771,603 +- +$1,152,585 +Disability +SERP 10 +$9,934,623 +- +$488,895 +$414,389 +- +$925,543 +Stock Incentive Plans 5 +$4,892,898 +$668,089 +$1,371,476 +$949,967 +- +$1,253,945 +Earned Incentive Compensation 9 +$4,131,029 +$448,224 +$1,335,046 +$771,603 +- +$1,152,585 +Retirement +SERP 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Pension Plan 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Stock Incentive Plans 5, 12 +$4,892,898 +- +- +$949,967 +- +- +Earned Incentive Compensation 12 +$4,131,029 +- +- +- +- +- +Change in Control Only +Stock Incentive +Plans 5 +$5,016,426 +$682,915 +$1,406,510 +$973,133 +- +$1,288,979 +1 +The estimate for Mr. Krueger assumes that the Company waives the non-compete clause in Mr. Krueger’s SERP and assumes target performance under the +performance periods 2010-2012 and 2011-2013. Actual payout or vesting, if any, would be determined and made at the end of the period. Performance shares assumed to vest for purposes of the estimate for the performance periods 2009-2011, 2010-2012 +and 2011-2013 were valued at $35.64, the closing price of the Company’s stock on the last business day of 2011. The amount reflected in the table also includes an estimated cost of $10,605 for retiree medical benefits for 18 months and the +estimated cost of $25,000 for out-placement services. +2 +Payments would be triggered after termination of employment under certain circumstances within two years (Messrs. Grady, Grimes, Zwiers and Ms. Linton) or +three years (Mr. Krueger) following a change in control. The timing of the payment would be delayed to the extent earlier payment would trigger Section 409A of the Tax Code. +3 +Includes amounts payable in cash under the terms of the Executive Severance Agreement, excluding the value of the cash payout to each NEO of the option spread +for already vested options. See the “ Outstanding Equity Awards at Fiscal Year-End ” table above for more information regarding each NEO’s vested options as of December 31, 2011. The value of unvested options and time-vested +restricted shares that vest upon a change in control under the terms of the Company’s stock incentive plans are included in the Stock Incentive Plans row. +4 +These estimates assume that Wolverine Worldwide maintains the benefit plans for a period of one year after termination and the out-placement services for a +period beginning with the date of termination and ending on the last day of the second calendar year following the calendar year in which the date of termination occurred. +5 +Reflects the value of unvested stock options and shares of restricted stock that would vest because of the event. Restricted shares are valued and the option +spread determined using a value of $35.64 per share, the closing price of the Company’s stock on the last business day of fiscal year 2011. +6 +Amounts in this row reflect the entire lump sum benefit payable to each NEO, including any accumulated benefit. For a description of the SERP, see +“ Supplemental Executive Retirement Plan ” under the heading “ Pension Plans and 2011 Pension Benefits .” The timing of the payment would be delayed to the extent earlier payment would trigger Section 409A of the +Tax Code. +7 +Amounts in this row reflect the entire lump sum death benefit payable to a participating NEO’s beneficiary, including any accumulated benefit. +8 +Amounts reflect the net present value of the annuity paid to the surviving spouse calculated using the same discount rate and mortality assumptions used in the +Pension Benefits table. In accordance with the terms of the Pension Plan, the death benefit for Messrs. Krueger and Zwiers was calculated as though +Page 52 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +the NEO had continued as an employee of Wolverine Worldwide until age 65 at the compensation level as of the date of death. Mr. Grimes and Ms. Linton were not vested in the Pension Plan +as of December 31, 2011, so no death benefit would be payable to any surviving spouse. +9 +Under the Annual Bonus Plan and the terms of performance share awards, each NEO may be eligible to receive a pro rata portion of any award if employment is +terminated as a result of the event. The amount reported represents actual payout under the Annual Bonus Plan for fiscal year 2011, actual payout under the 2009-2011 performance cycle of the LTIP, and for the 2010-2012 and 2011-2013 performance +cycles, an estimated value of performance shares that would vest at the end of the performance period. Performance shares would vest on a prorated basis based on actual Company performance. For purposes of this estimate, the calculation uses target +performance and a $35.64 stock price, the closing stock price at the end of fiscal year 2011. +10 +Amounts in this row reflect the net present value of the annuity using the same discount rate and mortality assumptions used in the Pension Benefits table and +assuming the NEO drew the disability benefit until age 65 and then the normal retirement benefit. +11 +See the Pension Benefits table and associated footnotes. The Pension Benefits table describes the general terms of each pension plan in which the NEOs +participate, the years of credited service and the present value of each NEO’s accumulated pension benefit assuming payment begins at age 65. +12 +Mr. Krueger and Ms. Linton are the only NEOs who were retirement eligible at fiscal year end. +13 +Mr. McBreen’s employment with the Company ceased on September 9, 2011. +AUDIT +COMMITTEE REPORT +The Audit Committee of the Board of Directors consists of four directors who are independent under the Company’s +Director Independence Standards, the NYSE listed company standards, and applicable SEC standards. The Audit Committee represents and assists the Board in fulfilling its oversight responsibility regarding the integrity of Wolverine Worldwide’s +financial statements and the financial reporting and accounting process, the systems of internal accounting and financial controls, the performance of the internal audit function and the independent auditors, the qualifications and independence of +the independent auditors, the annual independent audit of Wolverine Worldwide’s financial statements, and compliance with legal and regulatory requirements. The Audit Committee is directly responsible in its capacity as a committee of the Board +for appointing, retaining, compensating, overseeing, evaluating and terminating (if appropriate) Wolverine Worldwide’s independent auditors. Wolverine Worldwide’s management has primary responsibility for the financial statements and the +financial reporting process, including the application of accounting and financial principles, the preparation, presentation and integrity of the financial statements, and the systems of internal controls and other procedures designed to promote +compliance with accounting standards and applicable laws and regulations. Wolverine Worldwide’s independent auditors are responsible for expressing an opinion on the conformity of Wolverine Worldwide’s financial statements with generally +accepted accounting principles and for auditing the effectiveness of Wolverine Worldwide’s internal control over financial reporting. +The Audit +Committee has taken steps to provide assurances regarding Audit Committee composition and procedures, the independence of Wolverine Worldwide’s outside auditors and the integrity of Wolverine Worldwide’s financial statements and +disclosures. These steps include: (i) reviewing the Audit Committee Charter; (ii) reviewing the Accounting and Finance Code; (iii) maintaining an Accounting and Auditing Complaint Procedure to allow employees, stockholders and the +public to report concerns regarding Wolverine Worldwide’s financial statements, internal controls and disclosures; and (iv) reviewing procedures for the Audit Committee to pre-approve all audit and non-audit services provided by Wolverine +Worldwide’s independent auditors. +As part of its supervisory duties, the Audit Committee has reviewed Wolverine Worldwide’s audited financial +statements for the fiscal year ended December 31, 2011, and has discussed those financial statements with Wolverine Worldwide’s management, internal financial staff, and the internal auditors and independent auditors with and without +management present. The Audit Committee has also reviewed and discussed the following with Wolverine Worldwide’s management, the financial staff, and the internal auditors and independent auditors with and without management present: +» +accounting and financial principles and significant assumptions, estimates and matters of judgment used in preparing the financial statements; +» +allowances and reserves for accounts receivable, inventories and taxes; +» +accounting for acquisitions, pension plans and equity-based compensation plans; +» +goodwill impairment analysis; and +Page 53 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine Worldwide’s independent auditors the results of the independent auditors’ examinations and the judgments of the independent auditors concerning the +quality, as well as the acceptability, of Wolverine Worldwide’s accounting principles and such other matters that it is required to discuss with the independent auditors under applicable rules, regulations or generally accepted auditing +standards, including the matters required to be discussed by applicable rules of the Public Company Accounting Oversight Board (“PCAOB”). In addition, the Audit Committee has received from the independent auditors the written disclosures +and the letter required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence rules and has discussed their independence from Wolverine Worldwide and +Wolverine Worldwide’s management with them, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the scope of all fees paid to the independent auditors during the year. After +and in reliance upon the reviews and discussions described above, the Audit Committee recommended to Wolverine Worldwide’s Board of Directors that the audited financial statements for the fiscal year ended December 31, 2011, be included in +Wolverine Worldwide’s Annual Report on Form 10-K for the year then ended to be filed with the SEC. +Respectfully submitted, +Jeffrey M. Boromisa (Chairperson), William K. Gerber, Brenda J. Lauderback, Shirley D. Peterson +INDEPENDENT +AUDITOR +Wolverine Worldwide’s Audit Committee has adopted a policy under which the Audit Committee must approve all audit and +non-audit services provided by Ernst & Young LLP and which prohibits Ernst & Young LLP from providing any non-audit services that are prohibited by the SEC or the PCAOB. The Company’s Audit Committee provides categorical +pre-approval before the beginning of each fiscal year for routine and recurring services, with specific service descriptions and budgets. All audit services, internal control-related services, and other services not within the specifically +pre-approved service descriptions and budgets require engagement-specific pre-approval. With certain exceptions (such as pre-approval of audit services), the Audit Committee may delegate engagement-specific pre-approval to one or more Committee +members. Management must communicate to the Audit Committee at its next regularly scheduled meeting any services approved by a Committee member. Wolverine Worldwide’s Audit Committee pre-approved all fees paid to Ernst & Young LLP for +services performed in 2011 and 2010. +The aggregate fees billed by Ernst & Young LLP for audit and non-audit services were: +2011 +2010 +Audit Fees * +$816,250 +$1,011,100 +Audit Related Fees +- +- +Total Audit and Audit Related +$816,250 +$1,011,100 +Tax Fees +Tax Compliance +$569,450 +$383,819 +Tax Planning & Advisory +$182,800 +$82,090 +Total Tax Fees +$752,250 +$465,909 +All Other Fees +- +- +Total Fees +$1,568,500 +$1,477,009 +* +“Audit Fees” are comprised of fees for the annual audit, reviews of the financial statements included in Wolverine Worldwide’s Form 10-Q filings, +audit of internal control over financial reporting, foreign statutory audits and consultations concerning accounting matters associated with the annual audit. +Wolverine Worldwide’s Audit Committee has adopted a policy restricting the Company’s +hiring of current or former partners or employees of the Company’s independent auditors. +Page 54 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +ITEM 2: RATIFICATION OF APPOINTMENT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has reappointed Ernst & Young LLP as independent auditors for the +current fiscal year. As a matter of good corporate governance, the Audit Committee has determined to submit its appointment of Ernst & Young LLP to the Company’s stockholders for ratification. If this appointment is not ratified by the +holders of a majority of shares present or represented at the annual meeting and entitled to vote on the matter, the Audit Committee will review its future selection of an independent registered public accounting firm. Even if the appointment is +ratified, the Audit Committee in its discretion may select different independent auditors any time during the year if it determines that such a change would be in the best interests of the Company and the Company’s stockholders. +The Audit Committee reviewed Ernst & Young LLP’s performance prior to appointing them as the independent auditors, and considered: +» +the historical and recent performance of Ernst & Young LLP on the Company’s audit, including the quality of the engagement team and +Ernst & Young LLP’s experience, client service, responsiveness and technical expertise; +» +the PCAOB report of selected Ernst & Young LLP audits; +» +Ernst & Young LLP’s financial strength and performance; +» +the appropriateness of fees charged; and +» +Ernst & Young LLP’s familiarity with the Company’s accounting policies and practices and internal control over financial reporting. +Ernst & Young LLP, a registered public accounting firm, was the Company’s independent auditor for the year ended +December 31, 2011. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate +questions from stockholders. +Board Recommendation +The Board recommends that you vote “FOR” ratification of the Audit Committee’s selection of the firm of Ernst & Young LLP, Grand Rapids, Michigan, as independent auditor +for the Company for the fiscal year 2012. +ITEM 3: ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION +The Company is asking its stockholders to indicate their support for Wolverine Worldwide’s NEO compensation, as described in this proxy +statement. This proposal, commonly known as a “say-on-pay” proposal, gives the Company’s stockholders the opportunity to express their view on compensation for the Company’s NEOs. The say-on-pay vote is advisory and, therefore, +not binding on the Company, the Compensation Committee or the Board. The Board and Compensation Committee value the opinions of Wolverine Worldwide’s stockholders and will review and consider the voting results when making future decisions +regarding the Company’s executive compensation program. +As described above in the “Compensation Discussion and Analysis” section +of this proxy statement, the Compensation Committee has structured the executive compensation program to achieve the following key objectives: +» +attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» +provide incentives for achieving specific near-term individual, business unit and corporate goals and reward the attainment of those goals at pre-established +levels; +» +provide incentives for achieving longer-term financial goals and to reward attaining those goals at pre-established levels; and +Page 55 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +» +align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +The executive compensation program achieves these objectives, in part, by: +» +balancing fixed compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives); +» +rewarding annual performance while maintaining emphasis on longer-term objectives; and +» +blending cash, non-cash, long- and short-term compensation components, and current and future compensation components. +The Company performed strongly in 2011, achieving record performances in revenue and diluted earnings per share. The stock price increased to $35.64 at the end of +fiscal 2011 from $31.88 at the end of fiscal 2010. Over the past five years, the Company’s performance, based on cumulative total stockholder return, has outperformed the S&P SmallCap 600 Index and S&P 600 Footwear Index. +The Company urges stockholders to read the “ Compensation Discussion and Analysis ” beginning on page 24 of this proxy statement, which describes in +more detail how the Company’s executive compensation policies and procedures operate and are designed to achieve the Company’s compensation objectives. The Company also encourages stockholders to read the Summary Compensation Table and +other related compensation tables and narrative, appearing on pages 40 through 47, which provide detailed information on the compensation of the Company’s NEOs. The Compensation Committee and the Board of Directors believe that the policies and +procedures articulated in the “ Compensation Discussion and Analysis ” are effective in achieving the Company’s goals and that the compensation of the Company’s NEOs reported in this proxy statement has supported and +contributed to the Company’s recent and long-term success. +In accordance with recently adopted rules under Section 14A of the Exchange Act, +and as a matter of good corporate governance, the Company asks stockholders to approve the following advisory resolution at the 2012 Annual Meeting of Stockholders: +RESOLVED, that the stockholders of Wolverine World Wide, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the +Compensation Discussion and Analysis section, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2012 Annual Meeting of Stockholders. +Board Recommendation +The +Board recommends that you vote “FOR” approval of the advisory resolution on executive compensation. +ITEM 4: APPROVAL OF AMENDED AND RESTATED EXECUTIVE LONG-TERM INCENTIVE PLAN (3-YEAR BONUS PLAN) +Overview +To provide incentives and rewards for long-term planning and decision-making and the achievement of long-term corporate performance goals, on February 9, 2012, +the Board of Directors adopted, subject to stockholder approval, the Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) (the “Restated Long-Term Plan”). The Restated Long-Term Plan would amend and restate the +existing Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) that was approved by the Company’s stockholders at the 2007 Annual Meeting of Stockholders (the “LTIP”). +The Restated Long-Term Plan differs from the current LTIP in three ways: (a) it would extend the term of the LTIP to the first meeting of stockholders in +2017; (b) it would increase the list of performance criteria from which the Compensation Committee may select in setting and determining performance goals; and (c) it would increase the maximum incentive bonus from $1,800,000 to +$4,000,000. The LTIP expires at this year’s Annual Meeting of Stockholders unless stockholders approve the extension of the LTIP by approving the Restated Long-Term Plan. +Page 56 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +There currently are no outstanding awards under the LTIP, because outstanding long-term +incentive awards have been granted pursuant to the Stock Incentive Plan of 2010 and the Amended and Restated Stock Incentive Plan of 2005. However, the Board of Directors believes it is in the best interests of the Company to obtain approval of the +Restated Long-Term Plan in order to preserve the ability to pay long-term incentive cash bonuses that are intended to qualify as “performance-based” compensation under Section 162(m) of the Code, however, there can be no guarantee +that amounts payable under the Restated Long-Term Plan will be treated as qualified performance-based compensation under Section 162(m). +Purpose of the Plan +The Restated Long-Term Plan is designed +to provide executive officers and key management employees the opportunity for additional compensation based upon the achievement of corporate financial performance goals over a three-year period or part thereof. The primary purposes of the Restated +Long-Term Plan are to provide a significant incentive to substantially improve the longer-term financial performance of the Company and to foster cooperation among all business units. Target performance goals would be intended to provide a +significant challenge to management. +The Restated Long-Term Plan is intended to allow the Company to grant awards designed to qualify as +performance-based compensation under Section 162(m) of the Internal Revenue Code (the “Code”) and is interpreted and administered to achieve that purpose. Participants in the Restated Long-Term Plan may also receive cash or other +bonuses from the Company under other bonus programs, which may or may not qualify for deductibility under Section 162(m) of the Code. No payment under any such other arrangement may be contingent upon failure to satisfy the criteria for payment +of an incentive bonus under the Restated Long-Term Plan or otherwise designed to provide Restated Long-Term Plan participants all or part of the compensation they would receive under the Restated Long-Term Plan regardless of whether the performance +goal under the Restated Long-Term Plan is attained. +The Board of Directors believes that it is in the best interests of the Company and its +stockholders to provide for a stockholder-approved plan under which long-term incentive compensation paid to its executive officers can qualify for deductibility for federal income tax purposes. Accordingly, the Company has structured the Restated +Long-Term Plan in a manner such that payments under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) of the Code. One of the requirements of “performance-based” +compensation for purposes of Section 162(m) is that the material terms of the performance goal under which compensation may be paid be disclosed to and approved by the Company’s stockholders at least once every five years. For purposes of +Section 162(m), the material terms include: (a) the employees eligible to receive compensation; (b) a description of the business criteria on which the performance goal is based; and (c) the maximum amount of compensation that +can be paid to an employee under the performance goal. Each of these aspects of the Restated Long-Term Plan is discussed below, and stockholder approval of the Restated Long-Term Plan is intended to constitute approval of each of these aspects of +the Restated Long-Term Plan for purposes of the approval requirements of Section 162(m) of the Code. +Summary of Plan +The following is a summary of the principal features of the Restated Long-Term Plan and is qualified in its entirety by reference to the terms of the Restated +Long-Term Plan as set forth in Appendix A to this Proxy Statement. The Restated Long-Term Plan is effective as of February 9, 2012. If the Restated Long-Term Plan is not approved at the 2012 Annual Stockholder Meeting, then it shall terminate +without action by the Board. As described above, there currently are no outstanding awards under the LTIP, because outstanding long-term incentive awards have been granted pursuant to the Stock Incentive Plan of 2010 and the Amended and Restated +Stock Incentive Plan of 2005. +The Restated Long Term Plan is administered by the Compensation Committee, or such other committee as the Board +designates to administer the Restated Long-Term Plan. The Compensation Committee currently consists of four independent members, all of whom are “non-employee directors” as defined in Rule 16b-3 issued under the Exchange Act and +“outside directors” as defined in the regulations issued under Section 162(m) of the Code. Except as limited by the Restated Long-Term Plan, the Compensation Committee has all of the express and implied powers and duties set forth in +the Restated Long-Term Plan and has full authority and discretion to interpret the Restated Long-Term Plan and to make all other determinations considered necessary or advisable for the administration of the Restated Long-Term Plan. The Compensation +Committee may adopt such other rules, policies and forms for the administration, interpretation and implementation of the Restated Long-Term Plan as it considers advisable. All determinations, interpretations and selections made by the Compensation +Committee regarding the Restated Long-Term Plan are final and conclusive. +Page 57 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +The primary concept of the Restated Long-Term Plan is to establish financial +performance goals for each overlapping three-year time period or part thereof for the Company. Performance periods begin every fiscal year and end three full fiscal years later. For each three-year period or part thereof, the Compensation Committee +may select the executive officers and other key management employees who would be participants for the three-year period. There are currently no participants under the LTIP because outstanding long-term incentive awards have been granted pursuant to +the Stock Incentive Plan of 2010 and the Amended and Restated Stock Incentive Plan of 2005. The Compensation Committee may limit the number of executive officers and key management employees who would be participants for a performance period. +Selection as a participant for a three-year period or part thereof by the Compensation Committee is limited to that three-year period or part thereof. An eligible executive officer or key management employee is a participant for a performance period +only if designated as a participant by the Compensation Committee for such period. No awards are currently outstanding under the Restated Long-Term Plan, and the Compensation Committee does not currently intend to make grants under the Restated +Long-Term Plan for fiscal year 2012. +The Compensation Committee pre-establishes performance goals for each participant in the manner and within the +time limits specified in the Restated Long-Term Plan. For each participant in each three-year period or part thereof, the Compensation Committee specifies a target bonus goal established by the Compensation Committee, expressed as a specified dollar +amount or as a percentage of the participant’s average annual earned salary, and incentive bonus levels, expressed as a percentage of the target bonus, that would be paid to the participant at specified levels of performance. The term +“incentive bonus”, as used in the Restated Long-Term Plan, means a bonus awarded and paid to a participant for services to the Company during a three-year period or part thereof that is based upon achievement of pre-established objectives +by the Company. The Compensation Committee may also specify any specific conditions under which an incentive bonus would be reduced or forfeited (but not increased). +Under the Restated Long-Term Plan, performance is determined by reference to one or more of the following objectively determinable factors, either individually, alternatively or in any combination, applied to +either the Company as a whole or to a business unit, subsidiary, division, or profit center, either individually, alternatively or in any combination, on an absolute basis or relative to a pre-established target, to previous years’ results or +to a designated comparison group, as selected by the Compensation Committee: (i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or amortization), (ii) income, net income or operating income, +(iii) revenues, (iv) net sales, (v) return on sales, (vi) return on equity, (vii) return on capital (including return on total capital or return on invested capital), (viii) return on assets or net assets, +(ix) economic value added measurements, (x) return on invested capital, (xi) return on operating revenue, (xii) cash flow (before or after dividends), (xiii) stock price, (xiv) total stockholder return, (xv) market +capitalization, (xvi) debt leverage (debt to capital), (xvii) operating profit or net operating profit, (xx) operating margin or profit margin, (xix) cash from operations, (xx) market share, (xxi) product development or +release schedules, (xxii) new product innovation, (xxiii) cost management, (xxiv) customer service, or (xxv) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, the Compensation Committee (i) will appropriately adjust any evaluation of performance under +qualifying performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the +disposal of a segment of a business or related to a change in accounting principle, all as determined in accordance with standards established by applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case +as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial statements, and (ii) may appropriately adjust any evaluation of performance under +qualifying performance criteria to exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law or other +such laws or provisions affecting reported results, (d) corporate stock and asset acquisitions and dispositions, and (e) accruals of any amounts for payment under the Restated Long-Term Plan or any other compensation arrangement maintained +by the Company. +Payment of an incentive bonus to a participant for a three-year period or part thereof under the Restated Long-Term Plan is entirely +contingent upon the performance goals established by the Compensation Committee, the satisfaction of which is substantially uncertain when established by the Compensation Committee for the three-year period or part thereof. +The incentive bonus for each eligible participant for a three-year period or part thereof is determined on the basis of the target bonus and performance criteria +established by the Compensation Committee for such performance period. The Compensation +Page 58 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Committee determines, and certifies in writing prior to payment of any incentive bonus, that the Company’s performance for the three-year period or part thereof satisfied the criteria +established by the Compensation Committee for such period. +In the event of a termination of employment prior to the end of a three-year performance +period, the incentive bonus otherwise payable to a participant for the three-year period is adjusted as follows. If a participant ceases to be a participant before the end of any three-year period and more than 12 months after the beginning of such +3-year period because of death, normal or early retirement under the Company’s retirement plan, as then in effect, or total disability under the Company’s long-term disability plan, an award is paid to the participant or the +participant’s beneficiary after the end of such three-year period prorated as follows: the award, if any, for such three-year period is equal to 100% of the incentive bonus that the participant would have received if the participant had been a +participant during the entire performance period multiplied by the ratio of the participant’s full months as a participant during that performance period to the total number of months in that performance period. The award, if any, would only be +made in the form of a cash payout. If an employee ceases to be a participant during any three-year period(s), or prior to actual receipt of the award for a previous period because of the participant’s termination of employment for any reason +other than described above, the participant would not be entitled to any award for such three-year period. If a participant continued in the Company’s employment but no longer was approved by the Compensation Committee to participate in future +three-year periods, the participant would be eligible for a prorated award determined in the same manner set forth above. +Under the Restated Long-Term +Plan, the participant would receive his or her incentive bonus in cash as soon as feasible following final determination and certification by the Compensation Committee of the amount payable unless the Compensation Committee determined that the +incentive bonus should be paid in a mixture of cash and stock (restricted or unrestricted). If the Committee determined to pay all or part of the incentive bonus using restricted or unrestricted stock, each participant would receive the number of +shares of stock equal to the incentive bonus (or part thereof) divided by the market value of the Company’s common stock on the date of grant, rounded to the nearest whole share. It is currently the Compensation Committee’s policy to pay +100% of the incentive bonus under the Restated Long-Term Plan, if any, in cash. The incentive bonus payable to any participant with respect to any three-year performance period may not, in any event, exceed $4,000,000. +Amendment and Termination +The Board of Directors may +terminate the Restated Long-Term Plan at any time and may from time to time amend the Restated Long-Term Plan as it considers proper and in the best interests of the Company. +If stockholders approve the Restated Long-Term Plan at the 2012 Annual Meeting of Stockholders, the Restated Long-Term Plan would terminate as of the date of the first meeting of the stockholders in the fifth year +following approval (that is, 2017) and each subsequent reapproval unless reapproved on or before the termination date. +Vote Required and Board +Recommendation +Approval of the Restated Long-Term Plan requires the favorable vote of a majority of shares present or represented at the meeting and +entitled to vote on the proposal. +The Board of Directors recommends that you vote FOR approval of the Restated Long-Term Plan. +ITEM 5: APPROVAL OF AMENDED AND RESTATED SHORT-TERM INCENTIVE PLAN (ANNUAL BONUS PLAN) +Overview +To provide incentives and rewards +for achievement of annual corporate and business unit goals, on February 9, 2012, the Board of Directors adopted, subject to stockholder approval, the Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan) (the +“Restated Annual Bonus Plan”). The Restated Annual Bonus Plan would amend and restate the existing Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan), which was most recently approved by the stockholders at the +2007 Annual Meeting of Stockholders (the “2007 Annual Plan”). +The Restated Annual Bonus Plan differs from the 2007 Annual Plan in three ways: +(a) it would extend the term of the 2007 Annual Plan to the first meeting of stockholders in 2017; (b) it would increase the performance criteria from which the Compensation Committee may select in setting and determining annual bonuses, +and (c) it would increase the maximum incentive bonus from $1,800,000 to $4,000,000. The term of the 2007 Annual Plan expires at this year’s Annual Meeting of Stockholders unless stockholders approve the extension of the 2007 Annual Plan +by approving the Restated Annual Bonus Plan at the 2012 annual meeting. +Page 59 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Purpose of the Plan +The Restated Annual Bonus Plan is designed to provide executive officers, senior corporate and divisional officers and other key employees with the opportunity for bonuses based on the performance of the business +unit or units to which the employee is assigned. The Restated Annual Bonus Plan is intended to allow the Company to grant awards designed to qualify as performance-based compensation under Section 162(m) of the Code, as amended, and is +interpreted and administered to achieve that purpose, however, there can be no guarantee that amounts payable under the Restated Annual Bonus Plan will be treated as qualified performance-based compensation under Section 162(m). The Company +intends to continue its established practice of paying annual incentive bonuses to officers and key management employees based on individual performance goals. Participants in the Restated Annual Bonus Plan may also receive cash or other bonuses +from the Company under other bonus programs, which may or may not qualify for deductibility under Section 162(m) of the Code. No payment under any such other arrangement may be contingent upon failure to satisfy the criteria for payment of an +incentive bonus under the Restated Annual Bonus Plan. +The Board believes that it is in the best interests of the Company and its stockholders to +provide for a stockholder-approved plan under which annual bonuses paid to its executive officers can qualify for deductibility for federal income tax purposes. Accordingly, the Company has structured the Restated Annual Bonus Plan in a manner such +that payments under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) of the Code. +In general, Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to the NEOs set forth in the Summary +Compensation Table, other than the Chief Financial Officer, who were employed by the Company on the last day of its taxable year. Under Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year is not generally +deductible. However, compensation that qualifies as “performance-based” as determined under Section 162(m) does not count against the $1,000,000 limitation. +One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goal under which compensation may be paid be disclosed to and +approved by the Company’s stockholders at least once every five years. For purposes of Section 162(m), the material terms include: (a) the employees eligible to receive compensation; (b) a description of the business criteria on +which the performance goal is based; and (c) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the Restated Annual Bonus Plan is discussed below, and stockholder approval of +the Restated Annual Bonus Plan is intended to constitute approval of each of these aspects of the Restated Annual Bonus Plan for purposes of the approval requirements of Section 162(m) of the Code. +Summary of the Plan +The following is a summary of the +principal features of the Restated Annual Bonus Plan and is qualified in its entirety by reference to the terms of the Restated Annual Bonus Plan set forth in Appendix B to this Proxy Statement. The Restated Annual Bonus Plan is effective as of +February 9, 2012. Payment of bonuses pursuant to the Restated Annual Bonus Plan for all fiscal years after 2012 are contingent upon stockholder approval. +The Restated Annual Bonus Plan is administered by the Compensation Committee of the Board of Directors (the “Compensation Committee”) or such other committee as the Board designates to administer the +Restated Annual Bonus Plan. The Compensation Committee currently consists of four independent members, all of whom are “non-employee directors” as defined in Rule 16b-3 issued under the Exchange Act and “outside directors” as +defined in the regulations issued under Section 162(m) of the Code. Except as limited by the Restated Annual Bonus Plan, the Compensation Committee has all of the express and implied powers and duties set forth in the Restated Annual Bonus Plan +and has full authority and discretion to interpret the Restated Annual Bonus Plan and to make all other determinations considered necessary or advisable for the administration of the Restated Annual Bonus Plan. The Compensation Committee can adopt +such other rules, policies and forms for the administration, interpretation and implementation of the Restated Annual Bonus Plan as it considers advisable. All determinations, interpretations and selections made by the Compensation Committee +regarding the Restated Annual Bonus Plan are final and conclusive. +For each fiscal year or part thereof, the Compensation Committee selects the +executive officers (currently eight persons), senior corporate and divisional officers and other key employees (currently approximately 510 persons) who would be participants for the year. The Compensation Committee may limit the number of executive +officers and senior corporate and divisional officers and +Page 60 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +other key employees who would be participants for a fiscal year or part thereof. Selection as a participant for a fiscal year or part thereof by the Compensation Committee is limited to that +fiscal year or part thereof. An individual is a participant for a fiscal year or part thereof only if designated as a participant by the Compensation Committee for such fiscal year or part thereof. The amount of bonus any individual receives under +the Restated Annual Bonus Plan depends upon corporate and/or business unit performance for each fiscal year and is not presently determinable for the Company’s 2012 fiscal year. The benefits set forth in the table below were paid under the 2007 +Annual Bonus Plan with respect to fiscal 2011: +Name and Position +Dollar Value +Blake W. Krueger, Chairman, CEO and President +$1,055,422 +Donald T. Grimes, Senior Vice President, Chief Financial Officer, Treasurer and Chief Accounting Officer +$294,988 +Pamela L. Linton, Senior Vice President, Global Human Resources +$193,902 +Kenneth A. Grady, General Counsel and Secretary +$100,758 +Michael F. McBreen, Former President, Global Operations Group +- +James D. Zwiers, Senior Vice President and President, Outdoor Group +$314,801 +Executive Group +$2,043,132 +Non-Executive Director Group +- +Non-Executive Officer Employee Group +$7,481,355 +The Compensation Committee pre-establishes performance goals for each participant in the manner and within the time limits +specified below. A target bonus goal is established by the Compensation Committee, expressed as a percentage of the participant’s base salary or a specified dollar amount. The Compensation Committee then establishes incentive bonus levels, +expressed as a percentage of the target bonus, that is paid to the participant at specified levels of performance by the Company, a business unit, subsidiary, division, or profit center. The term incentive bonus, as used in the Restated Annual Bonus +Plan, means an annual bonus awarded and paid to a participant for services to the Company during a fiscal year or part thereof that is based upon achievement of pre-established objectives. The Compensation Committee also establishes any specific +conditions under which an incentive bonus could be reduced or forfeited (but not increased). +Under the Restated Annual Bonus Plan, performance is +determined by reference to one or more of the following objectively determinable factors, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, subsidiary, division, or profit +center, either individually, alternatively or in any combination, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, as selected by the Compensation Committee: +(i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or amortization), (ii) income, net income or operating income, (iii) revenues, (iv) net sales, (v) return on sales, +(vi) return on equity, (vii) return on capital (including return on total capital or return on invested capital), (viii) return on assets or net assets, (ix) economic value added measurements, (x) return on invested capital, +(xi) return on operating revenue, (xii) cash flow (before or after dividends), (xiii) stock price, (xiv) total stockholder return, (xv) market capitalization, (xvi) debt leverage (debt to capital), (xvii) operating +profit or net operating profit, (xx) operating margin or profit margin, (xix) cash from operations, (xx) market share, (xxi) product development or release schedules, (xxii) new product innovation, (xxiii) cost +management, (xxiv) customer service, or (xxv) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, the +administrator (i) will appropriately adjust any evaluation of performance under qualifying performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or +expense determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change in accounting principle, all as determined in accordance with standards established by applicable accounting +provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial statements, +and (ii) may appropriately adjust any evaluation of performance under qualifying performance criteria to exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation, claims, +judgments or settlements, (c) the effect of changes in tax law or other such laws or provisions affecting reported results, (d) corporate stock and asset acquisitions and dispositions, and (e) accruals of any amounts for payment under +the Restated Annual Bonus Plan or any other compensation arrangement maintained by the Company. +Page 61 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +The incentive bonus for each eligible participant for a fiscal year is determined on +the basis of the target bonus and performance criteria established by the Compensation Committee for the fiscal year or part thereof. The Compensation Committee determines, and certifies in writing prior to payment of the incentive bonus, that +performance for the fiscal year or part thereof satisfied the criteria established by the Compensation Committee for the year. The incentive bonus for any participant for a fiscal year may not, in any event, exceed $4,000,000. The incentive bonus of +each participant is paid as soon as feasible following the final determination and certification by the Compensation Committee of the amount payable. +In the event of a termination of the employment prior to the end of a fiscal year, the incentive bonus otherwise payable to a participant for the fiscal year is +adjusted as follows. If a participant ceases to be a participant before the end of any fiscal year and more than six months after the beginning of such fiscal year because of death, normal or early retirement under the Company’s retirement +plan, as then in effect, or total disability under the Company’s long-term disability plan, an award is paid to the participant or the participant’s beneficiary after the end of such fiscal year prorated as follows: the award, if any, for +such fiscal year is equal to 100% of the incentive bonus that the participant would have received if the participant had been a participant during the entire fiscal year, multiplied by the ratio of the participant’s full months as a participant +during that fiscal year to the 12 months in that fiscal year. If an employee ceases to be a participant during any fiscal year, or prior to actual receipt of the award for a previous fiscal year, because of the participant’s termination of +employment for any reason other than described above, the participant is not entitled to any award for such fiscal year. +Amendment and Termination +The Board of Directors may terminate the Restated Annual Bonus Plan at any time or may from time to time amend the Restated Annual Bonus Plan as it +considers proper and in the best interests of the Company. +If the Restated Annual Bonus Plan is approved by the Company’s stockholders, the +Restated Annual Bonus Plan would terminate as of the date of the first meeting of stockholders occurring in the fifth year following approval (that is, 2017) or any subsequent reapproval. If the Restated Annual Bonus Plan terminates due to lack of +approval by the stockholders, no incentive bonus would be awarded under the plan for the fiscal year in which the Restated Annual Bonus Plan terminates. +Vote Required and Board Recommendation +Approval of the +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan) requires the favorable vote of a majority of shares present or represented at the meeting and entitled to vote on the proposal. +The Board of Directors recommends that you vote FOR approval of the Restated Executive Short-Term Incentive Plan (Annual Bonus Plan). +Page 62 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +RELATED +PARTY MATTERS +Certain Relationships and Related Transactions +Wolverine Worldwide has entered into agreements with Grimoldi, S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a +director of Wolverine Worldwide, is chairman and a 35% shareholder. The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies ® , Caterpillar ® , and Patagonia ® brand names, and footwear and apparel under the Merrell ® brand name. Grimoldi, S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide +or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi, S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest +relating to purchases made or royalties and fees incurred in fiscal year 2011 totaling $5,462,805. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi, S.A. +Wolverine Worldwide expects similar transactions to occur between Grimoldi, S.A. and Wolverine Worldwide and its subsidiaries during 2012. +In the +ordinary course of its business, Wolverine Worldwide purchases promotional merchandise for use in connection with the sale of its products. In fiscal year 2011, Wolverine Worldwide purchased promotional merchandise from Bullseye Group, LLC totaling +$217,863. One-third of Bullseye Group, LLC is owned by Daniel Mehney, the son of David P. Mehney, a director of Wolverine Worldwide. Wolverine Worldwide anticipates purchasing promotional materials from Bullseye Group, LLC in 2012. +The Governance Committee reviewed and approved or ratified each of these transactions in accordance with Wolverine Worldwide’s related person transactions +policy, as described below. +Related Person Transactions Policy +Wolverine Worldwide’s Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering +into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar +transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) the aggregate amount involved is or is expected +to exceed $100,000 since the beginning of Wolverine Worldwide’s last completed fiscal year; +(2) Wolverine Worldwide is a participant; +and +(3) any Related Person (defined +below) has or will have a direct or indirect interest (other than solely as a result of being a director or less than ten percent beneficial owner of another entity). +Related Person +Any: +(a) person who is or was at any point during the +last fiscal year for which Wolverine Worldwide filed a Form 10-K and proxy statement, an executive officer, director or nominee for election as a director; +(b) greater than five percent beneficial owner of +Wolverine Worldwide’s common stock; or +(c) immediate family member * of any of the foregoing. +* +Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in- law, sons- and daughters-in-law, and +brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Governance Committee +considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the Related Person’s interest in the +Page 63 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to +provide all material information to the Governance Committee. +The following Interested Transactions are pre-approved under the policies and procedures: +(a) +any transaction with another company where a Related Person’s only relationship is as an employee, director or beneficial owner of less than ten percent of that +company’s shares, if the aggregate amount involved does not exceed the greater of $1,000,000, or two percent of that company’s total revenues. +(b) +any charitable contribution by Wolverine Worldwide to a charitable organization where a Related Person is an employee, if the aggregate amount involved does not exceed the lesser +of $100,000, or two percent of the charitable organization’s total annual receipts. +ADDITIONAL +INFORMATION +Stockholders List +A list of stockholders entitled to vote at the meeting will be available for review by Wolverine Worldwide stockholders at the office of R. Paul Guerre, Secretary, +Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351, during ordinary business hours for the 10-day period before the meeting. +Director and Officer Indemnification +The Company indemnifies its directors and NEOs to the fullest extent +permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires its directors and NEOs, and persons who beneficially own more than 10% of the outstanding shares of the +Company’s common stock, to file reports of ownership and changes in ownership of shares of common stock with the Securities and Exchange Commission. Directors, NEOs and greater than 10% beneficial owners are required by Securities and Exchange +Commission regulations to furnish Wolverine Worldwide with copies of all Section 16(a) reports they file. Based on its review of the copies of such reports received by it, or written representations from certain reporting persons that no +reports on Form 5 were required for those persons for fiscal year 2011, except as set forth below, the Company believes that during fiscal year 2011, its officers and directors filed the required reports under Section 16(a) on a timely basis. +On December 14, 2011, Mr. Douglas M. Jones filed a Form 4 reporting an award of 60 shares of Wolverine Worldwide common stock to him on October 5, 2011. The Form 4 also adjusts the total number of shares beneficially owned to +account for this transaction. On January 18, 2012, Mr. Jones filed a Form 4 reporting an award of 100 stock options that were granted to him on October 5, 2011. +Stockholder Proposals for Inclusion in Next Year’s Proxy Statement +Pursuant to SEC Rule 14a-8, some +stockholder proposals may be eligible for inclusion in Wolverine Worldwide’s 2013 proxy statement and proxy card. Any such stockholder proposals must be submitted in writing to the Secretary of Wolverine Worldwide no later than the close of +business on November 12, 2012. You should address all stockholder proposals to the attention of R. Paul Guerre, Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351. +Other Stockholder Proposals for Presentation at Next Year’s Annual Meeting +The By-laws require that any stockholder proposal that is not submitted for inclusion in next year’s proxy statement under SEC Rule 14a-8, but is instead sought to be presented directly at the 2013 Annual +Meeting of Stockholders, must be received at the Company’s principal executive offices by the close of business not less than 90 days nor more than 120 days prior to the first anniversary of the 2012 Annual Meeting. As a result, proposals, +including director nominations, submitted pursuant to these provisions of the By-laws must be received between December 20, 2012, and the close of business on January 19, 2013. You should address a proposal to R. Paul Guerre, Secretary, +Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, +Page 64 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +and include the information and comply with the requirements set forth in those By-laws, which the Company has posted on its website. SEC rules permit management to vote proxies in its discretion +in certain cases if the stockholder does not comply with this deadline, and in certain other cases notwithstanding the stockholder’s compliance with this deadline. +Voting Securities +Stockholders of record at the close of business on March 1, 2012, will be eligible to +vote at the meeting. The Company’s voting securities consist of its $1.00 par value common stock, and there were 48,666,594 shares outstanding and entitled to vote on the record date. Each share outstanding on the record date will be entitled +to one vote on each director nominee and one vote on each other matter. Treasury shares are not voted. Individual votes of stockholders are kept private, except as appropriate to meet legal requirements. Access to proxies and other individual +stockholder voting records is limited to the independent inspectors of election and certain employees of the Company and its agents who acknowledge their responsibility to comply with this policy of confidentiality. +Conduct of Business +A majority of the outstanding shares of +common stock as of the record date must be present at the meeting in order to hold the meeting and conduct business. This is called a “quorum.” Your shares are counted as present at the meeting if you are present at the meeting and vote in +person, a proxy card has been properly submitted by you or on your behalf, or you have submitted your proxy by telephone or by Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Both abstentions and +broker non-votes are counted as present for the purpose of determining the presence of a quorum. A “broker non-vote” is a share of common stock that is beneficially owned by a person or entity and held by a broker or other nominee, but for +which the broker or other nominee lacks the discretionary authority to vote on certain matters and has not received voting instructions from the beneficial owner in respect of those specific matters. +Vote Required for Election and Approval +A plurality of the +shares voted is required to elect directors. This means that the four nominees who receive the most votes will be elected. In counting votes on the election of directors, only votes cast “for” or “withheld” affect the outcome. +All other matters require for approval the favorable vote of a majority of shares present or represented at the meeting and entitled to vote on the applicable matter. The results of Item 3, Advisory Resolution on Executive Compensation, are not +binding on the Board of Directors. +With respect to the election of directors, abstentions and broker non-votes will not be counted as votes cast and +therefore will have no effect. With respect to all other matters to be voted on at the annual meeting, abstentions will have the same effect as votes “against” the matter, and broker non-votes, if applicable, will have no effect. +Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial +owner, and (2) the broker lacks discretionary voting power to vote those shares. Brokers do not have discretionary authority with respect to any of the proposals except for the ratification of the independent registered public accounting firm. +Voting Results of the Annual Meeting +The +Company will announce preliminary voting results at the annual meeting and publish final results in a Form 8-K within four business days following the meeting. If final results are not known within four business days of the annual meeting, then the +Company will file a Form 8-K with the preliminary results and file an amended Form 8-K within four business days of the availability of the final results. +Attending the Annual Meeting +You may vote shares held directly in your name as the stockholder of record in +person at the annual meeting. If you choose to vote in person, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting in person, Wolverine Worldwide recommends that you vote your shares in +advance as described below so that your vote will be counted if you later decide not to attend the annual meeting. You may vote shares held in “street name” through a brokerage account or by a bank or other nominee in person if you obtain +a proxy from the record holder giving you the right to vote the shares. +Page 65 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +Manner for Voting Proxies +The shares represented by all valid proxies received by telephone, by Internet or by mail will be voted in the manner specified. Where the shareholder has not +indicated a specific choice, the shares represented by all valid proxies received will be voted in accordance with the Board’s recommendations as follows: (1) for each of the nominees for directors named earlier in this proxy statement, +(2) for ratification of the appointment of the independent auditor, (3) for the advisory vote on executive compensation, (4) for the approval of the Restated Long-Term Plan, and (5) for the approval of the Restated Annual Bonus +Plan. The Board has not received timely notice of any matter that may come before the annual meeting. However, should any matter not described above be properly presented at the annual meeting, the persons named in the proxy form will vote in +accordance with their judgment as permitted. +Revocation of Proxies +A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy or by notifying the inspectors of election in writing of +such revocation. If your Wolverine Worldwide shares are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot, in order to be able to vote your +shares at the meeting. +Solicitation of Proxies +The Company will pay the expenses of solicitation of proxies for the annual meeting. Solicitations may be made in person or by telephone, by officers and employees +of the Company, or by nominees or other fiduciaries who may mail materials to or otherwise communicate with the beneficial owners of shares held by the nominees or other fiduciaries. These individuals will not be paid any additional compensation for +any such solicitation. Upon request, the Company will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding material to beneficial owners of the Company’s common stock. The +Company has engaged Georgeson Inc. at an estimated cost of $26,000, plus expenses and disbursements, to assist in solicitation of proxies. +Delivery +of Documents to Stockholders Sharing an Address +If you are the beneficial owner, but not the record holder, of shares of Wolverine Worldwide stock, +your broker, bank or other nominee may only deliver one copy of this proxy statement and the Company’s 2012 Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of +the stockholders. The Company will deliver promptly, upon written or oral request, a separate copy of this proxy statement and its 2012 Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. A +stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, should submit this request by writing to Investor Relations, Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan +49351, or by calling (616) 866-5500 and asking for Investor Relations. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and who wish to receive a single copy of such materials in the future should make a +request directly to their broker, bank or other nominee. +Access to Proxy Statement and Annual Report +Wolverine Worldwide’s financial statements for the fiscal year ended December 31, 2011, are included in the Company’s 2011 Annual Report, which the +Company is providing to stockholders at the same time as this proxy statement. Wolverine Worldwide’s Proxy Statement for the 2012 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 31, +2011, are available at www.wolverineworldwide.com/2012annualmeeting . If you have not received or do not have access to the 2011 Annual Report, write to Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, +Attn: Investor Relations or call (616) 866-5500 and ask for Investor Relations, and the Company will send a copy to you without charge. +Page 66 +Table of Contents +APPENDIX A +Wolverine World Wide, Inc. +Amended and Restated Executive Long-Term Incentive Plan +(3-Year Bonus Plan) +SECTION 1: Establishment of Plan; Purpose of Plan +1.1 Establishment of Plan. The Company hereby establishes the AMENDED AND RESTATED WOLVERINE WORLD WIDE, INC. EXECUTIVE LONG-TERM INCENTIVE +PLAN (3-YEAR BONUS PLAN) (the “Plan”) for its executive officers and key management employees. The Plan amends and restates the Wolverine World Wide, Inc. Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan) +previously approved by the stockholders at the 2007 Annual Meeting of Stockholders. The Plan provides for the payment of bonuses to participants based upon the financial performance of the Company, or a Subsidiary, operating division or profit +center, over a 3-year period or part thereof. +1.2 Purpose of Plan. The purpose of the Plan is to encourage longer range +strategic planning and not stress over-dependence on short-term performance which could hinder long-term increases in stockholder value and/or achievement of a strategic position and/or advantage in the marketplace, to encourage cooperation among +all the units of the Company to foster a closer and more cooperative association and sense of teamwork and to encourage executive officers and key management individuals to enter and continue in the employ of the Company. Within that context, the +Plan is intended to provide performance-based compensation under Section 162(m) of the Code and shall be interpreted and administered to achieve that purpose. +1.3 Effective Date. The Plan is initially effective as of February 8, 2012. Adoption of the Plan by the Board and payment of Incentive Bonuses pursuant to this Plan shall be contingent +upon approval of the Plan by the stockholders of the Company at the 2012 Annual Meeting of Stockholders or any adjournment thereof or at a Special Meeting of the Stockholders. In the absence of such approval, this Plan shall be void. +SECTION 2: Definitions +The following terms have the +stated definitions unless a different meaning is plainly required by the context: +2.1 “Act” means the Securities Exchange Act of 1934, +as amended. +2.2 “Beneficiary” means the individual, trust or other entity designated by the Participant to receive any amount payable +with respect to the Participant under the Plan after the Participant’s death. A Participant may designate or change a Beneficiary by filing a signed designation with the Committee in a form approved by the Committee. A Participant’s will +is not effective for this purpose. If a designation has not been completed properly and filed with the Committee or is ineffective for any other reason, the Beneficiary shall be the Participant’s Surviving Spouse. If there is no effective +designation and the Participant does not have a Surviving Spouse, the remaining benefits, if any, shall be paid to the Participant’s estate. +2.3 “Board” means the Board of Directors of the Company. +2.4 “Code” means the Internal Revenue Code of 1986, as amended. +2.5 “Committee” means +the Compensation Committee of the Board or such other committee as the Board shall designate to administer the Plan. The Committee shall consist of at least 2 members and all of its members shall be “non-employee directors” as defined in +Rule 16b-3 issued under the Act and “outside directors” as defined in the regulations issued under Section 162(m) of the Code. +2.6 “Company” means Wolverine World Wide, Inc., a Delaware corporation, and its successors and assigns. +Page 67 +Table of Contents +2.7 “Fiscal Year” means the fiscal year of the Company for financial reporting purposes as the Company +may adopt from time to time. +2.8 “Incentive Bonus” means a bonus awarded and paid to a Participant for services to the Company during a +3-year period that is based upon achievement of pre-established financial objectives by the Company, or a Subsidiary, operating division or profit center. +2.9 “Market Value” shall equal the closing market price of shares of common stock of the Company on the New York Stock Exchange (or any successor exchange that is the primary stock exchange for +trading of common stock of the Company) on the date of grant or reference, or if the New York Stock Exchange (or any such successor) is closed on that date, the last preceding date on which the New York Stock Exchange (or any such successor) was +open for trading and on which shares of common stock of the Company were traded. +2.10 “Participant” means an executive officer or key +management employee of the Company or its Subsidiaries who is designated as a Participant for a 3-year period. +2.11 “Performance” means +the level of achievement by the Company as a whole or a business unit, Subsidiary, division, or profit center of the performance criteria established by the Committee pursuant to Section 5.3. +2.12 “Subsidiary” means any corporation or other entity of which 50% or more of the outstanding voting stock or voting ownership interest is +directly or indirectly owned or controlled by the Company or by one or more Subsidiaries of the Company. +2.13 “Surviving Spouse” means +the spouse of the Participant at the time of the Participant’s death who survives the Participant. If the Participant and spouse die under circumstances which prevent ascertainment of the order of their deaths, it shall be presumed for the Plan +that the Participant survived the spouse. +2.14 “Target Bonus” means the bonus goal established by the Committee for each Participant +under Section 5.2(a). +SECTION 3: Administration +3.1 Power and Authority. The Plan shall be administered by the Committee. The Committee may delegate recordkeeping, calculation, payment and other ministerial or administrative functions to +individuals designated by the Committee, who may be employees of the Company or its Subsidiaries. Except as limited in this Plan, the Committee shall have all of the express and implied powers and duties set forth in the Plan and shall have full +authority and discretion to interpret the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. Action may be taken by a written instrument signed by a majority of the members of the Committee +and any action so taken shall be as effective as if it had been taken at a meeting. The Committee may make such other rules for the conduct of its business and may adopt such other rules, policies and forms for the administration, interpretation and +implementation of the Plan as it deems advisable. All determinations, interpretations and selections made by the Committee regarding the Plan shall be final and conclusive. +3.2 Indemnification of Committee Members. Neither any member or former member of the Committee nor any individual to whom authority is or has been delegated shall be personally responsible or +liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each individual who is or has been a member of the Committee, or +delegated authority by the Committee, shall be indemnified and held harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with any act or failure to act under the Plan. Each such individual shall +be justified in relying on information furnished in connection with the Plan’s administration by any appropriate person or persons. +SECTION 4: Participation +4.1 Participation. For each 3-year period, the Committee shall select the executive officers and key management employees who shall be the +Participants for the 3-year period. The Committee may limit the number of executive officers and key management employees who will be Participants for a 3-year period. Executive officers and key management employees shall be designated as +Page 68 +Table of Contents +Participants within the first 90 days of any 3-year period; provided, that an officer or key employee who is first employed by the Company or a Subsidiary during any 3-year period or who is +assigned new duties during any 3-year period may be designated as a Participant for a performance period commencing on the date the officer or key employee assumes his or her new duties through the end of the 3-year period. +4.2 Continuing Participation. Selection as a Participant for a 3-year period or part thereof by the Committee is limited to that 3-year +period. An eligible executive officer or key management employee will be a Participant for a 3-year period only if designated as a Participant by the Committee for such 3-year period. +SECTION 5: Performance Goals and Criteria +5.1 Concept. The primary concept of the +Plan is to establish financial performance goals for each 3-year time period for the Company. The performance periods are overlapping, beginning every Fiscal Year and ending 3 full Fiscal Years later. The Plan provides for the payment of bonuses to +participants based upon the financial performance of the Company over the 3-year period or part thereof. +5.2 Selection of +Criteria. The Committee shall pre-establish performance goals for each Participant or group of Participants in the manner and within the time limits specified in this Section 5. For each Participant or group of Participants for +each 3-year period or part thereof, the Committee shall specify: +(a) Target Bonus. A Target Bonus, +expressed as a specified dollar amount or as a percentage of the Participant’s average annual earned salary; +(b) Incentive +Bonus. The Incentive Bonus levels, expressed as a percentage of the Target Bonus, that shall be paid to the Participant at specified levels of Performance by the Company based on the criteria established by the Committee pursuant to +Section 5.3; +(c) Performance Measurement. The applicable measurement of Performance under Section 5.3; +and +(d) Conditions on Incentive Bonus. Any specific conditions under which an Incentive Bonus specified under +(b) above may be reduced or forfeited (but not increased). +The Incentive Bonus levels specified under (b) above may be expressed either as +(i) a matrix of percentages of the Target Bonus that will be paid at specified levels of Performance or (ii) a mathematical formula that determines the percentage of the Target Bonus that will be paid at varying levels of Performance. +5.3 Measurement of Performance. Performance is determined by reference to one or more of the following objectively determinable +factors, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, Subsidiary, division, or profit center, either individually, alternatively or in any combination, on an absolute basis +or relative to a pre-established target, to previous years’ results or to a designated comparison group, as selected by the Committee: (i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or +amortization), (ii) income, net income or operating income, (iii) revenues, (iv) net sales, (v) return on sales, (vi) return on equity, (vii) return on capital (including return on total capital or return on invested +capital), (viii) return on assets or net assets, (ix) economic value added measurements, (x) return on invested capital, (xi) return on operating revenue, (xii) cash flow (before or after dividends), (xiii) stock price, +(xiv) total stockholder return, (xv) market capitalization, (xvi) debt leverage (debt to capital), (xvii) operating profit or net operating profit, (xx) operating margin or profit margin, (xix) cash from operations, +(xx) market share, (xxi) product development or release schedules, (xxii) new product innovation, (xxiii) cost management, (xxiv) customer service, or (xxv) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, the Committee (i) will appropriately adjust any evaluation of performance under qualifying +performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a +segment of a business or related to a change in accounting principle, all as determined in accordance with with standards +Page 69 +Table of Contents +established by applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or +identified in the Company’s financial statements or notes to the financial statements, and (ii) may appropriately adjust any evaluation of performance under qualifying performance criteria to exclude any of the following events that occurs +during a performance period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law or other such laws or provisions affecting reported results, (d) corporate stock and asset +acquisitions and dispositions, and (e) accruals of any amounts for payment under the Plan or any other compensation arrangement maintained by the Company. +5.4 Incentive Bonus Conditioned on Performance . Payment of an Incentive Bonus to a Participant for a 3-year period or part thereof under this Plan shall be entirely contingent upon the Performance +criteria established by the Committee pursuant to this Section 5, the satisfaction of which is substantially uncertain when established by the Committee for the 3-year period or part thereof. +5.5 Time of Determination by Committee. All determinations to be made by the Committee for a 3-year period or part thereof pursuant to this +Section 5 shall be made by the Committee during the shorter of the first 90 days of such performance period and the period ending on the date on which 25 percent of the performance period has elapsed. +5.6 Objective Standards. An Incentive Bonus shall be based solely upon objective criteria, consistent with this Section 5, from which +an independent third party with knowledge of the facts could determine whether the performance goal or range of goals is met and from that determination could calculate the Incentive Bonus to be paid. Although the Committee has authority to exercise +reasonable discretion to interpret this Plan and the criteria it shall specify pursuant to this Section 5 of the Plan, it may not amend or waive such criteria after the shorter of the period ending on the 90th day of a performance period +or part thereof or the date on which 25 percent of the performance period has elapsed. Except as specifically provided in Section 5.3, the Committee shall have no authority or discretion to increase any Incentive Bonus or to construct, +modify or apply the measurement of Performance in a manner that will directly or indirectly increase the Incentive Bonus for any Participant for any 3-year period or part thereof above the amount determined by the applicable objective standards +established within the time periods set forth in this Section. The Committee may exercise negative discretion to decrease or eliminate any Incentive Bonus. +SECTION 6: Determination and Payment of Incentive Bonuses +6.1 Committee +Certification. The Incentive Bonus for each eligible Participant for a 3-year period or part thereof shall be determined on the basis of the Target Bonus and Performance criteria established by the Committee pursuant to +Section 5. The Committee shall determine, and shall certify in writing prior to payment of any Incentive Bonus, that the Company Performance for the 3-year period or part thereof satisfied the Performance criteria established by the Committee +for the period. Approved minutes of the Committee shall constitute sufficient written certification for this purpose. +6.2 Partial Period +Performance Adjustments. The Incentive Bonus otherwise payable to a Participant for a 3-year period or part thereof shall be adjusted as follows: +(a) Retirement, Death or Total Disability. If a Participant ceases to be a Participant before the end of any 3-year period and more than 12 months after the beginning of such 3-year +period because of death, normal or early retirement under the Company’s retirement plan, as then in effect, or total disability under the Company’s long-term disability plan, an award shall be paid to the Participant or the +Participant’s Beneficiary after the end of such 3-year period prorated as follows: the award, if any, for such 3-year period shall be equal to 100% of the Incentive Bonus that the Participant would have received if the Participant had been a +Participant during the entire performance period, multiplied by the ratio of the Participant’s full months as a Participant during that performance period to the total number of months in that performance period. The award, if any, shall only +be made in the form of a cash payout. Notwithstanding the foregoing, the Committee shall have discretion to reduce or eliminate any Incentive Bonus otherwise payable pursuant to this Section. +(b) Reassignment of Duties. If a Participant is reassigned employment duties before the end of any 3-year period, an award shall be paid to the Participant after the end of such 3-year period +prorated as follows: the award shall be equal to 100% of the Incentive Bonus that the Participant would have received if the Participant had been a Participant during the entire performance period, multiplied by the ratio of the Participant’s +full months as a Participant during that performance period prior to the reassignment to +Page 70 +Table of Contents +the total number of months in that performance period. If such Participant is designated as a Participant in his or her new position, an additional award shall be paid to the Participant after +the end of such 3-year period prorated as follows: the award shall be equal to 100% of the Incentive Bonus that the Participant would have received if the Participant had been a Participant during the entire performance period, multiplied by the +ratio of the Participant’s months as a Participant during that performance period after the reassignment (rounded up to the next full month) to the total number of months in that performance period. +(c) Other Termination. If an employee ceases to be a Participant during any 3-year period(s), or prior to actual receipt of the award for a +previous period because of the Participant’s termination of employment for any reason other than described in Section 6.2(a), the Participant will not be entitled to any award for such 3-year period. If a Participant continues in +Wolverine’s employment but no longer is approved by the Committee to participate in future 3-year periods, the Participant shall be eligible for a prorated award determined in the same manner set forth in Section 6.2(a). Notwithstanding +the foregoing, the Committee shall have discretion to reduce or eliminate any Incentive Bonus otherwise payable pursuant to this Section. +6.3 Maximum Incentive Bonus. The Incentive Bonus for any Participant for a 3-year period shall not, in any event, exceed $4,000,000. +6.4 Payment to Participant or Beneficiary. The Incentive Bonus of each Participant shall be paid to the Participant, or the +Beneficiary of any deceased Participant, by the Company as soon as feasible following final determination and certification by the Committee of the amount payable; provided, however, in no event will the Incentive Bonus be paid later than the +fifteenth day of the third month following the end of the third Fiscal Year of the Incentive Bonus 3-year period for which the Performance criteria have been satisfied. +6.5 Manner of Payment. Unless the Committee determines otherwise, each Participant will receive his or her Incentive Bonus in cash. The Committee may, in its discretion, determine to pay all +or part of a Participant’s Incentive Bonus in the form of stock (restricted or unrestricted). The Company will make the cash payment as soon as feasible following final determination and certification by the Committee of the amount payable; +provided, however, in no event will the Incentive Bonus be paid later than the fifteenth day of the third month following the end of the third Fiscal Year of the Incentive Bonus 3-year period for which the Performance criteria have been satisfied. +6.6 Stock Payment. The Committee may determine to pay all or part of an Incentive Bonus using restricted or unrestricted stock. +In such a case, each Participant will receive a grant of stock under the Company’s existing stockholder approved plans on the same date the cash payment is made pursuant to Section 6.5. The number of shares of stock a Participant shall +receive will equal the Incentive Bonus (or part thereof) divided by the Market Value of the Company’s common stock on the date of grant, rounded to the nearest whole share. Each award of stock shall be evidenced by a stock agreement containing +such terms and conditions, including vesting schedules, consistent with the provisions of this Plan and the plan under which the stock is so awarded. +SECTION 7: General Provisions +7.1 Benefits +Not Guaranteed. Neither the establishment and maintenance of the Plan nor participation in the Plan shall provide any guarantee or other assurance that an Incentive Bonus will be payable under the Plan. +7.2 No Right to Participate. Nothing in this Plan shall be deemed or interpreted to provide a Participant or any non-participating employee +any contractual right to participate in or receive benefits under the Plan. No designation of an employee as a Participant for any 3-year period shall create a right to an Incentive Bonus under the Plan for any other 3-year period. There is no +obligation of uniformity of treatment of employees, eligible officers or Participants under the Plan. +7.3 No Employment +Right. Participation in this Plan shall not be construed as constituting a commitment, guarantee, agreement or understanding of any kind that the Company or any Subsidiary will continue to employ any individual and this Plan shall not +be construed or applied as an employment contract or obligation. Nothing in this Plan shall abridge or diminish the rights of the Company or any Subsidiary to determine the terms and conditions of employment of any Participant, officer or other +employee or to terminate the employment of any Participant, officer or other employee with or without reason at any time. +7.4 No Assignment or +Transfer. Neither a Participant nor any Beneficiary or other representative of a Participant shall have any right to assign, transfer, attach or hypothecate any amount or credit, potential payment or right to future payments of any +amount or +Page 71 +Table of Contents +credit or any other benefit provided under this Plan. Payment of any amount due or to become due under this Plan shall not be subject to the claims of creditors of the Participant or to execution +by attachment or garnishment or any other legal or equitable proceeding or process. +7.5 No Limit on Other Compensation +Arrangements. Nothing contained in this Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements. A Participant may have other targets under other plans of +the Company. However, no payment under any other plan or arrangement shall be contingent upon failure to attain the criteria for payment of an Incentive Bonus under this Plan. +7.6 Withholding and Payroll Taxes. The Company shall deduct from any payment made under this Plan all amounts required by federal, state, local and foreign tax laws to be withheld and shall +subject any payments made under the Plan to all applicable payroll taxes and assessments. +7.7 Incompetent Payee. If the +Committee determines that an individual entitled to a payment under this Plan is incompetent, it may cause benefits to be paid to another individual for the use or benefit of the Participant or Beneficiary at the time or times otherwise payable +under this Plan in total discharge of the Plan’s obligations to the Participant or Beneficiary. +7.8 Governing Law. The +validity, construction and effect of the Plan shall be determined in accordance with the laws of the State of Michigan and applicable federal law. +7.9 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the remaining provisions of the +Plan shall not be affected and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. +SECTION 8: Termination and Amendment +The Board may +terminate the Plan at any time or may from time to time amend the Plan as it deems proper and in the best interests of the Company. No amendment adopted after the shorter of the period ending on the 90th day of a performance period or the date +on which 25 percent of the performance period has elapsed may directly or indirectly increase the amount of any Incentive Bonus, or alter the objective criteria in a manner which will increase any Incentive Bonus, for that 3-year period or part +thereof. Except as otherwise provided in this Plan and the applicable objective criteria established pursuant to this Plan for determining the amount of any Incentive Bonus for a 3-year period or part thereof, no Incentive Bonuses shall be payable +for the 3-year period in which the Plan is terminated, or, if later, in which the termination is effective. +SECTION 9: Duration of the Plan +Subject to earlier termination by the Board, this Plan shall terminate without action by the Board as of the date of the first meeting of the +stockholders in 2017 unless reapproved by the stockholders at that meeting or any earlier meeting. If reapproval occurs, the Plan will terminate as of the date of the first meeting of the stockholders in the fifth year following reapproval and each +subsequent reapproval unless reapproved on or before the termination date. If the Plan terminates under this provision due to lack of reapproval by the stockholders, Incentive Bonuses shall be paid for the 3-year periods already commenced before the +date of termination of the Plan, except for the 3-year period that initially began in the year the Plan terminates. +Page 72 +Table of Contents +APPENDIX B +Wolverine World Wide, Inc. +Amended and Restated Executive Short-Term Incentive Plan +(Annual Bonus Plan) +SECTION 1: Establishment of Plan; Purpose of Plan +1.1 Establishment of Plan. The Company hereby establishes the AMENDED AND RESTATED EXECUTIVE SHORT-TERM INCENTIVE PLAN (ANNUAL BONUS PLAN) +(the “Plan”), for its executive officers, senior corporate and divisional officers and other key employees. The Plan amends and restates the Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus +Plan) previously approved by the stockholders at the 2007 Annual Meeting of Stockholders. The Plan provides for the payment of bonuses to participants based upon the financial performance of the Company, or a Subsidiary, operating division or profit +center of the Company, in a particular fiscal year or part thereof. +1.2 Purpose of Plan. The purpose of the Plan is to motivate +Participants to improve the Company’s profitability and growth by the attainment of carefully planned goals, promote initiative and cooperation with awards based on corporate and divisional performance and encourage outstanding individuals to +enter and continue in the employ of the Company. Within that context, the Plan is intended to provide performance-based compensation under Section 162(m) of the Code and shall be interpreted and administered to achieve that purpose. +1.3 Effective Date. The Plan is initially effective as of February 8, 2012. Adoption of the Plan by the Board and payment of Incentive +Bonuses for Fiscal Year 2013 and thereafter shall be contingent upon approval by the stockholders at the 2012 Annual Meeting of Stockholders or any adjournment thereof or at a Special Meeting of the Stockholders. In the absence of such approval, +this Plan shall be void. +SECTION 2: Definitions +The following terms have the stated definitions unless a different meaning is plainly required by the context: +2.1 “Act” means the Securities Exchange Act of 1934, as amended. +2.2 “Beneficiary” means the individual, trust or other entity designated by the Participant to receive any amount payable with respect to the Participant under the Plan after the Participant’s +death. A Participant may designate or change a Beneficiary by filing a signed designation with the Committee in a form approved by the Committee. A Participant’s will is not effective for this purpose. If a designation has not been completed +properly and filed with the Committee or is ineffective for any other reason, the Beneficiary shall be the Participant’s Surviving Spouse. If there is no effective designation and the Participant does not have a Surviving Spouse, the remaining +benefits, if any, shall be paid to the Participant’s estate. +2.3 “Board” means the Board of Directors of the Company. +2.4 “Code” means the Internal Revenue Code of 1986, as amended. +2.5 “Committee” means the Compensation Committee of the Board or such other committee as the Board shall designate to administer the Plan. The Committee shall consist of at least 2 members and all of +its members shall be “non-employee directors” as defined in Rule 16b-3 issued under the Act and “outside directors” as defined in the regulations issued under Section 162(m) of the Code. +2.6 “Company” means Wolverine World Wide, Inc., a Delaware corporation, and its successors and assigns. +2.7 “Fiscal Year” means the fiscal year of the Company for financial reporting purposes as the Company may adopt from time to time. +2.8 “Incentive Bonus” means an annual bonus awarded and paid to a Participant for services to the Company during a Fiscal Year that is based upon +achievement of pre-established performance objectives by the Company, or a Subsidiary, operating division or profit center. +Page 73 +Table of Contents +2.9 “Participant” means an executive officer, senior corporate or divisional officer or other key +employee of the Company or its Subsidiaries who is designated as a Participant for a Fiscal Year. +2.10 “Performance” means the level of +achievement by the Company as a whole or a business unit, Subsidiary, division, or profit center of the performance criteria established by the Committee pursuant to Section 5.2. +2.11 “Subsidiary” means any company or other entity of which 50% or more of the outstanding voting stock or voting ownership interest is directly or indirectly owned or controlled by the Company or +by one or more Subsidiaries of the Company. +2.12 “Surviving Spouse” means the spouse of the Participant at the time of the +Participant’s death who survives the Participant. If the Participant and spouse die under circumstances which prevent ascertainment of the order of their deaths, it shall be presumed for the Plan that the Participant survived the spouse. +2.13 “Target Bonus” means the bonus goal established by the Committee for each Participant under Section 5.1(a). +SECTION 3: Administration +3.1 Power and +Authority. The Plan shall be administered by the Committee. The Committee may delegate recordkeeping, calculation, payment and other ministerial or administrative functions to individuals designated by the Committee, who may be +employees of the Company or its Subsidiaries. Except as limited in the Plan, the Committee shall have all of the express and implied powers and duties set forth in the Plan and shall have full authority and discretion to interpret the Plan and to +make all other determinations deemed necessary or advisable for the administration of the Plan. Action may be taken by a written instrument signed by a majority of the members of the Committee and any action so taken shall be as effective as if it +had been taken at a meeting. The Committee may make such other rules for the conduct of its business and may adopt such other rules, policies and forms for the administration, interpretation and implementation of the Plan as it deems advisable. All +determinations, interpretations and selections made by the Committee regarding the Plan shall be final and conclusive. +3.2 Indemnification of +Committee Members. Neither any member or former member of the Committee nor any individual to whom authority is or has been delegated shall be personally responsible or liable for any act or omission in connection with the performance +of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each individual who is or has been a member of the Committee, or delegated authority by the Committee, shall be indemnified and held +harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with any act or failure to act under the Plan. Each such individual shall be justified in relying on information furnished in connection with +the Plan’s administration by any appropriate person or persons. +SECTION 4: Participation +4.1 Participation. For each Fiscal Year, the Committee shall select the executive officers, senior corporate and divisional officers and +other key employees who shall be the Participants for the Fiscal Year. The Committee may limit the number of executive officers, senior corporate and divisional officers and other key employees who will be Participants for a Fiscal Year. Officers +and key employees shall be designated as Participants within the first 90 days of any Fiscal Year; provided, that an officer or key employee who is first employed by the Company or a Subsidiary during the Fiscal Year or who is assigned new +duties during the Fiscal Year may be designated as a Participant for a performance period commencing on the date the officer or key employee assumes his or her new duties through the end of the Fiscal Year. +4.2 Continuing Participation. Selection as a Participant for a Fiscal Year or part thereof by the Committee is limited to that Fiscal Year. +An eligible executive officer, senior corporate or divisional officer or key employee will be a Participant for a Fiscal Year only if designated as a Participant by the Committee for such Fiscal Year. +Page 74 +Table of Contents +SECTION 5: Performance Goals and Criteria +5.1 Selection of Criteria. The Committee shall pre-establish performance goals for each Participant or group of Participants in the manner and within the time limits specified in this +Section 5. For each Participant or group of Participants for each Fiscal Year or part thereof, the Committee shall specify: +(a) Target +Bonus. A Target Bonus, expressed as a percentage of the Participant’s base salary or a specified dollar amount; +(b) Incentive Bonus. The Incentive Bonus levels, expressed as a percentage of the Target Bonus, that shall be paid to the Participant at +specified levels of performance by the Company, division or profit center based on the criteria established by the Committee pursuant to Section 5.2; +(c) Performance Measurement. The applicable measurement of Performance under Section 5.2; and +(d) Conditions on Incentive Bonus. Any specific conditions under which an Incentive Bonus specified under subsection (b) above may be reduced or forfeited (but not increased). +The Incentive Bonus levels specified under subsection (b) above may be expressed either as (i) a matrix of percentages of the Target +Bonus that will be paid at specified levels of the Performance or (ii) a mathematical formula that determines the percentage of the Target Bonus that will be paid at varying levels of Performance. +5.2 Measurement of Performance. Performance is determined by reference to one or more of the following objectively determinable factors, +either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, Subsidiary, division, or profit center, either individually, alternatively or in any combination, on an absolute basis or +relative to a pre-established target, to previous years’ results or to a designated comparison group, as selected by the Committee: (i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or +amortization), (ii) income, net income or operating income, (iii) revenues, (iv) net sales, (v) return on sales, (vi) return on equity, (vii) return on capital (including return on total capital or return on invested +capital), (viii) return on assets or net assets, (ix) economic value added measurements, (x) return on invested capital, (xi) return on operating revenue, (xii) cash flow (before or after dividends), (xiii) stock price, +(xiv) total stockholder return, (xv) market capitalization, (xvi) debt leverage (debt to capital), (xvii) operating profit or net operating profit, (xx) operating margin or profit margin, (xix) cash from operations, +(xx) market share, (xxi) product development or release schedules, (xxii) new product innovation, (xxiii) cost management, (xxiv) customer service, or (xxv) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, the Committee (i) will appropriately adjust any evaluation of performance under qualifying +performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a +segment of a business or related to a change in accounting principle, all as determined in accordance with standards established by applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined +in accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial statements, and (ii) may appropriately adjust any evaluation of performance under qualifying +performance criteria to exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law or other such laws or +provisions affecting reported results, (d) corporate stock and asset acquisitions and dispositions, and (e) accruals of any amounts for payment under the Plan or any other compensation arrangement maintained by the Company. +5.3 Incentive Bonus Conditioned on Performance. Payment of an Incentive Bonus to a Participant for a Fiscal Year or part thereof under this +Plan shall be entirely contingent upon achievement of the Performance levels established by the Committee pursuant to this Section 5, the satisfaction of which is substantially uncertain when established by the Committee for the Fiscal Year or +part thereof. +5.4 Time of Determination by Committee. All determinations to be made by the Committee for a performance period +pursuant to this Section 5 shall be made by the Committee during the shorter of the first 90 days of such performance period and the period ending on the date on which 25 percent of the performance period has elapsed. +Page 75 +Table of Contents +5.5 Objective Standards. An Incentive Bonus shall be based solely upon objective criteria, +consistent with this Section 5, from which an independent third party with knowledge of the facts could determine whether the performance goal or range of goals is met and from that determination could calculate the Incentive Bonus to be paid. +Although the Committee has authority to exercise reasonable discretion to interpret this Plan and the criteria it shall specify pursuant to this Section 5 of the Plan, it may not amend or waive such criteria after the shorter of the period +ending on the 90th day of a performance period or the date on which 25 percent of the performance period has elapsed. Except as specifically provided in Section 5.2, the Committee shall have no authority or discretion to increase any +Incentive Bonus or to construct, modify or apply the measurement of Performance in a manner that will directly or indirectly increase the Incentive Bonus for any Participant for any Fiscal Year above the amount determined by the applicable objective +standards established within the time periods set forth in this Section. The Committee may exercise negative discretion to reduce or eliminate any Incentive Bonus. +SECTION 6: Determination and Payment of Incentive Bonuses +6.1 Committee +Certification. The Incentive Bonus for each eligible Participant for a Fiscal Year or part thereof shall be determined on the basis of the Target Bonus and Performance criteria established by the Committee pursuant to Section 5. +The Committee shall determine, and shall certify in writing prior to payment of the Incentive Bonus, that the Company Performance for the Fiscal Year or part thereof satisfied the Performance criteria established by the Committee for the period. +Approved minutes of the Committee shall constitute sufficient written certification for this purpose. +6.2 Eligibility for +Payment. The Incentive Bonus otherwise payable to a Participant for a Fiscal Year or part thereof shall be adjusted as follows: +(a) Retirement, Death or Total Disability. If a Participant ceases to be a Participant before the end of any Fiscal Year and more than +6 months after the beginning of such Fiscal Year because of death, normal or early retirement under the Company’s retirement plan, as then in effect, or total disability under the Company’s long-term disability plan, an award shall be +paid to the Participant or the Participant’s Beneficiary after the end of such Fiscal Year prorated as follows: the award, if any, for such Fiscal Year shall be equal to 100% of the Incentive Bonus that the Participant would have received if +the Participant had been a Participant during the entire Fiscal Year, multiplied by the ratio of the Participant’s full months as a Participant during that Fiscal Year to the 12 months in that Fiscal Year. Notwithstanding the foregoing, +the Committee shall have discretion to reduce or eliminate any Incentive Bonus otherwise payable pursuant to this Section 6.2(a). +(b) Reassignment of Duties. If a Participant is reassigned employment duties before the end of any Fiscal Year, an award shall be paid to +the Participant after the end of such Fiscal Year prorated as follows: the award shall be equal to 100% of the Incentive Bonus that the Participant would have received if the Participant had been a Participant during the entire Fiscal Year, +multiplied by the ratio of the Participant’s full months as a Participant during the Fiscal Year prior to the reassignment to the 12 months in that Fiscal Year. If such Participant is designated as a Participant in his or her new position, +an additional award shall be paid to the Participant after the end of such Fiscal Year prorated as follows: the award shall be equal to 100% of the Incentive Bonus that the Participant would have received if the Participant had been a Participant +during the entire Fiscal Year, multiplied by the ratio of the Participant’s months as a Participant during that Fiscal Year after the reassignment (rounded up to the next full month) to the 12 months in that Fiscal Year. +(c) Other Termination. If an employee ceases to be a Participant during any Fiscal Year, or prior to actual receipt of the award for a +previous Fiscal Year, because of the Participant’s termination of employment for any reason other than described in Section 6.2(a), the Participant will not be entitled to any award for such Fiscal Year. +6.3 Maximum Incentive Bonus. The Incentive Bonus for any Participant for a Fiscal Year under this Plan shall not, in any event, exceed +$4,000,000. +6.4 Payment to Participant or Beneficiary. The Incentive Bonus of each Participant shall be paid to the Participant, +or the Beneficiary of any deceased Participant, by the Company as soon as feasible following final determination and certification by the Committee of the amount payable; provided, however, in no event will the Incentive Bonus be paid later than the +fifteenth day of the third month following the end of the Fiscal Year for which the Performance criteria for the Incentive Bonus have been met. +Page 76 +Table of Contents +6.5 Manner of Payment. Each Participant will receive his or her Incentive Bonus in cash. +SECTION 7: General Provisions +7.1 Benefits Not Guaranteed. Neither the establishment and maintenance of the Plan nor participation in the Plan shall provide any guarantee +or other assurance that an Incentive Bonus will be payable under the Plan. +7.2 No Right to Participate. Nothing in this Plan +shall be deemed or interpreted to provide a Participant or any non-participating employee any contractual right to participate in or receive benefits under the Plan. No designation of an employee as a Participant for all or any part of a Fiscal Year +shall create a right to an Incentive Bonus under the Plan for any other Fiscal Year. There is no obligation of uniformity of treatment of employees, eligible officers or Participants under the Plan. +7.3 No Employment Right. Participation in this Plan shall not be construed as constituting a commitment, guarantee, agreement or +understanding of any kind that the Company or any Subsidiary will continue to employ any individual and this Plan shall not be construed or applied as an employment contract or obligation. Nothing in this Plan shall abridge or diminish the rights of +the Company or any Subsidiary to determine the terms and conditions of employment of any Participant, officer or other employee or to terminate the employment of any Participant, officer or other employee with or without reason at any time. +7.4 No Assignment or Transfer. Neither a Participant nor any Beneficiary or other representative of a Participant shall have any +right to assign, transfer, attach or hypothecate any amount or credit, potential payment or right to future payments of any amount or credit or any other benefit provided under this Plan. Payment of any amount due or to become due under this Plan +shall not be subject to the claims of creditors of the Participant or to execution by attachment or garnishment or any other legal or equitable proceeding or process. +7.5 No Limit on Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional +compensation arrangements. A Participant may have other targets under other plans of the Company. However, no payment under any other plan or arrangement shall be contingent upon failure to attain the criteria for payment of an Incentive Bonus under +this Plan. +7.6 Withholding and Payroll Taxes. The Company shall deduct from any payment made under this Plan all amounts +required by federal, state, local and foreign tax laws to be withheld and shall subject any payments made under the Plan to all applicable payroll taxes and assessments. +7.7 Incompetent Payee. If the Committee determines that an individual entitled to a payment under this Plan is incompetent, it may cause benefits to be paid to another individual for the use +or benefit of the Participant or Beneficiary at the time or times otherwise payable under this Plan in total discharge of the Plan’s obligations to the Participant or Beneficiary. +7.8 Governing Law. The validity, construction and effect of the Plan shall be determined in accordance with the laws of the State of Michigan and applicable federal law. +7.9 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the remaining provisions of the +Plan shall not be affected and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. +SECTION 8: Termination and Amendment +The Board may +terminate the Plan at any time, or may from time to time amend the Plan as it deems proper and in the best interests of the Company. No amendment adopted after the shorter of the period ending on the 90th day of a performance period or the date +on which 25 percent of a performance period has elapsed may directly or indirectly increase any Incentive Bonus for that Fiscal Year. Except as otherwise provided in this Plan and the applicable objective criteria established pursuant to this +Plan for determining the amount of any Incentive Bonus for a Fiscal Year or part thereof, no Incentive Bonuses shall be payable for the Fiscal Year in which the Plan is terminated, or, if later, in which the termination is effective. +Page 77 +Table of Contents +SECTION 9: Duration of the Plan +Subject to earlier termination by the Board, this Plan shall terminate without action by the Board as of the date of the first meeting of stockholders held in 2017, unless reapproved by the stockholders at such +meeting or earlier. If reapproval occurs, the Plan will terminate as of the date of the first meeting of stockholders in the fifth year following reapproval or any subsequent reapproval. If the Plan terminates under this provision due to lack of +reapproval by the stockholders, no Incentive Bonuses shall be awarded for the Fiscal Year in which the Plan terminates. +Page 78 +Table of Contents +IMPORTANT ANNUAL MEETING INFORMATION +Electronic Voting Instructions +You can vote by Internet or telephone! +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Daylight Time, on April 18, 2012. +Vote by Internet +• Log on to the Internet and go to +www.investorvote.com/www +• Follow the steps outlined on the secured website. +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US +territories & Canada any time on a touch tone telephone. There is NO CHARGE to you for the call. +• Follow the instructions provided by the recorded message. +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. +x +— IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. — +A +P roposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3, 4 and 5. ++ +1. +Election of Directors: +For +Withhold +For +Withhold +For +Withhold +01 - Alberto L. Grimoldi +¨ +¨ +02 - Joseph R. Gromek +¨ +¨ +03 - Brenda J. Lauderback +¨ +¨ +04 - Shirley D. Peterson +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for fiscal year 2012. +¨ +¨ +¨ +3. +An advisory resolution approving compensation for the Company’s named executive officers +¨ +¨ +¨ +4. +Proposal to approve Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan). +¨ +¨ +¨ +5. +Proposal to approve Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan). +¨ +¨ +¨ +B +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +IMPORTANT - Please sign exactly as your name(s) appears on this Proxy. When signing on behalf of a corporation, partnership, +estate or trust, indicate title or capacity of person signing. If shares are held jointly, each holder must sign. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ +/ +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of +Stockholders on April 19, 2012. The enclosed Notice of 2012 Annual Meeting of Stockholders provides information regarding the matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you plan to attend the +meeting, please read the enclosed materials and vote through the Internet, by telephone or by mailing the Proxy Card below. +Telephone and Internet Voting. +On the reverse +side of this card are instructions on how to vote through the Internet or by telephone. Please consider voting through one of these methods. Your vote is recorded as if you mailed in your Proxy. We believe voting through the Internet or by telephone +is convenient, and it also saves money. +Thank you in advance for your +participation in our 2012 Annual Meeting. +Wolverine World Wide, Inc. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE +ENCLOSED ENVELOPE. q +Proxy — WOLVERINE WORLD WIDE, INC. +This proxy is solicited on behalf of the Board of Directors +The undersigned stockholder hereby +appoints Blake W. Krueger and Donald T. Grimes, and each of them, each with full power of substitution, as proxies to represent the undersigned stockholder and to vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder +would be entitled to vote on all matters that properly come before the Annual Meeting of Stockholders to be held at the Company’s headquarters located at 9341 Courtland Drive N.E., Rockford, Michigan, 49351, on Thursday, April 19, 2012, at +10 a.m. Eastern Daylight Time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy +will be voted as specified. If this Proxy is properly executed but no specification is made, the shares represented by this Proxy will be voted for the election of all nominees named on this Proxy as directors and for approval of Proposals 2, 3, 4 +and 5 identified on this Proxy. The shares represented by this Proxy will be voted in the discretion of the proxies on any other matters that may properly come before the meeting. +PLEASE DO NOT VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0001193125-12-108604/proxy_rpt.txt b/raw/proxies/0000110471/0001193125-12-108604/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..1ab27e11481d9b32c84442691142a1096910f62b --- /dev/null +++ b/raw/proxies/0000110471/0001193125-12-108604/proxy_rpt.txt @@ -0,0 +1,55 @@ +Certain Relationships and Related Transactions +Wolverine Worldwide has entered into agreements with Grimoldi, S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a +director of Wolverine Worldwide, is chairman and a 35% shareholder. The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies ® , Caterpillar ® , and Patagonia ® brand names, and footwear and apparel under the Merrell ® brand name. Grimoldi, S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide +or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi, S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest +relating to purchases made or royalties and fees incurred in fiscal year 2011 totaling $5,462,805. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi, S.A. +Wolverine Worldwide expects similar transactions to occur between Grimoldi, S.A. and Wolverine Worldwide and its subsidiaries during 2012. +In the +ordinary course of its business, Wolverine Worldwide purchases promotional merchandise for use in connection with the sale of its products. In fiscal year 2011, Wolverine Worldwide purchased promotional merchandise from Bullseye Group, LLC totaling +$217,863. One-third of Bullseye Group, LLC is owned by Daniel Mehney, the son of David P. Mehney, a director of Wolverine Worldwide. Wolverine Worldwide anticipates purchasing promotional materials from Bullseye Group, LLC in 2012. +The Governance Committee reviewed and approved or ratified each of these transactions in accordance with Wolverine Worldwide’s related person transactions +policy, as described below. +Related Person Transactions Policy +Wolverine Worldwide’s Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering +into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar +transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) the aggregate amount involved is or is expected +to exceed $100,000 since the beginning of Wolverine Worldwide’s last completed fiscal year; +(2) Wolverine Worldwide is a participant; +and +(3) any Related Person (defined +below) has or will have a direct or indirect interest (other than solely as a result of being a director or less than ten percent beneficial owner of another entity). +Related Person +Any: +(a) person who is or was at any point during the +last fiscal year for which Wolverine Worldwide filed a Form 10-K and proxy statement, an executive officer, director or nominee for election as a director; +(b) greater than five percent beneficial owner of +Wolverine Worldwide’s common stock; or +(c) immediate family member * of any of the foregoing. +* +Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in- law, sons- and daughters-in-law, and +brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Governance Committee +considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the Related Person’s interest in the +Page 63 +Table of Contents +Wolverine Worldwide Notice of 2012 Annual Meeting of Stockholders and Proxy Statement +transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to +provide all material information to the Governance Committee. +The following Interested Transactions are pre-approved under the policies and procedures: +(a) +any transaction with another company where a Related Person’s only relationship is as an employee, director or beneficial owner of less than ten percent of that +company’s shares, if the aggregate amount involved does not exceed the greater of $1,000,000, or two percent of that company’s total revenues. +(b) +any charitable contribution by Wolverine Worldwide to a charitable organization where a Related Person is an employee, if the aggregate amount involved does not exceed the lesser +of $100,000, or two percent of the charitable organization’s total annual receipts. +ADDITIONAL +INFORMATION +Stockholders List +A list of stockholders entitled to vote at the meeting will be available for review by Wolverine Worldwide stockholders at the office of R. Paul Guerre, Secretary, +Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351, during ordinary business hours for the 10-day period before the meeting. +Director and Officer Indemnification +The Company indemnifies its directors and NEOs to the fullest extent +permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. \ No newline at end of file diff --git a/raw/proxies/0000110471/0001193125-13-100264/proxy.txt b/raw/proxies/0000110471/0001193125-13-100264/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e5197310d20086367ab83cd636b8201e9cf8bdf3 --- /dev/null +++ b/raw/proxies/0000110471/0001193125-13-100264/proxy.txt @@ -0,0 +1,5367 @@ +DEF 14A +1 +d476984ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +WOLVERINE WORLDWIDE +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control +number. +Table of Contents +Proxy Statement +Notice of 2013 +Annual Meeting of +Stockholders +Table of Contents +LETTER TO STOCKHOLDERS +Wolverine World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 11, +2013 +Dear Stockholder, +You are +invited to attend the 2013 Annual Meeting of Stockholders, on Thursday, April 18, 2013, at Wolverine Worldwide’s headquarters in Rockford, Michigan. +The annual meeting will begin with an introduction of management attendees and directors, followed by voting on the matters set forth in the accompanying Notice of Annual Meeting and Proxy Statement and +any other business matters properly brought before the meeting. The meeting will adjourn for a presentation on the Company’s business operations, and then resume for a report on the voting. +Whether or not you plan to attend, you can ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by +telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. +Sincerely, +Blake W. Krueger +Chairman +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 1 +Table of Contents +NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS +10:00 a.m., April 18, 2013 +Wolverine +World Wide, Inc. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +March 11, 2013 +To our Stockholders: +We invite you to attend +Wolverine Worldwide’s Annual Meeting of Stockholders at the Company’s headquarters located at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, April 18, 2013, at 10:00 a.m. Eastern Daylight Time. The annual meeting will +begin with an introduction of management attendees and directors, after which stockholders will: +(1) +vote on the election of the three director nominees named in the proxy statement for three-year terms expiring in 2016; +(2) +vote on the ratification of the Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for +fiscal year 2013; +(3) +vote on an advisory resolution approving compensation for the Company’s named executive officers; +(4) +vote on a proposal to approve the Stock Incentive Plan of 2013; and +(5) +transact other business that may properly come before the meeting. +The meeting will adjourn for a presentation on the Company’s business operations, then resume for a report on the voting results. You can vote at the meeting and any adjournment of the meeting if you +were a stockholder of record on March 1, 2013. +By Order of the Board of Directors +R. Paul Guerre, Secretary +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders +to be held on April 18, 2013. +Wolverine’s Proxy Statement for the +2013 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 29, 2012, are available at www.wolverineworldwide.com/2013annualmeeting . +Page 2 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +T able of Contents +Notice of 2013 Annual Meeting of Stockholders +2 +Table of Contents +3 +Board of Directors +5 +Board Composition +6 +Item 1 – Election of Directors for terms Expiring in 2016 +7 +Continuing Directors Elected in 2011 +11 +Continuing Directors Elected in 2012 +15 +Corporate Governance +19 +Risk Oversight +20 +Risk Considerations in Compensation Programs +20 +Board Leadership +20 +Director Independence +21 +Board Committees +22 +Audit Committee +23 +Compensation Committee +24 +Finance Committee +25 +Governance Committee +26 +Code of Conduct & Compliance and Accounting and Finance Code of Ethics +27 +Stockholder Communications Policy +27 +Non-Employee Director Compensation in Fiscal Year 2012 +28 +Non-Employee Director Stock Ownership Guidelines +31 +Securities Ownership of Officers and Directors and Certain Beneficial Owners +32 +Five Percent Stockholders +32 +Stock Ownership by Management and Others +33 +Compensation Discussion and Analysis +34 +Section 1 – 2012: A Transformative Year +34 +Strong Financial Performance +35 +Executive Compensation Overview for 2012 +36 +Section 2 – Compensation Program Overview +39 +Compensation Philosophy and Objectives +39 +Compensation Program Summary +39 +Purposes of Compensation Program Elements +40 +Compensation Committee Role +41 +CEO Role +41 +Compensation Consultant Role +41 +Competitive Data Use +42 +Section 3 – 2012 Compensation +44 +Base Salary +44 +Annual Incentive Compensation +44 +Annual Incentive Compensation – Annual Bonus +45 +Annual Incentive Compensation – Individual Performance Bonus +47 +Long-Term Incentive Compensation +48 +Long-Term Incentive Compensation – Performance Share Bonuses +48 +Long-Term Incentive Compensation – Stock Option Grants and Restricted Stock +Awards +49 +Benefits +50 +Section 4 – Other Compensation Policies and Practices +51 +NEO Stock Ownership Guidelines +51 +Stock Hedging and Pledging Policies +51 +Impact of Accounting and Tax Treatments on Compensation +51 +Post-Employment Compensation +51 +Compensation Committee Report +53 +Summary Compensation Table +54 +Grants of Plan-Based Awards in Fiscal Year 2012 +56 +Outstanding Equity Awards at 2012 Fiscal Year-End +58 +Option Exercises and Stock Vested in Fiscal Year 2012 +61 +Pension Plans and 2012 Pension Benefits +61 +Qualified Pension Plan +61 +Supplemental Executive Retirement Plan +62 +Pension Benefits in Fiscal Year 2012 +62 +Potential Payments Upon Termination or Change in Control +63 +Benefits Triggered by Termination for Cause or Voluntary Termination +63 +Benefits Triggered by Termination Other Than for Cause or by the NEO for Good +Reason +63 +Benefits Triggered Upon a Change in Control +64 +Benefits Triggered by Retirement, Death or Permanent Disability +65 +Description of Restrictive Covenants that Apply During and After Termination of +Employment +66 +Estimated Payments on Termination or Change in Control +66 +Audit Committee Report +69 +Independent Registered Public Accounting Firm +70 +Item 2 – Ratification of Appointment of Independent Registered Public Accounting +Firm +71 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 3 +Table of Contents +2013 PROXY STATEMENT +Item 3 – Advisory Resolution to Approve Executive Compensation +72 +Item 4 – Approval of Stock Incentive Plan of 2013 +74 +Related Party Matters +84 +Certain Relationships and Related Transactions +84 +Related Person Transactions Policy +84 +Additional Information +86 +Stockholders List +86 +Director and Officer Indemnification +86 +Section 16(a) Beneficial Ownership Reporting Compliance +86 +Stockholder Proposals for Inclusion in Next Year’s Proxy Statement +86 +Other Stockholder Proposals for Presentation at Next Year’s Annual Meeting +86 +Voting Securities +87 +Conduct of Business +87 +Vote Required for Election and Approval +87 +Voting Results of the Annual Meeting +87 +Attending the Annual Meeting +87 +Manner for Voting Proxies +88 +Revocation of Proxies +88 +Solicitation of Proxies +88 +Delivery of Documents to Stockholders Sharing an Address +88 +Access to Proxy Statement and Annual Report +88 +Appendix A – Stock Incentive Plan of 2013 +89 +Page 4 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +We are furnishing you this proxy statement and enclosed proxy card in connection with the solicitation of proxies by the Board +of Directors of Wolverine World Wide, Inc. (“Wolverine Worldwide” or the “Company”) to be used at the Annual Meeting of Stockholders of the Company. Distribution of this proxy statement and enclosed proxy card to stockholders is +scheduled to begin on or about March 11, 2013. +You can ensure that your shares are voted at the meeting by submitting your instructions +by telephone or through the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Submitting your instructions or proxy by any of these methods will not affect your right to attend and vote at the +meeting. We encourage stockholders to submit proxies in advance. A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy or by notifying the +inspectors of election in writing of such revocation. In order to vote any shares at that meeting that are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in +with your ballot. +References to “2012” or “fiscal year 2012” in this proxy statement are to the Company’s fiscal +year ending December 29, 2012, unless otherwise noted in the text. References to “2013” or “fiscal year 2013” in this proxy statement are to the Company’s fiscal year ending December 28, 2013, unless otherwise +noted in the text. +Board of Directors +The stockholders elect the directors who serve on the Board of Directors (the “Board” or “Board of Directors”) to oversee Company management. The Board delegates authority to the +Chief Executive Officer (“CEO”) and senior management to pursue the Company’s mission and oversees the CEO’s and senior management’s conduct of the Company’s business. In addition to its general oversight function, the +Board reviews and assesses the Company’s strategic and business planning, senior management’s approach to addressing significant risks, and has additional responsibilities including, but not limited to, the following: +» +reviewing and approving the Company’s key objectives and strategic business plans and monitoring implementation of those plans and the +Company’s success in meeting identified objectives; +» +reviewing the Company’s financial objectives and major corporate plans, business strategies and actions; +» +selecting, evaluating and compensating the CEO and overseeing CEO succession planning; +» +providing advice and oversight regarding the selection, evaluation, development and compensation of senior management; +» +reviewing significant risks confronting the Company and alternatives for their mitigation; and +» +assessing whether adequate policies and procedures are in place to safeguard the integrity of the Company’s business operations and financial +reporting and to promote compliance with applicable laws and regulations, and monitoring management’s administration of those policies and procedures. +The Company expects directors to +attend every meeting of the Board and the committees on which they serve and attend the annual meeting of stockholders. In 2012, 12 directors (each director then serving on the Board) attended the 2012 Annual Meeting of Stockholders and all +directors attended at least 75% of the meetings of the Board and the committees on which they served. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 5 +Table of Contents +2013 PROXY STATEMENT +BOARD COMPOSITION +The Board prides itself on its ability to recruit and retain directors who have the highest personal and professional integrity, have demonstrated +exceptional ability and judgment and effectively serve the stockholders’ long-term interests. Wolverine Worldwide seeks to achieve diversity in its Board membership by assembling a Board that has a broad range of skills, expertise, knowledge +and contacts to benefit the Company’s business. This goal is incorporated in the Company’s Corporate Governance Guidelines. The Board, with the assistance of the Governance Committee, annually assesses the current composition of the Board +considering diversity across many dimensions. The Board and Governance Committee use this assessment when defining the criteria for a director search. +The Board’s Governance Committee acts as its nominating committee. The Governance Committee, in anticipation of upcoming director elections and other potential or expected Board vacancies, searches +for qualified individuals and recommends candidates for director openings to the full Board. At the Company’s expense, the Committee may retain a search firm or other external parties to assist it in identifying candidates. The Committee +delegates day-to-day management and oversight of the external parties to the CEO and the Company’s Senior Vice President of Global Human Resources. The Committee considers candidates suggested by directors, senior management and stockholders, +and evaluates all candidates in the same manner. Stockholders may recommend individuals as potential director candidates by communicating with the Committee through one of the Board communication mechanisms described under the heading +“ Stockholders Communications Policy .” Stockholders that wish to nominate a director candidate must comply with the procedures set forth in the By-laws posted on the Company’s website. Ultimately, the Board selects the Company +nominees for election at each annual meeting. +As stated in the Company’s Corporate Governance Guidelines, Wolverine Worldwide seeks to +achieve diversity in its Board membership by assembling a group of directors who have a broad range of skills, expertise, knowledge and contacts to benefit the Company’s business. The Governance Committee and the Board annually assess the +current make-up of the Board, considering diversity across many dimensions, and the Committee uses this assessment when defining the criteria for a director search. The Committee, along with the Board, assesses the effectiveness of the diversity +objective when reviewing the Board composition. Among other things, the Board has determined that it is important to have individuals with one or a combination of the following skills and experiences on the Board: +» +FOOTWEAR, APPAREL AND RETAIL EXPERIENCE. The Company’s business focuses on the international marketing and sale of footwear and apparel, +both in wholesale and retail markets. The Company has identified expanding its apparel and retail businesses as two important growth initiatives. The Board believes it is important to have directors with experience in the footwear, apparel and +retail industries to provide insights into these and other areas that are critical to the Company’s success. +» +LEADERSHIP EXPERIENCE. The Board believes that directors with significant leadership experience, including Chief Executive Officer experience, +provide it with special insights, including organization development and leadership practices, and individuals with this experience help the Company identify and develop its own leadership talent. They demonstrate a practical understanding of +organizations, process, strategy, risk management and the methods to drive change and growth. These individuals also provide the Company with a valuable network of contacts and relationships. +» +GLOBAL EXPERIENCE. The Company’s products are sold in more than 190 countries and territories, reflecting the global nature of its +business. In fiscal year 2012, approximately 34% of the Company’s revenues came from outside the U.S. and more than 95% of the Company’s products were sourced from outside the U.S. Directors familiar with the challenges and opportunities +faced by a global business add value to the Board. +» +FINANCE EXPERIENCE. The Company uses financial metrics in managing its overall operations and the operations of its business units. The Company +and its stockholders value accurate financial tracking and reporting. The Board seeks directors that understand finance and financial reporting processes, including directors who qualify as audit committee financial experts. Experience as members of +audit committees of other boards of directors also gives directors insight into best audit committee practices. +Page 6 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +» +PUBLIC AND PRIVATE COMPANY EXPERIENCE. The Company has been listed on the NYSE since 1965. Although the Company’s brand leaders operate as +part of a public company, management expects them to drive growth in their business units using the entrepreneurial spirit of private company leadership. The Board believes it is important to have directors who are familiar with the regulatory +requirements and environment for publicly traded companies, and to have directors who have experience applying an entrepreneurial focus to building a company or business unit. +» +GOVERNMENT EXPERIENCE. A portion of the Company’s business involves government contracting, and the Company interacts with domestic and +foreign governments routinely. The Board recognizes the importance of working constructively with governments around the world and believes it is helpful to have directors who have experience working in or with government. +The Governance Committee also considers an individual’s relative skills, background and characteristics, their +exemplification of the highest standards of personal and professional integrity, independence under NYSE listing standards and the Company’s Director Independence Standards, potential contribution to the composition and culture of the Board, +and ability and willingness to actively participate in the Board and committee meetings and to otherwise devote sufficient time to Board duties. +ITEM 1 – Election of Directors for Terms Expiring in 2016 +Wolverine Worldwide’s Board consists of 11 directors. The Company’s Amended and Restated By-laws (the “By-laws”) divide the +Board into three classes as nearly equal in number as possible. Each class serves a three-year term of office. At each annual meeting, the term of one class expires. The Company’s Corporate Governance Guidelines state that a director must +retire and resign from the Board at the Annual Meeting of Stockholders following his or her 72 nd birthday, subject to the Board waiving this requirement under exceptional circumstances. The Board has nominated three directors for election at the annual meeting to be held on April 18, +2013: Jeffrey M. Boromisa, David T. Kollat and Timothy J. O’Donovan. Each director is nominated for a three-year term expiring at the annual meeting of stockholders to be held in 2016 or until his or her successor, if any, has been elected and +is qualified. +Each of the Board’s three nominees is an independent director, as determined by the Board under the applicable rules for +companies whose securities are traded on the New York Stock Exchange (“NYSE”) and the Company’s Director Independence Standards. Each director nominee currently serves on the Board and the stockholders elected each nominee at the +Company’s 2010 annual meeting. The Company is not aware of any nominee who will be unable to or will not serve as a director. However, if a nominee is unable to serve or is otherwise unavailable for election, the incumbent directors may or may +not select a substitute nominee. If the directors select a substitute nominee, the proxy holder will vote the shares represented by all valid proxies for the substitute nominee (unless you give other instructions). +The biographies of the three nominees and the other directors of the Company are printed below, along with a discussion of the above-described skills and +qualifications for each director. Following the biographies is a chart that summarizes the skills and qualifications of the nominees and directors. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 7 +Table of Contents +2013 PROXY STATEMENT +JEFFREY M. BOROMISA +Age: 58 +Director since: 2006 +Retired Executive Vice President of Kellogg International, President of Latin America; Senior Vice President of Kellogg Company, and member of Kellogg Company’s Global +Leadership Team +Board Committees: +Audit +Finance +Mr. Boromisa was Executive Vice President of Kellogg International, President of Latin America; Senior Vice President +of Kellogg Company, a global food manufacturing company, and a member of Kellogg Company’s Global Leadership Team from 2008 through his retirement in May 2009. From 2007 until 2008, Mr. Boromisa served as Executive Vice President of +Kellogg International, President of Asia Pacific and Senior Vice President of the Kellogg Company, as well as serving as a member of Kellogg Company’s Global Leadership Team. From 2004 until 2006, he was Senior Vice President and Chief +Financial Officer of Kellogg Company. In 2002, Mr. Boromisa was promoted to Senior Vice President, Corporate Controller and Chief Financial Officer of Kellogg International. Mr. Boromisa served as Vice President and Corporate Controller of +Kellogg Company from November 1999 until 2002. In 1997, he was promoted to Vice President – Purchasing of Kellogg North America, and from 1981 to 1997, served Kellogg Company in various financial positions. Mr. Boromisa also is a director +at Haworth International, Inc., a privately held, multinational, office furniture design and manufacturing company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 6 years as a director of the Company. +Leadership Experience – Served in senior roles involving executive management, brand management, marketing and international operations, for +more than 25 years at Kellogg Company, a publicly traded multinational company. +Global Experience – Served in senior leadership +positions at Kellogg Company, responsible for Latin American and Asia Pacific operations. +Finance Experience – Served as Chief +Financial Officer and in senior finance roles at Kellogg Company. +Public and Private Company Experience – Served in senior +leadership roles at Kellogg Company, a publicly traded multinational company, and serves as a director of Haworth International, Inc., a privately held company. +Page 8 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +DAVID T. KOLLAT +Age: 74 +Director since: 1992 +President and Chairman of 22, Inc. +Board Committees: +Compensation +Public Directorships: +Limited Brands, Inc. +Select Comfort +Corporation +Mr. Kollat has been President and Chairman of 22, Inc., a company specializing in research and management consulting +for retailers and consumer goods manufacturers, since 1987. In addition to his marketing and management experience as President and Chairman of 22, Inc., Mr. Kollat has 11 years of experience as Executive Vice President, Marketing, and a member +of the executive committee of Limited Brands, Inc., a publicly traded multinational apparel and retail company, and three years at Limited Brands, Inc. as President of Victoria’s Secret Direct. In 2009 and again in 2012 prior to +Mr. Kollat’s re-nomination as a director, the Board decided to waive the Company’s age 72 resignation requirement for Mr. Kollat, allowing him to serve additional terms ending in 2013 and 2016, respectively. Mr. Kollat is +Lead Director of Wolverine Worldwide. During the preceding five years, Mr. Kollat was, but no longer is, a director of Big Lots, Inc., a publicly traded retail company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 20 years as a director of the Company, for more +than 25 years as a consultant to retailers and consumer goods manufacturers, and continuing service as a director of Limited Brands, Inc.; and served for more than 11 years in senior leadership roles at Limited Brands, Inc. +Leadership Experience –Service as a director of two publicly traded companies, Limited Brands, Inc. and Select Comfort Corporation, in +addition to service as a director of the Company, and served as a director of Big Lots, Inc. and served for more than 11 years in senior leadership roles at Limited Brands, Inc. +Finance Experience – Has 13 collective years serving on audit committees and 10 collective year serving on finance committees of publicly traded companies. +Public and Private Company Experience – Has 90 collective years serving on public company boards, including 13 years of experience on audit +committees, 20 years of service on compensation committees, 11 years of service on governance committees and 10 years of service on finance committees. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 9 +Table of Contents +2013 PROXY STATEMENT +TIMOTHY J. O’DONOVAN +Age: 67 +Director since: +1993 +Retired Chairman of the Board and Chief Executive Officer of Wolverine World Wide, Inc. +Public Directorships: +Kaydon Corporation +Spartan Stores, +Inc. +Mr. O’Donovan is a former Chairman of the Board of Wolverine Worldwide and served in that position from April 2005 +through December 2009. In April 2007, Mr. O’Donovan retired as Chief Executive Officer of Wolverine Worldwide, a position which he held since April 2000. Mr. O’Donovan served Wolverine Worldwide as its Chief Executive Officer and +President from April 2000 until April 2005, and as Chief Operating Officer and President from 1996 until April 2000. Prior to 1996, Mr. O’Donovan held various positions with the Company, including Executive Vice President of Wolverine +Worldwide. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 40 years in various positions with the Company, +including 7 years as Chief Executive Officer with responsibilities for all aspects of the business, including brand leadership, apparel and accessories development, footwear wholesale, retail business development, international operations, mergers +and acquisitions, manufacturing and sourcing; and 2 years of service as non-executive Chairman of the Board. +Leadership Experience +– Service for more than 40 years in a variety of positions with the Company, including 7 years as Chief Executive Officer. +Global +Experience – Service for more than 40 years in a variety of positions at the Company, including 7 years as Chief Executive Officer, with responsibility for all aspects of the business, including international operations. +Finance Experience – Service in various roles with the Company responsible for financial operations, including 7 years as Chief Executive +Officer, and service for 7 years on the audit committee of a publicly traded company. +Public and Private Company Experience – +Service for more than 30 collective years on the boards of the Company, Spartan Stores, Inc., a publicly traded company in the food distribution industry, and Kaydon Corporation, a publicly traded company that designs and manufactures +custom-engineered products, and service as lead director of Kaydon Corporation and Spartan Stores, Inc. +BOARD RECOMMENDATION +The Board recommends that you vote “FOR” the election of the above nominees for terms expiring in 2016. +Page 10 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Continuing Directors Elected in 2011 with Terms Expiring in 2014 +WILLIAM K. GERBER +Age: 59 +Director since: 2008 +Managing Director of Cabrillo Point Capital LLC +Board Committees: +Audit +Compensation +Finance +Public Directorships: +AK Steel Holding Corporation +Kaydon +Corporation +Mr. Gerber is Managing Director of Cabrillo Point Capital LLC, a private investment fund. He has held that position +since 2008. From 1998 to 2007, Mr. Gerber was Executive Vice President and Chief Financial Officer of Kelly Services, Inc., a publicly traded multinational staffing solutions company with operations in more than 35 countries. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for 15 years in leadership positions for Limited Brands, Inc., +a publicly traded multinational apparel and retail company, in addition to service as a director of the Company. +Leadership Experience +– Served for 24 collective years in leadership roles for Limited Brands, Inc. and Kelly Services, Inc., both publicly traded companies, including as Chief Financial Officer of Kelly Services, Inc. +Global Experience – Served for 24 collective years as a senior executive for Limited Brands, Inc. and Kelly Services, Inc., both multinational +companies, and service for more than 4 years as a director for the Company. +Finance Experience – Served for 10 years as Chief +Financial Officer of Kelly Services Inc. where he was responsible for investor relations, mergers and acquisitions and purchasing in addition to core Chief Financial Officer functions; and served for 15 years in various finance roles, including Vice +President, Finance, and Vice President, Corporate Controller, for Limited Brands, Inc. +Public and Private Company Experience – +Service as a director of AK Steel Holding Company, an integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products, and Kaydon Corporation, a publicly traded company that designs and manufactures custom-engineered +products, including 17 collective years of experience serving as a member of the audit committees of AK Steel Holding Corporation, Kaydon Corporation, and the Company, and experience as the chair of the audit committees of AK Steel Holding +Corporation and Kaydon Corporation. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 11 +Table of Contents +2013 PROXY STATEMENT +BLAKE W. KRUEGER +Age: 59 +Director since: 2006 +Chairman, Chief Executive Officer and President of Wolverine World Wide, Inc. +Mr. Krueger is Chairman of Wolverine Worldwide, a position he assumed in January 2010, and Chief Executive Officer and +President of Wolverine Worldwide, positions he assumed in April 2007. From October 2005 until April 2007, Mr. Krueger served as President and Chief Operating Officer of Wolverine World Wide, Inc. From 2004 to October 2005, he served as +Executive Vice President and Secretary of Wolverine Worldwide and President of the Heritage Brands Group. From 2003 to 2004, Mr. Krueger served as Executive Vice President and Secretary of Wolverine Worldwide and President of the Caterpillar +Footwear Group. He also previously served as Executive Vice President, General Counsel and Secretary of Wolverine Worldwide with various responsibilities including the human resources, retail, business development, accessory licensing, mergers and +acquisitions, and legal areas. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 15 years in senior leadership roles with the +Company, including 6 years as Chief Executive Officer, with responsibilities for all aspects of the business including brand leadership, apparel and accessories development, footwear wholesale, retail business development, international operations, +mergers and acquisitions, manufacturing, and sourcing. +Leadership Experience – Service for more than 15 years in senior leadership +roles with the Company with responsibilities for operational and staff areas of the business, including brand, manufacturing and sourcing operations, and corporate governance, legal, human resources and mergers and acquisitions, and service for 6 +years as Chief Executive Officer. +Global Experience – Service for more than 15 years in senior leadership roles with the Company, +including 6 years as Chief Executive Officer with responsibility for international operations. +Public and Private Company Experience +– Service for more than 15 years with the Company, including 6 years as Chief Executive Officer and 7 years as a director, and as a director of Bissell, Inc., a privately held vacuum cleaner and floor care product manufacturing company; and +served as a director of Professionals Direct, Inc., a then publicly traded insurance company. +Page 12 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +NICHOLAS T. LONG +Age: 54 +Director since: 2011 +Chief Executive Officer of MillerCoors LLC +Board Committees: +Compensation +Mr. Long has been Chief Executive Officer of MillerCoors LLC (“MillerCoors”), a beverage company joint +venture between two publicly traded beverage companies, since 2011. From 2008 to 2011, Mr. Long served as President and Chief Commercial Officer of MillerCoors. From 2007 to 2008, Mr. Long served as Chief Executive Officer of Miller +Brewing Company, a beverage company, and he served as Chief Marketing Officer of Miller Brewing Company from 2005 to 2007. Prior to joining Miller Brewing Company, Mr. Long spent 17 years in various senior leadership positions at The Coca-Cola +Company, a beverage company, including Vice President of Strategic Marketing Global Brands, Vice President Strategic Marketing Research and Trends, President of Coca-Cola’s Great Britain and Ireland Division and President of the Northwest +Europe Division. +Skills and Qualifications +Leadership Experience – Service for more than 20 years as a senior executive in the beverage industry, including +experience in senior leadership positions with The Coca-Cola Company and Miller Brewing Company and as Chief Executive Officer of MillerCoors LLC. +Global Experience – Served in senior leadership positions with multinational companies, including management responsibility for more than 60 countries while in a senior leadership position +with The Coca-Cola Company. +Public and Private Company Experience – Service as Chief Executive Officer of a joint venture formed +by two publicly traded beverage companies, and served in senior leadership positions with The Coca-Cola Company, a multinational publicly traded company, and Miller Brewing Company, a domestic subsidiary of SABMiller plc, a multinational publicly +traded company. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 13 +Table of Contents +2013 PROXY STATEMENT +MICHAEL A. VOLKEMA +Age: 57 +Director since: 2005 +Chairman of Herman Miller, Inc. +Board Committees: +Compensation +Governance +Public Directorships: +Herman Miller, Inc. +Mr. Volkema has been Chairman of Herman Miller, Inc., a publicly traded multinational furniture manufacturer, since +2000. Mr. Volkema became President and Chief Executive Officer of Herman Miller in 1995 and held those positions until 2003 and 2004, respectively. Mr. Volkema has more than 25 collective years of experience on public company boards, +including 12 years as Chairman of the Board at Herman Miller, Inc., and including service on the compensation and audit committees of boards of publicly traded companies. Mr. Volkema also is a director at Milliken & Company, a +privately held, innovation-based company serving textile, chemical, and floor covering markets. During the preceding five years, Mr. Volkema was, but no longer is, a director of Champion Enterprises, Inc., which was a factory-built and modular +home manufacturer. +Skills and Qualifications +Leadership Experience – Service for more than 20 years in senior leadership positions with Herman Miller, Inc., +a publicly traded multinational company, including 9 years as Chief Executive Officer and 12 years as Chairman of the company. +Global +Experience – Service for more than 20 years in senior leadership positions and as a director of Herman Miller, Inc., a publicly traded multinational company, in addition to experience as a director of the Company. +Public and Private Company Experience – Service for more than 25 collective years on public and private company boards, including as Chairman +of the Board for 12 years at Herman Miller, Inc., a publicly traded corporation, service as a director of Milliken & Company, a privately held company, including 8 collective years of experience serving on compensation committees and 5 +collective years of experience serving on audit committees of boards of publicly traded companies. +Page 14 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Continuing Directors Elected in 2012 with Terms Expiring in 2015 +ALBERTO L. GRIMOLDI +Age: 71 +Director since: 1994 +Chairman of Grimoldi, S.A. +Mr. Grimoldi has been Chairman of Grimoldi, S.A., a manufacturer and retailer of footwear and accessories, since 1986. +Mr. Grimoldi also was a member of the Advisory Board of Ford Motor Company Argentina, a multinational automotive company; Vice Chairman of Banco Privado de Inversiones, S.A., an investment bank; and in Argentina, Undersecretary of Foreign +Trade, Undersecretary of Economics and Labor, Secretary of Industry and a member of the board of the Central Bank of Argentina. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Service for more than 25 years in the footwear and retail industries, +including as Chairman of Grimoldi S.A. +Leadership Experience – Service for more than 25 years as Chairman of a publicly traded +Argentinean company and service in senior leadership positions of the Argentine government including as Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry. +Global Experience – Service for more than 25 years as Chairman of an Argentinean company, more than 18 years as director of the Company, and +served as a member of the Advisory Board of Ford Motor Company Argentina, a multinational company. +Finance Experience – Service as +a member of the Advisory Board of Ford Motor Company Argentina, a multinational company, Vice Chairman of an investment bank, Banco Privado de Inversiones, S.A., as well as leadership and finance experience from government service in Argentina as +Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, Secretary of Industry and a member of the board of the Central Bank of Argentina. +Public and Private Company Experience – Service as Chairman of Grimoldi S.A., a publicly traded company, for more than 25 years and as a director of the Company for more than 18 +years. +Government Experience – Service as Argentina as Undersecretary of Foreign Trade, Undersecretary of Economics and Labor, +Secretary of Industry and a member of the board of the Central Bank of Argentina. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 15 +Table of Contents +2013 PROXY STATEMENT +JOSEPH R. GROMEK +Age: 66 +Director since: 2008 +Retired President, Chief Executive Officer +and a Director of +The Warnaco Group, Inc. +Board Committees: +Compensation +Finance +Governance +Public Directorships: +The Children’s Place Retail Stores, Inc. +Tumi, Inc. +From 2003 until his retirement in 2012, Mr. Gromek served as President, Chief Executive Officer and a director of The +Warnaco Group, Inc., a publicly traded multinational company that designs, sources, manufactures, markets, retails, licenses and distributes a broad line of intimate apparel, sportswear and swimwear worldwide. Mr. Gromek also served as Chief +Executive Officer of Brooks Brothers, Inc., a private clothing manufacturer and retail company, from 1995 until 2002. Mr. Gromek also is a director of Stanley M. Proctor Company, a privately held manufacturing tool distributor. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for more than 30 years managing and marketing apparel brands +and more than 40 years in the retail and apparel industry, including a collective 15 years as Chief Executive Officer of two apparel companies, Brooks Brothers, Inc. and The Warnaco Group, Inc. +Leadership Experience – Served in leadership positions at several companies, including as Chief Executive Officer at two apparel companies. +Global Experience – Served as the Chief Executive Officer of two multinational companies, Brooks Brothers, Inc. and The Warnaco Group. +Public and Private Company Experience – Service as a director of three publicly traded companies, The Children’s Place Retail Store, Inc., a children’s clothing retail company, Tumi, +Inc., a wholesaler and retailer of luxury travel, business and lifestyle accessories, and the Company; service as a director of Stanley M. Proctor Company, a privately held company; and served as Chief Executive Officer of The Warnaco Group, Inc. +and Brooks Brothers, Inc. +Page 16 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +BRENDA J. LAUDERBACK +Age: 62 +Director since: 2003 +Retired President of the Wholesale and Retail Group of Nine West Group, Inc. +Board Committees: +Audit +Governance +Public Directorships: +Big Lots, Inc. +Denny’s +Corporation +Select Comfort Corporation +From 1995 until her retirement in 1998, Ms. Lauderback was President of the Wholesale and Retail Group of Nine West +Group, Inc., a footwear wholesaler and distributor. She previously was the President of the Wholesale Division of U.S. Shoe Corporation, a footwear manufacturer and distributor, a position that included responsibility for offices in China, Italy and +Spain, and was a Vice President/General Merchandise Manager of Dayton Hudson Corporation, a retailer (now Target Corporation). During the preceding five years, Ms. Lauderback also was, but no longer is, a director of Irwin Financial +Corporation, a publicly traded bank holding company. +Skills and Qualifications +Footwear, Apparel and Retail Experience – Served for more than 25 years in the retail industry and more than 20 +years in the footwear, apparel, and accessories industry, including senior leadership positions with Nine West Group, Inc., U.S. Shoe Corporation and Dayton Hudson Corporation. +Leadership Experience – Served in senior leadership positions for two publicly traded companies and service for 50 collective years on publicly traded company boards, including Big Lots, Inc., +a retail company, Denny’s Corporation, a restaurant company, and Select Comfort Corporation, a bed manufacturer and retailer, and as a director of the Company. +Public and Private Company Experience – Service for 50 collective years on publicly traded company boards, including 27 collective years of experience serving on audit committees and 27 +collective years of experience serving on governance committees, and chair of three governance committees of boards of publicly traded companies. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 17 +Table of Contents +2013 PROXY STATEMENT +SHIRLEY D. PETERSON +Age: 71 +Director since: 2005 +Retired Partner of Steptoe & Johnson LLP +Board Committees: +Audit +Governance +Public Directorships: +AK Steel Holding Corporation +The Goodyear Tire +& Rubber Company +From 1995 until her retirement in 2000, Ms. Peterson served as President of Hood College in Frederick, Maryland. Prior +to serving as President of Hood College, Ms. Peterson also served as Commissioner of the Internal Revenue Service and Assistant Attorney General of the Tax Division for the U.S. Department of Justice, and had 20 years in private law practice as +a tax attorney with the law firm Steptoe & Johnson LLP. During the preceding five years, Ms. Peterson also was, but no longer is, a director of Champion Enterprises, Inc., a factory-built modular home manufacturer, and was a director +or trustee of various funds within the DWS Fund Complex. +Skills and Qualifications +Leadership Experience – Served as President of Hood College, as Commissioner of the Internal Revenue Service, +and for 20 years in private law practice, including as a Partner of Steptoe & Johnson LLP. +Public and Private Company +Experience – Service for 40 collective years on publicly traded company boards, including the Company, AK Steel Holding Corporation, an integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products, and The +Goodyear Tire & Rubber Company, a multinational developer, manufacturer, marketer and distributor of tires, rubber-related chemicals, and operator of commercial truck service and tire retreading centers and tire and auto service center +outlets, and more than 25 collective years of experience serving on publicly traded company audit committees, 35 collective years of experience serving on publicly traded company governance committees, and an additional 13 years of experience +serving on the governance committee of a mutual fund complex. +Government Experience – Served as Commissioner of the Internal +Revenue Service and Assistant Attorney General of the Tax Division for the U.S. Department of Justice. +Page 18 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Summary of Director +Skills and Qualifications +Jeffrey M. Boromisa +William K. Gerber +Alberto L. Grimoldi +Joseph R. Gromek +David T. Kollat +Blake W. Krueger +Brenda J. Lauderback +Nicholas T. Long +Timothy J. O’Donovan +Shirley D. Peterson +Michael A. +Volkema +FOOTWEAR, APPAREL AND RETAIL EXPERIENCE +LEADERSHIP EXPERIENCE +GLOBAL EXPERIENCE +FINANCE EXPERIENCE +PUBLIC AND PRIVATE COMPANY EXPERIENCE +GOVERNMENT EXPERIENCE +indicatesthe director has that skill or qualification. +Corporate Governance +The Board and each standing committee conduct an annual self-assessment. The Finance Committee was formed in 2012 and will conduct its first annual self-assessment +in 2013. Each director also evaluates the performance of the other directors as part of the Board self-assessment. Mr. Kollat, as the Lead Director working with the Governance Committee, reviews the Board self-assessment with directors +following the end of each fiscal year. Committee Chairpersons review the committee self-assessments with their respective committee members and discuss them with the Board. +The Corporate Governance Guidelines (including the Director +Independence Standards); the Charter for each Board standing committee (Audit, Compensation, Finance and Governance); the Company’s Certificate of Incorporation; By-laws; Code of Conduct & Compliance and its Accounting and Finance Code +of Ethics all are available on the Wolverine Worldwide website at: +http://www.wolverineworldwide.com/investor-relations/corporate-governance/ +The Board and committees annually review and update these and other key governance +documents. +The Lead Director, working with the Governance Committee, develops and implements guidelines evaluating all +directors standing for nomination and re-election. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 19 +Table of Contents +2013 PROXY STATEMENT +RISK OVERSIGHT +The Board oversees the Company’s risk management and mitigation activities directly through presentations by and discussions with the CEO, Chief +Financial Officer (“CFO”), General Counsel, brand and department leaders, and other members of management. The Vice President of Internal Audit and Risk Compliance coordinates management’s day-to-day risk management and mitigation +processes, and reports directly to the CFO and also reports directly to the Audit Committee. The Vice President of Internal Audit and Risk Compliance reviews with the Audit Committee quarterly and with the full Board annually management’s risk +assessments and mitigation strategies for significant risks. In addition to the above processes, the Board has delegated the following risk management and mitigation oversight responsibilities to its standing committees, which meet regularly to +review and discuss risk topics and then report to the full Board: +» +The Audit Committee oversees the Company’s risk policies and processes relating to its financial statements and financial reporting processes, +credit risks, and liquidity risks. The Committee also reviews the Company’s policies and systems with respect to risk assessment and risk management. The Committee discusses with management and the independent auditors significant risks or +exposures and the steps taken by management to resolve them. The Committee oversees the Company’s procedures for the receipt, retention and treatment of complaints relating to accounting and auditing matters and oversees the Company’s +management of legal and regulatory compliance systems. +» +The Compensation Committee monitors the risks associated with management resources; organization structure; succession planning, hiring, development +and retention processes; and reviews and evaluates what effects the Company’s compensation structure may have on risk decisions. +» +The Finance Committee advises and assists the Board with respect to Company policies and practices relating to the management of certain financial +matters delegated by the Board to the Finance Committee. +» +The Governance Committee oversees risks related to the Company’s governance structure and processes and risks arising from related person +transactions. +RISK CONSIDERATIONS IN COMPENSATION PROGRAMS +The Company reviewed its employee compensation programs to assess whether any of those programs included incentives that created risks likely to have a material adverse impact on the Company. As part of +this review, the Company compiled information about the Company’s incentive plans, including reviewing the Company’s compensation philosophy, evaluating key incentive plan design features, and reviewing historic payout levels and pay mix. +The Compensation Committee reviewed the executive compensation programs, with management’s assistance, and managers from the Company’s human resources and legal departments reviewed the non-executive compensation programs. +BOARD LEADERSHIP +The Company’s CEO currently also serves as the Chairman of the Board. Since 1993, the Company has had an independent Lead Director who functions in many ways similar to how an independent Chairman +would function. This long-established structure provides the Board with independent oversight of the CEO’s leadership. The Board believes that it should decide whether to separate the roles of Chairman and CEO based upon the Company’s +circumstances at the time and considers the Board’s leadership structure as part of the succession planning process. The Company’s business currently focuses on the development of its footwear, apparel and retail business. Because the +Company does not operate multiple, unrelated businesses and given the size of the Company, the Board believes that separating the Chairman and CEO roles at this time would add unnecessary complexity to the organization structure without adding +materially to Board oversight of the CEO function. The Company’s independent directors annually select an independent Lead Director. As outlined in the Corporate Governance Guidelines, the duties of the Lead Director include: +» +reviewing and approving the agenda and scheduling for Board and committee meetings; +» +overseeing and approving information sent to the Board; +Page 20 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +» +presiding over executive sessions and having the authority to call executive sessions; +» +serving as a liaison between the Chairman and the independent directors; +» +presiding over Board meetings in the absence of the Chairman; and +» +being available for consultation and communication with stockholders, as appropriate. +DIRECTOR INDEPENDENCE +The Board annually assesses the independence of all directors. No director qualifies as “independent” unless the Board affirmatively determines that the director is independent under the +Company’s Director Independence Standards and the listing standards of the NYSE. Under the Company’s Director Independence Standards, and in conformity with the listing standards of the NYSE, the Board has determined that nine of the +Company’s eleven directors are independent. For over 16 years, Wolverine Worldwide has not had more than two active or former management employees as directors. All of the Board’s committees are comprised entirely of independent directors. +The non-management directors meet periodically each year in executive session. The Board believes that this structure provides for meaningful and effective oversight of management by the non-management directors. +Mr. Krueger is not independent +because he currently is the Company’s +CEO and President. Mr. Grimoldi is +not independent because he is +the +Chairman and 35% owner of a +company that made payments to +Wolverine in excess of $1,000,000 per +year in the last three years. +Name +Management +Non-Management +Independent +Boromisa +X +X +Gerber +X +X +Grimoldi +X +Gromek +X +X +Kollat +X +X +Krueger +X +Lauderback +X +X +Long +X +X +Mehney * +X +X +O’Donovan +X +X +Peterson +X +X +Volkema +X +X +* Mr. Mehney retired from the Board on April 19, 2012. +The Director Independence Standards define an “Independent Director” as a director who: +» +is not, and in the past three years has not been, an employee of the Company; +» +does not have, and has not had within the last three years, an immediate family member employed as an executive officer of the Company; +» +has not received, and has not had an immediate family member receive during any twelve-month period within the last three years, any direct +compensation from the Company in excess of $120,000 (other than compensation for Board service; compensation received by the director for former service as an interim +Chairman, CEO or other executive officer; compensation received by the director’s immediate family member for service as a non-executive employee; or pension and other forms of deferred +compensation for prior service if such compensation is not contingent in any way on continued service); +» +is not a current employee or partner of a firm that is the Company’s internal or external auditor (“Company Auditor”); +» +has not been, and has not had an immediate family member who has been within the last three years, a partner +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 21 +Table of Contents +2013 PROXY STATEMENT +or employee of a Company Auditor and personally worked on the Company’s audit within that time; +» +has not had an immediate family member who is (i) a current partner of a Company Auditor, or (ii) a current employee of a Company Auditor who +personally works on Wolverine Worldwide’s audit; +» +is not, and has not been within the last three years, part of an interlocking directorate in which a current executive officer of Wolverine Worldwide +serves or served on the compensation committee of another company where the director or the director’s immediate family member concurrently serves or served as an executive officer; +» +is not an employee, majority owner or person in control of another company that has made payments to, or received payments from, Wolverine Worldwide +for property or services in an amount which, in any of the last three fiscal years, exceeds the lesser of $250,000 or 10% of the other company’s consolidated gross revenues; +» +does not have an immediate family member who is an executive officer of another company that has made payments to, or received payments from, Wolverine +Worldwide for property or services in an amount which, in any of the past three fiscal years, exceeds the greater of $1,000,000 or 2% of the other company’s consolidated gross revenues; +» +is not an executive officer, trustee or board member of a tax exempt organization to which Wolverine Worldwide has made in the past three fiscal years +contributions that, in any single fiscal year, exceeded the greater of $50,000 or 2% of the non-profit organization’s, foundation’s or educational institution’s consolidated gross revenues; or +» +has not had any other direct or indirect relationship with Wolverine Worldwide, which the Board determines is material. +“Immediate Family Member” +covers spouses, parents, children, siblings, in-laws, and any person (other than domestic employees) sharing the household of any director, nominee for director, executive officer, or significant stockholder of a company. +BOARD COMMITTEES +The following table identifies the current members of the Board and its standing committees and the number of meetings the Board and each committee held in 2012. +BOARD OF DIRECTORS +(8 +Meetings) +Audit Committee +Compensation Committee +Finance Committee +Governance Committee +(12 Meetings) +(14 Meetings) +(1 Meeting) +(8 Meetings) +Boromisa (Chair) +Gerber +Lauderback +Peterson +Volkema (Chair) +Gerber +Gromek +Kollat +Long +Boromisa (Chair) +Gerber +Gromek +Lauderback +(Chair) +Gromek +Peterson +Volkema +Page 22 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Audit Committee +The Board has determined that each Audit Committee member is “independent” as defined by NYSE rules and the Sarbanes-Oxley Act of 2002, as applicable to audit committee members, and that all +satisfy the NYSE “financial literacy” requirement. Mr. Boromisa and Mr. Gerber are “audit committee financial experts” under Securities and Exchange Commission (“SEC”) rules. The Audit Committee: +» +represents and assists the Board in fulfilling its oversight responsibility regarding the Company’s financial reporting and accounting process, +the Company’s systems of internal accounting and financial controls, the performance of the internal audit function and the independent auditors, the qualifications and independence of the independent auditors, the annual independent audit of +the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, and the Company’s policies and systems with respect to risk assessment and risk management; +» +appoints, retains (subject to ratification by the Company’s stockholders), compensates, oversees, evaluates and, if appropriate, terminates the +independent auditors; +» +approves in advance all audit and permissible non-audit services to be provided by the independent auditors and establishes policies and procedures for +the engagement of the independent auditors to provide audit and permissible non-audit services; +» +annually reviews the performance, effectiveness, objectivity and independence of the independent auditors and the Company’s internal audit +function; +» +annually obtains and reviews the independent auditors’ internal quality control report and other reports required by applicable rules, regulations +and standards; +» +annually obtains and reviews the independent auditors’ report regarding the auditors’ independence; +» +annually assess auditor independence; +» +discusses with the internal audit staff and the independent auditors the overall scope and plans for their respective audits; +» +receives, reviews and discusses reports from management, the internal finance and auditing staff and the independent auditors regarding the adequacy +and effectiveness of the Company’s internal control over financial reporting; +» +receives, reviews and discusses reports from management regarding the adequacy and effectiveness of the Company’s disclosure controls and +procedures; +» +oversees the Company’s risk policies and processes relating to its financial statements and financial reporting processes, credit risks and +liquidity risks; +» +meets separately, periodically with management, the internal auditors or other personnel responsible for the internal audit function, the independent +auditors and the General Counsel; +» +meets to review with management and the Company’s independent auditors the Company’s interim and annual audited financial statements, +including disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are included in the Company’s Quarterly reports on Form 10-Q and Annual Reports on Form 10-K; +» +recommends to the Board whether the Company’s audited financial statements should be included in the company’s Annual Report on Form 10-K; +» +establishes and oversees procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing +or federal securities law matters, and for the confidential, anonymous submission by the Company’s employees of concerns regarding questionable accounting, auditing or federal securities law matters; +» +reviews with management and the independent auditors the Company’s earnings press releases and financial information and earnings guidance +provided by the Company to analysts and rating agencies; +» +oversees the preparation of the audit committee report required by the SEC rules to be included in the Company’s proxy statement for the annual +meeting of stockholders; +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 23 +Table of Contents +2013 PROXY STATEMENT +» +establishes the Company’s hiring policies for employees and former employees of the independent auditors; +» +engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, +including having the sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms and receiving appropriate funding, as determined by the Committee, from the Company for payment of +compensation to any such consultants and advisors; +» +oversees the Company’s legal and regulatory compliance systems and reviews the Company’s codes of conduct and programs to monitor compliance +with such codes; +» +at least annually receives a report on the Company’s compliance programs, and reviews and discusses the implementation and effectiveness of the +Company’s compliance programs with the General Counsel, who has the authority to communicate promptly and directly to the Audit Committee and the Board, about reports that involve actual and alleged violations of law or the Company’s codes +of conduct; and +» +conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Compensation Committee +The Board has determined that each Compensation Committee member is “independent” as defined by NYSE rules. The Compensation Committee: +» +assists the Board in discharging its responsibilities relating to executive compensation and fulfilling its responsibilities relating to Wolverine +Worldwide’s compensation and benefit programs and policies; +» +oversees the overall compensation structure, policies and programs, and assesses whether the compensation structure establishes appropriate incentives +for management and employees; +» +oversees the risks associated with management resources, organization structure, and succession planning, hiring, development and retention processes, +and oversees the assessment of the risks associated with the Company’s compensation structure, policies and programs; +» +administers and makes recommendations with respect to incentive compensation plans, including stock incentive plans; +» +assesses the results of the Company’s most recent advisory vote on executive compensation; +» +reviews and approves corporate and personal goals and objectives relevant to CEO compensation, evaluates the performance of the CEO in light of these +goals and objectives, and, together with the other independent +directors, approves the compensation of the CEO based on the evaluation; +» +reviews and approves the compensation of other elected corporate officers and other executives, including bonuses and equity compensation; +» +makes stock incentive grants and determines the terms and conditions of any equity compensation or stock incentive arrangements; +» +reviews and discusses with management Wolverine Worldwide’s Compensation Discussion and Analysis and related disclosures required by the rules of +the SEC and recommends to the Board whether such disclosures should be included in the annual report and proxy statement; +» +reviews and approves the design of benefit plans pertaining to executives; +» +reviews and recommends employment agreements and severance arrangements for executives, including change in control provisions, plans or agreements; +» +establishes stock ownership guidelines for directors and executive officers and monitors compliance with the guidelines; +Page 24 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +» +considers and recommends to the Board the frequency of the Company’s advisory vote on executive compensation; +» +engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, +having the sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms, and receiving appropriate funding, as determined by the Committee, from the Company for payment of compensation to any +such consultants and advisors; +» +appoints, determines compensation for and oversees the work of any consultants and advisors retained by the Committee and oversees compliance with any +applicable requirements relating to the independence of such consultants or advisors; and +» +conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Compensation Committee Interlocks +and Insider Participation. During fiscal year 2012, none of the members of the Compensation Committee was an officer or employee of the Company, was a former officer of the Company, nor had a relationship with the Company requiring disclosure as +a related party transaction under Item 404 of Regulation S-K of the Securities Act of 1933. None of the Company’s executive officers served on the compensation committee or board of directors of another entity whose executive officer(s) +served as a director on the Company’s Board or on the Compensation Committee. +Finance Committee +The Board has determined that each Finance Committee member is “independent” as defined by NYSE rules. The Finance Committee: +» +provides assistance to the Board in reviewing and evaluating management’s assessment of the Company’s cash needs and cash flow performance, +management’s evaluation of the capital markets and other options to assist in addressing capital needs, and management’s recommendations with respect to those options; +» +reviews and makes recommendations to the Board with respect to the Company’s capital structure and liquidity, including credit facilities, as well +as proposed debt, equity and other securities issuances and guarantees; +» +reviews and makes recommendations to the Board with respect to the Company’s current and future compliance with debt covenant requirements; +» +reviews and makes recommendations to the Board with respect to the Company’s exposure to short- and +long- +term financial risks and management’s strategies, plans and procedures to manage such risks, including its hedging strategies; +» +reviews and makes recommendations to the Board with respect to financial risks facing the Company, as may be requested by the Board; +» +engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions. The +Committee shall have sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms; and +» +conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 25 +Table of Contents +2013 PROXY STATEMENT +Governance Committee +The Board has determined that each Governance Committee member is “independent” as defined by NYSE rules. The Governance Committee: +» +assists the Board in fulfilling its responsibilities on matters and issues related to the Company’s corporate governance practices; +» +in conjunction with the Board, establishes qualification standards for membership on the Board and its committees; +» +establishes procedures for the consideration of candidates for the Board recommended for the Committee’s consideration by the Company’s +stockholders; +» +leads the search for individuals qualified to become members of the Board, reviews the qualifications of candidates for election to the Board and +assesses the contributions and independence of incumbent directors eligible to stand for reelection to the Board; +» +establishes procedures for the consideration of candidates for the Board recommended for the Committee’s consideration by the Company’s +stockholders; +» +selects and recommends to the Board the Company’s nominees for election or reelection by the stockholders at the annual meeting, and fills +vacancies and newly created directorships on the Board; +» +develops and recommends to the Board corporate governance guidelines, reviews the guidelines on an annual basis, and recommends any changes to the +guidelines as necessary; +» +periodically reviews the Board’s leadership structure as part of the succession planning process and recommends changes to the Board as +appropriate, and makes recommendations to the independent directors regarding the appointment of the Lead Director; +» +establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the independence +of directors; +» +considers applicable rules, regulations and disclosure obligations regarding the presence of an “audit committee financial expert” on the +Audit Committee and recommends to the Board actions to address such requirements; +» +reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval +and ratification of related person transactions; +» +oversees risks related to the Company’s governance structure and processes and risks arising from related person transactions; +» +annually reviews the compensation of directors for service on the Board and committees and makes recommendations to the Board regarding such +compensation; +» +recommends to the Board key executives to serve as corporate officers; +» +annually reviews and makes recommendations to the Board concerning the structure, composition and functioning of the Board and its committees and +recommends to the Board directors to serve as committee members and chairpersons; +» +reviews and recommends to the Board retirement and other tenure policies for directors; +» +reviews directorships in other public companies held by or offered to directors and senior officers of the Company; +» +reviews and assesses channels through which the Board receives information, and the quality and timeliness of information received; +» +develops and recommends to the Board for its approval an annual self-evaluation process for the Board and its committees, and oversees the evaluation +process; +Page 26 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +» +engages consultants and advisors at the expense of the Company to assist the Committee as it deems necessary in the performance of its functions, +including having the sole authority to retain and terminate any consultants and advisors and to approve all fees and other retention terms; and +» +conducts and discusses with the Board an annual performance evaluation of the Committee, including the Committee’s adherence to its Charter. +CODE OF CONDUCT & COMPLIANCE AND ACCOUNTING AND FINANCE CODE OF ETHICS +The Board has adopted a Code of Conduct & Compliance for the Company’s directors, officers and employees. The Board also has adopted an +Accounting and Finance Code of Ethics (“Accounting and Finance Code”). This Accounting and Finance Code focuses on the financial reporting process and applies to the Company’s CEO, CFO and Corporate Controller. +The Company will disclose, in accordance with all applicable laws and regulations, amendments to or waivers from its +Code of Conduct & Compliance or its Accounting and Finance Code, on its website at: +www.woverineworldwide.com/investor-relations/corporate-governance . +STOCKHOLDER COMMUNICATIONS POLICY +Stockholders and other interested parties may communicate with members of Wolverine Worldwide’s Board by sending correspondence to the Board, the independent directors as a group, a specific Board +committee or a director (including the Lead Director). The Secretary reviews all communications to determine whether the contents include a message to a specific director and will provide a summary and +copies of all correspondence (other than solicitations for services, products or publications) to the applicable directors at each regularly scheduled meeting. The +Secretary will alert individual directors to items that warrant a prompt response from the individual director prior to the next regularly scheduled meeting. The Secretary will route items warranting prompt response, but not addressed to a specific +director, to the applicable committee chairperson. You may submit any suggestions, concerns or reports of misconduct at Wolverine +Communications should be sent c/o Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., +Rockford, Michigan 49351, or through various links provided on Wolverine Worldwide’s website at: +www.wolverineworldwide.com/investor-relations/corporate-governance/ . +Worldwide or complaints or concerns regarding Wolverine Worldwide’s financial statements and accounting, auditing, +internal control and reporting practices on www.WolverineReportLine.com (anonymously, if desired) or by writing to the Audit Committee c/o the Secretary at the above address. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 27 +Table of Contents +2013 PROXY STATEMENT +Non-Employee Director Compensation in Fiscal Year 2012 +Wolverine Worldwide’s director compensation philosophy is to pay compensation competitive with compensation paid by companies of similar size in the +same industries, same region and with whom Wolverine Worldwide competes for director candidates. Each year, the Governance Committee, with input from management and, for the compensation program beginning in fiscal year 2013, input from Towers +Watson, reviews director compensation and compares it to market data for companies of similar size in the same industries. The following table provides information concerning the compensation of the Company’s non-employee directors for its +fiscal year 2012. Mr. Krueger receives compensation for his services as the Company’s CEO and President, but does not receive any additional compensation for his services as a director. +Fees Paid +in +Cash +Cash +Amounts +Voluntarily +Deferred +Cash +Amounts +Deferred +Through Annual +Equity Retainers +Fees +Earned or +Paid in Cash 2 +Option +Awards 3 +Total +Boromisa +$75,000 ++ +- ++ +$52,000 += +$127,000 ++ +$27,948 += +$154,948 +Gerber +$71,000 ++ +- ++ +$52,000 += +$123,000 ++ +$27,948 += +$150,948 +Grimoldi +- ++ +$50,000 ++ +$52,000 += +$102,000 ++ +$27,948 += +$129,948 +Gromek +- ++ +$68,000 ++ +$52,000 += +$120,000 ++ +$27,948 += +$147,948 +Kollat +$85,000 ++ +- ++ +$52,000 += +$137,000 ++ +$27,948 += +$164,948 +Lauderback +$57,750 ++ +$19,250 ++ +$52,000 += +$129,000 ++ +$27,948 += +$156,948 +Long +$57,500 ++ +- ++ +$52,000 += +$109,500 ++ +$27,948 += +$137,448 +Mehney 1 +- ++ +$15,110 ++ +$15,714 += +$30,824 ++ +- += +$30,824 +O’Donovan +$50,000 ++ +- ++ +$52,000 += +$102,000 ++ +$27,948 += +$129,948 +Peterson +$67,000 ++ +- ++ +$52,000 += +$119,000 ++ +$27,948 += +$146,948 +Volkema +$82,000 ++ +- ++ +$52,000 += +$134,000 ++ +$27,948 += +$161,948 +1 +Mr. Mehney retired from the Board on April 19, 2012. +2 +Represents cash payments received or deferred by directors in fiscal year 2012. Directors may defer director fees and receive stock units pursuant to the +Deferred Compensation Plan. The table shows the Fees Earned or Paid in Cash separated into Fees Paid in Cash, Cash Amounts Voluntarily Deferred, and Cash Amounts Deferred Through Annual Equity Retainers (required as part of the compensation program +for directors) that will be paid out in stock. +3 +Represents the aggregate grant date fair value of stock options granted to non-employee directors in fiscal year 2012, calculated in accordance with +Accounting Standard Codification (“ASC”) Topic 718. The chart below lists the aggregate outstanding option awards held by non-employee directors at the end of fiscal year 2012. For valuation assumptions, see the Stock-Based Compensation +footnote to Wolverine Worldwide’s Consolidated Financial Statements for fiscal year 2012. +Name +Option Awards Outstanding at +December 29, 2012 +(#) +Name +Option Awards Outstanding at +December 29, 2012 +(#) +Boromisa +27,684 +Long +8,182 +Gerber +20,839 +Mehney +15,977 +Grimoldi +40,494 +O’Donovan +16,948 +Gromek +23,257 +Peterson +23,743 +Kollat +40,494 +Volkema +16,948 +Lauderback +23,743 +Page 28 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +The following table shows the non-employee director compensation program for 2012 and the changes taking effect for 2013: +Compensation Plan for 2012 +Component +Cash +Options +Stock Units +Changes Effective for +Fiscal +Year 2013 +Newly Appointed or Elected Director +$0 +Number of options equal to $210,000 divided by closing market price of the Company’s common stock on date of initial election or +appointment. +No change +Annual Director Fee +$35,000 +Number of options equal to $105,000 divided by closing market price of the Company’s common stock on date of Annual Meeting. 1 +Number of stock units equivalent to $52,000 determined by dividing the dollar grant amount by the closing market price of the Company’s +common stock on the date of the grant. 2 Units are credited to the Amended and Restated Outside Directors’ Deferred Compensation Plan. +Cash fee changed to $65,000. Option award changed to number of options equal to $45,000, determined using a Black-Scholes valuation. Stock +units awarded changed to number of stock units equivalent to $65,000 determined by dividing the dollar grant amount by the closing market price of the Company’s common stock on the date of the grant. +Board Meeting Annual Fee 3 +$15,000 +Discontinued +Audit Committee Meeting Annual Fee 3 +$10,000 +Changed to $15,000 +Audit Committee Chairperson Annual Fee +$15,000 +Changed to $20,000 +Compensation Committee Meeting Annual Fee 3 +$7,000 +Changed to $12,000 +Compensation Committee Chairperson Annual Fee +$15,000 +No change +Finance Committee Meeting Annual Fee 3 +None +$12,000 +Finance Committee Chairperson Annual Fee +None +$15,000 +Governance Committee Meeting Annual Fee 3 +$7,000 +Changed to $12,000 +Governance Committee Chairperson Annual Fee +$10,000 +Changed to $15,000 +Lead Director Annual Fee 4 +$70,000 +In lieu of other compensation for serving on the Board, the Lead Director will be paid a Cash Retainer of $120,000, receive a stock unit +grant equal to $86,000, and receive a stock option award equal to $59,000, where the grant and award will both be calculated the same way other grants and awards to directors are calculated. +1 +For fiscal year 2012, each non-employee director received 2,831 options granted in April 2012 under the Stock Incentive Plan of 2010. The exercise price of +options granted is equal to the closing market price of Wolverine Worldwide’s common stock on the date each option is granted. +2 +For fiscal year 2012, one grant was made on the first business day of each calendar quarter. For fiscal year 2012, the Company credited each non-employee +director with an aggregate of 1,365 stock units. Stock units are fully vested on the grant date and are credited under the Amended and Restated Outside Directors’ Deferred Compensation Plan (described below). +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 29 +Table of Contents +2013 PROXY STATEMENT +3 +Directors also received, for each meeting during 2012 in excess of the trigger listed below, an additional per-meeting fee. As noted above, the Compensation +Committee had 14 meetings during 2012 and Committee members received payments for four meetings in excess of the 10 meeting trigger. +Trigger +Meeting +Fee +Changes +Effective for +Fiscal Year 2013 +Board +10 +$3,000 +Discontinued +Audit +15 +$1,000 +Discontinued +Compensation +10 +$1,000 +Discontinued +Governance +10 +$1,000 +Discontinued +4 +For 2012, the Lead Director Annual Fee was paid as a fixed amount in lieu of the annual cash retainer. The Lead Director also received the standard director +fee for attendance at Board meetings and the annual grant of stock options, but did not receive attendance fees for committee meetings. +The Company also: +» +pays director expenses associated with Board and committee meetings, other Company functions, and industry functions; +» +pays spouse travel expenses associated with international Board strategic planning meetings (there were no such meetings in 2012); +» +provides office space and administrative assistance to directors who visit Company locations; +» +occasionally provides to directors for review and assessment samples of its products that have nominal value; and +» +reimburses directors for some expenses relating to director education. +Management directors do not receive +an annual cash or equity retainer and do not receive compensation for attendance at Board or committee meetings. +Deferred Compensation +Plan . In 2008, Wolverine Worldwide adopted the Amended and Restated Outside Directors’ Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a supplemental nonqualified deferred +compensation plan for non-employee directors. A separate non-employee director deferred compensation plan applies to benefits accrued under that plan before January 1, 2005. The Deferred Compensation Plan permits all non-employee directors to +defer 25%, 50%, 75% or 100% of their director fees. The Company establishes a book account for each non-employee director and treats deferred compensation as if invested in Wolverine Worldwide common stock. The Company credits the director’s +account with the annual equity retainer amount described above and with a number of stock units equal to the amounts deferred, each divided by the closing market price of common stock on the payment date. The Company also credits director accounts +with dividend equivalents in the form of additional stock units. +Upon a director’s termination of service or such later date as a +director selects, the Company distributes the stock units in the director’s book account in shares of Wolverine Worldwide common stock. The distribution is a single, lump-sum payment or annual installment payments over a period of up to 20 +years (10 years under the plan for benefits accrued before January 1, 2005). The Company converts each stock unit to one share of Wolverine Worldwide common stock. +Page 30 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Upon a “change in control,” the Company distributes to the director, in a single lump sum payment, Wolverine +Worldwide common stock in a number of shares equal to the stock units credited to a director’s book account. The Deferred Compensation Plan defines “change in control” as: +» +the acquisition by any person, or by more than one person acting as a group, of more than 50% of either (i) the then outstanding shares of common +stock of Wolverine Worldwide or (ii) the total fair market value of Wolverine Worldwide; +» +the acquisition by any person, or more than one person acting as a group, during the 12-month period from and including the date of the most recent +acquisition, of ownership of 30% or more of the outstanding common stock of Wolverine Worldwide; +» +the replacement of a majority of the individuals who constitute the Board during any 12-month period by directors whose appointment or election is not +endorsed by a majority of the directors prior to the date of the appointment or election; or +» +the acquisition, during any 12-month period ending on the date of the most recent acquisition, by any person of assets from Wolverine Worldwide having +a gross fair market value of at least 40% of the gross fair market value of all the assets of Wolverine Worldwide immediately before the acquisition. +NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP GUIDELINES +Wolverine Worldwide has stock ownership guidelines which require that each non-employee director maintain a stock ownership level equal to five times the non-employee director cash retainer. Stock units +under the Deferred Compensation Plan count toward the ownership requirements. Stock options do not count toward the ownership requirement. These guidelines further align the interests of the directors with the stockholders. Each non-employee +director must meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. All non-employee directors who have been Wolverine Worldwide directors for at least five years meet the ownership +requirement. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 31 +Table of Contents +2013 PROXY STATEMENT +Securities Ownership of Officers and Directors and Certain Beneficial Owners +FIVE PERCENT STOCKHOLDERS +The following table sets forth information about those holders known by Wolverine Worldwide to be the beneficial owners of more than five percent of Wolverine Worldwide’s outstanding shares of common +stock as of March 1, 2013: +Amount and Nature +of Beneficial Ownership of Common Stock +Name and Address +of Beneficial Owner +Sole Voting +Power +Sole +Investment +Power +Shared Voting +or Investment +Power +Total +Beneficial +Ownership +Percent +of Class 5 +BlackRock, Inc. 1 +40 East 52 nd Street +New York, NY 10022 +4,843,346 +4,843,346 +0 +4,843,346 +9.67% +Janus Capital Management LLC 2 +151 Detroit Street +Denver, CO 80206 +4,935,266 +4,935,266 +403,704 +5,338,970 +10.66% +Select Equity Group, Inc. +Select Offshore Advisors, LLC +George S. Loening 3 +380 Lafayette Street, 6 th +Floor +New York, NY 10003 +3,735,416 +3,735,416 +0 +3,735,416 +7.46% +The Vanguard Group, +Inc. 4 +100 Vanguard Boulevard +Malvern, PA 19355 +68,708 +2,739,505 +66,258 +2,805,763 +5.60% +1 +Based on information set forth in a Schedule 13G/A filed on January 31, 2013. The Schedule 13G/A indicates that BlackRock, Inc. beneficially +owns, in the aggregate, 4,843,346 shares of Wolverine Worldwide common stock. +2 +Based on information set forth in a Schedule 13G filed on January 11, 2013. The Schedule 13G indicates that Janus Capital Management LLC, beneficially +owns, in the aggregate, 5,338,970 shares of Wolverine Worldwide common stock. +3 +Based on information set forth in a Schedule 13G/A filed on February 11, 2013. The Schedule 13G/A indicates that The Vanguard Group, Inc., beneficially +owns, in the aggregate, 2,805,763 shares of Wolverine Worldwide common stock. +4 +Based on information set forth in a Schedule 13G filed on February 14, 2013. The Schedule 13G/A indicates that Select Equity Group, Inc., Select Offshore +Advisors, LLC and George S. Loening, the controlling shareholder of Select Equity and Select Offshore, collectively own, in the aggregate, 3,735,416 shares of Wolverine Worldwide common stock. +5 +As of March 1, 2013, based on 50,099,575 shares outstanding on that date. +Page 32 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +STOCK OWNERSHIP BY MANAGEMENT AND OTHERS +The following table sets forth the number of shares of common stock beneficially owned as of March 1, 2013, by each of the Company’s director +nominees, directors and named executive officers and all of the Company’s directors and executive officers as a group. +Amount and Nature of Beneficial Ownership of Common Stock 1 +Sole +Voting +and/or +Investment +Power 2 +Shared Voting or +Investment +Power 3 +Stock Options 4 +Total +Beneficial +Ownership 4 +Percent +of Class 5 +Jeffrey M. Boromisa +2,000 +- +27,684 +29,684 +* +William K. Gerber +2,000 +- +20,839 +22,839 +* +Donald T. Grimes +100,151 +- +80,967 +181,118 +* +Alberto L. Grimoldi +24,437 +- +33,014 +57,451 +* +Joseph R. Gromek +17,500 +- +23,257 +40,757 +* +David T. Kollat +107,672 +- +40,494 +148,166 +* +Blake W. Krueger +416,771 +43,615 +77,792 +538,178 +1.07 +Michael Jeppesen +38,126 +- +3,734 +41,860 +* +Brenda J. Lauderback +5,100 +- +23,743 +28,843 +* +Pamela L. Linton +60,825 +- +57,801 +118,626 +* +Nicholas T. Long +- +- +8,182 +8,132 +* +Timothy J. O’Donovan +367,380 +54,625 +16,948 +438,953 +* +Shirley D. Peterson +3,000 +- +23,743 +26,743 +* +Michael A. Volkema +5,000 +- +16,948 +21,948 +* +James D. Zwiers +121,366 +10,986 +93,354 +225,706 +* +All directors and executive officers as a group (18 people) +1,329,354 +109,226 +601,428 +2,040,008 +4.07 +* +Represents beneficial ownership of less than 1%. +1 +The numbers of shares stated are based on information provided by each person listed and include shares personally owned of record and shares that, under +applicable regulations, are considered to be otherwise beneficially owned. +2 +These numbers include restricted shares and performance shares held, which are subject to forfeiture if the terms of the award are not satisfied. +3 +These numbers include shares over which the listed person is legally entitled to share voting or investment power by reason of joint ownership, trust or other +contract or property right and shares held by spouses, children or other relatives over whom the listed person may have influence by reason of such relationship. +4 +The numbers represent shares that may be acquired within 60 days after March 1, 2013, by the exercise of stock options granted under Wolverine’s +various stock option plans. These numbers are also included in the Total Beneficial Ownership column. +5 +As of March 1, 2013, based on 50,099,575 shares outstanding on that date plus the number of stock options exercisable by the specified person(s) within +60 days of March 1, 2013, as indicated in the “Stock Options” column. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 33 +Table of Contents +2013 PROXY STATEMENT +Compensation Discussion and Analysis +This section of the proxy statement provides an overview and analysis of Wolverine Worldwide’s executive +compensation program and policies, the material compensation decisions made about fiscal year 2012 compensation, and the material factors considered in making those decisions. This section refers only to the compensation of Wolverine +Worldwide’s “named executive officers” (“NEOs”) unless noted otherwise: +Blake W. Krueger, +Chairman, Chief Executive Officer and President +Donald T. Grimes, Senior Vice President, Chief Financial Officer and +Treasurer +Michael Jeppesen, President, Global Operations Group +Pamela L. Linton, Senior Vice President of Global Human Resources +James D. Zwiers, Senior Vice President and President, Outdoor Group +It is divided into the following four Sections: +Section 1 – 2012: A +Transformative Year +Section 2 – +Compensation Program Overview +Section 3 – 2012 +Compensation +Section 4 – Other +Compensation Policies and Practices +SECTION 1 – 2012: A TRANSFORMATIVE YEAR +In +2012, Wolverine Worldwide acquired the Performance + Lifestyle Group business from Collective Brands, Inc. The Company expanded its existing 12-brand portfolio by adding the iconic Sperry Top-Sider, Stride-Rite, Keds and Saucony brands. The +acquisition transformed Wolverine Worldwide into a 16-brand Company with estimated revenues for fiscal year 2013, the first full year of operation for the combined companies, of $2.700 to $2.800 billion. Transaction highlights include: +» +the Performance + Lifestyle Group added $219.4 million of revenue to the Company’s reported fiscal year 2012 revenue, reflecting its performance +during the stub period from closing on October 9, 2012, through the end of fiscal year 2012; +» +the acquired brands complement the Company’s strategic priorities: Sperry Top-Sider ® , Saucony ® and Keds ® each have a strong following among women and bring the opportunity to leverage the Company’s global +distribution strengths; Sacuony’s leadership in the athletic space complements Merrell ® to provide a +powerful resource in running, training, trail, minimalist and barefoot footwear; and the Stride-Rite ® +brand’s leadership in the premium children’s shoe category and meaningful retail presence represent an important strategic opportunity for the Company’s existing brands; and +» +the Company expects the acquisition to be accretive in fiscal year 2013, the first full year of combined operations. +In addition to the acquisition, the Company continued progressing on key strategic initiatives, announcing two other important transactions during 2012: +» +the formation of a joint venture with Tata International to market footwear and apparel in India, initially responsible for the wholesale distribution +of the Company’s owned Merrell ® and licensed Caterpillar ® footwear brands; and +Page 34 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +» +the formation of joint ventures with one of the Company’s long-time distributors, Forus S.A., to market footwear in Colombia, initially +responsible for the Company’s owned Merrell ® , Hush +Puppies ® and Cushe ® brands and licensed +Caterpillar ® footwear brand, and Forus S.A.’s owned RKF brand. +A key strength of the Company’s business model is the portfolio structure. The 16 brands offered in more than 200 countries and territories around +the world help buffer the Company against challenges in any economic region or demographic sector. Nevertheless, significant factors, such as the economic downturn in Europe, can impact the Company and did so in 2012. Despite that challenge, under +Mr. Krueger’s leadership, management delivered the following results for fiscal year 2012, in addition to the successful closings of the Performance + Lifestyle Group acquisition and the two joint venture transactions: +» +revenues of $1.641 billion, including record full year revenue for the legacy Wolverine Worldwide business of $1.421 billion; +» +fully diluted earnings per share of $1.63, not adjusted for non-recurring transaction and integration expenses associated with the Performance + +Lifestyle Group acquisition (which had a negative impact of $.66 per share). +The Company’s +efforts to build a strong leadership team were recognized in 2012 when Wolverine Worldwide was named one of the “Best Companies for Leaders,” according to an independent study conducted by Chief Executive magazine and management +consulting firm Chally Group Worldwide. The results of the study ranked Wolverine Worldwide 27 th among 40 other global companies, including several members of the Fortune 50. +Strong Financial Performance +Wolverine Worldwide has a history of delivering strong financial performance. The recent recession and +the continuing economic difficulties in Europe have created significant challenges for global companies. The brand portfolio approach, now 16 brands strong, and the diversified geographic and customer base served by those brands has helped Wolverine +Worldwide continue delivering strong financial performance. +Revenue Growth * +* +As reported in Item 6 of the Wolverine Worldwide Annual Report on Form 10-K for fiscal year 2012. The reported revenue for fiscal year 2012 includes the revenues of the +Performance + Lifestyle Group business from October 9, 2012, through the end of the fiscal year. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 35 +Table of Contents +2013 PROXY STATEMENT +The Company’s portfolio also has enabled it to consistently deliver +strong financial results compared to other companies of similar size or in the same industry. Over the past five years, the Company’s performance, based on cumulative total stockholder return, the S&P SmallCap Index and the S&P Footwear +Index, as shown in the following table. +Executive Compensation Overview for 2012 +Peer Group +With Towers +Watson’s input, the Compensation Committee established in 2011 a peer group comprised of the companies set out in the accompanying table (the “2012 Peer Group”) for use in setting 2012 NEO compensation. The Compensation Committee, +again with the assistance of Towers Watson, compiled an updated peer group (the “Updated Peer Group”) for setting 2013 NEO compensation (see the discussion on pages 42-43). The Committee believes that the Updated Peer Group (set out +in the accompanying table) reflects the size and scope of the transformed Company more accurately than a peer group based on the significantly smaller legacy Wolverine Worldwide business. +The Committee and Towers Watson used three criteria to screen companies for the Updated Peer Group: (1) Global Industry +Classification Standard (“GICS”) code; (2) revenues; and (3) market capitalization. All Updated Peer Group companies fall within the same 2-digit GICS code as Wolverine Worldwide, and seven share the same 6-digit GICS code. At +the time the Updated Peer Group was created, companies in the Updated Peer Group had market capitalizations ranging from 0.2 times to 5 times Wolverine Worldwide’s market capitalization and Wolverine Worldwide’s market capitalization +placed it at the 33 rd percentile of the Updated Peer +Group. +The following companies comprise the Updated Peer Group: +Aéropostale, Inc. +Carter’s, Inc. +DSW Inc. +The Jones Group Inc. +American Eagle Outfitters Inc. +Chico’s FAS, Inc. +Foot Locker, Inc. +PVH Corp. +ANN Inc. +Coach, Inc. +Genesco Inc. +The Warnaco Group, Inc. +Ascena Retail Group, Inc. +Deckers Outdoor Corporation +Guess?, Inc. +Williams-Sonoma, Inc. +Brown Shoe Company, Inc. +Dick’s Sporting Goods, Inc. +Hanesbrands Inc. +Page 36 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +CEO Compensation Alignment +The securities laws determine how companies should report CEO and other NEO compensation in the summary compensation table of a proxy statement. The Company believes that stockholders view total +shareholder return (“TSR”) as a useful measure of long-term performance and TSR information for a wide-range of companies, including those in the Company’s Peer Group, is readily available. As the following charts show, the +Company’s TSR performance tracks closely to the total compensation for its CEO as reported in the Summary Compensation Table on pages 54-55, and shows a strong relationship between pay and performance when compared to the companies in the +Updated Peer Group over both 1-year and 3-year periods. However, because there is no direct causal link between the Company’s TSR and NEO compensation as reported in the Summary Compensation Table, the degree of alignment could vary +significantly in future years due to factors other than the design of the Company’s compensation programs. +1 Year: Wolverine Worldwide vs. Updated Peer Group 1 +3 Year: Wolverine Worldwide vs. +Updated Peer +Group 2 +1 +The red diamond represents Wolverine Worldwide. The 1 Year TSR data is from Standard & Poor’s Research Insight. The 1 Year CEO Pay data is from +the Company’s Summary Compensation Table and from the Summary Compensation Table in the most recent proxy statement of each company in Wolverine Worldwide’s Updated Peer Group . +2 +The red diamond represents Wolverine Worldwide. The 3 Year TSR data is from Standard & Poor’s Research Insight. The 3 Year Average CEO Pay data +is from the Company’s Summary Compensation Table and from the Summary Compensation Table in the three most recent proxy statements of each company in Wolverine Worldwide’s Updated Peer Group . +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 37 +Table of Contents +2013 PROXY STATEMENT +Demonstrated Pay-for-Performance +The Board and the Compensation Committee believe that the Company’s executive compensation program should pay for performance. The Compensation Committee reviewed the results +of the stockholder advisory vote on executive compensation that was held at the Annual Meeting of Stockholders in April 2012. The vote was with respect to the 2011 compensation actions and decisions for the Company’s NEOs. Over ninety percent +of the votes cast on the proposal were voted in support of the compensation of the Company’s +KEY COMPENSATION AND CORPORATE GOVERNANCE POLICIES AND PRACTICES +The Company has at various times implemented many good corporate +governance practices as part of its executive compensation program, including: +» authorizing the Compensation Committee to hire an independent consultant; +» implementing Stock Ownership Guidelines covering all NEOs; +» limiting perquisites to tax advisory and estate planning services; +» not paying tax gross ups on perquisites; +» prohibiting hedging involving securities of the Company; +» restricting pledging securities of the Company; and +» requiring a double-trigger for change-in-control benefits under the Company’s Executive Severance Agreements. +NEOs set forth in the CD&A, the summary compensation table and the related compensation tables and narratives in the +2012 proxy statement. Based on the results of the “say-on-pay” vote, the Committee concluded that the Company’s executive compensation policies and practices enjoy favorable stockholder support. Taking into account the results of the +say-on-pay vote, along with other factors such as the Company’s corporate business objectives and the Committee’s review of competitive data (as discussed in more detail on page 43, the Committee did not make any changes to the structure of the executive compensation program for 2012. +Other Relevant Factors +CEO and +other NEO compensation for fiscal year 2012, and, in the case of the long-term incentive bonuses for the three year period ending with fiscal year 2012, reflected the Company’s consistent financial performance and cumulative return to +stockholders over the past three years: +» +approximately 80% of the CEO’s total compensation as reported in the Summary Compensation Table (excluding change in pension value and +nonqualified deferred compensation earnings) is tied to the Company’s stock and/or performance measures; +» +the ratio of performance-based equity awards to time-based equity awards for the CEO is 1.7 to 1 (excluding the one-time restricted stock award in +October 2012 in recognition of Mr. Krueger’s successful efforts to close the acquisition of the Performance + Lifestyle Group business); +» +each NEO’s bonus opportunity was capped at 200% of his or her Target Percentage for that opportunity, limiting the incentive to take risks that +could have a material adverse impact on the Company; and +» +each NEO’s Annual Bonus and Long-Term Incentive Bonus was linked to performance metrics established at the beginning of the bonus period. +Page 38 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +SECTION 2 – COMPENSATION PROGRAM OVERVIEW +Compensation Philosophy and Objectives +Wolverine +Worldwide’s compensation philosophy is to provide competitive salaries and incentives to achieve superior financial performance. The Board’s Compensation Committee oversees the Company’s executive compensation program. The Committee +reviews and approves NEO compensation, other than the CEO’s compensation, which it approves together with the Board’s other independent directors. The NEO compensation program has four primary objectives: +» +attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» +provide incentives for achieving specific near term individual, business unit and corporate goals and reward the attainment of those goals at +pre-established levels; +» +provide incentives for achieving longer-term financial goals and to reward the attainment of those goals at pre-established levels; and +» +align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +The program balances fixed +compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives), and rewards annual performance while maintaining emphasis on longer-term objectives. The program also blends cash, non-cash, long- and +short-term compensation components, and current and future compensation components. The Committee considers qualitative and quantitative factors when setting compensation. Each NEO’s compensation mix and cash-to-equity ratio depends on his or +her responsibilities, experience, skills, and potential to affect Wolverine Worldwide’s overall performance. In general, an NEO’s compensation and the proportion of compensation that is variable increases as the NEO’s level of +responsibilities increases. The Committee believes the CEO has the broadest scope of responsibilities and typically approves higher compensation for the CEO than for any other NEO. The Board believes this executive compensation philosophy has +successfully generated sustained superior performance over the long term. +Compensation Program Summary +The Company’s executive compensation program consists of four key elements, as shown in the accompanying table. First, each NEO +receives a base salary. Second, each NEO is eligible to receive Annual Incentive Compensation. The Annual Incentive Compensation has +two parts: (i) an annual bonus based on performance measured against criteria established by the Compensation Committee at the beginning of the fiscal year (the “Annual +Bonus”), and (ii) a bonus +determined by performance measured against individual criteria. Third, each NEO is eligible to receive Long-Term Incentive +Compensation. The Long-Term Incentive Compensation has two parts: (i) a long-term incentive bonus based on performance measured against criteria set for a three-year period (the “3-Year Bonus”), and (ii) equity in the form of +time-vested restricted stock awards and stock option grants. Fourth, each NEO may (i) participate in the Company’s defined-benefit plan (subject to certain vesting criteria); participate, at the discretion of the Committee, in a +supplemental executive retirement plan; and participate in various Company welfare plans, and (ii) receive assistance with tax and estate planning and a matching contribution to his or her 401(k) account. The executive compensation program is +set out in more detail in the remainder of the Compensation Discussion and Analysis section. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 39 +Table of Contents +2013 PROXY STATEMENT +Purposes of Compensation Program Elements +Pay Element +What the Pay Element +Rewards +Purpose of the Pay +Element +Base Salary +» Core responsibilities, years of service with the Company and +experience in similar positions at other companies, skills, and knowledge +» Provide a regular and stable source of income to +NEOs +Annual Incentive Compensation +» Achieving specific corporate +business objectives over which the NEO has reasonable control +» Achieving specific division business objectives over which the NEO has reasonable control +» Achieving specific personal objectives +» Focus NEOs on specific annual +goals that contribute to Wolverine’s long-term success +» Provide annual performance-based cash compensation +» Align participants on important annual performance metrics +Long Term Incentive Compensation +» Focusing on long-term corporate +business objectives +» Focusing on driving long-term stockholder value +» Continuing employment +with the Company during the vesting period +» More closely align NEOs’ +interests with stockholders’ interests +» Reward NEOs for building stockholder value +» Encourage long-term +investment in Wolverine by participating NEOs +» Retain NEOs +Retirement and Welfare Benefits +» Focusing on long-term corporate +business objectives +» Continuing long-term employment with the Company during the retirement plan five-year +vesting period and long-term value accumulation period +» In the case of retirement and welfare benefits that are part of Wolverine Worldwide’s broad-based total compensation program available to full-time employees of the Company, +providing for welfare of employee and his or her family during employment +» In the case of the Supplemental +Executive Retirement Plan, provide retirement benefits that NEO participants would have received under the broad-based plan in the absence of the IRS limits +» Provide retirement security +» Attract and retain +NEOs +» Encourage long-term commitment to Wolverine Worldwide by NEOs and assist Wolverine Worldwide +in attracting and retaining talented NEOs +Page 40 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Compensation Committee Role +The Compensation Committee is responsible to the Company’s Board for overseeing the development and administration of the Company’s compensation and benefits policies and programs. The Committee +consists of five independent directors. Among its other responsibilities, the Committee formulates the compensation recommendations to the independent directors of the Board for the Company’s CEO and reviews and approves all aspects of the +Company’s NEO compensation program, including: +» +reviewing and approving the Company’s incentive goals and objectives relevant to compensation; +» +evaluating individual performance results in light of these goals and objectives; +» +evaluating the competitiveness of each NEO’s total compensation package; and +» +approving (or in the case of the CEO, recommending to the independent directors of the Board) any changes to the NEO’s total compensation package, +including, but not limited to, base salary, annual incentive bonus, long-term incentive bonus, and payouts and retention programs. +When making compensation +recommendations or decisions, the Compensation Committee considers the CEO’s assessment of each individual’s performance, the performance of the individual’s respective business unit or function, the scope of each NEO’s +responsibilities, years of service with the Company and in similar positions at other companies, skills, knowledge, market conditions, retention considerations, economic conditions, and Wolverine Worldwide’s compensation philosophy. The +Committee considers these factors subjectively and no single factor or combination of factors is determinative. Following its review and discussion, the Committee approves compensation for all NEOs except the CEO. The Committee recommends to the +independent directors of the Board compensation for the CEO and those independent directors approve the CEO’s compensation. The Committee and the independent directors of the Board meet with the CEO at the end of the year to evaluate his +performance compared to his personal objectives set at the beginning of the year. The Committee is supported in its work by the Senior Vice President, Global Human Resources, her staff, and an executive compensation consultant as described below. +CEO Role +Within the framework of the compensation programs approved by the Compensation Committee, the CEO recommends the level of base salary, annual incentive bonus, long-term incentive bonus, equity awards and +other compensation package components for his direct reports, including the other NEOs. The CEO bases his recommendation upon his assessment of each individual’s performance, the performance of the individual’s respective business unit or +function, the scope of each NEO’s responsibilities, years of service with the Company and in similar positions at other companies, skills, knowledge, market conditions, retention considerations, economic conditions, and Wolverine +Worldwide’s compensation philosophy. The CEO considers these factors subjectively and no single factor is determinative. The Committee reviews the CEO’s recommendations and approves any compensation changes affecting these individuals it +determines are appropriate, in its sole discretion. +Compensation Consultant Role +The Compensation Committee has retained Towers Watson as its executive compensation consultant. Towers Watson reports directly to the Committee and the +Committee may replace it or hire additional consultants at any time. The Committee has evaluated Towers Watson’s independence under the rules established by the NYSE and has determined that Towers Watson is “independent” as defined by +NYSE rules. In addition, the Committee has evaluated whether the engagement of Towers Watson raises any conflicts of interest and has determined that no such conflicts of interest exist. In making this determination the Committee reviewed the +following factors (as outlined by the SEC): (i) the provision of other services to the Company by Towers Watson, (ii) the amount of fees received by Towers Watson from the Company as a percentage of Towers Watson’s total revenue, +(iii) Towers Watson’s policies and procedures regarding conflicts of interest, (iv) the existence of any business or personal relationships between the consultants at Towers Watson involved in its engagement by the Company +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 41 +Table of Contents +2013 PROXY STATEMENT +and members of the Committee, (v) stock ownership in the Company by the consultants at Towers Watson involved in its engagement by the Company and (vi) the existence of any business or +personal relationships between Towers Watson and/or the consultants at Towers Watson involved in its engagement by the Company and the Company’s executive officers. At the Committee’s invitation, a representative of Towers Watson attends +Committee meetings. The Committee retains sole authority to hire the consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance, and terminate its engagement. A representative of Towers Watson also +communicates with the Chairperson of the Committee between meetings. However, the Committee makes all decisions regarding NEO compensation. Towers Watson provides various executive compensation services to the Committee pursuant to a written +consulting agreement with the Committee. Generally, these services include advising the Committee on the principal aspects of the Company’s executive compensation program, evolving industry practices, and providing market information and +analysis regarding the competitiveness of the Company’s program design. During 2012, Towers Watson performed the following specific services: +» +advised the Committee on management proposals, as requested; +» +attended Committee meetings, as requested; +» +reviewed the Company’s peer group and advised the Committee on the composition of the peer group given the Company’s acquisition of the +Performance + Lifestyle Group; +» +reviewed survey data for competitive comparisons, including competitive comparisons based on the Company’s acquisition of the Performance + +Lifestyle Group; +» +provided market data and recommendations on CEO and other NEO compensation; +» +reviewed the Compensation Discussion and Analysis and other executive compensation-related disclosures included in the Company’s proxy statement; +» +advised the Committee on legislative and regulatory developments and market trends related to compensation policies and programs; and +» +proactively advised the Committee on best-practice approaches for governance of executive compensation. +The total fees the Company paid to +Towers Watson for services to the Committee in 2012 was $215,000. Towers Watson also was engaged by Wolverine Worldwide in 2012 to perform actuarial services and pension plan consulting that are not part of the executive compensation services +provided to the Committee. Watson Wyatt (prior to the combination with Towers Perrin) performed these services for the Company and, since the combination of these two companies, the Company has used Towers Watson for these services. These services +were performed on an interim and annual basis for financial reporting purposes. The total annual expense for this work was approximately $431,000. The total fees the Company paid to Towers Watson ($646,000) represent less than two one hundredths of +one percent (0.02%) of Towers Watson’s revenue for its 2012 fiscal year ($3.4 billion). +Competitive +Data Use +The Committee uses surveys and peer group information as a market reference point. The Committee believes that compensation +levels in the footwear, apparel and retail industries typically exceed levels reported in general industry surveys. The Committee also considers information the Company learns through recruiting NEOs and the experience levels and responsibilities of +NEOs prior to joining the Company as reference points in setting NEO compensation. +2012 Peer Group +The 2012 Peer Group for use in setting 2012 NEO compensation was composed of the following companies: +ANN, Inc. +Brown Shoe Co., Inc. +Carter’s, Inc. +Chico’s FAS, Inc. +Collective Brands, Inc. +Columbia Sportswear Company +Deckers Outdoor Corp. +DSW, Inc. +G-III Apparel Group, Ltd. +Genesco, Inc. +The Jones Group, Inc. +Kenneth Cole Productions, Inc. +Maidenform Brands, Inc. +Perry Ellis International, Inc. +Quiksilver, Inc. +Skechers USA, Inc. +Steven Madden, Ltd. +The Talbots, Inc. +Under Armour, Inc. +Warnaco Group, Inc. +Page 42 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +As previously noted, the Company and Towers Watson used three criteria to screen companies for the 2012 +Peer Group. The three criteria were: (1) Global Industry Classification Standard (“GICS”) code; (2) revenues; and (3) market capitalization. At the time the 2012 Peer Group was established, all 2012 Peer Group companies fell +within the same 2-digit GICS code as Wolverine Worldwide, and 13 share the same 6-digit GICS code. 2012 Peer Group companies had revenue ranging from 0.5 times to 2.1 times Wolverine Worldwide’s revenue, and Wolverine Worldwide’s revenue +placed it at the 37 th percentile of the 2012 Peer Group. +The 2012 Peer Group companies had market capitalizations ranging from 0.2 times to 5 times Wolverine Worldwide’s market capitalization, and Wolverine Worldwide’s market capitalization placed it at the 67 th percentile of the 2012 Peer Group. +Updated Peer Group +The +Company’s October 2012 acquisition of the Performance + Lifestyle Group increased, on an estimated annualized basis, the Company’s revenues by over $1 billion. Given the impact of the acquisition on the Company’s revenues and market +capitalization, the Compensation Committee asked Towers Watson to review and provide assistance for developing a new comparator group. The Company’s reported revenues for 2012 on a GAAP basis were $1.641 billion, reflecting a full year of the +historical Wolverine Worldwide operations and revenues for the Performance + Lifestyle Group from the acquisition date in October 2012 through the end of Wolverine Worldwide’s fiscal year 2012. The Committee believed, however, that it was more +appropriate to base the comparator group composition on the projected operations of the combined businesses for a full year. As previously noted, the Company and Towers Watson used three criteria to screen companies for the Updated Peer Group: +(1) Global Industry Classification Standard (“GICS”) code; (2) revenues; and (3) market capitalization. The Updated Peer Group is composed of the following companies: +Aéropostale, Inc. +Carter’s, Inc. +DSW Inc. +The Jones Group Inc. +American Eagle Outfitters Inc. +Chico’s FAS, Inc. +Foot Locker, Inc. +PVH Corp. +ANN Inc. +Coach, Inc. +Genesco Inc. +The Warnaco Group, Inc. +Ascena Retail Group, Inc. +Deckers Outdoor Corporation +Guess?, Inc. +Williams-Sonoma, Inc. +Brown Shoe Company, Inc. +Dick’s Sporting Goods, Inc. +Hanesbrands Inc. +All Updated Peer Group companies fall within the same 2-digit GICS code as Wolverine Worldwide, and +seven share the same 6-digit GICS code. Generally, the Updated Peer Group companies have market capitalizations ranging from 0.2 times to 5 times Wolverine Worldwide’s market capitalization, and Wolverine Worldwide’s market capitalization +places it at the 33 rd percentile of the Updated Peer +Group. +Other Competitive Data +As part of its competitive data review, the Committee considered information presented by Towers Watson based on four published compensation surveys: (1) 2012 Towers Watson Data Services Survey +Report on Top Management Compensation – General, Retail and Wholesale Trade Industry Cut, (2) 2012 Towers Watson Compensation Database Executive Database – General, Retail/Wholesale Executive Database, (3) 2012 US Mercer +Benchmark Database, Executive – General, Retail Industry Cut; and (4) Towers Watson Data Services 2012 Database on Long-Term Incentives, Policies & Practices. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 43 +Table of Contents +2013 PROXY STATEMENT +SECTION 3 – 2012 COMPENSATION +The Compensation Committee approved the 2012 base salaries for NEOs set out in +the accompanying table. Base salary increases for the NEOs were consistent with +base +salary increases for the Company’s employees generally. As part of approving an +NEO’s base salary, the Compensation Committee considers the scope of his or her +responsibilities, years of service with the Company and in +similar positions at other +companies, skills, and knowledge. The Committee also considers market conditions, +economic conditions, and Wolverine Worldwide’s compensation philosophy. +Name +2012 Base +Salary +2011 Base +Salary +Krueger +$862,600 +$821,500 +Grimes +$431,000 +$416,000 +Jeppesen* +$375,000 +- +Linton +$321,000 +$311,000 +Zwiers +$451,000 +$425,000 +* Mr. Jeppesen started employment with the Company in 2012. +In 2012, each NEO had the opportunity to earn annual incentive compensation, consisting of two parts: (1) an +annual bonus (“Annual Bonus”) under the Annual Bonus Plan, and (2) an individual performance bonus (“Individual Performance Bonus”) under the Individual Performance Bonus Plan. Each NEO’s payout under the two parts was +determined by comparing his or her performance against specific criteria set at the beginning of each year. Under the Annual Bonus Plan, the NEO’s payout was determined by comparing his or her performance against four performance levels set for +each criterion: threshold (50% payout), target (100% payout), goal (150% payout) and stretch (200% payout). Under the Individual Performance Bonus Plan, the NEO’s payout was determined by comparing his or her performance against each criterion +and scoring it on a scale of 0% to 100%. As shown in further detail below under the heading “Individual Performance Bonus,” payouts under the Individual Performance Bonus Plan can range from 0% to 200% depending on the NEO’s +cumulative weighted performance score on his or her individual performance objectives. +In early 2012, the Committee set a percentage of the +NEO’s base salary as his or her annual incentive compensation target percentage (the “Target Percentage”). The Target Percentage represented the percentage of the NEO’s salary he or she could earn as annual incentive compensation +at a “target” performance level under the Annual Bonus plan criteria (100% payout) and 70-80% cumulative weighted performance score under the Individual Performance Bonus plan. Generally, the Committee set higher Target Percentages for +individuals with greater influence on business strategy, profits or sales. This put a larger percentage of an NEO’s total potential cash compensation “at risk.” +Consistent with the 2011 bonus opportunity, each NEO’s total annual incentive compensation opportunity for 2012 ranged from 0% to 200% of his or her Target Percentage. The accompanying table shows +the total annual incentive compensation payout earned by each NEO for 2012. +Page 44 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Annual Incentive Compensation Component +as a Percentage of Target Percentage +Annual Bonus Percentage By +Company or Business unit as a Percentage of +Target Percentage +Total 2012 Actual +Annual Incentive +Compensation 1 +2012 Annual +Bonus +2012 Individual +Performance Bonus +2012 +Target Percentage +2011 +Target Percentage +Total Individual +Performance Bonus as a +Percentage of +Target +Percentage +Company 2 +Global Operations +Group 3 +Human Resources 4 +Outdoor Group 5 +Retail Group 5 +Krueger +$192,129 +$0 +$192,129 +100% +100% +15% +85% +Grimes 6 +$102,944 +$0 +$52,944 +55% +55% +15% +85% +Jeppesen 7 +$166,692 +$126,289 +$40,403 +50% +- +15% +20% +65% +Linton +$92,182 +$59,895 +$32,287 +45% +45% +15% +55% +30% +Zwiers +$81,351 +$26,220 +$55,131 +55% +55% +15% +20% +50% +15% +1 +Includes the NEO’s 2012 Annual Bonus and the 2012 Individual Performance Bonus. +2 +The Committee approved revenue and pre-tax earnings performance criteria for the Company, as described below under “ Annual Incentive +Compensation – Annual Bonus. ” +3 +The Committee approved a combination of metrics as performance criteria for the Global Operations Group: pre-tax profit and net sales (Leathers 10%); +financial performance, quality goal and productivity (Owned Manufacturing 20%); actual expenses (Distribution 10%); and actual expenses, speed-to-market, product costs and quality measurements compared to 2012 planned targets (Sourcing 35%). +4 +The Committee approved actual Department expenses compared to budgeted expenses in the Human Resources Department’s fiscal year 2012 operating plan as +the 2012 performance criterion for the Human Resources Department. +5 +The Committee approved revenue and pre-tax earnings as the performance criteria for each of the Outdoor Group and the Retail Group. +6 +The Total 2012 Annual Incentive Compensation amount in the table for Mr. Grimes reflects a one-time $50,000 bonus, paid to him in recognition of his +contribution to the successful acquisition of the Performance + Lifestyle Group business. +7 +Mr. Jeppesen started employment with the Company on January 3, 2012, and, therefore, did not have a 2011 Target Percentage. +Annual Incentive Compensation – Annual Bonus +At the same time it set Target Percentages, the Compensation Committee established the performance criteria for the Company and business +units under the Annual Bonus Plan. Each NEO’s Annual Bonus was based on performance criteria for the Company, or for the +Company and a business unit. The Committee set fiscal year 2012 +revenue (weighted 35% of the Company component) and pre-tax +earnings (weighted 65%) as the +Company’s performance criteria. +The Committee selected these criteria, because it believed a strong +connection exists between performance on these financial measures +and stockholder value. As shown in the accompanying table, +the +Committee also set four performance levels for each criterion: +threshold (50% payout), target (100% payout), goal (150% +payout) and stretch (200% payout). The Committee set the +revenue and pre-tax earnings goals for these performance +levels +(shown in the accompanying table) following discussion with +management and a review of the Company’s operating plan, +historical performance, and economic conditions facing the +Company. +Company +Performance Level +(% of Target Payout) 1 +Revenue 2 +Pre-tax +Earnings 2 +Threshold (50%) +$1,465,000,000 +$170,300,000 +Target (100%) +$1,490,000,000 +$176,000,000 +Goal (150%) +$1,515,000,000 +$182,000,000 +Stretch (200%) +$1,550,000,000 +$189,300,000 +1 The maximum +payout an NEO can receive is 200% of the payment earned at his or her Target Percentage, even if performance is above stretch, and an NEO would receive 0% of his or her Target Percentage if performance is below threshold. +2 Not including the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges or extraordinary items excluded +by the Compensation Committee. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 45 +Table of Contents +2013 PROXY STATEMENT +Two of the NEOs, Messrs. Krueger and +Grimes, have significant influence on the +Company’s overall business strategy and +their respective Annual +Bonus +opportunities (85% of their total Annual +Incentive Compensation opportunities) are +based on the Company performance +criteria. Three of the NEO’s, Messrs. +Jeppesen and Zwiers and Ms. Linton, are +directly responsible +for business units and +to a lesser extent influence the Company’s +overall business strategy. For each +Historical Group +Performance +2012 +2011 +2010 +2009 +2008 +Global Operations Group +Between target +and goal +Between +threshold and +target +Between goal +and stretch +N/A +N/A +Human Resources Department +Between target +and goal +Above stretch +Between goal +and stretch +Above stretch +N/A +Outdoor Group +Below +threshold +Above stretch +Above stretch +Between goal +and stretch +Between goal +and stretch +Retail Group +Between +threshold and +target +Between zero +and threshold +Above stretch +Above stretch +Between +threshold and +target +of those three NEOs, the Committee based the following percentages of the overall Annual Bonus opportunity on the +Company’s performance: Mr. Jeppesen (20%); Ms. Linton (55%) and Mr. Zwiers (20%). The remaining portions of the Annual Bonus opportunities for each of these three NEOs were based on the performance of their respective +business units. Those percentages were: Mr. Jeppesen (65% Global Operations Group); Ms. Linton (30% Human Resources); and Mr. Zwiers (50% Outdoor Group; 15% Retail Group). The Committee used a combination of pre-tax profit and net +sales, financial performance, quality goal and productivity, actual expenses, speed-to-market, product costs and quality measurements as the performance criteria for the Global Operations Group; actual to budgeted expenses for the Human Resources +Department; and revenue and pre-tax earnings as the performance criteria for the Outdoor Group and Retail Group. For each of the NEOs, the remaining 15% of their Annual Incentive Compensation opportunity was determined by his or her respective +Individual Performance Bonus criteria. The Committee also set the same four performance levels for each criterion as it set for the Company. It set the goals for each performance level for each business unit criteria at substantially similar +difficulty levels as the goals for each performance level for the Company criteria. The Committee believed the business units could achieve these goals under strong management performance, based on a review of each business unit’s historical +performance and its fiscal year 2012 operating plan. The accompanying table shows historical performance levels achieved by the business units using these performance criteria, for those years when the performance criteria were the same as the 2012 +performance criteria. +In early 2013, the Committee +certified actual 2012 performance +compared to the performance levels +for the Company and business unit +criteria. The +results are shown in the +accompanying table: +2012 +Performance +Overall +Weighted Payout as +a Percent of Target +Global Operations Group +Between target and goal +108.2% +Human Resources Department +Between target and goal +139.1% +Outdoor Group +Below threshold +0% +Retail Group +Between threshold and +target +71.3% +Wolverine Worldwide +Below threshold +0% +For 2012, the Company paid the NEOs the Annual Bonuses set out in the following table. +Name +Annual +Bonus +Opportunity +(as a % of an NEO’s +Target Percentage) +Annual +Bonus Percentage +Earned +Annual +Bonus Paid 1 +Other Bonus 2 +Krueger +0 – 200% +0% +$0 +$0 +Grimes +0 – 200% +0% +$0 +$50,000 +Jeppesen +0 – 200% +70.3% +$126,289 +$0 +Linton +0 – 200% +41.7% +$59,895 +$0 +Zwiers +0 – 200% +10.7% +$26,220 +$0 +1 Not including +Individual Performance Bonus or any other bonus paid. +2 Reflects the $50,000 bonus paid to Mr. Grimes in recognition of his contributions to the successful +acquisition of the Performance + Lifestyle Group business. +Page 46 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Annual Incentive Compensation – Individual Performance Bonus +Also at the same time Target Percentages are set, the CEO approves for each NEO other than himself, Individual Performance Bonus +personal objectives. The CEO recommends, and the +Committee and other independent directors approve, +personal objectives for himself. Personal objectives +may +include elements such as executing strategies supporting +Wolverine Worldwide’s vision, developing employees, +supporting social and environmental responsibility, +growing new business initiatives and driving +operational +excellence. Each NEO has personal objectives specific to +him or her. Performance under the Individual +Performance Bonus Plan is evaluated based on +qualitative and quantitative factors. +NEO +2012 Personal +Objectives +Krueger +Employee development, revenue growth, consumer-direct business expansion, supply chain improvements, and acquisition integration +Grimes +Employee development, acquisition integration, productivity initiatives, and business analytics +Jeppesen +Employee development, distribution, owned and sourced manufacturing goals, Leathers transition, acquisition integration +Linton +Employee development, enhancing organization structure, process improvements, acquisition integration +Zwiers +Innovation pipeline, revenue growth, retail expansion, acquisition integration, and asset management +Each personal objective is given a weight from 0% to 100%. The sum of the weights +for each NEO’s personal objectives equals 100%. An NEO’s cumulative +weighted +personal objectives score is calculated by multiplying the score for each objective by +its weight, and summing those results for all of the NEO’s personal objectives. The +Individual Performance Bonus payout level ranges from +0% to 200%, determined by +the cumulative weighted personal objectives score. +Personal Objectives +Score +2012 Payout Level +95-100% +200% +90-95% +175% +80-90% +150% +70-80% +100% +60-70% +50% +Less than 60% +0% +The CEO recommended to the Committee the 2012 cumulative weighted personal objectives scores and payout levels for each +of the NEOs other than himself. The Committee and the other independent directors of the Board met with the CEO at the end of the year to evaluate his performance compared to his personal objectives. The Committee determined the cumulative weighted +personal objectives score for the CEO and recommended to the independent directors of the Board the CEO’s payout level. The Committee also determined the Individual +Performance Bonus payout for each +NEO, as shown in the accompanying +table, by multiplying his or her +cumulative weighted performance +score payout +level by fifteen percent +(representing the percentage of the +Individual Performance Bonus to the +total annual incentive compensation +opportunity) of his or her Target +Percentage. +Name +2012 Individual +Performance Bonus +Opportunity +(as a % of an NEO’s Target +Percentage) +Personal +Objectives +Score +2012 +Individual +Performance Bonus +Percentage Awarded +2012 +Individual +Performance +Bonus Paid +Krueger +0 – 200% +84.00 +150% +$192,129 +Grimes +0 – 200% +89.75 +150% +$52,944 +Jeppesen +0 – 200% +89.75 +150% +$40,403 +Linton +0 – 200% +80.75 +150% +$32,287 +Zwiers +0 – 200% +81.00 +150% +$55,131 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 47 +Table of Contents +2013 PROXY STATEMENT +In 2012, each NEO had the opportunity to earn long-term incentive compensation, consisting of two parts: +(1) performance shares under the Company’s Long-Term Incentive Plan (“LTIP”) and stock incentive plan, and (2) equity awards in the form of stock option grants and restricted stock awards under stock incentive plan. +Long-Term Incentive Compensation – Performance Share Bonuses +Each NEO had the opportunity to earn long-term incentive compensation under the Company’s LTIP, stock incentive plan, or both based on performance +criteria covering three-year periods (“3-Year Bonus”). In February 2010, the Committee established two performance criteria for the performance period 2010-2012: (1) business value added (“BVA”), and (2) fully diluted +earnings per share. BVA is calculated by starting with operating income determined in accordance with U.S. generally accepted accounting principles (“GAAP”), and then reducing operating income by (1) an amount for income taxes where +the effective tax rate used to calculate the income tax amount is determined accordance with GAAP, and (2) a capital charge equal to a 2-point average of “net operating assets” during the fiscal year (with “net operating +assets” defined as the net of trade receivables (net of reserves), inventory (net of reserves), other current assets, property, plant and equipment, trade payables and accrued liabilities), multiplied by 10%. The Committee believes that BVA is +useful for determining incentive compensation, because it ties the income statement (profit delivery) to the balance sheet (effective asset utilization) and does not focus on one to the exclusion of the other. The Committee further believes +that focusing NEOs’ interests on increasing BVA aligns their interests more closely with stockholder interests, and that BVA is superior to total shareholder return (which the Company used before BVA as a metric for incentive compensation) in +measuring management’s long-term influence over the Company’s performance. Using BVA and EPS balances the NEOs’ focus on near-term profitability with longer-term shareholder value. The Committee weights EPS 65% and BVA 35% when +determining the overall performance level. +3-Year Performance Share Bonus (Fiscal 2010-2012) +The following table lists performance levels set by the Committee in February 2010 for the performance period 2010-2012: +Performance level +(Percentage of +Target +Payout) +Cumulative +EPS for the +2010-2012 period* +Cumulative +BVA for the +2010-2012 period +(Millions)* +Threshold (50%) +$5.75 +$179.0 +Target (100%) +$6.21 +$192.9 +Goal (150%) +$6.44 +$203.7 +Stretch (200%) +$6.69 +$219.0 +* Not including the effect of acquisitions, divestitures, accounting changes, restructuring, or other +special charges or extraordinary items excluded by the Compensation +The Committee evaluated Wolverine Worldwide’s performance for the period 2010- +2012 against these criteria and certified that Wolverine Worldwide’s +performance on +the EPS criterion (adjusted for restructuring and other transition and non-recurring +costs), fell above the stretch performance level, and Wolverine Worldwide’s +performance on the BVA criterion (adjusted for +restructuring and other transition and +non-recurring costs), also fell above the stretch performance level. The earnings per +share performance (200%) was weighted 65% and the BVA performance (200%) was +weighted 35%, for an overall +performance of 200% resulting in a number of shares on +Name +Shares Vesting +(#) +Krueger +47,909 +Grimes +16,485 +Jeppesen +2,705 +Linton +8,663 +Zwiers +16,485 +which restrictions lapsed under the awards (on a weighted average basis) equal to 200% of the number of shares on which +restrictions would have lapsed under target performance. The restrictions lapsed on the number of shares shown for each NEOs in the accompanying table under the 3-Year Bonus for the performance period 2010-2012. +Page 48 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +3-Year Performance Share Bonus (Fiscal 2012-2014) +In 2012, the Committee evaluated each NEO’s long-term incentive target payout +opportunity expressed as a percentage of base salary. It considered the +Company’s +recruiting experiences; each NEO’s experience and responsibilities; the NEO’s +performance; and competition with other footwear, apparel and retail companies for +candidates. The Committee considers these factors +subjectively, and no single factor or +combination of factors was determinative for any NEO. The Committee decided to set +the NEOs’ Target Percentage (expressed as a percentage of the NEO’s base salary, +similar to the Annual Bonus) +for the 2012-2014 3-Year Bonus opportunity, as set out +in the accompanying table. +Name +2012-2014 +Percent +2011-2013 +Percent +Krueger +75% +75% +Grimes +50% +50% +Jeppesen +45% +45% +Linton +35% +35% +Zwiers +50% +50% +In February 2012, the Committee awarded performance shares to each NEO with a value equal to the maximum bonus payout the +NEO could earn as the 3-Year Bonus for the performance period 2012-2014. The Committee weighted the earnings per share criterion at 65% of the total payout and weighted the BVA performance criterion at 35% of the payout of the three-year performance +share bonus for the performance period 2012-2014, which was consistent with the 2011 performance share grant. The Committee intended the level of difficulty in attaining threshold, target, goal and stretch performance levels it set for the +performance period 2012-2014 to be substantially similar to the level of difficulty in attaining the performance levels for the performance period 2011-2013. The Committee granted the awards under the Company’s Stock Incentive Plan of 2010. The +award details are in the table “ Grants of Plan-Based Awards ” on pages 56-57 . The Company +accrues, but does not pay, dividends on the performance shares during the performance period. Once the Committee certifies the Company’s performance compared to the performance criteria, the restrictions on none, some or all of the performance +shares awarded to each NEO will lapse at that time, and the NEO will receive accrued dividends only on the shares actually earned. +Long-Term Incentive Compensation – Stock Option Grants and Restricted Stock Awards +The Compensation Committee believes that NEO +stock ownership benefits stockholders. The Company has granted stock options and awarded restricted stock to NEOs and other executives for many decades. The Committee administers the stock incentive plans for stock option grants and restricted stock +awards. It approves the amount of and terms applicable to all grants and awards (except for grants to the CEO, which the Committee approves together with the other independent directors). In addition to annual grants and awards, the Committee may +approve special grants or awards to NEOs, such as a grant or award to a new hire or for a promotion. +When granting equity awards, the +Committee considers the NEO’s position, responsibilities, service years, performance, previous equity grants, and market information. Management provides input to the Committee regarding equity award decisions. The Committee compares NEO equity +awards to market information as part of evaluating NEO total long-term incentive compensation at target to broader compensation trends. In general, the Committee gives more weight to position and responsibilities. +A stock option’s exercise price is set at the closing price of the Company’s common stock on the grant date. The Committee grants annual equity +awards at its regularly scheduled February meeting. The independent directors of the Board approve equity grants to the CEO at the same time. A stock option grant typically vests one-third each year over three years. The restrictions on restricted +stock awards typically lapse 25% on each of the third and fourth anniversary and 50% on the fifth anniversary of the award. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 49 +Table of Contents +2013 PROXY STATEMENT +The total value of the equity award to each NEO (the combined total grant date +fair value for the stock options and restricted stock, not including +the +performance share awards) is based on the prior year’s equity award, adjusted by +a percentage determined by the Committee. In 2012, the Committee used the +percentage ranges of base salary set out in the accompanying table as +guidelines +for the total value of the equity award as a percentage of each NEO’s base salary. +The Committee adjusted the ranges for Messrs Krueger, Grimes and Zwiers and +Ms. Linton based on its evaluation of the overall +compensation package for each +NEO. For 2012, the actual total value of the equity award was determined using +a percentage increase over the prior year’s award. When setting the percentage +Name +2012 +Actual % of Base +Salary Awarded +2012 +% of Base Salary +Guideline Range +Krueger +178.4% +130-175% +Grimes +98.7% +90-110% +Jeppesen * +80.0% +70-90% +Linton +82.2% +70-90% +Zwiers +94.3% +90-110% +* Mr. Jeppesen +started employment with the Company on January 3, 2012. +increase, the Committee considered the amount of the prior year’s total equity award to each NEO, the percentage of +the NEO’s total compensation that would be reflected by the equity award, the change in total compensation for the NEO compared to the prior year, equity awards to each NEO in recent years, and whether the total value of the equity award fell +within the guidelines, but no single factor or combination of factors was determinative in setting the percentage increase. The “ Grants of Plan-Based Awards ” table on pages 56-57 shows the actual grants and awards for 2012. +The restricted stock award, not including performance shares, was approximately 60%, and the stock option grants were approximately 40%, of +the combined value of the equity awarded to each NEO. These were the same approximate percentages as in 2011 and in the past five years. The Committee believed this mix was appropriate based on the fact that restricted stock promotes retention and +stock options incentivize stock price performance. +In October 2012, the Compensation Committee made additional, one-time restricted stock +awards to Messrs. Krueger, Grimes, and Zwiers and Ms. Linton, in recognition of their contributions to the successful acquisition of the Performance + Lifestyle Group business. The restrictions on the shares awarded lapse on January 1, +2014. The Committee awarded Mr. Krueger 18,000 shares of restricted stock, Mr. Grimes 6,000 shares, Mr. Zwiers 3,000 shares and Ms. Linton 1,500 shares. +Retirement and Welfare Plans +The NEOs participate in Wolverine Worldwide’s medical and dental plans and receive life and disability insurance. Subject to variations to account for requirements in local jurisdictions, variances +in local compensation structure (for example, as applicable to Wolverine Worldwide’s employees in the United States versus certain overseas offices), and to requirements under collective bargaining agreements, all Wolverine Worldwide employees +receive the same health and welfare benefit opportunities. The NEOs also participate in the Wolverine Worldwide Employees’ Pension Plan (a defined benefit plan) and the Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (an +unfunded, non-qualified plan). For a description of the benefits under Wolverine Worldwide’s retirement plans, see “ Pension Plans and 2012 Pension Benefits ” below. +Perquisites +The Company provides limited perquisites to NEOs in order to provide a +competitive total compensation package. The Company reimbursed NEOs for tax, financial planning and estate planning services, and made 401(k) matching payments, in the amounts set forth in footnote 6 to the “ Summary Compensation +Table ” on pages 54-55. The Company did not provide gross ups to the NEOs for the taxes due on the value of the perquisites. +Page 50 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +SECTION 4 – OTHER COMPENSATION POLICIES +AND PRACTICES +The dates of the Compensation Committee’s and Board’s February +meetings at which annual grants are made generally are scheduled at least one year in advance. The Compensation Committee also delegated to the CEO the authority to award restricted stock or grant stock options to employees during the period from +the February 2012 regular meeting of the Compensation Committee until the February 2013 meeting of the Compensation Committee. The CEO may not make such grants or awards to himself and other NEOs. The grants and awards are intended to recognize +outstanding performance by employees. The restricted stock awards for the February 2012 to February 2013 period could not exceed 17,000 shares in aggregate and the stock options 11,067 options in aggregate. +NEO Stock Ownership Guidelines +Through stock ownership guidelines, the Company requires that NEOs maintain a +minimum stock ownership level (including, for up to 50% of the applicable +ownership +requirement, restricted stock awards and performance shares but not stock options) to +align further the interests of these individuals with the stockholders. Each NEO must +Covered Positions +Guideline +CEO +5x Annual Base Salary +Other NEOs +2x Annual Base Salary +meet the ownership requirement by the end of the fifth year after he or she becomes subject to the guidelines. The CEO and +all other NEOs who have been with Wolverine Worldwide for at least five years meet the ownership requirement. +Stock Hedging and Pledging Policies +The Company has adopted a policy covering hedging transactions involving the Company’s common stock or pledging of the Company’s common stock by directors or executive officers. Under the +policy, no director or executive officer of the Company may, unless pre-cleared with the Company’s General Counsel (1) enter into any transaction involving pledging as collateral for a loan, or holding on margin, any securities of the +Company beneficially owned by the director or executive officer, or (2) enter into or maintain any hedging transaction or position involving securities of the Company beneficially owned by the directors or executive officer. +Impact of Accounting and Tax Treatments on Compensation +Section 162(m) of the Internal Revenue Code provides that publicly held companies may not deduct compensation paid to the CEO and the three next most highly-paid executive officers (other than the +CFO) in excess of $1,000,000 annually, with certain exceptions for qualified “performance-based” compensation. Wolverine Worldwide has designed its Annual Bonus Plan, LTIP, and stock incentive plans, to permit certain awards payable under +these plans that are intended to qualify as “performance-based” compensation for purposes of Section 162(m). Incentives under these plans, other than time-based restricted stock awards, were not included in the $1,000,000 limit for +purposes of calculating Wolverine Worldwide’s deduction for compensation paid to its NEOs for 2012. Wolverine Worldwide does not require all of its compensation programs to be fully deductible under Section 162(m) because Wolverine +Worldwide believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Wolverine Worldwide may pay compensation that does not qualify as performance-based +compensation. +Post-Employment Compensation +Each NEO is party to an Executive Severance Agreement that provides for certain payments and benefits upon termination of employment after a change in control of Wolverine Worldwide. The Board believes +Executive Severance Agreements will promote management stability during the transition period accompanying a change in control. Each NEO is eligible to receive compensation if his or her employment is terminated within two years (Messrs. Grimes, +Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) following a change in control of Wolverine Worldwide. The Compensation Committee believes this “double trigger” requirement of (1) change in control, and +(2) termination of employment, is appropriate because a change in control does not, in many circumstances, materially harm an NEO unless his or her employment with the Company is terminated. None of the Executive Severance Agreements require an +NEO to mitigate payments by seeking employment, but they do reduce compensation paid during the fourth and later months after termination by an amount equal to any other compensation earned by the NEO during that period. An NEO does not receive +payment under the Executive Severance Agreement if his or her employment terminates: +» +due to death or retirement in accordance with Wolverine Worldwide’s policy or as otherwise agreed; +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 51 +Table of Contents +2013 PROXY STATEMENT +» +for cause or disability; or +» +by resignation of the NEO for other than “good reason,” which includes the assignment of duties inconsistent with the NEO’s status as a +senior executive officer or the duties performed by the NEO immediately before a change in control, a reduction in the NEO’s annual base salary or relocation of the NEO. +All NEOs also may be eligible under Wolverine Worldwide’s retirement plans or equity plans to receive certain payments and benefits upon termination +of employment or in connection with a change in control. The Compensation Committee believes that single-trigger accelerated vesting is appropriate in some circumstances, because by protecting a significant component of the NEO’s total +compensation, the acceleration of equity vesting (1) mitigates potential conflicts of interest that might arise between the NEOs and the stockholders, and (2) serves as a substantial incentive for those NEOs to obtain the highest possible +value for the stockholders if the Company becomes an acquisition target. The Compensation Committee also retains the discretion to modify or eliminate the accelerated vesting. +Mr. Krueger also is party to a Separation Agreement under which he receives certain payments and benefits if the Company terminates his employment other than for “cause” or if he terminates +his employment for “good reason.” The Compensation Committee determined upon appointing Mr. Krueger as CEO that, given the Company’s strategic initiatives the Board had asked him to lead, it was appropriate for the Company to +enter into a separation arrangement. You will find information on benefits payable to Mr. Krueger and each other NEO and the specific elements comprising the payment under the Separation Agreement, Executive Severance Agreements, and other +retirement and equity plans of Wolverine Worldwide, in the “ Potential Payments Upon Termination or Change in Control ” section of this proxy statement. +Page 52 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the information provided under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the +Compensation Committee recommended to the Board of Directors that the Company include the Compensation Discussion and Analysis section in this proxy statement and incorporate it by reference into the Company’s Annual Report on Form 10-K. +Respectfully submitted, +Michael +A. Volkema (Chairperson) +William K. Gerber +Joseph R. Gromek +David T. Kollat +Nicholas T. Long +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 53 +Table of Contents +2013 PROXY STATEMENT +Summary Compensation Table +Name and Principal Position +Year +Salary 1 +Bonus 1,2 +Stock Awards 3 +Blake W. Krueger +Chairman, CEO and President +2012 +2011 +2010 +$853,906 +$812,558 +$767,308 +$2,638,485 +$1,675,335 +$1,437,675 +Donald T. Grimes +Senior Vice President, CFO, Treasurer and Chief Accounting Officer 8 +2012 +2011 +2010 +$427,827 +$412,923 +$397,115 +$50,000 +$826,172 +$524,643 +$467,425 +Michael Jeppesen +President, Global Operations +Group 8 +2012 +$359,135 +$603,254 +Pamela L. Linton +Senior Vice President, Global Human Resources +2012 +2011 +2010 +$318,885 +$309,269 +$300,077 +$386,469 +$304,200 +$271,200 +James D. Zwiers +Senior Vice President and President, Outdoor Group +2012 +2011 +2010 +$445,500 +$420,192 +$388,462 +$1,108,664 +$531,335 +$467,425 +1 +Includes any amounts deferred under the Company’s qualified 401(k) plan. +2 +Reflects a one-time $50,000 bonus paid in recognition of Mr. Grimes’ contribution to the successful acquisition of the Performance + Lifestyle Group +business. +3 +Includes restricted stock awards and performance share awards. Restricted stock was valued using the Wolverine Worldwide common stock closing market price on +the NYSE on the grant award date. Performance shares awarded in 2012 were valued in the table above using the closing market price of Wolverine common stock on the NYSE on the date of the award assuming performance between target (100% payout) and +goal (150% payout) level, consistent with the assumptions used at the time of the award under ASC Topic 718. The aggregate award date fair value of performance shares awarded in 2012, assuming payout at maximum (stretch) performance, for each NEO +(and, in parenthesis, the award date fair value of performance share awards for 2012 using maximum (stretch) performance assumptions plus award date fair value of restricted stock awards for 2012) would have been: $1,495,641 ($3,201,092) for +Mr. Krueger; $498,200 ($1,013,566) for Mr. Grimes; $390,122 ($1,006,544) for Mr. Jeppesen; $259,734 ($484,166) for Ms. Linton; and $521,318 ($1,304,777) for Mr. Zwiers. Restrictions on the shares issued under the 2012 +performance share award will lapse in 2015, if at all, based on the Company’s performance for 2012-2014. For additional valuation assumptions, see the “ Stock-Based Compensation ” heading under Note 1 to Wolverine +Worldwide’s Consolidated Financial Statements for the fiscal year ended December 29, 2012. +In October 2012, the Compensation Committee made additional, one-time restricted stock awards to Messrs. Krueger, Grimes, and Zwiers and Ms. Linton, in recognition of +their contributions to the successful acquisition of the Performance + Lifestyle Group business. The restrictions on each award lapse on January 1, 2014. Those one-time awards are reflected in the Stock Awards column in the amounts of: +Mr. Krueger ($781 380), Mr. Grimes ($260,460), Mr. Zwiers ($130,230) and Ms. Linton ($65,115). As shown in the “ Grant of Plan-Based Awards ” table, Mr. Krueger received an award of 18,000 shares +of restricted stock; Mr. Grimes an award of 6,000 shares; Mr. Zwiers an award of 3,000 shares and Ms. Linton an award of 1,500 shares. +4 +Represents the aggregate grant date fair value of stock options granted in the years shown, calculated in accordance with ASC Topic 718. Stock options were +valued using the Black-Scholes model. For additional valuation assumptions, see the “ Stock-Based Compensation ” heading under Note 1 to Wolverine Worldwide’s Consolidated Financial Statements for the fiscal year +ended December 29, 2012. +Page 54 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Summary Compensation Table (continued) +Option Awards 4 +Non-Equity Incentive +Plan Compensation 1,5 +Change in Pension +Value and +Nonqualified Deferred +Compensation +Earnings 6 +All Other +Compensation 7 +Total +$615,287 +$509,899 +$452,264 +$192,129 +$1,238,247 +$2,044,138 +$3,366,911 +$2,696,772 +$1,605,769 +$18,772 +$34,032 +$16,212 +$7,685,490 +$6,966,843 +$6,323,366 +$170,553 +$146,726 +$138,267 +$52,944 +$346,087 +$595,910 +$253,321 +$108,411 +$61,859 +$12,810 +$12,975 +$13,400 +$1,793,627 +$1,551,765 +$1,673,986 +$120,898 +$166,692 +$57,147 +$155,961 +$1,463,087 +$104,707 +$94,696 +$91,951 +$92,182 +$225,216 +$364,765 +$258,275 +$144,408 +$100,096 +$7,685 +$7,635 +$7,635 +$1,168,203 +$1,085,424 +$1,135,724 +$170,553 +$146,726 +$138,267 +$81,351 +$366,800 +$531,493 +$509,767 +$230,137 +$112,175 +$16,866 +$16,611 +$19,341 +$2,332,701 +$1,711,801 +$1,657,163 +5 +For 2012, reflects amounts earned in 2012 and paid in 2013 under both the Annual Bonus Plan and the Individual Performance Bonus Plan. For 2011, reflects +amounts earned in 2011 and paid in 2012 under both the Annual Bonus Plan and Individual Performance Bonus Plan. For 2010, reflects amounts earned in 2010 and paid in 2011, under the Annual Bonus Plan, Individual Performance Bonus Plan and 3-Year +Bonus Plan. +6 +All amounts in this column reflect the aggregate change in the actuarial present value of the NEOs’ accumulated benefits under the Wolverine Worldwide +Employees’ Pension Plan (“Pension Plan”) and Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (“SERP”). The amounts in the table were determined using assumptions consistent with those used in Wolverine +Worldwide’s Consolidated Financial Statements for each respective year. See the “ Pension Plans and 2012 Pension Benefits ” section starting on page 61. The changes in the pension and SERP amounts from 2011 to 2012 +are the result of changes in each NEO’s years of service, various accounting assumptions, and salary changes. Mr. Krueger accrued one year of service in 2012 and reached 25 years of service; he will not accrue any additional years of service +under the SERP. The interest rate used in the calculations was 4.30%, compared to 5.42% used in the calculations to determine the amounts disclosed in the Summary Compensation Table included in the 2012 Proxy Statement, and 5.92% used for the 2011 +Proxy Statement. If Mr. Krueger’s Change in Pension Value and Nonqualified Deferred Compensation Earnings was calculated using 25 years of service, changes in his salary, and 5.42%, the interest rate used for the 2012 Proxy Statement, the +change in pension value would have been $1,736,221 (compared to the $3,366,911 shown in the table). +7 +The amounts listed in this column for 2012 include Wolverine Worldwide’s matching contributions to the accounts of the NEOs under Wolverine +Worldwide’s 401(k) Money Accumulation Plan, payments made by Wolverine Worldwide for the premiums on certain life insurance policies, and tax and estate planning services in the amounts listed in the table below. The NEOs did not receive tax +gross ups on these payments. +Name +401(k) Match +Life +Insurance Premiums +Tax +and Estate Planning +Moving +Expenses +Krueger +$7,350 +$3,842 +$7,580 +- +Grimes +$7,350 +- +$5,460 +- +Jeppesen +- +- +- +$155,961 +Linton +$7,350 +- +$335 +- +Zwiers +$7,350 +$2,851 +$6,665 +- +8 +Mr. Jeppesen started employment with the Company on January 3, 2012, and is not vested in the Pension Plan or the SERP. Mr. Grimes is vested in the +Pension Plan, but is not yet vested in the SERP. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 55 +Table of Contents +2013 PROXY STATEMENT +Grants of Plan-Based Awards in Fiscal Year 2012 +The following table provides information concerning each grant of an award made to the NEOs in fiscal year 2012: +All Other Stock Awards: +Number of Shares of Stock or Units 3 +(#) +All Other Option Awards: +Number of Securities Underlying Options 4 +(#) +Exercise or Base Price of Option Awards 5 +($/Share) +Grant Date +Fair Value 6 +($) +Estimated Possible Payouts +Under Non-Equity Incentive +Plan +Awards 1 +Estimated Possible Payouts +Under Equity +Incentive Plan +Awards 2 +Name +Award Type +Grant Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Krueger +Annual Bonus +$426,953 +$853,906 +$1,707,812 +FY12-FY14 +Performance +Shares +9,388 +18,776 +37,551 +$933,049 +Stock Options +2/8/12 +57,000 +$39.83 +$615,287 +Restricted Stock +2/8/12 +23,200 +$924,056 +Restricted Stock +10/10/12 +18,000 +$781,380 +Grimes +Annual Bonus +$117,652 +$235,305 +$470,610 +FY12-FY14 +Performance +Shares +3,127 +6,254 +12,508 +$310,800 +Stock Options +2/8/12 +15,800 +$39.83 +$170,553 +Restricted Stock +2/8/12 +6,400 +$254,912 +Restricted Stock +10/10/12 +6,000 +$260,460 +Jeppesen +Annual Bonus +$89,784 +$179,567 +$359,135 +FY12-FY14 +Performance +Shares +2,449 +4,898 +9,795 +$243,376 +Stock Options +2/8/12 +11,200 +$39.83 +$120,898 +Restricted Stock +2/8/12 +5,900 +$238,980 +Linton +Annual Bonus +$71,749 +$143,498 +$286,996 +FY12-FY14 +Performance +Shares +1,630 +3,261 +6,521 +$162,034 +Stock Options +2/8/12 +9,700 +$39.83 +$104,707 +Restricted Stock +2/8/12 +4,000 +$159,320 +Restricted Stock +10/10/12 +1,500 +$65,115 +Zwiers +Annual Bonus +$122,512 +$245,025 +$490,050 +FY12-FY14 +Performance +Shares +3,272 +6,545 +13,089 +$325,222 +Stock Options +2/8/12 +15,800 +$39.83 +$170,553 +Restricted Stock +2/8/12 +16,400 +$653,212 +Restricted Stock +10/10/12 +3,000 +$130,230 +1 +Estimated payout levels relating to each NEO’s participation in the Annual Bonus Plan and Individual Performance Bonus Plan. For a description of these +Plans and the payouts under them, see pages 44-47. +2 +Estimated payout levels of performance shares granted under the Stock Incentive Plan of 2010 relating to each NEO’s participation in the 3-Year Bonus +Plan for the performance period 2012-2014. Following the end of the performance period 2012-2014, restrictions may lapse on some, all or none of the performance +Page 56 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +shares depending upon the Company’s achievement of the relevant performance criteria. The Company accrues, but does not pay, dividends on the performance shares during the performance +period. At the end of the performance period, the Company will pay to the NEO the accrued dividends (if any) on the performance shares for which the restrictions lapse. For a description of this Plan and the payout under it, see pages 48-49. +3 +The Company awarded restricted stock awards under the Stock Incentive Plan of 2010 for all NEOs. Except as noted below, the restrictions on 25% of the shares +received under the awards reflected in this column lapse on the third anniversary of the date of the award, with the restrictions on an additional 25% of the shares lapsing on the fourth anniversary and the restrictions with respect to the remaining +50% of the shares lapsing on the fifth anniversary. The restrictions on the awards made on October 10, 2012, lapse on January 1, 2014, and the restrictions on 1,500 shares of the February 8, 2012, award to Mr. Jeppesen were +scheduled to lapse on the first anniversary of the award, but the Committee accelerated the vesting date to December 5, 2012. The restrictions on the remaining 4,500 shares of Mr. Jeppesen’s February 8, 2012, award lapse on the +five year schedule set out above. All restrictions on shares of restricted stock lapse upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain conditions. In the +event of a change in control, as described under the “Benefits Upon a Change in Control Only ” heading on page 65, restrictions lapse on all shares. Holders of restricted stock are entitled to receive dividends and to vote the restricted shares. +4 +The Company granted stock options under the Stock Incentive Plan of 2010 for all NEOs. Stock options granted to NEOs vest ratably over three years beginning +on the first anniversary of the grant date and have a term of ten years. All stock options vest upon an NEO’s death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain +conditions. In the event of a change in control, as described under the “Benefits Upon a Change in Control Only” heading on page 65, all stock options vest. +5 +The exercise price is equal to the closing market price of shares of Wolverine Worldwide common stock on the date of the grant. +6 +Represents the grant date fair value for stock options, and award date fair value for performance share and restricted stock awards, made in fiscal year 2012, +computed as described in footnotes 3 and 4 to the “Summary Compensation Table.” +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 57 +Table of Contents +2013 PROXY STATEMENT +Outstanding Equity Awards at 2012 Fiscal Year-End +The following table provides information concerning unexercised options and stock awards that have not vested for each NEO outstanding as of +December 29, 2012: +Option Awards +Stock Awards +Name +Grant Date +Number of Securities Underlying +Unexercised Options Exercisable +(#) +Number of Securities Underlying +Unexercised Options +Unexercisable 1 +(#) +Option Exercise Price +($) +Option Expiration +Date +Number of Shares or Units +of Stock That Have Not Vested 2 +(#) +Market Value of Shares or Units +of Stock That Have Not Vested 3 +($) +Equity Incentive Plan Awards: +Number of Unearned +Shares, +Units or +Other Rights That Have +Not Vested 4 +(#) +Equity Incentive Plan Awards: +Market or Payout Value +of +Unearned +Shares, Units or Other +rights That Have Not Vested 3 +($) +Krueger +Various +102,250 +$4,108,405 +Various +76,586 +$3,077,226 +2/6/08 +3,992 +- +$25.05 +2/5/18 +2/10/10 +- +22,133 +$25.00 +2/9/20 +2/9/11 +16,334 +32,666 +$36.49 +2/8/21 +2/8/12 +- +57,000 +$39.83 +2/7/22 +Grimes +Various +33,200 +$1,333,976 +Various +25,686 +$1,032,064 +5/27/08 +16,000 +- +$28.28 +5/26/18 +2/9/09 +30,000 +- +$17.11 +2/9/19 +2/10/10 +13,534 +4,500 +$25.00 +2/9/20 +2/9/11 +4,700 +9,400 +$36.49 +2/8/21 +2/8/12 +- +15,800 +$39.83 +2/7/22 +Jeppesen +Various +4,500 +$180,810 +Various +16,164 +$649,470 +2/8/12 +- +11,200 +$39.83 +2/7/22 +Linton +Various +17,375 +$698,128 +Various +13,417 +$539,095 +2/6/08 +16,000 +- +$25.05 +2/5/18 +2/10/09 +19,000 +- +$17.11 +2/9/19 +2/10/10 +9,000 +4,500 +$25.00 +2/9/20 +2/9/11 +3,034 +6,066 +$36.49 +2/8/21 +2/8/12 +- +9,700 +$39.83 +2/7/22 +Page 58 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Option Awards +Stock Awards +Name +Grant Date +Number of Securities Underlying +Unexercised Options Exercisable +(#) +Number of Securities Underlying +Unexercised Options +Unexercisable 1 +(#) +Option Exercise Price +($) +Option Expiration +Date +Number of Shares or Units +of Stock That Have Not Vested 2 +(#) +Market Value of Shares or Units +of Stock That Have Not Vested 3 +($) +Equity Incentive Plan Awards: +Number of Unearned +Shares, +Units or +Other Rights That Have +Not Vested 4 +(#) +Equity Incentive Plan Awards: +Market or Payout Value +of +Unearned +Shares, Units or Other +rights That Have Not Vested 3 +($) +Zwiers +Various +36,200 +$1,454,516 +Various +26,552 +$1,066,859 +2/18/04 +3,581 +- +$15.37 +2/17/14 +12/20/04 +1,606 +- +$20.80 +2/17/14 +2/9/05 +8,600 +- +$23.04 +2/8/15 +2/7/07 +7,600 +- +$30.26 +2/6/17 +2/6/08 +16,000 +- +$25.05 +2/5/18 +2/10/09 +19,000 +- +$17.11 +2/9/19 +4/22/09 +2,000 +- +$21.79 +4/21/19 +2/10/10 +13,534 +6,766 +$25.00 +2/9/20 +2/9/11 +4,700 +9,400 +$36.49 +2/8/21 +2/8/12 +- +15,800 +$39.83 +2/7/22 +1 +All unexercisable options become exercisable on the vesting date. The normal vesting period for options is one-third of the shares on each of the first three +anniversaries of the date of the grant. Stock option vesting may accelerate upon certain events, including death, disability or voluntary termination after attaining age 62 or age 50 with seven years of service, subject to certain conditions, as +further described in the “Grants of Plan Based Awards” section. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 59 +Table of Contents +2013 PROXY STATEMENT +2 +The following table sets forth the vesting dates for the unvested restricted stock awards of each NEO as of December 29, 2012: +Named Executive +Officer +Vesting +Date +Number +of Shares to Vest +Krueger +1/1/14 +18,000 +2/9/14 +5,200 +2/10/14 +26,750 +2/8/15 +5,800 +2/9/15 +5,200 +2/10/15 +13,500 +2/8/16 +5,800 +2/9/16 +10,400 +2/8/17 +11,600 +Grimes +5/27/13 +2,750 +1/1/14 +6,000 +2/9/14 +1,475 +2/10/14 +8,050 +2/8/15 +1,600 +2/9/15 +1,475 +2/10/15 +4,100 +2/8/16 +1,600 +2/9/16 +2,950 +2/8/17 +3,200 +Jeppesen +2/8/15 +1,125 +2/8/16 +1,125 +2/8/17 +2,250 +Linton +1/1/14 +1,500 +2/9/14 +975 +2/10/14 +5,325 +2/8/15 +1,000 +2/9/15 +975 +2/10/15 +2,650 +2/8/16 +1,000 +2/9/16 +1,950 +2/8/17 +2,000 +Zwiers +4/22/13 +250 +1/1/14 +3,000 +2/9/14 +1,475 +2/10/14 +6,050 +4/22/14 +500 +2/8/15 +4,100 +2/9/15 +1,475 +2/10/15 +4,100 +2/8/16 +4,100 +2/9/16 +2,950 +2/8/17 +8,200 +3 +The dollar values are calculated using a per share stock price of $40.18, the closing price of Wolverine Worldwide common stock as of the end of fiscal year +2012. +4 +Following the end of the applicable three-year performance period, restrictions may lapse on some, all or none of the performance shares depending upon the +Company’s achievement of the relevant performance criteria. +Page 60 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Option Exercises and Stock Vested in Fiscal Year 2012 +Option Awards +Stock Awards +Number of +Shares +Acquired +on +Exercise +(#) +Value +Realized +on +Exercise +($) +Number of +Shares +Acquired +on +Vesting +(#) +Value +Realized +on +Vesting* +($) +Krueger +361,886 +$8,141,130 +161,580 +$6,513,217 +Grimes +- +- +47,401 +$1,909,615 +Jeppesen +- +- +4,205 +$172,471 +Linton +- +- +30,269 +$1,223,724 +Zwiers +14,719 +$318,388 +44,028 +$1,776,566 +* +The Company calculates the dollar values using the closing price of Wolverine Worldwide common stock on the date of vesting. +Pension Plans and 2012 Pension Benefits +Wolverine Worldwide maintains the following defined benefit retirement plans covering NEOs: (1) the Wolverine Worldwide Employees’ Pension Plan (“Pension Plan”), which is a +funded and tax-qualified defined benefit plan under the Internal Revenue Code that covers eligible employees, and (2) the Wolverine World Wide, Inc. 409A Supplemental Executive Retirement Plan (“SERP”), which is an unfunded +non-qualified plan that covers individuals recommended by the CEO and approved by the Compensation Committee for participation in the SERP. The following describes the material features of the Pension Plan and SERP. +QUALIFIED PENSION PLAN +NEOs vest in the Pension Plan after five years of qualifying service. Subject to the limitations imposed by the Internal Revenue Code, the Pension Plan generally pays an NEO a monthly benefit in an amount +equal to a percentage of the NEO’s final average monthly earnings multiplied by his or her number of years of service. The Pension Plan caps years of service at 25 (30 for non-SERP participants). The percentages are 2.4% for Mr. Krueger +and 2.0% for Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton. “Earnings” as used in this formula generally includes base salary and annual bonus, less social security allowance, and for 2012 was capped at $250,000, the IRS limit +applicable to tax-qualified plans. +Upon retirement, an NEO participant may elect to receive the benefit in the form of a life annuity, 5- or +10-year certain annuities, or joint and 50%, joint and 75%, or joint and 100% survivor annuities. The payments are actuarially adjusted based on the election. Any election, other than an election to receive life annuity benefits, reduces the monthly +benefit payable. The “normal” retirement age under the plan is age 65. None of the NEOs currently are eligible to begin drawing early retirement benefits under the Pension Plan. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 61 +Table of Contents +2013 PROXY STATEMENT +SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN +All NEOs participate in the SERP, which provides retirement benefits above amounts available under the Company’s tax-qualified +pension programs. An NEO’s SERP benefit generally equals the difference between the NEO’s retirement benefit under Pension Plan and the benefits the NEO would have received if there were no cap on earnings when calculating the Pension Plan +benefit. The SERP caps years of service at 25. The SERP also allows a retired NEO who has five years of service to draw earlier (beginning at age 55) and on different terms than under the Pension Plan. An NEO’s earnings percentage multiplier is +the same under the SERP as it is under the Pension Plan. The Compensation Committee may grant additional deemed years of service to an NEO, subject to the cap of 25 years. The full benefit of any additional years of deemed service is paid under the +SERP. Mr. Krueger reached the 25-year cap in 2012. +If a retired NEO draws the SERP benefit prior to age 65, the reduction factor is +0.333% for each month prior to age 60, and 0.1666% for each month between age 60 and age 65. As of the end of fiscal year 2012, Mr. Krueger was the only NEO eligible to retire and begin drawing early retirement benefits under the SERP. +SERP benefits are paid monthly, and the SERP has a lump sum payment option in the event of death or termination of employment after a change +in control. The SERP also includes a disability benefit and a death benefit payable to the NEO’s designated beneficiary if the NEO dies before retiring. The SERP provides for lump sum payments to participating NEOs if, within two years (Messrs. +Grimes, Jeppesen and Zwiers and Ms. Linton) or three years (Mr. Krueger) after a change in control the NEO resigns for good reason or is terminated by Wolverine other than for cause or due to death or disability. +The SERP also contains non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine Worldwide. Under the SERP +non-competition provisions, an NEO is not entitled to any benefit payment if, prior to the date on which such benefit payment is due, the participant enters into certain relationships with a competing business. If the NEO’s employment is +terminated for serious misconduct or if Wolverine Worldwide cannot collect under an insurance policy purchased to fund SERP benefits for certain reasons, the Company may terminate an NEO’s benefits under the SERP. Wolverine Worldwide may +terminate the SERP or stop further accrual of SERP benefits for a participating NEO at any time, but termination will not affect previously accrued benefits. +PENSION BENEFITS IN FISCAL YEAR 2012 +The following table +provides for each NEO certain information concerning each plan that provides for payments or other benefits at, following, or in connection with retirement: +Name +Plan +Name +Number of +Years Credited +Service +(#) +Present Value +of Accumulated +Benefit 1 +($) +Payments +During Last +Fiscal Year +($) +Krueger +Pension Plan +17 +$1,032,495 +- +SERP 2 +25 +$10,232,877 +- +Grimes +Pension +Plan 3 +5 +$172,375 +- +SERP 3 +5 +$306,213 +- +Jeppesen +Pension +Plan 3 +1 +$39,781 +- +SERP 3 +1 +$17,366 +- +Linton +Pension +Plan +5 +$307,360 +- +SERP +5 +$317,198 +- +Zwiers +Pension Plan +15 +$409,020 +- +SERP +15 +$678,184 +- +1 +These values are as of December 29, 2012, and are calculated assuming the participants will commence their benefits at age 65 (in the form of the annuity +elected by the NEO) and use the 2012 PPA static mortality tables and a 4.30% interest rate (compared to 5.42% used the prior year). +Page 62 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +2 +The present value of Mr. Krueger’s accumulated benefit under the SERP has increased by $3,604,919 as a result of three additional service years that +were granted to him under the SERP in 1996 in recognition of his service as a member of Wolverine Worldwide’s executive team for three years before becoming a participant in the SERP, and six additional deemed years of service granted as part +of Mr. Krueger’s CEO compensation. The present value of Mr. Krueger’s SERP benefit would be $6,627,958 if 17 service years were used to calculate his benefit. Mr. Krueger reached 25 years of service in 2012, the maximum +years of service permitted under the SERP, and will not accrue any further years of service under the SERP. +3 +Mr. Grimes is vested in the Pension Plan, but is not yet vested in the SERP. Mr. Jeppesen is not vested in the pension plan or the SERP. The amounts +in the table were calculated using the assumption that they were fully vested. +Potential Payments Upon Termination or Change in Control +Wolverine Worldwide has entered into an Executive Severance Agreement with each of the NEOs that provides certain rights including the right to +receive payments in the event of a termination of employment in connection with a change in control. The Company also has entered into an agreement with Mr. Krueger regarding certain termination benefits in the event of termination of his +employment under certain circumstances. +BENEFITS TRIGGERED BY TERMINATION FOR CAUSE OR VOLUNTARY +TERMINATION +An NEO is not entitled to receive any additional forms of severance payments or benefits upon termination for cause or upon +the NEO’s voluntary decision to terminate employment with Wolverine Worldwide prior to being eligible for retirement. +BENEFITS TRIGGERED BY TERMINATION OTHER THAN FOR CAUSE OR BY THE NEO FOR GOOD REASON +Mr. Krueger entered into a Separation +Agreement on March 13, 2008, which states that upon termination of his employment other than termination by Wolverine Worldwide for Cause or termination by Mr. Krueger without Good Reason, as such terms are defined in the Separation +Agreement, Wolverine Worldwide will pay Mr. Krueger the following payments in exchange for a general release in favor of Wolverine Worldwide: (1) continued base salary for 18 months (reduced by payments he receives if he is employed by a +Competing Business, as defined in the Separation Agreement); (2) a lump sum pro rata portion of the annual incentive bonus and the long-term bonus for all uncompleted performance periods based on actual corporate performance for the applicable +performance periods; (3) a lump sum pro rata portion of the annual individual performance bonus relating to personal performance objectives; (4) retiree medical benefits for Mr. Krueger, his spouse and dependents for a period starting +on the day after the termination date and ending on the last day of the 18th month following the month in which the termination date falls; and (5) with respect to any triggering termination occurring before Mr. Krueger’s 60th +birthday, either a waiver of the three-year non-competition clause in the SERP or a lump sum payment of 36 months’ base salary. Mr. Krueger also will be paid any annual incentive bonus and long-term incentive bonus earned but not paid +prior to his termination. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 63 +Table of Contents +2013 PROXY STATEMENT +“Cause” generally is defined in Mr. Krueger’s Separation +Agreement to mean: (1) any act or omission knowingly undertaken or omitted with the intent of causing material damage to Wolverine Worldwide; (2) any intentional act involving fraud, misappropriation or embezzlement, that causes material +damage to Wolverine Worldwide; (3) repeated willful failure to substantially perform any of his significant duties as reasonably directed by the Board of Directors of Wolverine Worldwide; (4) a conviction (including any plea of guilty or +nolo contendere) of any criminal act that (a) results in the executive serving prison time and not being able to perform the normal duties of his position for more than thirty (30) days; or (b) causes material damage to Wolverine +Worldwide; or (5) chronic or habitual use or consumption of drugs or alcohol that causes material damage to Wolverine Worldwide. +“Good Reason” generally is defined in Mr. Krueger’s Separation Agreement to mean: (1) a material reduction in base compensation, +including a reduction in base salary or opportunities under Wolverine Worldwide’s bonus plans or equity plans (other than those implemented for the executive team as a whole); (2) a material reduction in authority, duties, or +responsibilities; (3) a requirement to report to a Company officer or employee instead of reporting directly to the Board of Directors; or (4) certain relocations, other than those related to a change in the location of Wolverine +Worldwide’s headquarters affecting a majority of the executive team. +BENEFITS TRIGGERED UPON A CHANGE +IN CONTROL +Benefits Upon Termination Following a Change in Control. Under the Executive Severance Agreements entered into with the +NEOs, payments and benefits are triggered when Wolverine terminates employment without “cause” or when an executive terminates employment for “good reason” within two years (Messrs. Grimes, Jeppesen and Zwiers and +Ms. Linton) or three years (Mr. Krueger) following a change in control of Wolverine Worldwide. +Wolverine Worldwide pays the lump sum +severance payment under the Executive Severance Agreement, and the payment is composed of the following: (1) unpaid base salary, benefit awards (including both cash and stock) and bonus payments that have been earned; (2) in lieu of a +bonus payment under the Annual Bonus Plan, an amount equal to the number of days the NEO was employed by Wolverine Worldwide in the year of termination divided by the number of days in the year multiplied by 100% of the greater of either +(a) the bonus awarded to the NEO under an Annual Bonus Plan for the preceding year or (b) the average paid to the NEO over the preceding two-year period under an Annual Bonus Plan; (3) in lieu of payments under the various three-year +performance periods, an amount equal to the bonus the NEO would have received based on actual and assumed performance measures, multiplied by the number of days the NEO participated in the performance period prior to the termination, divided by the +total number of days in the performance period (in determining the earnings per share or other performance measures that can be determined annually for any year subsequent to the year of termination, performance will equal the level required to +attain the maximum goal under the three year plan for that year); (4) either two (Messrs. Grimes, Jeppesen and Zwiers and Ms. Linton) or three (Mr. Krueger) times the sum of (a) the NEO’s highest annual rate of base salary during +the 12-month period prior to termination; and (b) the greater of the average amount earned by the NEO during the previous two years or the previous year under the Annual Bonus Plan; (5) 100% of the positive spread for any options held by +the NEO whether or not vested; (6) an excise tax gross-up adjustment (Mr. Jeppesen’s agreement was entered into after 2008 and does not include an excise tax gross-up adjustment); and (7) the present value of an additional three years +of deemed service under the retirement plans. Upon a termination of employment in connection with a change of control, Wolverine Worldwide will maintain for up to six months the employee benefit plans, programs or arrangements that the NEO was +entitled to participate in immediately prior to the termination date. Wolverine Worldwide will provide outplacement services through the last day of the second calendar year following the calendar year of termination. +“Change in control” under the Executive Severance Agreements generally means certain changes in composition of the Board of Directors, certain +acquisitions of 20% or more of Wolverine Worldwide’s common stock or combined outstanding voting power of Wolverine Worldwide, and other specified reorganizations, mergers, consolidations, liquidations, dissolutions or distributions of +substantial assets (unless such transactions result in the creation of an entity in which at least 50% of the common stock and combined voting power is owned by the owners of record prior to the transaction, no single stockholder owns more than 20% +of the combined voting power and a majority of the board remains unchanged). +“Cause” is defined under the Executive Severance +Agreements to generally mean the willful and continued failure to substantially perform duties or willfully engaging in gross misconduct that is injurious to Wolverine Worldwide. +Page 64 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +“Good Reason” is defined under the Executive Severance Agreements generally to mean: (1) any materially adverse +change in position, duties, responsibilities or title or any removal, involuntary termination or failure to re-elect an officer; (2) a reduction in annual base salary; (3) any relocation or requirement to substantially increase business +travel; (4) the failure to continue providing any executive incentive plans or bonus plans; (5) the failure to continue any employee benefit plan or compensation plan unless a comparable plan is available; (6) the failure to pay any +salary, bonus, deferred compensation or other compensation; (7) the failure to obtain an assumption agreement from any successor; (8) any purported termination of the employment which is not effected in a manner prescribed by the Executive +Severance Agreement; or (9) any other material breach by Wolverine Worldwide or a successor of its obligations under the Executive Severance Agreement. +Excise Tax Gross-Up. The Compensation Committee previously determined that Wolverine Worldwide would not provide excise tax gross-up payments in employment agreements entered into after 2008. +Benefits Upon a Change in Control Only. Under the stockholder-approved equity plans, upon a change in control of Wolverine Worldwide, +all of each NEO’s outstanding stock options become immediately exercisable in full and will remain exercisable during their remaining term, regardless of whether the NEO remains in the employ or service of Wolverine Worldwide. The Compensation +Committee may determine that one or all of the NEOs shall receive cash in an amount equal to the positive spread amount. In addition, all other outstanding incentive awards of the NEOs, including shares of restricted stock, become immediately and +fully vested and non-forfeitable upon a change in control of Wolverine Worldwide. Change in control for this purpose generally means certain changes in the composition of the Board of Directors, certain acquisitions of 20% of Wolverine +Worldwide’s common stock and other specified reorganizations, mergers, consolidations, liquidations, dissolutions or dispositions of substantial assets. +BENEFITS TRIGGERED BY RETIREMENT, DEATH OR PERMANENT DISABILITY +Pension Plan . In the event of death before retirement, the Pension Plan provides the surviving spouse of a vested NEO participant a death benefit equal to the qualified pre-retirement survivor +annuity as defined in the Internal Revenue Code (generally 50% of the participant’s accrued normal retirement benefit). This benefit is paid annually to the surviving spouse beginning when the NEO participant would have turned 60 and continues +for the life of the surviving spouse. For NEO participants with at least three years of service as of December 31, 2003, and who have at least 10 years of service and are employed by Wolverine Worldwide at the time of death, the amount of the +survivor benefit under the Pension Plan is calculated as though the NEO participant had continued as an employee of Wolverine Worldwide until age 65 at the compensation level as of the date of death and the benefit begins upon the date of death, +unreduced for early commencement. The survivor benefit for NEO participants who meet all the criteria set forth in the preceding sentence, but who die when they are not employed by Wolverine Worldwide are entitled to a joint and survivor benefit +commencing upon the date of death, unreduced for early commencement. +SERP . If an NEO dies before beginning to receive benefits under +the SERP, Wolverine Worldwide must (based on the current elections by all of the NEOs) pay the beneficiary a lump sum death benefit equal to the present value of the benefit computed as if the NEO participant had retired on the date of death, had +begun receiving benefits at age 55 and had continued to receive benefits for the remainder of the participant’s life expectancy. If the participant dies after beginning to receive benefit payments, benefits cease unless the NEO participant was +receiving benefits in the form of one of the joint and survivor annuity optional elections under the plan or had elected benefits in a form that provides for a continuation of benefits. +If an NEO becomes totally and permanently disabled, the SERP provides a disability benefit equal to 60% of the normal retirement accrued benefit based upon years of service up to the date that the NEO +participant became disabled through the date the NEO participant reaches age 65 (at which point, the NEO participant would begin drawing full SERP benefits) or is no longer disabled. +Incentive Compensation Plans . Upon termination of employment at least six months after the beginning of a fiscal year due to death, disability or early or normal retirement, an NEO is entitled to +receive a pro rata portion of any Annual Bonus award earned under the Annual Bonus Plan based on the NEO’s service during such fiscal year. The Annual Bonus is payable at the same time and in the same manner as awards are paid to other NEOs for +the fiscal year. With respect to performance shares, upon death, disability or early or normal retirement, an NEO +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 65 +Table of Contents +2013 PROXY STATEMENT +will be eligible to receive a pro rata portion of any shares upon which restrictions lapse under each open performance cycle for which the NEO served at least 12 months, subject to certain +conditions. If an award is payable at the end of the performance period, the award is prorated for service during the applicable performance cycle. Any prorated award is payable at the time awards are paid to other NEOs. +Stock Incentive Plans . Upon death, disability or early or normal retirement of the NEO, the restrictions applicable to his or her shares of +restricted stock (excluding performance shares) terminate automatically and stock options vest in full if held for more than one year or, if employed for less than one year after the grant, on a percentage basis based on months employed after the +grant divided by 12. An NEO is eligible for early retirement under the stock incentive plans upon voluntarily terminating employment after attaining age 50 with seven years of service, subject to certain conditions. Upon death, disability or early +or normal retirement of the NEO, the restrictions on performance shares lapse on a prorated basis, based on months employed in the performance period and actual Company performance during the performance period. +DESCRIPTION OF RESTRICTIVE COVENANTS THAT APPLY DURING AND AFTER TERMINATION OF EMPLOYMENT +The SERP contains non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine Worldwide. Under the non-competition +provisions of the SERP, the NEO participant will not be entitled to any benefit payment if, prior to the date on which such benefit payment is due, the NEO participant enters into certain relationships with a competing business. +ESTIMATED PAYMENTS ON TERMINATION OR CHANGE IN CONTROL +The following table summarizes the potential payments and benefits payable to each of Wolverine Worldwide’s NEOs upon a change in control or termination of employment in connection with each of the +triggering events set forth in the table, assuming in each situation that the termination of employment or change in control of Wolverine Worldwide took place on December 28, 2012. The amounts set out below are in addition to benefits that are +generally available to the Company’s employees such as distributions under the Company’s 401(k) savings plan, disability or life insurance benefits and accrued vacation. Due to the many factors that affect the nature and amount of any +benefits provided upon the termination events discussed below, any actual amounts paid or distributed to NEOs may be different. Factors that may affect these amounts include timing during the year of the occurrence of the event, Wolverine +Worldwide’s stock price and the NEO’s age. +The value of the accelerated vesting of unvested equity-based compensation awards was +computed using the closing market price ($40.18) of Wolverine Worldwide’s common stock on December 28, 2012, the last business day in the fiscal year. The value for unvested restricted stock is computed by multiplying $40.18 by the number +of unvested shares of restricted stock held by the NEO. The value of unvested stock options equals the difference between the exercise price of each option and $40.18. No value was attributed to accelerated vesting of a stock option if its exercise +price was greater than $40.18. +Page 66 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Termination Event and +Payments/Benefits +Krueger +Grimes +Jeppesen 13 +Linton +Zwiers +Termination by Company for Cause or +Voluntary Termination +- +- +- +- +- +Termination by Company Other Than for +Cause or by Executive for Good Reason +$2,281,178 1 +- +- +- +- +Change in Control Termination 2 +Executive Severance Agreement 3 +$12,700,702 +$4,825,613 +$1,519,412 +$3,019,462 +$6,009,553 +Benefits under Executive Severance Agreement 4 +$50,914 +$47,516 +$50,805 +$47,714 +$49,192 +Stock Incentive Plans 5 +$4,584,871 +$1,476,900 +$184,730 +$792,216 +$1,597,440 +Lump sum payment under the SERP 6 +$19,809,551 +$758,011 +$140,742 +$460,737 +$1,639,298 +Death +SERP 7 +$14,095,147 +$520,961 +$86,079 +$701,580 +$995,919 +Pension Plan 8 +$1,003,228 +$95,561 +- +- +$1,089,652 +Stock Incentive Plans 5 +$3,823,511 +$1,232,246 +$153,942 +$714,666 +$1,386,256 +Earned Incentive Compensation 9 +$789,691 +$265,441 +$153,900 +$138,738 +$273,302 +Disability +SERP 10 +$13,229,582 +$571,411 +$91,829 +$339,569 +$1,621,585 +Stock Incentive Plans 5 +$3,823,511 +$1,232,246 +$153,942 +$714,666 +$1,386,256 +Earned Incentive Compensation 9 +$789,691 +$265,441 +$153,900 +$138,738 +$273,302 +Retirement +SERP 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Pension Plan 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +See fn 11 +Stock Incentive Plans 5, 12 +$3,823,510 +- +- +$714,666 +- +Earned Incentive Compensation 12 +$789,691 +- +- +$138,738 +- +Change in Control +Only +Stock Incentive Plans 5 +$4,584,871 +$1,476,900 +$184,730 +$792,216 +$1,597,440 +1 +The estimate for Mr. Krueger assumes that the Company waives the non-compete clause in Mr. Krueger’s SERP and assumes target performance under +the performance periods 2011-2013 and 2012-2014. Actual payout or vesting, if any, would be determined and made at the end of the period. The amount reflected in the table also includes an estimated cost of $13,326 for retiree medical benefits for +18 months and the estimated cost of $25,000 for out-placement services. +2 +Payments would be triggered after termination of employment under certain circumstances within two years (Messrs. Grimes, Jeppesen and Zwiers and +Ms. Linton) or three years (Mr. Krueger) following a change in control. The timing of the payment would be delayed to the extent earlier payment would trigger Section 409A of the Tax Code. +3 +Includes amounts payable in cash under the terms of the Executive Severance Agreement, excluding the value of the cash payout to each NEO of the option spread +for already vested options. See the “ Outstanding Equity Awards at Fiscal Year-End ” table above for more information regarding each NEO’s vested options as of December 29, 2012. The value of unvested options +and time-vested restricted shares that vest upon a change in control under the terms of the Company’s stock incentive plans are included in the Stock Incentive Plans row. +4 +These estimates assume that Wolverine Worldwide maintains the benefit plans for a period of one year after termination and the out-placement services for a +period beginning with the date of termination and ending on the last day of the second calendar year following the calendar year in which the date of termination occurred. +5 +Reflects the value of unvested stock options and shares of restricted stock that would vest because of the event. +6 +Amounts in this row reflect the entire lump sum benefit payable to each NEO, including any accumulated benefit. For a description of the SERP, see +“ Supplemental Executive Retirement Plan ” under the heading “ Pension Plans and 2012 Pension Benefits .” The timing of the payment would be delayed to the extent earlier payment would +trigger Section 409A of the Tax Code. +7 +Amounts in this row reflect the entire lump sum death benefit payable to a participating NEO’s beneficiary, including any accumulated benefit. +8 +Amounts reflect the net present value of the annuity paid to the surviving spouse calculated using the same discount rate and mortality assumptions used in +the Pension Benefits table. In accordance with the terms of the Pension Plan, the death benefit for Messrs. Krueger and Zwiers was calculated as though the NEO had continued as an employee of Wolverine Worldwide until age 65 at the compensation +level as of the date of death. Mr. Jeppesen was not vested in the Pension Plan as of December 31, 2012, so no death benefit would be payable to any surviving spouse. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 67 +Table of Contents +2013 PROXY STATEMENT +9 +Under the Annual Bonus Plan and the terms of performance share awards, each NEO may be eligible to receive a pro rata portion of any award if employment is +terminated as a result of the event. The amount reported represents actual payout under the Annual Bonus Plan for fiscal year 2012, and, for the 2011-2013 and 2012-2014 performance cycles, an estimated value of performance shares that would vest at +the end of the performance period. Performance shares would vest on a prorated basis based on actual Company performance. For purposes of this estimate, the calculation uses target performance. +10 +Amounts in this row reflect the net present value of the annuity using the same discount rate and mortality assumptions used in the Pension Benefits table and +assuming the NEO drew the disability benefit until age 65 and then the normal retirement benefit. +11 +See the Pension Benefits table and associated footnotes. The Pension Benefits table describes the general terms of each pension plan in which the NEOs +participate, the years of credited service and the present value of each NEO’s accumulated pension benefit assuming payment begins at age 65. +12 +Mr. Krueger and Ms. Linton are the only NEOs who were retirement eligible at fiscal year end. +13 +Mr. Jeppesen started employment with the Company on January 3, 2012, and his Executive Severance Agreement does not include an excise tax gross-up +adjustment. Under the provisions of his Agreement, if payments to Mr. Jeppesen under the Agreement would trigger application of an excise tax, the Company shall reduce the payment to an amount that avoids application of the excise tax and +minimizes the impact on the payments to Mr. Jeppesen. +Page 68 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Audit Committee Report +The Audit Committee of the Board of Directors consists of four directors who are independent under the Company’s Director Independence Standards, the NYSE listed company standards, and applicable SEC +standards. The Audit Committee represents and assists the Board in fulfilling its oversight responsibility regarding the integrity of Wolverine Worldwide’s financial statements and the financial reporting and accounting process, the systems of +internal accounting and financial controls, the performance of the internal audit function and the independent auditors, the qualifications and independence of the independent auditors, the annual independent audit of Wolverine Worldwide’s +financial statements, and compliance with legal and regulatory requirements. The Audit Committee is directly responsible in its capacity as a committee of the Board for appointing, retaining, compensating, overseeing, evaluating and terminating (if +appropriate) Wolverine Worldwide’s independent auditors. Wolverine Worldwide’s management has primary responsibility for the financial statements and the financial reporting process, including the application of accounting and financial +principles, the preparation, presentation and integrity of the financial statements, and the systems of internal controls and other procedures designed to promote compliance with accounting standards and applicable laws and regulations. Wolverine +Worldwide’s independent auditors are responsible for expressing an opinion on the conformity of Wolverine Worldwide’s financial statements with generally accepted accounting principles and for auditing the effectiveness of Wolverine +Worldwide’s internal control over financial reporting. +The Audit Committee has taken steps to provide assurances regarding Audit +Committee composition and procedures, the independence of Wolverine Worldwide’s outside auditors and the integrity of Wolverine Worldwide’s financial statements and disclosures. These steps include: (i) reviewing the Audit Committee +Charter; (ii) reviewing the Accounting and Finance Code; (iii) maintaining an Accounting and Auditing Complaint Procedure to allow employees, stockholders and the public to report concerns regarding Wolverine Worldwide’s financial +statements, internal controls and disclosures; and (iv) reviewing procedures for the Audit Committee to pre-approve all audit and non-audit services provided by Wolverine Worldwide’s independent auditors. +As part of its supervisory duties, the Audit Committee has reviewed Wolverine Worldwide’s audited financial statements for the fiscal year ended +December 29, 2012, and has discussed those financial statements with Wolverine Worldwide’s management, internal financial staff, and the internal auditors and independent auditors with and without management present. The Audit Committee +has also reviewed and discussed the following with Wolverine Worldwide’s management, the financial staff, and the internal auditors and independent auditors with and without management present: +» +accounting and financial principles and significant assumptions, estimates and matters of judgment used in preparing the financial statements; +» +allowances and reserves for accounts receivable, inventories and taxes; +» +accounting for acquisitions, pension plans and equity-based compensation plans; +» +goodwill impairment analysis; and +» +other significant financial reporting issues and practices. +The Audit Committee has discussed with Wolverine Worldwide’s independent auditors the results of the independent auditors’ examinations and the judgments of the independent auditors concerning +the quality, as well as the acceptability, of Wolverine Worldwide’s accounting principles and such other matters that it is required to discuss with the independent auditors under applicable rules, regulations or generally accepted auditing +standards, including the matters required to be discussed by applicable rules of the Public Company Accounting Oversight Board (“PCAOB”). In addition, the Audit Committee has received from the independent auditors the written disclosures +and the letter required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence rules and has discussed their independence from Wolverine Worldwide and +Wolverine Worldwide’s management with them, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the scope of all fees paid to the independent auditors during the year. After +and in reliance upon the reviews and +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 69 +Table of Contents +2013 PROXY STATEMENT +discussions described above, the Audit Committee recommended to Wolverine Worldwide’s Board of Directors that the audited financial statements for the fiscal year ended December 29, +2012, be included in Wolverine Worldwide’s Annual Report on Form 10-K for the year then ended to be filed with the SEC. +Respectfully +submitted, +Jeffrey M. Boromisa (Chairperson) +William K. Gerber +Brenda J. Lauderback +Shirley D. Peterson +Independent Registered Public Accounting Firm +Wolverine Worldwide’s Audit Committee has adopted a policy under which the Audit Committee must approve all audit and non-audit services provided by +the Company’s independent registered public accounting firm, Ernst & Young LLP and which prohibits Ernst & Young LLP from providing any non-audit services that are prohibited by the SEC or the PCAOB. The Company’s Audit +Committee provides categorical pre-approval before the beginning of each fiscal year for routine and recurring services, with specific service descriptions and budgets. All audit services, internal control-related services, and other services not +within the specifically pre-approved service descriptions and budgets require engagement-specific pre-approval. With certain exceptions (such as pre-approval of audit services), the Audit Committee may delegate engagement-specific pre-approval to +one or more Committee members. Management must communicate to the Audit Committee at its next regularly scheduled meeting any services approved by a Committee member. Wolverine Worldwide’s Audit Committee pre-approved all fees paid to +Ernst & Young LLP for services performed in 2012 and 2011. The aggregate fees billed by Ernst & Young LLP for audit and non-audit services were: +2012 +2011 +Audit Fees 1 +$1,366,500 +$816,250 +Audit Related Fees 2 +$552,200 +- +Total Audit and Audit Related +$1,918,700 +$816,250 +Tax Fees +Tax Compliance +$524,905 +$569,450 +Tax Planning & Advisory +$19,379 +$182,800 +Tax Planning & Advisory Other 3 +$1,092,035 +- +Total Tax Fees +$1,636,319 +$752,250 +All Other Fees 4 +$569,476 +- +Total Fees +$4,124,495 +$1,568,500 +1 +“Audit Fees” is comprised of fees for the annual audit, reviews of the financial statements included in Wolverine Worldwide’s Quarterly Reports +on Form 10-Q, audit of internal control over financial reporting, foreign statutory audits and consultations concerning accounting matters associated with the annual audit. +2 +“Audit Related Fees” is comprised of fees for audit services related to the acquisition of the Performance + Lifestyle Group business. +3 +“Tax Planning & Advisory Other” is comprised of fees in connection with the acquisition of the Performance + Lifestyle Group business. +4 +“All Other Fees” is comprised of due diligence fees in connection with the acquisition of the Performance + Lifestyle Group business. +Wolverine Worldwide’s Audit Committee has adopted a policy restricting the +Company’s hiring of current or former partners or employees of the independent registered public accounting firm retained by the Company. +Page 70 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Item 2 – Ratification of Appointment of Independent Registered Public Accounting Firm +The Audit Committee has reappointed Ernst & Young LLP as the Company’s independent registered public accounting firm for +the current fiscal year. As a matter of good corporate governance, the Audit Committee has determined to submit its appointment of Ernst & Young LLP to the Company’s stockholders for ratification. If this appointment is not ratified by +the holders of a majority of shares present or represented at the annual meeting and entitled to vote on the matter, the Audit Committee will review its future selection of an independent registered public accounting firm. Even if the appointment is +ratified, the Audit Committee in its discretion may select different independent auditors any time during the year if it determines that such a change would be in the best interests of the Company and the Company’s stockholders. +The Audit Committee reviewed Ernst & Young LLP’s performance prior to appointing them as the Company’s independent registered public +accounting firm, and considered: +» +the historical and recent performance of Ernst & Young LLP on the Company’s audit, including the quality of the engagement team and +Ernst & Young LLP’s experience, client service, responsiveness and technical expertise; +» +the PCAOB report of selected Ernst & Young LLP audits; +» +Ernst & Young LLP’s financial strength and performance; +» +the appropriateness of fees charged; and +» +Ernst & Young LLP’s familiarity with the Company’s accounting policies and practices and internal control over financial reporting. +Ernst & Young LLP, a registered public accounting firm, was the Company’s independent registered public +accounting firm for the fiscal year ended December 29, 2012. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so, and are expected +to be available to respond to appropriate questions from stockholders. +Board Recommendation +The Board recommends that you vote “FOR” ratification of the Audit Committee’s selection of the firm of Ernst & Young +LLP, Grand Rapids, Michigan, as the Company’s independent registered public accounting firm for fiscal year 2013. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 71 +Table of Contents +2013 PROXY STATEMENT +Item 3 – Advisory Resolution To Approve Executive Compensation +The Company is asking its stockholders to indicate their support for Wolverine Worldwide’s NEO compensation, as described in this proxy statement. This proposal, commonly known as a +“say-on-pay” proposal, gives the Company’s stockholders the opportunity to express their view on compensation for the Company’s NEOs. The say-on-pay vote is advisory and, therefore, not binding on the Company, the Compensation +Committee or the Board. The Board and Compensation Committee value the opinions of Wolverine Worldwide’s stockholders and will review and consider the voting results when making future decisions regarding the Company’s executive +compensation program. +As described above in the “ Compensation Discussion and Analysis ” section of this proxy statement, the +Compensation Committee has structured the executive compensation program to achieve the following key objectives: +» +attract and retain talented NEOs who will lead Wolverine Worldwide and achieve and inspire superior performance; +» +provide incentives for achieving specific near-term individual, business unit and corporate goals and reward the attainment of those goals at +pre-established levels; +» +provide incentives for achieving longer-term financial goals and reward attaining those goals at pre-established levels; and +» +align the interests of NEOs with those of the stockholders through incentives based on increasing stockholder value. +The executive compensation program achieves these objectives, in part, by: +» +balancing fixed compensation (base salaries) with performance-based compensation (annual bonuses and long-term incentives); +» +rewarding annual performance while maintaining emphasis on longer-term objectives; and +» +blending cash, non-cash, long- and short-term compensation components, and current and future compensation components. +The Company performed strongly in 2012. The stock price increased to $40.18 at the end of fiscal year 2012 from $35.64 at the end of fiscal year 2011. +Over the past five years, the Company’s performance, based on cumulative total stockholder return, has outperformed the S&P SmallCap 600 Index and S&P 600 Footwear Index. +The Company urges stockholders to read the “ Compensation Discussion and Analysis ” beginning on page 34 of this proxy statement, which describes in more detail how the Company’s +executive compensation policies and procedures operate and are designed to achieve the Company’s compensation objectives. The Company also encourages stockholders to read the Summary Compensation Table and other related compensation tables and +narrative, appearing on pages 54-61 , which provide detailed information on the compensation of the Company’s +NEOs. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the “ Compensation Discussion and Analysis ” section are effective in achieving the Company’s goals and that the +compensation of the Company’s NEOs reported in this proxy statement has supported and contributed to the Company’s recent and long-term success. +Page 72 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +In accordance with the rules under Section 14A of the Exchange Act, and as a matter of good corporate governance, the +Company asks stockholders to approve the following advisory resolution at the 2013 Annual Meeting of Stockholders: +RESOLVED, that the +stockholders of Wolverine World Wide, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis section, the Summary +Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2013 Annual Meeting of Stockholders. +Board Recommendation +The Board recommends that you vote +“FOR” approval of the advisory resolution to approve executive compensation. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 73 +Table of Contents +2013 PROXY STATEMENT +Item 4 – Approval of Stock Incentive Plan of 2013 +Overview +On February 6, 2013, the Board of Directors unanimously adopted and +approved the Wolverine World Wide, Inc. Stock Incentive Plan of 2013 (the “Plan”), subject to stockholder approval. The Board of Directors adopted and approved the Plan to stimulate the efforts of non-employee directors, officers, +employees and other service providers, in each case who are selected to be participants in the Plan, by heightening the desire of such persons to continue working toward and contributing to the success and progress of the Company. The Plan allows +grants of stock options, stock appreciation rights, restricted stock, restricted stock units and stock awards, any of which may be performance-based, and for incentive bonuses. +Since its approval by stockholders at the 2010 annual meeting, the Company has granted stock incentive awards under the Company’s Stock Incentive Plan of 2010 (which superseded certain earlier plans +with respect to future awards) (the “Prior Plan”). If the Plan is approved by the Company’s stockholders as proposed, no further awards will be made under the Prior Plan, and the Plan will become the primary equity compensation plan +for the Company. +The Company has granted stock options under the Plan with respect to 214,240 shares. Such awards are subject to stockholder +approval of the Plan and may not be exercised prior to approval of the Plan by the Company’s stockholders at the 2014 annual meeting. If such stockholder approval is not obtained, these stock options will be cancelled. Stockholder approval of +the Plan will be deemed to constitute approval of any options previously granted under the Plan. +Why You Should Vote For the Plan +The Board of Directors recommends that the Company’s stockholders approve the Plan because it believes the Company’s ability to +grant equity-based awards continues to be crucial in allowing the Company to effectively compete for and appropriately motivate and reward key talent. It is in the long-term interests of both the Company and its stockholders to strengthen the +Company’s ability to attract, motivate and retain employees, officers, non-employee directors and certain other service providers and to provide additional incentive for those persons through stock ownership and other incentives to improve +financial performance, increase profits and strengthen the mutuality of interest between those persons and the Company’s stockholders. +Promotion of Good Corporate Governance Practices +The Company and the Board of +Directors have designed the Plan to include a number of provisions that we believe promote best practices by reinforcing the alignment between equity compensation arrangements for non-employee directors, officers, employees and other service +providers and stockholders’ interests. These provisions include, but are not limited to: +» +stock options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the +grant date; +» +at any time when the exercise price of a stock option or stock appreciation right is above the market value of the Company’s common stock, the +Company cannot, without stockholder approval, “reprice” those awards by reducing the exercise price of such stock option or stock appreciation right or exchanging such stock option or stock appreciation right for a new award with a lower +exercise price; +» +awards generally may not be transferred except by will or the laws of descent and distribution or, if approved by the administrator, to certain family +members, family trusts, or family partnerships pursuant to a gift or domestic relations order; and +» +the Company has the authority under the Plan to cancel outstanding awards (vested or unvested) in the event the applicable plan participant engages in +an “act of misconduct” (as such term is defined in the Plan). +Page 74 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Key Data +The following table includes information regarding all of the Company’s outstanding equity awards and shares available for future awards under the +Company’s equity plans as of December 29, 2012 (and without giving effect to approval of the Plan under this Item 4): +Total shares underlying all outstanding stock +options +2,750,491 +Weighted average exercise price of outstanding stock options +$27.67 +Weighted average remaining contractual life of outstanding stock options +5.9 +Total shares underlying all outstanding and unvested performance shares +389,697 +Total shares underlying all outstanding and unvested restricted stock (excluding performance +shares) +699,416 +Shares available for future awards that could be issued under Prior Plan * +0 +Shares available for future issuance under the Outside Directors’ Deferred Compensation +Plan +166,525 +* +No shares will be issued under Prior Plan upon the approval of the Plan. Upon approval of the Plan, the only shares available for future awards will be the (1) shares +approved under the Plan, and (2) the 166,525 shares under the Outside Directors’ Deferred Compensation Plan. No shares under any prior plan, except the 166,525 in the Outside Directors’ Deferred Compensation Plan, will be available +for future issuance. +Section 162(m) of the Code +The Board of Directors believes that it is in the best interests of the Company and its stockholders to continue to provide for an equity incentive plan +under which compensation awards made to the Company’s executive officers can qualify for deductibility by the Company for federal income tax purposes. Accordingly, the Plan has been structured in a manner such that awards granted under it can +satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). In general, under Section 162(m), in order for the Company to be able +to deduct compensation in excess of $1,000,000 paid in any one year to the Company’s chief executive officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s chief financial +officer), such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which +compensation may be paid be disclosed to and approved by the Company’s stockholders. For purposes of Section 162(m), the material terms include (i) the employees eligible to receive compensation, (ii) a description of the +business criteria on which the performance goal is based, and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. With respect to the various types of awards under the Plan, each of these aspects +is discussed below, and stockholder approval of the Plan will also constitute approval of each of these aspects of the Plan for purposes of the approval requirements of Section 162(m). +Plan Summary +The following summary of the material terms of the Plan is qualified in +its entirety by reference to the complete statement of the Plan, which is set forth in Appendix A to this proxy statement. +Administration +The Plan will be +administered by the Compensation Committee. Subject to the express provisions of the Plan, the administrator is authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of the +Plan. All decisions, determinations and interpretations by the Compensation Committee regarding the Plan and awards granted under the Plan will be final and binding on all participants and other persons holding or claiming rights under the Plan or +an award under the Plan. The Compensation Committee may authorize one or more officers of the Company to perform any or all things that the administrator is authorized and empowered to do or perform under the Plan. The Compensation Committee has +designated the Company’s CEO, CFO, secretary and head of the human resource function to assist in administering the Plan and executing award agreements and other documents entered into under the Plan. In addition, the Compensation Committee may +delegate any or all aspects of the day-to-day administration of the Plan to one or more officers or employees of the Company or any subsidiary, and/or to one or more agents. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 75 +Table of Contents +2013 PROXY STATEMENT +Participants +Any person who is a current or prospective officer or employee of the Company or of any subsidiary will be eligible for selection by the administrator for +the grant of awards under the Plan. In addition, non-employee directors and any service providers who have been retained to provide consulting, advisory or other services to the Company or to any subsidiary will be eligible for the grant of awards +under the Plan. Options intended to qualify as “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Code only may be granted to employees of the Company or any subsidiary. Approximately 8 officers, +468 employees and 10 non-employee directors currently qualify to participate in the Plan. +Shares Subject to the Plan and +to Awards +Subject to changes in the Company’s capitalization, the aggregate number of shares of Wolverine’s common stock, +$1.00 par value, issuable pursuant to all awards under the Plan will not exceed 5,600,000 plus any shares of Wolverine’s common stock that on or after the effective date of the Plan cease for any reason to be subject to such awards (other +than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares); provided that any shares granted under options or stock appreciation rights will be counted against this +limit on a one-for-one basis and any shares granted as awards other than options or stock appreciation rights will be counted against this limit as two and six-tenths (2.6) shares for every one (1) share subject to such award. The shares +issued pursuant to awards granted under the Plan may be shares that are authorized and unissued or issued shares that were reacquired by the Company, including shares purchased in the open market. +For purposes of determining the share limits described in the paragraph above, the aggregate number of shares issued under the Plan at any time will +equal only the number of shares actually issued upon exercise or settlement of an award. Notwithstanding the foregoing, shares subject to an award under the Plan may not again be made available for issuance under the Plan if such shares are: +(i) shares that were subject to a stock-settled stock appreciation right and were not issued upon the net settlement or net exercise of such stock appreciation right, (ii) shares used to pay the exercise price of an option, +(iii) shares delivered to or withheld by the Company to pay the withholding taxes related to an award, or (iv) shares repurchased on the open market with the proceeds of an option exercise. Shares subject to awards that have been canceled, +expired, forfeited or otherwise not issued under an award and shares subject to awards settled in cash will not count as shares issued under the Plan. +Subject to certain adjustments, the aggregate number of shares subject to awards granted under the Plan during any calendar year to any one participant will not exceed 1,800,000 and the aggregate number +of shares that may be issued pursuant to the exercise of ISOs granted under the Plan will not exceed 1,800,000. The maximum amount payable pursuant to that portion of an incentive bonus granted in any calendar year to any participant under the Plan +that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will not exceed twenty million dollars ($20,000,000). +Subject to certain adjustments, the aggregate number of shares subject to awards granted under the Plan during any calendar year to any one nonemployee director will not exceed 50,000; provided, however, +that during the first calendar year in which a non-employee director joins the Board of Directors or is first designated as a Lead Director, the maximum number of shares subject to awards granted to such nonemployee director may be up to three +hundred percent (300%) of this limit. +Option Awards +The administrator will establish the exercise price per share under each option, which, other than in the event of options granted in connection with a merger or other acquisition, will not be less than +the fair market value (or 110% of the fair market value in the case of ISOs granted to individuals who own more than 10% of the Company’s common stock) of a share on the date the option is granted. The administrator will establish the term of +each option, which in no case may exceed a period of ten (10) years from the date of grant (or five (5) years in the case of ISOs granted to individuals who own more than 10% of the Company’s common stock). Options granted under the +Plan may either be ISOs or options which are not intended to qualify as ISOs, or nonqualified stock options (“NQSOs”). Unless the administrator determines otherwise, (i) upon termination of employment other than due to death, +disability, retirement or termination for cause, participants may continue to exercise their options for three (3) months (or until the expiration date of the option, if earlier) to the extent that they were exercisable upon the date of +termination, (ii) upon death or disability, options become fully vested and remain exercisable for one (1) year (or until the expiration date of the option, if earlier) following such event, (iii) upon retirement, options become fully +vested and remain exercisable until their expiration date, and (iv) upon termination of employment for cause, all options are forfeited. +Page 76 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Stock Appreciation Rights +A stock appreciation right provides the right to receive the monetary equivalent of the increase in value of a specified number of the shares over a specified period of time after the right is granted. +Stock appreciation rights may be granted to participants either in tandem with or as a component of other awards granted under the Plan (“tandem SARs”) or not in conjunction with other awards (“freestanding SARs”). All +freestanding SARs will be granted subject to the same terms and conditions applicable to options as set forth above and in the Plan, and all tandem SARs will have the same exercise price, vesting, exercisability, forfeiture and termination +provisions as the award to which they relate. +Unless such action is approved by stockholders, the Plan prohibits repricing out-of-the-money +options and stock appreciation rights (that is, reducing the exercise price of an option or stock appreciation right with an exercise price above the market value of the Company’s common stock or exchanging any such option or stock appreciation +right for a new award with a lower exercise price). +Restricted Stock and Restricted Stock Units +Restricted stock is an award or issuance of shares the grant, issuance, retention, vesting and/or transferability of which is subject during specified +periods of time to such conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Restricted stock units are awards denominated in units of shares under which the issuance of shares is +subject to such conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Notwithstanding the satisfaction of any performance goals, the number of shares granted, issued, retainable +and/or vested under a restricted stock award or restricted stock units on account of either financial performance or personal performance evaluations may be reduced, but not increased, by the administrator on the basis of such further consideration +as the administrator may determine. +Unless the administrator determines otherwise, (i) upon termination of employment for any reason +other than death, disability or retirement, all restricted stock and restricted stock units still subject to restrictions as of the date of termination will be forfeited, and (ii) upon death, disability or retirement, the restrictions remaining +on a participant’s restricted stock and restricted stock units will lapse. +Unless otherwise determined by the administrator, +participants holding shares of restricted stock granted under the Plan may exercise full voting rights with respect to those shares during the period of restriction, and participants will have no voting rights with respect to shares underlying +restricted stock units unless and until such shares are reflected as issued and outstanding shares on the Company’s stock ledger. Participants in whose name restricted stock is granted will be entitled to receive all dividends and other +distributions paid with respect to those shares, unless determined otherwise by the administrator. Participants will be entitled to receive dividends or dividend equivalents with respect to shares underlying restricted stock units only to the extent +provided by the administrator; however, in no event will dividends, distributions or dividend equivalents be payable with respect to unvested or unearned awards that are subject to performance criteria. +Stock Awards +The administrator +may grant stock awards under the Plan, which will be subject to the terms and conditions determined by the administrator. Participants will have all voting, dividend, liquidation and other rights with respect to shares underlying a stock award, +subject to any restrictions on transfer determined by the administrator. +Incentive Bonuses +Each incentive bonus will confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or +more performance criteria established for a performance period of not less than one (1) year. The administrator will establish the performance criteria and level of achievement of these criteria that will determine the target and maximum amount +payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations. Notwithstanding the satisfaction of any performance goals, the amount paid under an incentive bonus on account of either +financial performance or personal performance evaluations may be reduced, but not increased, by the administrator on the basis of such further consideration as the administrator may determine. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 77 +Table of Contents +2013 PROXY STATEMENT +Deferral of Gains +The administrator may, in an award agreement or otherwise, provide for the deferred delivery of shares upon settlement, vesting or other events with +respect to restricted stock or restricted stock units, or in payment or satisfaction of an incentive bonus. All deferrals must comply with Section 409A of the Code. +Qualifying Performance Criteria +The administrator may establish performance criteria +and level of achievement of such criteria that will determine the number of shares to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an award, which criteria may be based on +“qualifying performance criteria” (as described below) or other standards of financial performance and/or personal performance evaluations. In addition, the administrator may specify that an award or a portion of an award is intended to +satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, provided that the performance criteria for such award or portion of an award that is intended by the administrator to satisfy the +requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one or more qualifying performance criteria selected by the administrator and specified at the time the award is granted. +The administrator will certify the extent to which any qualifying performance criteria has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting of any award that is intended to satisfy the requirements +for “performance-based compensation” under Section 162(m) of the Code. +For purposes of the Plan, the term “qualifying +performance criteria” means any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business +unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a +designated comparison group, in each case as specified by the administrator: (i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or amortization), (ii) income, net income or operating income, +(iii) revenues, (iv) net sales, (v) return on sales, (vi) return on equity, (vii) return on capital (including return on total capital or return on invested capital), (viii) return on assets or net assets, +(ix) earnings per share, (x) economic value added measurements, including BVA, (xi) return on invested capital, (xii) return on operating revenue, (xiii) cash flow (before or after dividends), (xiv) stock price, +(xv) total stockholder return, (xvi) market capitalization, (xvii) economic value added, (xviii) debt leverage (debt to capital), (xix) operating profit or net operating profit, (xx) operating margin or profit margin, +(xxi) cash from operations, (xxii) market share, (xxiii) product development or release schedules, (xxiv) new product innovation, (xxv) cost reductions, (xxvi) customer service, or (xxvii) customer satisfaction. +To the extent consistent with Section 162(m) of the Code, the administrator (i) may appropriately adjust any evaluation of +performance under qualifying performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or +related to the disposal of a segment of a business or related to a change in accounting principle all as determined in accordance with applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as +determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial statements, and (ii) may appropriately adjust any evaluation of performance under +qualifying performance criteria to exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law or other +such laws or provisions affecting reported results, and (d) accruals of any amounts for payment under the Plan or any other compensation arrangement maintained by the Company. +Suspension or Termination of Awards +Unless otherwise determined by the +administrator, (i) if the Company’s chief executive officer or any other person designated by the administrator reasonably believes that a participant may have committed an act of misconduct (as defined in the Plan), then the +participant’s rights to exercise any option, vest in any award and/or receive payment for or shares in settlement of an award may be suspended pending a determination of whether an act of misconduct has been committed, and (ii) if the +administrator, the Company’s chief executive officer or any other person designated by the administrator determines that a participant has committed an act of misconduct, then the participant (a) may not exercise any option or stock +appreciation right, vest in, have restrictions on an award lapse or otherwise receive payment of an award, (b) will forfeit all outstanding awards, and (c) may be required, at the discretion of the committee, to return or repay to the +Company any then unvested shares previously issued under the Plan. +Page 78 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +Settlement of Awards +Awards (other than stock awards), may be settled in shares, cash or a combination thereof, as determined by the administrator. +Amendment and Termination +The Board of Directors may amend, alter or discontinue the +Plan, and the administrator may amend or alter any agreement or other document evidencing an award made under the Plan, except no such amendment may, without the approval of the stockholders of the Company: (i) increase the maximum number of +shares for which awards may be granted under the Plan, (ii) reduce the minimum price set forth in the Plan at which options or stock appreciation rights may be granted, (iii) reduce the exercise price of outstanding options or stock +appreciation rights, (iv) extend the term of the Plan, (v) change the class of persons eligible to be participants, (vi) otherwise amend the Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange +listing requirements (or the listing requirements of any successor exchange that is the primary stock exchange for trading of the Company’s shares), or (vii) increase the individual maximum limits set forth in the Plan. +No amendment or alteration to the Plan or an award or award agreement may be made that would impair the rights of the holder of an award without such +holder’s consent, provided that no such consent will be required if the administrator determines in its sole discretion and prior to the date of any change in control that such amendment or alteration either is required or advisable in order +for the Company, the Plan or the award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard. In addition, the Plan may not be amended in any way that causes +the Plan to fail to comply with or be exempt from Section 409A of the Code, unless the Board expressly determines to amend the Plan to be subject to Section 409A of the Code. +Change in Control +The administrator may determine the effect of a change in control +(as defined in the Plan) on outstanding awards in a manner that is fair and equitable to participants (as determined by the administrator in its reasonable discretion). These effects, which need not be the same for all participants, may include, but +are not limited to (i) substituting for the shares subject to an outstanding award or portion thereof the stock or securities of the surviving corporation or any successor corporation, in which event the aggregate exercise price of the award +will remain the same, and/or (ii) converting any outstanding award or portion thereof into a right to receive cash or other property following the consummation of the change in control in an amount equal to the value of consideration to be +received for one share of the Company’s common stock in connection with such transaction less the purchase or exercise price of the shares subject to the award, multiplied by the number of shares subject to the award or portion thereof. +In addition, unless otherwise determined by the administrator, upon a change in control all outstanding options and stock appreciation rights +immediately will become exercisable and remain exercisable through their terms and all other outstanding awards immediately will become vested. Also, the administrator may determine that participants holding stock options or stock appreciation +rights will receive with respect to some or all of the shares subject to such awards cash in an amount equal to the excess of (i) the greater of (a) the highest sales price of the shares on the New York Stock Exchange (or any successor +exchange that is the primary stock exchange for trading of the Company’s shares) on the date immediately prior to the change in control and (b) the highest price per share actually paid in connection with the change in control, over +(ii) the exercise price of the award. +Adjustments +The number and kind of shares available for issuance under the Plan, and the number and kind of shares subject to the individual and ISO limits set forth under the Plan, will be equitably adjusted by the +administrator to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other +event or transaction that affects the number or kind of shares of the Company outstanding. The terms of any outstanding award will also be equitably adjusted by the administrator as to price, number or kind of shares subject to such award and other +terms to reflect the foregoing events, which adjustments need not be uniform as between different awards or different types of awards. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 79 +Table of Contents +2013 PROXY STATEMENT +In the event there is a change in the number or kind of outstanding shares +under the Plan as a result of a change of control, other merger, consolidation or otherwise, then the administrator will determine the appropriate and equitable adjustment to be effected. In addition, in the event of such a change, the administrator +may accelerate the time or times at which any award may be exercised and may provide for cancellation of such accelerated awards that are not exercised within a time prescribed by the administrator in its sole discretion. +Transferability +Unless the +administrator determines otherwise, awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or stock appreciation +right may be exercisable only by the participant during his or her lifetime. To the extent permitted by the administrator, the person to whom an award is initially granted may make certain limited transfers to certain family members, family trusts, +or family partnerships. +No Right to Company Employment +Nothing in the Plan or an award agreement will interfere with or limit in any way the right of the Company, its subsidiaries and/or its affiliates to terminate any participant’s employment, service +on the Board or service for the Company at any time or for any reason not prohibited by law, nor will the Plan or an award itself confer upon any participant any right to continue his or her employment or service for any specified period of time. +Neither an award nor any benefits arising under the Plan will constitute an employment contract with the Company, any subsidiary and/or its affiliates. +Compliance with Law +The Plan, the grant, issuance, vesting, exercise and settlement +of awards thereunder, and the obligation of the Company to sell, issue or deliver shares under such awards, will be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to +such approvals by any governmental or regulatory agency as may be required. The Company will not be required to register in a participant’s name or deliver any shares prior to the completion of any registration or qualification of such shares +under any foreign, federal, state or local law or any ruling or regulation of any government body that the administrator determines to be necessary or advisable. No option will be exercisable and no shares will be issued and/or transferable under +any other award unless a registration statement with respect to the shares underlying the option or other award is effective and current or the Company has determined that such registration is unnecessary. The administrator may, in its sole and +absolute discretion, modify the provisions of the Plan or an award as they pertain to a participant who is employed or providing services outside the United States in order to comply with applicable foreign law or to recognize differences in local +law, currency or tax policy. +Effective Date and Termination of the Plan +The Plan was adopted by the Board on February 6, 2013. Any awards granted under the Plan prior to the date the Plan is approved by the Company’s stockholders are subject to such approval. The +Plan will remain available for the grant of awards until February 6, 2023. +Federal Income Tax Treatment +The following tax discussion is a general summary as of the date of this Proxy Statement of the U.S. federal income tax consequences to the Company +and the participants in the Plan. The discussion is intended solely for general information and does not make specific representations to any participant. The discussion does not address state, local or foreign income tax rules or other +U.S. tax provisions, such as estate or gift taxes. A recipient’s particular situation may be such that some variation of the basic rules is applicable to him or her. In addition, the federal income tax laws and regulations frequently have +been revised and may be changed again at any time. Therefore, each recipient is urged to consult a tax advisor before exercising any award or before disposing of any shares acquired under the plan both with respect to federal income tax consequences +as well as any foreign, state or local tax consequences. +Stock Options +ISOs and NQSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the requirements of Section 422 of the Code. NQSOs do not comply with such requirements. +Page 80 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +An optionee is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market +value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an ISO until the later of two years following the option grant date +and one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s +basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to exercise of an ISO before satisfying these holding periods, the optionee will recognize ordinary income in the year of disposition +an amount equal to the excess of the fair market value of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares), over the exercise price paid for the shares, and capital gain or loss for any other +difference between the sale price and the exercise price. The Company is not entitled to an income tax deduction on the grant or exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirement +described above. If the holding periods are not satisfied, the Company will be entitled to a deduction in the year the optionee disposes of the shares in an amount equal to the ordinary income recognized by the optionee. +In order for an option to qualify for ISO tax treatment, the grant of the option must satisfy various other conditions more fully described in the Code. +The Company does not guarantee that any option will qualify for ISO tax treatment even if the option is intended to qualify for such treatment. In the event an option intended to be an ISO fails to so qualify, it will be taxed as an NQSO described +below. +An optionee is not taxed on the grant of an NQSO. On exercise, the optionee recognizes ordinary income equal to the difference between +the exercise price and the fair market value of the shares acquired on the date of exercise. The Company is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. The optionee’s +gain (or loss) on subsequent disposition of the shares is long-term capital gain (or loss) if the shares are held for at least one year following exercise, and otherwise is short-term capital gain (or loss). The Company does not receive a deduction +for any such capital gain. +Stock Appreciation Rights +Generally, the recipient of a freestanding SAR will not recognize any taxable income at the time the freestanding SAR is granted. If the freestanding SAR is settled in cash, the cash will be taxable as +ordinary income to the recipient at the time that it is received. If the freestanding SAR is settled in shares, the recipient will recognize ordinary income equal to the excess of the fair market value of the shares on the day they are received over +any amounts paid by the recipient for the shares. +With respect to tandem SARs, if a holder elects to surrender the underlying option in +exchange for cash or stock equal to the appreciation inherent in the underlying option, the tax consequences to the employee will be the same as discussed above relating to freestanding SARs. If the employee elects to exercise the underlying option, +the holder will be taxed at the time of exercise as if he or she had exercised an NQSO (discussed above). +The Company generally is entitled +to a deduction with respect to a SAR at the same time the recipient recognizes ordinary income with respect thereto. +Restricted +Stock and Restricted Stock Units +Grantees of restricted stock or restricted stock units do not recognize income at the time of the grant. +When the award vests or is paid, grantees generally recognize ordinary income in an amount equal to the fair market value of the stock or units at such time, and the Company will receive a corresponding deduction. However, no later than 30 days +after a participant receives an award of restricted stock, pursuant to Section 83(b) of the Code, the participant may elect to recognize taxable ordinary income in an amount equal to the fair market value of the shares at the time of receipt. +Provided that the election is made in a timely manner, when the restrictions on the shares lapse, the participant will not recognize any additional income. If the participant forfeits the shares to the Company (e.g., upon the participant’s +termination prior to vesting), the participant may not claim a deduction with respect to the income recognized as a result of the election. Dividends (if any) paid with respect to unvested shares of restricted stock generally will be taxable as +ordinary income to the participant at the time the dividends are received. Subject to Section 162(m), the Company generally will be entitled to a deduction with respect to restricted stock and restricted stock units at the same time the +recipient recognizes ordinary income with respect thereto. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 81 +Table of Contents +2013 PROXY STATEMENT +Stock Awards +Grantees of stock awards generally are required to recognize ordinary income in an amount equal to the excess of the fair market value of the shares on +the date the shares are granted over the purchase price (if any) paid for the shares. Subject to Section 162(m), the Company generally will be entitled to a deduction with respect to stock awards at the same time the recipient recognizes +ordinary income with respect thereto. +Incentive Bonuses +A participant will have taxable income at the time an incentive bonus award is paid or, if the participant has timely elected deferral to a later date, such later date. At that time, the participant will +recognize ordinary income equal to the value of the amount then payable and, subject to Section 162(m), the Company will be entitled to a corresponding deduction. +Company Deduction and Section 162(m) +The Company generally will be entitled to +a deduction for federal income tax purposes as described above with respect to each type of award. For the individual serving as the chief executive officer of the Company at the end of the taxable year and for the individuals serving as officers of +the Company or a subsidiary at the end of such year who are among the three highest compensated officers (other than the chief executive officer and chief financial officer) for proxy reporting purposes, Section 162(m) limits the amount of +compensation otherwise deductible by the Company and its subsidiaries for such year to $1,000,000 for each such individual except to the extent that such compensation is “performance-based compensation.” The Company expects that NQSOs, +ISOs and stock appreciation rights should qualify as performance-based compensation. The compensation committee may establish performance conditions and other terms with respect to grants of restricted stock, restricted stock units and incentive +bonuses in order to qualify such grants as performance-based compensation for purposes of Section 162(m). +New Plan Benefits +The benefits that will be awarded or paid under the Plan are not currently determinable. Awards granted under the Plan are within the +discretion of the Compensation Committee, and the Compensation Committee has not determined future awards or who might receive them. Information about awards granted in fiscal year 2012 under the Company’s prior plans to the Company’s +named executive officers can be found in the table under the heading “Grants of Plan-Based Awards” on pages 56-57 of this proxy statement. As of December 29, 2012, the closing price of a share of Wolverine common stock on +the NYSE was $40.18. +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans (without giving effect to the approval of this Plan) as of December 29, 2012: +Plan Category 1 +Number of Securities to be +Issued Upon Exercise of +Outstanding Options, +Warrants and Rights +(a) +Weighted Average +Exercise Price of +Outstanding Options, +Warrants, and Rights +(b) +Number of Securities Remaining +Available for Future Issuance +under Equity Compensation +Plans (Excluding Securities +Reflected in Column +(a)) +(c) +Equity compensation plans approved by security holders +2,750,491 2,3 +$27.67 +2,060,020 2,4 +Equity compensation plans not approved by security holders +- +- +- +Total +2,750,491 +$27.67 +2,060,020 +1 +Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock +dividend or certain other changes in the Company’s capitalization. +Page 82 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +2 +Includes: (i) 2,456,405 stock options awarded to employees under the Amended and Restated Stock Incentive Plan of 1999, the Amended and Restated Stock +Incentive Plan of 2001, the Amended and Restated Stock Incentive Plan of 2003, the Amended and Restated Stock Incentive Plan of 2005 and the Stock Incentive Plan of 2010; and (ii) and 294,086 stock options awarded to non-employee directors +under the Stock Incentive Plan of 2010, the Amended and Restated Stock Incentive Plan of 2005 and the Amended and Restated Directors’ Stock Option Plan last approved by stockholders in 2002. Column (a) does not include stock units credited +to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account +under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the +Company’s equity compensation plans. +3 +Of this amount, 763,565 options were not exercisable as of December 29, 2012 due to vesting restrictions. +4 +Comprised of: (i) 166,525 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current +directors or upon a change in control; and (ii) 1,893,495 shares issuable under the Stock Incentive Plan of 2010. Upon stockholder approval of the Stock Incentive Plan of 2013, no shares will be issued under the Stock Incentive Plan of 2010. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, +nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred +Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the +Company’s common stock on the date of payment of the next cash dividend on the Company’s common stock. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited +to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. +Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 243,938 shares have been issued to a trust to satisfy +the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The +Stock Incentive Plan of 2010 is an equity-based incentive plan for officers, key employees, and directors. The Stock Incentive Plan of 2010 authorizes awards of stock options, restricted common stock, common stock, restricted stock units, and/or +stock appreciation rights. The Stock Incentive Plan of 2010 provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as two shares against the total number of shares +authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against +the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. +The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted +stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any +such awards will again become available for issuance under the plan under which the award was granted. +Of the total number of shares +available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of December 29, 2012: +» +Outside Directors’ Deferred Compensation Plan: 166,525 +» +Stock Incentive Plan of 2010: 946,748 +No awards will be granted under the Stock Incentive Plan of 2010 once the Plan is approved by stockholders. +Vote Required and Board Recommendation +Approval of the Stock Incentive Plan of 2013 +requires the favorable vote of a majority of shares present or represented at the meeting and entitled to vote on the proposal. In addition, NYSE rules require that the total votes cast on this proposal represent a majority of all shares entitled to +vote on this proposal. +Board Recommendation +The Board of Directors recommends that you vote FOR approval of the Stock Incentive Plan of 2013. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 83 +Table of Contents +2013 PROXY STATEMENT +Related Party Matters +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Wolverine Worldwide has entered into agreements with Grimoldi S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a director of Wolverine Worldwide, is chairman and a 35% shareholder. +The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies ® , Caterpillar ® , and Patagonia ® brand names, and footwear and apparel under the Merrell ® brand name. Grimoldi S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide +or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest +relating to purchases made or royalties and fees incurred in fiscal year 2012 totaling $5,074,150. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi S.A. +Wolverine Worldwide expects similar transactions to occur between Grimoldi S.A. and Wolverine Worldwide and its subsidiaries during fiscal year 2013. The Governance Committee reviewed and approved or ratified each of these transactions in accordance +with Wolverine Worldwide’s related person transactions policy, as described below. +RELATED PERSON +TRANSACTIONS POLICY +Wolverine Worldwide’s Board adopted written policies and procedures regarding related person transactions. They +require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the +Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships +(including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $100,000 since the beginning of Wolverine Worldwide’s last completed fiscal +year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest (other than solely as a result of being a director or less than ten +percent beneficial owner of another entity). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an +executive officer, director or nominee for election as a director; +(b) +greater than five percent beneficial owner of Wolverine Worldwide’s common stock; or +(c) +immediate family +member * of any of the foregoing. +* +Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and +brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +Page 84 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or similar circumstances, the extent of the Related Person’s interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval +of an Interested Transaction for which he or she is a Related Person, except to provide all material information to the Governance Committee. +The following Interested Transactions are pre-approved under the policies and procedures: +(a) +any transaction with another company where a Related Person’s only relationship is as an employee, director or beneficial owner of less than ten percent of that +company’s shares, if the aggregate amount involved does not exceed the greater of $1,000,000, or two percent of that company’s total revenues. +(b) +any charitable contribution by Wolverine Worldwide to a charitable organization where a Related Person is an employee, if the aggregate amount involved does not exceed +the lesser of $100,000, or two percent of the charitable organization’s total annual receipts. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 85 +Table of Contents +2013 PROXY STATEMENT +Additional Information +STOCKHOLDERS LIST +A list of stockholders entitled to vote +at the meeting will be available for review by Wolverine Worldwide stockholders at the office of R. Paul Guerre, Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351, during ordinary business hours for the +10-day period before the meeting. +DIRECTOR AND OFFICER INDEMNIFICATION +The Company indemnifies its directors and NEOs to the fullest extent permitted by law so that they will be free from undue concern about personal +liability in connection with their service to the Company. +SECTION 16(A) BENEFICIAL OWNERSHIP +REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the +Company’s directors and NEOs, and persons who beneficially own more than 10% of the outstanding shares of the Company’s common stock, to file reports of ownership and changes in ownership of shares of common stock with the SEC. Directors, +NEOs and greater than 10% beneficial owners are required by SEC regulations to furnish Wolverine Worldwide with copies of all Section 16(a) reports they file. Based on its review of the copies of such reports received by it, or written +representations from certain reporting persons that no reports on Form 5 were required for those persons for fiscal year 2012, the Company believes that during fiscal year 2012, its officers and directors filed the required reports under +Section 16(a) on a timely basis. +STOCKHOLDER PROPOSALS FOR INCLUSION IN NEXT YEAR’S PROXY +STATEMENT +Pursuant to SEC Rule 14a-8, some stockholder proposals may be eligible for inclusion in Wolverine Worldwide’s 2014 proxy +statement and proxy card. Any such stockholder proposals must be submitted in writing to the Secretary of Wolverine Worldwide no later than the close of business on November 11, 2013. You should address all stockholder proposals to the +attention of R. Paul +Guerre, Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351. +OTHER +STOCKHOLDER PROPOSALS FOR PRESENTATION AT NEXT YEAR’S ANNUAL MEETING +The By-laws require that any stockholder proposal that is not +submitted for inclusion in next year’s proxy statement under SEC Rule 14a-8, but is instead sought to be presented directly at the 2014 Annual Meeting of Stockholders, must be received at the Company’s principal executive offices by the +close of business not less than 90 days nor more than 120 days prior to the first anniversary of the 2013 Annual Meeting. As a result, proposals, including director nominations, submitted pursuant to these provisions of the By-laws must be received +between December 19, 2013, and the close of business on January 18, 2014. You should address a proposal to R. Paul Guerre, Secretary, Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, and include the +information and comply with the requirements set forth in those By-laws, which the Company has posted on its website. SEC rules permit management to vote proxies in its discretion in certain cases if the stockholder does not comply with this +deadline, and in certain other cases notwithstanding the stockholder’s compliance with this deadline. +Page 86 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +2013 PROXY STATEMENT +VOTING SECURITIES +Stockholders of record at the close of business on March 1, 2013, are eligible to vote at the meeting. The Company’s voting securities consist of its $1.00 par value common stock, and there were +50,099,575 shares outstanding and entitled to vote on the record date. Each share outstanding on the record date will be entitled to one vote on each director nominee and one vote on each other matter. Treasury shares are not voted. Individual votes +of stockholders are kept private, except as appropriate to meet legal requirements. Access to proxies and other individual stockholder voting records is limited to the independent inspectors of election and certain employees of the Company and its +agents who acknowledge their responsibility to comply with this policy of confidentiality. +CONDUCT OF +BUSINESS +A majority of the outstanding shares of common stock as of the record date must be present at the meeting in order to hold the +meeting and conduct business. This is called a “quorum.” Your shares are counted as present at the meeting if you are present at the meeting and vote in person, a proxy card has been properly submitted by you or on your behalf, or you have +submitted your proxy by telephone or by Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a +quorum. A “broker non-vote” is a share of common stock that is beneficially owned by a person or entity and held by a broker or other nominee, but for which the broker or other nominee lacks the discretionary authority to vote on certain +matters and has not received voting instructions from the beneficial owner in respect of those specific matters. +VOTE REQUIRED FOR ELECTION AND APPROVAL +A plurality of the shares voted is required to elect directors. This means that the three +nominees who receive the most votes will be elected. In counting votes on the election of directors, only votes cast “for” or “withheld” affect the outcome. All other matters require for approval the favorable vote of a majority +of shares present or represented at the meeting and entitled to vote on the applicable matter. The results of Item 3, Advisory Resolution To Approve Executive Compensation, are not binding on the Board of Directors. +With respect to the election of directors, abstentions and broker non-votes will not be counted as votes cast and therefore will have no effect. With +respect to all other matters to be voted on at the annual meeting, abstentions will have the same effect as votes “against” the matter, and broker non-votes, if applicable, will have no effect on Item 2 and Item 3. However, under +NYSE rules, the total votes cast (including abstentions) on Item 4 must represent over 50% of all shares entitled to vote on Item 4. Because broker non-votes do not count as votes cast, broker non-votes will make it more difficult to +achieve this requirement. Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting +instructions from the beneficial owner, and (2) the broker lacks discretionary voting power to vote those shares. Brokers do not have discretionary authority with respect to any of the proposals except for the ratification of the independent +registered public accounting firm. +VOTING RESULTS OF THE ANNUAL MEETING +The Company will announce preliminary voting results at the annual meeting and publish final results in a Form 8-K within four business days following the +meeting. If final results are not known within four business days of the annual meeting, then the Company will file a Current Report on Form 8-K with the preliminary results and file an amended Current Report on Form 8-K within four business days of +the availability of the final results. +ATTENDING THE ANNUAL MEETING +You may vote shares held directly in your name as the stockholder of record in person at the annual meeting. If you choose to vote in person, please bring +the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting in person, Wolverine Worldwide recommends that you vote your shares in advance as described below so that your vote will be counted if you later +decide not to attend the annual meeting. You may vote shares held in “street name” through a brokerage account or by a bank or other nominee in person if you obtain a proxy from the record holder giving you the right to vote the shares. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 87 +Table of Contents +2013 PROXY STATEMENT +MANNER FOR VOTING PROXIES +The shares represented by all valid proxies received by telephone, by Internet or by mail will be voted in the manner specified. Where the shareholder has +not indicated a specific choice, the shares represented by all valid proxies received will be voted in accordance with the Board’s recommendations as follows: (1) for each of the nominees for directors named earlier in this proxy +statement, (2) for ratification of the appointment of the independent registered public accounting firm, (3) for the advisory vote to approve executive compensation, and (4) for the approval of the Stock Incentive Plan of 2013. The +Board has not received timely notice of any matter that may come before the annual meeting. However, should any matter not described above be properly presented at the annual meeting, the persons named in the proxy form will vote in accordance with +their judgment as permitted. +REVOCATION OF PROXIES +A stockholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent +proxy or by notifying the inspectors of election in writing of such revocation. If your Wolverine Worldwide shares are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you +to hand in with your ballot, in order to be able to vote your shares at the meeting. +SOLICITATION OF +PROXIES +The Company will pay the expenses of solicitation of proxies for the annual meeting. Solicitations may be made in person or by +telephone, by officers and employees of the Company, or by nominees or other fiduciaries who may mail materials to or otherwise communicate with the beneficial owners of shares held by the nominees or other fiduciaries. These individuals will not be +paid any additional compensation for any such solicitation. Upon request, the Company will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding material to beneficial owners of the +Company’s common stock. The Company has engaged Georgeson Inc. at an estimated cost of $9,000, plus expenses and disbursements, to assist in solicitation of proxies. +DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS +If you are the beneficial owner, but not the record holder, of shares of Wolverine Worldwide stock, your broker, bank or other nominee may only deliver +one copy of this proxy statement and the Company’s 2012 Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. The Company will deliver promptly, +upon written or oral request, a separate copy of this proxy statement and its 2012 Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. A stockholder who wishes to receive a separate copy of the +proxy statement and annual report, now or in the future, or stockholders who share an address and receive multiple copies of the proxy statement and annual report but would like to receive a single copy, should submit this request by writing to +Investor Relations, Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, or by calling (616) 866-5500 and asking for Investor Relations. Beneficial owners sharing an address who are receiving multiple copies of proxy +materials and who wish to receive a single copy of such materials in the future should make a request directly to their broker, bank or other nominee. +ACCESS TO PROXY STATEMENT AND ANNUAL REPORT +Wolverine +Worldwide’s financial statements for the fiscal year ended December 29, 2012, are included in the Company’s 2012 Annual Report, which the Company is providing to stockholders at the same time as this proxy statement. Wolverine +Worldwide’s Proxy Statement for the 2013 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 29, 2012, are available at www.wolverineworldwide.com/2013annualmeeting . If you +have not received or do not have access to the 2012 Annual Report, write to Wolverine World Wide, Inc., 9341 Courtland Drive N.E., Rockford, Michigan 49351, Attn: Investor Relations or call (616) 866-5500 and ask for Investor Relations, and the +Company will send a copy to you without charge. +Page 88 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +Appendix A +WOLVERINE WORLD WIDE, INC. +STOCK INCENTIVE PLAN OF 2013 +1. Purpose +The purpose of the +Wolverine World Wide, Inc. Stock Incentive Plan of 2013 (the “Plan”) is to advance the interests of Wolverine World Wide, Inc. (the “Company”) by stimulating the efforts of employees, officers, non-employee directors +and other service providers, in each case who are selected to be participants, by heightening the desire of such persons to continue working toward and contributing to the success and progress of the Company. The Plan supersedes the Company’s +Stock Incentive Plan of 2010 (the “Prior Plan”) with respect to future awards, and provides for the grant of Incentive and Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units and Stock Awards, +any of which may be performance-based, and for Incentive Bonuses, which may be paid in cash or stock or a combination thereof, as determined by the Administrator. No new awards shall be issued under the Prior Plan after the approval of this Plan by +the Company’s stockholders. +2. Definitions +As used in the Plan, the following terms shall have the meanings set forth below: +(a) +“Act” means the Securities Exchange Act of 1934, as amended. +(b) +“Administrator” means the Administrator of the Plan in accordance with Section 19. +(c) +“Award” means an Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Award or +Incentive Bonus granted to a Participant pursuant to the provisions of the Plan, any of which the Administrator may structure to qualify in whole or in part as a Performance Award. +(d) +“Award Agreement” means a written agreement or other instrument as may be approved from time to time by the Administrator implementing the grant of each +Award. An Agreement may be in the form of an agreement to be executed by both the Participant and the Company (or an authorized representative of the Company) or certificates, notices or similar instruments as approved by the Administrator. +(e) +“Board” means the board of directors of the Company. +(f) +“Change in Control” unless otherwise defined in an Award, means (i) the failure of the Continuing Directors at any time to constitute at least a majority +of the members of the Board; (ii) the acquisition by any Person other than an Excluded Holder of beneficial ownership (within the meaning of Rule 13d-3 issued under the Act) of 20% or more of the outstanding Shares or the combined voting power +of the Company’s outstanding securities entitled to vote generally in the election of directors; (iii) the consummation of a reorganization, merger, or consolidation of the Company, unless such reorganization, merger or consolidation is +with or into a Permitted Successor; or (iv) a complete liquidation or dissolution of the Company or the sale or disposition of all or substantially all of the assets of the Company other than to a Permitted Successor. +(g) +“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issued thereunder. +(h) +“Continuing Directors” mean the individuals constituting the Board as of the date this Plan was adopted and any subsequent directors whose election or +nomination for election by the Company’s stockholders was approved by a vote of three-quarters (3/4) of the individuals who are then Continuing Directors, but specifically excluding any individual whose initial assumption of office occurs +as a result of either an actual or threatened solicitation subject to Rule 14a-12(c) of Regulation 14A issued under the Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 89 +Table of Contents +APPENDIX A +(i) +“Company” means Wolverine World Wide, Inc., a Delaware corporation. +(j) +“Disability” has the meaning set forth in the Company’s long-term disability plan. The determination of the Administrator as to an individual’s +Disability shall be conclusive on all parties. +(k) +“Employee Benefit Plan” means any plan or program established by the Company or a Subsidiary for the compensation or benefit of employees of the Company or +any of its Subsidiaries. +(l) +“Excluded Holder” means (i) any Person who at the time this Plan was adopted was the beneficial owner of 20% or more of the outstanding Shares; or +(ii) the Company, a Subsidiary or any Employee Benefit Plan of the Company or a Subsidiary or any trust holding Shares or other securities pursuant to the terms of an Employee Benefit Plan. +(m) +“Fair Market Value” means, as of any date, the closing price per share at which the Shares are sold in the regular way on the New York Stock Exchange (or any +successor exchange that is the primary stock exchange for trading of Shares) or, if no Shares are traded on the New York Stock Exchange (or any successor exchange that is the primary stock exchange for trading of Shares) on the date in question, +then for the next preceding date for which Shares were traded on the New York Stock Exchange (or any successor exchange that is the primary stock exchange for trading of Shares). +(n) +“Incentive Bonus” means a bonus opportunity awarded under Section 10 pursuant to which a Participant may become entitled to receive an amount based on +satisfaction of such performance criteria as are specified in the Award Agreement or otherwise. +(o) +“Incentive Stock Option” means a stock option that is intended to qualify as an “incentive stock option” within the meaning of Section 422 of +the Code. +(p) +“Nonemployee Director” means each person who is, or is elected to be, a member of the Board and who is not an employee of the Company or any Subsidiary. +(q) +“Nonqualified Stock Option” means a stock option that is not intended to qualify as an “incentive stock option” within the meaning of +Section 422 of the Code. +(r) +“Option” means an Incentive Stock Option and/or a Nonqualified Stock Option granted pursuant to Section 6 of the Plan. +(s) +“Participant” means any individual described in Section 3 to whom Awards have been granted from time to time by the Administrator and any authorized +transferee of such individual. +(t) +“Permitted Successor” means a company that, immediately following the consummation of a transaction specified in clauses (iii) and (iv) of the +definition of “Change in Control” above, satisfies each of the following criteria: (i) 50% or more of the outstanding common stock of the company and the combined voting power of the outstanding securities of the company entitled to +vote generally in the election of directors (in each case determined immediately following the consummation of the applicable transaction) is beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the +beneficial owners of the Company’s outstanding Shares and outstanding securities entitled to vote generally in the election of directors (respectively) immediately prior to the applicable transaction; (ii) no Person other than an Excluded +Holder beneficially owns, directly or indirectly, 20% or more of the outstanding common stock of the company or the combined voting power of the outstanding securities of the company entitled to vote generally in the election of directors (for these +purposes the term Excluded Holder shall include the company, any subsidiary of the company and any employee benefit plan of the company or any such subsidiary or any trust holding common stock or other securities of the company pursuant to the terms +of any such employee benefit plan); and (iii) at least a majority of the board of directors of the company is comprised of Continuing Directors. +(u) +“Person” has the same meaning as set forth in Sections 13(d) and 14(d)(2) of the Act. +(v) +“Performance Award” means an Award, the grant, issuance, retention, vesting or settlement of which is subject to satisfaction of one or more Qualifying +Performance Criteria established pursuant to Section 14. +(w) +“Plan” means the Wolverine World Wide, Inc. Stock Incentive Plan of 2013 as set forth herein and as amended from time to time. +Page 90 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +(x) +“Qualifying Performance Criteria” has the meaning set forth in Section 14(b). +(y) +“Restricted Stock” means Shares granted pursuant to Section 8 of the Plan. +(z) +“Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 8 pursuant to which Shares or cash in lieu thereof may be issued in +the future. +(aa) +“Retirement” means the voluntary Termination of Employment by a Participant after the Participant has attained (i) 50 years of age and seven years of +service (as a director and/or an employee and/or officer of the Company or a Subsidiary), (ii) 62 years of age, or (iii) such other age or years of service as shall be determined by the Administrator or as otherwise may be set forth in the +Award Agreement or other grant document with respect to a Participant and a particular Award. +(bb) +“Share” means a share of the Company’s common stock, par value $1.00, subject to adjustment as provided in Section 13. +(cc) +“Stock Appreciation Right” means a right granted pursuant to Section 7 of the Plan that entitles the Participant to receive, in cash or Shares or a +combination thereof, as determined by the Administrator, value equal to or otherwise based on the excess of (i) the Fair Market Value of a specified number of Shares at the time of exercise over (ii) the exercise price of the right, as +established by the Administrator on the date of grant. +(dd) +“Stock Award” means an award of Shares to a Participant pursuant to Section 9 of the Plan. +(ee) +“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company where each of the +corporations in the unbroken chain other than the last corporation owns stock possessing at least 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and if specifically +determined by the Administrator in the context other than with respect to Incentive Stock Options, may include an entity in which the Company has a significant ownership interest or that is directly or indirectly controlled by the Company. +(ff) +“Substitute Awards” means Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or +the right or obligation to make future awards, by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines. +(gg) +“Termination of Employment” means ceasing to serve as a full-time employee of the Company and its Subsidiaries or, with respect to a Nonemployee Director or +other service provider, ceasing to serve as such for the Company, except that with respect to all or any Awards held by a Participant (i) the Administrator may determine, subject to Section 6(d), that an approved leave of absence or +approved employment on a less than full-time basis is not considered a Termination of Employment, (ii) the Administrator may determine that a transition of employment to service with a partnership, joint venture or corporation not meeting the +requirements of a Subsidiary in which the Company or a Subsidiary is a party is not considered a Termination of Employment, (iii) unless otherwise determined by the Administrator, service as a member of the Board or other service provider shall +not constitute continued employment with respect to Awards granted to a Participant while he or she served as an employee, and (iv) service as an employee of the Company or a Subsidiary shall constitute continued employment with respect to +Awards granted to a Participant while he or she served as a member of the Board or other service provider. The Administrator shall determine whether any corporate transaction, such as a sale or spin-off of a division or subsidiary that employs a +Participant, shall be deemed to result in a Termination of Employment with the Company and its Subsidiaries for purposes of any affected Participant’s Options, and the Administrator’s decision shall be final and binding. +3. Eligibility +Any person who is a current or prospective officer or employee of the Company or of any Subsidiary shall be eligible for selection by the Administrator for the grant of Awards hereunder. In addition, +Nonemployee Directors and any other service providers who have been retained to provide consulting, advisory or other services to the Company or to any Subsidiary shall be eligible for the grant of Awards hereunder as determined by the +Administrator. Options intending to qualify as Incentive Stock Options may only be granted to employees of the Company or any Subsidiary within the meaning of the Code, as selected by the Administrator. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 91 +Table of Contents +APPENDIX A +4. Effective Date and Termination of Plan +This Plan was adopted by the Board as of February 6, 2013 (the “Effective Date”), provided that any grants made prior to the approval of the Plan by the Company’s stockholders shall be +subject to such approval. All Awards granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary of the date the Board adopts the Plan, by the affirmative vote +of the holders of a majority of the outstanding Shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company’s stockholders or by written consent in accordance with the laws of the State of Delaware; +provided that if such approval by the stockholders of the Company is not forthcoming, all Awards previously granted under this Plan shall be void. The Plan shall remain available for the grant of Awards until the tenth (10th) anniversary of the +Effective Date. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Awards +theretofore granted and then in effect. +5. Shares Subject to the Plan and to Awards +(a) +Aggregate Limits . The aggregate number of Shares issuable pursuant to all Awards shall not exceed 5,600,000 plus any shares subject to outstanding awards under +the Prior Plan that on or after the Effective Date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares); +provided that any Shares granted under Options or Stock Appreciation Rights shall be counted against this limit on a one-for-one basis and any Shares granted as Awards other than Options or Stock Appreciation Rights shall be counted against this +limit as two and six tenths (2.6) Shares for every one (1) Share subject to such Award. The aggregate number of Shares available for grant under this Plan and the number of Shares subject to outstanding Awards shall be subject to +adjustment as provided in Section 13. The Shares issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. +(b) +Issuance of Shares . For purposes of Section 5(a), the aggregate number of Shares issued under this Plan at any time shall equal only the number of Shares +actually issued upon exercise or settlement of an Award. Notwithstanding the foregoing, Shares subject to an Award under the Plan may not again be made available for issuance under the Plan if such Shares are: (i) Shares that were subject to a +stock-settled Stock Appreciation Right and were not issued upon the net settlement or net exercise of such Stock Appreciation Right, (ii) Shares used to pay the exercise price of an Option, (iii) Shares delivered to or withheld by the +Company to pay the withholding taxes related an Award, or (iv) Shares repurchased on the open market with the proceeds of an Option exercise. Shares subject to Awards that have been canceled, expired, forfeited or otherwise not issued under an +Award and Shares subject to Awards settled in cash shall not count as Shares issued under this Plan. +(c) +Tax Code Limits . The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Participant shall not exceed +1,800,000, which number shall be calculated and adjusted pursuant to Section 13 only to the extent that such calculation or adjustment will not affect the status of any Award intended to qualify as “performance-based compensation” +under Section 162(m) of the Code but which number shall not count any tandem SARs (as defined in Section 7). The aggregate number of Shares that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan +shall not exceed 1,800,000, which number shall be calculated and adjusted pursuant to Section 13 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option +under Section 422 of the Code. The maximum cash amount payable pursuant to that portion of an Incentive Bonus granted in any calendar year to any Participant under this Plan that is intended to satisfy the requirements for +“performance-based compensation” under Section 162(m) of the Code shall not exceed $20,000,000. +(d) +Director Awards . The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Nonemployee Director shall not +exceed 50,000; provided, however, that in the calendar year in which a Nonemployee Director first joins the Board or is first designated as Independent Lead Director, the maximum number of shares subject to Awards granted to the Participant may be +up to three hundred percent (300%) of the number of shares set forth in the foregoing limits. +(e) +Substitute Awards . Substitute Awards shall not reduce the Shares authorized for issuance under the Plan or authorized for grant to a Participant +in any calendar year. Additionally, in the event that a company acquired by the Company or any Subsidiary, or with which +Page 92 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares +available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the +consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using +such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were employees, directors or +other service providers of such acquired or combined company before such acquisition or combination. +6. Options +(a) +Option Awards . Options may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. +No Participant shall have any rights as a stockholder with respect to any Shares subject to Options hereunder until said Shares have been issued. Each Option shall be evidenced by an Award Agreement. Options granted pursuant to the Plan need not be +identical but each Option must contain and be subject to the terms and conditions set forth below. +(b) +Price . The Administrator will establish the exercise price per Share under each Option, which, in no event will be less than the Fair Market Value of the Shares +on the date of grant; provided, however, that the exercise price per Share with respect to an Option that is granted in connection with a merger or other acquisition as a substitute or replacement award for options held by optionees of the acquired +entity may be less than 100% of the Fair Market Value of the Shares on the date such Option is granted if such exercise price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement +providing for such merger or other acquisition. The exercise price of any Option may be paid in Shares, cash or a combination thereof, as determined by the Administrator, including an irrevocable commitment by a broker to pay over such amount from a +sale of the Shares issuable under an Option, the delivery of previously owned Shares and withholding of Shares deliverable upon exercise, or in such other form as is acceptable to the Administrator. +(c) +No Repricing without Stockholder Approval . Other than in connection with a change in the Company’s capitalization (as described in Section 13) the +exercise price of an Option may not be reduced without stockholder approval (including canceling previously awarded Options and regranting them with a lower exercise price). +(d) +Provisions Applicable to Options . The date on which Options become exercisable shall be determined at the sole and absolute discretion of the Administrator and +set forth in an Award Agreement. Unless provided otherwise in the applicable Award Agreement, to the extent that the Administrator determines that an approved leave of absence or employment on a less than full-time basis is not a Termination of +Employment, the vesting period and/or exercisability of an Option shall be adjusted by the Administrator during or to reflect the effects of any period during which the Participant is on an approved leave of absence or is employed on a less than +full-time basis. +(e) +Term of Options and Termination of Employment : The Administrator shall establish the term of each Option, which in no case shall exceed a period of ten +(10) years from the date of grant. Unless an Option earlier expires upon the expiration date established pursuant to the foregoing sentence, upon the Participant’s Termination of Employment, his or her rights to exercise an Option then +held shall be only as follows, unless the Administrator specifies otherwise: +(f) +General . If a Participant’s Termination of Employment is for any reason other than the Participant’s death, Disability, Retirement or termination for +cause, Options granted to the Participant may continue to be exercised in accordance with their terms for a period of three (3) months after such Termination of Employment, but only to the extent the Participant was entitled to exercise the +Options on the date of such termination. +(g) +Death . If a Participant dies either while an employee or officer of the Company or a Subsidiary or member of the Board, or after the Termination of Employment +other than for cause but during the time when the Participant could have exercised an Option, the Options issued to such Participant shall become fully vested and exercisable by the personal representative of such Participant or other successor to +the interest of the Participant for one year after the Participant’s death. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 93 +Table of Contents +APPENDIX A +(h) +Disability . If a Participant’s Termination of Employment is due to Disability, then all of the Participant’s Options shall immediately fully vest, and +the Options held by the Participant at the time of such Termination of Employment shall be exercisable by the Participant or the personal representative of such Participant for one year following such Termination of Employment. +(i) +Participant Retirement . Upon a Participant’s Retirement as an employee or officer of the Company and its Subsidiaries or Retirement from service as a member +of the Board, then all of the Participant’s Options shall immediately fully vest, and the Options held by the Participant at the time of such Retirement shall be exercisable by the Participant or the personal representative of such Participant +during the remaining term of the Options. +(j) +Termination for Cause . If a Participant is terminated for cause, the Participant shall have no further right to exercise any Options previously granted. The +Administrator or officers designated by the Administrator shall determine whether a termination is for cause. +(k) +Incentive Stock Options . Notwithstanding anything to the contrary in this Section 6, in the case of the grant of an Option intending to qualify as an +Incentive Stock Option: (i) if the Participant owns stock possessing more than 10 percent of the combined voting power of all classes of stock of the Company, the exercise price of such Option must be at least 110 percent of the Fair Market +Value of the Shares on the date of grant and the Option must expire within a period of not more than five (5) years from the date of grant, and (ii) Termination of Employment will occur when the person to whom an Award was granted ceases +to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company and its Subsidiaries. Notwithstanding anything in this Section 6 to the contrary, options +designated as Incentive Stock Options shall not be eligible for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the aggregate Fair Market Value of +Shares (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking +Options into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3) months of Termination of Employment (or such other period of time provided in +Section 422 of the Code). +7. Stock Appreciation Rights +Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of other Awards granted under the Plan +(“tandem SARs”) or not in conjunction with other Awards (“freestanding SARs”) and may, but need not, relate to a specific Option granted under Section 6. The provisions of Stock Appreciation Rights need not be the +same with respect to each grant or each recipient. Any Stock Appreciation Right granted in tandem with an Award may be granted at the same time such Award is granted or at any time thereafter before exercise or expiration of such Award. All +freestanding SARs shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 6 and all tandem SARs shall have the same exercise price, vesting, exercisability, forfeiture and termination provisions +as the Award to which they relate. Subject to the provisions of Section 6 and the immediately preceding sentence, the Administrator may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. +Stock Appreciation Rights may be settled in Shares, cash or a combination thereof, as determined by the Administrator and set forth in the applicable Award Agreement. Other than in connection with a change in the Company’s capitalization (as +described in Section 13) the exercise price of Stock Appreciation Rights may not be reduced without stockholder approval (including canceling previously awarded Stock Appreciation Rights and regranting them with a lower exercise price). +8. Restricted Stock and Restricted Stock Units +(a) +Restricted Stock and Restricted Stock Unit Awards . Restricted Stock and Restricted Stock Units may be granted at any time and from time to time +prior to the termination of the Plan to Participants as determined by the Administrator. Restricted Stock is an award or issuance of Shares the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods +of time to such conditions (including continued employment or performance conditions) and terms as the Administrator deems appropriate. Restricted Stock Units are Awards denominated in units of Shares under which the issuance of Shares is +subject to such conditions (including continued employment or performance conditions) and terms as the Administrator deems appropriate. +Page 94 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Unless determined otherwise by the Administrator, each Restricted Stock Unit will be equal to +one Share and will entitle a Participant to either the issuance of Shares or payment of an amount of cash determined with reference to the value of Shares. To the extent determined by the Administrator, Restricted Stock and Restricted Stock Units +may be satisfied or settled in Shares, cash or a combination thereof. Restricted Stock and Restricted Stock Units granted pursuant to the Plan need not be identical but each grant of Restricted Stock and Restricted Stock Units must contain and be +subject to the terms and conditions set forth below. +(b) +Contents of Agreement . Each Award Agreement shall contain provisions regarding (i) the number of Shares or Restricted Stock Units subject to such Award or a +formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares +or Restricted Stock Units granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of the Shares or Restricted Stock Units as may be determined from time to time by the +Administrator, (v) the term of the performance period, if any, as to which performance will be measured for determining the number of such Shares or Restricted Stock Units, and (vi) restrictions on the transferability of the Shares or +Restricted Stock Units. Shares issued under a Restricted Stock Award may be issued in the name of the Participant and held by the Participant or held by the Company, in each case as the Administrator may provide. +(c) +Vesting and Performance Criteria . The grant, issuance, retention, vesting and/or settlement of shares of Restricted Stock and Restricted Stock Units will occur +when and in such installments as the Administrator determines or under criteria the Administrator establishes, which may include Qualifying Performance Criteria. Notwithstanding anything in this Plan to the contrary, the performance criteria for any +Restricted Stock or Restricted Stock Unit that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one or more Qualifying Performance Criteria +selected by the Administrator and specified when the Award is granted. +(d) +Termination of Employment . Unless the Administrator provides otherwise: +(i) +General . In the event of Termination of Employment for any reason other than death, Disability or Retirement, any Restricted Stock or Restricted Stock Units +still subject in full or in part to restrictions at the date of such Termination of Employment shall automatically be forfeited and returned to the Company. +(ii) +Death, Retirement or Disability . In the event a Participant’s Termination of Employment is because of death, Disability or Retirement, the restrictions +remaining on any or all Shares remaining subject to a Restricted Stock or Restricted Stock Unit Award shall lapse. +(e) +Discretionary Adjustments and Limits . Subject to the limits imposed under Section 162(m) of the Code for Awards that are intended to qualify as +“performance-based compensation,” notwithstanding the satisfaction of any performance goals, the number of Shares granted, issued, retainable and/or vested under an Award of Restricted Stock or Restricted Stock Units on account of either +financial performance or personal performance evaluations may, to the extent specified in the Award Agreement, be reduced, but not increased, by the Administrator on the basis of such further considerations as the Administrator shall determine. +(f) +Voting Rights . Unless otherwise determined by the Administrator, Participants holding shares of Restricted Stock granted hereunder may exercise full voting +rights with respect to those shares during the period of restriction. Participants shall have no voting rights with respect to Shares underlying Restricted Stock Units unless and until such Shares are reflected as issued and outstanding shares on +the Company’s stock ledger. +(g) +Dividends and Distributions . Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends and other distributions paid with +respect to those Shares, unless determined otherwise by the Administrator. The Administrator will determine whether any such dividends or distributions will be automatically reinvested in additional shares of Restricted Stock and subject to the same +restrictions on transferability as the Restricted Stock with respect to which they were distributed or whether such dividends or distributions will be paid in cash. Shares underlying Restricted Stock Units shall be entitled to dividends or dividend +equivalents only to the extent provided by the Administrator. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 95 +Table of Contents +APPENDIX A +(h) +Payment of Restricted Stock Units . In all events, unless payment with respect to a Restricted Stock Unit is deferred in a manner consistent with +Section 409A of the Code, the Shares and/or cash underlying such Restricted Stock Unit shall be paid to the Participant no later than two and one-half months following the end of the year in which the Restricted Stock Unit is no longer subject +to a substantial risk of forfeiture. +(i) +Legending of Restricted Stock . The Administrator may also require that certificates representing shares of Restricted Stock be retained and held in escrow by a +designated employee or agent of the Company or any Subsidiary until any restrictions applicable to shares of Restricted Stock so retained have been satisfied or lapsed. Any certificates evidencing shares of Restricted Stock awarded pursuant to the +Plan shall bear the following legend: +The shares represented by this certificate were issued subject to certain +restrictions under the Wolverine World Wide, Inc. Stock Incentive Plan of 2013 (the “Plan”). This certificate is held subject to the terms and conditions contained in a restricted stock agreement that includes a prohibition against the +sale or transfer of the stock represented by this certificate except in compliance with that agreement and that provides for forfeiture upon certain events. Copies of the Plan and the restricted stock agreement are on file in the office of the +Secretary of the Company. +9. Stock Awards +(a) +Grant . Stock Awards may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. +Stock Awards shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Administrator. +(b) +Rights as a Stockholder . A Participant shall have all voting, dividend, liquidation and other rights with respect to Shares issued to the Participant as a Stock +Award under this Section 9 upon the Participant becoming the holder of record of the Shares granted pursuant to such Stock Award; provided, that the Administrator may impose such restrictions on the assignment or transfer of Shares awarded +pursuant to a Stock Award as it considers appropriate. +10. Incentive Bonuses +(a) +General . Each Incentive Bonus Award will confer upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to +one or more performance criteria established for a performance period of not less than one year. +(b) +Incentive Bonus Document . Unless otherwise determined by the Administrator, the terms of any Incentive Bonus will be set forth in an Award Agreement. Each Award +Agreement evidencing an Incentive Bonus shall contain provisions regarding (i) the target and maximum amount payable to the Participant as an Incentive Bonus, (ii) the performance criteria and level of achievement versus these criteria +that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, +(v) restrictions on the alienation or transfer of the Incentive Bonus prior to actual payment, (vi) forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with this Plan as may be determined +from time to time by the Administrator. +(c) +Performance Criteria . The Administrator shall establish the performance criteria and level of achievement versus these criteria that shall determine the target +and maximum amount payable under an Incentive Bonus, which criteria may be based on financial performance and/or personal performance evaluations. The Administrator may specify the percentage of the target Incentive Bonus that is intended to satisfy +the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of an Incentive Bonus that is intended by the +Administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria (as defined in +Section 14(b)) selected by the Administrator and specified at the time the Incentive Bonus is granted. The Administrator shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount payable as a +result thereof, prior to payment of any Incentive Bonus that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. +Page 96 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +(d) +Timing and Form of Payment . The Administrator shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus +may be made in cash or in Shares, as determined by the Administrator. The Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit a Participant to elect for the payment of any Incentive +Bonus to be deferred to a specified date or event. In all events, unless payment of an Incentive Bonus is deferred in a manner consistent with Section 409A of the Code, any Incentive Bonus shall be paid to the Participant no later than two and +one-half months following the end of the year in which the Incentive Bonus is no longer subject to a substantial risk of forfeiture. +(e) +Discretionary Adjustments . Notwithstanding satisfaction of any performance goals, the amount paid under an Incentive Bonus on account of either financial +performance or personal performance evaluations may, to the extent specified in the Award Agreement or other document evidencing the Award, be reduced, but not increased, by the Administrator on the basis of such further considerations as the +Administrator shall determine. +11. Deferral of Gains +The Administrator may, in an Award Agreement or otherwise, provide for the deferred delivery of Shares upon settlement, vesting or other events with respect to Restricted Stock or Restricted Stock Units, +or in payment or satisfaction of an Incentive Bonus. Notwithstanding anything herein to the contrary, in no event will any deferral of the delivery of Shares or any other payment with respect to any Award be allowed if the Administrator determines, +in its sole and absolute discretion, that the deferral would result in the imposition of the additional tax under Section 409A(a)(1)(B) of the Code. No award shall provide for deferral of compensation that does not comply with +Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. The Company shall have no liability to a Participant, or any other party, if an +Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Board. +12. Conditions and Restrictions Upon Securities Subject to Awards +The Administrator +may provide that the Shares issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Administrator in +its sole and absolute discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including without limitation, conditions on vesting or transferability, forfeiture or +repurchase provisions and method of payment for the Shares issued upon exercise, vesting or settlement of such Award (including the actual or constructive surrender of Shares already owned by the Participant) or payment of taxes arising in +connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Shares issued under an Award, including without +limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and holders of other Company equity compensation +arrangements, (iii) restrictions as to the use of a specified brokerage firm for such resales or other transfers and (iv) provisions requiring Shares to be sold on the open market or to the Company in order to satisfy tax withholding or +other obligations. +13. Adjustment of and Changes in the Stock +(a) +General . The number and kind of Shares available for issuance under this Plan (including under any Awards then outstanding), and the number and kind of Shares +subject to the limits set forth in Section 5 of this Plan, shall be equitably adjusted by the Administrator to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or +distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of Shares outstanding. Such adjustment may be designed to comply with Sections 409A and +424 of the Code as applicable, or, except as otherwise expressly provided in Section 5(c) of this Plan, may be designed to treat the Shares available under the Plan and subject to Awards as if they were all outstanding on the record date +for such event or transaction or to increase the number of such Shares to reflect a deemed reinvestment in Shares of the amount distributed to the Company’s securityholders. The terms of any outstanding Award shall also be equitably adjusted by +the Administrator as to price, number or kind of Shares subject to such Award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or different types of Awards. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 97 +Table of Contents +APPENDIX A +In the event there shall be any other change in the number or kind of outstanding Shares, or any stock or other securities into which such +Shares shall have been changed, or for which it shall have been exchanged, by reason of a change of control, other merger, consolidation or otherwise, then the Administrator shall determine the appropriate and equitable adjustment to be effected. In +addition, in the event of such change described in this paragraph, the Administrator may accelerate the time or times at which any Award may be exercised and may provide for cancellation of such accelerated Awards that are not exercised within a +time prescribed by the Administrator in its sole and absolute discretion. +No right to purchase fractional shares shall result +from any adjustment in Awards pursuant to this Section 13. In case of any such adjustment, the Shares subject to the Award shall be rounded up to the nearest whole share for Awards other than Options and Stock Appreciation Rights, and shall be +rounded down to the nearest whole Share with respect to Options and Stock Appreciation Rights. The Company shall notify Participants holding Awards subject to any adjustments pursuant to this Section 13 of such adjustment, but (whether or not +notice is given) such adjustment shall be effective and binding for all purposes of the Plan. +(b) +Change in Control. The Administrator may determine the effect of a Change in Control on outstanding Awards in a manner that, in the Administrator’s +reasonable discretion, is fair and equitable to Participants. Such effects, which need not be the same for every Participant, may include, without limitation: (x) the substitution for the Shares subject to any outstanding Award, or portion +thereof, of stock or other securities of the surviving corporation or any successor corporation to the Company, or a parent or subsidiary thereof, in which event the aggregate purchase or exercise price, if any, of such Award, or portion thereof, +shall remain the same, and/or (y) the conversion of any outstanding Award, or portion thereof, into a right to receive cash or other property upon or following the consummation of the Change in Control in an amount equal to the value of the +consideration to be received by holders of Shares in connection with such transaction for one Share, less the per share purchase or exercise price of such Award, if any, multiplied by the number of Shares subject to such Award, or a portion thereof. +Notwithstanding the foregoing, unless otherwise determined by the Administrator, Awards shall be treated as follows in connection with a Change in Control: +(i) +Acceleration of Vesting . Without action by the Administrator or the Board: (a) all outstanding Options and Stock Appreciation Rights shall become +immediately exercisable in full and shall remain exercisable during the remaining terms thereof, regardless of whether the Participants to whom such Options and Stock Appreciation Rights have been granted remain in the employ or service of the +Company or any Subsidiary; and (b) all other outstanding Awards shall become immediately fully vested and exercisable and nonforfeitable; and +(ii) +Cash Payment for Stock Options/Stock Appreciation Rights . Without the consent of any Participant affected thereby, the Administrator may determine that some or +all Participants holding outstanding Options and/or Stock Appreciation Rights shall receive, with respect to some or all of the Shares subject to such Options and/or Stock Appreciation Rights, as of the effective date of any such Change in Control +of the Company, cash in an amount equal to the greater of the excess of (A) the highest sales price of the shares on the New York Stock Exchange (or any successor exchange that is the primary stock exchange for trading of Shares) on the date +immediately prior to the effective date of such Change in Control of the Company or (B) the highest price per share actually paid in connection with any Change in Control of the Company over the exercise price per share of such Options and/or +Stock Appreciation Rights. +14. Qualifying Performance-Based Compensation +(a) +General . The Administrator may establish performance criteria and level of achievement versus such criteria that shall determine the number of Shares to be +granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an Award, which criteria may be based on Qualifying Performance Criteria or other standards of financial performance and/or personal +performance evaluations. In addition, the Administrator may specify that an Award or a portion of an Award is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, provided +that the performance criteria for such Award or portion of an Award that is intended by the Administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure based +on one or more Qualifying Performance Criteria selected by the Administrator and specified at the time the Award is granted. The Administrator shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount +payable as a result thereof, prior to payment, settlement or vesting of any Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. +Page 98 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +(b) +Qualifying Performance Criteria . For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following +performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Subsidiary, either individually, alternatively or in any +combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the +Administrator: (i) net earnings or earnings per share (including earnings before interest, taxes, depreciation and/or amortization), (ii) income, net income or operating income, (iii) revenues, (iv) net sales, (v) return on +sales, (vi) return on equity, (vii) return on capital (including return on total capital or return on invested capital), (viii) return on assets or net assets, (ix) earnings per share, (x) economic value added measurements, +including BVA, (xi) return on invested capital, (xii) return on operating revenue, (xiii) cash flow (before or after dividends), (xiv) stock price, (xv) total stockholder return, (xvi) market capitalization, +(xvii) economic value added, (xviii) debt leverage (debt to capital), (xix) operating profit or net operating profit, (xx) operating margin or profit margin, (xxi) cash from operations, (xxii) market share, +(xxiii) product development or release schedules, (xxiv) new product innovation, (xxv) cost reductions, (xxvi) customer service, or (xxvii) customer satisfaction. To the extent consistent with Section 162(m) of the +Code, the Administrator (A) may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of +gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change in accounting principle all as determined in accordance with applicable accounting provisions, as +well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial statements, and +(B) may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, +judgments or settlements, (iii) the effect of changes in tax law or other such laws or provisions affecting reported results, and (iv) accruals of any amounts for payment under this Plan or any other compensation arrangement maintained by +the Company. +15. Transferability +Unless the Administrator determines otherwise, each Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent +and distribution, and each Option or Stock Appreciation Right shall be exercisable only by the Participant during his or her lifetime. To the extent permitted by the Administrator, the person to whom an Award is initially granted (the +“Grantee”) may transfer an Award to any “family member” of the Grantee (as such term is defined in Section 1(a)(5) of the General Instructions to Form S-8 under the Securities Act of 1933, as amended (“Form +S-8”)), to trusts solely for the benefit of such family members and to partnerships in which such family members and/or trusts are the only partners; provided that, (i) as a condition thereof, the transferor and the transferee must execute +a written agreement containing such terms as specified by the Administrator, and (ii) the transfer is pursuant to a gift or a domestic relations order to the extent permitted under the General Instructions to Form S-8. Except to the extent +specified otherwise in the agreement the Administrator provides for the Grantee and transferee to execute, all vesting, exercisability and forfeiture provisions that are conditioned on the Grantee’s continued employment or service shall +continue to be determined with reference to the Grantee’s employment or service (and not to the status of the transferee) after any transfer of an Award pursuant to this Section 15, and the responsibility to pay any taxes in +connection with an Award shall remain with the Grantee notwithstanding any transfer other than by will or intestate succession. +16. +Suspension or Termination of Awards +Except as otherwise provided by the Administrator, if at any time (including after a notice of +exercise has been delivered or an award has vested) the Company’s chief executive officer or any other person designated by the Administrator (each such person, an “Authorized Officer”) reasonably believes that a Participant +may have committed an Act of Misconduct as described in this Section 16, the Authorized Officer, Administrator or the Board may suspend the Participant’s rights to exercise any Option, to vest in an Award, and/or to receive payment for or +receive Shares in settlement of an Award pending a determination of whether an Act of Misconduct has been committed. +If the Administrator or +an Authorized Officer determines a Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company or any Subsidiary, breach of fiduciary duty, or deliberate disregard of the Company or +Subsidiary rules resulting in loss, damage or injury to the Company or any Subsidiary, or if a Participant makes an unauthorized disclosure +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 99 +Table of Contents +APPENDIX A +of any Company or Subsidiary trade secret or confidential information, solicits any employee or service provider to leave the employ or cease providing services to the Company or any Subsidiary, +breaches any intellectual property or assignment of inventions covenant, engages in any conduct constituting unfair competition, breaches any non-competition agreement, induces any Company or Subsidiary customer to breach a contract with the Company +or any Subsidiary or to cease doing business with the Company or any Subsidiary, or induces any principal for whom the Company or any Subsidiary acts as agent to terminate such agency relationship (any of the foregoing acts, an “Act of +Misconduct”), then except as otherwise provided by the Administrator, including through any agreement approved by the Administrator, (i) neither the Participant nor his or her estate nor transferee shall be entitled to exercise any Option +or Stock Appreciation Right whatsoever, vest in or have the restrictions on an Award lapse, or otherwise receive payment of an Award, (ii) the Participant will forfeit all outstanding Awards and (iii) the Participant may be required, at +the Administrator’s sole and absolute discretion, to return and/or repay to the Company any then unvested Shares previously issued under the Plan. In making such determination, the Administrator or an Authorized Officer shall give the +Participant an opportunity to appear and present evidence on his or her behalf at a hearing before the Administrator or its designee or an opportunity to submit written comments, documents, information and arguments to be considered by the +Administrator. +17. Compliance with Laws and Regulations +This Plan, the grant, issuance, vesting, exercise and settlement of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all +applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a +Participant’s name or deliver any Shares prior to the completion of any registration or qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the Administrator shall +determine to be necessary or advisable. To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be +necessary to the lawful issuance and sale of any Shares hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been +obtained. No Option shall be exercisable and no Shares shall be issued and/or transferable under any other Award unless a registration statement with respect to the Shares underlying such Option is effective and current or the Company has determined +that such registration is unnecessary. +In the event an Award is granted to or held by a Participant who is employed or providing services +outside the United States, the Administrator may, in its sole and absolute discretion, modify the provisions of the Plan or of such Award as they pertain to such individual to comply with applicable foreign law or to recognize differences in local +law, currency or tax policy. The Administrator may also impose conditions on the grant, issuance, exercise, vesting, settlement or retention of Awards in order to comply with such foreign law and/or to minimize the Company’s obligations with +respect to tax equalization for Participants employed outside their home country. +18. Withholding +To the extent required by applicable federal, state, local or foreign law, a Participant shall be required to satisfy, in a manner satisfactory to the +Company, any withholding tax obligations that arise by reason of an Option exercise, disposition of Shares issued under an Incentive Stock Option, the vesting of or settlement of an Award, an election pursuant to Section 83(b) of the Code +or otherwise with respect to an Award. To the extent a Participant makes an election under Section 83(b) of the Code, within ten days of filing such election with the Internal Revenue Service, the Participant must notify the Company in +writing of such election. The Company and its Subsidiaries shall not be required to issue Shares, make any payment or to recognize the transfer or disposition of Shares until all such obligations are satisfied. The Administrator may provide for or +permit these obligations to be satisfied through the mandatory or elective sale of Shares and/or by having the Company withhold a portion of the Shares that otherwise would be issued to him or her upon exercise of the Option or the vesting or +settlement of an Award, or by tendering Shares previously acquired. +19. Administration of the Plan +(a) +Administrator of the Plan . The Plan shall be administered by the Administrator who shall be the Compensation Committee of the Board or, in the +absence of a Compensation Committee, the Board itself. Any power of the Administrator may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become +Page 100 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Act or cause an Award designated as a Performance Award not to qualify for +treatment as performance-based compensation under Section 162(m) of the Code. To the extent that any permitted action taken by the Board conflicts with action taken by the Administrator, the Board action shall control. The Compensation +Committee may by resolution authorize one or more officers of the Company to perform any or all things that the Administrator is authorized and empowered to do or perform under the Plan, and for all purposes under this Plan, such officer or officers +shall be treated as the Administrator; provided, however, that no such officer shall designate himself or herself as a recipient of any Awards granted under authority delegated to such officer. The Compensation Committee hereby designates the +Company’s chief executive officer, the Company’s chief financial officer, the Secretary of the Company, and the head of the Company’s human resource function to assist the Administrator in the administration of the Plan and execute +agreements evidencing Awards made under this Plan or other documents entered into under this Plan on behalf of the Administrator or the Company. In addition, the Compensation Committee may delegate any or all aspects of the day-to-day administration +of the Plan to one or more officers or employees of the Company or any Subsidiary, and/or to one or more agents. +(b) +Powers of Administrator . Subject to the express provisions of this Plan, the Administrator shall be authorized and empowered to do all things that it determines +to be necessary or appropriate in connection with the administration of this Plan, including, without limitation: (i) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; +(ii) to determine which persons are Participants, to which of such Participants, if any, Awards shall be granted hereunder and the timing of any such Awards; (iii) to grant Awards to Participants and determine the terms and conditions +thereof, including the number of Shares subject to Awards and the exercise or purchase price of such Shares and the circumstances under which Awards become exercisable or vested or are forfeited or expire, which terms may but need not be conditioned +upon the passage of time, continued employment, the satisfaction of performance criteria, the occurrence of certain events (including a Change in Control), or other factors; (iv) to establish and verify the extent of satisfaction of any +performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award; (v) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this +Plan (which need not be identical) and the terms of or form of any document or notice required to be delivered to the Company by Participants under this Plan; (vi) to determine the extent to which adjustments are required pursuant to +Section 13; (vii) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions if the Administrator, in good +faith, determines that it is necessary to do so in light of extraordinary circumstances and for the benefit of the Company; (viii) to approve corrections in the documentation or administration of any Award; and (ix) to make all other +determinations deemed necessary or advisable for the administration of this Plan. The Administrator may, in its sole and absolute discretion, without amendment to the Plan, waive or amend the operation of Plan provisions respecting exercise after +termination of employment or service to the Company or an Affiliate and, except as otherwise provided herein, adjust any of the terms of any Award. The Administrator may also (A) accelerate the date on which any Award granted under the Plan +becomes exercisable or (B) accelerate the vesting date or waive or adjust any condition imposed hereunder with respect to the vesting or exercisability of an Award, provided that the Administrator, in good faith, determines that such +acceleration, waiver or other adjustment is necessary or desirable in light of extraordinary circumstances. Notwithstanding anything in the Plan to the contrary, no Award outstanding under the Plan may be repriced, regranted through cancellation or +otherwise amended to reduce the exercise price applicable thereto (other than with respect to adjustments made in connection with a transaction or other change in the Company’s capitalization as described in Section 13) without the +approval of the Company’s stockholders. +(c) +Determinations by the Administrator . All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under +the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The +Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other +employee of the Company and such attorneys, consultants and accountants as it may select. +(d) +Subsidiary Awards . In the case of a grant of an Award to any Participant employed by a Subsidiary, such grant may, if the Administrator so +directs, be implemented by the Company issuing any subject Shares to the Subsidiary, for such lawful consideration as the Administrator may determine, upon the condition or understanding that the Subsidiary will transfer the +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 101 +Table of Contents +APPENDIX A +Shares to the Participant in accordance with the terms of the Award specified by the Administrator pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award +may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Administrator shall determine. +(e) +Indemnification of Administrator . Neither any member nor former member of the Administrator nor any individual to whom authority is or has been delegated shall +be personally responsible or liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each person who is or shall have been +a member of the Administrator shall be indemnified and held harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with such person’s or the Administrator’s taking or failing to take any +action under the Plan. Each such person shall be justified in relying on information furnished in connection with the Plan’s administration by any employee, officer, agent or expert employed or retained by the Administrator or the Company. +20. Amendment of the Plan or Awards +The Board may amend, alter or discontinue this Plan and the Administrator may amend or alter any agreement or other document evidencing an Award made under this Plan but, except as provided pursuant to +the provisions of Section 13, no such amendment shall, without the approval of the stockholders of the Company: +» +increase the maximum number of Shares for which Awards may be granted under this Plan; +» +reduce the price at which Options or Stock Appreciation Rights may be granted below the price provided for in Section 6(a); +» +reduce the exercise price of outstanding Options or Stock Appreciation Rights; +» +extend the term of this Plan; +» +change the class of persons eligible to be Participants; +» +otherwise amend the Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements (or the listing +requirements of any successor exchange that is the primary stock exchange for trading of Shares); or +» +increase the individual maximum limits in Sections 5(c) and (d). +No amendment or alteration to the Plan or an Award or Award Agreement shall be made which would impair the rights of the holder of an Award, without such holder’s consent, provided that no such +consent shall be required if the Administrator determines in its sole and absolute discretion and prior to the date of any Change in Control that such amendment or alteration either is required or advisable in order for the Company, the Plan or the +Award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard. In addition, the Plan may not be amended in any way that causes the Plan to fail to comply with +or be exempt from Section 409A of the Code, unless the Board expressly determines to amend the Plan to be subject to Section 409A of the Code. +21. No Liability of Company +The Company and any Subsidiary or affiliate which is in +existence or hereafter comes into existence shall not be liable to a Participant or any other person as to: (a) the non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction +the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (b) any tax consequence expected, but not realized, by any Participant or other person due to the receipt, exercise +or settlement of any Award granted hereunder. +Page 102 +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Table of Contents +APPENDIX A +22. Non-Exclusivity of Plan +Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as +creating any limitations on the power of the Board or the Administrator to adopt such other incentive arrangements as either may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under +this Plan or an arrangement not intended to qualify under Code Section 162(m), and such arrangements may be either generally applicable or applicable only in specific cases. +23. Governing Law +This Plan and any agreements or other documents hereunder shall be +interpreted and construed in accordance with the laws of Delaware and applicable federal law. Any reference in this Plan or in the agreement or other document evidencing any Awards to a provision of law or to a rule or regulation shall be deemed to +include any successor law, rule or regulation of similar effect or applicability. +24. No Right to Employment, Reelection or +Continued Service +Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its +Subsidiaries and/or its affiliates to terminate any Participant’s employment, service on the Board or service for the Company at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any +Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its +affiliates. Subject to Sections 4 and 20, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, its Subsidiaries +and/or its affiliates. +25. Unfunded Plan +The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the Company with respect to their Awards. If the Administrator or the Company chooses to set +aside funds in a trust or otherwise for the payment of Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or insolvency. +Wolverine Worldwide Notice of 2013 Annual Meeting of Stockholders and Proxy Statement +Page 103 +Table of Contents +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by +11:59 p.m., Eastern Daylight Time, on April 17, 2013. +Vote by Internet +• Go to www.investorvote.com/WWW +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded +message +Using a black ink pen, mark your votes with an X as shown in this example. +Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +P roposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 4. ++ +1. Election of Directors: +For +Withhold +For +Withhold +For +Withhold +01 - Jeffrey M. Boromisa +¨ +¨ +02 - David T. Kollat +¨ +¨ +03 - Timothy J. O’Donovan +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. Proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered +public accounting firm for fiscal year 2013. +¨ +¨ +¨ +3. An advisory resolution approving compensation for the Company’s named executive +officers. +¨ +¨ +¨ +4. Proposal to approve the Stock Incentive Plan of 2013. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +IMPORTANT - Please sign exactly as your name(s) appears on this Proxy. When signing on behalf of a corporation, partnership, estate or trust, indicate title or capacity +of person signing. If shares are held jointly, each holder must sign. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Table of Contents +WOLVERINE WORLD WIDE, INC. +9341 Courtland Drive, N.E. +Rockford, Michigan 49351 +Wolverine World Wide, Inc. will be holding its Annual Meeting of +Stockholders on April 18, 2013. The enclosed Notice of 2013 Annual Meeting of Stockholders provides information regarding the matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you plan to attend the +meeting, please read the enclosed materials and vote through the Internet, by telephone or by mailing the Proxy Card below. +Telephone and +Internet Voting. +On the reverse side of this card are instructions on how to vote through the Internet or by telephone. Please consider +voting through one of these methods. Your vote is recorded as if you mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it also saves money. +Thank you in advance for your participation in our 2013 Annual Meeting. +Wolverine World Wide, +Inc. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM +PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — WOLVERINE WORLD WIDE, INC. +This proxy is solicited on behalf of the Board +of Directors +The undersigned stockholder hereby appoints Blake W. Krueger and Donald T. Grimes, and each of them, each with full power of +substitution, as proxies to represent the undersigned stockholder and to vote all shares of Common Stock of Wolverine World Wide, Inc. that the stockholder would be entitled to vote on all matters that properly come before the Annual Meeting of +Stockholders to be held at the Company’s headquarters located at 9341 Courtland Drive N.E., Rockford, Michigan, 49351, on Thursday, April 18, 2013, at 10 a.m. Eastern Daylight Time, and any adjournment of that meeting. +If this Proxy is properly executed, the shares represented by this Proxy will be voted as specified. If this Proxy is properly executed but no +specification is made, the shares represented by this Proxy will be voted for the election of all nominees named on this Proxy as directors and for approval of Proposals 2, 3 and 4 identified on this Proxy. The shares represented by this Proxy will +be voted in the discretion of the proxies on any other matters that may properly come before the meeting. +PLEASE DO NOT +VOTE BY MORE THAN ONE METHOD. THE LAST VOTE RECEIVED WILL BE THE OFFICIAL VOTE. DO NOT RETURN THIS PROXY IF YOU ARE VOTING BY THE INTERNET OR BY TELEPHONE. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) \ No newline at end of file diff --git a/raw/proxies/0000110471/0001193125-13-100264/proxy_rpt.txt b/raw/proxies/0000110471/0001193125-13-100264/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7bcf290b79b040a8d151b2f8b90795adc46c04eb --- /dev/null +++ b/raw/proxies/0000110471/0001193125-13-100264/proxy_rpt.txt @@ -0,0 +1,8 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Wolverine Worldwide has entered into agreements with Grimoldi S.A., an Argentinean corporation of which Mr. Alberto L. Grimoldi, a director of Wolverine Worldwide, is chairman and a 35% shareholder. +The agreements grant Grimoldi, S.A. the exclusive rights to distribute and sell footwear products in Argentina under the Hush Puppies ® , Caterpillar ® , and Patagonia ® brand names, and footwear and apparel under the Merrell ® brand name. Grimoldi S.A. or its subsidiary purchases products, samples, footwear components, advertising materials and miscellaneous items from Wolverine Worldwide +or pays Wolverine Worldwide royalties and certain sublicense fees based on sales or purchases of products in Argentina. Grimoldi S.A. was obligated to pay Wolverine Worldwide purchase prices, royalties, sublicense fees, service fees and interest +relating to purchases made or royalties and fees incurred in fiscal year 2012 totaling $5,074,150. All of the transactions described above occurred pursuant to continuing contractual arrangements between Wolverine Worldwide and Grimoldi S.A. +Wolverine Worldwide expects similar transactions to occur between Grimoldi S.A. and Wolverine Worldwide and its subsidiaries during fiscal year 2013. The Governance Committee reviewed and approved or ratified each of these transactions in accordance +with Wolverine Worldwide’s related person transactions policy, as described below. +RELATED PERSON \ No newline at end of file diff --git a/raw/proxies/0000350868/0000912057-02-028860/proxy.txt b/raw/proxies/0000350868/0000912057-02-028860/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..38030878d73241685ac660b605a53f8232862983 --- /dev/null +++ b/raw/proxies/0000350868/0000912057-02-028860/proxy.txt @@ -0,0 +1,1463 @@ +DEF 14A +1 +a2084968zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +ODETICS, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ODETICS, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To Be Held September 13, 2002 +To the Stockholders of Odetics, Inc.: +NOTICE +IS HEREBY GIVEN that the Annual Meeting of Stockholders of Odetics, Inc., a Delaware corporation, will be held on Friday, September 13, 2002 at 10:00 a.m., +Pacific Time, at the principal executive offices of Odetics located at 1515 South Manchester Avenue, Anaheim, California 92802 for the following purposes, as more fully described in the proxy +statement accompanying this Notice: +1. To +elect eight directors to serve on the Board of Directors of Odetics—two directors by the holders of the Class A common stock and six directors by the holders of +the Class A common stock and the holders of the Class B common stock, voting together as a single class. +2. To +ratify the appointment of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2003. +3. To +transact any other business which may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +The +Board of Directors has fixed the close of business on July 26, 2002 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting +and at any continuation or adjournment thereof. A list of stockholders entitled to vote at the meeting will be available for inspection at the principal executive offices of Odetics. +You +are cordially invited to attend the meeting in person. Whether or not you plan to attend the meeting, please mark, sign, date and return the enclosed proxy card as soon as possible +in the envelope enclosed for your convenience. Should you receive more than one proxy because your shares are registered in different names and addresses, each proxy should be signed and returned to +assure that all of your shares will be voted. You may revoke your proxy at any time prior to the meeting. If you attend the meeting and vote by ballot, your proxy will be revoked automatically and +only your ballot vote at the meeting will be counted. +Sincerely, +/S/ GARY W. SMITH +Anaheim, California +Gary W. Smith +July 26, 2002 +Secretary +YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND +RETURN IT IN THE ENCLOSED ENVELOPE. +ODETICS, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 13, 2002 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of +Odetics, Inc., a Delaware corporation, to be voted at the Annual Meeting of Stockholders to be held on September 13, 2002 (the "Annual Meeting") and any adjournment or postponement of +the meeting. The Annual Meeting will be held at 10:00 a.m., Pacific Time, at the principal executive offices of Odetics located at 1515 South Manchester Avenue, Anaheim, California 92802. These +proxy materials and the form of proxy were first mailed to the stockholders of Odetics on or about August 6, 2002. +The +mailing address of the principal executive offices of Odetics is 1515 South Manchester Avenue, Anaheim, California 92802. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of Annual Meeting of Stockholders. Each +proposal is described in more detail in this proxy statement. +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 26, 2002. At +the close of business on the record date, 11,580,914 shares of the Class A common stock of Odetics, par value $0.10 per share, and 1,035,841 shares of the Class B common stock of +Odetics, par value $0.10 per share, were outstanding. The Class A common stock and Class B common stock of Odetics are collectively referred to as the "common stock." +Holders +of the Class A common stock are entitled to elect 25% of the Board rounded up to the nearest whole number, or two directors. The holders of the Class A common stock +and the holders of the Class B common stock, voting together as a single class, will be entitled to elect the balance of the Board, or six directors. Directors will be elected by a plurality of +the voting power of the class or classes, as the case may be, of common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in +effect. With respect to the election of directors, when voting together as a single class, the holders of Class A common stock are entitled to one-tenth of one vote per share held +and the holders of Class B common stock are entitled to one vote per share held. +Pursuant +to the bylaws of Odetics, no stockholder is entitled to cumulate his or her votes (as described above) for candidates other than those whose names have been placed in nomination +prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of the voting of his or her intention to cumulate votes. If any stockholder has given +such notice, then each stockholder may cumulate votes by multiplying the number of votes of each class of common stock the stockholder is entitled to vote by the number of directors to be elected by +such class. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving +the highest number of votes, up to the number of directors to be elected by each class of common stock, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy +will vote +the shares of each class of the common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +Except +as described above for the election of directors, holders of each class of common stock will vote at the Annual Meeting as a single class on all matters, with each holder of +shares of Class A common stock entitled to one-tenth of one vote per share held and each holder of shares of Class B common stock entitled to one vote per share held. +Proposal 2 requires the approval of the affirmative vote of a majority of the voting power of the common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on +the matter. +The +presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. All votes will be tabulated by the inspectors of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker +non-votes. Broker non-votes occur when brokers who hold stock in "street name" return proxy cards stating that they do not have authority to vote the stock which they hold on +behalf of beneficial owners. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be +counted for purposes of determining whether a proposal has been approved. +Proxies +Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be +voted, the proxy will be voted FOR the election of the directors proposed by the Board unless the authority to vote for the election of any director is withheld and, if no contrary instructions are +given, the proxy will be voted FOR the approval of Proposal 2 as described in this proxy statement and the accompanying notice. +You +may revoke or change your proxy at any time before the Annual Meeting by filing with the Secretary of Odetics, at the principal executive offices of Odetics at 1515 South Manchester +Avenue, Anaheim, California 92802, a written notice of revocation or a new duly executed proxy bearing a date later than the date indicated on the previous proxy. You may also revoke your proxy by +attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by the Board of Directors of Odetics. Odetics will bear the entire cost of proxy solicitation, including costs of preparing, +assembling, printing and mailing this proxy +statement, the proxy card and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding +shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, Odetics may reimburse such persons for their +costs in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by telephone, facsimile or any other means +by directors, officers or employees of Odetics. No additional compensation will be paid to these individuals for any such services. +In +the discretion of management, Odetics reserves the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although Odetics does not currently +expect to retain such a firm, it estimates that the fees of such firm would range from $5,000 to $15,000 plus out-of-pocket expenses, all of which would be paid by Odetics. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Nominees +The Board of Directors of Odetics is currently comprised of eight members. Eight directors are to be elected at the Annual Meeting and hold office until their +successors are duly elected and qualified at the next annual meeting of stockholders. Holders of Class A common stock are entitled to elect two of the eight directors to be elected at the +Annual Meeting, and the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect the other six directors. The two +candidates receiving the highest number of affirmative votes of shares of Class A common stock, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be +elected directors of Odetics, and the six candidates receiving the highest number of affirmative votes of shares of Class A common stock and shares of Class B common stock, voting +together as a single class, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected directors of Odetics. When voting together as a single class, the +holders of Class A common stock are entitled to one-tenth of one vote per share held and the holders of Class B common stock are entitled to one vote per share held. If +cumulative voting is in effect, however, the proxy holders of each class of common stock will have the right to cumulate and allocate votes among those nominees standing for election with respect to +such class of common stock as such proxy holders in their discretion elect. +Messrs. Gudmundson +and Muench will stand for election by the holders of Class A common stock, and Messrs. Daly, Miner, Seazholtz, Slutzky, Thomas and Wright will +stand for election by the holders of Class A common stock and Class B common stock, voting together as a single class. +3 +Information with Respect to Nominees +The following table sets forth certain information concerning the nominees for directors of Odetics as of July 26, 2002. +Nominees for Election +Name +Age +Position +Director +Since +Joel Slutzky(3) +63 +Chairman of the Board of Odetics and of Broadcast, Inc. +Chairman of the Board of MAXxess Systems, Inc. +Chairman of the Board of Iteris, Inc. +Director of Meyer, Mohaddes Associates, Inc. +Director of Zyfer, Inc. +1969 +Kevin C. Daly, Ph.D.(2)(3) +58 +Director of Odetics +1993 +Crandall L. Gudmundson +71 +Director of Odetics +1979 +Gregory A. Miner(3) +47 +Chief Executive Officer, Chief Financial Officer and Director of Odetics +Chief Financial Officer and Assistant Secretary of Broadcast +Director, Chief Financial Officer and Secretary of MAXxess Systems +Director of Iteris +Director, Chief Financial Officer and Secretary of Meyer, Mohaddes Associates +Chairman of the Board of Zyfer +1998 +Jerry F. Muench +67 +Director and Assistant Secretary of Odetics +1969 +John W. Seazholtz(1)(2) +65 +Director of Odetics +1998 +Thomas L. Thomas(1)(2) +53 +Director of Odetics +1999 +Paul E. Wright(1)(3) +71 +Director of Odetics +Director of Iteris +1993 +(1) Member +of the Audit Committee. +(2) Member +of the Compensation and Stock Option Committee. +(3) Member +of the Finance Committee. +Joel Slutzky has served as the Chairman of the Board of Directors since he co-founded Odetics in 1969. +Mr. Slutzky served as the Chief Executive Officer of Odetics from 1975 to February 2002. From August 1993 until January 1994, Mr. Slutzky assumed the additional +responsibilities of Chief Financial Officer on an interim basis following the retirement of Odetics' former Chief Financial Officer. Mr. Slutzky also served as the President of Odetics from +1969 to 1975 and served as a director of ATL Products, Inc., a former subsidiary of Odetics, from its formation in 1993 until Quantum Corporation purchased ATL in October 1998. +Mr. Slutzky currently serves in various capacities for the other subsidiaries of Odetics. +Kevin C. Daly, Ph.D. has served as a director of Odetics since 1993. Since July 2002, Dr. Daly has +been the Chief Executive Officer of Avamar Technologies Inc., a provider of high availability storage software solutions. Dr. Daly was previously Chief Technical Officer of Quantum +Corporation's Storage +4 +Solutions Group from October 2001 to July 2002 and, prior to that, he was Chief Executive Officer of ATL Products, Inc. from its foundation in 1993 until 2001. Dr. Daly +also served as Chief Technical Officer of Odetics from 1985 until ATL's separation from Odetics in an initial public offering in 1997. Prior to Odetics, Dr. Daly was Director of +the Control and Dynamics Division of the Charles Stark Draper Laboratory at MIT from 1974 through 1985. Dr. Daly is also a member of the Board of Directors of Danka Business Systems PLC. +Crandall L. Gudmundson is a co-founder of Odetics and served as its President from 1975 until his +retirement in 1998. Mr. Gudmundson has served as a director of Odetics since 1979 and served as a director of ATL Products, Inc. from 1993 to 1998. Prior to co-founding +Odetics, Mr. Gudmundson was the lead project engineer for Leach Corporation. +Gregory A. Miner has served as the Chief Executive Officer of Odetics since February 2002, as a director +since 1998 and as a Vice President and Chief Financial Officer since January 1994, when he joined Odetics. From 1998 to 2002, Mr. Miner also served as Odetics' Chief Operating Officer. +Mr. Miner served as the Vice President and Chief Financial Officer of ATL Products, Inc., a former subsidiary of Odetics, from 1994 to 1998 and currently serves in various capacities for +the other subsidiaries of Odetics. From December 1984 until joining Odetics, Mr. Miner served as the Vice President and Chief Financial Officer and a member of the Board of Directors of +Laser Precision Corporation, a manufacturer of telecommunications test equipment. From 1979 to 1984, Mr. Miner was employed by Deloitte Haskins and Sells (now known as Deloitte & Touche +LLP) in various capacities, the most recent of which was Audit Manager. +Jerry F. Muench is a co-founder of Odetics and has served as a director since 1969. From 1969 to 2002, +Mr. Muench was also Odetics' Secretary. Mr. Muench served as the Vice President, Marketing of Odetics from 1975 until his retirement in December 1997. Prior to +co-founding Odetics, Mr. Muench was the manager of applications engineering at Leach Corporation. +John W. Seazholtz has served as a director of Odetics since May 1998. He also served as a director of +Mariner Networks, Inc., a subsidiary of Odetics that has been discontinued, from March 2000 to September 2001. From May 1998 to April 2000, Mr. Seazholtz +served as the President and Chief Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief Technology Officer of Bell Atlantic after 36 years of service +with that company and its predecessor. Mr. Seazholtz was a senior officer of Bell Atlantic since 1986, serving in various positions, including the positions of Vice President, Operations and +Engineering, Vice President, Marketing, Vice President of New Services, and Vice President, Technology and Information Systems. Mr. Seazholtz currently serves as the Chairman of the Board of +Westell Technologies, Inc. and is a member of the Board of Directors of Advanced Switching Communications, Inc. +Thomas L. Thomas has served as a director of Odetics since May 1999. From January 2000 to +September 2001, he also served as the Chairman of the Board of Mariner Networks, Inc. Mr. Thomas is +the Chairman of the Board, President and Chief Executive Officer of HAHT Commerce, a provider of software applications that enable companies to use the Internet to conduct business. A veteran Silicon +Valley executive, Mr. Thomas was previously the President and Chief Executive Officer of Ajuba Solutions, a provider of B2B integration solution software, which was sold to Interwoven in +October 2000. From April 1999 until January 2000, he served as the President, Chief Executive Officer and Chairman of the Board of Vantive Corporation, a leading customer +relationship management software vendor which was acquired by Peoplesoft in January 2000. Prior to that, from September 1995 to April 1999, Mr. Thomas served as the Senior +Vice President of e-Business and Information Services and Chief Information Officer at 3Com Corporation. From 1993 to 1995, Mr. Thomas served as a Vice President and the Chief +Information Officer of Dell Computer Corporation. From 1987 to 1993, he served as the Vice President of Management Information Systems at Kraft General Foods, and at Sara +5 +Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of Directors of iManage, Inc. +Paul E. Wright has served as a director of Odetics since June 1993 and as a director of Iteris since +January 1999. Mr. Wright is the President of Wright Associates—Engineering and Business Consultants, a company he formed in 1997. From 1988 until his retirement in 1997, +Mr. Wright served as the Chairman of Chrysler Technologies Corp., the aerospace and defense electronics subsidiary of Chrysler Corporation. From 1986 to 1988, Mr. Wright served as the +President and Chief Operating Officer of Fairchild Industries, Inc. Prior to joining Fairchild, he was employed for 28 years by RCA Corporation, where he last served as the Senior Vice +President, responsible for planning RCA's merger into General Electric Corporation. +All +directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. All of the nominees are +currently directors of Odetics and have indicated that they are willing to continue to serve as directors. In the event any nominee is unable or declines to serve as a director at the time of the +Annual Meeting, the proxies will be voted for an additional nominee who shall be designated by the current Board of Directors. As of the date of this proxy statement, the Board of Directors is not +aware of any nominee who is unable or will decline to serve as director. +Board Meetings and Committees +The Board of Directors held eight meetings during the fiscal year ended March 31, 2002. Mr. Thomas attended five of the meetings of the Board of +Directors. All of the other directors attended or participated in at least 75% of the aggregate number of meetings of the Board of Directors. Each director (including Mr. Thomas) attended at +least 75% of the aggregate number of meetings of those committees of the Board of Directors on which such person served, which were held during such period. +Odetics +has three standing committees—the Audit Committee, the Compensation and Stock Option Committee and the Finance Committee. Odetics has no standing nominating +committee, and the Board as a whole acts upon matters which would otherwise be the responsibility of a nominating committee. +Audit Committee. The Audit Committee supervises and reviews the audit and audit review programs and +procedures of the independent auditors of Odetics, its internal accounting staff and the results of internal auditing procedures. The Audit Committee also reviews the independence, professional +services, fees, plans and results of the independent auditors' engagement and recommends their retention or discharge to the Board. The members of the Audit Committee of Odetics are +Messrs. Seazholtz, Thomas and Wright. The Audit Committee held one meeting during the fiscal year ended March 31, 2002. +The +Board of Directors adopted and approved a written charter for the Audit Committee in June 2000. In July 2002, the Board of Directors adopted and approved an amended and +restated Audit Committee charter, a copy of which is attached hereto as Appendix A. The Board has determined that all members of the Audit Committee are "independent" as that term is defined in +Rule 4200 of the listing standards of the National Association of Securities Dealers. +Compensation and Stock Option Committee. The Compensation and Stock Option Committee makes +recommendations to the Board concerning the compensation of all officers of Odetics and administers the stock option plans of Odetics. The members of the Compensation and Stock Option Committee of +Odetics are Messrs. Daly, Seazholtz and Thomas. The Compensation and Stock Option Committee held two meetings during the fiscal year ended March 31, 2002. +6 +Finance Committee. The Finance Committee reviews Odetics' financial planning and strategies and +provides guidance to the Board and the Audit Committee regarding issues and opportunities related thereto. The Finance Committee also provides interface and advice between the Board, the capital +markets and other financing sources. The Finance Committee held no meetings during the fiscal year ended March 31, 2002. The members of the Finance Committee are Messrs. Daly, Miner, +Slutzky and Wright. +Compensation of Directors +Directors who are not employees of Odetics or one of its subsidiaries receive an annual fee of $12,000 per year, paid quarterly, in addition to $1,500 for each +Board meeting attended in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of the Board of Directors and its committees. +Non-employee +directors are also eligible to receive periodic option grants pursuant to the Automatic Option Grant Program under Odetics' 1997 Stock Incentive Plan. Under this plan, each +non-employee director receives an option to purchase 20,000 shares of Class A common stock upon his initial appointment to the Board of Directors and an additional option to +purchase 5,000 shares of Class A common stock on the date of each annual meeting after his appointment. Each option granted to non-employee directors under the Automatic Option +Grant Program will have an exercise price equal to the fair market value of the Class A common stock on the grant date and will have a maximum term of ten years, subject to earlier termination +following the optionee's cessation of service as a Board member. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE. PROXIES RETURNED TO ODETICS WILL BE VOTED "FOR" EACH NOMINEE +UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH PROXY. +7 +PROPOSAL NO. 2 +RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of Ernst & Young LLP served as the independent auditors of Odetics for the fiscal year ended March 31, 2002. The Board of +Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2003. Odetics is asking the stockholders to ratify the selection by the Board of Directors of +Ernst & Young LLP as the independent auditors of Odetics to audit the consolidated financial statements of Odetics for the fiscal year ending March 31, 2003 and to perform other +appropriate services. Stockholder ratification of the selection of Ernst & Young LLP as Odetics' independent auditors is not required by the bylaws of Odetics or otherwise. In the event that +the stockholders fail to ratify the appointment, the Board of Directors will reconsider its selection. Even if the selection is ratified, the Board of Directors, in its discretion, may direct the +appointment of a different independent accounting firm at any time during the year if the Board of Directors feels that such a change would be in the best interests of Odetics and its stockholders. +A +representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to stockholders' questions, and that representative will be given an opportunity +to make a brief presentation to the stockholders if he or she so desires. +Stockholder Approval +The affirmative vote of a majority of the voting power of the Class A common stock and Class B common stock of Odetics, voting together as a single +class, present or represented and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Ernst & Young LLP as the independent auditors of Odetics for the +fiscal year ending March 31, 2003. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG +LLP AS THE INDEPENDENT AUDITORS OF ODETICS FOR THE FISCAL YEAR ENDING MARCH 31, 2003. +8 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 26, 2002, the number and percentage ownership of the Class A common stock and Class B common stock +of Odetics by (i) all persons known to Odetics to beneficially own more than 5% of either class of outstanding common stock (based upon reports filed by such persons with the SEC), +(ii) each of the Named Executive Officers in the Summary Compensation Table which appears elsewhere herein, (iii) each director of Odetics and director nominee named under "Election of +Directors," and (iv) all executive officers and directors of Odetics as a group. To the knowledge of Odetics, except as otherwise indicated, each of the persons named in this table has sole +voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Class A common stock +Class B common stock +Total Percent of Voting Power +Name and Address of Beneficial Owner(1) +Amount and Nature of Beneficial Ownership(2)(3) +Percent of +Class(2) +Amount and Nature +of Beneficial +Ownership(2)(3) +Percent of +Class(2) +Joel Slutzky +853,978 +(4) +7.3 +% +261,622 +(5) +25.3 +% +15.8 +% +Gerald A. Weber +382,102 +(6) +3.3 +195,924 +18.9 +10.7 +New York Life Trust Company +969,921 +(7) +8.1 +— +— +4.4 +Kevin C. Daly, Ph.D. +25,850 +(8) +* +— +— +* +Crandall L. Gudmundson +120,682 +(9) +1.0 +69,743 +6.7 +3.7 +Gregory A. Miner +147,047 +(10) +1.3 +— +— +* +Jerry F. Muench +116,808 +(11) +1.0 +61,537 +(12) +5.9 +3.3 +John W. Seazholtz +59,297 +(13) +* +— +— +* +Thomas L. Thomas +40,250 +(14) +* +— +— +* +Paul E. Wright +72,794 +(15) +* +— +— +* +Hugo Fruehauf +49,405 +(16) +* +— +— +* +John E. Johnson +63,223 +(17) +* +— +— +* +Steven A. L'Heureux +10,818 +(18) +* +— +— +* +Gary W. Smith +85,729 +(19) +* +296 +* +* +All executive officers and directors as a group (12 persons) +1,645,881 +(20) +14.2 +% +393,198 +38.0 +% +25.4 +% +* Represents +less than 1%. +(1) The +address for Gerald A. Weber is 222 North LaSalle, Suite 899, Chicago, Illinois 60601. The address for New York Life Trust Company is 51 Madison +Avenue, Room 117A, New York, New York 10010. The address of all other persons named in the table is 1515 South Manchester Avenue, Anaheim, California 92802. +(2) Based +on 11,580,914 shares of the Class A common stock and 1,035,841 shares of Class B common stock outstanding as of July 26, 2002. +Shares of each class of common stock subject to options which are exercisable within 60 days of July 26, 2002 are deemed to be beneficially owned by the person holding such options for +the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the +preceding sentence, shares issuable upon exercise of outstanding options are not deemed to be outstanding for purposes of this calculation. +(3) In +addition to the shares held in the individual's name, this column also includes shares held for the benefit of the named person under Odetics' 401(k) +and Stock Ownership Plan. +9 +(4) Includes +141,666 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +July 26, 2002. Excludes 346,808 shares held in trust for the benefit of the children and relatives of Mr. Slutzky as to which Mr. Slutzky has no investment or voting power and +disclaims any beneficial ownership. See note 6. +(5) Excludes +141,536 shares held in trust for the benefit of the children and relatives of Mr. Slutzky as to which Mr. Slutzky has no +investment or voting power and disclaims any beneficial ownership. See note 6. +(6) All +of such shares are owned beneficially of record by various trusts with respect to which Mr. Weber serves as trustee or co-trustee. +Mr. Weber shares investment and voting power as to 29,379 shares of Class A common stock and 56,088 shares of Class B common stock. Mr. Weber exercises sole investment +and voting power over the remaining 352,808 shares of Class A common stock and 139,836 shares of Class B common stock. The shares shown include an aggregate of 346,808 shares of +Class A common stock and 141,536 shares of Class B common stock held in trust for the benefit of the children and relatives of Mr. Slutzky, as to which shares Mr. Slutzky +has no investment or voting power and disclaims any beneficial ownership. +(7) Pursuant +to a Schedule 13G filed on February 14, 2002 with the SEC, New York Life Trust Company reported that it had sole voting power and +sole dispositive power over all 969,921 shares, in its capacity as trustee of the Odetics 401(K) and Stock Ownership Plan on behalf of numerous plan participants. +(8) Includes +100 shares held by Dr. Daly's spouse. Also includes 9,750 shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 26, 2002. +(9) Includes +4,500 shares held by Mr. Gudmundson's IRA and 9,750 shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 26, 2002. +(10) Includes +90,000 shares issuable upon exercise of options held by Mr. Miner that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(11) Includes +31,114 shares held by Mr. Muench's spouse and 9,750 shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 26, 2002. +(12) Includes +23,235 shares held by Mr. Muench's spouse. +(13) Includes +25,750 shares issuable upon exercise of options held by Mr. Seazholtz that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(14) Includes +21,250 shares issuable upon exercise of options held by Mr. Thomas that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(15) Includes +23,500 shares issuable upon exercise of options held by Mr. Wright that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(16) Includes +12,000 shares issuable upon exercise of options held by Mr. Fruehauf that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(17) Includes +12,000 shares issuable upon exercise of options held by Mr. Johnson that are currently exercisable or will become exercisable within +60 days after July 26, 2002. +(18) Includes +6,666 shares issuable upon exercise of options held by Mr. L'Heureux that are currently exercisable or will become +exercisable within 60 days after July 26, 2002. +10 +(19) Includes +38,333 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +July 26, 2002. +(20) Includes +262,082 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +July 26, 2002. +11 +EQUITY COMPENSATION PLANS +The following table summarizes the status of Odetics' equity compensation plans as of the end of fiscal 2002: +Plan Category +Number of Securities to +be Issued upon Exercise +of Outstanding Options +Weighted Average +Exercise Price of +Outstanding Options +Number of Securities +Remaining Available for +Future Issuance (excluding +securities reflected in +column (a) +(a) +(b) +(c) +Equity Compensation Plans that have been approved by Odetics' security holders: +1997 Stock Incentive Plan(1) +328,655 +$ +8.37 +1,322,195 +1994 Long-Term Equity Plan +— +— +132,863 +Equity Compensation Plans that have not been approved by Odetics' security holders +— +— +— +Total +328,655 +$ +8.37 +1,455,058 +(1) In +November 2001, Odetics implemented an option exchange program pursuant to which options to purchase a total of 349,000 shares of Odetics' Class A common stock were cancelled and +subsequently re-granted in May 2002. +12 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The following table sets forth certain information regarding all executive officers of Odetics as of July 26, 2002. +Name +Age +Capacities in Which Served +Hugo Fruehauf +63 +Vice President of Odetics +Director, President and Chief Executive Officer of Zyfer +John E. Johnson +55 +Vice President of Odetics +Director, President and Chief Executive Officer of Iteris +Director of Meyer, Mohaddes Associates +Steven A. L'Heureux +46 +Vice President of Odetics +Director and President of Broadcast +Gregory A. Miner +47 +Chief Executive Officer, Chief Financial Officer and Director of Odetics +Chief Financial Officer and Assistant Secretary of Broadcast +Director, Chief Financial Officer and Secretary of MAXxess Systems +Director of Iteris +Director, Chief Financial Officer and Secretary of Meyer, Mohaddes Associates +Chairman of the Board of Zyfer +Gary W. Smith +45 +Vice President, Controller and Secretary of Odetics +Assistant Secretary of Broadcast, Iteris, MAXxess Systems, Meyer, Mohaddes Associates and Zyfer +The +following is a brief description of the capacities in which each of the executive officers has served during the past five years. The biography of Mr. Miner appears earlier in this +proxy statement. See "Election of Directors." +Hugo Fruehauf has served as a Vice President of Odetics since February 1999 and has served as the +President, Chief Executive Officer and a director of Zyfer, Inc. (formerly known as Odetics' Communications division) since November 1999. Mr. Fruehauf joined Odetics in +October 1997 as the Chief Technology Officer of the Communications division and became the President of the Communications division in December 1997. Prior to joining Odetics, +Mr. Fruehauf was the Group Vice President of Defense Systems at Alliant Techsystems, a developer of smart tactical weapons systems. From 1978 to 1995, Mr. Fruehauf served as President of +Efratom Time and Frequency Products, a company specializing in telecommunications. From 1965 to 1978, Mr. Fruehauf was employed by Rockwell International in various management functions, +including Chief Engineer. +John E. Johnson has served as a Vice President of Odetics since 1986 and has served as the President, Chief +Executive Officer and a director of Odetics' subsidiary, Iteris, Inc., since December 1999. Prior to that, he served as the General Manager of the Odetics ITS division (now Iteris, Inc.) +from 1996 to 1998, prior to its incorporation. From 1990 to 1996, Mr. Johnson served as the General Manager of the Gyyr Incorporated (now MAXxess Systems) Customer Service division. +Mr. Johnson served in various other capacities with Odetics since joining Odetics in 1974, including the Vice President and General Manager of the Omutec division from 1986 to 1990, the +Director of Contracts for the Space division from 1980 to 1986, the Controller of Infodetics, a former subsidiary of +13 +Odetics, from 1975 to 1980 and the Controller of Odetics from 1974 to 1975. Prior to joining Odetics, Mr. Johnson served as a certified public accountant with Peat Marwick. +Steven A. L'Heureux has served as a Vice President of Odetics since June 2000 and as the +President and a director of Odetics' subsidiary, Broadcast, Inc., since June 2000. From March 1999 to June 2000, he served as the Vice President of Sales and Marketing of +Broadcast. Prior to joining Odetics, from August 1996 to February 1999, Mr. L'Heureux served as the Vice President of Sales and Marketing at Vibrint +Technologies, Inc., a developer of digital video server solutions for broadcast, cable and video applications. From October 1994 to August 1996, +Mr. L'Heureux was the Vice President of Sales and Business Development for Minerva Systems, Inc., a provider of MPEG video compression systems for video and DVD +applications. He has also held various North American and international sales management positions with the Eastman Kodak Company. +Gary W. Smith has served as the Controller of Odetics since 1992, became a Vice President in August 1994 +and the Secretary in 2002. Prior to that, Mr. Smith served as the Assistant Controller of Odetics from 1990 until 1992, Assistant Secretary from 1998 until 2002, and Senior Financial Analyst +from 1986 until 1990. +Officers +serve at the discretion of the Board of Directors. +Summary of Cash and Certain Other Compensation +The following table provides certain summary information concerning the compensation earned by the Chief Executive Officer and each of the four other most highly +compensated executive officers of Odetics whose total cash salary and bonus during the fiscal year ended March 31, 2002 exceeded $100,000 (collectively, the "Named Executive Officers") for each +of the three fiscal years ended March 31, 2000, 2001 and 2002. No other executive officers who would have otherwise been includable in such table on the basis of salary earned for the fiscal +year ended March 31, 2002 has been excluded by reason of his or her termination of employment or change in executive status during that year. Other than the bonus paid to Mr. Johnson for +the fiscal year ended March 31, 2002, no bonuses have +14 +been paid to the Named Executive Officers during the fiscal years ended March 31, 2000, 2001 and 2002. +SUMMARY COMPENSATION TABLE +Long-Term Compensation +Annual Compensation +Awards +Name and Principal Positions with Odetics +Fiscal +Year +Salary ($)(1) +Bonus ($) +Restricted +Stock ($) +Securities +Underlying +Options (#)(2) +All Other +Compensation +($)(3) +Joel Slutzky(4) +Chairman of the Board +2002 +2001 +2000 +289,522 +326,890 +326,910 +— +— +— +— +— +— +— +— +55,000 +5,100 +3,211 +4,800 +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer and Director +2002 +2001 +2000 +217,200 +214,662 +182,066 +— +— +— +— +— +— +— +30,000 +30,000 +4,830 +3,891 +5,122 +John E. Johnson(5) +Vice President +2002 +2001 +2000 +185,958 +185,958 +159,034 +21,000 +— +— +— +— +— +— +— +— +4,164 +2,831 +3,869 +Hugo Fruehauf(6) +Vice President +2002 +2001 +2000 +172,206 +174,969 +172,907 +— +— +— +— +— +— +— +— +— +5,100 +3,875 +4,868 +Steven A. L'Heureux +Vice President +2002 +2001 +2000 +189,231 +183,462 +172,715 +— +— +— +— +— +— +— +— +10,000 +4,950 +3,975 +3,701 +Gary W. Smith +Vice President, Controller and +Secretary +2002 +2001 +2000 +115,235 +114,821 +106,159 +— +— +— +— +— +— +— +— +20,000 +2,881 +2,106 +2,593 +(1) Represents +all amounts earned from Odetics and its subsidiaries during the fiscal years shown, including amounts deferred under the Executive Deferral Plan and the Odetics 401(k) and +Stock Ownership Plan. +(2) Consists +of options granted pursuant to Odetics' 1994 Long-Term Equity Incentive Plan and 1997 Stock Incentive Plan entitling the holder to purchase shares of +Class A common stock of Odetics. +(3) Consists +solely of the matching contribution of Odetics to the respective accounts of the Named Executive Officers under the Odetics 401(k) and Stock Ownership Plan. +(4) Mr. Slutzky +resigned as Odetics' Chief Executive Officer in February 2002 and continues to serve as the Chairman of the Board. In fiscal 2002, Mr. Slutzky was +granted an option to purchase 100,000 shares of common stock of MAXxess Systems. +(5) In +fiscal 2002, Mr. Johnson was granted an option to purchase 40,000 shares of common stock of Iteris. +(6) In +fiscal 2001, Mr. Fruehauf was granted an option to purchase 250,000 shares of common stock of Zyfer. +15 +Option Grants in Last Fiscal Year +No grants of stock options were made to the Named Executive Officers and no stock appreciation rights were granted to any of the Named Executive Officers during +the fiscal year ended March 31, 2002. +Aggregated Option Exercises and Fiscal Year End Values +In November 2001, Odetics implemented an option exchange program pursuant to which all of the Named Executive Officers cancelled all Odetics stock options +then held by them. Subsequently, on May 20, 2002, the Named Executive Officers were granted new options to purchase shares of Class A common stock to replace the options that had been +tendered and cancelled under the option exchange program. See "2001 Option Exchange Program." Therefore, no unexercised options were held by any of the Named Executive Officers as of the end of the +fiscal year ended March 31, 2002. In addition, no options were exercised by any of the Named Executive Officers during that fiscal year, and none of the Named Executive Officers held or +exercised any stock appreciation rights during the fiscal year ended March 31, 2002. +2001 Option Exchange Program +In November 2001, Odetics implemented an option exchange program to address the substantial loss in value of the outstanding stock options held by Odetics' +executive officers and the increasing inability of those options to serve as a meaningful incentive for optionees to remain employed with Odetics. Under the program, each executive officer who held +outstanding stock options with an exercise price of $4.00 or more per share under the 1997 Plan or the 1994 Long-Term Equity Plan (the "1994 Plan"), was given the opportunity to exchange +that option for a new option under the 1997 Plan for the same number of shares that would be granted at least six months and one day after the completion of the option exchange program. +On +November 16, 2001, Odetics accepted for exchange and cancellation options to purchase an aggregate of 349,000 shares of Odetics' Class A common stock representing 100% +of the options eligible to be tendered under the option exchange program. On May 20, 2002, Odetics granted new options to purchase an aggregate of 349,000 shares of Class A common stock +under the 1997 Plan to replace the eligible options that had been tendered and cancelled under the program. +In +general, the exercise price per share for the new options was $1.40, the last reported sales price of the Class A common stock on the grant date. In the case of Joel Slutzky, +who is a holder of 10% or more of the common stock, the exercise price per share for the new options was $1.54, or 110% of the last reported trading price of the Class A common stock on the +grant date. +Each +new option issued in exchange for a cancelled option will continue to vest and become exercisable for the option shares in accordance with the same vesting schedule in effect for +the cancelled option. +16 +The table below provides certain information concerning our executive officers who tendered eligible options in the option exchange program and the options that were cancelled pursuant +to that program. Except for the November 2001 option exchange program, Odetics has not implemented any other option repricing or option cancellation/regrant programs. +10-YEAR OPTION REPRICINGS +Name and Principal Position +Date of +Cancel- +lation +Number of +Securities +Underlying +Options at +time of +Cancellation +Market +Price of +Stock at +Time of +Cancel- +lation +Exercise +Price at +Time of +Cancel- +lation +New +Exercise +Price of +Replace- +ment +Option +Length of +Original +Option Term +Remaining at +Date of +Cancellation +Joel Slutzky +Chairman of the Board +11/16/01 +11/16/01 +11/16/01 +50,000 +55,000 +55,000 +$ +1.26 +1.26 +1.26 +$ +4.625 +8.663 +11.344 +$ +1.54 +1.54 +1.54 +7 years +8 years +8 years +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer and Director +11/16/01 +11/16/01 +11/16/01 +11/16/01 +25,000 +30,000 +25,000 +30,000 +1.26 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +10.000 +1.40 +1.40 +1.40 +1.40 +7 years +8 years +8 years +9 years +John E. Johnson +Vice President +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Hugo Fruehauf +Vice President +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Steven A. L'Heureux +Vice President +11/16/01 +10,000 +1.26 +10.313 +1.40 +8 years +Gary W. Smith +Vice President, Controller and Secretary +11/16/01 +11/16/01 +11/16/01 +15,000 +20,000 +10,000 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +1.40 +1.40 +1.40 +7 years +8 years +8 years +Benefit Plans +Odetics maintains a 401(k) and Stock Ownership Plan (the "Stock Ownership Plan") which qualifies for favorable tax treatment under Section 401(a) of the +Internal Revenue Code. The Stock Ownership Plan is the result of the merger of the Odetics, Inc. Profit Sharing and 401(k) Plan and the Odetics Associates Stock Ownership Plan. +Employees +become eligible to make pre-tax contributions to the Stock Ownership Plan pursuant to Internal Revenue Code Section 401(k) as of the January 1, +April 1, July 1 or October 1 coincident with or next following the date on which they are hired. Participants may contribute an amount not in excess of $11,000 for calendar year +2002. Employees become eligible to receive an allocation of employer contributions to the Stock Ownership Plan as of the January 1, April 1, July 1 or October 1 coincident +with or next following the date on which they have completed six months of service with Odetics. These contributions may be made in the form of cash or Odetics stock. No contributions were made by +Odetics to the Stock Ownership Plan for the fiscal years ended March 31, 2000, 2001 and 2002. +Contributions +that are made to the Stock Ownership Plan are allocated to the separate accounts of participants and are held in a trust. Participant accounts are credited with investment +gains and charged with investment losses. Participant contributions are always fully vested at all times, and the Odetics contributions on behalf of participants vest at the rate of +33 1 / 3 percent per year of service. Following +16 +termination of employment, the vested portion of the participant's account balance is distributed in a lump sum payment. +Odetics +also maintains an Executive Deferral Plan which allows designated executives to defer the receipt of some of their current compensation until a future year. These executives may +elect to defer the receipt of up to 75% of their annual compensation, but in no event may they elect to defer less than $5,000. Benefits are generally fully vested at all times, and are payable +following termination of employment in the manner elected by the executive. The Executive Deferral Plan does not qualify for favorable income tax treatment under Section 401(a) of the Internal Revenue +Code. +Employment Contracts, Termination of Employment Agreements and Change of Control Arrangements +Odetics does not currently have any employment contracts in effect with any of its Named Executive Officers. Odetics provides incentives such as salary, benefits +and option grants to attract and retain executive officers and other key associates. The Compensation and Stock Option Committee, as Plan Administrator of the 1997 Stock Incentive Plan, has the +authority to provide for the accelerated vesting of outstanding options held by an individual, in connection with the termination of such individual's employment following an acquisition in which +these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain hostile changes in control of Odetics. Other than such accelerated vesting and the +agreements described below, there is no agreement or policy which would entitle any executive officer to severance payments or any other compensation as a result of such officer's termination. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, Odetics can indemnify its directors and officers against liabilities they may incur in such +capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The certificate of incorporation and the bylaws of Odetics provides that Odetics will indemnify +its directors and officers to the fullest extent permitted by law, and the bylaws require Odetics to advance litigation expenses upon receipt by Odetics of an undertaking by the director or officer to +repay such advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude +any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Odetics' +certificate of incorporation provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care +to Odetics and its stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other +forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to +Odetics or its stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, +and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, +such as the federal securities laws or state or federal environmental laws. +Odetics +has entered into agreements to indemnify its directors and certain of its officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. +These agreements, among other things, indemnify Odetics' directors and certain of its officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by +such person in any action or proceeding, including any action by or in the right of Odetics, on account of services as +17 +a director or officer of Odetics, or as a director or officer of any other company or enterprise to which the person provides services at the request of Odetics. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation and Stock Option Committee of Odetics' Board of Directors during the fiscal year ended March 31, 2002 were +Messrs. Daly, Seazholtz and Thomas. None of the these individuals was an officer or employee of Odetics or its subsidiaries at any time during the fiscal year ended March 31, 2002. +No +executive officer of Odetics has served on the Board of Directors or on the compensation committee of any other entity that has, or has had, one or more executive officers serving as +a member of the Board of Directors or on the Compensation and Stock Option Committee of Odetics. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers Odetics' fiscal year ended March 31, 2002. The Compensation and Stock Option Committee (the "Compensation Committee") for the fiscal +year ended March 31, 2002 was comprised of three outside directors, Messrs. Daly, Seazholtz and Thomas. The Compensation Committee recommends the general compensation levels for +executives. The Compensation Committee meets periodically to review and recommend for approval by the Board of Directors, the salaries, bonuses and benefit plans for officers and key associates. +During the fiscal year ended March 31, 2002, the Compensation Committee held two meetings. +General Compensation Policy +The guiding principle of the Compensation Committee is to establish a compensation program that aligns executive compensation with Odetics' objectives and +business strategies as well as with financial and operational performance. In keeping with this principle the Compensation Committee seeks to: +(1) Attract +and retain qualified senior executives who can play a significant role in the achievement of Odetics' goals; +(2) Reward +executives for strategic management and the long-term enhancement of stockholder value; and +(3) Create +a performance-oriented environment that rewards performance with respect to the financial and operational goals of Odetics. +In +the fiscal year ended March 31, 2002, the annual compensation for the executive officers included base salaries and stock options. +Odetics +establishes salaries for the officers by considering the salaries of officers at comparably sized companies according to data obtained by the Compensation Committee from +executive compensation consultants and from other independent outside sources, including the American Electronics Association annual survey of executive compensation. +A +substantial portion of the compensation of executive officers is based upon the award of stock options which rely on increases in the value of Odetics' securities. The award of options +is intended to encourage executives to establish a meaningful, long-term ownership interest in Odetics consistent with the interests of Odetics' stockholders. Under Odetics' stock option +plans, options are granted from time to time to certain officers and key associates of Odetics and its subsidiaries at the fair market value of the shares of Class A common stock at the time of +grant. Because the compensation element of options is dependent on increases over time in the market value of such shares, stock options represent compensation that is tied to Odetics' +long-term performance. The award of stock options to the +18 +executive officers of Odetics is determined based upon individual performance, level of base salary and position with Odetics. +The +Compensation Committee has reviewed the base salaries for the fiscal year ended March 31, 2002 of each of the executive officers and is of the opinion that such salaries are +not unreasonable in view of those paid by Odetics' competitors and by other companies of similar size. The Compensation Committee also reviewed the stock options awarded to the executive officers for +their services in the fiscal year ended March 31, 2002 and is of the opinion that the option awards are reasonable in view of the officers' individual performance and positions with Odetics. +CEO Compensation +In setting the total compensation payable to Joel Slutzky, who resigned as Odetics' Chief Executive Officer in February 2002 but who continues to serve as +the Chairman of the Board, and Gregory A. Miner, Odetics' Chief Executive Officer and Chief Financial Officer, for the fiscal year ended March 31, 2002, the Compensation Committee sought to +make such compensation competitive with that provided by other companies with which Odetics competes for executive talent. +With +respect to the base salaries of Messrs. Slutzky and Miner, it was the Compensation Committee's intent to provide each such individual with a level of stability and certainty +each year. The Compensation Committee believes the base salaries of Messrs. Slutzky and Miner for the fiscal year ended March 31, 2002 is at a competitive level with the base salaries in +effect for similarly situated chief executive officers. The remaining components of Mr. Slutzky's and Mr. Miner's compensation for the fiscal year ended March 31, 2002, however, +were primarily dependent upon corporate performance. Based upon such performance, among other factors, no bonus was paid to either Mr. Slutzky or Mr. Miner for the fiscal year ended +March 31, 2002 and no options were granted to either person for the fiscal year ended March 31, 2002. +2001 Option Exchange Program +In light of the substantial decline in the market price of the Class A common stock that occurred as a result of the economic downturn in the technology +sector, which began in the latter part of the 2000 calendar year, many of the outstanding options held by Odetics' executive officers had exercise prices significantly higher than the market price of +the underlying common stock. The Compensation Committee believed that many of those options had little or no value and were unlikely to be exercised in the foreseeable future. As a result, the +Compensation Committee decided that those options were no longer effective in achieving the desired objectives of retaining and incentivizing employees important to Odetics' attainment of its business +and financial objectives and the creation of value for the stockholders. +Accordingly, +in November 2001, the Compensation Committee authorized Odetics to implement an option exchange program which would allow each executive officer the opportunity to +exchange his outstanding stock options under the 1997 Plan and the 1994 Plan with an exercise price in excess of $4.00 per share. In exchange, the executive officers would receive new options under +the 1997 Plan for the same number of shares to be granted at least six months and one day after the completion of the option exchange program. +Options +to purchase 349,000 shares were held by executive officers and eligible for exchange. At the conclusion of the program on November 16, 2001, Odetics accepted for exchange +and cancellation options to purchase an aggregate of 349,000 shares of common stock representing 100% of the options eligible to be tendered under the option exchange program. +On +May 20, 2002, Odetics granted options to purchase an aggregate of 349,000 shares of Class A common stock to executive officers who tendered eligible options in the +program. In general, the +19 +exercise price per share for those new options is $1.40, the last reported trading price of the Class A common stock on the grant date. In the case of Joel Slutzky, who is a holder of 10% or +more of the common stock, the exercise price per share for the new options was $1.54, or 110% of the last reported trading price of the Class A common stock on the grant date. Six executive +officers originally participated in the option exchange program, six executive officers received new options to purchase a total of 349,000 shares in cancellation of their higher-priced options for +the same number of shares, and no executive officers held no eligible options. +Each +option issued in exchange for a cancelled option will continue to vest and become exercisable for the option shares in accordance with the same vesting schedule in effect for the +cancelled option. +The +Compensation Committee believed that this program was necessary because equity incentives in the form of stock option grants form a critical component of the compensation +package provided to +Odetics' key employees and play a substantial role in Odetics' ability to retain the services of individuals essential to Odetics' long-term financial success. The Compensation Committee +felt that Odetics' ability to retain key employees would be significantly impaired, unless value were restored to their options in the form of either replacement options or supplemental options to be +granted with an exercise price equal to the fair market value of the Class A common stock at the time of grant. However, in order to assure that the option exchange program served its primary +purposes of assuring the continued service of key employees and helping to create stockholder value, the Committee imposed several limitations. First, no participant would be eligible to receive a +replacement option for his cancelled option unless that individual continued to be employed by Odetics until the grant date of the replacement option. To assure that the replacement option would not +be treated as a variable award for financial accounting purposes, which would otherwise have a negative impact upon Odetics' earnings, no replacement option was to be granted within six months and one +day after the cancellation of the option submitted for exchange. As a result, each participant in the program had to remain employed with Odetics until the end of that period in order to receive the +replacement option. In addition, each replacement option will vest in accordance with the same vesting schedule as was in effect for the cancelled option it replaces. As a result, the optionee will +only have the opportunity to acquire all the shares subject to the replacement option if he remains employed with Odetics through the end of that vesting period. +As +a result of the deferred grant date for the replacement options and the continuation of the existing vesting schedules for those options, the Compensation Committee believed that the +program struck an appropriate balance between the interests of Odetics' employees and those of its stockholders. The replacement options provide an opportunity for executive officers, who are +essential to Odetics' long-term financial success, to restore value to the equity component of their compensation package. However, those individuals will enjoy the benefits of their +replacement options only if they in fact remain employed with Odetics and contribute to its financial success in a manner that creates stockholder value in the form of increases to the market value of +its stock. +Compliance with Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly held corporations for compensation exceeding +$1.0 million paid to certain of the corporation's executive officers. The limitation applies only to compensation which is not considered to be performance-based. The nonperformance based +compensation to be paid to Odetics' executive officers for the fiscal year ended March 31, 2002 did not exceed the $1.0 million limit per officer, nor is it expected that the +nonperformance based compensation to be paid to Odetics' executive officers for the next fiscal year will exceed that limit. Odetics' 1997 Stock Incentive Plan is structured so that any compensation +deemed paid to an executive officer in connection with the exercise of option grants made under that plan will qualify as performance-based compensation which will not be subject to the +$1.0 million limitation. Because it is very unlikely that the cash compensation payable to any of Odetics' executive +20 +officers in the foreseeable future will approach the $1.0 million limit, the Compensation Committee has decided at this time not to take any other action to limit or restructure the elements +of cash compensation payable to Odetics' executive officers. The Compensation Committee will reconsider this +decision should the individual compensation of any executive officer ever approach the $1.0 million level. +Submitted +by the Compensation Committee +of the Board of Directors: +Kevin +C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +21 +AUDIT COMMITTEE REPORT +The following is the report of the audit committee with respect to the audited consolidated financial statements of Odetics for the fiscal year ended +March 31, 2002 included in Odetics' Annual Report on Form 10-K for that year. +Review with Management +The audit committee has reviewed and discussed these audited consolidated financial statements with management of Odetics. +Review and Discussions with Independent Auditors +The audit committee has discussed with Odetics' independent auditors, Ernst & Young LLP, the matters required to be discussed by SAS 61 (Codification of +Statements on Auditing Standards, AU Section 380), as amended, which includes, among other items, matters related to the conduct of the audit of the consolidated financial statements of +Odetics. +The +audit committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 ("Independence +Discussions with Audit +Committees"), as amended, and has discussed with Ernst & Young LLP the independence of Ernst & Young LLP from Odetics. +Conclusion +Based on the review and discussions referred to above in this report, the audit committee recommended to the Board of Directors of Odetics that the audited +financial statements be included in Odetics' Annual Report on Form 10-K for the year ended March 31, 2002 for filing with the Securities and Exchange Commission. +Submitted +by the Audit Committee +of the Board of Directors: +John +W. Seazholtz +Thomas L. Thomas +Paul E. Wright +AUDIT AND OTHER FEES +Fees Billed to Odetics by Ernst & Young LLP During the Fiscal Year Ended March 31, 2002 +Audit Fees. Audit fees billed to Odetics by Ernst & Young LLP during the fiscal year ended +March 31, 2002 for audit of Odetics' annual consolidated financial statements and review of those consolidated financial statements included in Odetics' quarterly reports on Forms +10-Q totaled approximately $133,550. +Financial Information Systems Design and Implementation Fees. Odetics did not engage Ernst & +Young LLP to provide advice or services to Odetics regarding financial information systems design and implementation during the fiscal year ended March 31, 2002. +All Other Fees. Other audit-related fees for the fiscal year ended March 31, 2002 were an +additional $155,500 and included, among other things, fees for registration statements, fees related to a private placement, and audits of certain subsidiaries of Odetics. Fees billed to Odetics for +non-audit-related services rendered by Ernst & Young LLP for the fiscal year ended March 31, 2002, including +22 +fees for tax compliance and tax consulting services, were approximately $76,440. In the aggregate, all such other fees, including audit-related fees, totaled approximately $231,940. +Determination of Independence +The Audit Committee of the Board of Directors has determined that the provision by Ernst & Young LLP of the services covered under the headings "Financial +Information Systems Design and Implementation Fees" and "All Other Fees" above are compatible with maintaining Ernst & Young LLP's independence. +PERFORMANCE GRAPH FOR ODETICS, INC. +INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph shows the cumulative total return on investment assuming an investment of $100 on April 1, 1997 in each of the Class A common +stock and Class B common stock of Odetics, the Nasdaq Market Index and Media General's Industry Group 836 for Diversified Electronics. The total stockholder return assumes reinvestment of +dividends on a daily basis, although cash dividends have not been declared on either class of Odetics' common stock. The stockholder returns shown in the following graph are not necessarily indicative +of future performance. +Measurement Period +1997 +1998 +1999 +2000 +2001 +2002 +Odetics Class A +100.00 +197.83 +220.43 +310.87 +76.30 +35.04 +MG Group Index +100.00 +120.97 +116.54 +365.37 +135.01 +100.43 +Nasdaq Market Index +100.00 +151.12 +197.49 +363.67 +149.68 +151.55 +Odetics Class B +100.00 +140.56 +203.03 +286.32 +62.47 +41.67 +Notwithstanding anything to the contrary set forth in any of Odetics' previous or future filings under the Securities Act or the Exchange Act, as amended, that +might incorporate this Proxy Statement or future filings made by Odetics under those statutes, the Compensation Committee Report, the Audit Committee Report, the Audit Committee Charter, reference to +the independence of +23 +the Audit Committee members and the Performance Graph are not deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference into any of those prior +filings or into any future filings made by Odetics under those statutes. +Certain Transactions +In January 2001, Odetics entered into an Executive Ownership/Severance Plan with Steven A. L'Heureux, Vice President of Odetics and the +President and a director of Broadcast, Inc., a subsidiary of Odetics. Under the terms of the plan, in the event that Mr. L'Heureux's employment had been terminated without +cause by Odetics during the term of the plan, Mr. L'Heureux would have been entitled to receive twelve months of salary and benefits, at the same level as those provided to him +at the time of execution of the plan. In addition, if Broadcast had been sold before December 31, 2001, (i) Mr. L'Heureux would have been entitled to 2.5% of the +aggregate sale price and (ii) if the buyer had not offered employment to Mr. L'Heureux on terms at least substantially equal to the terms of his employment with Broadcast, +Mr. L'Heureux would have been entitled to two years of salary and benefits, at the same level as those provided to him at the time of execution of the ownership/severance plan. +Even if the buyer had offered employment and Mr. L'Heureux accepted such offer, if such employment had terminated without cause or if certain other events had occurred, +Mr. L'Heureux would have been entitled to salary and benefits for the remainder of the two-year term, measured from the date of his initial employment with the buyer. +The plan terminated on December 31, 2001. +In +May 2001, Odetics entered into a Severance Benefit Plan and two Phantom Ownership Plans with Peter Strom, who is no longer employed by Odetics. At the time of these +transactions, Mr. Strom was a Vice President of Odetics and the President, Chief Executive Officer and a director of MAXxess Systems, Inc., a subsidiary of Odetics. Under the Severance +Benefit Plan, in the event Mr. Strom's employment had been terminated without cause by Odetics during the term of the plan, Mr. Strom would have been entitled to receive twelve months of +salary and benefits, at the same level as those provided to him at the time of execution of the plan. In addition, if MAXxess Systems had been sold before October 4, 2001 and the buyer had not +offered employment to Mr. Strom on terms at least substantially equal to the terms of his employment with MAXxess Systems, Mr. Strom would have been entitled to two years of salary and +benefits, at the same level as those provided to him at the time of execution of the severance plan. Even if the buyer had offered employment and Mr. Strom had accepted such offer, if such +employment had been terminated without cause or if certain other events had occurred, Mr. Strom would have been entitled to salary and benefits for the remainder of the two-year +term, measured from the date of his initial employment with the buyer. Under the Phantom Ownership Plans, in the event that MAXxess Systems had sold its CCTV product line or its Access Control product +line prior to October 4, 2001, Mr. Strom would have been entitled to 1.75% of the aggregate sale price of the CCTV product line and 0.78% of the aggregate sale price of the Access +Control product line. Odetics sold substantially all of the assets and certain of the liabilities of the CCTV Products line in September 2001. The Severance Benefit Plan and the two Phantom +Ownership Plans all terminated on October 4, 2001. Mr. Strom received a total of $153,512 (equal to 1.75% of the aggregate sale price of the CCTV product line) under the Phantom +Ownership Plans. +In +August 2001, Odetics' subsidiary, Iteris, issued 1,781,268 shares of its Series A preferred stock to an institutional investor in exchange for $5.0 million in +cash. In addition, Iteris issued 1,343,645 shares of its Series A preferred stock and 547,893 shares of its common stock in exchange for $500,000 in cash and the retirement of its +$3.75 million Subordinated Convertible Promissory Note, plus related accrued interest of $453,333. Concurrently, Odetics sold in a secondary transaction, $1.9 million of its shares of +Iteris common stock to a group of investors, which included (i) Thomas Bartholet who is no longer employed with Odetics, but at the time of this transaction was Odetics' Vice President, +Corporate +Development, and who purchased a total of 228,985 shares of common stock in two separate tranches for total consideration of $610,602.75; (ii) Kevin C. Daly, a director of Odetics, who +purchased +24 +a total of 164,516 shares of common stock in two separate tranches for total consideration of $399,533.75; (iii) Crandall L. Gudmundson, one of Odetics' directors, who purchased a total of +66,667 shares of common stock for $150,000.75; (iv) John E. Johnson, Odetics' Vice President and Iteris' President and Chief Executive Officer, who purchased a total of 133,333 shares of common +stock for $299,999.25; (v) Gregory A. Miner, Odetics' Chief Executive Officer, Chief Financial Officer and a director, who purchased a total of 20,594 shares of common stock for $46,336.50; +(vi) Jerry F. Muench, one of Odetics' directors, who purchased a total of 44,444 shares of common stock for $99,999; and (vii) Joel Slutzky, the Chairman of the Board of Odetics (at the +time of this transaction, Mr. Slutzky was also the Chief Executive Officer of Odetics), who purchased a total of 326,178 shares of common stock in two separate tranches for total consideration +of $741,805.10. +In +February 2002, Odetics entered into a $1.25 million line of credit with Technology Lending Partners, L.L.C., a California limited liability company that is controlled by +Joel Slutzky, Odetics' Chairman of the Board of Directors. The line of credit bears interest at the prime rate plus 4% (at March 31, 2002, the interest rate was 8.75%) and matures in +July 2003. At March 31, 2002, $1.25 million was outstanding under this line of credit. +Section 16(a) Beneficial Ownership Reporting Compliance +Under the federal securities laws, Odetics' directors and officers and any persons holding more than 10% of Odetics' common stock are required to report their +ownership of Odetics' common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and Odetics is required to report in this proxy statement +any failure to file by these dates. Based solely on its review of copies of the reports on Forms 3, 4 and 5 received by Odetics with respect to the fiscal year ended March 31, 2002, and the +written representations received from the reporting persons that no other reports were required, Odetics believes that all directors, executive officers and persons who own more than 10% of Odetics' +common stock have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section. +Annual Report +A copy of Odetics' annual report on Form 10-K for the fiscal year ended March 31, 2002 accompanies the proxy materials being mailed to +all stockholders. The annual report is not incorporated into this proxy statement and is not considered proxy solicitation material. +Deadline for Receipt of Stockholder Proposals +If Odetics has not received notice on or prior to June 21, 2002 of any matter a stockholder intends to propose for a vote at the 2002 annual meeting of +stockholders, then a proxy solicited by the Board of Directors may be voted on such matter in the discretion of the proxy holder, without discussion of the matter in the proxy statement soliciting +such proxy and without such matter as a separate item on the proxy card. +The +deadline for stockholders to submit proposals to be considered for inclusion in Odetics' proxy statement for next year's annual meeting of stockholders is anticipated to be +April 8, 2003. In addition, the proxy to be solicited by the Board of Directors for next year's annual meeting will confer discretionary authority to vote on any stockholder proposal presented +at that meeting, unless Odetics receives notice of such proposal no later than June 22, 2003. Stockholder proposals must be mailed to the attention of the Secretary of Odetics at the principal +executive offices of Odetics located at 1515 South Manchester, Anaheim, California 92802. +25 +Other Business +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy +statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ODETICS, INC. +Anaheim, California +July 26, 2002 +26 +Appendix A +Amended and Restated Charter of the Audit Committee +of the Board of Directors of Odetics, Inc. +Purpose. +The purpose of the Audit Committee (the "Committee") is to assist the Board of Directors of Odetics, Inc., a Delaware corporation (the "Company") in monitoring +(1) the selection and independence of the Company's external auditors, (2) the audit, compliance and financial reporting procedures of the Company, (3) the adequacy of the +Company's internal financial controls, and (4) the overall integrity of the Company's financial statements. +The +Committee's function is one of oversight only and shall not relieve the responsibilities of the Company's management for preparing financial statements which accurately and fairly +present the Company's financial results and condition, or the responsibilities of the independent auditors relating to the audit or review of financial statements. Nothing in this charter is intended +to preclude or impair the protection provided in Section 141(e) of the Delaware General Corporation Law for good faith reliance by members of the Committee on reports or other information +provided by others. +Composition of the Committee. +There shall be at least three directors serving on the Committee who meet the independence, financial literacy and related audit committee requirements of the +listing standards of The Nasdaq Stock Market, Inc. At least one member of the Committee shall have accounting or related financial management expertise as described in the listing standards. +Selection and Review of Independent Auditors. +The Audit Committee shall have the ultimate authority to select, evaluate and, if appropriate, replace or rotate the independent auditors, subject to any action +that may be taken by the Board and any ratification by the Company's stockholders proposed by the Board at the annual meeting of stockholders. It is the policy of the Board and the Committee that the +ultimate accountability of the independent auditors shall be owed to the Board and the Committee as representatives of the Company's stockholders. +The +Committee will review at least annually: +• the +qualifications of the responsible partner or manager of the independent auditors who is engaged on the Company's account, +• the +amount billed or to be billed for audit services and the portion of this work being performed by persons who are not full-time, permanent +employees, and +• whether +there are any expertise, personnel, reputation, or other matters affecting the independent auditors which are brought to the Committee's attention +and which may affect the auditing firm's services to the Company. +Annual Financial Reporting. +In connection with the audit of each fiscal year's financial statements, the Committee will: +• review +and discuss the audited financial statement and related accounting and auditing principles and practices with appropriate members of the Company's +management; +• discuss +with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, including (1) the quality +as well as acceptability of the accounting +A-1 +principles applied in the financial statements, and (2) new or changed accounting policies; significant estimates, judgments, uncertainties or unusual transactions; and accounting policies +relating to significant financial statement items; +• receive +from the independent auditors a written disclosure and statement of all relationships between the auditors and the Company consistent with +Independence Standards Board Standard No. 1; +• discuss +with the auditors any disclosed relationships or services that may impact the objectivity or independence of the auditors; +• obtain +from the independent auditors a statement of the audit fees and other categories of fees billed for the last fiscal year which are required to be +disclosed in the Company's proxy statement for its annual meeting under the SEC's proxy rules, and consider whether the provision of any non-audit services is compatible with maintaining +the auditors' independence; +• recommend +whether or not the audited financial statements should be included in the Company's Annual Report on Form 10-K for filing with +the SEC; +• recommend +to the Board the selection of the independent auditors. +Quarterly Financial Reporting. +At a Committee meeting or through the Chair of the Committee, the Committee will review with the independent auditors and appropriate company officers the +Company's interim financial results to be included on each Form 10-Q. The Committee's review will normally include: +• the +results of the independent auditors' review of the quarterly financial statements, +• management's +analysis of any significant accounting issues, changes, estimates, judgments or extraordinary items relating to the financial statements, and +• the +selection, application and effects of critical accounting policies applied by the Company. +Internal Controls. +The Committee will review annually: +• internal +control systems and procedures of the Company, +• status +of management responses to prior period audit recommendations by the independent auditors, +• succession +planning and staffing levels for the Company's finance and accounting employees, and +• the +status and implementation of conduct codes concerning related party transactions, conflicts of interest, ethical conduct, and compliance with applicable +laws and regulatory policies. +Other Committee Review Functions. +The Committee will review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board. +A-2 +The +Committee may discuss and review with company management, internal or outside legal counsel, or the independent auditors any other topics relating to the purpose of the Committee +which may come to the Committee's attention, including: +• published +reports, regulatory or accounting initiatives, or communications from employees, government agencies or others, which raise significant issues +concerning company financial statements or accounting policies; +• off +balance sheet, related party, or other transactions which could affect the Company's financial results or condition; +• any +issues concerning the Company which the independent auditors have discussed with their national or supervisory office; +• reports +concerning significant subsidiary or foreign operations; and +• pending +or threatened litigation that has the potential to have a material adverse effect on the Company, regulatory issues, or alleged violations of law or +corporate conduct codes. +Meetings, Reports and Resources of the Committee. +The Committee will meet at least quarterly. The Committee may also hold special meetings or act by unanimous written consent as the Committee may decide. +Committee meetings will be governed by the quorum and other procedures generally applicable to meetings of the Board under the Company's bylaws, unless otherwise stated by resolution of the Board or +the Committee. +The +Committee, as it may determine to be appropriate, will meet in separate executive sessions with the Chief Financial Officer, controller or principal accounting officer, and +representatives of the independent auditors, and may meet with other company employees, agents or representatives invited by the Committee. +The +Committee will prepare the audit committee report required to be included in the Company's annual meeting proxy statement, and report to the Board on the other matters relating to +the Committee or its purposes, as required by the SEC proxy rules. +The +Committee is at all times authorized to have direct, independent access to the independent auditors and to the Company's management and internal audit and finance personnel. The +Committee is authorized to communicate in confidence with any of these individuals. +The +Committee is authorized to conduct investigations, and to retain, at the expense of the Company, independent legal, accounting, or other professional consultants selected by the +Committee, for any matters relating to the purpose of the Committee. The Committee is further authorized to retain at the expense of the Company, separate accounting or finance professional advisers +that the Committee may consider necessary or helpful in reviewing the Company's accounting policies and financial statements. The Committee will advise the Board in advance of engaging outside +professional services and the expected fees and costs to be incurred. +A-3 +PROXY +ODETICS, INC. +CLASS A COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class A common stock of ODETICS, INC. hereby appoints GREGORY A. MINER and GARY W. SMITH, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Odetics to be held at 1515 South +Manchester Avenue, Anaheim, California 92802 on September 13, 2002 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of Class A common stock of Odetics held of +record by the undersigned on July 26, 2002, with all the powers the undersigned would possess if personally present, in accordance with the instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for the year ended +March 31, 2002, which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN ACCORDANCE WITH +THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +ý Please mark votes as in this example. +1. +Election of Directors +Nominees standing for election by holders of Class A common stock: Crandall L. Gudmundson and Jerry F. Muench. +o FOR o WITHHOLD AUTHORITY to vote for all nominees listed +below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +Nominees standing for election by holders of Class A common stock and Class B common stock voting together as a single class: Kevin C. Daly, Gregory A. Miner, John W. Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. +Wright. +o FOR o WITHHOLD AUTHORITY to vote for all nominees listed +below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +2. +Ratification of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2003. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This +Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized +officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +PROXY +ODETICS, INC. +CLASS B COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class B common stock of ODETICS, INC. hereby appoints GREGORY A. MINER and GARY W. SMITH, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Odetics to be held at 1515 South +Manchester Avenue, Anaheim, California 92802 on September 13, 2002 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of Class B common stock of Odetics held of +record by the undersigned on July 26, 2002, with all the powers the undersigned would possess if personally present, in accordance with the instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for the year ended +March 31, 2002, which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN ACCORDANCE WITH +THE DISCRETION OF THE PROXY HOLDER WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +ý Please mark votes as in this example. +1. +Election of Directors +Nominees standing for election by holders of Class A common stock and Class B common stock voting together as a single class: Kevin C. Daly, Gregory A. Miner, John W. Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. +Wright. +o FOR o WITHHOLD AUTHORITY to vote for all nominees listed +below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +2. +Ratification of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2003. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This +Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized +officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +QuickLinks +PROPOSAL NO. 1 ELECTION OF DIRECTORS +Nominees for Election +PROPOSAL NO. 2 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +EQUITY COMPENSATION PLANS +EXECUTIVE COMPENSATION AND OTHER INFORMATION +SUMMARY COMPENSATION TABLE +10-YEAR OPTION REPRICINGS +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +AUDIT COMMITTEE REPORT +AUDIT AND OTHER FEES +PERFORMANCE GRAPH FOR ODETICS, INC. INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +Appendix A +Amended and Restated Charter of the Audit Committee of the Board of Directors of Odetics, Inc. \ No newline at end of file diff --git a/raw/proxies/0000350868/0000912057-02-028860/proxy_rpt.txt b/raw/proxies/0000350868/0000912057-02-028860/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001017062-01-500810/proxy.txt b/raw/proxies/0000350868/0001017062-01-500810/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..ea776b4ecfc0fec67ff1673069a760b98b35063b --- /dev/null +++ b/raw/proxies/0000350868/0001017062-01-500810/proxy.txt @@ -0,0 +1,3004 @@ +DEF 14A +1 +ddef14a.txt +DEFINITIVE PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant [X] +Filed by a Party other than the Registrant [_] +Check the appropriate box: +[_] Preliminary Proxy Statement +[_] Confidential, for Use of the +[X] Definitive Proxy Statement Commission Only (as Permitted by +Rule 14a-6(e)(2)) +[_] Definitive Additional Materials +[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 +ODETICS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[_] Fee paid previously with preliminary materials. +[_] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +ODETICS, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To Be Held September 14, 2001 +--------------- +To the Stockholders of Odetics, Inc.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Odetics, +Inc., a Delaware corporation, will be held on Friday, September 14, 2001 at +10:00 a.m., Pacific Time, at the principal executive offices of Odetics located +at 1515 South Manchester Avenue, Anaheim, California 92802 for the following +purposes, as more fully described in the proxy statement accompanying this +Notice: +1. To elect eight directors to serve on the Board of Directors of +Odetics--two directors by the holders of the Class A common stock and six +directors by the holders of the Class A common stock and the holders of the +Class B common stock, voting together as a single class. +2. To approve the amendment of the Certificate of Incorporation of +Odetics to increase the aggregate number of authorized shares of Class A +common stock from 10,000,000 shares to 50,000,000 shares. +3. To approve the amendment and restatement of the Odetics' 1997 Stock +Incentive Plan to increase the number of shares of Class A common stock +authorized for issuance by an additional 475,000 shares to 1,805,000 +shares. +4. To approve and ratify the sale and issuance, as required by the rules +of the Nasdaq National Market, of an aggregate of 70,126 shares of Class A +common stock to the Chief Executive Officer and Chairman of the Board of +Odetics at a purchase price of $14.26 per share. +5. To ratify the appointment of Ernst & Young LLP as the independent +auditors of Odetics for the fiscal year ending March 31, 2002. +6. To transact any other business which may properly come before the +meeting or any adjournment(s) or postponement(s) thereof. +The Board of Directors has fixed the close of business on July 27, 2001 as +the record date for the determination of stockholders entitled to notice of, +and to vote at, the meeting and at any continuation or adjournment thereof. A +list of stockholders entitled to vote at the meeting will be available for +inspection at the principal executive offices of Odetics. +You are cordially invited to attend the meeting in person. Whether or not +you plan to attend the meeting, please mark, sign, date and return the enclosed +proxy card as soon as possible in the envelope enclosed for your convenience. +Should you receive more than one proxy because your shares are registered in +different names and addresses, each proxy should be signed and returned to +assure that all of your shares will be voted. You may revoke your proxy at any +time prior to the meeting. If you attend the meeting and vote by ballot, your +proxy will be revoked automatically and only your ballot vote at the meeting +will be counted. +Sincerely, +/s/ JERRY F. MUENCH +JERRY F. MUENCH +Secretary +Anaheim, California +August 20, 2001 +YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. +PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE +THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE +ENCLOSED ENVELOPE. +ODETICS, INC. +---------------- +PROXY STATEMENT +---------------- +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 14, 2001 +General +These proxy materials and the enclosed proxy card are being furnished in +connection with the solicitation of proxies by the Board of Directors of +Odetics, Inc., a Delaware corporation, to be voted at the Annual Meeting of +Stockholders to be held on September 14, 2001 (the "Annual Meeting") and any +adjournment or postponement of the meeting. The Annual Meeting will be held at +10:00 a.m., Pacific Time, at the principal executive offices of Odetics located +at 1515 South Manchester Avenue, Anaheim, California 92802. These proxy +materials and the form of proxy were first mailed to the stockholders of +Odetics on or about August 20, 2001. +The mailing address of the principal executive offices of Odetics is 1515 +South Manchester Avenue, Anaheim, California 92802. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting +are summarized in the accompanying Notice of Annual Meeting of Stockholders. +Each proposal is described in more detail in this proxy statement. +Voting Rights +The record date for determining those stockholders who are entitled to +notice of, and to vote at, the Annual Meeting has been fixed as July 27, 2001. +At the close of business on the record date, 9,542,889 shares of the Class A +common stock of Odetics, par value $0.10 per share, and 1,035,841 shares of the +Class B common stock of Odetics, par value $0.10 per share, were outstanding. +The Class A common stock and Class B common stock of Odetics are collectively +referred to as the "common stock." +Holders of the Class A common stock are entitled to elect 25% of the Board +rounded up to the nearest whole number, or two directors. The holders of the +Class A common stock and the holders of the Class B common stock, voting +together as a single class, will be entitled to elect the balance of the Board, +or six directors. Directors will be elected by a plurality of the voting power +of the class or classes, as the case may be, of common stock entitled to vote +and present in person or represented by proxy at the Annual Meeting, unless +cumulative voting is in effect. With respect to the election of directors, when +voting together as a single class, the holders of Class A common stock are +entitled to one-tenth of one vote per share held and the holders of Class B +common stock are entitled to one vote per share held. +Pursuant to the bylaws of Odetics, no stockholder is entitled to cumulate +his or her votes (as described above) for candidates other than those whose +names have been placed in nomination prior to the commencement of voting and +unless at least one stockholder has given notice prior to commencement of the +voting of his or her intention to cumulate votes. If any stockholder has given +such notice, then each stockholder may cumulate votes by multiplying the number +of votes of each class of common stock the stockholder is entitled to vote by +the number of directors to be elected by such class. The number of cumulative +votes thus determined may be voted all for one candidate or distributed among +several candidates, at the discretion of the stockholder. The candidates +receiving the highest number of votes, up to the number of directors to be +elected by each class of common stock, will be elected. If cumulative voting is +in effect, the persons named in the accompanying proxy will vote the shares of +each class of the common stock covered by proxies received by them (unless +authority to vote for directors is withheld) among the named candidates as they +determine. +1 +Proposal 2 requires the approval of the affirmative votes of (i) a majority +of the outstanding shares of the Class A common stock entitled to vote, voting +as a separate class, (ii) a majority of the outstanding shares of the Class B +common stock entitled to vote, voting as a separate class, and (iii) a majority +of the outstanding voting power of the Class A common stock and Class B common +stock entitled to vote, voting together as a single class. Except for the +election of directors and the amendment of the Certificate of Incorporation, +holders of each class of common stock will vote at the Annual Meeting as a +single class on all matters, with each holder of shares of Class A common stock +entitled to one-tenth of one vote per share held and each holder of shares of +Class B common stock entitled to one vote per share held. Proposals 3, 4 and 5 +require the approval of the affirmative vote of a majority of the voting power +of the common stock present in person or represented by proxy at the Annual +Meeting and entitled to vote on the matter. +The presence in person or by proxy of the holders of a majority of the +outstanding shares of common stock entitled to vote will constitute a quorum +for the transaction of business at the Annual Meeting. All votes will be +tabulated by the inspectors of election appointed for the meeting, who will +separately tabulate affirmative and negative votes, abstentions and broker non- +votes. Broker non-votes occur when brokers who hold stock in "street name" +return proxy cards stating that they do not have authority to vote the stock +which they hold on behalf of beneficial owners. Abstentions and broker non- +votes are counted as present for purposes of determining the presence or +absence of a quorum for the transaction of business. Abstentions will be +counted towards the tabulations of votes cast on proposals presented to the +stockholders and will have the same effect as negative votes. Broker non-votes +will not be counted for purposes of determining whether a proposal has been +approved. +Proxies +Properly executed proxies will be voted in the manner directed by the +stockholders. If the proxy does not specify how the shares represented thereby +are to be voted, the proxy will be voted FOR the election of the directors +proposed by the Board unless the authority to vote for the election of any +director is withheld and, if no contrary instructions are given, the proxy will +be voted FOR the approval of Proposals 2, 3, 4 and 5 as described in this proxy +statement and the accompanying notice. +You may revoke or change your proxy at any time before the Annual Meeting by +filing with the Secretary of Odetics, at the principal executive offices of +Odetics at 1515 South Manchester Avenue, Anaheim, California 92802, a written +notice of revocation or a new duly executed proxy bearing a date later than the +date indicated on the previous proxy. You may also revoke your proxy by +attending the Annual Meeting and voting in person. Attendance at the Annual +Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by the Board of Directors of Odetics. +Odetics will bear the entire cost of proxy solicitation, including costs of +preparing, assembling, printing and mailing this proxy statement, the proxy +card and any additional material furnished to the stockholders. Copies of the +solicitation materials will be furnished to brokerage houses, fiduciaries and +custodians holding shares in their names that are beneficially owned by others +so that they may forward this solicitation material to such beneficial owners. +In addition, Odetics may reimburse such persons for their costs in forwarding +the solicitation materials to the beneficial owners. The original solicitation +of proxies by mail may be supplemented by a solicitation by telephone, +facsimile, telegram or any other means by directors, officers or employees of +Odetics. No additional compensation will be paid to these individuals for any +such services. +In the discretion of management, Odetics reserves the right to retain a +professional firm of proxy solicitors to assist in solicitation of proxies. +Although Odetics does not currently expect to retain such a firm, it estimates +that the fees of such firm would range from $5,000 to $15,000 plus out-of- +pocket expenses, all of which would be paid by Odetics. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Nominees +The Board of Directors of Odetics is currently comprised of eight members. +Eight directors are to be elected at the Annual Meeting and hold office until +their successors are duly elected and qualified at the next Annual Meeting. +Holders of Class A common stock are entitled to elect two of the eight +directors to be elected at the Annual Meeting, and the holders of Class A +common stock and the holders of Class B common stock, voting together as a +single class, are entitled to elect the other six directors. The two candidates +receiving the highest number of affirmative votes of shares of Class A common +stock, present in person or represented by proxies and entitled to vote at the +Annual Meeting, will be elected directors of Odetics, and the six candidates +receiving the highest number of affirmative votes of shares of Class A common +stock and shares of Class B common stock, voting together as a single class, +present in person or represented by proxies and entitled to vote at the Annual +Meeting will be elected directors of Odetics. When voting together as a single +class, the holders of Class A common stock are entitled to one-tenth of one +vote per share held and the holders of Class B common stock are entitled to one +vote per share held. If cumulative voting is in effect, however, the proxy +holders of each class of common stock will have the right to cumulate and +allocate votes among those nominees standing for election with respect to such +class of common stock as such proxy holders in their discretion elect. +Messrs. Gudmundson and Muench will stand for election by the holders of +Class A common stock, and Messrs. Daly, Miner, Seazholtz, Slutzky, Thomas and +Wright will stand for election by the holders of Class A common stock and Class +B common stock, voting together as a single class. +3 +Information with Respect to Nominees +The following table sets forth certain information concerning the nominees +for director of Odetics as of July 27, 2001. +NOMINEES FOR ELECTION +Director +Name Age Position Since +---- --- -------- -------- +Joel Slutzky(3)............. 62 Chairman of the Board and Chief 1969 +Executive Officer of Odetics and +of Broadcast, Inc. +Chairman of the Board and Vice +President of Gyyr Incorporated +Chairman of the Board of Iteris, +Inc. and Zyfer, Inc. +Director and Vice President of +Mariner Networks, Inc. +Director of Meyer, Mohaddes +Associates, Inc. +Kevin C. Daly, Ph.D.(2)(3).. 57 Director of Odetics 1993 +Crandall Gudmundson......... 70 Director of Odetics 1979 +Gregory A. Miner(3)......... 46 Vice President, Chief Financial 1998 +Officer, Chief Operating Officer +and Director of Odetics +Chief Financial Officer and +Assistant Secretary of Broadcast +Director, Chief Financial Officer +and Secretary of Gyyr +Director of Iteris +Chief Financial Officer of Mariner +Networks +Director, Chief Financial Officer +and Secretary of Meyer, Mohaddes +Associates and Zyfer +Jerry F. Muench............. 66 Director and Secretary of Odetics 1969 +John W. Seazholtz(1)(2)..... 64 Director of Odetics 1998 +Director of Mariner Networks +Thomas L. Thomas(1)(2)...... 52 Director of Odetics 1999 +Chairman of the Board of Mariner +Networks +Paul E. Wright(1)(3)........ 70 Director of Odetics 1993 +Director of Iteris +-------- +(1) Member of the Audit Committee. +(2) Member of the Compensation and Stock Option Committee. +(3) Member of the Finance Committee. +Joel Slutzky has served as the Chairman of the Board of Directors of Odetics +since he co-founded Odetics in 1969 and has served as the Chief Executive +Officer since 1975. From August 1993 until January 1994, Mr. Slutzky assumed +the additional responsibilities of Chief Financial Officer on an interim basis +following the retirement of Odetics' former Chief Financial Officer. Mr. +Slutzky also served as the President of Odetics from 1969 to 1975 and served as +a director of ATL Products, Inc., a former subsidiary of Odetics, from its +formation in 1993 until Quantum Corporation purchased ATL in October 1998. Mr. +Slutzky currently serves in various capacities for the other subsidiaries of +Odetics. Prior to founding Odetics, Mr. Slutzky was an engineering manager at +Leach Corporation, which is now part of the Lockheed Electronics division of +Lockheed Corporation. +Kevin C. Daly, Ph.D. has served as a director of Odetics since 1993 and has +served as the President and Chief Executive Officer of ATL since its formation +in 1993. Dr. Daly also served as Vice President and Chief Technical Officer of +Odetics from 1987 until 1997 when Odetics consummated the spin-off of its +interest +4 +in ATL. Prior to that, from 1985 until 1987, Dr. Daly served as the Director of +Space Systems of Odetics. From March 1974 until June 1985, Dr. Daly served as +the Director of the Control and Dynamics division of the Charles Stark Draper +Laboratory. During that period, Dr. Daly participated in the design and +development of guidance, navigation and control systems for several major space +programs, including the United States Space Shuttle program. +Crandall Gudmundson is a co-founder of Odetics and served as its President +from 1975 until his retirement in 1998. Mr. Gudmundson has served as a director +of Odetics since 1979 and served as a director of ATL from 1993 to 1998. Prior +to co-founding Odetics, Mr. Gudmundson was the lead project engineer for Leach +Corporation. +Gregory A. Miner has served as a director and as Chief Operating Officer of +Odetics since 1998 and as a Vice President and Chief Financial Officer since +January 1994 when he joined Odetics. Mr. Miner served as the Vice President and +Chief Financial Officer of ATL, a former subsidiary of Odetics, from 1994 to +1998 and currently serves in various capacities for the other subsidiaries of +Odetics. From December 1984 until joining Odetics, Mr. Miner served as the Vice +President and Chief Financial Officer and a member of the Board of Directors of +Laser Precision Corporation, a manufacturer of telecommunications test +equipment. +Jerry F. Muench is a co-founder of Odetics and has served as a director and +Secretary since 1969. Mr. Muench served as the Vice President, Marketing of +Odetics from 1975 until his retirement in December 1997. Prior to co-founding +Odetics, Mr. Muench was the manager of applications engineering at +Leach Corporation. +John W. Seazholtz has served as a director of Odetics since May 1998. He +also serves as a director of Mariner Networks, Inc., a subsidiary of Odetics. +From May 1998 to April 2000, Mr. Seazholtz served as the President and Chief +Executive Officer of Telesoft America, Inc. He retired in April 1998 as the +Chief Technology Officer of Bell Atlantic after 36 years of service with that +company and its predecessor. Mr. Seazholtz was a senior officer of Bell +Atlantic since 1986, serving in various positions, including the positions of +Vice President, Operations and Engineering, Vice President, Marketing, Vice +President of New Services, and Vice President, Technology and Information +Systems. Mr. Seazholtz currently serves as the Chairman of the Board of Westell +Technologies, Inc. and is a member of the Board of Directors of Advanced +Switching Communications, Inc. +Thomas L. Thomas has served as a director of Odetics since May 1999. He also +serves as the Chairman of the Board of Mariner Networks, Inc., a subsidiary of +Odetics. Mr. Thomas is the President and Chief Executive Officer of HAHT +Commerce, a provider of software applications that enable companies to use the +Internet to conduct business. A veteran Silicon Valley executive, Mr. Thomas +was previously the President, Chief Executive Officer and Chairman of the Board +of Ajuba Solutions, a provider of B2B integration solution software, which was +sold to Interwoven in October 2000. From April 1999 until January 2000, he +served as the President, Chief Executive Officer and Chairman of the Board of +Vantive Corporation, a leading customer relationship management software vendor +which was acquired by Peoplesoft in January 2000. Prior to that, from September +1995 to April 1999, Mr. Thomas served as the Senior Vice President of e- +Business and Information Services and Chief Information Officer at 3Com +Corporation. From 1993 to 1995, Mr. Thomas served as a Vice President and the +Chief Information Officer of Dell Computer Corporation. From 1987 to 1993, he +served as the Vice President of Management Information Systems at Kraft General +Foods, and at Sara Lee Corporation from 1981 to 1987. Mr. Thomas also serves on +the Board of Directors of iManage, Inc. +Paul E. Wright has served as a director of Odetics since June 1993. Mr. +Wright is the President of Wright Associates--Engineering and Business +Consultants, a company he formed in 1997. From 1988 until his retirement in +1997, Mr. Wright served as the Chairman of the Board of Chrysler Technologies +Corp., the aerospace and defense electronics subsidiary of Chrysler +Corporation. From 1986 to 1988, Mr. Wright served as the President and Chief +Operating Officer of Fairchild Industries, Inc. Prior to joining Fairchild, he +was employed for 28 years by RCA Corporation, where he last served as the +Senior Vice President, responsible for planning RCA's merger into General +Electric Corporation. +5 +All directors are elected annually and hold office until the next annual +meeting of stockholders and until their successors are duly elected and +qualified. All of the nominees are currently directors of Odetics and have +indicated that they are willing to continue to serve as directors. In the event +any nominee is unable or declines to serve as a director at the time of the +Annual Meeting, the proxies will be voted for an additional nominee who shall +be designated by the current Board of Directors. As of the date of this proxy +statement, the Board of Directors is not aware of any nominee who is unable or +will decline to serve as director. +Board Meetings and Committees +The Board of Directors met a total of four times during the fiscal year +ended March 31, 2001. Each of the directors nominated for reelection attended +at least 75% of the aggregate of (i) the total number of meetings of the Board +of Directors and (ii) the total number of meetings held by all committees of +the Board on which such director served. +Odetics has three standing committees--the Audit Committee, the Compensation +and Stock Option Committee, and the Finance Committee. Odetics has no standing +nominating committee, and the Board as a whole acts upon matters which would +otherwise be the responsibility of a nominating committee. +Audit Committee. The Audit Committee supervises and reviews the audit and +audit review programs and procedures of the independent auditors of Odetics, +its internal accounting staff and the results of internal auditing procedures. +The Audit Committee also reviews the independence, professional services, fees, +plans and results of the independent auditors' engagement and recommends their +retention or discharge to the Board. The members of the Audit Committee of +Odetics are Messrs. Seazholtz, Thomas and Wright. The Audit Committee held one +meeting during the fiscal year ended March 31, 2001. +The Board of Directors adopted and approved a written charter for the Audit +Committee in June 2000, a copy of which is attached hereto as Appendix A. The +Board has determined that all members of the Audit Committee are "independent" +as that term is defined in Rule 4200 of the listing standards of the National +Association of Securities Dealers. +Compensation and Stock Option Committee. The Compensation and Stock Option +Committee makes recommendations to the Board concerning the compensation of all +officers of Odetics and administers the stock option plans of Odetics. The +members of the Compensation and Stock Option Committee are Messrs. Daly, +Seaholtz and Thomas. The Compensation and Stock Option Committee held one +meeting during the fiscal year ended March 31, 2001. +Finance Committee. The Finance Committee reviews Odetics' financial planning +and strategies and provides guidance to the Board and the Audit Committee +regarding issues and opportunities related thereto. The Finance Committee also +provides interface and advice between the Board, the capital markets and other +financing sources. The Finance Committee held no meetings during the fiscal +year ended March 31, 2001. The members of the Finance Committee are Messrs. +Daly, Miner, Slutzky and Wright. +Compensation of Directors +Directors who are not employees of Odetics or one of its subsidiaries +receive an annual fee of $12,000 per year, paid quarterly, in addition to +$1,500 for each Board meeting attended in person and $250 for each telephone +conference Board meeting. All directors are reimbursed for their out-of-pocket +expenses incurred in attending meetings of the Board of Directors and its +committees. +Non-employee directors are also eligible to receive periodic option grants +pursuant to the Automatic Option Grant Program under Odetics' 1997 Stock +Incentive Plan. Under this plan, each non-employee director receives an option +to purchase 20,000 shares of Class A common stock upon his initial appointment +to the +6 +Board of Directors and an additional option to purchase 5,000 shares of Class A +common stock on the date of each annual meeting after his appointment. Each +option granted to non-employee directors under the Automatic Option Grant +Program will have an exercise price equal to the fair market value of the Class +A common stock on the grant date and will have a maximum term of ten years, +subject to earlier termination following the optionee's cessation of service as +a Board member. +In addition to the annual grants, in August 2000, Messrs. Seazholtz, Thomas +and Wright were each granted an option to purchase 15,000 shares of the Class A +common stock under the 1997 Stock Incentive Plan at an exercise price of +$14.125 per share. Each option is fully vested and has a maximum term of ten +years, subject to earlier termination in certain circumstances. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE. +PROXIES RETURNED TO ODETICS WILL BE VOTED "FOR" EACH NOMINEE UNLESS OTHERWISE +INSTRUCTED IN WRITING ON SUCH PROXY. +7 +PROPOSAL NO. 2 +APPROVAL OF AN AMENDMENT TO +THE CERTIFICATE OF INCORPORATION +TO INCREASE THE AUTHORIZED SHARES OF CLASS A COMMON STOCK +Under Odetics' present capital structure, Odetics is authorized to issue +10,000,000 shares of Class A common stock, par value $0.10 per share, 2,600,000 +shares of Class B common stock, par value $0.10 per share, and 2,000,000 shares +of preferred stock, par value $1.00 per share. The Board believes this capital +structure is inadequate for the present and future needs of Odetics. Therefore, +the Board has approved the amendment of Paragraph 1 of Article FOURTH of the +Certificate of Incorporation of Odetics to increase the number of shares of +Class A common stock authorized for issuance by 40,000,000 shares to an +aggregate of 50,000,000 shares. The Board believes this capital structure more +appropriately reflects the present and future needs of Odetics and recommends +that the stockholders approve such amendment. The preferred stock may be issued +from time to time in one or more series with such rights, preferences and +privileges, including dividend rates, conversion and redemption prices, and +voting rights, as may be determined by the Board. On July 27, 2001, 9,542,889 +shares of the Class A common stock, 1,035,841 shares of the Class B common +stock and no shares of preferred stock were outstanding. +Purpose of Authorizing Additional Common Stock +The authorization of an additional 40,000,000 shares of Class A common stock +would give the Board the express authority to issue such shares of common stock +from time to time as the Board deems necessary. The Board believes it is +necessary to have the ability to issue such additional shares of common stock +for any proper corporate purpose, for future acquisitions, option grants, and +convertible debt and equity financings and to facilitate stock splits, if any. +Odetics has no present specific plans, understandings or agreements for the +issuance of the proposed additional shares of common stock, other than pursuant +to the exercise of stock options. The Board of Directors, however, believes +that if an increase in the authorized number of shares of Class A common stock +were to be postponed until a specific need arose, the delay and expense +incident to obtaining the approval of Odetics' stockholders at that time could +significantly impair Odetics' ability to meet financing requirements or other +objectives. The additional shares of Class A common stock would be available +for issuance by the Board without any future action by the stockholders, unless +such action were specifically required by applicable law or the rules of any +stock exchange or quotation system on which Odetics' securities may then be +listed. +Possible Effects of Increase in Authorized Shares +The proposed increase in the authorized number of shares of Class A common +stock could have a number of effects on Odetics' stockholders depending upon +the exact nature and circumstances of any actual issuances of authorized but +unissued shares. The increase could have an anti-takeover effect, in that +additional shares could be issued (within the limits imposed by applicable law) +in one or more transactions that could make a change in control or takeover of +Odetics more difficult. For example, additional shares could be issued by +Odetics to dilute the stock ownership or voting rights of persons seeking to +obtain control of Odetics. Similarly, the issuance of additional shares to +certain persons allied with Odetics' management could have the effect of making +it more difficult to remove the current management of Odetics by diluting the +stock ownership or voting rights of persons seeking to cause such removal. In +addition, an issuance of additional shares by Odetics could have an effect on +the potential realizable value of a stockholder's investment. In the absence of +a proportionate increase in Odetics' earnings and book value, an increase in +the aggregate number of outstanding shares of the common stock caused by the +issuance of additional shares would dilute the earnings per share and book +value per share of all outstanding shares of Odetics' capital stock. If such +factors were reflected in the price per share of common stock, the potential +realizable value of a stockholder's investment could be adversely affected. +8 +Stockholder Approval +The affirmative votes of (i) a majority of all shares of the Class A common +stock entitled to vote, voting as a separate class, (ii) a majority of the +outstanding shares of the Class B common stock entitled to vote, voting as a +separate class, and (iii) a majority of the outstanding voting power of the +Class A common stock and Class B common stock entitled to vote, voting together +as a single class, are required for approval of the amendment of Odetics' +Certificate of Incorporation to increase the number of authorized shares of +Class A common stock issuable thereunder by 40,000,000 shares to an aggregate +of 50,000,000 shares. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF +ODETICS AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" +THE PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN +EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE +AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF ODETICS TO INCREASE THE +AUTHORIZED NUMBER OF SHARES OF CLASS A COMMON STOCK TO 50,000,000 SHARES. +9 +PROPOSAL NO. 3 +APPROVAL OF AN AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN +Odetics stockholders are being asked to approve an amendment to the 1997 +Stock Incentive Plan (the "Plan") that will increase the number of shares of +the Class A common stock reserved for issuance under the Plan by an additional +475,000 shares to 1,805,000 shares. +The purpose of the Plan is to enhance Odetics' ability to provide eligible +individuals with awards and incentives both commensurate with their +contributions and competitive with those offered by other employers and to +increase stockholder value by further aligning the interests of these eligible +individuals with the interests of Odetics stockholders by providing an +opportunity to benefit from stock price appreciation that generally accompanies +improved financial performance. The amendment was adopted by the Board of +Directors on July 12, 2001, subject to stockholder approval at the Annual +Meeting. +The Board of Directors believes the amendment is necessary to assure that a +sufficient reserve of the Class A common stock remains available for issuance +under the Plan to allow Odetics to continue to utilize equity incentives to +attract and retain the services of key individuals essential to Odetics' long- +term growth and financial success. Equity incentives play a significant role in +Odetics' efforts to remain competitive in the market for talented individuals, +and Odetics relies on such incentives as a means to attract and retain highly +qualified individuals in the positions vital to Odetics' success. +The following is a summary of the principal features of the Plan, as most +recently amended. Any stockholder who wishes to obtain a copy of the actual +plan document may do so upon written request to Odetics at 1515 South +Manchester Avenue, Anaheim, California 92802. +Equity Incentive Programs +The Plan consists of three (3) separate equity incentive programs: (i) the +Discretionary Option Grant Program, (ii) the Stock Issuance Program and (iii) +the Automatic Option Grant Program for non-employee Board members. The +principal features of each program are described below. The Compensation and +Stock Option Committee of the Board has the authority to administer the +Discretionary Option Grant and Stock Issuance Programs with respect to option +grants and stock issuances made to Odetics' executive officers and non-employee +Board members and also has the authority to make option grants and stock +issuances under those programs to all other eligible individuals. However, the +Board may at any time appoint a secondary committee of one or more Board +members to have separate but concurrent authority with the Compensation and +Stock Option Committee to make option grants and stock issuances under those +two programs to individuals other than Odetics' executive officers and non- +employee Board members. Neither the Compensation and Stock Option Committee nor +any secondary committee exercises any administrative discretion under the +Automatic Option Grant Program. All grants under that program are made in +strict compliance with the express provisions of such program. +The term Plan Administrator, as used in this summary, will mean the +Compensation and Stock Option Committee and any secondary committee, to the +extent each such entity is acting within the scope of its administrative +jurisdiction under the Plan. +Share Reserve +An aggregate of 1,805,000 shares of the Class A common stock has been +reserved for issuance over the term of the Plan, including the 475,000 share +increase for which stockholder approval is sought under this proposal. +As of July 27, 2001, 691,147 shares of Class A common stock were subject to +outstanding options under the Plan, 154,150 shares of Class A common stock had +been issued under the Plan, and 959,703 shares of Class A common stock remained +available for future issuance, assuming stockholder approval of this proposal +is obtained. +10 +No participant in the Plan may receive option grants, separately exercisable +stock appreciation rights and/or direct stock issuances for more than 80,000 +shares of Class A common stock in the aggregate per calendar year. Stockholder +approval of this proposal will also constitute a reapproval of the 80,000-share +limitation for purposes of Internal Revenue Code Section 162(m). +The shares of Class A common stock issuable under the Plan may be drawn from +shares of Odetics' authorized but unissued shares of such Class A common stock +or from shares of such Class A common stock reacquired by Odetics, including +shares repurchased on the open market. +In the event any change is made to the outstanding shares of Class A common +stock by reason of any recapitalization, stock dividend, stock split, +combination of shares, exchange of shares or other change in corporate +structure effected without Odetics' receipt of consideration, appropriate +adjustments will be made to the class and number of securities issuable (in the +aggregate and per participant) under the Plan and the securities and the +exercise price per share in effect under each outstanding option. +Eligibility +Officers, employees, non-employee Board members and independent consultants +in the service of Odetics or its parent and subsidiaries are eligible to +participate in the Discretionary Option Grant and Stock Issuance Programs. +Participation in the Automatic Option Grant Program is limited to non-employee +members of the Board. +As of July 27, 2001, nine executive officers, six non-employee Board members +and approximately 433 other employees and consultants were eligible to +participate in the Discretionary Option Grant and Stock Issuance Programs. The +six non-employee Board members were also eligible to participate in the +Automatic Option Grant Program. +Valuation +The fair market value per share of Class A common stock on any relevant date +under the Plan will be deemed to be equal to the closing selling price per +share of the Class A common stock on that date on the Nasdaq National Market. +If there is no reported closing selling price for such date, then the closing +selling price for the last previous date for which such quotation exists will +be used as its fair market value. On July 27, 2001, the fair market value per +share determined on such basis was $2.35. +Discretionary Option Grant Program +The Plan Administrator has complete discretion under the Discretionary +Option Grant Program to determine which eligible individuals are to receive +option grants, the time or times when those grants are to be made, the number +of shares subject to each such grant, the status of any granted option as +either an incentive stock option or a non-statutory option under the federal +tax laws, the vesting schedule (if any) to be in effect for the option grant +and the maximum term for which any granted option is to remain outstanding. +Each granted option will have an exercise price per share determined by the +Plan Administrator, but the exercise price will not be less than the fair +market value per share of Class A common stock on the option grant date. No +granted option will have a term in excess of ten (10) years, and the option +will generally become exercisable in one or more installments over a specified +period of service measured from the grant date. However, one or more options +may be structured so that they will be immediately exercisable for any or all +of the option shares; the shares acquired under those options will be subject +to repurchase by Odetics, at the exercise price paid per share, if the optionee +ceases service with Odetics prior to vesting in those shares. +Upon cessation of service, the optionee will have a limited period of time +in which to exercise any outstanding option for the number of shares which were +vested at the time service terminated. The Plan Administrator will have +complete discretion to extend the period following the optionee's cessation of +service +11 +during which his or her outstanding options may be exercised and/or to +accelerate the exercisability or vesting of such options in whole or in part. +Such discretion may be exercised at any time while the options remain +outstanding, whether before or after the optionee's cessation of service. +The Plan Administrator is authorized to issue tandem stock appreciation +rights under the Discretionary Option Grant Program, which provide the holders +with the right to surrender their options for an appreciation distribution from +Odetics equal to the excess of (i) the fair market value of the vested shares +of Class A common stock subject to the surrendered option over (ii) the +aggregate exercise price payable for such shares. Such appreciation +distribution may, at the discretion of the Plan Administrator, be made in cash +or in shares of Class A common stock. +The Plan Administrator may also grant limited stock appreciation rights to +certain officers, directors and other insiders at Odetics. The limited stock +appreciation rights entitle the holder, upon the occurrence of a hostile +takeover, the right (exercisable for 30 days following such a takeover) to +surrender the vested shares subject to the option for an appreciation +distribution. In such case, the optionee will receive a cash distribution in an +amount equal to the excess of the takeover price of the vested shares over the +aggregate exercise price payable for those shares. +The Plan Administrator also has the authority to effect the cancellation of +any or all options outstanding under the Discretionary Option Grant Program and +to grant, in substitution, new options covering the same or a different number +of shares of Class A common stock but with an exercise price per share based +upon the fair market value of the option shares on the new grant date. +Stock Issuance Program +Shares of Class A common stock may be issued under the Stock Issuance +Program at a price per share determined by the Plan Administrator, but the +price per share will not be less than the fair market value of the Class A +common stock on the issuance date. Shares will be issued for such valid +consideration as the Plan Administrator deems appropriate, including cash and +promissory notes. The shares may also be issued as a bonus for past services +without any cash outlay required of the recipient. The shares issued may be +fully vested upon issuance or may vest upon the completion of a designated +service period or the attainment of pre-established performance goals. The Plan +Administrator will, however, have the discretionary authority at any time to +accelerate the vesting of any and all unvested shares outstanding under the +Stock Issuance Program. +Automatic Option Grant Program +Under the Automatic Option Grant Program, eligible non-employee Board +members receive a series of option grants over their period of Board service. +Under this program, each non-employee Board member receives, at the time of his +or her initial election or appointment to the Board, an option grant for 20,000 +shares of Class A common stock provided such individual has not been in the +previous employ of Odetics. In addition, on the date of each Annual +Stockholders Meeting, each individual who is to continue to serve as a non- +employee Board member will automatically be granted an option to purchase 5,000 +shares of Class A common stock, provided he or she has served as a non-employee +Board member for at least six (6) months. There will be no limit on the number +of such 5,000-share option grants any one eligible non-employee Board member +may receive over his or her period of continued Board service. +Each automatic grant will have an exercise price per share equal to the fair +market value per share of Class A common stock on the grant date and will have +a maximum term of 10 years, subject to earlier termination following the +optionee's cessation of Board service. Each automatic option will be +immediately exercisable for any or all of the option shares; the shares +acquired under those options will be subject to repurchase by Odetics, at the +exercise price paid per share, if the optionee ceases service with Odetics +prior to vesting in those shares. The initial 20,000-share automatic option +will be fully vested on the grant date. Each annual 5,000-share automatic +option will vest in four (4) successive equal annual installments upon the +optionee's completion of each year of Board service measured from the grant +date. However, each outstanding automatic option grant will automatically +accelerate and become immediately exercisable for any or all of the +12 +option shares as fully-vested shares upon certain changes in control or +ownership of Odetics or upon the optionee's death or permanent disability while +a Board member. Following the optionee's cessation of Board service for any +reason, each option will remain exercisable for a 12-month period and may be +exercised during that time for any or all shares in which the optionee is +vested at the time of such cessation of Board service. +Each option granted under the Automatic Option Grant Program will include a +limited stock appreciation right so that upon the successful completion of a +hostile tender offer for more than fifty percent (50%) of Odetics' outstanding +voting securities or a change in a majority of the Board as a result of one or +more contested elections for Board membership, the option may be surrendered to +Odetics in return for a cash distribution from Odetics. The amount of the +distribution per surrendered option share will be equal to the excess of (i) +the fair market value per share at the time the option is surrendered or, if +greater, the tender offer price paid per share in the hostile take-over over +(ii) the exercise price payable per share under such option. In addition, the +Plan Administrator may grant such rights to officers of Odetics as part of +their option grants under the Discretionary Option Grant Program. +General Provisions +Acceleration +In the event that Odetics is acquired by merger, in which the stockholders +of Odetics immediately prior to the merger own less than 50% of the resulting +entity after the merger, or by a sale of all or almost all of Odetics' assets, +each outstanding option under the Discretionary Option Grant Program that is +not to be assumed or replaced by the successor corporation or otherwise +continued in effect will automatically accelerate in full, and all unvested +shares outstanding under the Discretionary Option Grant and Stock Issuance +Programs will immediately vest, except to the extent Odetics' repurchase rights +with respect to those shares are to be assigned to the successor corporation or +replaced by a cash incentive program. +The Plan Administrator will have the authority under the Discretionary +Option Grant Program to provide that those options will automatically vest in +full upon the occurrence of specified events. The vesting of outstanding shares +under the Stock Issuance Program may be accelerated upon similar terms and +conditions. The options granted under the Automatic Option Grant Program will +automatically accelerate and become exercisable in full upon any acquisition or +change in control transaction. +The acceleration of vesting in the event of a change in the ownership or +control of Odetics may be seen as an anti-takeover provision and may have the +effect of discouraging a merger proposal, a takeover attempt or other efforts +to gain control of Odetics. +Financial Assistance +The Plan Administrator may institute a loan program to assist one or more +participants in financing the exercise of outstanding options under the +Discretionary Option Grant Program or the purchase of shares under the Stock +Issuance Program through full-recourse interest-bearing promissory notes. +However, the maximum amount of financing provided any participant may not +exceed the cash consideration payable for the issued shares plus all applicable +taxes incurred in connection with the acquisition of those shares. +Special Tax Election +The Plan Administrator may provide one or more holders of non-statutory +options or unvested share issuances under the Plan with the right to have +Odetics withhold a portion of the shares otherwise issuable to such individuals +in satisfaction of the withholding taxes to which such individuals become +subject in connection with the exercise of those options or the vesting of +those shares. Alternatively, the Plan Administrator may allow such individuals +to deliver previously acquired shares of Class A common stock in payment of +such withholding tax liability. +13 +Amendment and Termination +The Board may amend or modify the Plan at any time, subject to any required +stockholder approval pursuant to applicable laws and regulations. Unless sooner +terminated by the Board, the Plan will terminate on the earliest of (i) +September 4, 2007, (ii) the date on which all shares available for issuance +under the Plan have been issued as fully-vested shares or (iii) the termination +of all outstanding options in connection with certain changes in control or +ownership of Odetics. +Stock Awards +The table below shows, as to each of the Named Executive Officers in the +Summary Compensation Table which appears elsewhere herein and the other +individuals and groups indicated, the number of shares of Class A common stock +subject to option grants made under the Plan from April 1, 2000 through July +27, 2001, together with the weighted average exercise price payable per share. +Odetics has not made any direct stock issuances to date under the Plan. +OPTION TRANSACTIONS +Number Of Shares Weighted Average +Underlying Exercise Price +Name And Position Options Granted (#) Per Share ($) +----------------- ------------------- ---------------- +Joel Slutzky................................................ -- $ -- +Chairman of the Board and Chief Executive Officer +of Odetics +Hugo Fruehauf............................................... -- -- +Vice President of Odetics, President and Chief +Executive Officer of Zyfer +Jack Johnson................................................ -- -- +Vice President of Odetics, President and Chief +Executive Officer of Iteris +Steven L'Heureux............................................ -- -- +Vice President of Odetics, President of Broadcast +Gregory A. Miner............................................ 35,000 10.000 +Director, Vice President, Chief Financial Officer +and Chief Operating Officer of Odetics +Kevin C. Daly, Ph.D......................................... 5,000 15.625 +Director +Crandall Gudmundson......................................... 5,000 15.625 +Director +Jerry F. Muench............................................. 5,000 15.625 +Director +John W. Seazholtz........................................... 20,000 14.500 +Director +Thomas L. Thomas............................................ 20,000 14.500 +Director +Paul E. Wright.............................................. 20,000 14.500 +Director +All current executive officers as a group (9 persons)....... 35,000 10.000 +All current non-employee directors as a group (6 persons)... 75,000 14.725 +All employees, including current officers who are not +executive officers, as a group............................. -- -- +14 +Federal Income Tax Consequences +Option Grants +Options granted under the Plan may be either incentive stock options which +satisfy the requirements of Section 422 of the Internal Revenue Code or non- +statutory options which are not intended to meet such requirements. The Federal +income tax treatment for the two types of options differs as follows: +Incentive Options. No taxable income is recognized by the optionee at the +time of the option grant, and no taxable income is generally recognized at the +time the option is exercised. The optionee will, however, recognize taxable +income in the year in which the purchased shares are sold or otherwise disposed +of in a taxable transaction. For Federal tax purposes, dispositions are divided +into two categories: (i) qualifying and (ii) disqualifying. A qualifying +disposition occurs if the sale or other disposition is made after the optionee +has held the shares for more than two (2) years after the option grant date and +more than one (1) year after the exercise date. If either of these two holding +periods is not satisfied, then a disqualifying disposition will result. +Upon a qualifying disposition, the optionee will recognize long-term capital +gain in an amount equal to the difference between (a) the amount realized upon +the sale or other disposition of the purchased shares and (b) the exercise +price paid for the shares. If there is a disqualifying disposition of the +shares, then an amount equal to the difference between (i) the fair market +value of those shares on the exercise date or sale (whichever is less) and (ii) +the exercise price paid for the shares will be taxable as ordinary income to +the optionee. Any additional gain or loss recognized upon the disposition will +be recognized as a capital gain or loss by the optionee. +If the optionee makes a disqualifying disposition of the purchased shares, +Odetics will be entitled to an income tax deduction, for the taxable year in +which such disposition occurs, equal to the ordinary income the optionee +recognized. If the optionee makes a qualifying disposition, Odetics will not be +entitled to any income tax deduction. +Non-Statutory Options. No taxable income is recognized by an optionee upon +the grant of a non-statutory option. In general, the optionee will recognize +ordinary income, in the year in which the option is exercised in an amount +equal to the difference between (a) the fair market value of the purchased +shares on the exercise date and (b) the exercise price paid for the shares, and +the optionee will be required to satisfy the tax withholding requirements +applicable to such income. +If the shares acquired upon exercise of the non-statutory option are +unvested and subject to repurchase by Odetics in the event of the optionee's +termination of service prior to vesting in those shares, then the optionee will +not recognize any taxable income at the time of exercise but will have to +report as ordinary income, as and when Odetics' repurchase right lapses, an +amount equal to the excess of (i) the fair market value of the shares on the +date the repurchase right lapses over (ii) the exercise price paid for the +shares. The optionee may, however, elect under Section 83(b) of the Internal +Revenue Code to include as ordinary income in the year of exercise of the +option an amount equal to the excess of (i) the fair market value of the +purchased shares on the exercise date over (ii) the exercise price paid for +such shares. If the Section 83(b) election is made, the optionee will not +recognize any additional income as and when the repurchase right lapses. +Odetics will be entitled to an income tax deduction equal to the amount of +ordinary income recognized by the optionee with respect to the exercised non- +statutory option. The deduction will in general be allowed for the taxable year +of Odetics in which such ordinary income is recognized by the optionee. +Stock Appreciation Rights +No taxable income is recognized upon receipt of a stock appreciation right. +The holder will recognize ordinary income, in the year in which the stock +appreciation right is exercised, in an amount equal to the appreciation +distribution. Odetics will be entitled to an income tax deduction equal to the +appreciation distribution in its taxable year in which such ordinary income is +recognized by the optionee. +Direct Stock Issuances +The tax principles applicable to direct stock issuances under the Plan will +be substantially the same as those summarized above for the exercise of non- +statutory option grants. +15 +Deductibility of Executive Compensation +Odetics anticipates that any compensation deemed paid by it in connection +with the disqualifying dispositions of incentive stock option shares or the +exercise of non-statutory options granted under the Plan will qualify as +performance-based compensation for purposes of Code Section 162(m) and will not +have to be taken into account for purposes of the $1 million limitation per +covered individual on the deductibility of the compensation paid to certain +executive officers of Odetics. Accordingly, all compensation deemed paid with +respect to those options will be deductible by Odetics without limitation under +Code Section 162(m). +Accounting Treatment +Under the current accounting principles in effect for equity incentive +programs such as the Plan, the option grants under the Discretionary Option +Grant and Automatic Option Grant Programs will not result in any direct charge +to Odetics' reported earnings. However, the fair value of those options is +required to be disclosed in the notes to Odetics' financial statements, and +Odetics must also disclose, in footnotes to Odetics' financial statements, the +pro-forma impact those options would have upon Odetics' reported earnings were +the fair value of those options at the time of grant treated as a compensation +expense. In addition, the number of outstanding options may be a factor in +determining Odetics' earnings per share on a fully-diluted basis. +Option grants made to consultants and independent advisors (but not non- +employee Board members) after December 15, 1998 will result in a direct charge +to Odetics' reported earnings on the vesting date of each installment of the +underlying option shares. No charge will, however, be required for periods +before July 1, 2000. +Should one or more individuals be granted tandem stock appreciation rights +under the Plan, then such rights would result in a compensation expense to be +charged against Odetics' reported earnings. Accordingly, at the end of each +fiscal quarter, the amount (if any) by which the fair market value of the +shares of Class A common stock subject to such outstanding stock appreciation +rights has increased from the prior quarter-end would be accrued as +compensation expense, to the extent such fair market value is in excess of the +aggregate exercise price in effect for those rights. +New Plan Benefits +As of July 27, 2001, no stock options had been granted, and no shares of +Class A common stock had been issued, on the basis of the share increase that +is the subject of this proposal. +Stockholder Approval +The affirmative vote of a majority of the voting power of the outstanding +shares of Class A common stock and Class B common stock of Odetics, voting +together as a class, present or represented by proxies and entitled to vote at +the Annual Meeting is required for approval of the proposed amendment to the +Plan. In the event stockholder approval is not obtained, then the share reserve +will not be increased. The Plan will, however, continue to remain in effect, +and option grants and stock issuances may continue to be made pursuant to the +provisions of the Plan prior to its amendment until the available reserve of +Class A common stock under the Plan is issued. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF +ODETICS AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF SUCH +PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH +PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE +AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN. +16 +PROPOSAL NO. 4 +APPROVAL OF SALE AND ISSUANCE OF COMMON STOCK +On September 6, 2000, Odetics entered into a Securities Purchase Agreement +(the "Purchase Agreement") with 24 accredited investors (the "Purchasers"), +including Mr. Joel Slutzky, the Chairman of the Board and Chief Executive +Officer of Odetics. The Purchase Agreement provided for the private placement +and sale of an aggregate of 1,199,851 shares of the Class A common stock to the +Purchasers at a purchase price of $14.26 per share, the average of the per +share closing price of the Class A common stock for the twenty trading days +ending on the third trading day before the closing date. The closing price of +the Class A common stock on the Nasdaq National Market was $16.625 per share on +September 6, 2000 and was $2.35 per share on July 27, 2001, the record date for +the Annual Meeting. +Odetics completed the sale of 1,199,851 shares of Class A common stock to +the Purchasers on September 6, 2000 and received gross proceeds of +approximately $17.1 million from the sale of the shares. B. Riley & Co. acted +as finder with respect to a portion of the private placement and, in connection +therewith, Odetics paid to B. Riley & Co. an aggregate fee of $317,500, which +represented 5% of the gross proceeds on the sales of Class A common stock to +the clients of B. Riley & Co. and 2.5% of the gross proceeds on the sales of +Class A common stock to Riley Hedge Fund Money. Odetics has used, and plans to +continue to use, the net proceeds of the private placement (i) for repayment of +indebtedness under its credit facility and (ii) for working capital and general +corporate purposes. Odetics filed a Registration Statement on Form S-3 with the +Securities and Exchange Commission to register for resale the 1,199,851 shares +of Class A common stock sold in the private placement. +Of the shares sold in the private placement, Mr. Slutzky purchased 70,126 +shares for an aggregate purchase price of approximately $1.0 million. As of +July 27, 2001, Mr. Slutzky beneficially owned 8.3% of the shares of Class A +common stock outstanding and 25.3% of the shares of Class B common stock +outstanding, representing 17.1% of the voting power of the outstanding common +stock. In accordance with Rule 4350 of the Nasdaq Stock Market, Odetics is +requesting that its stockholders approve and ratify the sale and issuance of +the 70,126 shares of Class A common stock to Mr. Slutzky. +Nasdaq's Stockholder Approval Requirement +Rule 4350 requires stockholder approval for any arrangement pursuant to +which stock may be acquired by officers or directors unless the amount of +securities which may be issued does not exceed the lesser of: (i) 1% of the +number of shares of common stock outstanding, (ii) 1% of the voting power +outstanding, or (iii) 25,000 shares. In order to comply with such rule, the +sale of shares to Mr. Slutzky was conditioned upon the receipt of stockholder +approval of such sale. Mr. Slutzky has tendered the full purchase price for his +shares. +Stockholder Approval +The affirmative vote of a majority of the voting power of the outstanding +shares of Class A common stock and Class B common stock of Odetics, voting +together as a single class, present or represented by proxies and entitled to +vote at the Annual Meeting is required for approval and ratification of the +sale and issuance to Mr. Slutzky of 70,126 shares of Class A common stock. In +the event stockholder approval is not obtained, then only 25,000 shares of +Class A common stock shall be deemed to have been sold to Mr. Slutzky pursuant +to the exemption under Rule 4350, and Odetics will immediately refund all +amounts paid by Mr. Slutzky in excess of the amounts payable for such 25,000 +shares. The failure to obtain stockholder approval will not affect the sale of +any shares in the private placement to any Purchaser other than Mr. Slutzky. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF +ODETICS AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF SUCH +PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH +PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL AND +RATIFICATION OF THE SALE AND ISSUANCE TO MR. SLUTZKY OF 70,126 SHARES OF CLASS +A COMMON STOCK. +17 +PROPOSAL NO. 5 +RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of Ernst & Young LLP served as the independent auditors +of Odetics for the fiscal year ended March 31, 2001. The Board of Directors has +selected that firm to continue in this capacity for the fiscal year ending +March 31, 2002. Odetics is asking the stockholders to ratify the selection by +the Board of Directors of Ernst & Young LLP as the independent auditors of +Odetics to audit the consolidated financial statements of Odetics for the +fiscal year ending March 31, 2002 and to perform other appropriate services. +Stockholder ratification of the selection of Ernst & Young LLP as Odetics' +independent auditors is not required by the bylaws of Odetics or otherwise. In +the event that the stockholders fail to ratify the appointment, the Board of +Directors will reconsider its selection. Even if the selection is ratified, the +Board of Directors, in its discretion, may direct the appointment of a +different independent accounting firm at any time during the year if the Board +of Directors feels that such a change would be in the best interest of Odetics +and its stockholders. +A representative of Ernst & Young LLP is expected to be present at the +Annual Meeting to respond to stockholders' questions, and that representative +will be given an opportunity to make a brief presentation to the stockholders +if he or she so desires. +Stockholder Approval +The affirmative vote of a majority of the voting power of the Class A common +stock and Class B common stock of Odetics, voting together as a single class, +present or represented and entitled to vote at the Annual Meeting will be +required for ratification of the selection of Ernst & Young LLP as the +independent auditors of Odetics for the fiscal year ending March 31, 2002. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE +RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG LLP AS THE +INDEPENDENT AUDITORS OF ODETICS FOR THE FISCAL YEAR ENDING MARCH 31, 2002. +18 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 27, 2001, the number and +percentage ownership of the Class A common stock and Class B common stock of +Odetics by (i) all persons known to Odetics to beneficially own more than 5% of +either class of outstanding common stock (based upon reports filed by such +persons with the SEC), (ii) each of the Named Executive Officers in the Summary +Compensation Table which appears elsewhere herein, (iii) each director of +Odetics and director nominee named under "Election of Directors," and (iv) all +executive officers and directors of Odetics as a group. To the knowledge of +Odetics, except as otherwise indicated, each of the persons named in this table +has sole voting and investment power with respect to the common stock shown as +beneficially owned, subject to community property and similar laws, where +applicable. +Class A Common Stock Class B Common Stock +---------------------------- ---------------------------- +Amount and Nature Amount and Nature +Name and Address of of Beneficial Percent of of Beneficial Percent of +Beneficial Owner (1) Ownership(2)(3) Class(2) Ownership(2)(3) Class(2) +-------------------- ----------------- ---------- ----------------- ---------- +Joel Slutzky............ 797,190(4) 8.3% 261,647(5) 25.3% +Gerald A. Weber......... 372,201(6) 3.9 194,478 18.8 +New York Life Trust +Company................ 767,515(7) 8.0 -- -- +Kevin C. Daly, Ph.D..... 28,744(8) * -- -- +Crandall Gudmundson..... 117,777(9) 1.2 69,743 6.7 +Gregory A. Miner........ 115,933(10) 1.2 -- -- +Jerry F. Muench......... 113,308(11) 1.2 61,537(12) 5.9 +John W. Seazholtz....... 32,797(13) * -- -- +Thomas L. Thomas........ 21,250(14) * -- -- +Paul E. Wright.......... 60,244(15) * 5,000 * +Hugo Fruehauf........... 42,668(16) * -- -- +Jack Johnson............ 59,440(17) * -- -- +Steven L'Heureux........ 4,490(18) * -- -- +All executive officers +and directors as a +group (15 persons)..... 1,602,615(19) 16.2% 406,045 39.2% +-------- +* Represents less than 1%. +(1) The address for Gerald A. Weber is 222 North LaSalle, Suite 899, Chicago, +Illinois 60601. The address for New York Life Trust Company is 51 Madison +Avenue, Room 117A, New York, New York 10010. The address of all other +persons named in the table is 1515 South Manchester Avenue, Anaheim, +California 92802. +(2) Based on 9,542,889 shares of the Class A common stock and 1,035,841 shares +of Class B common stock outstanding as of July 27, 2001. Shares of each +class of common stock subject to options which are exercisable within 60 +days of July 27, 2001 are deemed to be beneficially owned by the person +holding such options for the purpose of computing the percentage of +ownership of such person but are not treated as outstanding for the purpose +of computing the percentage of any other person. Other than as described in +the preceding sentence, shares issuable upon exercise of outstanding +options are not deemed to be outstanding for purposes of this calculation. +(3) In addition to the shares held in the individual's name, this column also +includes shares held for the benefit of the named person under Odetics' +401(k) and Stock Ownership Plan. +(4) Includes 105,000 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after July +27, 2001. Excludes 335,822 shares held in trust for the benefit of the +children and relatives of Mr. Slutzky as to which Mr. Slutzky has no +investment or voting power and disclaims any beneficial ownership. See note +6. +19 +(5) Excludes 140,090 shares held in trust for the benefit of the children and +relatives of Mr. Slutzky as to which Mr. Slutzky has no investment or +voting power and disclaims any beneficial ownership. See note 6. +(6) All of such shares are owned beneficially of record by various trusts with +respect to which Mr. Weber serves as trustee or co-trustee. Mr. Weber +shares investment and voting power as to 29,379 shares of Class A common +stock and 56,088 shares of Class B common stock. Mr. Weber exercises sole +investment and voting power over the remaining 342,822 shares of Class A +common stock and 138,390 shares of Class B common stock. The shares shown +include an aggregate of 335,822 shares of Class A common stock and 140,090 +shares of Class B common stock held in trust for the benefit of the +children and relatives of Mr. Slutzky, as to which shares Mr. Slutzky has +no investment or voting power and disclaims any beneficial ownership. +(7) Pursuant to a Schedule 13G filed on February 12, 2001 with the SEC, New +York Life Trust Company reported that it had sole voting power and sole +dispositive power over all 767,515 shares, in its capacity as trustee of +the Odetics 401(K) and Stock Ownership Plan on behalf of numerous plan +participants. +(8) Includes 100 shares held by Dr. Daly's spouse. Also includes 6,250 shares +issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 27, 2001. +(9) Includes 4,500 shares held by Mr. Gudmundson's IRA and 6,250 shares +issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 27, 2001. +(10) Includes 61,667 shares issuable upon exercise of options held by Mr. Miner +that are currently exercisable or will become exercisable within 60 days +after July 27, 2001. +(11) Includes 31,114 shares held by Mr. Muench's spouse and 6,250 shares +issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 27, 2001. +(12) Includes 23,235 shares held by Mr. Muench's spouse. +(13) Includes 23,250 shares issuable upon exercise of options held by Mr. +Seazholtz that are currently exercisable or will become exercisable within +60 days after July 27, 2001. +(14) Consists of shares issuable upon exercise of options held by Mr. Thomas +that are currently exercisable or will become exercisable within 60 days +after July 27, 2001. +(15) Includes 21,250 shares issuable upon exercise of options held by Mr. +Wright that are currently exercisable or will become exercisable within 60 +days after July 27, 2001. +(16) Includes 12,000 shares issuable upon exercise of options held by Mr. +Fruehauf that are currently exercisable or will become exercisable within +60 days after July 27, 2001. +(17) Includes 12,000 shares issuable upon exercise of options held by Mr. +Johnson that are currently exercisable or will become exercisable within +60 days after July 27, 2001. +(18) Includes 3,333 shares issuable upon exercise of options held by Mr. +L'Heureux that are currently exercisable or will become exercisable within +60 days after July 27, 2001. +(19) Includes 359,501 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after July +27, 2001. +20 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The following table sets forth certain information regarding all executive +officers of Odetics as of July 27, 2001. +Name Age Capacities in Which Served +---- --- -------------------------- +Joel Slutzky......... 62 Chairman of the Board and Chief Executive Officer of +Odetics and Broadcast +Chairman of the Board and Vice President of Gyyr +Chairman of the Board of Iteris and Zyfer +Director and Vice President of Mariner Networks +Director of Meyer, Mohaddes Associates +Thomas G. Bartholet.. 53 Vice President, Corporate Development of Odetics +Director and Secretary of Broadcast +Hugo Fruehauf........ 62 Vice President of Odetics +Director, President and Chief Executive Officer of +Zyfer +Jack Johnson......... 54 Vice President of Odetics +Director, President and Chief Executive Officer of +Iteris +Director of Meyer, Mohaddes Associates +Steven L'Heureux..... 45 Vice President of Odetics +Director and President of Broadcast +Gregory A. Miner..... 46 Vice President, Chief Financial Officer, Chief +Operating Officer and Director of Odetics +Chief Financial Officer and Assistant Secretary of +Broadcast +Director, Chief Financial Officer and Secretary of +Gyyr +Director of Iteris +Chief Financial Officer of Mariner Networks +Director, Chief Financial Officer and Secretary of +Meyer, Mohaddes Associates and Zyfer +David Scheel......... 49 Vice President of Odetics +Director, President and Chief Executive Officer of +Mariner Networks +Gary Smith........... 44 Vice President, Controller and Assistant Secretary +of Odetics +Assistant Secretary of Broadcast, Iteris, Gyyr, +Mariner Networks, Meyer, Mohaddes Associates and +Zyfer +Peter Strom.......... 37 Vice President of Odetics +Director, President and Chief Executive Officer of +Gyyr +The following is a brief description of the capacities in which each of the +executive officers has served during the past five years. The biographies of +Messrs. Miner and Slutzky appear earlier in this proxy statement. See "Election +of Directors." +Thomas G. Bartholet has served as the Vice President, Corporate Development +of Odetics since 1993 and as the Director, Corporate Development of Odetics +from 1990 to 1993. Prior to that, Mr. Bartholet served as the General Manager +of the Advanced Intelligent Machines division of Odetics from 1986 to 1990 and +as the Director of Strategic Planning of Odetics from 1983 to 1986. +Hugo Fruehauf has served as a Vice President of Odetics since February 1999. +Mr. Fruehauf joined Odetics in October 1997 as the Chief Technology Officer of +the Communications division and became the President of the Communications +division in December 1997. Prior to joining Odetics, Mr. Fruehauf was the +21 +Group Vice President of Defense Systems at Alliant Techsystems, a developer of +smart tactical weapons systems. From 1978 to 1995, Mr. Fruehauf served as +President of Efratom Time and Frequency Products, a company specializing in +telecommunications. From 1965 to 1978, Mr. Fruehauf was employed by Rockwell +International in various management functions, including Chief Engineer. +Jack Johnson has served as a Vice President of Odetics since 1986 and has +served as the President of Odetics' subsidiary, Iteris, Inc., since its +formation in 1998. Prior to that, he served as the General Manager of the +Odetics ITS (Iteris) division from 1996 to 1998, prior to its incorporation. +From 1990 to 1996, Mr. Johnson served as the General Manager of the Gyyr +Customer Service division. Mr. Johnson served in various other capacities with +Odetics since joining Odetics in 1974, including the Vice President and General +Manager of the Omutec division from 1986 to 1990, the Director of Contracts for +the Space division from 1980 to 1986, the Controller of Infodetics, a former +subsidiary of Odetics, from 1975 to 1980 and the Controller of Odetics from +1974 to 1975. Prior to joining Odetics, Mr. Johnson served as a certified +public accountant with Peat Marwick. +Steve L'Heureux has served as a Vice President of Odetics since June 2000 +and as the President and Chief Executive Officer of Odetics' subsidiary, +Broadcast, Inc., since June 2000. From March 1999 to June 2000, he served as +Vice President of Sales and Marketing of Broadcast. Prior to joining Odetics, +from August 1996 to February 1999, Mr. L'Heureux served as Vice President of +Sales and Marketing at Vibrint Technologies, Inc., a developer of digital video +server solutions for broadcast, cable and video applications. From October 1994 +to August 1996, Mr. L'Heureux was Vice President of Sales and Business +Development for Minerva Systems, Inc., a provider of MPEG video compression +systems for video and DVD applications. He has also held various North American +and international sales management positions with the Eastman Kodak Company. +David Scheel has served as a Vice President of Odetics since September 1997 +and as the President and Chief Executive Officer of Odetics' subsidiary, +Mariner Networks, since its formation in August 1998. Prior to that, Mr. Scheel +served as the General Manager of Odetics' Telecom division from January 1997 to +March 1998. Mr. Scheel has also served in various other management positions +with Odetics since joining Odetics in 1982. +Gary Smith has served as the Controller of Odetics since 1992 and became a +Vice President in August 1994. Prior to that, Mr. Smith served as the Assistant +Controller of Odetics from 1990 until 1992, and as Senior Financial Analyst +from 1986 until 1990. +Peter Strom has served as the President and Chief Executive Officer of Gyyr +Incorporated since August 1999. Prior to that, from February 1999 to August +1999, he served as the Vice President of Sales for Gyyr. Before joining +Odetics, from January 1997 to February 1999, Mr. Strom served as the Vice +President of International Sales for Mosler, a provider of CCTV systems. From +May 1995 until January 1997, Mr. Strom managed Sensormatic Electronics' global +account programs and formulated new sales channel programs specifically in the +Asia-Pacific and European regions. +Officers serve at the discretion of the Board of Directors. +22 +Summary of Cash and Certain Other Compensation +The following table provides certain summary information concerning the +compensation earned by the Chief Executive Officer and each of the four other +most highly compensated executive officers of Odetics whose total cash salary +and bonus during the fiscal year ended March 31, 2001 exceeded $100,000 +(collectively, the "Named Executive Officers") for each of the three fiscal +years ended March 31, 1999, 2000 and 2001. No other executive officers who +would have otherwise been includable in such table on the basis of salary +earned for the fiscal year ended March 31, 2001 has been excluded by reason of +his or her termination of employment or change in executive status during that +year. No bonuses have been paid to the Named Executive Officers during the +fiscal years ended March 31, 1999, 2000 and 2001. +SUMMARY COMPENSATION TABLE +Long-Term Compensation +Annual ------------------------- +Compensation Awards +------------- ------------------------- +Securities All Other +Fiscal Salary Bonus Restricted Underlying Compensation +Name and Principal Positions Year ($)(1) ($) Stock Options (#)(2) ($)(3) +---------------------------- ------ ------- ----- ---------- -------------- ------------ +Joel Slutzky ........................ 2001 326,890 -- -- -- 3,211 +Chairman of the Board and 2000 326,910 -- -- 55,000 4,800 +Chief Executive Officer of Odetics 1999 326,111 -- -- 55,000 5,157 +Gregory A. Miner .................... 2001 214,662 -- -- 30,000 3,891 +Vice President, Chief Operating 2000 182,066 -- -- 30,000 5,122 +Officer and Chief Financial Officer 1999 156,751 -- -- 25,000 4,613 +of Odetics +Jack Johnson......................... 2001 185,958 -- -- -- 2,831 +Vice President of Odetics 2000 159,034 -- -- -- 3,869 +Chief Executive Officer of Iteris 1999 152,115 -- -- -- 3,920 +Hugo Fruehauf(4)..................... 2001 174,969 -- -- -- 3,875 +Vice President of Odetics 2000 172,907 -- -- -- 4,868 +Chief Executive Officer of Zyfer 1999 180,000 -- -- -- 5,000 +Steven L'Heureux(5).................. 2001 183,462 -- -- -- 3,975 +Vice President of Odetics 2000 172,715 -- -- -- 3,701 +President of Broadcast 1999 -- -- -- -- -- +-------- +(1) Represents all amounts earned from Odetics and its subsidiaries during the +fiscal years shown, including amounts deferred under the Executive Deferral +Plan and the Odetics 401(k) and Stock Ownership Plan. +(2) Consists of options granted pursuant to Odetics' 1994 Long-Term Equity +Incentive Plan and 1997 Stock Incentive Plan entitling the holder to +purchase shares of Class A common stock of Odetics. +(3) Consists solely of the matching contribution of Odetics to the respective +accounts of the Named Executive Officers under the Odetics 401(k) and Stock +Ownership Plan. +(4) Mr. Fruehauf joined Odetics in October 1997 and was first appointed an +executive officer in May 1999. In fiscal 2001, Mr. Fruehauf was granted an +option to purchase 250,000 shares of common stock of Zyfer. +(5) Mr. L'Heureux joined Broadcast, Inc., a subsidiary of Odetics, in March +1999 and was first appointed an executive officer of Odetics in June 2000. +23 +Stock Options +The following table sets forth information with respect to grants of options +to purchase Class A common stock during the fiscal year ended March 31, 2001 to +each of the Named Executive Officers. No stock appreciation rights were granted +to any of the Named Executive Officers. +OPTION GRANTS IN LAST FISCAL YEAR +Potential Realizable +Individual Grants Value at Assumed +------------------------------------------------- Annual Rates of +Number of Percent of Stock Price +Securities Total Options Appreciation for +Underlying Granted to Option Term(3) +Options Employees in Exercise or Expiration --------------------- +Name Granted(1) Fiscal 2001 Base Price(2) Date 5% 10% +---- ---------- ------------- ------------- ---------- ---------- ---------- +Joel Slutzky............ -- -- -- -- -- -- +Gregory A. Miner........ 30,000 100.0% $10.000 04/14/10 $220,113 $557,810 +Jack Johnson............ -- -- -- -- -- -- +Hugo Fruehauf(4)........ -- -- -- -- -- -- +Steven L'Heureux........ -- -- -- -- -- -- +-------- +(1) The option was granted pursuant to Odetics' 1997 Stock Incentive Plan and +entitles the holder to purchase shares of Class A common stock of Odetics. +The option has a maximum term of ten years, subject to earlier termination +in the event of the optionee's termination of employment with Odetics or +its subsidiaries. The option vests in three equal annual installments with +the first installment vesting on the first year anniversary of the grant +date, subject to acceleration of vesting in the event of the merger, +consolidation or reorganization of Odetics if such option is not assumed or +otherwise continued in effect in such transaction. In addition, the +Compensation and Stock Option Committee has the authority to provide for +the accelerated vesting of the option whether or not the option is assumed +or otherwise continued in effect or upon the termination of the optionee's +employment following such transaction. +(2) Odetics may also finance the option exercise by loaning the optionee +sufficient funds to pay the exercise price for the purchased shares and the +applicable federal and state withholding taxes to which the optionee +becomes subject in connection with such exercise. +(3) The 5% and 10% assumed rates of appreciation are prescribed by the rules +and regulations of the SEC and do not represent management's estimate or +projection of future trading prices of the Class A common stock. Unless the +market price of the common stock does in fact appreciate over the option +term, no value will be realized from the option grants. Actual gains, if +any, are dependent upon numerous factors, including, without limitation, +the future performance of Odetics and its business units, overall business +and market conditions, and the option holder's continued employment with +Odetics throughout the entire vesting period and option term, which factors +are not reflected in this table. +(4) In connection with his services to Zyfer, Inc., a subsidiary of Odetics, +Mr. Fruehauf was granted an option to purchase 250,000 shares of the common +stock of Zyfer under the Zyfer, Inc. Special Executive Stock Option Plan at +an exercise price of $0.50 per share. The option has a maximum term of ten +years, subject to earlier termination in the event of the optionee's +termination of employment with Zyfer and its affiliates. The option is +immediately exercisable but is subject to Zyfer's right to repurchase any +unvested shares. The option vests, and the right of repurchase lapses, +after five years, subject to acceleration of vesting in the event of the +consummation of an initial public offering of the securities of Zyfer. In +addition, the Board of Directors of Zyfer has the authority to provide for +the accelerated vesting of the option. +24 +Aggregated Option Exercises and Fiscal Year End Values +The table below sets forth certain information with respect to the Named +Executive Officers concerning the unexercised options held by them as of the +end of the fiscal year ended March 31, 2001. No options were exercised by any +of the Named Executive Officers during that fiscal year, and none of the Named +Executive Officers held or exercised any stock appreciation rights during the +fiscal year ended March 31, 2001. +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR +AND YEAR END OPTION VALUES +Number of Securities +Underlying Unexercised Value of Unexercised +Options at In-the-Money Options at +March 31, 2001 (#) March 31, 2001 ($) +------------------------- ------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Joel Slutzky................ 105,000 55,000 -- -- +Hugo Fruehauf............... 12,000 -- -- -- +Jack Johnson................ 12,000 -- -- -- +Steven L'Heureux............ 3,333 6,667 -- -- +Gregory A. Miner............ 61,667 48,333 -- -- +Benefit Plans +Odetics maintains a 401(k) and Stock Ownership Plan (the "Stock Ownership +Plan") which qualifies for favorable tax treatment under Section 401(a) of the +Internal Revenue Code. The Stock Ownership Plan is the result of the merger of +the Odetics, Inc. Profit Sharing and 401(k) Plan and the Odetics Associates +Stock Ownership Plan. +Employees become eligible to make pre-tax contributions to the Stock +Ownership Plan pursuant to Internal Revenue Code Section 401(k) as of the +January 1, April 1, July 1 or October 1 coincident with or next following the +date on which they are hired. Participants may contribute an amount not in +excess of $10,500 for calendar year 2001. Employees become eligible to receive +an allocation of employer contributions to the Stock Ownership Plan as of the +January 1, April 1, July 1 or October 1 coincident with or next following the +date on which they have completed six months of service with Odetics. These +contributions may be made in the form of cash or Odetics stock. No +contributions were made by Odetics to the Stock Ownership Plan for the fiscal +years ended March 31, 1999, 2000 and 2001. +Contributions that are made to the Stock Ownership Plan are allocated to the +separate accounts of participants and are held in a trust. Participant accounts +are credited with investment gains and charged with investment losses. +Participant contributions are always fully vested at all times, and the Odetics +contributions on behalf of participants vest at the rate of 33 1/3 percent per +year of service. Following termination of employment, the vested portion of the +participant's account balance is distributed in a lump sum payment. +Odetics also maintains an Executive Deferral Plan which allows designated +executives to defer the receipt of some of their current compensation until a +future year. These executives may elect to defer the receipt of up to 75% of +their annual compensation, but in no event may they elect to defer less than +$5,000. Benefits are generally fully vested at all times, and are payable +following termination of employment in the manner elected by the executive. The +Executive Deferral Plan does not qualify for favorable income tax treatment. +Employment Contracts, Termination of Employment Agreements and Change of +Control Arrangements +Odetics does not currently have any employment contracts in effect with any +of its Named Executive Officers. Odetics provides incentives such as salary, +benefits and option grants to attract and retain executive +25 +officers and other key associates. The Compensation and Stock Option Committee, +as Plan Administrator of the 1997 Stock Incentive Plan, has the authority to +provide for the accelerated vesting of outstanding options held by an +individual, in connection with the termination of such individual's employment +following an acquisition in which these options are assumed or the repurchase +rights with respect to the unvested shares are assigned or upon certain hostile +changes in control of Odetics. Other than such accelerated vesting and the +agreements described below, there is no agreement or policy which would entitle +any executive officer to severance payments or any other compensation as a +result of such officer's termination. +In January 2001, Odetics entered into an Executive Ownership/Severance Plan +with Steven L'Heureux, a Vice President of Odetics and the President and a +director of Broadcast, Inc., a subsidiary of Odetics. Under the plan, in the +event Mr. L'Heureux's employment is terminated without cause by Odetics during +the term of the plan, Mr. L'Heureux is entitled to receive twelve months of +salary and benefits, at the same level as those provided to him at the time of +execution of the plan. In addition, if Broadcast is sold before December 31, +2001, the date of termination of the plan, and the buyer does not offer +employment to Mr. L'Heureux on terms at least substantially equal to the terms +of his employment with Broadcast, Mr. L'Heureux is entitled to two years of +salary and benefits, at the same level as those provided to him at the time of +execution of the ownership/severance plan. Even if the buyer offers employment +and Mr. L'Heureux accepts, if such employment is terminated without cause or if +certain other events occur, Mr. L'Heureux is entitled to salary and benefits +for the remainder of the two year term, measured from the date of his initial +employment with the buyer. +In May 2001, Odetics entered into a Severance Benefit Plan with Peter Strom, +a Vice President of Odetics and the President, Chief Executive Officer and a +director of Gyyr Incorporated, a subsidiary of Odetics. Under the plan, in the +event Mr. Strom's employment is terminated without cause by Gyyr during the +term of the plan, Mr. Strom is entitled to receive two years of salary and +benefits, at the same level as those provided to him at the time of execution +of the plan. In addition, if Gyyr is sold before October 4, 2001, the date of +termination of the plan, and the buyer does not offer employment to Mr. Strom +on terms at least substantially equal to the terms of his employment with Gyyr, +Mr. Strom is entitled to two years of salary and benefits, at the same level as +those provided to him at the time of execution of the severance plan. Even if +the buyer offers employment and Mr. Strom accepts, if such employment is +terminated without cause or if certain other events occur, Mr. Strom is +entitled to salary and benefits for the remainder of the two year term, +measured from the date of his initial employment with the buyer. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, Odetics can +indemnify its directors and officers against liabilities they may incur in such +capacities, including liabilities under the Securities Act of 1933 (the +"Securities Act"). The certificate of incorporation and the bylaws of Odetics +provide that Odetics will indemnify its directors and officers to the fullest +extent permitted by law, and the bylaws require Odetics to advance litigation +expenses upon receipt by Odetics of an undertaking by the director or officer +to repay such advances if it is ultimately determined that the director or +officer is not entitled to indemnification. The bylaws further provide that +rights conferred under such bylaws do not exclude any other right such persons +may have or acquire under any bylaw, agreement, vote of stockholders or +disinterested directors or otherwise. +Odetics' certificate of incorporation provides that, pursuant to Delaware +law, its directors shall not be liable for monetary damages for breach of the +directors' fiduciary duty of care to Odetics and its stockholders. This +provision in the certificate of incorporation does not eliminate the duty of +care, and in appropriate circumstances equitable remedies such as injunctive or +other forms of non-monetary relief will remain available under Delaware law. In +addition, each director will continue to be subject to liability for breach of +the director's duty of loyalty to Odetics or its stockholders, for acts or +omissions not in good faith or involving intentional misconduct or knowing +violations of law, for actions leading to improper personal benefit to the +director, and for payment of dividends or approval of stock repurchases or +redemptions that are unlawful under Delaware law. The provision also does not +affect a director's responsibilities under any other law, such as the federal +securities laws or state or federal environmental laws. +26 +Odetics has entered into agreements to indemnify its directors and certain +of its officers in addition to the indemnification provided for in the +certificate of incorporation and bylaws. These agreements, among other things, +indemnify Odetics' directors and certain of its officers for certain expenses +(including attorneys' fees), judgments, fines and settlement amounts incurred +by such person in any action or proceeding, including any action by or in the +right of Odetics, on account of services as a director or officer of Odetics, +or as a director or officer of any other company or enterprise to which the +person provides services at the request of Odetics. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation and Stock Option Committee of Odetics' Board +of Directors during the fiscal year ended March 31, 2001 were Messrs. Daly, +Seazholtz and Thomas. None of these individuals was an officer or employee of +Odetics or its subsidiaries at any time during the fiscal year ended March 31, +2001. +No executive officer of Odetics has served on the Board of Directors or on +the compensation committee of any other entity that has, or has had, one or +more executive officers serving as a member of the Board of Directors or on the +Compensation and Stock Option Committee of Odetics. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers Odetics' fiscal year ended March 31, 2001. The +Compensation and Stock Option Committee (the "Compensation Committee") for the +fiscal year ended March 31, 2001 was comprised of three outside directors, +Messrs. Daly, Seazholtz and Thomas. The Compensation Committee recommends the +general compensation levels for executives. The Compensation Committee meets +periodically to review and recommend for approval by the Board of Directors, +the salaries, bonuses and benefit plans for officers and key associates. During +the fiscal year ended March 31, 2001, the Compensation Committee held one +meeting. +General Compensation Policy +The guiding principle of the Compensation Committee is to establish a +compensation program that aligns executive compensation with Odetics' +objectives and business strategies as well as with financial and operational +performance. In keeping with this principle the Compensation Committee seeks +to: +(1) Attract and retain qualified senior executives who can play a +significant role in the achievement of Odetics' goals; +(2) Reward executives for strategic management and the long-term +enhancement of stockholder value; and +(3) Create a performance-oriented environment that rewards performance with +respect to the financial and operational goals of Odetics. +In the fiscal year ended March 31, 2001, the annual compensation for the +executive officers included base salaries and stock options. +Odetics establishes salaries for the officers by considering the salaries of +officers at comparably sized companies according to data obtained by the +Compensation Committee from executive compensation consultants and from other +independent outside sources, including the American Electronics Association +annual survey of executive compensation. +A substantial portion of the compensation of executive officers is based +upon the award of stock options which rely on increases in the value of +Odetics' securities. The award of options is intended to encourage executives +to establish a meaningful, long-term ownership interest in Odetics consistent +with the interests of Odetics' stockholders. Under Odetics' stock option plans, +options are granted from time to time to certain officers and key associates of +Odetics and its subsidiaries at the fair market value of the shares of Class A +common stock at the time of grant. Because the compensation element of options +is dependent on increases +27 +over time in the market value of such shares, stock options represent +compensation that is tied to Odetics' long-term performance. The award of stock +options to the executive officers of Odetics is determined based upon +individual performance, level of base salary and position with Odetics. +The Compensation Committee has reviewed the base salaries for the fiscal +year ended March 31, 2001 of each of the executive officers and is of the +opinion that such salaries are not unreasonable in view of those paid by +Odetics' competitors and by other companies of similar size. The Compensation +Committee also reviewed the stock options awarded to the executive officers for +their services in the fiscal year ended March 31, 2001 and is of the opinion +that the option awards are reasonable in view of the officers' individual +performance and positions with Odetics. +CEO Compensation +In setting the total compensation payable to Joel Slutzky, Odetics' Chief +Executive Officer and Chairman of the Board, for the fiscal year ended March +31, 2001, the Compensation Committee sought to make such compensation +competitive with that provided by other companies with which Odetics competes +for executive talent. With respect to Mr. Slutzky's base salary, it was the +Compensation Committee's intent to provide him with a level of stability and +certainty each year and not have this particular component of compensation +affected to any significant degree by corporate performance factors. The +Compensation Committee believes Mr. Slutzky's base salary for the fiscal year +ended March 31, 2001 is at a competitive level with the base salaries in effect +for similarly situated chief executive officers. The remaining components of +Mr. Slutzky's fiscal year ended March 31, 2001 compensation, however, were +primarily dependent upon corporate performance. Based upon such performance, +among other factors, no bonus was paid to Mr. Slutzky for the fiscal year ended +March 31, 2001 and no options were granted to him for the fiscal year ended +March 31, 2001. +Compliance with Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code generally disallows a tax +deduction to publicly held corporations for compensation exceeding $1.0 million +paid to certain of the corporation's executive officers. The limitation applies +only to compensation which is not considered to be performance-based. The +nonperformance based compensation to be paid to Odetics' executive officers for +the fiscal year ended March 31, 2001 did not exceed the $1.0 million limit per +officer, nor is it expected that the nonperformance based compensation to be +paid to Odetics' executive officers for the next fiscal year will exceed that +limit. Odetics' 1997 Stock Incentive Plan is structured so that any +compensation deemed paid to an executive officer in connection with the +exercise of option grants made under that plan will qualify as performance- +based compensation which will not be subject to the $1.0 million limitation. +Because it is very unlikely that the cash compensation payable to any of +Odetics' executive officers in the foreseeable future will approach the +$1.0 million limit, the Compensation Committee has decided at this time not to +take any other action to limit or restructure the elements of cash compensation +payable to Odetics' executive officers. The Compensation Committee will +reconsider this decision should the individual compensation of any executive +officer ever approach the $1.0 million level. +Submitted by the Compensation +Committee of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +28 +AUDIT COMMITTEE REPORT +The following is the report of the audit committee with respect to the +audited consolidated financial statements of Odetics for the fiscal year ended +March 31, 2001 included in Odetics' Annual Report on Form 10-K/A for that year. +Review with Management +The audit committee has reviewed and discussed these audited consolidated +financial statements with management of Odetics. +Review and Discussions with Independent Auditors +The audit committee has discussed with Odetics' independent auditors, Ernst +& Young LLP, the matters required to be discussed by SAS 61 (Codification of +Statements on Auditing Standards, AU Section 380), as amended, which includes, +among other items, matters related to the conduct of the audit of the +consolidated financial statements of Odetics. +The audit committee has received the written disclosures and the letter from +Ernst & Young LLP required by Independence Standards Board Standard No. 1 +("Independence Discussions with Audit Committees"), as amended, and has +discussed with Ernst & Young LLP the independence of Ernst & Young LLP from +Odetics. +Conclusion +Based on the review and discussions referred to above in this report, the +audit committee recommended to the Board of Directors of Odetics that the +audited consolidated financial statements be included in Odetics' Annual Report +on Form 10-K/A for the year ended March 31, 2001 for filing with the Securities +and Exchange Commission. +Submitted by the Audit Committee +of the Board of Directors: +John W. Seaholtz +Thomas L. Thomas +Paul E. Wright +AUDIT AND OTHER FEES +Fees Billed to Odetics by Ernst & Young LLP During the Fiscal Year Ended March +31, 2001 +Audit Fees. Audit fees billed to Odetics by Ernst & Young LLP during the +fiscal year ended March 31, 2001 for audit of Odetics' annual consolidated +financial statements and review of those consolidated financial statements +included in Odetics' quarterly reports on Forms 10-Q totaled approximately +$162,000. +Financial Information Systems Design and Implementation Fees. Odetics did +not engage Ernst & Young LLP to provide advice or services to Odetics regarding +financial information systems design and implementation during the fiscal year +ended March 31, 2001. +All Other Fees. Other audit-related fees for the fiscal year ended March 31, +2001 were an additional $152,500 and included, among other things, fees for +registration statements, fees related to a private placement, and audits of +certain subsidiaries of Odetics. Fees billed to Odetics for non-audit-related +services rendered by Ernst & Young LLP for the fiscal year ended March 31, +2001, including fees for tax compliance and tax consulting services, were +approximately $71,500. In the aggregate, all such other fees, including audit- +related fees, totaled approximately $224,000. +Determination of Independence +The Audit Committee of the Board of Directors has determined that the +provision by Ernst & Young LLP of the services covered under the headings +"Financial Information Systems Design and Implementation Fees" and "All Other +Fees" above are compatible with maintaining Ernst & Young LLP's independence. +29 +PERFORMANCE GRAPH FOR ODETICS, INC. +INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph shows the cumulative total return on investment +assuming an investment of $100 on April 1, 1996 in each of the Class A common +stock and Class B common stock of Odetics, the Nasdaq National Market Index and +Media General's Industry Group 836 for Diversified Electronics. The total +stockholder return assumes reinvestment of dividends on a daily basis, although +cash dividends have not been declared on either class of Odetics' common stock. +The stockholder returns shown in the following graph are not necessarily +indicative of future performance. +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN +AMONG ODETICS, INC. CLASS A AND CLASS B COMMON STOCK, +NASDAQ NATIONAL MARKET INDEX AND MG GROUP INDEX +[PERFORMANCE GRAPH APPEARS HERE] +ASSUMES $100 INVESTED ON APRIL 1, 1996 +ASSUMES DIVIDEND REINVESTED +FISCAL YEAR ENDED MARCH 31, 2001 +Measurement Period +--------------------------------------- +1997 1998 1999 2000 2001 +------- ------- ------- ------- ------- +Odetics, Inc. Class A common stock..... $181.03 $358.12 $399.05 $562.76 $138.13 +Odetics, Inc. Class B common stock..... 203.57 286.14 413.31 582.87 127.17 +Media General Industry Group 836....... 98.26 118.87 114.52 359.02 132.67 +Nasdaq National Market Index........... 111.87 169.07 220.94 406.86 167.46 +Notwithstanding anything to the contrary set forth in any of Odetics' +previous or future filings under the Securities Act or the Exchange Act, as +amended, that might incorporate this Proxy Statement or future filings made by +Odetics under those statutes, the Compensation Committee Report, the Audit +Committee Report, the Audit Committee Charter, reference to the independence of +the Audit Committee members and the Performance Graph are not deemed filed with +the Securities and Exchange Commission and shall not be deemed incorporated by +reference into any of those prior filings or into any future filings made by +Odetics under those statutes. +30 +Certain Transactions +In July 1999, Odetics sold an option to Manchester Capital LLC for an +aggregate purchase price of $5.0 million to purchase certain real property of +Odetics consisting of approximately fourteen acres located at 1515 South +Manchester Avenue, Anaheim, California. Odetics used the proceeds of the option +sale for general working capital purposes. In August 2000, Odetics repurchased +this option from Manchester Capital LLC for an aggregate purchase price of $5.6 +million. +The following officers and directors of Odetics are members of Manchester +Capital and have made capital contributions to Manchester Capital in the +amounts set forth opposite their names below: +Membership +Amount Percentage +Name Invested Interest +---- ---------- ---------- +Joel Slutzky(1)...................................... $2,500,000 50% +Chairman of the Board and +Chief Executive Officer of Odetics +Crandall Gudmunson................................... 500,000 10% +Director of Odetics +Paul E. Wright....................................... 500,000 10% +Director of Odetics +-------- +(1) Includes a $2.0 million investment by a trust established by Mr. Slutzky. +Does not include a $500,000 investment made by Mr. Slutzky's adult son. +In May 2000, certain of the directors and an officer of Odetics, including +Messrs. David Scheel and Thomas L. Thomas, executed promissory notes in favor +of Mariner Networks, Inc., a subsidiary of Odetics, in connection with their +exercise of options to purchase the common stock of Mariner granted to them +under Mariner's 1999 Special Executive Stock Option Plan for their services +rendered to that subsidiary. Mr. Scheel is a Vice President of Odetics and the +President, Chief Executive Officer, and a director of Mariner. Mr. Thomas is a +director of Odetics and the Chairman of the Board of Mariner. The promissory +notes in the original principal amounts of $180,000 and $90,000 executed by +Messrs. Scheel and Thomas, respectively, bear interest at a rate of 6.3% per +annum, compounded semi-annually. The promissory notes are due and payable in +May 2005. +In September 2000, Odetics entered into a Securities Purchase Agreement (the +"Purchase Agreement") with 24 accredited investors (the "Purchasers"), +including Mr. Joel Slutzky, the Chairman of the Board and Chief Executive +Officer of Odetics. The Purchase Agreement provided for the private placement +and sale of an aggregate of 1,199,851 shares of the Class A common stock to the +Purchasers at a purchase price of $14.26 per share, the average of the per +share closing price of the Class A common stock for the twenty trading days +ending on the third trading day before the closing date. The closing price of +the Class A common stock on the Nasdaq National Market on the closing date, +September 6, 2000, was $16.625 per share. Mr. Slutzky purchased 70,126 shares +of the Class A common stock for an aggregate purchase price of approximately +$1.0 million. +In January 2001, Odetics entered into an Executive Ownership/Severance Plan +with Steven L'Heureux, a Vice President of Odetics and the President and a +director of Broadcast, Inc., a subsidiary of Odetics. Under the plan, in the +event that Broadcast is sold prior to the date of termination of the plan, Mr. +L'Heureux is entitled to 2.5% of the aggregate sale price. The plan terminates +on December 31, 2001. +In May 2001, Odetics entered into two Phantom Ownership Plans with Peter +Strom, a Vice President of Odetics and the President, Chief Executive Officer +and a director of Gyyr Incorporated, a subsidiary of Odetics. Under the plans, +in the event that Gyyr Incorporated sells its CCTV product line or its Access +Control product line prior to the date of termination of the plans, Mr. Strom +is entitled to 1.75% of the aggregate sale price of the CCTV product line and +0.78% of the aggregate sale price of the Access Control product line. The plans +terminate on October 4, 2001. +31 +Section 16(a) Beneficial Ownership Reporting Compliance +Under the federal securities laws, Odetics' directors and officers and any +persons holding more than 10% of Odetics' common stock are required to report +their ownership of Odetics' common stock and any changes in that ownership to +the SEC. Specific due dates for these reports have been established, and +Odetics is required to report in this proxy statement any failure to file by +these dates. Based solely on its review of copies of the reports on Forms 3, 4 +and 5 received by Odetics with respect to the fiscal year ended March 31, 2001, +and the written representations received from the reporting persons that no +other reports were required, Odetics believes that all directors, executive +officers and persons who own more than 10% of Odetics' common stock have +complied with the reporting requirements of Section 16(a) and have filed all +reports required by such section. +Annual Report +A copy of Odetics' annual report on Form 10-K/A for the fiscal year ended +March 31, 2001 and a copy of Odetics' quarterly report on Form 10-Q for the +quarter ended June 30, 2001, accompanies the proxy materials being mailed to +all stockholders. The annual report and the quarterly report are not +incorporated into this proxy statement and are not considered proxy +solicitation materials. +Deadline for Receipt of Stockholder Proposals +If Odetics has not received notice on or prior to June 22, 2001 of any +matter a stockholder intends to propose for a vote at the 2001 annual meeting +of stockholders, then a proxy solicited by the Board of Directors may be voted +on such matter in the discretion of the proxy holder, without discussion of the +matter in the proxy statement soliciting such proxy and without such matter as +a separate item on the proxy card. +The deadline for stockholders to submit proposals to be considered for +inclusion in Odetics' proxy statement for next year's annual meeting of +stockholders is anticipated to be April 22, 2002. In addition, the proxy to be +solicited by the Board of Directors for next year's annual meeting will confer +discretionary authority to vote on any stockholder proposal presented at that +meeting, unless Odetics receives notice of such proposal no later than July 6, +2002. Stockholder proposals must be mailed to the attention of the Secretary of +Odetics at the principal executive offices of Odetics located at 1515 South +Manchester, Anaheim, California 92802. +Other Business +The Board of Directors is not aware of any other matter which will be +presented for action at the Annual Meeting other than the matters set forth in +this proxy statement. If any other matter requiring a vote of the stockholders +arise, it is intended that the proxy holders will vote the shares they +represent as the Board of Directors may recommend. Discretionary authority with +respect to such other matters is granted by the execution of the enclosed proxy +card. +THE BOARD OF DIRECTORS OF +ODETICS, INC. +Anaheim, California +August 20, 2001 +32 +APPENDIX A +ODETICS, INC. +AUDIT COMMITTEE CHARTER +I. PURPOSE +The primary function of the Audit Committee is to assist the Board of +Directors of Odetics, Inc., a Delaware corporation (the "Corporation"), in +fulfilling its oversight responsibilities by reviewing the financial +information which will be provided to the shareholders and others, the systems +of internal controls which management and the Board of Directors have +established, and the Corporation's audit and financial reporting process. +The independent accountants' ultimate responsibility is to the Board of +Directors and the Audit Committee, as representatives of the shareholders. +These representatives have the ultimate authority to select, evaluate, and, +where appropriate, replace the independent accountants. +The Audit Committee will primarily fulfill these responsibilities by +carrying out the activities enumerated in Section IV of this Charter. +II. COMPOSITION +The Audit Committee shall be comprised of three or more independent +directors. All members of the Committee shall have a working familiarity with +basic finance and accounting practices, and at least one member of the +Committee shall have accounting or related financial management expertise. +III. MEETINGS +The Committee shall meet on a regular basis and shall hold special meetings +as circumstances require. +IV. RESPONSIBILITIES AND DUTIES +To fulfill its responsibilities and duties the Audit Committee shall: +A. Review this Charter at least annually and recommend any changes to the +Board. +B. Review the organization's annual financial statements and any other +relevant reports or other financial information. +C. Review the regular internal financial reports prepared by management and +any internal auditing department. +D. Recommend to the Board of Directors the selection of the independent +accountants and approve the fees and other compensation to be paid to +the independent accountants. On an annual basis, the Committee shall +obtain a formal written statement from the independent accountants +delineating all relationships between the accountants and the +Corporation consistent with Independence Standards Board Standard 1, and +shall review and discuss with the accountants all significant +relationships the accountants have with the Corporation to determine the +accountants' independence. +E. Review the performance of the independent accountants and approve any +proposed discharge of the independent accountants when circumstances +warrant. +F. Following completion of the annual audit, review separately with the +independent accountants, the internal auditing department, if any, and +management any significant difficulties encountered during the course of +the audit. +G. Perform any other activities consistent with this Charter, the +Corporation's By-laws and governing law, as the Committee or the Board +deems necessary or appropriate. +A-1 +APPENDIX B +ODETICS, INC. +1997 STOCK INCENTIVE PLAN +(Amended and Restated as of July 12, 2001) +ARTICLE ONE +GENERAL PROVISIONS +I. PURPOSE OF THE PLAN +This 1997 Stock Incentive Plan is intended to promote the interests of +Odetics, Inc., a Delaware corporation, by providing eligible persons with the +opportunity to acquire a proprietary interest, or otherwise increase their +proprietary interest, in the Corporation as an incentive for them to remain in +the service of the Corporation. +Capitalized terms shall have the meanings assigned to such terms in the +attached Appendix. +II. STRUCTURE OF THE PLAN +A. The Plan shall be divided into three separate equity programs: +. The Discretionary Option Grant Program under which eligible person may, +at the discretion of the Plan Administrator, be granted options to +shares of Class A Common Stock, +. the Stock Issuance Program under which eligible persons may, at the +discretion of the Plan Administrator, be issued shares of Class A Common +Stock directly, either through the immediate purchase of such shares or +as a bonus for services rendered the Corporation (or any Parent or +Subsidiary), and +. the Automatic Option Grant Program under which eligible non-employee +Board members shall automatically receive option grants at periodic +intervals to purchase shares of Class A Common Stock. +B. The provisions of Articles One and Five shall apply to all equity +programs under the Plan and shall govern the interests of all persons under the +Plan. +III. ADMINISTRATION OF THE PLAN +A. The Primary Committee shall have sole and exclusive authority to +administer the Discretionary Option Grant and Stock Issuance Programs with +respect to Section 16 Insiders. Administration of the Discretionary Option +Grant and Stock Issuance Programs with respect to all other persons eligible to +participate in those programs may, at the Board's discretion, be vested in the +Primary Committee or a Secondary Committee, or the Board may retain the power +to administer those programs with respect to all such persons. +B. Members of the Primary Committee or any Secondary Committee shall serve +for such period of time as the Board may determine and may be removed by the +Board at any time. The Board may also at any time terminate the functions of +any Secondary Committee and reassume all powers and authority previously +delegated to such committee. +C. Each Plan Administrator shall, within the scope of its administrative +functions under the Plan, have full power and authority (subject to the +provisions of the Plan) to establish such rules and regulations as it may deem +appropriate for proper administration of the Discretionary Option Grant and +Stock Issuance Programs and to make such determinations under, and issue such +interpretations of, the provisions of such programs and any outstanding options +or stock issuances thereunder as it may deem necessary or advisable. Decisions +of the Plan Administrator within the scope of its administrative functions +under the Plan shall be final and binding on all parties who have an interest +in the Discretionary Option Grant and Stock Issuance Programs under its +jurisdiction or any option or stock issuance thereunder. +B-1 +D. Service on the Primary Committee or the Secondary Committee shall +constitute service as a Board member, and members of each such committee shall +accordingly be entitled to full indemnification and reimbursement as Board +members for their service on such committee. No member of the Primary +Committee or the Secondary Committee shall be liable for any act or omission +made in good faith with respect to the Plan or any option grants or stock +issuances under the Plan. +E. Administration of the Automatic Option Grant Program shall be self +executing in accordance with the terms of that program, and no Plan +Administrator shall exercise any discretionary functions with respect to any +option grants or stock issuances made under such program. +IV. ELIGIBILITY +A. The persons eligible to participate in the Discretionary Option Grant +and Stock Issuance Programs are as follows: +(i) employees, +(ii) non-employee members of the Board or the board of directors of any +Parent or Subsidiary, and +(iii) consultants and other independent advisors who provide services to +the Corporation (or any Parent or Subsidiary). +B. Each Plan Administrator shall, within the scope of its administrative +jurisdiction under the Plan, have full authority to determine, (i) with +respect to the option grants under the Discretionary Option Grant Program, +which eligible persons are to receive option grants, the time or times when +such option grants are to be made, the number of shares to be covered by each +such grant, the status of the granted option as either an Incentive Option or +a Nonstatutory Option, the time or times when each option is to become +exercisable, the vesting schedule (if any) applicable to the option shares and +the maximum term for which the option is to remain outstanding and (ii) with +respect to stock issuances under the Stock Issuance Program, which eligible +persons are to receive stock issuances, the time or times when such issuances +are to be made, the number of shares to be issued to each Participant, the +vesting schedule (if any) applicable to the issued shares and the +consideration to be paid for such shares. +C. The Plan Administrator shall have the absolute discretion either to +grant options in accordance with the Discretionary Option Grant Program or to +effect stock issuances in accordance with the Stock Issuance Program. +D. The individuals who shall be eligible to participate in the Automatic +Option Grant Program shall be limited to (i) those individuals serving as non- +employee Board members on the Plan Effective Date, (ii) those individuals who +first become non-employee Board members on or after the Plan Effective Date, +whether through appointment by the Board or election by the Corporation's +stockholders, and (ii) those individuals who continue to serve as non-employee +Board members at one or more Annual Stockholders Meetings held after the Plan +Effective Date. +V. STOCK SUBJECT TO THE PLAN +A. The stock issuable under the Plan shall be shares of authorized but +unissued or reacquired Class A Common Stock, including shares repurchased by +the Corporation on the open market. The maximum number of shares of Class A +Common Stock reserved for issuance over the term of the Plan shall not exceed +1,805,000 shares,/1/ including an increase of 475,000 shares of Class A Common +Stock which was authorized by the Board in July 2001, which is subject to +stockholder approval at the 2001 Annual Meeting. +-------- +1 On September 30, 1999, the stockholders approved an increase in the number +of shares from 530,000 to 930,000. On September 8, 2000, the stockholders +approved an additional increase of 400,000 shares to 1,330,000 shares. +B-2 +B. No one person participating in the Plan may receive options, separately +exercisable stock appreciation rights and direct stock issuances for more than +80,000 shares of Class A Common Stock in the aggregate per calendar year, +beginning with the 1997 calendar year. +C. Shares of Class A Common Stock subject to outstanding options shall be +available for subsequent issuance under the Plan to the extent (i) those +options expire or terminate for any reason prior to exercise in full or (ii) +those options are cancelled in accordance with the option cancellation/regrant +provisions of Section IV of Article Two. Unvested shares issued under the Plan +and subsequently cancelled or repurchased by the Corporation, at the original +exercise or direct issue price paid per share, pursuant to the Corporation's +repurchase rights under the Plan shall be added back to the number of shares of +Class A Common Stock reserved for issuance under the Plan and shall accordingly +be available for reissuance through one or more subsequent option grants or +direct stock issuances under the Plan. However, shares subject to any options +surrendered in connection with the stock appreciation right provisions of the +Plan shall not be available for reissuance. Should the exercise price of an +option under the Plan be paid with shares of Class A Common Stock or should +shares of Class A Common Stock otherwise issuable under the Plan be withheld by +the Corporation in satisfaction of the withholding taxes incurred in connection +with the exercise of an option or the vesting of a stock issuance under the +Plan, then the number of shares of Class A Common Stock available for issuance +under the Plan shall be reduced by the gross number of shares for which the +option is exercised or which vest under the stock issuance, and not by the net +number of shares of Class A Common Stock issued to the holder of such option or +stock issuance. +D. If any change is made to the Class A Common Stock by reason of any stock +split, stock dividend, recapitalization, combination of shares, exchange of +shares or other change affecting the outstanding Class A Common Stock as a +class without the Corporation's receipt of consideration, appropriate +adjustments shall be made to (i) the maximum number and/or class of securities +issuable under the Plan, (ii) the number and/or class of securities for which +any one person may be granted stock options, separately exercisable stock +appreciation rights and direct stock issuances under the Plan per calendar +year, (iii) the number and/or class of securities for which grants are +subsequently to be made under the Automatic Option Grant Program to new and +continuing non-employee Board members, and (iv) the number and/or class of +securities and the exercise price per share in effect under each outstanding +option under the Plan. Such adjustments to the outstanding options are to be +effected in a manner which shall preclude the enlargement or dilution of rights +and benefits under such options. The adjustments determined by the Plan +Administrator shall be final, binding and conclusive. +E. Should the Corporation effect a divestiture of one or more Subsidiaries +through a distribution or spin-off to the Corporation's stockholders of the +securities of the Subsidiary held by the Corporation ("Divestiture"), then the +Plan Administrator may, in its sole discretion, make appropriate adjustments to +the number and/or class of securities subject to each outstanding option and +the exercise price payable per share in order to reflect the effect of the +Divestiture on the Corporation's capital structure and the relative Fair Market +Values of the Class A Common Stock and the distributed securities of the +Subsidiary following the Divestiture. Such adjustment may include the division +of the option into two separate options, one for the shares of Class A Common +Stock at the time subject to the option and a second option for the securities +of the Subsidiary distributable with respect to those shares. The Plan +Administrator may also, in its sole discretion, accelerate the vesting and +exercisability of the option (or any separated option) with respect to one or +more shares of the Class A Common Stock or distributed securities at the time +subject to such option (or the separated option), if and to the extent the +Optionee is to remain in the Corporation's Service following such Divestiture +or is otherwise to provide services to the divested Subsidiary. +B-3 +ARTICLE TWO +DISCRETIONARY OPTION GRANT PROGRAM +I. OPTION TERMS +Each option shall be evidenced by one or more documents in the form approved +by the Plan Administrator; provided, however, that each such document shall +comply with the terms specified below. Each document evidencing an Incentive +Option shall, in addition, be subject to the provisions of the Plan applicable +to such options. +A. Exercise Price. +1. The exercise price per share shall be fixed by the Plan Administrator but +shall not be less than one hundred percent (100%) of the Fair Market Value per +share of Class A Common Stock on the option grant date. +2. The exercise price shall become immediately due upon exercise of the +option and shall, subject to the provisions of Section I of Article Five and +the documents evidencing the option, be payable in one or more of the forms +specified below: +(i) cash or check made payable to the Corporation, +(ii) shares of Class A Common Stock held for the requisite period +necessary to avoid a charge to the Corporation's earnings for financial +reporting purposes and valued at Fair Market Value on the Exercise Date, or +(iii) to the extent the option is exercised for vested shares, through a +special sale and remittance procedure pursuant to which the Optionee shall +concurrently provide irrevocable instructions to (a) a Corporation +designated brokerage firm to effect the immediate sale of the purchased +shares and remit to the Corporation, out of the sale proceeds available on +the settlement date, sufficient funds to cover the aggregate exercise price +payable for the purchased shares plus all applicable Federal, state and +local income and employment taxes required to be withheld by the +Corporation by reason of such exercise and (b) the Corporation to deliver +the certificates for the purchased shares directly to such brokerage firm +in order to complete the sale. +Except to the extent such sale and remittance procedure is utilized, payment +of the exercise price for the purchased shares must be made on the Exercise +Date. +B. Exercise and Term of Options. Each option shall be exercisable at such +time or times, during such period and for such number of shares as shall be +determined by the Plan Administrator and set forth in the documents evidencing +the option. However, no option shall have a term in excess of ten (10) years +measured from the option grant date. +C. Effect of Termination of Service. +1. The following provisions shall govern the exercise of any options held by +the Optionee at the time of cessation of Service or death: +(i) Any option outstanding at the time of the Optionee's cessation of +Service for any reason shall remain exercisable for such period of time +thereafter as shall be determined by the Plan Administrator and set forth +in the documents evidencing the option, but no such option shall be +exercisable after the expiration of the option term. +(ii) Any option exercisable in whole or in part by the Optionee at the +time of death may be subsequently exercised by the personal representative +of the Optionee's estate or by the person or persons to whom the option is +transferred pursuant to the Optionee's will or in accordance with the laws +of descent and distribution. +B-4 +(iii) During the applicable exercise period following termination of +Service, the option may not be exercised in the aggregate for more than the +number of vested shares for which the option is exercisable on the date of +the Optionee's cessation of Service. Upon the expiration of the applicable +exercise period or (if earlier) upon the expiration of the option term, the +option shall terminate and cease to be outstanding for any vested shares +for which the option has not been exercised. However, the option shall, +immediately upon the Optionee's cessation of Service, terminate and cease +to be outstanding to the extent the option is not otherwise at that time +exercisable for vested shares. +(iv) Should the Optionee's Service be terminated for Misconduct, then +all outstanding options held by the Optionee shall terminate immediately +and cease to be outstanding. +2. The Plan Administrator shall have complete discretion, exercisable either +at the time an option is granted or at any time while the option remains +outstanding, to: +(i) extend the period of time for which the option is to remain +exercisable following the Optionee's cessation of Service from the limited +exercise period otherwise in effect for that option to such greater period +of time as the Plan Administrator shall deem appropriate, but in no event +beyond the expiration of the option term, and/or +(ii) permit the option to be exercised, during the applicable Service +exercise period following termination of service, not only with respect to +the number of vested shares of Class A Common Stock for which such option +is exercisable at the time of the Optionee's cessation of Service but also +with respect to one or more additional installments in which the Optionee +would have vested had the Optionee continued in Service. +D. Stockholder Rights. The holder of an option shall have no stockholder +rights with respect to the shares subject to the option until such person shall +have exercised the option, paid the exercise price and become a holder of +record of the purchased shares. +E. Repurchase Rights. The Plan Administrator shall have the discretion to +grant options which are exercisable for unvested shares of Class A Common +Stock. Should the Optionee cease Service while holding such unvested shares, +the Corporation shall have the right to repurchase, at the exercise price paid +per share, any or all of those unvested shares. The terms upon which such +repurchase right shall be exercisable (including the period and procedure for +exercise and the appropriate vesting schedule for the purchased shares) shall +be established by the Plan Administrator and set forth in the document +evidencing such repurchase right. +F. Limited Transferability of Options. During the lifetime of the Optionee, +Incentive Options shall be exercisable only by the Optionee and shall not be +assignable or transferable other than by will or by the laws of descent and +distribution following the Optionee's death. However, a Nonstatutory Option +may, in connection with the Optionee's estate plan, be assigned in whole or in +part during the Optionee's lifetime to one or more members of the Optionee's +immediate family or to a trust established exclusively for one or more such +family members. The assigned portion may only be exercised by the person or +persons who acquire a proprietary interest in the option pursuant to the +assignment. The terms applicable to the assigned portion shall be the same as +those in effect for the option immediately prior to such assignment and shall +be set forth in such documents issued to the assignee as the Plan Administrator +may deem appropriate. +II. INCENTIVE OPTIONS +The terms specified below shall be applicable to all Incentive Options. +Except as modified by the provisions of this Section II, all the provisions of +Articles One, Two and Five shall be applicable to Incentive Options. Options +which are specifically designated as Nonstatutory Options when issued under the +Plan shall not be subject to the terms of this Section II. +A. Eligibility. Incentive Options may only be granted to Employees. +B-5 +B. Dollar Limitation. The aggregate Fair Market Value of the shares of Class +A Common Stock (determined as of the respective date or dates of grant) for +which one or more options granted to any Employee under the Plan (or any other +option plan of the Corporation or any Parent or Subsidiary) may for the first +time become exercisable as Incentive Options during any one calendar year shall +not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent +the Employee holds two (2) or more such options which become exercisable for +the first time in the same calendar year, the foregoing limitation on the +exercisability of such options as Incentive Options shall be applied on the +basis of the order in which such options are granted. +C. 10% Stockholder. If any Employee to whom an Incentive Option is granted +is a 10% Stockholder, then the exercise price per share shall not be less than +one hundred ten percent (110%) of the Fair Market Value per share of Class A +Common Stock on the option grant date, and the option term shall not exceed +five (5) years measured from the option grant date. +III. CORPORATE TRANSACTION/CHANGE IN CONTROL +A. In the event of any Corporate Transaction, each outstanding option shall +automatically accelerate so that each such option shall, immediately prior to +the effective date of the Corporate Transaction, become fully exercisable with +respect to the total number of shares of Class A Common Stock at the time +subject to such option and may be exercised for any or all of those shares as +fully vested shares of Class A Common Stock. However, an outstanding option +shall not become exercisable on such an accelerated basis if and to the extent: +(i) such option is, in connection with the Corporate Transaction, to be assumed +by the successor corporation (or parent thereof) or (ii) such option is to be +replaced with a cash incentive program of the successor corporation which +preserves the spread existing at the time of the Corporate Transaction on any +shares for which the option is not otherwise at that time exercisable and +provides for subsequent payout in accordance with the same exercise/vesting +schedule applicable to those option shares or (iii) the acceleration of such +option is subject to other limitations imposed by the Plan Administrator at the +time of the option grant. +B. All outstanding repurchase rights shall automatically terminate, and the +shares of Class A Common Stock subject to those terminated rights shall +immediately vest in full, in the event of any Corporate Transaction, except to +the extent: (i) those repurchase rights are to be assigned to the successor +corporation (or parent thereof) in connection with such Corporate Transaction +or (ii) such accelerated vesting is precluded by other limitations imposed by +the Plan Administrator at the time the repurchase right is issued. +C. Immediately following the consummation of the Corporate Transaction, all +outstanding options shall terminate and cease to be outstanding, except to the +extent assumed by the successor corporation (or parent thereof). +D. Each option which is assumed in connection with a Corporate Transaction +shall be appropriately adjusted, immediately after such Corporate Transaction, +to apply to the number and class of securities which would have been issuable +to the Optionee in consummation of such Corporate Transaction had the option +been exercised immediately prior to such Corporate Transaction. Appropriate +adjustments to reflect such Corporate Transaction shall also be made to (i) the +exercise price payable per share under each outstanding option, provided the +aggregate exercise price payable for such securities shall remain the same, +(ii) the maximum number and/or class of securities available for issuance over +the remaining term of the Plan and (iii) the maximum number and/or class of +securities for which any one person may be granted stock options, separately +exercisable stock appreciation rights and direct stock issuances under the Plan +per calendar year. +E. The Plan Administrator shall have the discretionary authority to provide +for the automatic acceleration of one or more outstanding options under the +Discretionary Option Grant Program upon the occurrence of a Corporate +Transaction, whether or not those options are to be assumed in the Corporate +Transaction, so that each such option shall, immediately prior to the effect +date of such Corporate Transaction, become fully exercisable with respect to +the total number of shares of Class A Common Stock at the time subject to that +option and may be exercised for any or all of those shares as fully vested +shares of Class A Common Stock. In +B-6 +addition, the Plan Administrator shall have the discretionary authority to +structure one or more of the Corporation's repurchase rights under the +Discretionary Option Grant Program so that those rights shall not be assignable +in connection with such Corporate Transaction and shall accordingly terminate +upon the consummation of such Corporate Transaction, and the shares subject to +those terminated rights shall thereupon vest in full. +F. The Plan Administrator shall have full power and authority, exercisable +either at the time the option is granted or at any time while the option +remains outstanding, to provide for the automatic acceleration of one or more +outstanding options under the Discretionary Option Grant Program in the event +the Optionee's Service is subsequently terminated by reason of an Involuntary +Termination within a designated period (not to exceed eighteen (18) months) +following the effective date of any Corporate Transaction in which those +options are assumed and do not otherwise accelerate. Any options so accelerated +shall remain exercisable for fully vested shares until the earlier of (i) the +expiration of the option term or (ii) the expiration of the one (1) year period +measured from the effective date of the Involuntary Termination. In addition, +the Plan Administrator may provide that one or more of the Corporation's +outstanding repurchase rights with respect to shares held by the Optionee at +the time of such Involuntary Termination shall immediately terminate, and the +shares subject to those terminated repurchase rights shall accordingly vest in +full. +G. The Plan Administrator shall have the discretionary authority to provide +for the automatic acceleration of one or more outstanding options under the +Discretionary Option Grant Program upon the occurrence of a Change in Control +so that each such option shall, immediately prior to the effect date of such +Change in Control, become fully exercisable with respect to the total number of +shares of Class A Common Stock at the time subject to that option and may be +exercised for any or all of those shares as fully vested shares of Class A +Common Stock. Each such accelerated option shall remain exercisable until the +expiration or sooner termination of the option term. In addition, the Plan +Administrator shall have the discretionary authority to structure one or more +of the Corporation's repurchase rights under the Discretionary Option Grant +Program so that those rights shall terminate automatically upon the +consummation of such Change in Control, and the shares subject to those +terminated rights shall thereupon vest in full. Alternatively, the Plan +Administrator may condition the automatic acceleration of one or more +outstanding options under the Discretionary Option Grant Program and the +termination of one or more of the Corporation's outstanding repurchase rights +under such program upon the subsequent termination of the Optionee's Service by +reason of an Involuntary Termination within a designated period (not to exceed +eighteen (18) months) following the effective date of such Change in Control. +Each option so accelerated shall remain exercisable for fully vested shares +until the earlier of (i) the expiration of the option term or (ii) the +expiration of the one (1) year period measured from the effective date of such +Involuntary Termination. +H. The portion of any Incentive Option accelerated in connection with a +Corporate Transaction or Change in Control shall remain exercisable as an +Incentive Option only to the extent the applicable One Hundred Thousand Dollar +($100,000) limitation is not exceeded. To the extent such dollar limitation is +exceeded, the accelerated portion of such option shall be exercisable as a +Nonstatutory Option under the Federal tax laws. +I. The outstanding options shall in no way affect the right of the +Corporation to adjust, reclassify, reorganize or otherwise change its capital +or business structure or to merge, consolidate, dissolve, liquidate or sell or +transfer all or any part of its business or assets. +IV. CANCELLATION AND REGRANT OF OPTIONS +The Plan Administrator shall have the authority to effect, at any time and +from time to time, with the consent of the affected option holders, the +cancellation of any or all outstanding options under the Discretionary Option +Grant Program and to grant in substitution new options covering the same or +different number of shares of Class A Common Stock but with an exercise price +per share equal to the Fair Market Value per share of Class A Common Stock on +the new grant date. +B-7 +V. STOCK APPRECIATION RIGHTS +A. The Plan Administrator shall have the authority to grant to selected +Optionees tandem stock appreciation rights and/or limited stock appreciation +rights. +B. The following terms shall govern the grant and exercise of tandem stock +appreciation rights: +(i) One or more Optionees may be granted the right, exercisable upon +such terms as the Plan Administrator may establish, to elect between the +exercise of the underlying option for shares Class A Common Stock and the +surrender of that option in exchange for a distribution from the +Corporation in an amount equal to the excess of (a) the Fair Market Value +(on the option surrender date) of the number of shares in which the +Optionee is at the time vested under the surrendered option (or surrendered +portion) over (b) the aggregate exercise price payable for those shares. +(ii) No such option surrender shall be effective unless it is approved +by the Plan Administrator, either at the time of the actual option +surrender or at any earlier time. If the surrender is so approved, then the +distribution to which the Optionee shall be entitled may be made in shares +of Class A Common Stock valued at Fair Market Value on the option surrender +date, in cash, or partly in shares and partly in cash, as the Plan +Administrator shall in its sole discretion deem appropriate. +(iii) If the surrender of an option is not approved by the Plan +Administrator, then the Optionee shall retain whatever rights the Optionee +had under the surrendered option (or surrendered portion) on the option +surrender date and may exercise such rights at any time prior to the later +of (a) five (5) business days after the receipt of the rejection notice or +(b) the last day on which the option is otherwise exercisable in accordance +with the terms of the documents evidencing such option, but in no event may +such rights be exercised more than ten (10) years after the option grant +date. +2. The following terms shall govern the grant and exercise of limited stock +appreciation rights: +(i) One or more Section 16 Insiders may be granted limited stock +appreciation rights with respect to their outstanding options. +(ii) Upon the occurrence of a Hostile Takeover, each individual holding +one or more options with such a limited stock appreciation right shall have +the unconditional right (exercisable for a thirty (30) day period following +such Hostile Takeover) to surrender each such option to the Corporation, to +the extent the option is at the time exercisable for vested shares of Class +A Common Stock. In return for the surrendered option, the Optionee shall +receive a cash distribution from the Corporation in an amount equal to the +excess of (A) the Takeover Price of the shares of Class A Common Stock +which are at the time vested under each surrendered option (or surrendered +portion) over (B) the aggregate exercise price payable for those shares. +Such cash distribution shall be paid within five (5) days following the +option surrender date. +(iii) The Plan Administrator shall pre-approve, at the time the limited +right is granted, the subsequent exercise of that right in accordance with +the terms of the grant and the provisions of this Section V. No additional +approval of the Plan Administrator or the Board shall be required at the +time of the actual option surrender and cash distribution. +(iv) The balance of the option (if any) shall remain outstanding and +exercisable in accordance with the documents evidencing such option. +B-8 +ARTICLE THREE +STOCK ISSUANCE PROGRAM +I. STOCK ISSUANCE TERMS +Shares of Class A Common Stock may be issued under the Stock Issuance +Program through direct and immediate issuances without any intervening option +grants. Each such stock issuance shall be evidenced by a Stock Issuance +Agreement which complies with the terms specified below. +A. Purchase Price. +1. The purchase price per share shall be fixed by the Plan Administrator, +but shall not be less than one hundred percent (100%) of the Fair Market Value +per share of Class A Common Stock on the issuance date. +2. Subject to the provisions of Section I of Article Five, shares of Class +A Common Stock may be issued under the Stock Issuance Program for any +combination of the following items of consideration which the Plan +Administrator may deem appropriate in each individual instance: +(i) cash or check made payable to the Corporation, or +(ii) past services rendered to the Corporation (or any Parent or +Subsidiary). +B. Vesting Provisions. +1. Shares of Class A Common Stock issued under the Stock Issuance Program +may, in the discretion of the Plan Administrator, be fully and immediately +vested upon issuance or may vest in one or more installments over the +Participant's period of Service or upon attainment of specified performance +objectives. The elements of the vesting schedule applicable to any unvested +shares of Class A Common Stock issued under the Stock Issuance Program shall be +determined by the Plan Administrator and incorporated into the Stock Issuance +Agreement. +2. Any new, substituted or additional securities or other property +(including money paid other than as a regular cash dividend) which the +Participant may have the right to receive with respect to the Participant's +unvested shares of Class A Common Stock by reason of any stock dividend, stock +split, recapitalization, combination of shares, exchange of shares or other +change affecting the outstanding Class A Common Stock as a class without the +Corporation's receipt of consideration shall be issued subject to (i) the same +vesting requirements applicable to the Participant's unvested shares of Class A +Common Stock and (ii) such escrow arrangements as the Plan Administrator shall +deem appropriate. +3. The Participant shall have full stockholder rights with respect to any +shares of Class A Common Stock issued to the Participant under the Stock +Issuance Program, whether or not the Participant's interest in those shares is +vested. Accordingly, the Participant shall have the right to vote such shares +and to receive any regular cash dividends paid on such shares. +4. Should the Participant cease to remain in Service while holding one or +more unvested shares of Class A Common Stock issued under the Stock Issuance +Program or should the performance objectives not be attained with respect to +one or more such unvested shares of Class A Common Stock, then those shares +shall be immediately surrendered to the Corporation for cancellation, and the +Participant shall have no further stockholder rights with respect to those +shares. To the extent the surrendered shares were previously issued to the +Participant for consideration paid in cash or cash equivalent (including the +Participant's purchase money indebtedness), the Corporation shall repay to the +Participant the cash consideration paid for the surrendered shares and shall +cancel the unpaid principal balance of any outstanding purchase money note of +the Participant attributable to the surrendered shares. +5. The Plan Administrator may in its discretion waive the surrender and +cancellation of one or more unvested shares of Class A Common Stock which would +otherwise occur upon the cessation of the Participant's +B-9 +Service or the non attainment of the performance objectives applicable to those +shares. Such waiver shall result in the immediate vesting of the Participant's +interest in the shares as to which the waiver applies. Such waiver may be +effected at any time, whether before or after the Participant's cessation of +Service or the attainment or non attainment of the applicable performance +objectives. +II. CORPORATE TRANSACTION/CHANGE IN CONTROL +A. All of the Corporation's outstanding repurchase rights under the Stock +Issuance Program shall terminate automatically, and all the shares of Class A +Common Stock subject to those terminated rights shall immediately vest in full, +in the event of any Corporate Transaction, except to the extent (i) those +repurchase rights are to be assigned to the successor corporation (or parent +thereof) in connection with such Corporate Transaction or (ii) such accelerated +vesting is precluded by other limitations imposed in the Stock Issuance +Agreement. +B. The Plan Administrator shall have the discretionary authority, +exercisable either at the time the unvested shares are issued under the Stock +Issuance Program or any time while the Corporation's repurchase rights with +respect to those shares remain outstanding, to structure one or more of those +repurchase rights so that such rights shall not be assignable in connection +with a Corporate Transaction and shall accordingly terminate upon the +consummation of such Corporate Transaction, and the shares subject to those +terminated repurchase rights shall thereupon vest in full. +C. The Plan Administrator shall have the discretionary authority, +exercisable either at the time the unvested shares are issued or any time while +the Corporation's repurchase rights remain outstanding under the Stock Issuance +Program, to provide that those rights shall automatically terminate in whole or +in part, and the shares of Class A Common Stock subject to those terminated +rights shall immediately vest, in the event the Participant's Service should +subsequently terminate by reason of an Involuntary Termination within a +designated period (not to exceed eighteen (18) months) following the effective +date of any Corporate Transaction in which those repurchase rights are assigned +to the successor corporation (or parent thereof). +D. The Plan Administrator shall have the discretionary authority, +exercisable either at the time the unvested shares are issued or any time while +the Corporation's repurchase rights with respect to those shares remain +outstanding under the Stock Issuance Program, to structure one or more of those +repurchase rights so that such rights shall automatically terminate in whole or +in part, and the shares of Class A Common Stock subject to those terminated +rights shall immediately vest, upon (i) a Change in Control or (ii) the +subsequent termination of the Participant's Service by reason of an Involuntary +Termination within a designated period (not to exceed eighteen (18) months) +following the effective date of such Change in Control or Involuntary +Termination. +III. SHARE ESCROW/LEGENDS +Unvested shares may, in the Plan Administrator's discretion, be held in +escrow by the Corporation until the Participant's interest in such shares vests +or may be issued directly to the Participant with restrictive legends on the +certificates evidencing those unvested shares. +B-10 +ARTICLE FOUR +AUTOMATIC OPTION GRANT PROGRAM +I. OPTION TERMS +A. Grant Dates. Option grants shall be made on the dates specified below: +1. Each individual serving as a non-employee Board member on the Plan +Effective Date shall automatically be granted at that time a Nonstatutory +Option to purchase 5,000 shares of Class A Common Stock, provided that +individual has not previously been in the employ of the Corporation or any +Parent or Subsidiary. +2. Each individual who is first elected or appointed as a non-employee +Board member on or after the Plan Effective Date shall automatically be +granted, on the date of such initial election or appointment, a Nonstatutory +Option to purchase 20,000/2/ shares of Class A Common Stock, provided that +individual has not previously been in the employ of the Corporation or any +Parent or Subsidiary. +3. In the date of each Annual Stockholders Meeting, beginning with the 1998 +Annual Stockholders Meeting, each individual who is to continue to serve as a +non-employee Board member, whether or not that individual is standing for +reelection to the Board at that particular Annual Meeting, shall automatically +be granted a Nonstatutory Option to purchase 5,000/3/ On September 8, 2000, +the stockholders approved increase from 4,000 shares to 5,000 shares. shares +of Class A Common Stock, provided such individual has served as a non-employee +Board member for at least six (6) months. There shall be no limit on the +number of such 5,000 share option grants any one non-employee Board member may +receive over his or her period of Board service, and non-employee Board +members who have previously been in the employ of the Corporation (or any +Parent or Subsidiary) shall be eligible to receive one or more such annual +option grants over their period of continued Board service. +B. Exercise Price. +1. The exercise price per share shall be equal to one hundred percent +(100%) of the Fair Market Value per share of Class A Common Stock on the +option grant date. +2. The exercise price shall be payable in one or more of the alternative +forms authorized under the Discretionary Option Grant Program. Except to the +extent the sale and remittance procedure specified thereunder is utilized, +payment of the exercise price for the purchased shares must be made on the +Exercise Date. +C. Option Term. Each option shall have a term of ten (10) years measured +from the option grant date. +D. Exercise and Vesting of Options. Each initial 20,000 share option grant +shall be immediately exercisable for any or all of the option shares as fully +vested shares of Class A Common Stock and shall remain so exercisable until +the expiration or sooner termination of the option term. Each annual 5,000 +share grant shall also be immediately exercisable for any or all of the option +shares. However, the shares of Class A Common Stock purchased under each +annual 5,000 share grant shall be subject to repurchase by the Corporation, at +the exercise price paid per share, upon the Optionee's cessation of Board +service prior to vesting in those shares. Each annual 5,000 share grant shall +vest, and the Corporation's repurchase right shall lapse, in a series of four +(4) successive equal annual installments upon the Optionee's completion of +each year of Board service over the four (4) year period measured from the +automatic grant date. +-------- +(2) On September 8, 2000, the stockholders approved increase from 5,000 shares +to 20,000 shares. +(3) On September 8, 2000, the stockholders approved increase from 4,000 shares +to 5,000 shares. +B-11 +E. Termination of Board Service. The following provisions shall govern the +exercise of any options held by the Optionee at the time the Optionee ceases to +serve as a Board member: +(i) The Optionee (or, in the event of Optionee's death, the personal +representative of the Optionee's estate or the person or persons to whom +the option is transferred pursuant to the Optionee's will or in accordance +with the laws of descent and distribution) shall have a twelve (12) month +period following the date of such cessation of Board service in which to +exercise each such option. +(ii) During the twelve (12) month exercise period, the option may not be +exercised in the aggregate for more than the number of vested shares of +Class A Common Stock for which the option is exercisable at the time of the +Optionee's cessation of Board service. +(iii) Should the Optionee cease to serve as a Board member by reason of +death or Permanent Disability, then all shares at the time subject to the +option shall immediately vest so that such option may, during the twelve +(12) month exercise period following such cessation of Board service, be +exercised for all or any portion of those shares as fully vested shares of +Class A Common Stock. +(iv) In no event shall the option remain exercisable after the +expiration of the option term. Upon the expiration of the twelve (12) month +exercise period or (if earlier) upon the expiration of the option term, the +option shall terminate and cease to be outstanding for any vested shares +for which the option has not been exercised. However, the option shall, +immediately upon the Optionee's cessation of Board service for any reason +other than death or Permanent Disability, terminate and cease to be +outstanding to the extent the option is not otherwise at that time +exercisable for vested shares. +II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER +A. The shares of Class A Common Stock subject to each option outstanding +under this Article Four at the time of a Corporate Transaction but not +otherwise vested shall automatically vest in full so that each such option +shall, immediately prior to the effective date of the Corporate Transaction, +become fully exercisable for all of the shares of Class A Common Stock at the +time subject to such option and may be exercised for all or any portion of +those shares as fully vested shares of Class A Common Stock. Immediately +following the consummation of the Corporate Transaction, each automatic option +grant shall terminate and cease to be outstanding, except to the extent assumed +by the successor corporation (or parent thereof). +B. The shares of Class A Common Stock subject to each option outstanding +under this Article Four at the time of a Change in Control but not otherwise +vested shall automatically vest in full so that each such option shall, +immediately prior to the effective date of the Change in Control, become fully +exercisable for all of the shares of Class A Common Stock at the time subject +to such option and may be exercised for all or any portion of those shares as +fully vested shares of Class A Common Stock. Each such option shall remain +exercisable for such fully vested option shares until the expiration or sooner +termination of the option term or the surrender of the option in connection +with a Hostile Takeover. +C. All outstanding repurchase rights under the Automatic Option Grant +Program shall automatically terminate, and the unvested shares of Class A +Common Stock subject to those terminated rights shall immediately vest in full, +in the event of any Corporate Transaction or Change in Control. +D. Upon the occurrence of a Hostile Takeover, the Optionee shall have a +thirty (30) day period in which to surrender to the Corporation each of his or +her outstanding automatic option grants. The Optionee shall in return be +entitled to a cash distribution from the Corporation in an amount equal to the +excess of (i) the Takeover Price of the shares of Class A Common Stock at the +time subject to each surrendered option (whether or not the Optionee is +otherwise at the time vested in those shares) over (ii) the aggregate exercise +price payable for such shares. Such cash distribution shall be paid within five +(5) days following the surrender of the option to the Corporation. Stockholder +approval of the Plan on the Plan Effective Date shall constitute pre-approval +of the grant of each such option surrender right under this Automatic Option +Grant Program and the subsequent exercise of that right in accordance with the +terms and provisions of this Section II. +B-12 +E. No additional approval or consent of the Plan Administrator or the Board +shall be required at the time of the actual option surrender and cash +distribution. +F. Each option which is assumed in connection with a Corporate Transaction +shall be appropriately adjusted, immediately after such Corporate Transaction, +to apply to the number and class of securities which would have been issuable +to the Optionee in consummation of such Corporate Transaction had the option +been exercised immediately prior to such Corporate Transaction. Appropriate +adjustments shall also be made to the exercise price payable per share under +each outstanding option, provided the aggregate exercise price payable for such +securities shall remain the same. +G. The grant of options under the Automatic Option Grant Program shall in no +way affect the right of the Corporation to adjust, reclassify, reorganize or +otherwise change its capital or business structure or to merge, consolidate, +dissolve, liquidate or sell or transfer all or any part of its business or +assets. +III. REMAINING TERMS +The remaining terms of each option granted under the Automatic Option Grant +Program shall be the same as the terms in effect for option grants made under +the Discretionary Option Grant Program. +B-13 +ARTICLE FIVE +MISCELLANEOUS +I. FINANCING +The Plan Administrator may permit any Optionee or Participant to pay the +option exercise price under the Discretionary Option Grant Program or the +purchase price of shares issued under the Stock Issuance Program by delivering +a full recourse, interest bearing promissory note payable in one or more +installments. The terms of any such promissory note (including the interest +rate and the terms of repayment) shall be established by the Plan Administrator +in its sole discretion. In no event may the maximum credit available to the +Optionee or Participant exceed the sum of (i) the aggregate option exercise +price or purchase price payable for the purchased shares (less the par value of +those shares) plus (ii) any Federal, state and local income and employment tax +liability incurred by the Optionee or the Participant in connection with the +option exercise or share purchase. +II. TAX WITHHOLDING +A. The Corporation's obligation to deliver shares of Class A Common Stock +upon the exercise of options or the issuance or vesting of such shares under +the Plan shall be subject to the satisfaction of all applicable Federal, state +and local income and employment tax withholding requirements. +B. The Plan Administrator may, in its discretion, provide any or all holders +of Nonstatutory Options or unvested shares of Class A Common Stock under the +Plan (other than the options granted or the shares issued under the Automatic +Option Grant Program) with the right to use shares of Class A Common Stock in +satisfaction of all or part of the Taxes incurred by such holders in connection +with the exercise of their options or the vesting of their shares. Such right +may be provided to any such holder in either or both of the following formats: +Stock Withholding: The election to have the Corporation withhold, from the +shares of Class A Common Stock otherwise issuable upon the exercise of such +Nonstatutory Option or the vesting of such shares, a portion of those shares +with an aggregate Fair Market Value equal to the percentage of the Taxes (not +to exceed one hundred percent (100%)) designated by the holder. +Stock Delivery: The election to deliver to the Corporation, at the time the +Nonstatutory Option is exercised or the shares vest, one or more shares of +Class A Common Stock previously acquired by such holder (other than in +connection with the option exercise or share vesting triggering the Taxes) with +an aggregate Fair Market Value equal to the percentage of the Taxes (not to +exceed one hundred percent (100%)) designated by the holder. +III. EFFECTIVE DATE AND TERM OF THE PLAN +A. The Plan was adopted by the Board on July 25, 1997 and shall become +effective upon approval by the Corporation's stockholders at the 1997 Annual +Meeting held on the Plan Effective Date. +B. The Plan shall terminate upon the earliest to occur of (i) September 4, +2007, (ii) the date on which all shares available for issuance under the Plan +shall have been issued as fully vested shares or (iii) the termination of all +outstanding options in connection with a Corporate Transaction. Upon such plan +termination, all outstanding option grants and unvested stock issuances shall +thereafter continue to have force and effect in accordance with the provisions +of the documents evidencing those grants or issuances. +IV. AMENDMENT OF THE PLAN +A. The Board shall have complete and exclusive power and authority to amend +or modify the Plan in any or all respects. However, no such amendment or +modification shall adversely affect the rights and +B-14 +obligations with respect to stock options or unvested stock issuances at the +time outstanding under the Plan unless the Optionee or the Participant consents +to such amendment or modification. In addition, certain amendments may require +stockholder approval pursuant to applicable laws or regulations. +B. Options to purchase shares of Class A Common Stock may be granted under +the Discretionary Option Grant Program and shares of Class A Common Stock may +be issued under the Stock Issuance Program that are in each instance in excess +of the number of shares then available for issuance under the Plan, provided +any excess shares actually issued under those programs shall be held in escrow +until there is obtained stockholder approval of an amendment sufficiently +increasing the number of shares of Class A Common Stock available for issuance +under the Plan. If such stockholder approval is not obtained within twelve (12) +months after the date the first such excess issuances are made, then (i) any +unexercised options granted on the basis of such excess shares shall terminate +and cease to be outstanding and (ii) the Corporation shall promptly refund to +the Optionees and the Participants the exercise or purchase price paid for any +excess shares issued under the Plan and held in escrow, together with interest +(at the applicable Short Term Federal Rate) for the period the shares were held +in escrow, and such shares shall thereupon be automatically cancelled and cease +to be outstanding. +V. USE OF PROCEEDS +Any cash proceeds received by the Corporation from the sale of shares of +Class A Common Stock under the Plan shall be used for general corporate +purposes. +VI. REGULATORY APPROVALS +A. The implementation of the Plan, the granting of any stock option under +the Plan and the issuance of any shares of Class A Common Stock (i) upon the +exercise of any granted option or (ii) under the Stock Issuance Program shall +be subject to the Corporation's procurement of all approvals and permits +required by regulatory authorities having jurisdiction over the Plan, the stock +options granted under it and the shares of Class A Common Stock issued pursuant +to it. +B. No shares of Class A Common Stock or other assets shall be issued or +delivered under the Plan unless and until there shall have been compliance with +all applicable requirements of Federal and state securities laws, including the +filing and effectiveness of the Form S-8 registration statement for the shares +of Class A Common Stock issuable under the Plan, and all applicable listing +requirements of any stock exchange (or the Nasdaq National Market, if +applicable) on which Class A Common Stock is then listed for trading. +VII. NO EMPLOYMENT/SERVICE RIGHTS +Nothing in the Plan shall confer upon the Optionee or the Participant any +right to continue in Service for any period of specific duration or interfere +with or otherwise restrict in any way the rights of the Corporation (or any +Parent or Subsidiary employing or retaining such person) or of the Optionee or +the Participant, which rights are hereby expressly reserved by each, to +terminate such person's Service at any time for any reason, with or without +cause. +B-15 +APPENDIX +The following definitions shall be in effect under the Plan: +A. Automatic Option Grant Program shall mean the automatic option grant +program in effect under the Plan. +B. Board shall mean the Corporation's Board of Directors. +C. Change in Control shall mean a change in ownership or control of the +Corporation effected through either of the following transactions: +(i) the acquisition, directly or indirectly by any person or related +group of persons (other than the Corporation or a person that directly or +indirectly controls, is controlled by, or is under common control with, the +Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of +the 1934 Act) of securities possessing more than fifty percent (50%) of the +total combined voting power of the Corporation's outstanding securities +pursuant to a tender or exchange offer made directly to the Corporation's +stockholders, or +(ii) a change in the composition of the Board over a period of thirty- +six (36) consecutive months or less such that a majority of the Board +members ceases, by reason of one or more contested elections for Board +membership, to be comprised of individuals who either (A) have been Board +members continuously since the beginning of such period or (B) have been +elected or nominated for election as Board members during such period by at +least a majority of the Board members described in clause (A) who were +still in office at the time the Board approved such election or nomination. +D. Class A Common Stock shall mean the Corporation's Class A Common Stock, +which shall be registered under Section 12(g) of the 1934 Act and shall be +entitled to one-tenth of one vote per share on all matters subject to +stockholder approval. +E. Code shall mean the Internal Revenue Code of 1986, as amended. +F. Corporate Transaction shall mean either of the following stockholder +approved transactions to which the Corporation is a party: +(i) a merger or consolidation in which securities possessing more than +fifty percent (50%) of the total combined voting power of the Corporation's +outstanding securities are transferred to a person or persons different +from the persons holding those securities immediately prior to such +transaction, or +(ii) the sale, transfer or other disposition of all or substantially all +of the Corporation's assets in complete liquidation or dissolution of the +Corporation. +G. Corporation shall mean Odetics, Inc., a Delaware corporation, and its +successors. +H. Discretionary Option Grant Program shall mean the discretionary option +grant program in effect under the Plan. +I. Eligible Director shall mean a non-employee Board member eligible to +participate in the Automatic Option Grant Program in accordance with the +eligibility provisions of Article One. +J. Employee shall mean an individual who is in the employ of the Corporation +(or any Parent or Subsidiary), subject to the control and direction of the +employer entity as to both the work to be performed and the manner and method +of performance. +K. Exercise Date shall mean the date on which the Corporation shall have +received written notice of the option exercise. +B-16 +L. Fair Market Value per share of Class A Common Stock on any relevant date +shall be determined in accordance with the following provisions: +(i) If the Class A Common Stock is at the time traded on the Nasdaq +National Market, then the Fair Market Value shall be deemed equal to the +closing selling price per share of Class A Common Stock on the date in +question, as such price is reported on the Nasdaq National Market or any +successor system. If there is no closing selling price for the Class A +Common Stock on the date in question, then the Fair Market Value shall be +the closing selling price on the last preceding date for which such +quotation exists. +(ii) If the Class A Common Stock is at the time listed on any Stock +Exchange, then the Fair Market Value shall be deemed equal to the closing +selling price per share of Class A Common Stock on the date in question on +the Stock Exchange determined by the Plan Administrator to be the primary +market for the Class A Common Stock, as such price is officially quoted in +the composite tape of transactions on such exchange. If there is no closing +selling price for the Class A Common Stock on the date in question, then +the Fair Market Value shall be the closing selling price on the last +preceding date for which such quotation exists. +M. Hostile Takeover shall mean the acquisition, directly or indirectly, by +any person or related group of persons (other than the Corporation or a person +that directly or indirectly controls, is controlled by, or is under common +control with, the Corporation) of beneficial ownership (within the meaning of +Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent +(50%) of the total combined voting power of the Corporation's outstanding +securities pursuant to a tender or exchange offer made directly to the +Corporation's stockholders which the Board does not recommend such stockholders +to accept. +N. Incentive Option shall mean an option which satisfies the requirements of +Code Section 422. +O. Involuntary Termination shall mean the termination of the Service of any +individual which occurs by reason of: +(i) such individual's involuntary dismissal or discharge by the +Corporation for reasons other than Misconduct, or +(ii) such individual's voluntary resignation following (A) a change in +his or her position with the Corporation which materially reduces his or +her duties and responsibilities or the level of management to which he or +she reports, (B) a reduction in his or her level of compensation (including +base salary, fringe benefits and target bonus under any corporate +performance based bonus or incentive programs) by more than fifteen percent +(15%) or (C) a relocation of such individual's place of employment by more +than fifty (50) miles, provided and only if such change, reduction or +relocation is effected by the Corporation without the individual's consent. +P. Misconduct shall mean the commission of any act of fraud, embezzlement or +dishonesty by the Optionee or Participant, any unauthorized use or disclosure +by such person of confidential information or trade secrets of the Corporation +(or any Parent or Subsidiary), or any other intentional misconduct by such +person adversely affecting the business or affairs of the Corporation (or any +Parent or Subsidiary) in a material manner. The foregoing definition shall not +be deemed to be inclusive of all the acts or omissions which the Corporation +(or any Parent or Subsidiary) may consider as grounds for the dismissal or +discharge of any Optionee, Participant or other person in the Service of the +Corporation (or any Parent or Subsidiary). +Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. +R. Nonstatutory Option shall mean an option not intended to satisfy the +requirements of Code Section 422. +S. Optionee shall mean any person to whom an option is granted under the +Discretionary Option Grant or Automatic Option Grant Program. +B-17 +T. Parent shall mean any corporation (other than the Corporation) in an +unbroken chain of corporations ending with the Corporation, provided each +corporation in the unbroken chain (other than the Corporation) owns, at the +time of the determination, stock possessing fifty percent (50%) or more of the +total combined voting power of all classes of stock in one of the other +corporations in such chain. +U. Participant shall mean any person who is issued shares of Class A Common +Stock under the Stock Issuance Program. +V. Permanent Disability or Permanently Disabled shall mean the inability of +the Optionee or the Participant to engage in any substantial gainful activity +by reason of any medically determinable physical or mental impairment expected +to result in death or to be of continuous duration of twelve (12) months or +more. However, solely for purposes of the Automatic Option Grant Program, +Permanent Disability or Permanently Disabled shall mean the inability of the +non-employee Board member to perform his or her usual duties as a Board member +by reason of any medically determinable physical or mental impairment expected +to result in death or to be of continuous duration of twelve (12) months or +more. +W. Plan shall mean the Corporation's 1997 Stock Incentive Plan, as set forth +in this document. +X. Plan Administrator shall mean the particular entity, whether the Primary +Committee, the Board or the Secondary Committee, which is authorized to +administer the Discretionary Option Grant and Stock Issuance Programs with +respect to one or more classes of eligible persons, to the extent such entity +is carrying out its administrative functions under those programs with respect +to the persons under its jurisdiction. +Y. Plan Effective Date shall mean September 5, 1997, the date of the 1997 +Annual Stockholders Meeting at which the Plan is approved by the Corporation's +stockholders. +Z. Primary Committee shall mean the committee of two (2) or more non- +employee Board members appointed by the Board to administer the Discretionary +Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. +AA. Secondary Committee shall mean a committee of one (1) or more Board +members appointed by the Board to administer the Discretionary Option Grant and +Stock Issuance Programs with respect to eligible persons other than Section 16 +Insiders. +BB. Section 16 Insider shall mean an officer or director of the Corporation +subject to the short swing profit liabilities of Section 16 of the 1934 Act. +CC. Service shall mean the performance of services for the Corporation (or +any Parent or Subsidiary) by a person in the capacity of an Employee, a non- +employee member of the board of directors or a consultant or independent +advisor, except to the extent otherwise specifically provided in the documents +evidencing the option grant or stock issuance. +DD. Stock Exchange shall mean either the American Stock Exchange or the New +York Stock Exchange. +EE. Stock Issuance Agreement shall mean the agreement entered into by the +Corporation and the Participant at the time of issuance of shares of Class A +Common Stock under the Stock Issuance Program. +FF. Stock Issuance Program shall mean the stock issuance program in effect +under the Plan. +GG. Subsidiary shall mean any corporation (other than the Corporation) in an +unbroken chain of corporations beginning with the Corporation, provided each +corporation (other than the last corporation) in the unbroken chain owns, at +the time of the determination, stock possessing fifty percent (50%) or more of +the total combined voting power of all classes of stock in one of the other +corporations in such chain. +B-18 +HH. Takeover Price shall mean the greater of (i) the Fair Market Value per +share of Class A Common Stock on the date the option is surrendered to the +Corporation in connection with a Hostile Takeover or (ii) the highest reported +price per share of Class A Common Stock paid by the tender offeror in effecting +such Hostile Takeover. However, if the surrendered option is an Incentive +Option, the Takeover Price shall not exceed the clause (i) price per share. +II. Taxes shall mean the Federal, state and local income and employment tax +liabilities incurred by the holder of Nonstatutory Options or unvested shares +of Class A Common Stock in connection with the exercise of those options or the +vesting of those shares. +JJ. 10% Stockholder shall mean the owner of stock (as determined under Code +Section 424(d)) possessing more than ten percent (10%) of the total combined +voting power of all classes of stock of the Corporation (or any Parent or +Subsidiary). +B-19 +PROXY +ODETICS, INC. +CLASS A COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class A common stock of ODETICS, INC. hereby +appoints THOMAS G. BARTHOLET and GARY SMITH, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of Stockholders +of Odetics to be held at 1515 South Manchester Avenue, Anaheim, California on +September 14, 2001 at 10:00 a.m. (Pacific Time), and at any adjournments +thereof, and to vote all shares of Class A common stock of Odetics held of +record by the undersigned on July 27, 2001, with all the powers the undersigned +would possess if personally present, in accordance with the instructions on the +reverse hereof. +The undersigned hereby revokes any other proxy to vote at such Annual +Meeting of Stockholders and hereby ratifies and confirms all that said proxies, +and each of them, may lawfully do by virtue hereof. The undersigned also +acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy +statement, the annual report to stockholders on Form 10-K/A for the year ended +March 31, 2001, and the quarterly report on Form 10-Q for the quarter ended June +30, 2001, which were furnished with this proxy. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE +INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE +VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5, AND IN ACCORDANCE WITH THE DISCRETION OF +THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT +THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +[X] Please mark votes as in this example. +1. Election of Directors +Nominees standing for election by holders of Class A common stock: +Crandall Gudmundson and Jerry F. Muench. +[_] FOR [_] WITHHOLD AUTHORITY to vote for all nominees listed below +Nominees standing for election by holders of Class A common stock and +Class B common stock voting together as a single class: Kevin C. +Daly, Gregory A. Miner, John W. Seazholtz, Joel Slutzky, Thomas L. +Thomas and Paul E. Wright. +[_] FOR [_] WITHHOLD AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual +nominee, write that nominee's name in the space provided below.) +---------------------------------------------------------------------------- +2. Approval of the amendment of the Certificate of Incorporation of Odetics to +increase the aggregate number of authorized shares of Class A common stock +from 10,000,000 shares to 50,000,000 shares. +[_] FOR [_] AGAINST [_] ABSTAIN +3. Approval of the amendment to Odetics' 1997 Stock Incentive Plan to increase +the number of shares of Class A common stock authorized for issuance by an +additional 475,000 shares to 1,805,000 shares. +[_] FOR [_] AGAINST [_] ABSTAIN +4. Approval and ratification of the sale and issuance of an aggregate of +70,126 shares of Class A common stock to the Chief Executive Officer and +Chairman of the Board of Odetics at a purchase price of $14.26 per share, +as required by the rules of the Nasdaq National Market. +[_] FOR [_] AGAINST [_] ABSTAIN +5. Ratification of Ernst & Young LLP as the independent auditors of Odetics +for the fiscal year ending March 31, 2002. +[_] FOR [_] AGAINST [_] ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS [_] +MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_] +Signature:_____________________________________ Date__________________________ +Signature:_____________________________________ Date__________________________ +(This Proxy must be signed exactly as your name appears hereon. Executors, +administrators, trustees, etc., should give full title as such. If the +stockholder is a corporation, a duly authorized officer should sign on behalf of +the corporation and should indicate his or her title.) +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED +ENVELOPE. +PROXY +ODETICS, INC. +CLASS B COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class B common stock of ODETICS, INC. hereby +appoints THOMAS G. BARTHOLET and GARY SMITH, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of Stockholders +of Odetics to be held at 1515 South Manchester Avenue, Anaheim, California on +September 14, 2001 at 10:00 a.m. (Pacific Time), and at any adjournments +thereof, and to vote all shares of Class B common stock of Odetics held of +record by the undersigned on July 27, 2001, with all the powers the undersigned +would possess if personally present, in accordance with the instructions on the +reverse hereof. +The undersigned hereby revokes any other proxy to vote at such Annual +Meeting of Stockholders and hereby ratifies and confirms all that said proxies, +and each of them, may lawfully do by virtue hereof. The undersigned also +acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy +statement, the annual report to stockholders on Form 10-K/A for the year ended +March 31, 2001, and the quarterly report on Form 10-Q for the quarter ended June +30, 2001, which were furnished with this proxy. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE +INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE +VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5, AND IN ACCORDANCE WITH THE DISCRETION OF +THE PROXY HOLDER WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT +THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +[X] Please mark votes as in this example. +1. Election of Directors +Nominees standing for election by holders of Class A common stock and +Class B common stock voting together as a single class: Kevin C. Daly, +Gregory A. Miner, John W. Seazholtz, Joel Slutzky, Thomas L. Thomas and +Paul E. Wright. +[_] FOR [_] WITHHOLD AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, +write that nominee's name in the space provided below.) +2. Approval of the amendment of the Certificate of Incorporation of Odetics +to increase the aggregate number of authorized shares of Class A common +stock from 10,000,000 shares to 50,000,000 shares. +[_] FOR [_] AGAINST [_] ABSTAIN +3. Approval of the amendment to Odetics' 1997 Stock Incentive Plan to +increase the number of shares of Class A common stock authorized for +issuance by an additional 475,000 shares to 1,805,000 shares. +[_] FOR [_] AGAINST [_] ABSTAIN +4. Approval and ratification of the sale and issuance of an aggregate of +70,126 shares of Class A common stock to the Chief Executive Officer and +Chairman of the Board of Odetics at a purchase price of $14.26 per share, +as required by the rules of the Nasdaq National Market. +[_] FOR [_] AGAINST [_] ABSTAIN +5. Ratification of Ernst & Young LLP as the independent auditors of Odetics +for the fiscal year ending March 31, 2002. +[_] FOR [_] AGAINST [_] ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS [_] +MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_] +Signature:_______________________________________ Date:_______________________ +Signature:_______________________________________ Date:_______________________ +(This Proxy must be signed exactly as your name appears hereon. Executors, +administrators, trustees, etc., should give full title as such. If the +stockholder is a corporation, a duly authorized officer should sign on behalf of +the corporation and should indicate his or her title.) +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED +ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000350868/0001017062-01-500810/proxy_rpt.txt b/raw/proxies/0000350868/0001017062-01-500810/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001047469-03-026982/proxy.txt b/raw/proxies/0000350868/0001047469-03-026982/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b4febcde295b4b000de6ab9c6b018493e0a04cfa --- /dev/null +++ b/raw/proxies/0000350868/0001047469-03-026982/proxy.txt @@ -0,0 +1,1464 @@ +DEF 14A +1 +a2116559zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +ODETICS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ODETICS, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To Be Held September 12, 2003 +To the Stockholders of Odetics, Inc.: +NOTICE +IS HEREBY GIVEN that the Annual Meeting of Stockholders of Odetics, Inc., a Delaware corporation, will be held on Friday, September 12, 2003 at 10:00 a.m., +Pacific Time, at the principal executive offices of Odetics located at 1515 South Manchester Avenue, Anaheim, California 92802 for the following purposes, as more fully described in the proxy +statement accompanying this Notice: +1. To +elect eight directors to serve on the Board of Directors of Odetics—two directors by the holders of the Class A common stock and six directors by the holders of +the Class A common stock and the holders of the Class B common stock, voting together as a single class. +2. To +approve the amendment of Odetics' certificate of incorporation to change the name of the company to "Iteris Holdings, Inc." +3. To +ratify the appointment of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2004. +4. To +transact any other business which may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +The +Board of Directors has fixed the close of business on July 25, 2003 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting +and at any continuation or adjournment thereof. A list of stockholders entitled to vote at the meeting will be available for inspection at the principal executive offices of Odetics. +You +are cordially invited to attend the meeting in person. Whether or not you plan to attend the meeting, please mark, sign, date and return the enclosed proxy card as soon as possible +in the envelope enclosed for your convenience. Should you receive more than one proxy because your shares are registered in different names and addresses, each proxy should be signed and returned to +assure that all of your shares will be voted. You may revoke your proxy at any time prior to the meeting. If you attend the meeting and vote by ballot, your proxy will be revoked automatically and +only your ballot vote at the meeting will be counted. +Sincerely, +Anaheim, California +Gary W. Smith +August 11, 2003 +Secretary +YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND +RETURN IT IN THE ENCLOSED ENVELOPE. +ODETICS, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 12, 2003 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of +Odetics, Inc., a Delaware corporation, to be voted at the Annual Meeting of Stockholders to be held on September 12, 2003 (the "Annual Meeting") and any adjournment or postponement of +the meeting. The Annual Meeting will be held at 10:00 a.m., Pacific Time, at the principal executive offices of Odetics located at 1515 South Manchester Avenue, Anaheim, California 92802. These +proxy materials and the form of proxy were first mailed to the stockholders of Odetics on or about August 13, 2003. +The +mailing address of the principal executive offices of Odetics is 1515 South Manchester Avenue, Anaheim, California 92802. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of Annual Meeting of Stockholders. Each +proposal is described in more detail in this proxy statement. +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 25, 2003. At +the close of business on the record date, 14,115,635 shares of the Class A common stock of Odetics, par value $0.10 per share, and 1,001,120 shares of the Class B common stock of +Odetics, par value $0.10 per share, were outstanding. The Class A common stock and Class B common stock of Odetics are collectively referred to as the "common stock." +Holders +of the Class A common stock are entitled to elect 25% of the Board rounded up to the nearest whole number, or two directors. The holders of the Class A common stock +and the holders of the Class B common stock, voting together as a single class, will be entitled to elect the balance of the Board, or six directors. Directors will be elected by a plurality of +the voting power of the class or classes, as the case may be, of common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in +effect. With respect to the election of directors, when voting together as a single class, the holders of Class A common stock are entitled to one-tenth of one vote per share held +and the holders of Class B common stock are entitled to one vote per share held. +Pursuant +to the bylaws of Odetics, no stockholder is entitled to cumulate his or her votes (as described above) for candidates other than those whose names have been placed in nomination +prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of the voting of his or her intention to cumulate votes. If any stockholder has given +such notice, then each stockholder may cumulate votes by multiplying the number of votes of each class of common stock the stockholder is entitled to vote by the number of directors to be elected by +such class. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving +the highest number of votes, up to the number of directors to be elected by each class of common stock, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy +will vote +the +shares of each class of the common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. Except as described +above for the election of directors, holders of each class of common stock will vote at the Annual Meeting as a single class on all matters, with each holder of shares of Class A common stock +entitled to one-tenth of one vote per share held and each holder of shares of Class B common stock entitled to one vote per share held. Proposals 2 and 3 require the approval of the +affirmative vote of a majority of the voting power of the common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. +The +presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. All votes will be tabulated by the inspectors of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker +non-votes. Broker non-votes occur when brokers who hold stock in "street name" return proxy cards stating that they do not have authority to vote the stock which they hold on +behalf of beneficial owners. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be +counted for purposes of determining whether a proposal has been approved. +Proxies +Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be +voted, the proxy will be voted FOR the election of the directors proposed by the Board unless the authority to vote for the election of any director is withheld and, if no contrary instructions are +given, the proxy will be voted FOR the approval of Proposals 2 and 3 as described in this proxy statement and the accompanying notice. +You +may revoke or change your proxy at any time before the Annual Meeting by filing with the Secretary of Odetics, at the principal executive offices of Odetics at 1515 South Manchester +Avenue, Anaheim, California 92802, a written notice of revocation or a new duly executed proxy bearing a date later than the date indicated on the previous proxy. You may also revoke your proxy by +attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by the Board of Directors of Odetics. Odetics will bear the entire cost of proxy solicitation, including costs of preparing, +assembling, printing and mailing this proxy +statement, the proxy card and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding +shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, Odetics may reimburse such persons for their +costs in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by telephone, facsimile or any other means +by directors, officers or employees of Odetics. No additional compensation will be paid to these individuals for any such services. +In +the discretion of management, Odetics reserves the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although Odetics does not currently +expect to retain such a firm, it estimates that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by Odetics. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Nominees +The Board of Directors of Odetics is currently comprised of eight members. Eight directors are to be elected at the Annual Meeting and hold office until their +successors are duly elected and qualified at the next annual meeting of stockholders. Holders of Class A common stock are entitled to elect two of the eight directors to be elected at the +Annual Meeting, and the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect the other six directors. The two +candidates receiving the highest number of affirmative votes of shares of Class A common stock, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be +elected directors of Odetics, and the six candidates receiving the highest number of affirmative votes of shares of Class A common stock and shares of Class B common stock, voting +together as a single class, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected directors of Odetics. When voting together as a single class, the +holders of Class A common stock are entitled to one-tenth of one vote per share held and the holders of Class B common stock are entitled to one vote per share held. If +cumulative voting is in effect, however, the proxy holders of each class of common stock will have the right to cumulate and allocate votes among those nominees standing for election with respect to +such class of common stock as such proxy holders in their discretion elect. +Messrs. Gudmundson +and Muench will stand for election by the holders of Class A common stock, and Messrs. Daly, Miner, Seazholtz, Slutzky, Thomas and Wright will +stand for election by the holders of Class A common stock and Class B common stock, voting together as a single class. +3 +Information with Respect to Nominees +The following table sets forth certain information concerning the nominees for directors of Odetics as of July 15, 2003. +Nominees for Election +Name +Age +Position +Director Since +Joel Slutzky (3) +64 +Chairman of the Board of Odetics +Chairman of the Board of MAXxess Systems, Inc. +Chairman of the Board of Iteris, Inc. +Director of Meyer, Mohaddes Associates, Inc. +1969 +Kevin C. Daly, Ph.D.(2)(3) +59 +Director of Odetics +1993 +Crandall L. Gudmundson +72 +Director of Odetics +1979 +Gregory A. Miner (3) +48 +Director, Chief Executive Officer, Chief Financial +Officer and Assistant Secretary of Odetics +Director, Chief Financial Officer and Secretary +of MAXxess +Director of Iteris +Director, Chief Financial Officer and Secretary +of Meyer, Mohaddes Associates +1998 +Jerry F. Muench +68 +Director and Assistant Secretary of Odetics +1969 +John W. Seazholtz (1)(2) +66 +Director of Odetics +1998 +Thomas L. Thomas (1)(2) +54 +Director of Odetics +1999 +Paul E. Wright (1)(3) +72 +Director of Odetics +Director of Iteris +1993 +(1) Member +of the Audit Committee. +(2) Member +of the Compensation and Stock Option Committee. +(3) Member +of the Finance Committee. +Joel Slutzky has served as the Chairman of the Board of Directors since he co-founded Odetics in 1969. Mr. Slutzky +served as the Chief Executive Officer of Odetics from 1975 to February 2002. Mr. Slutzky is also Chairman of Iteris and MAXxess, subsidiaries of Odetics. Mr. Slutzky also served +on the Board of ATL Products, Inc. and on the Board of the American Electronics Association. Mr. Slutzky currently serves on the Board of KOCE, Future Scientists and Engineers of +America, and the Orange County Business Council Workforce Task Group. Mr. Slutzky is also the Chairman of Project Tomorrow, an organization focused on improving Kindergarten through twelfth +grade science education in Orange County. +Kevin C. Daly, Ph.D. has served as a director of Odetics since 1993. Since July 2002, Dr. Daly has been the Chief Executive +Officer of Avamar Technologies, Inc., a provider of high availability data storage solutions. Dr. Daly was previously Chief Technical Officer of Quantum Corporation's Storage Solutions +Group from October 2001 to July 2002 and, prior to that, he was Chief Executive Officer of ATL Products, Inc., the former wholly-owned subsidiary of Odetics, from its foundation +in 1993 until 2001. Dr. Daly also served as Chief Technical Officer of Odetics from 1985 until ATL's separation from Odetics in an initial public offering in March 1997. +Odetics distributed its remaining 82.9% interest in ATL to the stockholders of Odetics in October 1997. Prior to Odetics, Dr. Daly was Director of the +4 +Control +and Dynamics Division of the Charles Stark Draper Laboratory at MIT from 1974 through 1985. Dr. Daly is also a member of the Board of Directors of Danka Business Systems PLC. +Crandall L. Gudmundson is a co-founder of Odetics and served as its President from 1975 until his retirement in 1998. +Mr. Gudmundson has served as a director of Odetics since 1979 and served as a director of ATL Products, Inc. from 1993 to 1998. Prior to co-founding Odetics, +Mr. Gudmundson was the lead project engineer for Leach Corporation. +Gregory A. Miner has served as the Chief Executive Officer of Odetics since February 2002, as a director since 1998 and as a Vice +President and Chief Financial Officer since January 1994 when he joined Odetics. From 1998 to 2002, Mr. Miner also served as Odetics' Chief Operating Officer. Mr. Miner served as +the Vice President and Chief Financial Officer of ATL Products, Inc., a former subsidiary of Odetics, from 1994 to 1998 and currently serves as the Chief Financial Officer, Secretary and +Director of MAXxess. Mr. Miner has also served in various capacities for the other subsidiaries of Odetics from time to time. From December 1984 until joining Odetics, Mr. Miner +served as the Vice President and Chief Financial Officer and a Director of Laser Precision Corporation, a manufacturer of telecommunications test equipment. From 1979 to 1984, Mr. Miner was +employed by Deloitte Haskins and Sells (now known as Deloitte & Touche LLP) in various capacities, the most recent of which was Audit Manager. +Jerry F. Muench is a co-founder of Odetics and has served as a director since 1969. From 1969 to 2002, Mr. Muench was +also Odetics' Secretary. Mr. Muench served as the Vice President, Marketing of Odetics from 1975 until his retirement in December 1997. Prior to co-founding Odetics, +Mr. Muench was the manager of applications engineering at Leach Corporation. +John W. Seazholtz has served as a director of Odetics since May 1998. He also served as a director of Mariner +Networks, Inc., a subsidiary of Odetics that has been discontinued, from March 2000 to September 2001. From May 1998 to April 2000, Mr. Seazholtz served as +the President and Chief Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief Technology Officer of Bell Atlantic after 36 years of service with that +company and its predecessor. Mr. Seazholtz was a senior officer of Bell Atlantic since 1986, serving in various positions, including the positions of Vice President, Operations and Engineering, +Vice President, Marketing, Vice President of New Services, and Vice President, Technology and Information Systems. Mr. Seazholtz currently serves as the Chairman of the Board of Westell +Technologies, Inc. and is a member of the Board of Directors of Advanced Switching Communications, Inc. +Thomas L. Thomas has served as a director of Odetics since May 1999. From January 2000 to September 2001, he also +served as the Chairman of the Board of Mariner Networks, Inc. Mr. Thomas is the Chairman of the Board, President and Chief Executive Officer of HAHT Commerce, a provider of software +applications that enable companies to use the Internet to conduct business. A veteran Silicon Valley executive, Mr. Thomas was previously the President and Chief Executive Officer of Ajuba +Solutions, a provider of B2B integration solution software, which was sold to Interwoven in October 2000. From April 1999 until January 2000, he served as the President, Chief +Executive Officer and Chairman of the Board of Vantive Corporation, a leading customer relationship management software vendor which was acquired by Peoplesoft in January 2000. Prior to that, +from September 1995 to April 1999, Mr. Thomas served as the Senior Vice President of e-Business and Information Services and Chief Information Officer at 3Com +Corporation. From 1993 to 1995, Mr. Thomas served as a Vice President and the Chief Information Officer of Dell Computer Corporation. From 1987 to 1993, he served as the Vice President of +Management Information Systems at Kraft General Foods, and at Sara Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of Directors of iManage, Inc. +Paul E. Wright has served as a director of Odetics since June 1993 and as a director of Iteris since January 1999. +Mr. Wright is the President of Wright Associates—Engineering and Business Consultants, +5 +a +company he formed in 1997. From 1988 until his retirement in 1997, Mr. Wright served as the Chairman of Chrysler Technologies Corp., the aerospace and defense electronics subsidiary of +Chrysler Corporation. From 1986 to 1988, Mr. Wright served as the President and Chief Operating Officer of Fairchild Industries, Inc. Prior to joining Fairchild, he was employed for +28 years by RCA Corporation, where he last served as the Senior Vice President, responsible for planning RCA's merger into General Electric Corporation. +All +directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. All of the nominees are +currently directors of Odetics and have indicated that they are willing to continue to serve as directors. In the event any nominee is unable or declines to serve as a director at the time of the +Annual Meeting, the proxies will be voted for an additional nominee who shall be designated by the current Board of Directors. As of the date of this proxy statement, the Board of Directors is not +aware of any nominee who is unable or will decline to serve as director. +Board Meetings and Committees +The Board of Directors held seven meetings during the fiscal year ended March 31, 2003. Mr. Thomas attended five of the meetings of the Board of +Directors. All of the other directors attended or participated in at least 75% of the aggregate number of meetings of the Board of Directors. Each director (excluding Mr. Thomas) attended at +least 75% of the aggregate number of meetings of those committees of the Board of Directors on which such person served, which were held during such period. +Odetics +currently has three standing committees—the Audit Committee, the Compensation and Stock Option Committee and the Finance Committee. Odetics has no standing nominating +committee, and the Board as a whole acts upon matters which would otherwise be the responsibility of a nominating committee. +Audit Committee. The Audit Committee supervises and reviews the audit and audit review programs and +procedures of the independent auditors of Odetics, its internal accounting staff and the results of internal auditing procedures. The Audit Committee also reviews, acts on and reports to the Board +with respect to various auditing and accounting matters, including the selection of the independent auditors and the independence, professional services, fees, plans and results of the independent +auditors. The members of the Audit Committee of Odetics are Messrs. Seazholtz, Thomas and Wright. The Audit Committee held five meetings during the fiscal year ended March 31, 2003. +The +Board of Directors adopted and approved a written charter for the Audit Committee in June 2000. In July 2002, the Board of Directors adopted and approved an amended and +restated Audit Committee charter, which charter was included as an appendix to Odetics' proxy statement for the annual meeting of the stockholders which was held in September 2002. The Board +has determined that all members of the Audit Committee are "independent" as that term is defined in Rule 4200 of the listing standards of the National Association of Securities Dealers. +Compensation and Stock Option Committee. The Compensation and Stock Option Committee makes +recommendations to the Board concerning the compensation of all executive officers of Odetics and administers the stock option plans of Odetics. The members of the Compensation and Stock Option +Committee of Odetics are Messrs. Daly, Seazholtz and Thomas. The Compensation and Stock Option Committee held two meetings during the fiscal year ended March 31, 2003. +Finance Committee. The Finance Committee reviews Odetics' financial planning and strategies and +provides guidance to the Board and the Audit Committee regarding issues and opportunities related thereto. The Finance Committee also provides interface and advice between the Board, the capital +markets and other financing sources. The Finance Committee held no meetings during the fiscal year +6 +ended +March 31, 2003. The members of the Finance Committee are Messrs. Daly, Miner, Slutzky and Wright. +Compensation of Directors +Directors who are not employees of Odetics or one of its subsidiaries receive an annual fee of $12,000 per year, paid quarterly, in addition to $1,500 for each +Board meeting attended in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of the Board of Directors and its committees. +Non-employee +directors are also eligible to receive periodic option grants pursuant to the Automatic Option Grant Program under Odetics' 1997 Stock Incentive Plan. Under this +plan, each non-employee director receives an option to purchase 20,000 shares of Class A common stock upon his initial appointment to the Board of Directors and an additional option +to purchase 5,000 shares of Class A common stock on the date of each annual meeting after his appointment. Each option granted to non-employee directors under the Automatic Option +Grant Program will have an exercise price equal to the fair market value of the Class A common stock on the grant date and will have a maximum term of ten years, subject to earlier termination +following the optionee's cessation of service as a Board member. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE. PROXIES RETURNED TO ODETICS WILL BE VOTED "FOR" EACH NOMINEE +UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH PROXY. +7 +PROPOSAL NO. 2 +APPROVAL OF THE AMENDMENT OF THE +CERTIFICATE OF INCORPORATION +TO EFFECT A CHANGE IN THE CORPORATE NAME +The Board of Directors of Odetics has determined that it is advisable and in the best interests of Odetics and its stockholders to change the name of the company +to "Iteris Holdings, Inc." in order to aid in communicating the new focus of the company's business. Since late 2001, Odetics has divested itself of many of its business units in order to +reduce operating expenses and to focus the business on what Odetics believes is its core businesses — the business of its Iteris, Inc. subsidiary and, to a lesser extent, the +emerging homeland security opportunities. Odetics believes that the name change will better communicate to the public the current and future nature of Odetics' business operations and its majority +ownership interest in Iteris, Inc. The stockholders are being asked to approve an amendment to the certificate of incorporation of Odetics to effect a change in the corporate name from +"Odetics, Inc." to "Iteris Holdings, Inc." Upon approval of such an amendment by the stockholders, Odetics plans to file a certificate of amendment to its certificate of incorporation to +effect the name change. +Stockholder Approval +The affirmative vote of a majority of the voting power of the Class A common stock and Class B common stock of Odetics, voting together as a single +class, present or represented and entitled to vote at the Annual Meeting, will be required for approval of the amendment of the certificate of incorporation to effect the name change. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO EFFECT A CHANGE IN +THE NAME OF THE COMPANY TO "ITERIS HOLDINGS, INC." +8 +PROPOSAL NO. 3 +RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of Ernst & Young LLP served as the independent auditors of Odetics for the fiscal year ended March 31, 2003. The Audit Committee +of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2004. Odetics is asking the stockholders to ratify the selection by the Audit +Committee of Ernst & Young LLP as the independent auditors of Odetics to audit the consolidated financial statements of Odetics for the fiscal year ending March 31, 2004 and to perform +other appropriate services. Stockholder ratification of the selection of Ernst & Young LLP as Odetics' independent auditors is not required by the bylaws of Odetics or otherwise. In the event +that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the +appointment of a different independent accounting firm at any time during the year if the committee feels that such a change would be in the best interests of Odetics and its stockholders. +A +representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to stockholders' questions, and that representative will be given an opportunity +to make a brief presentation to the stockholders if he or she so desires. +Stockholder Approval +The affirmative vote of a majority of the voting power of the Class A common stock and Class B common stock of Odetics, voting together as a single +class, present or represented and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Ernst & Young LLP as the independent auditors of Odetics for the +fiscal year ending March 31, 2004. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG +LLP AS THE INDEPENDENT AUDITORS OF ODETICS FOR THE FISCAL YEAR ENDING MARCH 31, 2004. +9 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 1, 2003, the number and percentage ownership of the Class A common stock and Class B common stock +of Odetics by (i) all persons known to Odetics to beneficially own more than 5% of either class of outstanding common stock (based upon reports filed by such persons with the SEC), +(ii) each of the Named Executive Officers in the Summary Compensation Table which appears elsewhere herein, (iii) each director of Odetics and director nominee named under "Election of +Directors," and (iv) all executive officers and directors of Odetics as a group. To the knowledge of Odetics, except as otherwise indicated, each of the persons named in this table has sole +voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Class A common stock +Class B common stock +Amount and +Nature of +Beneficial +Ownership(2)(3) +Name and Address of Beneficial Owner(1) +Percent +of +Class(2) +Amount and Nature +of Beneficial +Ownership(2)(3) +Percent of +Class(2) +Total Percent of +Voting Power +Joel Slutzky +894,509 +(4) +6.3 +% +261,622 +(4) +26.1 +% +14.4 +% +Gerald A. Weber +393,841 +(5) +2.8 +187,885 +18.7 +9.4 +Austin W. Marxe and +David M. Greenhouse +5,302,353 +(6) +31.9 +— +— +19.9 +Kevin C. Daly, Ph.D. +26,850 +(7) +* +— +— +0.1 +Crandall L. Gudmundson +121,682 +(8) +* +69,743 +6.9 +3.4 +Gregory A. Miner +245,847 +(9) +1.7 +— +— +1.0 +Jerry F. Muench +117,808 +(10) +* +61,537 +(11) +6.1 +3.0 +John W. Seazholtz +60,297 +(12) +* +— +— +* +Thomas L. Thomas +42,750 +(13) +* +— +— +* +Paul E. Wright +75,044 +(14) +* +— +— +* +Hugo Fruehauf +50,435 +(15) +* +— +— +* +John E. Johnson +68,351 +(16) +* +— +— +* +Steven A. L'Heureux(17) +— +* +— +— +* +Gary W. Smith +97,030 +(18) +* +296 +* +* +All executive officers and directors as a group (10 persons) +1,750,168 +(19) +12.0 +% +393,198 +39.2 +% +23.0 +% +* Represents +less than 1%. +(1) The +address for Gerald A. Weber is 222 North LaSalle, Suite 899, Chicago, Illinois 60601. The address for Messrs. Marxe and Greenhouse is 153 E. 53 rd St., +51 st Floor, New York, New York 10022. The address of all other persons named in the table is 1515 South Manchester Avenue, Anaheim, California 92802. The address for Mr. Fruehauf +is 1585 S. Manchester Avenue, Anaheim, California 92802. The address for Mr. L'Heureux is 1999 Broadway, Suite 4000, Denver, Colorado 80202. +(2) Based +on 14,112,823 shares of the Class A common stock and 1,003,932 shares of Class B common stock outstanding as of July 1, 2003. Shares of each class of common +stock subject to options or warrants which are exercisable within 60 days of July 1, 2003 are deemed to be beneficially owned by the person holding such options or warrants for the +purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the +preceding sentence, shares issuable +10 +upon +exercise of outstanding options or warrants are not deemed to be outstanding for purposes of this calculation. +(3) In +addition to the shares held in the individual's name, this column also includes shares held for the benefit of the named person under Odetics' 401(k) and Stock Ownership Plan. +(4) Includes +160,000 shares of Class A common stock issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, +2003. Excludes 349,508 shares of Class A common stock and 140,802 shares of Class B common stock held in trust for the benefit of the children and relatives of Mr. Slutzky as to +which Mr. Slutzky has no investment or voting power and disclaims any beneficial ownership. See note 5. +(5) All +of such shares are owned beneficially of record by various trusts with respect to which Mr. Weber serves as trustee or co-trustee. Mr. Weber shares +investment and voting power as to 35,333 shares of Class A common stock and 48,049 shares of Class B common stock. Mr. Weber exercises sole investment and voting power over the +remaining 358,808 shares of Class A common stock and 139,836 shares of Class B common stock. The shares shown include an aggregate of 349,508 shares of Class A common stock and +140,802 shares of Class B common stock held in trust for the benefit of the children and relatives of Mr. Slutzky, as to which shares Mr. Slutzky has no investment or voting power +and disclaims any beneficial ownership. +(6) Includes +2,500,000 shares issuable upon exercise of warrants that were issued to Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P. and +Special Situations Private Equity Fund, L.P. (collectively, the "Special Situations Funds"). Purusant to a Schedule 13D/A filed on March 4, 2003 with the SEC, Messrs. Marxe +and Greenhouse reported that they had shared voting power and shared dispositive power over the shares of common stock (including the 2,500,000 shares issuable upon exercise of warrants) held by the +Special Situations Funds. Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. ("AWM"), the general partner of Special Situations Cayman +Fund, L.P. AWM is the general partner of MGP Advisers Limited Partnership, the general partner of Special Situations Fund III, L.P. In addition, Messrs. Marxe and +Greenhouse are members of MG Advisers L.L.C., the general partner of Special Situations Private Equity Fund, L.P. +(7) Includes +100 shares held by Dr. Daly's spouse. Also includes 10,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after July 1, 2003. +(8) Includes +4,500 shares held by Mr. Gudmundson's IRA and 10,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after July 1, 2003. +(9) Includes +187,778 shares issuable upon exercise of options held by Mr. Miner that are currently exercisable or will become exercisable within 60 days after July 1, 2003. +(10) Includes +31,114 shares held by Mr. Muench's spouse and 10,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after July 1, 2003. +(11) Includes +23,235 shares held by Mr. Muench's spouse. +(12) Includes +26,750 shares issuable upon exercise of options held by Mr. Seazholtz that are currently exercisable or will become exercisable within 60 days after July 1, +2003. +(13) Includes +23,750 shares issuable upon exercise of options held by Mr. Thomas that are currently exercisable or will become exercisable within 60 days after July 1, 2003. +(14) Includes +25,750 shares issuable upon exercise of options held by Mr. Wright that are currently exercisable or will become exercisable within 60 days after July 1, 2003. +11 +(15) Includes +12,000 shares issuable upon exercise of options held by Mr. Fruehauf that are currently exercisable or will become exercisable within 60 days after July 1, +2003. Mr. Fruehauf resigned from his positions with Odetics effective as of May 9, 2003. +(16) Includes +12,000 shares issuable upon exercise of options held by Mr. Johnson that are currently exercisable or will become exercisable within 60 days after July 1, +2003. +(17) Mr. L'Heureux +resigned from his positions with Odetics effective as of February 21, 2003. +(18) Includes +45,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2003. +(19) Includes +525,278 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2003. +12 +EQUITY COMPENSATION PLANS +The following table summarizes, as of March 31, 2003, the status of Odetics' compensation plans under which equity securities are authorized for issuance: +Plan Category +Number of Securities +to be Issued upon +Exercise of +Outstanding Options +Weighted +Average +Exercise Price of +Outstanding +Options +Number of Securities +Remaining Available +for Future Issuance +(excluding securities +reflected in column (a) +(a) +(b) +(c) +Equity Compensation Plans that have been approved by Odetics' security holders: +1997 Stock Incentive Plan +961,920 +$ +3.73 +689,000 +Equity Compensation Plans that have not been approved by Odetics' security holders +Total +961,920 +689,000 +13 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The following table sets forth certain information regarding all executive officers of Odetics as of July 15, 2003. +Name +Age +Capacities in Which Served +John E. Johnson +56 +Vice President of Odetics; Director, President and Chief Executive Officer of Iteris, Director of Meyer, Mohaddes Associates +Gregory A. Miner +48 +Chief Executive Officer, Chief Financial Officer, Assistant Secretary and Director of Odetics Director; Chief Financial Officer and Secretary of MAXxess; Director of Iteris; Director, Chief Financial Officer and Secretary of Meyer, Mohaddes +Associates +Gary W. Smith +46 +Vice President, Controller and Secretary of Odetics; Assistant Secretary of Iteris, MAXxess and Meyer, Mohaddes Associates +The +following is a brief description of the capacities in which each of the executive officers has served during the past five years. The biography of Mr. Miner appears earlier in +this proxy statement. See "Election of Directors." +John E. Johnson has served as a Vice President of Odetics since 1986 and has served as the President, Chief Executive Officer and a +director of Odetics' subsidiary, Iteris, Inc. since December 1999. Prior to that, he served as the General Manager of the Odetics ITS division (now Iteris, Inc.) from 1996 to +1998, prior to its incorporation. From 1990 to 1996, Mr. Johnson served as the General Manager of the Odetics Customer Service division. Mr. Johnson served in various other capacities +with Odetics since joining Odetics in 1974, including the Vice President and General Manager of the Omutec division from 1986 to 1990, the Director of Contracts for the Space division from 1980 to +1986, the Controller of Infodetics, a former subsidiary of Odetics, from 1975 to 1980 and the Controller of Odetics from 1974 to 1975. Prior to joining Odetics, Mr. Johnson served as a +certified public accountant with Peat Marwick. +Gary W. Smith has served as the Controller of Odetics since 1992, became a Vice President in August 1994 and the Secretary in 2002. +Prior to that, Mr. Smith served as the Assistant Controller of Odetics from 1990 until 1992, Assistant Secretary from 1998 until 2002, and Senior Financial Analyst from 1986 until 1990. +Officers +serve at the discretion of the Board of Directors. +14 +Summary of Cash and Certain Other Compensation +The following table provides certain summary information concerning the compensation earned by the Chief Executive Officer and each of the four other most highly +compensated executive officers of Odetics whose total cash salary and bonus during the fiscal year ended March 31, 2003 exceeded $100,000 (collectively, the "Named Executive Officers") for each +of the three fiscal years ended March 31, 2001, 2002 and 2003. No other executive officers who would have otherwise been includable in such table on the basis of salary earned for the fiscal +year ended March 31, 2003 has been excluded by reason of his or her termination of employment or change in executive status during that year. Other than the bonus paid to Mr. Johnson for +the fiscal year ended March 31, 2002, no bonuses have been paid to the Named Executive Officers during the fiscal years ended March 31, 2001, 2002 and 2003. +SUMMARY COMPENSATION TABLE +Long-Term Compensation +Annual Compensation +Awards +Name and Principal Positions with Odetics +Fiscal +Year +Salary ($)(1) +Bonus ($) +Restricted +Stock ($) +Securities +Underlying +Options (#)(2) +All Other +Compensation +($)(3) +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer and Director +2003 +2002 +2001 +284,169 +217,200 +214,662 +— +— +— +— +— +— +310,000 +— +30,000 +(4) +5,671 +4,830 +3,891 +John E. Johnson(5) +Vice President +2003 +2002 +2001 +202,086 +185,958 +185,958 +— +21,000 +— +— +— +— +12,000 +— +— +(6) +4,263 +4,164 +2,831 +Hugo Fruehauf(7) +Vice President +2003 +2002 +2001 +158,004 +172,206 +174,969 +— +— +— +— +— +— +12,000 +— +— +(6) +4,741 +5,100 +3,875 +Steven A. L'Heureux(8) +Vice President +2003 +2002 +2001 +170,682 +189,231 +183,462 +— +— +— +— +— +— +10,000 +— +— +(6) +5,029 +4,950 +3,975 +Gary W. Smith +Vice President, Controller and Secretary +2003 +2002 +2001 +108,199 +115,235 +114,821 +— +— +— +— +— +— +45,000 +— +— +(6) +3,056 +2,881 +2,106 +(1) Represents +all amounts earned from Odetics and its subsidiaries during the fiscal years shown, including amounts deferred under the Executive Deferral Plan and the Odetics 401(k) and +Stock Ownership Plan. +(2) Consists +of options granted pursuant to Odetics' 1994 Long-Term Equity Incentive Plan and 1997 Stock Incentive Plan entitling the holder to purchase shares of +Class A common stock of Odetics. +(3) Consists +solely of the matching contribution of Odetics to the respective accounts of the Named Executive Officers under the Odetics 401(k) and Stock Ownership Plan. +(4) Includes +110,000 shares underlying the regrant option issued in May 2002 to replace options cancelled in November 2001. See "2001 Option Exchange Program." +(5) In +the year ended March 31, 2002, Mr. Johnson was granted an option to purchase 40,000 shares of common stock of Iteris. +(6) Consists +of shares underlying regrant options issued in May 2002 to replace options cancelled in November 2001. See "2001 Option Exchange Program." +(7) In +the year ended March 31, 2001, Mr. Fruehauf was granted an option to purchase 250,000 shares of common stock of Zyfer. Mr. Fruehauf resigned from his positions with +Odetics effective as of May 9, 2003. +(8) Mr. L'Heureux +resigned from his positions with Odetics effective as of February 21, 2003. +15 +Option Grants in Last Fiscal Year +The following table provides information regarding option grants made to our Named Executive Officers during the fiscal year ended March 31, 2003. No stock +appreciation rights were granted to any of the Named Executive Officers during such fiscal year. +Individual Grants +Potential Realizable +Value at Assumed Annual +Rates of Stock Price +Appreciation for Option Term (3) +Percent of +Total Options +Granted to +Employees in +Fiscal 2003 +Number of +Securities +Underlying Options +Granted (1) +Name +Exercise Price +Per Share (2) +Expiration +Date +5% +10% +Greg Miner +310,000 +56.47 +% +$ +1.40 +05/20/12 +$ +272,940 +$ +691,684 +John E. Johnson +12,000 +2.19 +$ +1.40 +05/20/12 +10,565 +26,775 +Hugo Fruehauf(4) +12,000 +2.19 +$ +1.40 +05/20/12 +10,565 +26,775 +Steven A. L'Heureux(5) +10,000 +1.82 +$ +1.40 +05/20/12 +8,805 +22,312 +Gary W. Smith +45,000 +8.20 +$ +1.40 +05/20/12 +39,620 +100,406 +(1) Each +option was granted pursuant to Odetics' 1997 Stock Incentive Plan (the "1997 Plan") and entitles the holder to purchase shares of Class A common stock of Odetics. Each +option has a maximum term of ten years, subject to earlier termination in the event of the optionee's termination of employment with Odetics or its subsidiaries. Each option vests in three equal +annual installment with the first installment vesting on the first year anniversary of the grant date, subject to acceleration of vesting in the event of the merger, consolidation or reorganization of +Odetics if such option is not assumed or other wise continued in effect in such transaction. In addition, the Compensation and Stock Option Committee has the authority to provide for the accelerated +vesting of the option whether or not the option is assumed or other wise continued in effect or upon the termination of the optionee's employment following such transaction. +Includes +shares underlying regrant options issued in May 2002 to replace options cancelled in November 2001. See "2001 Option Exchange Program." +(2) Odetics +may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares and the applicable federal and state +withholding taxes to which the optionee becomes subject in connection with such exercise. +(3) The +5% and 10% assumed rates of appreciation are prescribed by the rules and regulations of the SEC and do not represent management's estimate or projection of future trading prices +of the Class A common stock. Unless the market price of the Class A common stock does in fact appreciate over the option term, no value will be realized from the option grants. Actual +gains, if any, are dependent upon numerous factors, including, without limitation, the future performance of Odetics and its business units, overall business and market conditions, and the option +holder's continued employment with Odetics throughout the entire vesting period and option term, which factors are not reflected in this table. +(4) Mr. Fruehauf +resigned from his positions with Odetics effective as of May 9, 2003. +(5) Mr. L'Heureux +resigned from his positions with Odetics effective as of February 21, 2003. +Aggregated Option Exercises and Fiscal Year End Values +The following table provides information with respect to the Named Executive Officers concerning the unexercised options held by them at of the end of the fiscal +year ended March 31, 2003. None of the Named Officers exercised any options or stock appreciation rights during the fiscal year ended March 31, 2003 and no stock appreciation rights were +held by the Named Executive Officers at the end of such fiscal year. +16 +AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR +AND FY-END OPTION/SAR VALUES +Number of Securities Underlying Unexercised Options at Fiscal Year End (#)(1) +Value of Unexercised In-the-Money Options at Fiscal Year End ($) +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer and Director +155,556 +154,444 +— +— +John E. Johnson +Vice President +12,000 +— +— +— +Hugo Fruehauf(2) +Vice President +12,000 +— +— +— +Steven A. L'Heureux(3) +Vice President +— +— +— +— +Gary W. Smith +Vice President, Controller and Secretary +45,000 +— +— +— +(1) Includes +both in-the-money and out-of-the money options. +(2) Mr. +Fruehauf resigned from his positions with Odetics effective as of May 9, 2003. +(3) Mr. +L'Heureux resigned from his positions with Odetics effective as of February 21, 2003. +2001 Option Exchange Program +In November 2001, Odetics implemented an option exchange program to address the substantial loss in value of the outstanding stock options held by Odetics' +executive officers and the increasing inability of those options to serve as a meaningful incentive for optionees to remain employed with Odetics. Under the program, each executive officer who held +outstanding stock options with an exercise price of $4.00 or more per share under the 1997 Plan or the 1994 Long-Term Equity Plan (the "1994 Plan"), was given the opportunity to exchange +that option for a new option under the 1997 Plan for the same number of shares that would be granted at least six months and one day after the completion of the option exchange program. +On +November 16, 2001, Odetics accepted for exchange and cancellation options to purchase an aggregate of 349,000 shares of Odetics' Class A common stock representing 100% +of the options eligible to be tendered under the option exchange program. On May 20, 2002, Odetics granted new options to purchase an aggregate of 349,000 shares of Class A common stock +under the 1997 Plan to replace the eligible options that had been tendered and cancelled under the program. +In +general, the exercise price per share for the new options was $1.40, the last reported sales price of the Class A common stock on the grant date. In the case of Joel Slutzky, +who is a holder of 10% or more of the common stock, the exercise price per share for the new options was $1.54, or 110% of the last reported trading price of the Class A common stock on the +grant date. +Each +new option issued in exchange for a cancelled option will continue to vest and become exercisable for the option shares in accordance with the same vesting schedule in effect for +the cancelled option. +The +table below provides certain information concerning our executive officers who tendered eligible options in the option exchange program and the options that were cancelled pursuant +to that program. Except for the November 2001 option exchange program, Odetics has not implemented any other option repricing or option cancellation/regrant programs. +17 +10-YEAR OPTION REPRICINGS +Name and Principal Position +Date of +Cancel- +lation +Number of +Securities +Underlying +Options at +Time of +Cancellation +Market +Price of +Stock at +Time of +Cancel- +lation +Exercise +Price at +Time of +Cancel- +lation +New +Exercise +Price of +Replace- +ment +Option +Length of +Original +Option Term +Remaining at +Date of +Cancellation +Joel Slutzky +Chairman of the Board +11/16/01 +11/16/01 +11/16/01 +50,000 +55,000 +55,000 +$ +1.26 +1.26 +1.26 +$ +4.625 +8.663 +11.344 +$ +1.54 +1.54 +1.54 +7 years +8 years +8 years +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer and Director +11/16/01 +11/16/01 +11/16/01 +11/16/01 +25,000 +30,000 +25,000 +30,000 +1.26 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +10.000 +1.40 +1.40 +1.40 +1.40 +7 years +8 years +8 years +9 years +John E. Johnson +Vice President +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Hugo Fruehauf (1) +Vice President +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Steven A. L'Heureux (2) +Vice President +11/16/01 +10,000 +1.26 +10.313 +1.40 +8 years +Gary W. Smith +Vice President, Controller and Secretary +11/16/01 +11/16/01 +11/16/01 +15,000 +20,000 +10,000 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +1.40 +1.40 +1.40 +7 years +8 years +8 years +(1) Mr. Fruehauf +resigned from his positions with Odetics effective as of May 9, 2003. +(2) Mr. L'Heureux +resigned from his positions with Odetics effective as of February 21, 2003. +Benefit Plans +Odetics maintains a 401(k) and Stock Ownership Plan (the "Stock Ownership Plan") which qualifies for favorable tax treatment under Section 401(a) of the +Internal Revenue Code. The Stock Ownership Plan is the result of the merger of the Odetics, Inc. Profit Sharing and 401(k) Plan and the Odetics Associates Stock Ownership Plan. +Employees +become eligible to make pre-tax contributions to the Stock Ownership Plan pursuant to Internal Revenue Code Section 401(k) as of the January 1, +April 1, July 1 or October 1 coincident with or next following the date on which they are hired. Participants may contribute an amount not in excess of $11,000 for calendar year +2003. Employees become eligible to receive an allocation of employer contributions to the Stock Ownership Plan as of the January 1, April 1, July 1 or October 1 coincident +with or next following the date on which they have completed six months of service with Odetics. These contributions may be made in the form of cash or Odetics stock. No contributions were made by +Odetics to the Stock Ownership Plan for the fiscal years ended March 31, 2000, 2001 and 2003. +Contributions +that are made to the Stock Ownership Plan are allocated to the separate accounts of participants and are held in a trust. Participant accounts are credited with investment +gains and charged with investment losses. Participant contributions are always fully vested at all times, and the Odetics contributions on behalf of participants vest at the rate of +33 1 / 3 percent per year of service. Following termination of employment, the vested portion of the participant's account balance is distributed in a lump sum payment. +Odetics +also maintains an Executive Deferral Plan which allows designated executives to defer the receipt of some of their current compensation until a future year. These executives may +elect to defer the receipt of up to 75% of their annual compensation, but in no event may they elect to defer less than $5,000. Benefits are generally fully vested at all times, and are payable +following termination of +18 +employment +in the manner elected by the executive. The Executive Deferral Plan does not qualify for favorable income tax treatment under Section 401(a) of the Internal Revenue Code. +Employment Contracts, Termination of Employment Agreements and Change of Control Arrangements +Odetics does not currently have any employment contracts in effect with any of its Named Executive Officers. Odetics provides incentives such as salary, benefits +and option grants to attract and retain executive officers and other key associates. The Compensation and Stock Option Committee, as Plan +Administrator of the 1997 Plan, has the authority to provide for the accelerated vesting of outstanding options held by an individual, in connection with the termination of such individual's +employment following an acquisition in which these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain hostile changes in control of Odetics. +Other than such accelerated vesting and the agreements described below in "Certain Transactions", there is no agreement or policy which would entitle any executive officer to severance payments or any +other compensation as a result of such officer's termination. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, Odetics can indemnify its directors and officers against liabilities they may incur in such +capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The certificate of incorporation and the bylaws of Odetics provides that Odetics will indemnify +its directors and officers to the fullest extent permitted by law, and the bylaws require Odetics to advance litigation expenses upon receipt by Odetics of an undertaking by the director or officer to +repay such advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude +any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Odetics' +certificate of incorporation provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care +to Odetics and its stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other +forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to +Odetics or its stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, +and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, +such as the federal securities laws or state or federal environmental laws. +Odetics +has entered into agreements to indemnify its directors and certain of its officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. +These agreements, among other things, indemnify Odetics' directors and certain of its officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by +such person in any action or proceeding, including any action by or in the right of Odetics, on account of services as a director or officer of Odetics, or as a director or officer of any other +company or enterprise to which the person provides services at the request of Odetics. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation and Stock Option Committee of Odetics' Board of Directors during the fiscal year ended March 31, 2003 were +Messrs. Daly, Seazholtz and Thomas. None of these individuals was an officer or employee of Odetics or its subsidiaries at any time during the fiscal year ended March 31, 2003. +No +executive officer of Odetics has served on the Board of Directors or on the compensation committee of any other entity that has, or has had, one or more executive officers serving as +a member of the Board of Directors or on the Compensation and Stock Option Committee of Odetics. +19 +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers Odetics' fiscal year ended March 31, 2003. The Compensation and Stock Option Committee (the "Compensation Committee") for the fiscal +year ended March 31, 2003 was comprised of three outside directors, Messrs. Daly, Seazholtz and Thomas. The Compensation Committee recommends the general compensation levels for +executives. The Compensation Committee meets periodically to review and recommend for approval by the Board of Directors, the salaries, bonuses and benefit plans for officers and key associates. +During the fiscal year ended March 31, 2003, the Compensation Committee held two meetings. +General Compensation Policy +The guiding principle of the Compensation Committee is to establish a compensation program that aligns executive compensation with Odetics' objectives and +business strategies as well as with financial and operational performance. In keeping with this principle the Compensation Committee seeks to: +(1) Attract +and retain qualified senior executives who can play a significant role in the achievement of Odetics' goals; +(2) Reward +executives for strategic management and the long-term enhancement of stockholder value; and +(3) Create +a performance-oriented environment that rewards performance with respect to the financial and operational goals of Odetics. +In +the fiscal year ended March 31, 2003, the annual compensation for the executive officers included base salaries and stock options. +Odetics +establishes salaries for the officers by considering the salaries of officers at comparably sized companies according to data obtained by the Compensation Committee from +executive compensation consultants and from other independent outside sources, including the American Electronics Association annual survey of executive compensation. +A +substantial portion of the compensation of executive officers is based upon the award of stock options which rely on increases in the value of Odetics' securities. The award of options +is intended to encourage executives to establish a meaningful, long-term ownership interest in Odetics consistent with the interests of Odetics' stockholders. Under Odetics' stock option +plans, options are granted from time to time to certain officers and key associates of Odetics and its subsidiaries at the fair market value of the shares of Class A common stock at the time of +grant. Because the compensation element of options is dependent on increases over time in the market value of such shares, stock options represent compensation that is tied to Odetics' +long-term performance. The award of stock options to the executive officers of Odetics is determined based upon individual performance, level of base salary and position with Odetics. +The +Compensation Committee has reviewed the base salaries for the fiscal year ended March 31, 2003 of each of the executive officers and is of the opinion that such salaries are +not unreasonable in view of those paid by Odetics' competitors and by other companies of similar size. The Compensation Committee also reviewed the stock options awarded to the executive officers for +their services in the fiscal year ended March 31, 2003 and is of the opinion that the option awards are reasonable in view of the officers' individual performance and positions with Odetics. +CEO Compensation +In setting the total compensation payable to Gregory A. Miner, Odetics' Chief Executive Officer and Chief Financial Officer, for the fiscal year ended +March 31, 2003, the Compensation Committee +20 +sought +to make such compensation competitive with that provided by other companies with which Odetics competes for executive talent. +With +respect to the base salary of Mr. Miner, it was the Compensation Committee's intent to provide him with a level of stability and certainty each year. The Compensation +Committee believes the base salary of Mr. Miner for the fiscal year ended March 31, 2003 is at a competitive level with the base salaries in effect for similarly situated chief executive +officers. The remaining components of Mr. Miner's compensation for the fiscal year ended March 31, 2003, however, were primarily dependent upon corporate performance. Based upon such +performance, among other factors, no bonus was paid +to Mr. Miner for the fiscal year ended March 31, 2003 and 200,000 options were granted to him for the fiscal year ended March 31, 2003. +2001 Option Exchange Program +In light of the substantial decline in the market price of the Class A common stock that occurred as a result of the economic downturn in the technology +sector, which began in the latter part of the 2000 calendar year, many of the outstanding options held by Odetics' executive officers had exercise prices significantly higher than the market price of +the underlying common stock. The Compensation Committee believed that many of those options had little or no value and were unlikely to be exercised in the foreseeable future. As a result, the +Compensation Committee decided that those options were no longer effective in achieving the desired objectives of retaining and incentivizing employees important to Odetics' attainment of its business +and financial objectives and the creation of value for the stockholders. +Accordingly, +in November 2001, the Compensation Committee authorized Odetics to implement an option exchange program which would allow each executive officer the opportunity to +exchange his outstanding stock options under the 1997 Plan and the 1994 Plan with an exercise price in excess of $4.00 per share. In exchange, the executive officers would receive new options under +the 1997 Plan for the same number of shares to be granted at least six months and one day after the completion of the option exchange program. +Options +to purchase 349,000 shares were held by executive officers and eligible for exchange. At the conclusion of the program on November 16, 2001, Odetics accepted for exchange +and cancellation options to purchase an aggregate of 349,000 shares of common stock representing 100% of the options eligible to be tendered under the option exchange program. +On +May 20, 2002, Odetics granted options to purchase an aggregate of 349,000 shares of Class A common stock to executive officers who tendered eligible options in the +program. In general, the exercise price per share for those new options is $1.40, the last reported trading price of the Class A common stock on the grant date. In the case of Joel Slutzky, who +is a holder of 10% or more of the common stock, the exercise price per share for the new options was $1.54, or 110% of the last reported trading price of the Class A common stock on the grant +date. Six executive officers originally participated in the option exchange program, six executive officers received new options to purchase a total of 349,000 shares in cancellation of their +higher-priced options for the same number of shares, and no executive officers held no eligible options. +Each +option issued in exchange for a cancelled option will continue to vest and become exercisable for the option shares in accordance with the same vesting schedule in effect for the +cancelled option. +The +Compensation Committee believed that this program was necessary because equity incentives in the form of stock option grants form a critical component of the compensation +package provided to Odetics' key employees and play a substantial role in Odetics' ability to retain the services of individuals essential to Odetics' long-term financial success. The +Compensation Committee felt that Odetics' ability to retain key employees would be significantly impaired, unless value were restored to +21 +their +options in the form of either replacement options or supplemental options to be granted with an exercise price equal to the fair market value of the Class A common stock at the time of +grant. However, in order to assure that the option exchange program served its primary purposes of assuring the continued service of key employees and helping to create stockholder value, the +Committee imposed several limitations. First, no participant would be eligible to receive a replacement option for his cancelled option unless that individual continued to be employed by Odetics until +the grant date of the replacement option. To assure that the replacement option would not be treated as a variable award for financial accounting purposes, which would otherwise have a negative impact +upon Odetics' earnings, no replacement option was to be granted within six months and one day after the cancellation of the option submitted for exchange. As a result, each participant in the program +had to remain employed with Odetics until the end of that period in order to receive the replacement option. In addition, each replacement option will vest in accordance with the same vesting schedule +as was in effect for the cancelled option it replaces. As a result, the optionee will only have the opportunity to acquire all the shares subject to the replacement option if he remains employed with +Odetics through the end of that vesting period. +As +a result of the deferred grant date for the replacement options and the continuation of the existing vesting schedules for those options, the Compensation Committee believed that the +program struck an appropriate balance between the interests of Odetics' employees and those of its stockholders. The replacement options provide an opportunity for executive officers, who are +essential to Odetics' long-term financial success, to restore value to the equity component of their compensation package. However, those individuals will enjoy the benefits of their +replacement options only if they in fact remain employed with Odetics and contribute to its financial success in a manner that creates stockholder value in the form of increases to the market value of +its stock. +Compliance with Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly held corporations for compensation exceeding +$1.0 million paid to certain of the corporation's executive officers. The limitation applies only to compensation which is not considered to be performance-based. The nonperformance based +compensation to be paid to Odetics' executive officers for the fiscal year ended March 31, 2003 did not exceed the $1.0 million limit per officer, nor is it expected that the +nonperformance based compensation to be paid to Odetics' executive officers for the next fiscal year will exceed that limit. Odetics' 1997 Stock Incentive Plan is structured so that any compensation +deemed paid to an executive officer in connection with the exercise of option grants made under that plan will qualify as performance-based compensation which will not be subject to the +$1.0 million limitation. Because it is very unlikely that the cash compensation payable to any of Odetics' executive +officers in the foreseeable future will approach the $1.0 million limit, the Compensation Committee has decided at this time not to take any other action to limit or restructure the elements of +cash compensation payable to Odetics' executive officers. The Compensation Committee will reconsider this decision should the individual compensation of any executive officer ever approach the +$1.0 million level. +Submitted +by the Compensation Committee +of the Board of Directors: +Kevin +C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +22 +AUDIT COMMITTEE REPORT +The following is the report of the audit committee with respect to the audited consolidated financial statements of Odetics for the fiscal year ended +March 31, 2003 included in Odetics' Annual Report on Form 10-K for that year. +Review with Management +The audit committee has reviewed and discussed these audited consolidated financial statements with management of Odetics. +Review and Discussions with Independent Auditors +The audit committee has discussed with Odetics' independent auditors, Ernst & Young LLP, the matters required to be discussed by SAS 61 (Codification of +Statements on Auditing Standards, AU Section 380), as amended, which includes, among other items, matters related to the conduct of the audit of the consolidated financial statements of +Odetics. +The +audit committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 ("Independence +Discussions with Audit Committees"), as amended, and has discussed with Ernst & Young LLP the independence of Ernst & Young LLP from Odetics. +Conclusion +Based on the review and discussions referred to above in this report, the audit committee recommended to the Board of Directors of Odetics that the audited +financial statements be included in Odetics' Annual Report on Form 10-K for the year ended March 31, 2003 for filing with the Securities and Exchange Commission. +Submitted +by the Audit Committee +of the Board of Directors: +John +W. Seazholtz +Thomas L. Thomas +Paul E. Wright +23 +AUDIT AND OTHER FEES +Fees Billed to Odetics by Ernst & Young LLP During the Fiscal Year Ended March 31, 2003 +Audit Fees. Audit fees billed to Odetics by Ernst & Young LLP during the fiscal year ended +March 31, 2003 for audit of Odetics' annual consolidated financial statements and review of those consolidated financial statements included in Odetics' quarterly reports on Forms +10-Q totaled approximately $108,000. +Financial Information Systems Design and Implementation Fees. Odetics did not engage Ernst & +Young LLP to provide advice or services to Odetics regarding financial information systems design and implementation during the fiscal year ended March 31, 2003. +All Other Fees. Other audit-related fees for the fiscal year ended March 31, 2003 were an +additional $90,000 and included, among other things, fees for registration statements, fees related to audits of certain subsidiaries of Odetics. Fees billed to Odetics for +non-audit-related services rendered by Ernst & Young LLP for the fiscal year ended March 31, 2003, including fees for tax compliance and tax consulting services, were +approximately $133,000. In the aggregate, all such other fees, including audit-related fees, totaled approximately $223,000. +Determination of Independence +The Audit Committee of the Board of Directors has determined that the provision by Ernst & Young LLP of the services covered under the headings "Financial +Information Systems Design and Implementation Fees" and "All Other Fees" above are compatible with maintaining Ernst & Young LLP's independence. +24 +PERFORMANCE GRAPH FOR ODETICS, INC. +INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph shows the cumulative total return on investment assuming an investment of $100 on March 31, 1998 in each of the Class A common +stock and Class B common stock of Odetics, the Nasdaq Stock Market Index and Media General's Industry Group 836 for Diversified Electronics. The total stockholder return assumes reinvestment of +dividends on a daily basis, although cash dividends have not been declared on either class of Odetics' common stock. The stockholder returns shown in the following graph are not necessarily indicative +of future performance. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG ODETICS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX +AND A PEER GROUP +Measurement Period +1998 +1999 +2000 +2001 +2002 +2003 +Odetics Class A Common Stock +100.00 +111.43 +157.14 +38.57 +17.71 +7.54 +Odetics Class B Common Stock +100.00 +98.14 +136.65 +29.81 +19.89 +5.17 +Nasdaq Stock Market Index +100.00 +135.08 +250.99 +100.60 +101.32 +74.37 +MG Group Index +100.00 +93.60 +295.09 +116.44 +86.07 +55.30 +Notwithstanding anything to the contrary set forth in any of Odetics' previous or future filings under the Securities Act or the Exchange Act, as amended, that +might incorporate this proxy statement or future filings made by Odetics under those statutes, the Compensation Committee Report, the Audit Committee Report, the Audit Committee Charter, reference to +the independence of the Audit Committee members and the Performance Graph are not deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference into any of +those prior filings or into any future filings made by Odetics under those statutes. +25 +Certain Transactions +In February 2002, Odetics obtained a $1.25 million line of credit from Technology Lending Partners, L.L.C. ("TLP"), a California limited +liability company that is controlled by Joel Slutzky, Odetics' Chairman of the Board of Directors. Interest is payable on this line of credit monthly and accrues at the prime rate of interest +designated by Bank of America from time to time plus 4% (8.5% as of March 31, 2003). As of March 31, 2003, $1.25 million was outstanding under this line of credit. In May 2003, in +connection with Odetics' sale of the assets of its Zyfer, Inc. subsidiary, Odetics entered into a release of lien with TLP, pursuant to which Odetics repaid TLP $850,000 under this line of +credit to obtain a release of TLP's security interest in the assets relating to the Zyfer business. +In +October 2002, Odetics entered into a Receivables Purchase Agreement with TLP, pursuant to which TLP advanced Odetics an aggregate of $923,672 against certain of Odetics' +accounts receivable in exchange certain fees. As of March 31, 2003, the total fees earned by TLP in connection with this agreement were $111,248. Of the total amounts advanced, $232,347 +remained outstanding and payable to TLP as of March 31, 2003. In May 2003, in connection with the Zyfer sale, Odetics entered into an agreement with TLP, pursuant to which Odetics +repurchased the receivables remaining outstanding under this agreement, all of which related to the Zyfer business, for an aggregate repurchase price of $227,689. As of the date of this proxy +statement, there are no outstanding factored receivables between TLP and Odetics. +In +May 2003, Odetics entered into change in control agreements with each of Greg Miner, the Chief Executive Officer, Chief Financial Officer and a director of Odetics, and John E. +Johnson, a Vice President of Odetics and the President and Chief Executive Officer and a Director of Iteris. In the event of an involuntary termination of the officer's employment within three months +prior to or twenty-four months after a change in control, the agreement provides for a severance payment to such officer of 200% of such officer's annual base pay plus target bonus for the +current fiscal year. In addition, such officer and his dependents are entitled to all insurance benefits for up to twenty-four months or until such officer obtains new employment with comparable +benefits, whichever is earlier. +In +July 2003, Odetics entered into a Securities Purchase Agreement with certain purchasers, including Greg Miner, the Chief Executive Officer, the Chief Financial Officer and a +director of Odetics, pursuant to which it sold an aggregate of 3,666,666 shares of its Class A common stock and issued warrants to purchase an aggregate of 366,666 shares of its Class A +common stock to seven accredited investors, including Mr. Miner, who participated in such private financing on the same terms as the other investors. Mr. Miner purchased an aggregate of +166,667 shares of the Class A common stock of Odetics at a purchase price of $0.60 per share, the closing sales price of the Class A common stock on the OTC Bulletin Board on the date of +the agreement. In addition, in accordance with the terms of the agreement, Mr. Miner received a warrant to purchase up to 16,667 shares of the Class A common stock at an exercise price +of $1.50 per share. +Section 16(a) Beneficial Ownership Reporting Compliance +Under the federal securities laws, Odetics' directors and officers and any persons holding more than 10% of Odetics' common stock are required to report their +ownership of Odetics' common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and Odetics is required to report in this proxy statement +any failure to file by these dates. Based solely on its review of copies of the reports on Forms 3, 4 and 5 received by Odetics with respect to the fiscal year ended March 31, 2003, and the +written representations received from the reporting persons that no other reports were required, Odetics believes that all directors, executive officers and persons who own more than 10% of Odetics' +common stock have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section. +26 +Annual Report +A copy of Odetics' annual report on Form 10-K for the fiscal year ended March 31, 2003 (including Amendment No. 1 but excluding +the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The annual report is not incorporated into this proxy statement and is not considered proxy solicitation +material. Stockholders may obtain a copy of the exhibits to the annual report on Form 10-K, as amended, without charge, by writing to Investor Relations, Odetics, Inc., +1515 S. Manchester Avenue, Anaheim, California 92802. The annual report on Form 10-K, as amended (including the exhibits thereto), is also available on the Securities and Exchange +Commission's Web site (http://www.sec.gov). +Deadline for Receipt of Stockholder Proposals +If Odetics has not received notice on or prior to June 22, 2003 of any matter a stockholder intends to propose for a vote at the 2003 annual meeting of +stockholders, then a proxy solicited by the Board of Directors may be voted on such matter in the discretion of the proxy holder, without discussion of the matter in the proxy statement soliciting +such proxy and without such matter as a separate item on the proxy card. +The +deadline for stockholders to submit proposals to be considered for inclusion in Odetics' proxy statement for next year's annual meeting of stockholders is anticipated to be +April 15, 2004. In addition, the proxy to be solicited by the Board of Directors for next year's annual meeting will confer discretionary authority to vote on any stockholder proposal presented +at that meeting, unless Odetics receives notice of such proposal no later than June 30, 2004. Stockholder proposals must be mailed to +the attention of the Secretary of Odetics at the principal executive offices of Odetics located at 1515 South Manchester, Anaheim, California 92802. +Other Business +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy +statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE +BOARD OF DIRECTORS OF +ODETICS, INC. +Anaheim, +California +August 11, 2003 +27 +V DETACH PROXY CARD HERE V +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +ODETICS, INC. +CLASS A COMMON STOCK +The undersigned stockholder of Class A common stock of ODETICS, INC. hereby appoints GREGORY A. MINER and GARY W. SMITH, and each of them, +proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Odetics to be held at +1515 South Manchester Avenue, Anaheim, California 92802 on September 12, 2003 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of +Class A common stock of Odetics held of record by the undersigned on July 25, 2003, with all the powers the undersigned would possess if personally present, in accordance with the +instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for the year ended +March 31, 2003 (including Amendment No. 1 to such annual report), which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND IN ACCORDANCE +WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +(Continued, and to be signed on reverse side) +See reverse side +ODETICS, INC. +V DETACH PROXY CARD HERE V +Please Detach Here +V You Must Detach This Portion of the Proxy Card V +Before Returning it in the Enclosed Envelope +ý Please mark votes as in this example. +1. +ELECTION OF DIRECTORS +Nominees standing for election by holders of Class A common stock: Crandall L. Gudmundson and Jerry F. Muench. +o FOR o WITHHOLD AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +Nominees standing for election by holders of Class A common stock and Class B common stock voting together as a single class: Kevin C. Daly, Gregory A. Miner, John W. +Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. Wright. +o FOR o WITHHOLD AUTHORITY +to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +2. +Approval of the amendment of the certificate of incorporation of Odetics to effect a change in the corporate name to "Iteris Holdings, Inc." +o FOR o AGAINST o ABSTAIN +3. +Ratification of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2004. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This +Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized +officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +V DETACH PROXY CARD HERE V +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +ODETICS, INC. +CLASS B COMMON STOCK +The undersigned stockholder of Class B common stock of ODETICS, INC. hereby appoints GREGORY A. MINER and GARY W. SMITH, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Odetics to be held at 1515 South +Manchester Avenue, Anaheim, California 92802 on September 12, 2003 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of Class B common stock of Odetics held +of record by the undersigned on July 25, 2003, with all the powers the undersigned would possess if personally present, in accordance with the instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for the year ended +March 31, 2003 (including Amendment No. 1 to such annual report), which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND IN ACCORDANCE +WITH THE DISCRETION OF THE PROXY HOLDER WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +(Continued, and to be signed on reverse side) +See reverse side +ODETICS, INC. +V DETACH PROXY CARD HERE V +Please Detach Here +V You Must Detach This Portion of the Proxy Card V +Before Returning it in the Enclosed Envelope +ý Please mark votes as in this example. +1. +ELECTION OF DIRECTORS +Nominees standing for election by holders of Class A common stock and Class B common stock voting together as a single class: Kevin C. Daly, Gregory A. Miner, John W. +Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. Wright. +o FOR o WITHHOLD AUTHORITY +to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) +2. +Approval of the amendment of the certificate of incorporation of Odetics to effect a change in the corporate name to "Iteris Holdings, Inc." +o FOR o AGAINST o ABSTAIN +3. +Ratification of Ernst & Young LLP as the independent auditors of Odetics for the fiscal year ending March 31, 2004. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This +Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized +officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +QuickLinks +PROPOSAL NO. 1 ELECTION OF DIRECTORS +Nominees for Election +PROPOSAL NO. 2 APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO EFFECT A CHANGE IN THE CORPORATE NAME +PROPOSAL NO. 3 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +EQUITY COMPENSATION PLANS +EXECUTIVE COMPENSATION AND OTHER INFORMATION +SUMMARY COMPENSATION TABLE +AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES +10-YEAR OPTION REPRICINGS +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +AUDIT COMMITTEE REPORT +AUDIT AND OTHER FEES +PERFORMANCE GRAPH FOR ODETICS, INC. INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* AMONG ODETICS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-03-026982/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-03-026982/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001047469-04-024712/proxy.txt b/raw/proxies/0000350868/0001047469-04-024712/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..4a7d2f0592de50bd6d39c53442e2e6cf9568a172 --- /dev/null +++ b/raw/proxies/0000350868/0001047469-04-024712/proxy.txt @@ -0,0 +1,1936 @@ +DEF 14A +1 +a2141102zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under Rule 14a-12 +ITERIS HOLDINGS, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +ITERIS HOLDINGS, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To Be Held September 10, 2004 +To +the Stockholders of Iteris Holdings, Inc.: +NOTICE +IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual Meeting") of Iteris Holdings, Inc., a Delaware corporation, will be held on Friday, +September 10, 2004 at 10:00 a.m., Pacific Time, at the principal executive offices of Iteris Holdings located at 1515 South Manchester Avenue, Anaheim, California 92802 for the following +purposes, as more fully described in the proxy statement accompanying this Notice: +1. To +elect nine directors to serve on the Board of Directors of Iteris Holdings—three directors by the holders of the Class A common stock and six directors by the +holders of the Class A common stock and the holders of the Class B common stock, voting together as a single class. +2. To +approve the amendment and restatement of the certificate of incorporation of Iteris Holdings to: (a) automatically convert each outstanding share of Class B common +stock into 1.1 shares of Class A common stock and remove the ability to issue any further shares of Class B common stock; (b) change the voting rights of the Class A common +stock from one-tenth of one vote per share to one vote per share on all matters to be addressed by the stockholders; (c) change the name of the Class A common stock to +"Common Stock;" and (d) change the name of Iteris Holdings to "Iteris, Inc." +3. To +ratify the appointment of Ernst & Young LLP as the independent auditors of Iteris Holdings for the fiscal year ending March 31, 2005. +4. To +transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +The +Board of Directors has fixed the close of business on July 26, 2004 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual +Meeting and at any continuation or adjournment thereof. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at the principal executive offices of Iteris +Holdings. +We +cordially invite all stockholders to attend the Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. You +can vote your shares by completing and returning the enclosed proxy card. If your shares are held in "street name," that is, your shares are held in the name of a brokerage firm, bank or other +nominee, in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or by +telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date and +return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and +vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For further information, please see the discussion of +voting rights and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ GREGORY A. MINER +Anaheim, California +August 6, 2004 +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer, +and Assistant Secretary +YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS +PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS HOLDINGS, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 10, 2004 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of Iteris +Holdings, Inc., a Delaware corporation ("Iteris Holdings" or the "Company"), to be voted at the Annual Meeting of Stockholders to be held on September 10, 2004 (the "Annual Meeting") and +any adjournment or postponement of the meeting. The Annual Meeting will be held at 10:00 a.m., Pacific Time, at the Company's principal executive offices located at 1515 South Manchester +Avenue, Anaheim, California 92802. These proxy materials and the form of proxy were first mailed to the Company's stockholders on or about August 6, 2004. +The +mailing address of the Company's principal executive offices is 1515 South Manchester Avenue, Anaheim, California 92802. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of Annual Meeting of Stockholders. Each +proposal is described in more detail in this proxy statement. +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 26, 2004. At +the close of business on the record date, 24,762,636 shares of the Company's Class A common stock, par value $0.10 per share, and 922,067 shares of the Company's Class B common stock, +par value $0.10 per share, were outstanding. The Company's Class A common stock and Class B common stock are collectively referred herein to as the "common stock." +Holders +of the Class A common stock are entitled to elect 25% of the Board rounded up to the nearest whole number, or three directors. The holders of the Class A common +stock and the holders of the Class B common stock, voting together as a single class, will be entitled to elect the balance of the Board, or six directors. Directors will be elected by a +plurality of the voting power of the class or classes, as the case may be, of common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative +voting is in effect. With respect to the election of directors and when voting together as a single class, the holders of Class A common stock are entitled to one-tenth of one vote +per share held and the holders of Class B common stock are entitled to one vote per share held. +Pursuant +to the bylaws of Iteris Holdings, no stockholder is entitled to cumulate his or her votes (as described above) for candidates other than those whose names have been placed in +nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of the voting of his or her intention to cumulate votes. If any stockholder +has given such notice, then each stockholder may cumulate votes by multiplying the number of votes of each class of common stock the stockholder is entitled to vote by the number of directors to be +elected by such class. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates +receiving the highest number of votes, up to the number of directors to be elected by each class of common stock, will be elected. If cumulative voting is in effect, the persons named in the +accompanying proxy will vote +the +shares of each class of the common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +Except +as described above for the election of directors, holders of each class of common stock will vote at the Annual Meeting as a single class on all matters, with each holder of +shares of Class A common stock entitled to one-tenth of one vote per share held and each holder of shares of +Class B common stock entitled to one vote per share held. Proposals 2 and 3 require the approval of the affirmative vote of a majority of the voting power of the common stock present in person +or represented by proxy at the Annual Meeting and entitled to vote on the matter. Proposal 2 also requires the approval of the affirmative vote of a majority of the Class B common stock present +in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. +The +presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. All votes will be tabulated by the inspectors of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker +non-votes. Broker non-votes occur when brokers who hold stock in "street name" return proxy cards stating that they do not have authority to vote the stock which they hold on +behalf of beneficial owners. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be +counted for purposes of determining whether a proposal has been approved. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in "street name," that is, your shares are held in the name of a brokerage firm, bank +or other nominee, in lieu of a proxy card you should receive from that institution an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or +voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to complete, sign, date and return each proxy card or voting +instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated and timely returned will be counted in the quorum and +voted. Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted FOR +the election of the directors proposed by the Board unless the authority to vote for the election of any director is withheld and, if no contrary instructions are given, the proxy will be voted FOR +the approval of Proposals 2 and 3 as described in this proxy statement and the accompanying notice. +The +enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the meeting as well as any procedural matters. We +have not been notified by any stockholder of his or her intent to present a stockholder proposal at the Annual Meeting. +If +your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later +date with the Company's Secretary, at the Company's principal executive offices at 1515 South Manchester Avenue, Anaheim, California 92802. If your shares are held in street name, you should contact +the record holder to obtain instructions if you wish to revoke or change your vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted +previously to vote the same shares will be revoked automatically and only your vote at the Annual Meeting will be counted. Please note, however, that if your shares are held in +street name, your vote in person at the Annual Meeting +2 +will not be effective unless you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a +proxy. +Voting Electronically via the Internet or Telephone +A large number of banks and brokerage firms are participating in the ADP Investor Communication Services online program. This program provides eligible +stockholders who receive a paper copy of the proxy statement the opportunity to vote over the Internet or by telephone. If your voting instruction form does not reference Internet or telephone +information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. Stockholders who vote over the Internet or by +telephone need not return a proxy card or voting instruction form by mail but may incur costs, such as usage charges, from telephone companies or Internet service providers. +Solicitation +The enclosed proxy is being solicited by the Company's Board of Directors. The Company will bear the entire cost of proxy solicitation, including costs of +preparing, assembling, printing and mailing this proxy statement, the proxy card and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to +brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In +addition, the Company may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be +supplemented by a solicitation by telephone, facsimile or any other means by the Company's directors, officers or employees. No additional compensation will be paid to these individuals for any such +services. +In +the discretion of management, the Company reserves the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although the Company does not +currently expect to retain such a firm, it estimates that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by +the Company. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Nominees +Nine directors are to be elected at the Annual Meeting and hold office until their successors are duly elected and qualified at the next annual meeting of +stockholders. Holders of Class A common stock are entitled to elect three of the nine directors to be elected at the Annual Meeting, and the holders of Class A common stock and the +holders of Class B common stock, voting together as a single class, are entitled to elect the other six directors. The three candidates receiving the highest number of affirmative votes of +shares of Class A common stock, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected as directors of Iteris Holdings, and the six candidates +receiving the highest number of affirmative votes of shares of Class A common stock and shares of Class B common stock, voting together as a single class, present in person or +represented by proxies and entitled to vote at the Annual Meeting, will be elected directors of Iteris Holdings. When voting together as a single class, the holders of Class A common stock are +entitled to one-tenth of one vote per share held and the holders of Class B common stock are entitled to one vote per share held. If cumulative voting is in effect, however, the +proxy holders of each class of common stock will have the right to cumulate and allocate votes among those nominees standing for election with respect to such class of common stock as such proxy +holders in their discretion elect. +3 +Messrs. Hernandez, +Johnson and Marwitz will stand for election by the holders of Class A common stock, and Messrs. Daly, Miner, Seazholtz, Slutzky, Thomas and Wright +will stand for election by the holders of Class A common stock and Class B common stock, voting together as a single class. +Information with Respect to Nominees +The following table sets forth certain information concerning the nominees for directors of Iteris Holdings as of July 1, 2004. +Nominees for Election +Name +Age +Current Positions with +Iteris Holdings and its Subsidiaries +Iteris Holdings Director Since +Kevin C. Daly, Ph.D.(2)(3) +59 +Director of Iteris Holdings +1993 +Gary Hernandez +44 +Director of Iteris, Inc. +N/A +John E. "Jack" Johnson +57 +Vice President of Iteris Holdings +Director, President and Chief Executive Officer of Iteris, Inc. +Director of Meyer, Mohaddes Associates, Inc. +N/A +Dr. Hartmut Marwitz +Director of Iteris, Inc. +N/A +Gregory A. Miner +49 +Chief Executive Officer, Chief Financial Officer, +Director and Assistant Secretary of Iteris Holdings +Chairman of the Board and Assistant Secretary of Iteris, Inc. +Director, Chief Financial Officer and Secretary of Meyer, Mohaddes Associates, Inc. +1998 +John W. Seazholtz(1)(2) +67 +Director of Iteris Holdings +1998 +Joel Slutzky(3) +65 +Chairman of the Board of Iteris Holdings +Director of Meyer, Mohaddes Associates, Inc. +Director of Iteris, Inc. +1969 +Thomas L. Thomas(1)(2)(3) +55 +Director of Iteris Holdings +1999 +Paul E. Wright(1)(3) +73 +Director of Iteris Holdings +Director of Iteris, Inc. +1993 +(1) Member +of the Audit Committee. +(2) Member +of the Compensation Committee. +(3) Member +of the Nominating and Corporate Governance Committee. +Kevin C. Daly, Ph.D. has served as a director of Iteris Holdings since 1993. Since July 2002, Dr. Daly has been the Chief +Executive Officer of Avamar Technologies, Inc., a provider of high availability storage software solutions. Dr. Daly was previously Chief Technical Officer of Quantum Corporation's +Storage Solutions Group from October 2001 to July 2002 and, prior to that, he was Chief Executive Officer of ATL Products, Inc. from its foundation in 1993 until 2001. +Dr. Daly also served as Chief Technical Officer of Iteris Holdings from 1985 until ATL's separation from Iteris Holdings in an initial public offering in 1997. Prior to joining +Iteris Holdings, Dr. Daly was Director of the Control +4 +and +Dynamics Division of the Charles Stark Draper Laboratory at MIT from 1974 through 1985. Dr. Daly is also a member of the Board of Directors of Danka Business Systems PLC. +Gary Hernandez has been a director of Iteris, Inc. since January 1999. Mr. Hernandez has been a partner in the law +firm of Sonnenschein, Nath and Rosenthal since December 1997. From December 1995 to December 1997, Mr. Hernandez was a partner in the law firm of Long & Levit. +Mr. Hernandez served as Deputy Insurance Commissioner of California from April 1991 to November 1995. Mr. Hernandez received his B.A. degree from the University of +California, Berkeley and his J.D. degree from the University of California, Davis. +John E. "Jack" Johnson has served as a Vice President of Iteris Holdings since 1986 and has served as the President, Chief Executive +Officer and a director of Iteris, Inc. since December 1999. Prior to that, he served as the General Manager of the Odetics ITS division (now Iteris, Inc.) from 1996 to 1998, prior +to its incorporation. From 1990 to 1996, Mr. Johnson served as the General Manager of the Iteris Holdings Customer Service division. Mr. Johnson served in various other capacities with +Iteris Holdings since joining Iteris Holdings in 1974, including the Vice President and General Manager of the Omutec division from 1986 to 1990, the Director of Contracts for the Space division of +Iteris Holdings from 1980 to 1986, the Controller of Infodetics, a former subsidiary of Iteris Holdings, from 1975 to 1980 and the Controller of Iteris Holdings from 1974 to 1975. The Company has +indicated that Mr. Johnson will become the Company's Chief Executive Officer upon completion of the roll-up merger of Iteris, Inc. into the Company, replacing +Mr. Miner, who will succeed Mr. Slutzky as Chairman of the Board of the Company. Prior to joining Iteris Holdings, Mr. Johnson served as a certified public accountant with Peat +Marwick. +Dr. Hartmut Marwitz has served as a director of Iteris, Inc. since 1999 and has served as the Vice-President of +Engineering Mercedes-Benz Trucks of DaimlerChrysler in Germany since 1995. Previously, Dr. Marwitz served with Daimler-Benz AG as Director of Truck Powertrain Testing. +Furthermore, Dr. Marwitz has broad experiences in the field of passenger car development. Before joining Daimler-Benz AG, Dr. Marwitz worked as Senior Manager for Rheinmetall +in the field of Special Machinery Development in Germany and Spain. Dr. Marwitz holds an Engineering Degree in Mechanical Engineering and a Doctoral Degree in Experimental Mechanics from the +Technical University of Munich, Germany. Since 2003, Dr. Marwitz has held an honorary professorship as the Chair of Machine and Design at the Institute of Machine Design and Automotive +Engineering at the Technical University of Karlsruhe (Germany). +Gregory A. Miner has served as the Chief Executive Officer of Iteris Holdings since February 2002, as a director since 1998, as a +Vice President and Chief Financial Officer since he joined Iteris Holdings in January 1994, and as the Assistant Secretary since May 2004. Since December 2003, Mr. Miner +has also served as the Chairman of the Board of Iteris, Inc. From 1998 to 2002, Mr. Miner also served as the Company's Chief Operating Officer. Mr. Miner served as the Vice +President and Chief Financial Officer of ATL Products, Inc., a former subsidiary of Iteris Holdings, from 1994 to 1998. Mr. Miner has also served in various capacities for the other +subsidiaries of Iteris Holdings from time to time. From December 1984 until joining Iteris Holdings, Mr. Miner served as the Vice President, Chief Financial Officer and a Director of +Laser Precision Corporation, a manufacturer of telecommunications test equipment. Mr. Miner is a Certified Public Accountant and from 1979 to 1984, was employed by Deloitte Haskins and Sells +(now known as Deloitte & Touche LLP) in various capacities, the most recent of which was Audit Manager. +John W. Seazholtz has served as a director of Iteris Holdings since May 1998. From May 1998 to April 2000, +Mr. Seazholtz served as the President and Chief Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief Technology Officer of Bell Atlantic after +36 years of service with that company and its predecessor. Mr. Seazholtz was a senior officer of Bell Atlantic since 1986, serving in various positions, including the positions of Vice +President, Operations and Engineering, Vice +5 +President, +Marketing, Vice President of New Services, and Vice President, Technology and Information Systems. Mr. Seazholtz currently serves as the Chairman of the Board of Westell +Technologies, Inc. and is a member of the Board of Directors of Advanced Switching Communications, Inc. +Joel Slutzky has served as the Chairman of the Board of Directors since he co-founded Iteris Holdings in 1969. +Mr. Slutzky served as the Company's Chief Executive Officer of Iteris Holdings from 1975 to February 2002 and as the Chairman of the Board of Iteris, Inc. until +December 2003. Mr. Slutzky also served on the Board of ATL Products, Inc. and in various capacities for other subsidiaries of Iteris Holdings from time to time. Mr. Slutzky +currently serves on the Board of Directors for of the American Electronics Association, KOCE, Future Scientists and Engineers of America, and the Orange County Business Council Workforce Task Group. +Mr. Slutzky is also the Chairman of Project Tomorrow, an organization focused on improving Kindergarten through 12th grade science education in Orange County, California. +Thomas L. Thomas has served as a director of Iteris Holdings since May 1999. From January 2000 to September 2001, he +also served as the Chairman of the Board of Mariner Networks, Inc. Mr. Thomas served as the Chairman of the Board, President and Chief Executive Officer of HAHT Commerce, a provider of +software applications that enable companies to use the Internet to conduct business, from February 2000 to February 2004 when HAHT Commerce was sold to Global Exchange Services. +Mr. Thomas currently serves as a consultant to the Chief Executive Officer of Global Exchange Services. A veteran Silicon Valley executive, Mr. Thomas was previously the President and +Chief Executive Officer of Ajuba Solutions, a provider of B2B integration solution software, which was sold to Interwoven in October 2000. From April 1999 until January 2000, he +served as the President, Chief Executive Officer and Chairman of the Board of Vantive Corporation, a customer relationship +management software vendor which was acquired by Peoplesoft in January 2000. Prior to that, from September 1995 to April 1999, Mr. Thomas served as the Senior Vice +President of e-Business and Information Services and Chief Information Officer at 3Com Corporation. From 1993 to 1995, Mr. Thomas served as a Vice President and the Chief +Information Officer of Dell Computer Corporation. From 1987 to 1993, he served as the Vice President of Management Information Systems at Kraft General Foods, and at Sara Lee Corporation from 1981 to +1987. Mr. Thomas also serves on the Board of Directors of iManage, Inc. +Paul E. Wright has served as a director of Iteris Holdings since June 1993 and as a director of Iteris, Inc. since +January 1999. Mr. Wright is the President of Wright Associates—Engineering and Business Consultants, a company he formed in 1997. From 1988 until his retirement in 1997, +Mr. Wright served as the Chairman of Chrysler Technologies Corp., the aerospace and defense electronics subsidiary of Chrysler Corporation. From 1986 to 1988, Mr. Wright served as the +President and Chief Operating Officer of Fairchild Industries, Inc. Prior to joining Fairchild, he was employed for 28 years by RCA Corporation, where he last served as the Senior Vice +President, responsible for planning RCA's merger into General Electric Corporation. +All +directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. All of the nominees have +indicated that they are willing to continue to serve as directors. In the event any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted +for an additional nominee who shall be designated by the current Board of Directors. As of the date of this proxy statement, the Board of Directors is not aware of any nominee who is unable or will +decline to serve as director. +Board Meetings and Committees +The Board of Directors held five meetings during the fiscal year ended March 31, 2004. All of the directors attended or participated in at least 75% of the +aggregate number of meetings of the Board of Directors. Each director (excluding Mr. Thomas) attended at least 75% of the aggregate number of +6 +meetings +of those committees of the Board of Directors on which such person served, which were held during such period. +Iteris +Holdings currently has three standing committees—the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. +Audit Committee. The Audit Committee oversees on behalf of the Board (a) the conduct of the +accounting and financial reporting processes, the audits of the Iteris Holdings financial statements and the integrity of the its audited financial statements and other financial reports; +(b) the performance of the internal accounting and financial controls function of Iteris Holdings; (c) the engagement, replacement, compensation, qualifications, independence and +performance of the independent auditors for Iteris Holdings, and (d) the portions of the Code of Ethics and Business Conduct and related policies regarding the accounting, internal accounting +controls or auditing matters of Iteris Holdings. +The +current members of the Company's Audit Committee are Messrs. Seazholtz, Thomas and Wright, all of whom are "independent" under the SEC rules and the current AMEX listing +standards regarding audit committee membership. The Board has identified Mr. Wright as the member of the Audit Committee who qualifies as an "audit committee financial expert" under applicable +SEC rules and regulations governing the composition of the Audit Committee. The Audit Committee held six meetings during the fiscal year ended March 31, 2004. +The +Audit Committee meets privately with the independent auditors of Iteris Holdings, and the independent auditors have unrestricted access to and report directly to the Audit Committee. +The Audit Committee has selected Ernst & Young LLP as Iteris Holdings' independent auditors for the fiscal year ending March 31, 2005 and is recommending that the stockholders of Iteris +Holdings ratify this appointment at the Annual Meeting. +The +Board of Directors initially adopted the Audit Committee Charter in 2000 and approved an amended and restated Audit Committee Charter in July 2002. The Board subsequently +further amended and restated the Audit Committee Charter in March 2004, a copy of which is included as an Appendix to this proxy statement. A copy of the current charter is available on the +investor relations section of our website at www.iteris.com. The Audit Committee Charter is reviewed annually and revised as appropriate. +Compensation Committee. The Compensation Committee (a) evaluates officer and director +compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of the "executive officers" of the Company as defined in the rules promulgated +under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (c) reviews and makes recommendations to the Board with respect to the Company's equity-based +and other incentive compensation plans for employees; (d) evaluates the performance of the Company's executive officers; (e) assists the Board in evaluating potential candidates for +executive officer positions with the Company and oversee management succession planning; and (f) produces the Committee report required by the applicable rules and regulations of the SEC and +other regulatory bodies for inclusion in the Company's annual proxy statement. A copy of the current Compensation Committee Charter is available on the investor relations section of our website at +www.iteris.com. The Compensation Committee Charter is reviewed annually and revised as appropriate. +The +current members of the Company's Compensation are Messrs. Daly, Seazholtz and Thomas. The Compensation Committee held one meeting during the fiscal year ended March 31, +2004. +Nominating and Corporate Governance Committee. The primary purposes of the Nominating and Corporate +Governance Committee are to: (a) identify, screen and review individuals qualified to serve as directors of the Company; (b) select or recommend to the Board of Directors the selection +of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of +7 +Directors +candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring the effectiveness of the Company's corporate governance policies and developing and +recommending to the Board modifications and or additions to such policies; and (e) reviewing on a regular basis the overall corporate governance of the Company and recommending improvements +when necessary. +The +Board of Directors adopted and approved a written charter for the Nominating and Corporate Governance Committee in March 2004. A copy of such charter is attached to this proxy +statement as an appendix and is available on the investor relations section of our website at www.iteris.com. The Nominating and Corporate Governance Committee Charter is reviewed annually and revised +as appropriate. +The +Nominating and Corporate Committee held no meetings during the fiscal year ended March 31, 2004 because the members of such committee were not designated until after the end +of such fiscal year. The current members of the Nominating and Corporate Committee are Messrs. Daly, Slutzky, Thomas and Wright. +The +Nominating and Corporate Governance Committee will consider candidates for directors recommended by stockholders of Iteris Holding who meet the eligibility requirements for +submitting stockholder proposals for inclusion in the Company's next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders +wishing to recommend a nominee must submit such recommendation in writing to the Chair, Nomination Committee, care of the Corporate Secretary of the Company, by the deadline for stockholder proposals +set forth in the Company's last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the +nomination, (c) a representation that the nominating stockholder is a stockholder of record of the Company's stock entitled to vote at the next annual meeting and intends to appear in person or +by proxy at such meeting to nominate the person specified in the notice, (d) the nominee's qualifications for membership on the Board, (e) a resume of the candidate's business experience +and educational background as well as all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of +all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the +nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to +cooperate with reasonable background checks and personal interviews, and to serve as a director of the Company, if elected. +In +connection with its evaluation, the Nominating and Corporate Governance Committee may request additional information from the candidate or the recommending stockholder, and may +request an interview with the candidate. The Nominating and Corporate Governance Committee has the discretion to decide which individuals to recommend for nomination as directors. +No +candidates for director nominations were submitted to the Nominating and Corporate Governance Committee by any stockholder in connection with the election of directors at the Annual +Meeting. +Compensation of Directors +Directors who are not employees of Iteris Holdings or one of its subsidiaries receive an annual fee of $12,000 per year, paid quarterly, in addition to $1,500 for +each Board meeting attended in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of the Company's Board of Directors and its committees. +8 +Non-employee +directors are also eligible to receive periodic option grants pursuant to the Automatic Option Grant Program under the Company's 1997 Stock Incentive Plan. Under +this plan, each non-employee director receives an option to purchase 20,000 shares of Class A common stock upon his initial appointment to the Board of Directors and an additional +option to purchase 5,000 shares of Class A common stock on the date of each annual meeting after his appointment. Each option granted to non-employee directors under the Automatic +Option Grant Program will have an exercise price equal to the fair market value of the Class A common stock on the grant date and will have a maximum term of ten years, subject to earlier +termination following the optionee's cessation of service as a Board member. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE. PROXIES RETURNED TO ITERIS HOLDINGS WILL BE VOTED "FOR" EACH +NOMINEE UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH PROXY. +9 +PROPOSAL NO. 2 +APPROVAL OF THE AMENDMENT AND RESTATEMENT +OF THE COMPANY'S CERTIFICATE OF INCORPORATION +The Company currently has two classes of common stock outstanding—Class A common stock and Class B common stock. The rights, preferences +and privileges of each class of common stock are identical in all respects except for voting and conversion rights. Currently, the holders of the Class A common stock are entitled to elect 25% +of the Board of Directors rounded up to the nearest whole number, or three directors, and the holders of the Class A common stock and the Class B common stock, voting together as a +single class, are entitled to elect the balance of the Board, or six directors. On all other matters to be addressed by a stockholder vote, the holders of Class A common stock have +one-tenth of one vote per share held and the holders of Class B common stock have one vote per share held. In addition, each share of Class B common stock is currently +convertible into one share of Class A common stock at the option of the holder of such Class B common stock. Holders of each class of common stock vote together as a single class on all +other matters, unless otherwise required by law. +As +of July 26, 2004, there were outstanding 24,762,636 shares of Class A common stock held by 513 stockholders of record and 922,067 shares of Class B common stock +held by 94 stockholders of record. As of July 26, 2004, the outstanding Class B common stock represented approximately 4% of the Company's shares of outstanding common stock and +approximately 27% to the total voting power of the outstanding common stock. Given the relatively few number of shares of Class B common stock currently remaining outstanding, the Board has +determined that it is in the best interest of the Company and its stockholders to eliminate the extra class of common stock to simplify its capital structure and to reduce the expenses and confusion +associated with maintaining two separate classes of common stock. The Company proposes to convert each outstanding share of Class B common stock into 1.1 shares of Class A common stock +and to make other conforming changes to the Company's certificate of incorporation to provide that the Class A common stock, as the remaining class of common stock, be renamed "Common Stock" +and that the voting rights of such shares be changed to one vote per share. +Iteris +Holdings also currently intends to consolidate and merge with its subsidiary, Iteris, Inc., with Iteris Holdings as the surviving corporation in the merger. The Company +currently holds more than 90% of +the outstanding capital stock of Iteris, Inc. The roll-up transaction is anticipated to be completed within the next six months and is subject to the approval of the California +Department of Corporations. In connection with of the merger of Iteris, Inc. into Iteris Holdings, the Company wishes to change the Company's corporate name from "Iteris Holdings, Inc." +to "Iteris, Inc." in order to aid in communicating the completion of the consolidation of the two companies and to highlight the focus of the Company's business. +The +stockholders are being asked to approve the amendment and restatement of the Company's certificate of incorporation to: (a) automatically convert each outstanding share of +Class B common stock into 1.1 shares of Class A common stock and remove the ability to issue any further shares of Class B common stock; (b) change the voting rights of the +Class A common stock from one-tenth of one vote per share to one vote per share on all matters to be addressed by the stockholders; (c) change the name of the Class A +common stock to "Common Stock;" and (d) change the name of Iteris Holdings to "Iteris, Inc." The Board of Directors has determined that the proposed amendment and restatement of the +Company's certificate of incorporation is in the best interests of the Company and its stockholders. +10 +Stockholder Approval +The affirmative vote of (a) a majority of the voting power of the Class A common stock and Class B common stock of Iteris Holdings, voting +together as a single class, present or represented and entitled to vote at the Annual Meeting, and (b) a majority of the of the Class B common stock of Iteris Holdings present or +represented and entitled to vote at the Annual Meeting, will be required for the approval of the amendment and restatement of the certificate of incorporation as proposed in Proposal 2. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF +INCORPORATION TO (A) AUTOMATICALLY CONVERT EACH OUTSTANDING SHARE OF CLASS B COMMON STOCK INTO 1.1 SHARES OF CLASS A COMMON STOCK AND REMOVE THE ABILITY OF THE COMPANY TO ISSUE ANY FURTHER +SHARES OF CLASS B COMMON STOCK; (B) CHANGE THE VOTING RIGHTS OF THE CLASS A COMMON STOCK FROM ONE-TENTH OF ONE VOTE PER SHARE TO ONE VOTE PER SHARE ON ALL MATTERS TO BE ADDRESSED BY +THE STOCKHOLDERS; (C) CHANGE THE NAME OF THE CLASS A COMMON STOCK TO "COMMON STOCK;" AND (D) CHANGE THE NAME OF THE COMPANY TO "ITERIS, INC." +11 +PROPOSAL NO. 3 +RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of Ernst & Young LLP served as the Company's independent auditors for the fiscal year ended March 31, 2004. The Audit Committee +of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2005. The Company is asking the stockholders to ratify the selection by the +Audit Committee of Ernst & Young LLP as the independent auditors of Iteris Holdings to audit the Company's consolidated financial statements for the fiscal year ending March 31, 2005 and +to perform other appropriate services. Stockholder ratification of the selection of Ernst & Young LLP as the Company's independent auditors is not required by the Company's bylaws or otherwise. +In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its discretion, may +direct the appointment of a different independent accounting firm at any time during the year if the committee feels that such a change would be in the best interests of the Company and its +stockholders. +A +representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to stockholders' questions, and that representative will have the opportunity to +make a brief presentation to the stockholders if he or she so desires, and will be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the voting power of the Class A common stock and Class B common stock of Iteris Holdings, voting together as a +single class, present or represented and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Ernst & Young LLP as the Company's independent auditors +for the fiscal year ending March 31, 2005. +Recommendation of the Board of Directors +THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG +LLP AS THE INDEPENDENT AUDITORS OF ITERIS HOLDINGS FOR THE FISCAL YEAR ENDING MARCH 31, 2005. +12 +FEES PAID TO INDEPENDENT AUDITORS +Fees Billed to the Company by Ernst & Young LLP During the Fiscal Year Ended March 31, 2004 +The following table presents the aggregate fees billed for the indicated services performed by Ernst & Young LLP during the fiscal years ended +March 31, 2003 and 2004: +Year Ended March 31, +2003 +2004 +Audit Fees +$ +228,000 +$ +325,000 +Audit Related Fees +64,000 +69,000 +Tax Fees +59,000 +62,000 +All Other Fees +— +— +Total Fees +$ +351,000 +$ +456,000 +Audit Fees. Audit fees consist of fees billed by Ernst & Young for professional services +rendered in connection with the audit of Iteris Holdings' annual consolidated financial statements and review of those consolidated financial statements included in Iteris Holdings' quarterly reports +on Forms 10-Q. +Audit-Related Fees. Audit-related fees consist of fees billed for professional services that are +reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under "Audit Fees." Such fees include, among other things, internal control +reviews and assistance with meeting the requirements of the Sarbanes-Oxley Act, acquisition or asset sale-related work and certain consultations concerning financial accounting and +reporting standards. +Tax Fees. Tax fees consist of fees billed for professional services for tax compliance, which include +the preparation of federal, state and international tax returns, and fees billed for tax consultations, including federal, state and international tax advice, tax planning and assistance with tax +audits. +All Other Fees. There were no other fees billed to Iteris Holdings by Ernst & Young LLP during +the fiscal years ended March 31, 2003 and 2004. +Determination of Independence +The Audit Committee of the Board of Directors has determined that the provision by Ernst & Young LLP of the non-audit services described above +is compatible with maintaining the independence of Ernst & Young LLP. +13 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 1, 2004, the number and percentage ownership of the Class A common stock and Class B common stock +of Iteris Holdings by (i) all persons known to Iteris Holdings to beneficially own more than 5% of either class of outstanding common stock (based upon reports filed by such persons with the +SEC), (ii) each of the Named Executive Officers in the Summary Compensation Table which appears elsewhere herein, (iii) each director of Iteris Holdings, and (iv) all executive +officers and directors of Iteris Holdings as a group. To the knowledge of Iteris Holdings, except as otherwise indicated, each of the persons named in this table has sole voting and investment power +with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Class A Common Stock +Class B Common Stock +Total Percent of Voting Power(2) +Name and Address of Beneficial Owner(1) +Amount and Nature of Beneficial Ownership(2)(3) +Percent of Class(2) +Amount and Nature of Beneficial Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe and David M. Greenhouse +4,930,253 +(4) +19.0 +% +— +— +14.0 +% +Bryant R. Riley +3,617,509 +(5) +13.9 +— +— +10.3 +Potomac Capital +1,287,937 +(6) +5.1 +— +— +3.7 +DaimlerChrysler Ventures GmbH +1,219,445 +4.9 +— +— +3.6 +Gerald A. Weber +414,841 +(7) +1.7 +187,885 +20.4 +% +6.7 +Gregory A. Miner +758,036 +(8) +3.0 +— +— +2.3 +John E. Johnson +128,978 +(9) +* +— +— +* +Hugo Fruehauf +33,785 +(10) +* +— +— +* +Gary W. Smith +96,454 +(11) +* +295 +* +* +Joel Slutzky +1,777,508 +(12) +7.1 +261,666 +(12) +28.4 +12.9 +Kevin C. Daly, Ph.D. +360,632 +(13) +1.5 +— +— +1.1 +Crandall L. Gudmundson +126,432 +(14) +* +69,743 +7.6 +2.4 +Jerry F. Muench +122,558 +(15) +* +61,537 +(16) +6.7 +2.4 +John W. Seazholtz +75,047 +(17) +* +— +— +* +Thomas L. Thomas +46,500 +(18) +* +— +— +* +Paul E. Wright +79,794 +(19) +* +5,000 +* +* +All executive officers and directors as a group (17 persons) +4,514,539 +(20) +17.7 +% +398,241 +43.2 +% +24.4 +% +* Represents +less than 1%. +(1) The +address for Gerald A. Weber is 222 North LaSalle, Suite 899, Chicago, Illinois 60601. The address for Messrs. Marxe and Greenhouse is 153 E. 53 rd St., +51 st Floor, New York, New York 10022. The address for Mr. Fruehauf is 1585 S. Manchester Avenue, Anaheim, California 92802. The address for Bryant R. Riley is 11550 Santa +Monica Blvd., Suite 750, Los Angeles, CA 90025. The address of all other persons named in the table is 1515 South Manchester Avenue, Anaheim, California 92802. +(2) Based +on 24,762,636 shares of the Class A common stock and 922,067 shares of Class B common stock outstanding as of July 1, 2004. Shares of each class of common +stock subject to options or warrants which are exercisable within 60 days of July 1, 2004 are deemed to be beneficially owned by the person holding such options or warrants for the +purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the +preceding sentence, shares issuable +14 +upon +exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In general, each holder of shares of Class A common stock is entitled to +one-tenth of one vote per share held and each holder of shares of Class B common stock is entitled to one vote per share held. +(3) In +addition to the shares held in the individual's name, this column also includes shares held for the benefit of the named person under the Company's 401(k) and Stock Ownership Plan. +(4) Includes +1,250,000 shares issuable upon exercise of warrants that were issued to Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P. and Special Situations Private +Equity Fund, L.P. (collectively, the "Special Situations Funds"). Pursuant to a Schedule 13D/A filed on April 8, 2004 with the SEC, Messrs. Marxe and Greenhouse reported that they +had shared voting power and shared dispositive power over the shares of common stock (including the 1,250,000 shares issuable upon exercise of warrants) held by the Special Situations Funds. +Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. ("AWM"), the general partner of Special Situations Cayman Fund, L.P. AWM is the general +partner of MGP Advisers Limited Partnership, the general partner of Special Situations Fund III, L.P. In addition, Messrs. Marxe and Greenhouse are members of MG Advisers L.L.C., the general +partner of Special Situations Private Equity Fund, L.P. +(5) Includes +(i) 969,529 shares issuable upon conversion of convertible debentures held by him, his children, and SACC Partners L.P. and (ii) 221,731 shares issuable upon +exercise of warrants held by him, his children, B. Riley & Co., Inc. and SACC Partners L.P. that are currently exercisable. Mr. Riley owns all of the outstanding shares of B. +Riley & Co., Inc., an NASD member broker-dealer. Mr. Riley also manages and owns all of the outstanding membership interests of Riley Investment Management LLC ("RIM"), a +California registered investment adviser. RIM is the investment adviser to and general partner of SACC Partners L.P.. Mr. Riley disclaims beneficial ownership of the shares held for his +children's accounts. +(6) Includes +304,708 shares issuable upon conversion of convertible debentures held by Potomac Capital Partners, LP and Potomac Capital International Ltd. and 128,021 shares +issuable upon exercise of warrants held by Potomac Capital Partners, LP, Potomac Capital International Ltd. and Pleiades Investment Partners-R, LP that are currently exercisable. +The voting power over the shares are shared by Potomac Capital Management LLC, Potomac Capital Management Inc. and Paul J. Solit. Potomac Capital Management Inc. is the Investment +Manager of a managed account of Pleiades Investment Partners-R, LP. Paul J. Solit is the President and sole owner of Potomac Capital Management Inc. Potomac Capital Management LLC +is the General Partner of Potomac Capital Partners LP. Mr. Paul J. Solit is the Managing Member of Potomac Capital Management LLC. Potomac Capital Management Inc. is the Investment +Manager of Potomac Capital International Ltd., an international business company formed under the laws of the British Virgin Islands. Paul J. Solit is a Director of Potomac Capital +International Ltd. +(7) Other +than 3,000 shares held by him as an individual, all of such shares are owned beneficially of record by various trusts with respect to which Mr. Weber serves as trustee or +co-trustee. Mr. Weber shares investment and voting power as to 35,333 shares of Class A common stock and 48,049 shares of Class B common stock. Mr. Weber +exercises sole investment and voting power over the remaining 379,508 shares of Class A common stock and 139,836 shares of Class B common stock. The shares shown include an aggregate of +370,508 shares of Class A common stock and 139,836 shares of Class B common stock held in trust for the benefit of the children and relatives of Mr. Slutzky, as to which shares +Mr. Slutzky has no investment or voting power and disclaims any beneficial ownership. +(8) Includes +(i) 13,850 shares issuable upon conversion of convertible debentures held by Mr. Miner's IRA, (ii) 19,834 shares issuable upon exercise of warrants held +by Mr. Miner's IRA that are +15 +currently +exercisable, (iii) 19,230 shares held by Mr. Miner's wife's IRA and (iv) 311,000 shares issuable upon exercise of options that are currently exercisable or will become +exercisable within 60 days after July 1, 2004. Also includes 72,223 unvested shares of Class A common stock held by Mr. Miner that are subject to a repurchase right by +Iteris Holdings, which right lapses over time as the shares vest. +(9) Includes +(i) 27,700 shares issuable upon conversion of convertible debentures held by Mr. Johnson's IRA, (ii) 6,335 shares issuable upon exercise of warrants held +by Mr. Johnson's IRA which are currently exercisable, and (iii) 12,000 shares issuable upon exercise of options held by Mr. Johnson that are currently exercisable or will become +exercisable within 60 days after July 1, 2004. +(10) Mr. Fruehauf +resigned from his positions with Iteris Holdings effective as of May 9, 2003. +(11) Includes +45,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2004. Mr. Smith +resigned from his positions with Iteris Holdings effective September 30, 2003. +(12) Includes +160,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2004. Excludes 370,508 +shares of Class A common stock and 139,836 shares of Class B common stock held in trust for the benefit of the children and relatives of Mr. Slutzky as to which Mr. Slutzky +has no investment or voting power and disclaims any beneficial ownership. See note 7. +(13) Includes +(i) 100 shares held by Dr. Daly's spouse, (ii) 329,032 shares held by a trust to which Dr. Daly serves as a trustee, and (iii) 15,500 +shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2004. +(14) Includes +4,500 shares held by Mr. Gudmundson's IRA and 15,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after July 1, 2004. +(15) Includes +31,114 shares held by Mr. Muench's spouse and 15,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after July 1, 2004. +(16) Includes +23,235 shares held by Mr. Muench's spouse. +(17) Includes +31,500 shares issuable upon exercise of options held by Mr. Seazholtz that are currently exercisable or will become exercisable within 60 days after +July 1, 2004. +(18) Includes +27,500 shares issuable upon exercise of options held by Mr. Thomas that are currently exercisable or will become exercisable within 60 days after +July 1, 2004. +(19) Includes +30,500 shares issuable upon exercise of options held by Mr. Wright that are currently exercisable or will become exercisable within 60 days after +July 1, 2004. +(20) Includes +(i) 83,100 shares issuable upon conversion of convertible debentures, (ii) 35,670 shares issuable upon exercise of warrants that are currently exercisable, and +(iii) 688,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 1, 2004. +16 +EQUITY COMPENSATION PLANS +The following table summarizes, as of March 31, 2004, the status of the Company's compensation plans under which equity securities are authorized for +issuance: +Plan Category +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +Number of Securities Remaining Available under Equity Compensation Plans (excluding some securities reflected in first column) +Equity Compensation Plans Approved by Security Holders +1997 Stock Incentive Plan +1,132,101 +$ +2.98 +518,499 +Equity Compensation Plans Not Approved by Security Holders +None +Total +1,132,101 +$ +2.98 +518,499 +17 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The following table sets forth certain information regarding all executive officers of Iteris Holdings as of July 1, 2004. +Name +Age +Capacities in Which Served +Gregory A. Miner +49 +Chief Executive Officer, Chief Financial Officer, Director and Assistant Secretary of Iteris Holdings +Chairman of the Board and Assistant Secretary of Iteris, Inc. +Director, Chief Financial Officer and Secretary of Meyer, Mohaddes Associates, Inc. +John E. Johnson +57 +Vice President of Iteris Holdings +Director, President and Chief Executive Officer of Iteris, Inc. +Director of Meyer, Mohaddes Associates +Rick Crawshaw +49 +Vice President of Iteris, Inc. +Greg McKhann +41 +Senior Vice President of Iteris, Inc. +Francis Memole +46 +Senior Vice President of Iteris, Inc. +James S. Miele +36 +Secretary and Controller of Iteris Holdings Controller of Iteris, Inc. +Abbas Mohaddes +47 +Assistant Secretary of Iteris Holdings +Executive Vice President and Secretary of Iteris, Inc. +Director of Meyer, Mohaddes Associates +Stephen Edward Rowe +Senior Vice President of Iteris, Inc. +The +following is a brief description of the capacities in which each of the executive officers has served during the past five years. The biographies of Messrs. Miner and Johnson +appears earlier in this proxy statement. See "Election of Directors." +Richard D. Crawshaw has served as the Vice President of Engineering of Iteris, Inc. since January 1999. Prior to that, he +served as the Director of Engineering of Iteris, Inc. from January 1998 to December 1998, and as a Product Manager of Iteris, Inc. from November 1995 to +December 1997. Prior to joining Iteris, Mr. Crawshaw worked as a Senior Software Engineer at Hewlett Packard. +Gregory McKhann has served as a Senior Vice President of Iteris, Inc. since March 2004 after serving as its Vice President +and General Manager of Roadway Sensors with Iteris, Inc. since June 2000, its Vice President, Strategic Business Development from October 1999 to May 2000 and its Marketing +Director from July 1997 to October 1999. Prior to joining Iteris, Mr. McKhann served as a Business Development Manager at Rockwell International from 1990 to 1997. While at +Rockwell, Mr. McKhann developed a joint business relationship between Rockwell and Honeywell and was a founding member of Rockwell Transportation Systems business. Prior to 1990, +Mr. McKhann held a variety of Engineering and Project Management positions at Rockwell International. +Francis Memole has served as a Senior Vice President of Iteris, Inc. since March 2004 and a Vice President of Vehicle +Sensors of Iteris, Inc. since December 1998. From June 1997 to December 1998, Mr. Memole served as the Marketing Director of Iteris, Inc. Prior to joining +Iteris, Inc., he was one of the founding members of the Rockwell Transportation Systems business at Rockwell International. At Rockwell, Mr. Memole started two new business initiatives, +which now include key aspects of Iteris, including Transportation Systems and In-Vehicle Systems. +18 +James S. Miele has served as the Controller of Iteris Holdings since October 2003, as the Secretary of Iteris Holding since +March 2004 and as the Controller of Iteris, Inc since April 2001. Prior to that, from October 1998 to June 2000, Mr. Miele served as an audit manager at +Ernst & Young LLP, supervising financial statement audits for a variety of public and privately held companies. Mr Miele also served in Ernst & Young's Assurance and Advisory Business +Services group from 1994 to 1998. Mr. Miele is a Certified Public Accountant and holds a B.S. degree in Accounting from San Diego State University. +Abbas Mohaddes has served as an Assistant Secretary of Iteris Holding since May 2004, the Secretary of Iteris, Inc. since +September 2001, and the Executive Vice President of Iteris, Inc since March 2004. Prior to that, he served as the Senior Vice President and Director of Transportation Systems of +Iteris, Inc. from May 2000 to March 2004 and as Vice President and Deputy Director of Transportation Systems of Iteris, Inc. since joining Iteris in October 1998. +Mr. Mohaddes has also serves as President and CEO of Meyer, Mohaddes Associates, Inc. ("MMA") an ITS and transportation firm that he co-founded in 1991 and was acquired by +Iteris, Inc. in October 1998. Prior to establishing MMA, he was a principal and southern California director of operations for DKS Associates, a consulting firm from 1986 to 1990. +Mr. Mohaddes is a nationally recognized expert in ITS and has published over 20 articles and made over 50 presentations at ITS Transportation engineering professional societies. In addition, he +co-authored the " Traffic Control Systems Handbook " for the Federal Highway Administration. Mr. Mohaddes is a founding member of ITS +America. Mr. Mohaddes holds a B.S. degree in Civil Engineering and a M.S. degree in Transportation Engineering from the University of Nebraska. +Stephen Edward Rowe has served as a Senior Vice President of Iteris, Inc. since January 1999. Between June 1997 and +January 1999, he served as the Director of Transportation Systems business unit and Vice President of the Odetics ITS Division prior to its incorporation as Iteris, Inc. From 1996 to +1997, he founded and was the Chief Executive Office of Gardner-Rowe Systems. From 1993 to 1995, he founded and was the President of S.E. Rowe and Associates. Mr. Rowe served as the +General Manager of the Los Angeles Department of Transportation between 1987 and 1993 and has also served for two terms on the Board of Directors of ITS America. +Officers +serve at the discretion of the Board of Directors. +Summary of Cash and Certain Other Compensation +The following table provides certain summary information concerning the compensation earned by the Chief Executive Officer and each of the four other most highly +compensated executive officers of Iteris Holdings whose total cash salary and bonus during the fiscal year ended March 31, 2004 exceeded $100,000 (collectively, the "Named Executive Officers") +for each of the three fiscal years ended March 31, 2002, 2003 and 2004. +19 +SUMMARY COMPENSATION TABLE +Long-Term +Compensation +Awards +Annual Compensation +Name and Principal Positions +with Iteris Holdings +Fiscal +Year +Restricted +Stock($) +Securities +Underlying +Options (#)(2) +All Other +Compensation +($)(3) +Salary($)(1) +Bonus($) +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer, Assistant Secretary and Director +2004 +2003 +2002 +261,602 +284,169 +217,200 +— +— +— +$ +65,000 +— +— +200,000 +310,000 +— +(4) +$ +7,848 +5,671 +4,830 +John E. Johnson(5) +Vice President and Director Nominee +2004 +2003 +2002 +225,373 +202,086 +185,958 +— +— +21,000 +— +— +— +— +12,000 +— +(6) +6,761 +4,263 +4,164 +Hugo Fruehauf(7) +Former Vice President +2004 +2003 +2002 +26,157 +158,004 +172,206 +— +— +— +— +— +— +— +12,000 +— +(6) +785 +4,741 +5,100 +Gary Smith(8) +Former Vice President, Controller and Secretary +2004 +2003 +2002 +98,947 +108,199 +115,235 +— +— +— +— +— +— +— +45,000 +— +(6) +1,973 +3,056 +2,881 +(1) Represents +all amounts earned from Iteris Holdings and its subsidiaries during the fiscal years shown, including amounts deferred under the Executive Deferral Plan and the Iteris +Holdings 401(k) and Stock Ownership Plan. +(2) Consists +of options granted pursuant to Iteris Holdings' 1994 Long-Term Equity Incentive Plan and 1997 Stock Incentive Plan entitling the holder to purchase shares of +Class A common stock of Iteris Holdings. +(3) Consists +solely of the matching contribution of Iteris Holdings to the respective accounts of the Named Executive Officers under the Iteris Holdings 401(k) and Stock Ownership Plan. +(4) Includes +110,000 shares underlying the regrant option issued in May 2002 to replace options cancelled in November 2001. See "2001 Option Exchange Program." +(5) Does +not include an option granted to Mr. Johnson to purchase up to 40,000 shares of common stock of Iteris, Inc. in the year ended March 31, 2002. +Mr. Johnson is also the Chief Executive Officer of Iteris, Inc. +(6) Consists +of shares underlying regrant options issued in May 2002 to replace options cancelled in November 2001. See "2001 Option Exchange Program." +(7) Mr. Fruehauf +resigned from his positions with Iteris Holdings and its subsidiaries effective as of May 9, 2003. +(8) Mr. Smith +resigned from his positions with Iteris Holdings and its subsidiaries effective as of September 30, 2003. +20 +Option Grants in Last Fiscal Year +The following table provides information regarding option grants made to our Named Executive Officers during the fiscal year ended March 31, 2004. No stock +appreciation rights were granted to any of the Named Executive Officers during such fiscal year. +Individual Grants +Number of +Securities +Underlying +Options +Granted(1) +Percent of +Total Options +Granted to +Employees in +Fiscal 2003 +Potential Realizable Value at +Assumed Annual Rates of Stock Price +Appreciation for Option Term(3) +Name +Exercise +Price Per +Share(2) +Expiration +Date +5% +10% +Gregory A. Miner +200,000 +100 +% +$ +0.65 +08/06/13 +$ +81,756.30 +$ +207,186.52 +John E. Johnson +— +— +— +— +— +— +Hugo Fruehauf(4) +— +— +— +— +— +— +Gary Smith(5) +— +— +— +— +— +— +(1) Mr. Miner's +option was granted pursuant to the Company's 1997 Stock Incentive Plan, as amended (the "1997 Plan") and entitles him to purchase shares of Class A common +stock of Iteris Holdings. The option has a maximum term of ten years, subject to earlier termination in the event of the optionee's termination of employment with Iteris Holdings or its subsidiaries. +The option vests in equal monthly installments, subject to acceleration of vesting (a) in the event of the merger, consolidation or reorganization of Iteris Holdings if such option is not +assumed or other wise continued in effect in such transaction or (b) in the case of a merger or consolidation with Iteris, Inc., if Mr. Miner is not offered the position of CEO in +the consolidated company. In addition, the Compensation and Stock Option Committee has the authority to provide for the accelerated vesting of the option whether or not the option is assumed or other +wise continued in effect or upon the termination of the optionee's employment following such transaction. +(2) The +Company may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares and the applicable federal and state +withholding taxes to which the optionee becomes subject in connection with such exercise. +(3) The +5% and 10% assumed rates of appreciation are prescribed by the rules and regulations of the SEC and do not represent management's estimate or projection of future trading prices +of the Class A common stock. Unless the market price of the Class A common stock does in fact appreciate over the option term, no value will be realized from the option grants. Actual +gains, if any, are dependent upon numerous factors, including, without limitation, the future performance of the Company and its business units, overall business and market conditions, and the option +holder's continued employment with the Company throughout the entire vesting period and option term, which factors are not reflected in this table. +(4) Mr. Fruehauf +resigned from his positions with the Company and its subsidiaries effective as of May 9, 2003. +(5) Mr. Smith +resigned from his positions with the Company and its subsidiaries effective as of September 30, 2003. +21 +Aggregated Option Exercises and Fiscal Year End Values +The following table provides information with respect to the Named Executive Officers concerning the unexercised options held by them at of the end of the fiscal +year ended March 31, 2004 None of the Named Officers exercised any options or stock appreciation rights during the fiscal year ended March 31, 2004 and no stock appreciation rights were +held by the Named Executive Officers at the end of such fiscal year. +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR +AND FISCAL YEAR END OPTION VALUES +Number of Securities Underlying +Unexercised Options at Fiscal Year +End (#)(1) +Value of Unexercised +In-the-Money Options at Fiscal +Year End ($) +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer, Assistant Secretary and Director +177,000 +333,000 +460,200 +1,015,800 +John E. Johnson +Vice President and Director Nominee +12,000 +— +31,200 +— +Hugo Fruehauf(2) +Former Vice President +— +— +— +— +Gary Smith(3) +Former Vice President, Controller and Secretary +45,000 +— +117,000 +— +(1) Includes +both in-the-money and out-of-the money options. +(2) Mr. Fruehauf +resigned from his positions with Iteris Holdings and its subsidiaries effective as of May 9, 2003. +(3) Mr. Smith +resigned from his positions with Iteris Holdings and its subsidiaries effective as of September 30, 2003. +2001 Option Exchange Program +In November 2001, Iteris Holdings implemented an option exchange program to address the substantial loss in value of the outstanding stock options held by +Iteris Holdings' executive officers and the increasing inability of those options to serve as a meaningful incentive for optionees to remain employed with Iteris Holdings. Under the program, each +executive officer who held outstanding stock options with an exercise price of $4.00 or more per share under the 1997 Plan or the 1994 Long-Term Equity Plan (the "1994 Plan"), was given +the opportunity to exchange that option for a new option under the 1997 Plan for the same number of shares that would be granted at least six months and one day after the completion of the option +exchange program. +On +November 16, 2001, Iteris Holdings accepted for exchange and cancellation options to purchase an aggregate of 349,000 shares of Iteris Holdings' Class A common stock +representing 100% of the options eligible to be tendered under the option exchange program. On May 20, 2002, Iteris Holdings granted new options to purchase an aggregate of 349,000 shares of +Class A common stock under the 1997 Plan to replace the eligible options that had been tendered and cancelled under the program. +In +general, the exercise price per share for the new options was $1.40, the last reported sales price of the Class A common stock on the grant date. In the case of Joel Slutzky, +who is a holder of 10% or +22 +more +of the common stock, the exercise price per share for the new options was $1.54, or 110% of the last reported trading price of the Class A common stock on the grant date. +Each +new option issued in exchange for a cancelled option will continue to vest and become exercisable for the option shares in accordance with the same vesting schedule in effect for +the cancelled option. +The +table below provides certain information concerning our executive officers who tendered eligible options in the option exchange program and the options that were cancelled pursuant +to that program. Except for the November 2001 option exchange program, Iteris Holdings has not implemented any other option repricing or option cancellation/regrant programs. +10-YEAR OPTION REPRICINGS +Name and Principal Position +Date of +Cancel- +lation +Number of +Securities +Underlying +Options at +Time of +Cancellation +Market +Price of +Stock at +Time of +Cancel- +lation +Exercise +Price at +Time of +Cancel- +lation +New +Exercise +Price of +Replace- +ment +Option +Length of +Original +Option Term +Remaining at +Date of +Cancellation +Joel Slutzky +Chairman of the Board +11/16/01 +11/16/01 +11/16/01 +50,000 +55,000 +55,000 +$ +1.26 +1.26 +1.26 +$ +4.625 +8.663 +11.344 +$ +1.54 +1.54 +1.54 +7 years +8 years +8 years +Gregory A. Miner +Chief Executive Officer, Chief Financial Officer, Assistant Secretary and Director +11/16/01 +11/16/01 +11/16/01 +11/16/01 +25,000 +30,000 +25,000 +30,000 +1.26 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +10.000 +1.40 +1.40 +1.40 +1.40 +7 years +8 years +8 years +9 years +John E. Johnson +Vice President and Director Nominee +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Hugo Fruehauf(1) +Former Vice President +11/16/01 +12,000 +1.26 +4.625 +1.40 +7 years +Gary W. Smith(2) +Former Vice President, Controller and Secretary +11/16/01 +11/16/01 +11/16/01 +15,000 +20,000 +10,000 +1.26 +1.26 +1.26 +4.625 +10.313 +7.875 +1.40 +1.40 +1.400 +7 years +8 years +8 years +(1) Mr. Fruehauf +resigned from his positions with Iteris Holdings effective as of May 9, 2003. +(2) Mr. Smith +resigned from his positions with Iteris Holdings effective as of September 30, 2003. +Benefit Plans +Iteris Holdings maintains a 401(k) and Stock Ownership Plan (the "Stock Ownership Plan") which qualifies for favorable tax treatment under Section 401(a) +of the Internal Revenue Code. The Stock Ownership Plan is the result of the merger of the Iteris Holdings, Inc. Profit Sharing and 401(k) Plan and the Iteris Holdings Associates Stock Ownership +Plan. +Employees +become eligible to make pre-tax contributions to the Stock Ownership Plan pursuant to Internal Revenue Code Section 401(k) as of the January 1, +April 1, July 1 or October 1 coincident with or next following the date on which they are hired. Participants may contribute an amount not in excess of $13,000 for calendar year +2004. Employees become eligible to receive an allocation of employer contributions to the Stock Ownership Plan as of the January 1, April 1, July 1 or October 1 coincident +with or next following the date on which they have completed six months of service with Iteris +23 +Holdings. +These contributions may be made in the form of cash or Iteris Holdings stock. No contributions were made by Iteris Holdings to the Stock Ownership Plan for the fiscal years ended +March 31, 2002, 2003 and 2004. +Contributions +that are made to the Stock Ownership Plan are allocated to the separate accounts of participants and are held in a trust. Participant accounts are credited with investment +gains and charged with investment losses. Participant contributions are always fully vested at all times, and the Iteris Holdings contributions on behalf of participants vest at the rate of +33 1 / 3 percent per year of service. Following termination of employment, the vested portion of the participant's account balance is distributed in a lump sum payment. +Iteris +Holdings also maintains an Executive Deferral Plan which allows designated executives to defer the receipt of some of their current compensation until a future year. These +executives may elect to defer the receipt of up to 75% of their annual compensation, but in no event may they elect to defer less than $5,000. Benefits are generally fully vested at all times, and are +payable following termination of employment in the manner elected by the executive. The Executive Deferral Plan does not qualify for favorable income tax treatment under Section 401(a) of the +Internal Revenue Code. +Employment Contracts, Termination of Employment Agreements and Change of Control Arrangements +Iteris Holdings does not currently have any employment contracts in effect with any of its Named Executive Officers other than the change in control agreement +with Gregory A. Miner and Jack Johnson as described in "Certain Transactions" below. Iteris Holdings provides incentives such as salary, benefits and option grants to attract and retain executive +officers and other key associates. The Compensation and Stock Option Committee, as Plan Administrator of the 1997 Plan, has the authority to provide for the accelerated vesting of outstanding options +held by an individual, in connection with the termination of such individual's employment following an acquisition in which these options are assumed or the repurchase rights with respect to the +unvested shares are assigned or upon certain hostile changes in control of Iteris Holdings. Other than such accelerated vesting and the agreements described below in "Certain Transactions," there is +no agreement or policy which would entitle any executive officer to severance payments or any other compensation as a result of such officer's termination. +Compensation of Directors +Directors who are not employees of Iteris Holdings or one of its subsidiaries receive an annual fee of $12,000 per year, paid quarterly, in addition to $1,500 for +each Board meeting attended in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of the Board of Directors and its committees. +Non-employee +directors are also eligible to receive periodic option grants pursuant to the Automatic Option Grant Program under Iteris Holdings' 1997 Stock Incentive Plan. +Under this plan, each non-employee director receives an option to purchase 20,000 shares of Class A common stock upon his initial appointment to the Board of Directors and an +additional option to purchase 5,000 shares of Class A common stock on the date of each annual meeting after his appointment. Each option granted to non-employee directors under the +Automatic Option Grant Program will have an exercise price equal to the fair market value of the Class A common stock on the grant date and will have a maximum term of ten years, subject to +earlier termination following the optionee's cessation of service as a Board member. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, Iteris Holdings can indemnify its directors and officers against liabilities they may incur in +such capacities, including liabilities under the +24 +Securities +Act of 1933, as amended (the "Securities Act"). The certificate of incorporation and the bylaws of Iteris Holdings provides that Iteris Holdings will indemnify its directors and officers to +the fullest extent permitted by law, and the bylaws require Iteris Holdings to advance litigation expenses upon receipt by Iteris Holdings of an undertaking by the director or officer to repay such +advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other +right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Iteris +Holdings' certificate of incorporation provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty +of care to Iteris Holdings and its stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as +injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to Iteris +Holdings or its stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the +director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any +other law, such as the federal securities laws or state or federal environmental laws. +Iteris +Holdings has entered into agreements to indemnify its directors and certain of its officers in addition to the indemnification provided for in the certificate of incorporation and +bylaws. These agreements, among other things, indemnify Iteris Holdings' directors and certain of its officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts +incurred by such person in any action or proceeding, including any action by or in the right of Iteris Holdings, on account of services as a director or officer of Iteris Holdings, or as a director or +officer of any other company or enterprise to which the person provides services at the request of Iteris Holdings. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation and Stock Option Committee of Iteris Holdings' Board of Directors during the fiscal year ended March 31, 2004 were +Messrs. Daly, Seazholtz and Thomas. None of these individuals was an officer or employee of Iteris Holdings or its subsidiaries at any time during the fiscal year ended March 31, 2004. +No +executive officer of Iteris Holdings has served on the Board of Directors or on the compensation committee of any other entity that has, or has had, one or more executive officers +serving as a member of the Board of Directors or on the Compensation and Stock Option Committee of Iteris Holdings. +25 +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers the Company's fiscal year ended March 31, 2004. The Compensation Committee for the fiscal year ended March 31, 2004 was comprised +of three outside directors, Messrs. Daly, Seazholtz and Thomas. The Compensation Committee recommends the general compensation levels for executives. The Compensation Committee meets +periodically to review and recommend for approval by the Board of Directors, the salaries, bonuses and benefit plans for officers and key associates. During the fiscal year ended March 31, +2004, the Compensation Committee held one meeting. +General Compensation Policy +The guiding principle of the Compensation Committee is to establish a compensation program that aligns executive compensation with the Company's objectives and +business strategies as well as with financial and operational performance. In keeping with this principle the Compensation Committee seeks to: +(1) Attract +and retain qualified senior executives who can play a significant role in the achievement of the Company's goals; +(2) Reward +executives for strategic management and the long-term enhancement of stockholder value; and +(3) Create +a performance-oriented environment that rewards performance with respect to the financial and operational goals of Iteris Holdings. +In +the fiscal year ended March 31, 2004, the annual compensation for the executive officers included base salaries and stock options. +The +Company establishes salaries for the officers by considering the salaries of officers at comparably sized companies according to data obtained by the Compensation Committee from +executive compensation consultants and from other independent outside sources, including the American Electronics Association annual survey of executive compensation. +A +substantial portion of the compensation of executive officers is based upon the award of stock options which rely on increases in the value of the Company's securities. The award of +options is intended to encourage executives to establish a meaningful, long-term ownership interest in the Company consistent with the interests of Iteris Holdings' stockholders. Under +Iteris Holdings' stock option plans, options are granted from time to time to certain officers and key associates of the Company and its subsidiaries at the fair market value of the shares of +Class A common stock at the time of grant. Because the compensation element of options is dependent on increases over time in the market value of such shares, stock options represent +compensation that is tied to the Company's long-term performance. The award of stock options to the executive officers of the Company is determined based upon individual performance, level +of base salary and position with the Company. +The +Compensation Committee has reviewed the base salaries for the fiscal year ended March 31, 2004 of each of the executive officers and is of the opinion that such salaries are +not unreasonable in view of those paid by the Company's competitors and by other companies of similar size. The Compensation Committee also reviewed the stock options awarded to the executive officers +for their services in the fiscal year ended March 31, 2004 and is of the opinion that the option awards are reasonable in view of the officers' individual performance and positions with the +Company. +CEO Compensation +In setting the total compensation payable to Gregory A. Miner, the Company's Chief Executive Officer and Chief Financial Officer, for the fiscal year ended +March 31, 2004, the Compensation +26 +Committee +sought to make such compensation competitive with that provided by other companies with which the Company competes for executive talent. +With +respect to the base salary of Mr. Miner, it was the Compensation Committee's intent to provide him with a level of stability and certainty each year. The Compensation +Committee believes the base salary of Mr. Miner for the fiscal year ended March 31, 2004 is at a competitive level with the base salaries in effect for similarly situated chief executive +officers. The remaining components of Mr. Miner's compensation for the fiscal year ended March 31, 2004, however, were primarily dependent upon corporate performance. Based upon such +performance, among other factors, no bonus was paid to Mr. Miner for the fiscal year ended March 31, 2004 and 200,000 options were granted to him for the fiscal year ended +March 31, 2004. +Compliance with Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly held corporations for compensation exceeding +$1.0 million paid to certain of the corporation's executive officers. The limitation applies only to compensation which is not considered to be performance-based. The nonperformance based +compensation to be paid to the Company's executive officers for the fiscal year ended March 31, 2004 did not exceed the $1.0 million limit per officer, nor is it expected that the +nonperformance based compensation to be paid to the Company's executive officers for the next fiscal year will exceed that limit. The Company's 1997 Stock Incentive Plan is structured so that any +compensation deemed paid to an executive officer in connection with the exercise of option grants made under that plan will qualify as performance-based compensation which will not be subject to the +$1.0 million limitation. Because it is very unlikely that the cash compensation payable to any of the Company's executive officers in the foreseeable future will approach the +$1.0 million limit, the Compensation Committee has decided at this time not to take any other action to limit or restructure the elements of cash compensation payable to the executive officers. +The Compensation Committee will reconsider this decision should the individual compensation of any executive officer ever approach the $1.0 million level. +Submitted by the Compensation Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +27 +AUDIT COMMITTEE REPORT +The following is the report of the audit committee with respect to the Company's audited consolidated financial statements for the fiscal year ended +March 31, 2004 included in the Company's Annual Report on Form 10-K for that year. +Review with Management +The audit committee has reviewed and discussed these audited consolidated financial statements with the Company's management. +Review and Discussions with Independent Auditors +The audit committee has discussed with the Company's independent auditors, Ernst & Young LLP, the matters required to be discussed by SAS 61 (Codification +of Statements on Auditing Standards, AU Section 380), as amended, which includes, among other items, matters related to the conduct of the audit of the consolidated financial statements of +Iteris Holdings. +The +audit committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 ("Independence +Discussions with Audit Committees"), as amended, and has discussed with Ernst & Young LLP the independence of Ernst & Young LLP from Iteris Holdings. +Conclusion +Based on the review and discussions referred to above in this report, the audit committee recommended to the Company's Board of Directors that the audited +financial statements be included in the Company's Annual Report on Form 10-K for the year ended March 31, 2004 for filing with the Securities and Exchange Commission. +Submitted by the Audit Committee +of the Board of Directors: +John W. Seazholtz +Thomas L. Thomas +Paul E. Wright +28 +PERFORMANCE GRAPH FOR ITERIS HOLDINGS, INC. +INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph shows the cumulative total return on investment assuming an investment of $100 on March 31, 1999 in each of the Company's +Class A common stock and Class B common stock, the Nasdaq Stock Market Index and Media General's Industry Group 836 for Diversified Electronics. The total stockholder return assumes +reinvestment of dividends on a daily basis, although cash dividends have not been declared on either class of the Company's common stock. The stockholder returns shown in the following graph are not +necessarily indicative of future performance. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN +AMONG ITERIS HOLDINGS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX +AND THE MEDIA GENERAL/COREDATA DIVERSIFIED ELECTRONICS 836 +Measurement Period +1999 +2000 +2001 +2002 +2003 +2003 +Iteris Holdings Class A Common Stock +100.00 +157.14 +38.57 +17.71 +7.54 +41.03 +Iteris Holdings Class B Common Stock +100.00 +136.65 +29.81 +19.89 +5.17 +30.38 +Nasdaq Market Index +100.00 +250.99 +100.60 +101.32 +74.37 +82.26 +Media General/Coredata Diversified Electronics 836 +100.00 +295.09 +116.44 +86.07 +55.30 +98.68 +Notwithstanding anything to the contrary set forth in any of the Company's previous or future filings under the Securities +Act or the Exchange Act, as amended, that might incorporate this proxy statement or future filings made by the Company under those statutes, the Compensation Committee Report, the Audit Committee +Report, the Audit Committee Charter, reference to the independence of the Audit Committee members and the Performance Graph are not deemed filed with the Securities and Exchange Commission and shall +not be deemed incorporated by reference into any of those prior filings or into any future filings made by the Company under those statutes. +29 +CERTAIN TRANSACTIONS +In February 2002, the Company obtained a $1.25 million line of credit from Technology Lending Partners, L.L.C. ("TLP"), a California limited +liability company that is controlled by Joel Slutzky, the Company's Chairman of the Board of Directors. Interest is payable on this line of credit monthly and accrues at the prime rate of interest +designated by Bank of America from time to time plus 4%. In May 2003, in connection with Iteris Holdings' sale of the assets of its Zyfer, Inc. subsidiary, Iteris Holdings entered into a +release of lien with TLP, pursuant to which Iteris Holdings repaid TLP $850,000 under this line of credit to obtain a release of TLP's security interest in the assets relating to the Zyfer business. +As of July 1, 2004, no amounts are outstanding under this line of credit. +In +October 2002, the Company entered into a Receivables Purchase Agreement with TLP, pursuant to which TLP advanced the Company an aggregate of $923,672 against certain of the +Company's accounts receivable in exchange certain fees. As of March 31, 2003, the total fees earned by TLP in connection with this agreement were $111,248. Of the total amounts advanced, +$232,347 remained outstanding and payable to TLP as of March 31, 2003. In May 2003, in connection with the Zyfer sale, the Company entered into an agreement with TLP, pursuant to which +the Company repurchased the receivables remaining outstanding under this agreement, all of which related to the Zyfer business, for an aggregate repurchase price of $227,689. As of July 1, +2004, there were no outstanding factored receivables between TLP and Iteris Holdings. +In +May 2003, the Company entered into change in control agreements with each of Greg Miner, the Chief Executive Officer, the Chief Financial Officer and a director of the Company, +and John E. Johnson, a Vice President of Iteris Holdings and the President, Chief Executive Officer and a director of Iteris, Inc. In the event of an involuntary termination of the officer's +employment within three months prior to or twenty-four months after a change in control, the agreement provides for a severance payment to such officer of 200% of such officer's annual +base pay plus target bonus for the current fiscal year. In addition, such officer and his dependents are entitled to all insurance benefits for up to twenty-four months or until such +officer obtains new employment with comparable benefits, whichever is earlier. +In +July 2003, the Company entered into a Securities Purchase Agreement with certain purchasers, including Mr. Miner, pursuant to which the Company sold an aggregate of +3,666,666 shares of its Class A common stock and issued warrants to purchase an aggregate of 366,666 shares of its Class A common stock to seven accredited investors, including +Mr. Miner, who participated in such private financing on the same terms as the other investors. Mr. Miner purchased an aggregate of 166,667 shares of the Class A common stock of +Iteris Holdings at a purchase price of $0.60 per share, the closing sales price of the Class A common stock on the OTC Bulletin Board on the date of the agreement. In addition, in accordance +with the terms of the agreement, Mr. Miner received a three year warrant to purchase up to 16,667 shares of the Class A common stock at an exercise price of $1.50 per share. +In +September 2003, the Company sold the assets of its MAXxess subsidiary to MAIJ Corporation, which is currently owned by certain members of the MAXxess management team. Wes +Appleby, the President of MAXxess, owned 331/3% of the capital stock of MAIJ Corporation as of the date of the sale. The purchase price for the assets of MAXxess consisted of the assumption of +$2.7 million of liabilities of Iteris Holdings and its subsidiaries. +In +May 2004, the Company entered into a Debenture and Warrant Purchase Agreement with a group of institutional investors, which included certain of our officers, pursuant to which +we sold and issued subordinated convertible debentures in the aggregate principal amount of $10.1 million and issued warrants to purchase an aggregate of 639,847 shares of our Class A +common stock. The debentures are due in five years, provide for 6.0% annual interest, payable quarterly, and are convertible into our Class A common stock at an initial conversion price of +$3.61 per share, subject to +30 +certain +adjustments, including adjustments for dilutive issuances. From May 19, 2007 until May 18, 2008, the debentures may be redeemed by us, at our option, at 120% of the principal +amount being redeemed; and from May 19, 2008 until the maturity date of May 18, 2009, the debentures may be redeemed at 110% of the principal amount being redeemed. +Pursuant +to the Debenture Purchase Agreement, each investor also received two warrants to purchase shares of the Class A common stock. For every dollar of debenture purchased, +each investor received one warrant to purchase approximately 0.03235 shares of our Class A common stock at an exercise price of $3.83 per share and a second warrant to purchase approximately +0.03100 shares of our Class A common stock at an exercise price of $4.03 per share. The exercise prices are subject to certain adjustments, including adjustments for dilutive issuances. The +warrants expire on May 18, 2009. +On +June 30, 2004, the Company entered into an exchange agreement with certain of the holders of the common stock of Iteris, Inc., including Messrs. Miner, Mohaddes +and Slutzky, pursuant to which such holders agreed to exchange an aggregate of 1,319,541 shares of Iteris, Inc. common stock for an aggregate of 2,639,082 shares of Iteris Holdings +Class A common stock. The exchange of shares is part of a plan to merge Iteris, Inc. into Iteris Holdings, pursuant to which all of the outstanding shares of common stock of +Iteris, Inc. will convert into shares of the Company's Class A common stock. The final step in this roll-up transaction is anticipated to be completed within the next six +months and is subject to the approval of the California Department of Corporations. The foregoing transactions are part of a plan of reorganization to consolidate Iteris, Inc. into and with +Iteris Holdings. +Section 16(a) Beneficial Ownership Reporting Compliance +Under the federal securities laws, Iteris Holdings' directors and officers and any persons holding more than 10% of Iteris Holdings' common stock are required to +report their ownership of Iteris Holdings' common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and Iteris Holdings is required to +report in this proxy statement any failure to file by these dates. Based solely on its review of copies of the reports on Forms 3, 4 and 5 received by Iteris Holdings with respect to the fiscal year +ended March 31, 2004, and the written representations received from the reporting persons that no other reports were required, Iteris Holdings believes that all directors, executive officers +and persons who own more than 10% of Iteris Holdings' common stock, +other than the persons noted below, have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section, except as set forth below: +Each +of Messrs. Daly, Gudmundson, Muench, Seazholtz, Slutzky, Thomas and Wright inadvertently filed a Form 4 late to report their automatic options granted on the date of +the 2003 Annual Stockholders Meeting under the Company's 1997 Plan. Mr. Slutzky also made four late Form 4 filings with respect to the purchase of Class A common stock between +December 24, 2003 and January 5, 2004. +Annual Report +A copy of Iteris Holdings' annual report on Form 10-K for the fiscal year ended March 31, 2004 (excluding the exhibits thereto) +accompanies the proxy materials being mailed to all stockholders. The annual report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may +obtain a copy of the annual report and any of our other SEC Reports free of charge,, without charge, by writing to Investor Relations, Odetics, Inc., 1515 S. Manchester Avenue, Anaheim, +California 92802. The annual report on Form 10-K (including the exhibits thereto) is also available on the Securities and Exchange Commission's website (http://www.sec.gov). +31 +Deadline for Receipt of Stockholder Proposals +In the event that a stockholder desires to have a proposal considered for presentation at the 2005 Annual Meeting of Stockholders, and included in our proxy +statement and form of proxy card used in connection with such meeting, the proposal must be forwarded in writing to the Company's Secretary so that it is received no later than April 8, 2005. +Any such proposal must comply with the requirements of Rule 14a-8 promulgated under the Exchange Act. +If +a stockholder, rather than including a proposal in the proxy statement as discussed above, commences his or her own proxy solicitation for the 2005 Annual Meeting of Stockholders or +seeks to nominate a candidate for election as a director or to propose business for consideration at such meeting, we must receive notice of such proposal on or before June 22, 2005. If the +notice is not received on or before June 22, 2005, it will be considered untimely under Rule 14a-4(c)(1) promulgated under the Exchange Act, and the Company will have +discretionary voting authority under proxies solicited for the 2005 Annual Meeting of Stockholders with respect to such proposal, if presented at the meeting. +Please +address any stockholder proposals or notices of proposals to the Corporate Secretary of Iteris Holdings at the principal executive offices of Iteris Holdings located at 1515 South +Manchester, Anaheim, California 92802. +Other Business +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy +statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS HOLDINGS, INC. +Anaheim, California +August 6, 2004 +32 +APPENDIX A +Charter of the Nominating and Corporate Governance Committee +of the Board of Directors of +Iteris Holdings, Inc. +Adopted as of March 18, 2004 +1. Purposes. +The primary purposes of the Nominating and Corporate Governance Committee (the " Committee ") of the Board of +Directors (the " Board ") of Iteris Holdings, Inc. (the " Company ") are to: +(a) identify, screen and review individuals qualified to serve as directors of the Company; (b) select or recommend to the Board of Directors the selection of nominees for election at +the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring the +effectiveness of the Company's corporate governance policies and developing and recommending to the Board modifications and or additions to such policies; and (e) reviewing on a regular basis +the overall corporate governance of the Company and recommending improvements when necessary. +2. Composition. +(a) At Least Two Members . The Committee shall consist of a minimum of two independent directors as defined in +Section 2(b) below. The Board shall designate a Committee member as the Chairperson of the Committee, or if the Board does not do so, the Committee members shall appoint a Committee member as +Chairperson by a majority vote of the Committee members present at a meeting. +(b) Independence . All members of the Committee shall be "independent" as determined by the Board and as defined in the +listing standards of the American Stock Exchange or such other national securities exchange on which the Company's securities are then listed, if any, as the same may be amended from time to time (the +" listing standards "), the rules and regulations of the Securities and Exchange Commission (the +" SEC " ) and any other laws applicable to the Company. +(c) Appointment . Subject to the requirements of the listing standards and the Company's Bylaws of the Company, the Board +shall appoint Committee members at the first meeting of the Board following the Annual Meeting of Stockholders. Members of the Committee shall serve for one year terms and until their successors are +appointed and qualified, or until their earlier resignation or removal. The Board may remove any member of the Committee, with or without cause, at any time. The Board may also fill any vacancies on +the Committee. +3. Meetings, Reports and Resources of the Committee. +(a) Meetings . The Committee shall meet as often as it determines necessary or advisable, but not less than once a year. The +Committee may also hold special meetings or act by unanimous written consent as the Committee may decide. The meetings may be in person or telephone. The Committee shall keep written minutes of its +meetings and shall deliver a copy of such minutes to the Board and to the Corporate Secretary of the Company for inclusion in the Company's minute books. +(b) Procedures . The Committee may establish its own procedures, including the formation and delegation of authority to +subcommittees, in a manner not inconsistent with this Charter, the Bylaws, applicable laws or regulations, or the listing standards. The Chairperson of the Committee or majority of the Committee +members may call meetings of the Committee. A majority of the authorized number of Committee members shall constitute a quorum for the transaction of Committee business, and the +A-1 +vote +of a majority of the Committee members present at the meeting at which a quorum is present shall be the act of the Committee, unless in either case a greater number is required by this Charter, +the Bylaws, applicable laws or regulations, or the listing standards. +(c) Reports . The Committee shall report its actions and recommendations to the Board after each Committee meeting. The +Committee shall disclose to the Board information regarding the category or categories of persons or entities that recommended, and persons or entities that caused to be recommended, each director +nominee (for instance, security holder, non-management director, Chief Executive Officer, other executive officer, third-party search firm, or other, specified source), specifically noting +those instances where a nominee was recommended by the Chief Executive Officer of the Company. The Committee also shall disclose to the Board whether any third parties received compensation related to +identifying and evaluating candidates. +(d) Annual Self-Evaluation . At least annually, the Committee shall evaluate its own performance and the adequacy +of this Charter on an annual basis and shall report to the Board the results of such evaluation. +(e) Resources . The Committee shall have the sole authority to retain (at the Company's expense) or to terminate any search +firm engaged to assist in identifying director candidates, and to retain outside counsel and any other advisers as the Committee may deem appropriate in its sole discretion. The Committee shall have +sole authority to approve related fees and retention terms. +4. Authority and Responsibilities. +In furtherance of its purposes, the Committee shall have the following authority and responsibilities: +(a) Establish +standards, criteria and processes for the selection of individuals to serve on the Board; +(b) Identify, +screen and review individuals qualified to serve as directors; review each current director and recommend to the Board whether such director should stand for +re-election; select or recommend to the Board the selection of the nominees for election or re-election at the next annual meeting of stockholders; and fill vacancies that may +occur at other times, subject to the limitations set forth in the Company's charter documents and existing agreements; +(c) Review +director candidates submitted by the Company's stockholders; +(d) Review +annually with the Board the composition of the Board as a whole, including whether the Board reflects the appropriate balance of independence, sound judgment, +business specialization, technical skills, and other desired qualities; +(e) Review +periodically the size of the Board and recommend to the Board any appropriate changes; +(f) To +determine the reasons for the resignation of any director; +(g) Oversee +the implementation and monitor the effectiveness of the Corporate governance policies of the Company, and develop and recommend to the Board modifications and or +additions to such policies; +(h) To +review the Board of Directors' committee structure and delegate responsibilities to be included in the Charter of each Board committee. +(i) Consider +corporate governance issues that arise from time to time, and develop appropriate recommendations for the Board; +A-2 +(j) Review +and address conflicts of interest of directors, the Chief Executive Officer and other Board-appointed officers; +(k) Review +the corporate governance implications, if any, of any proposed changes in director compensation; +(l) To +develop and recommend to the Board of Directors for its approval a set of Corporate Governance Guidelines and a Code of Ethics applicable to the Company. The +Committee shall review the Code of Ethics from time to time and recommend changes as necessary; +(m) To +review the effectiveness of all Board committees, including the Committee, and make recommendations for improvements and to develop and recommend to the Board of +Directors for its approval an annual self-evaluation process of the Board and its committees. The Committee shall oversee the annual self-evaluation process and may make +recommendations to the Board for any improvements that the Committee may deem appropriate in its sole discretion; and +(n) To +review and update the Company's web site, Bylaws and Certificate of Incorporation for compliance with the listing standards and the Sarbanes-Oxley Act, as that same +may be amended from time to time, and the rules and regulations promulgated thereunder. +5. Procedures Regarding Director Nominations by Stockholders. +The Committee will consider nominees for the Board recommended by stockholders who meet the eligibility requirements for submitting stockholder proposals for +inclusion in the Company's next proxy statement. If an eligible stockholder wishes to recommend a nominee, he or she should submit such recommendation in writing to the Chair, Nomination Committee, +care of the Corporate Secretary of the Company, by the deadline for stockholder proposals set forth in the Company's last proxy statement, specifying the following information: (a) the name and +address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of the +Company's stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee's +qualifications for membership on the Board, (e) all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a +description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to +whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of +the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director of the Company, if elected. All such recommendations will be brought to the attention of +the Committee, and the Committee shall evaluate such director nominees in accordance with the same criteria set forth in this Charter or as otherwise approved by the Board. +A-3 +APPENDIX B +Audit Committee Charter +of the Audit Committee of the Board of Directors of +Iteris Holdings, Inc. +Adopted as of March 18, 2004 +1. Purposes. +The primary purposes of the Audit Committee (the " Committee ") of Iteris Holdings, Inc. (the +" Company ") are to oversee on behalf of the Company's Board of Directors (the +" Board " ): (a) the conduct of the Company's accounting and financial reporting processes, the audits of the Company's +financial statements and the integrity of the Company's audited financial statements and other financial reports; (b) the performance of the Company's internal accounting and financial controls +function; (c) the engagement, replacement, compensation, qualifications, independence and performance of the Company's independent auditors, and (d) the portions of the Company's Code of +Ethics and Business Conduct and related policies regarding the Company's accounting, internal accounting controls or auditing matters. The Committee's function is one of oversight only and shall not +relieve the responsibilities of the Company's management for preparing financial statements that accurately and fairly present the Company's financial results and condition, or the responsibilities of +the independent auditors relating to the audit or review of financial statements. +2. Composition. +(a) At Least Three Members . The Committee shall consist of at least three independent directors as defined in +Section 2(b) below. The Board shall designate a Committee member as the Chairperson of the Committee, or if the Board does not do so, the Committee members shall appoint a Committee member as +Chairperson by a majority vote of the authorized members of the Committee. +(b) Independence . All members of the Committee shall be "independent" as determined by the Board and as defined in the +listing standards of the Nasdaq Stock Market or such other national securities exchange, if any, on which the Company's securities are then listed, as the same may be amended from time to time (the +" listing standards "), Section 121A and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the +" Exchange Act "), any other rules or regulations of the Securities and Exchange Commission (the +" SEC " ) and any other laws applicable to the Company +(c) Financial Literacy . Each member of the Committee shall, upon appointment to the Committee, be able to read and understand +fundamental financial statements, including balance sheets, income statements and cash flow statements. At least one member of the Committee shall be an " audit committee +financial expert " as defined in applicable SEC rules and regulations, or otherwise meet the " financial sophistication " +requirements set forth in the listing standards. +(d) Prohibition Against Past Involvement in Company Financial Statements . No Committee member shall have participated in the +preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the preceding three years. +(e) Appointment . Subject to the requirements of the listing standards and the Bylaws of the Company, the Board initially +shall appoint the Committee members to serve until the first meeting of the Board following the next Annual Meeting of Stockholders. Thereafter, the Committee members shall be appointed by the Board +for one year terms and until their successors are appointed and qualified, or until their earlier retirement, resignation or removal. Any member of the Committee may be removed, with or without cause, +by the approval of a majority of the independent directors then +B-1 +serving +on the full Board. The Board may fill any vacancies on the Committee by a majority vote of the authorized number of directors. +3. Meetings; Reports and Resources of the Committee. +(a) Meetings . The Committee shall meet as often as it determines necessary or advisable, but not less frequently than +quarterly. The Committee also may hold special meetings or act by unanimous written consent as the Committee may decide. The meetings may be in person or by telephone. The Committee shall keep written +minutes of its meetings and shall deliver a copy of such minutes to the Board and to the Corporate Secretary of the Company for inclusion in the Company's minute books. The Committee periodically +shall meet separately with management, the internal auditors and the independent auditors. The Committee may request any officer or employee of the Company or the Company's independent counsel or the +independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The foregoing notwithstanding, the Committee also may exclude from its +meetings any persons it deems appropriate including, but not limited to, any director who is not a member of the Committee. +(b) Procedures . The Committee may establish its own procedures, including the formation and delegation of authority to +subcommittees, in a manner not inconsistent with this Charter, the Company's Bylaws, applicable laws or regulations, or the listing standards. The Chairperson of the Committee or a majority of the +Committee members may call meetings of the Committee. A majority of the authorized number of Committee members shall constitute a quorum for the transaction of Committee business, and the vote of a +majority of the Committee members present at the meeting at which a quorum is present shall be the act of the Committee, unless in either case a greater number is required by this Charter, the +Company's Bylaws, applicable laws or regulations, or the listing standards. +(c) Reports . The Committee shall report its actions and recommendations to the Board after each Committee meeting. The +Committee also shall make regular reports to the Board regarding, among other things, any issues that arise with respect to the quality or integrity of the Company's financial statements, the +Company's compliance with legal or regulatory requirements, the performance and independence of the Company's independent auditors, and the performance of the Company's internal audit function. The +Committee shall provide to the Board at an appropriate time prior to preparation of the Company's proxy statement for its Annual Meeting of Stockholders, a report of the Committee, which report shall +be included in such proxy statement. The report shall include such information as may be required under the SEC's rules and regulations. +(d) Committee Access and Resources . The Committee is at all times authorized to have direct, independent and confidential +access to the Company's other directors, management and personnel, as well as to the Company's books, records and facilities, to carry out the Committee's purposes. The Committee shall have the sole +authority, to the extent it deems necessary or appropriate, to retain and terminate independent legal, accounting or other experts or advisers selected by the Committee for matters related to the +Committee's purposes. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors engaged for the purpose of preparing or +issuing an audit report or performing other audit, review or attest services, compensation to any independent legal, accounting or other experts or advisers employed by the Committee, and ordinary +administrative expenses of the Committee that are necessary or appropriate in carrying out the Committee's duties. +4. Authority and Responsibilities. +The Committee's role is one of oversight. The Company's management is responsible for preparing the Company's financial statements and for their accuracy, and the +Company's independent auditors are responsible for auditing those financial statements. While the Committee has certain authority and +B-2 +oversight +responsibilities under this Charter, it is not the responsibility of the Committee to plan or conduct audits, or to determine that the Company's financial statements and disclosures are +complete and accurate and are in accordance with generally accepted accounting principles (" GAAP ") and applicable rules and regulations. In the absence +of their reason to believe that such reliance is unwarranted, the Committee members may rely without independent verification on the information provided to them and on the representations made by the +Company's management and independent auditors. +Additionally, +the Committee recognizes that the Company's management, as well as the Company's independent auditors, have more time, knowledge and more detailed information concerning +the Company than do Committee members. Consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company's financial +statements or any professional certification as to work of the Company's independent auditors. In addition, auditing literature, particularly Statement of Auditing Standards No. 71, defines the +term "review" to include a particular set of required procedures to be undertaken by independent auditors. The Committee members are not independent auditors, and the term "review" as applied to the +Committee in this Charter is not intended to have that meaning and should not be interpreted to suggest that the Committee members can or should follow the procedures required of auditors performing +reviews of financial statements. Furthermore, the Committee's authority and oversight responsibilities do not assure that the audits of the Company's financial statements have been carried out in +accordance with GAAP. +The +Committee shall have the direct authority and responsibility to select, appoint, retain, compensate, evaluate and oversee the work of the Company's independent auditors (including +resolving disagreements between management and the independent auditors regarding financial reporting) engaged for the purpose of preparing or issuing an audit report or performing other audit, review +or attest services, and, if necessary or advisable in the Committee's sole discretion, to terminate and replace the Company's independent auditors. The Committee shall have the sole authority to +approve all audit engagement fees and terms. The Company's independent auditors shall report directly and be accountable to the Committee. +The +following functions and responsibilities are set forth as a guide with the understanding that the Committee has the authority to diverge from this guide as appropriate given the +circumstances. The Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible to best react to changing conditions and circumstances, and that the +Committee should take appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices and ethical behavior. +To +fulfill its purposes, the Committee shall: +Financial Statements and Disclosure Matters +(a) Review +the Company's financial statements and, as part of that review, (i) review and discuss with management and the independent auditors, prior to public +release: (A) the Company's annual audited and quarterly financial statements to be filed with the SEC; (B) the Company's disclosures under "Management's Discussion and Analysis of +Financial Condition and Results of Operations;" (C) any certifications by the Company's principal executive officer and principal financial officer regarding the Company's financial statements, +internal accounting and financial controls and procedures, and disclosure controls and procedures, that will be filed with or furnished to the SEC; and (ii) discuss with the independent +auditors the matters of which the independent auditors inform the Committee and that are required to be discussed under applicable auditing standards; and (iii) make a recommendation to the +Board regarding the inclusion of the annual audited financial statements in the Company's Annual Report on Form 10-K to be filed with the SEC. +B-3 +(b) Discuss +with management and the independent auditors and review (i) any major issues regarding accounting principles and financial statement presentations, +including any significant changes in the Company's selection or application of accounting principles; (ii) any major issues regarding the adequacy of the Company's internal controls; +(iii) any special audit steps adopted or which need to be adopted in light of material control deficiencies, if any; and (iv) any analyses prepared by management and/or the independent +auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP +methods on the financial statements. +(c) At +least annually, review and discuss reports from the independent auditors on: +• All +critical accounting policies and practices to be used; +• All +alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of +such alternative disclosures and treatments, and the treatment preferred by the independent auditors; and +• Other +material written communications between the independent auditors and management, such as any management letter, any report on observations and recommendations on +internal controls, any schedule of unadjusted audit differences and any listing of adjustments and reclassifications not recorded. +(d) Discuss +with management and review the Company's press releases regarding financial results, including the use of "pro forma" or "adjusted" non-GAAP +information, as well as financial information and earnings guidance provided to analysts and rating agencies, prior to any public disclosure thereof. Such discussion may be done generally (for +instance, discussing the types of information to be disclosed and the types of presentations to be made). +(e) Review +and discuss with management and the independent auditors the existence and effect of any material off-balance sheet transactions, arrangements, +obligations (including contingent obligations) and other relationships of the Company with entities of which the Committee is made aware whose accounts are not consolidated in the financial statements +of the Company and that may have a material current or future effect on the Company's financial condition, results of operations, liquidity, capital expenditures, capital resources or significant +components of revenues or expenses. +(f) Discuss +with management and the independent auditors any significant new transactions or other significant matters or events not in the ordinary course of business that +have occurred and their views of the accounting treatment given thereto. +(g) Review +and discuss with management and the independent auditors (i) the accounting policies that may be viewed as critical; (ii) any significant changes in +the accounting policies of the Company and any potential changes in accounting, auditing, review and financial reporting standards and regulations promulgated by authoritative standard setting or +regulatory bodies that may have a significant impact on the Company's financial reports; and (iii) the independent auditors' views about management's choices among alternative accounting +principles. +(h) Review +and discuss periodically with legal counsel any legal and regulatory matters that may have a material impact on the Company's financial statements, or the +Company's compliance policies and programs. Discuss with management and the independent auditors any correspondence with regulators or governmental agencies and any published reports that raise +material issues regarding the Company's financial statements, disclosures or accounting policies. +(i) Discuss +with management and the independent auditors the Company's significant financial risks or exposures and assess the steps management has taken to monitor, control +and minimize such +B-4 +risks +or exposures. Discuss with management and the independent auditors the Company's systems and policies with respect to risk monitoring, assessment and management. +(j) Discuss +with the independent auditors and management, before filing with the SEC any periodic report containing financial statements, the matters required to be +discussed by Statement on Auditing Standards No. 61 (as modified or amended from time to time), including the independent auditors' judgments about the quality, as well as the acceptability, of +the accounting principles used and the judgments made in the preparation of the Company's financial statements. +(k) Consider +and review with the independent auditors and management (i) the adequacy and effectiveness of the Company's disclosure controls and procedures and +internal controls; (ii) all significant deficiencies and material weaknesses in the design or operation of the Company's internal controls that are reasonably likely to adversely affect the +Company's ability to record, process, summarize and report financial information; (iii) any fraud, whether or not material, that involves management or other employees who have a significant +role in the Company's internal controls; (iv) the adequacy and effectiveness of those portions of the Company's Code of Ethics and Business Conduct that relate to the integrity of the Company's +financial reporting, including any changes to or waivers provided under such Code since the last review; and (v) the related findings and recommendations of the independent auditors together +with management's responses. +Oversight of the Company's Relationship with the Independent Auditors +(l) At +least annually, request and obtain from the independent auditors a formal written statement describing (i) all relationships between the independent auditors +and the Company, consistent with Independence Standards Board Standard No. 1 (or any similar requirements as may be issued in the future by authoritative standards setting or regulatory +bodies); (ii) the independent auditors' internal quality-control procedures; and (iii) any material issues raised by the most recent internal quality-control review, or peer review, of +the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, regarding one or more independent audits carried out by the +independent auditors, and any steps taken to deal with any such issues. The Committee shall actively engage in a dialogue with management and the independent auditors with respect to any disclosed +relationships or services that may impact the objectivity and independence of the independent auditors from management and the Company, and shall take, or recommend that the full Board take, +appropriate action in response to the independent auditors' report to satisfy itself of the independent auditors' objectivity and independence. +(m) Consider +and pre-approve all permissible non-audit services that are not prohibited under Section 10A(g) of the Exchange Act and all +audit, review and attest services (including the fees and terms thereof) to be performed for the Company by its independent auditors, subject to the de minimis exceptions for permissible +non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Committee prior to the completion of the audit. All such approvals shall be +disclosed in the Company's definitive proxy statements for its Annual Meetings of Stockholders and additionally in its Annual Reports on Form 10-K if such information is not +incorporated therein by reference to the proxy statement. The Committee may delegate the authority to grant pre-approvals to one or more members of the Committee, whose decisions must be +presented to the full Committee at its next scheduled meeting. +(n) Review, +evaluate and ensure the regular rotation of the lead or coordinating audit partners having primary responsibility for the audit, or the audit partners +responsible for reviewing the audit, as required by Section 10A(j) of the Exchange Act. +(o) Establish +clear policies, that are consistent with Section 10(A)(l) of the Exchange Act and Rule 2-01 of SEC Regulation S-K, +for the Company's hiring of current or former partners, principals, +B-5 +stockholders +or employees of the independent auditors in an accounting role or a financial reporting oversight role at the Company (or any of its subsidiaries or affiliates). +(p) Discuss +with the independent auditors and management any problems or difficulties encountered in the course of the audit work, such as any restrictions on the scope of +activities or access to requested information, and management's response to such problems or difficulties, including any significant disagreements with management. +(q) Review +with the independent auditors (i) all of their significant findings during the year, including the status of previous audit recommendations; +(ii) the overall scope and plans for the audit (including the audit budget and the adequacy of compensation and staffing); (iii) any changes required in the planned scope of the audit; +and (iv) the coordination of audit efforts to monitor completeness of coverage, reduction of redundant efforts, and the effective use of audit resources. +Compliance Oversight Responsibilities +(r) Obtain +from the independent auditors assurance that Section 10A(b) of the Exchange Act, which addresses the discovery and disclosure of any illegal act, has not +been implicated. +(s) Establish +and maintain procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or +auditing matters, and the confidential, anonymous submissions by the Company's employees of concerns regarding questionable accounting or auditing matters. +(t) Review +any reports brought to the Committee by management, the independent auditors and the Company's legal counsel regarding evidence of any material violation by the +Company, or by any officer, director, employee or agent of the Company, of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States +federal or state law, or a similar material violation of any United States federal or state law. +(u) Review +and discuss with management and the independent auditors, on an ongoing basis, any proposed transactions or courses of dealing with related parties identified in +Item 404 of SEC Regulation S-K (such as directors, director nominees, executive officers, significant stockholders of the Company, or any of their immediate family members) for +potential conflict of interest situations. In such review consider: (i) the financial accounting accorded the transaction or course of dealing; (ii) whether the terms or other aspects +differ from those that would likely be negotiated with independent parties; and (iii) whether the proposed disclosure of the transaction or course of dealing is in accordance with GAAP. Upon +completion of such review, the Committee shall either approve or disapprove each reviewed related party transaction or course of dealing and recommend such approval or disapproval to the full Board. +(v) Prepare +a report to be included in the Company's annual proxy statement stating whether or not the Committee (i) has reviewed and discussed the audited financial +statements with management; (ii) has discussed with the independent auditors the matters (if any) that the independent auditors have informed the Committee are required to be discussed under +applicable auditing standards; (iii) has received the written disclosure and letter from the independent auditors (delineating all relationships they have with the Company) and has discussed +with them their independence; and (iv) based on the review and discussions referred to above, the members of the Committee recommended to the Board that the audited financials be included in +the Company's Annual Report on Form 10-K for filing with the SEC. +(w) Annually +evaluate its own performance as a committee, including its effectiveness and compliance with its Charter, and report to the Board the results of such evaluation +and any recommended changes. Review and reassess, at least annually, the adequacy of this Charter and submit any recommended changes to the Board for its consideration. +(x) Perform +any other activities, consistent with this Charter, the Company's Bylaws and applicable listing standards and laws, as the Committee or the Board deems necessary +or appropriate. +B-6 +PROXY +ITERIS HOLDINGS, INC. +CLASS A COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class A common stock of ITERIS HOLDINGS, INC. hereby appoints FRANCIS MEMOLE and JAMES S. MIELE, and each of them, +proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris Holdings to be +held at 1515 South Manchester Avenue, Anaheim, California 92802 on September 10, 2004 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of +Class A common stock of Iteris Holdings held of record by the undersigned on July 26, 2004, with all the powers the undersigned would possess if personally present, in accordance with +the instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for +the year ended March 31, 2004, which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND +IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +ý Please +mark votes as in this example. +1. Election +of Directors +Nominees +standing for election by holders of Class A common stock: Gary Hernandez, Jack Johnson and Dr. Hartmut Marwitz. +o FOR o WITHHOLD +AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided above.) +Nominees +standing for election by holders of Class A common stock and Class B common stock voting together as a single class: Kevin C. Daly, John E. Johnson, Gregory A. Miner, John W. +Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. Wright. +o FOR o WITHHOLD +AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided above.) +2. Approval +of the amendment and restatement of the certificate of incorporation of Iteris Holdings to: (a) automatically convert each outstanding share of Class B common +stock into 1.1 shares of Class A common stock and remove the ability to issue any further shares of Class B common stock; (b) change the voting rights of the Class A common +stock from one-tenth of one vote per share to one vote per share on all matters to be addressed by the stockholders; (c) change the name of the Class A common stock to +"Common Stock;" and (d) change the name of Iteris Holdings to "Iteris, Inc." +o FOR o AGAINST o ABSTAIN +3. Ratification +of Ernst & Young LLP as the independent auditors of Iteris Holdings for the fiscal year ending March 31, 2005. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING o +Signature: +Date +Signature: +Date: +(This +Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized +officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +PROXY +ITERIS HOLDINGS, INC. +CLASS B COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of Class B common stock of ITERIS HOLDINGS, INC. hereby appoints FRANCIS MEMOLE and JAMES S. MIELE, and each of them, +proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris Holdings to be +held at 1515 South Manchester Avenue, Anaheim, California 92802 on September 10, 2004 at 10:00 a.m. (Pacific Time), and at any adjournments thereof, and to vote all shares of +Class B common stock of Iteris Holdings held of record by the undersigned on July 26, 2004, with all the powers the undersigned would possess if personally present, in accordance with +the instructions on the reverse hereof. +The +undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by +virtue hereof. The undersigned also acknowledges receipt of the Notice of Annual Meeting of Stockholders, the proxy statement and the annual report to stockholders on Form 10-K for +the year ended March 31, 2004, which were furnished with this proxy. +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND +IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDER WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +ý +Please mark votes as in this example. +1. Election +of Directors +Nominees +standing for election by holders of Class A common stock and Class B common stock, voting together as a single class: Kevin C. Daly, Gregory A. Miner, John W. Seazholtz, Joel +Slutzky, Thomas L. Thomas and Paul E. Wright. +o +FOR o WITHHOLD AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided above.) +2. Approval +of the amendment and restatement of the certificate of incorporation of Iteris Holdings to: (a) automatically convert each outstanding share of Class B common +stock into 1.1 shares of Class A common stock and remove the ability to issue any further shares of Class B common stock, (b) change the voting rights of the Class A common +stock from one-tenth of one vote per share to one vote per share on all matters to be addressed by the stockholders, (c) change the name of the Class A common stock to +"Common Stock" and (d) change the name of Iteris Holdings to "Iteris, Inc." +o +FOR o AGAINST o ABSTAIN +3. Ratification +of Ernst & Young LLP as the independent auditors of Iteris Holdings for the fiscal year ending March 31, 2005. +o +FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, +a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE +MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE +QuickLinks +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held September 10, 2004 +PROPOSAL NO. 1 ELECTION OF DIRECTORS +Nominees for Election +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES +10-YEAR OPTION REPRICINGS +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +AUDIT COMMITTEE REPORT +PERFORMANCE GRAPH FOR ITERIS HOLDINGS, INC. INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG ITERIS HOLDINGS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE MEDIA GENERAL/COREDATA DIVERSIFIED ELECTRONICS 836 +CERTAIN TRANSACTIONS +APPENDIX A +Charter of the Nominating and Corporate Governance Committee of the Board of Directors of Iteris Holdings, Inc. Adopted as of March 18, 2004 +APPENDIX B +Audit Committee Charter of the Audit Committee of the Board of Directors of Iteris Holdings, Inc. Adopted as of March 18, 2004 +PROXY ITERIS HOLDINGS, INC. CLASS A COMMON STOCK THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PROXY ITERIS HOLDINGS, INC. CLASS B COMMON STOCK THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-04-024712/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-04-024712/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-05-035178/proxy.txt b/raw/proxies/0000350868/0001104659-05-035178/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..02d93f83c770e65e6c4d89e7c7f75901246a2cbf --- /dev/null +++ b/raw/proxies/0000350868/0001104659-05-035178/proxy.txt @@ -0,0 +1,2278 @@ +DEF 14A +1 +a05-12395_1def14a.htm +DEF 14A +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant +to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as +permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +ITERIS, INC. +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing +Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing +fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of +information contained in this form are not required to respond unless the +form displays a currently valid OMB control number. +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF +STOCKHOLDERS +TO BE +HELD SEPTEMBER 16, 2005 +To the +Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN +that the 2005 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., +a Delaware corporation formerly known as Iteris Holdings, Inc. and Odetics, Inc., +will be held on Friday, September 16, 2005 at 10:00 a.m. Pacific +Time, at the principal executive offices of Iteris located at 1515 South +Manchester Avenue, Anaheim, California 92802 for the following purposes, as +more fully described in the proxy statement accompanying this Notice: +1. To elect nine directors to serve on the +Board of Directors until the next annual meeting of stockholders. The nominees for election are Kevin +C. Daly, Ph.D., Gary Hernandez, Jack Johnson, Dr. Hartmut Marwitz, Gregory A. +Miner, John W. Seazholtz, Joel Slutzky, Thomas L. Thomas and Paul E. Wright. +2. To approve an amendment of the bylaws to +change the size of the Board of Directors to not less than seven members nor +more than eleven members. +3. To ratify the appointment of McGladrey & +Pullen, LLP as the independent auditors of Iteris for the fiscal year ending March 31, +2006. +4. To transact any other business which may +properly come before the Annual Meeting or any adjournment(s) or +postponement(s) thereof. +All stockholders of +record as of the close of business on July 26, 2005 are entitled to notice +of and to vote at the Annual Meeting and at any postponement(s) or +adjournment(s) thereof. A list of +stockholders entitled to vote at the Annual Meeting will be available for +inspection at the principal executive offices of Iteris. +We cordially invite all +stockholders to attend the Annual Meeting. +Whether or not you plan to attend, it is important that your shares be +represented and voted at the Annual Meeting. +You can vote your shares by completing and returning the enclosed proxy +card. If your shares are held in “street name,” that is, your shares are held +in the name of a brokerage firm, bank or other nominee, in lieu of a proxy card +you should receive from that institution an instruction form for voting by mail +and you may also be eligible to vote your shares electronically over the +Internet or by telephone. Should you receive more than one proxy card or voting +instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please sign, date and return each +proxy card or voting instruction form to ensure that all of your shares are +voted. You may revoke your proxy at any +time prior to the Annual Meeting. If you +attend the Annual Meeting and vote by ballot, any proxy that you previously +submitted will be revoked automatically and only your vote at the Annual +Meeting will be counted. For further information, please see the discussion of +voting rights and proxies beginning on page 1 of the enclosed proxy +statement. +BY ORDER OF THE +BOARD OF DIRECTORS +/s/ Jack Johnson +Anaheim, +California +Jack Johnson +August 10, +2005 +President and +Chief Executive Officer +YOUR VOTE IS VERY +IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, +COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND +RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, +INC. +1515 South Manchester Avenue +Anaheim, California 92802 +PROXY +STATEMENT +FOR THE +2005 ANNUAL MEETING OF STOCKHOLDERS +TO BE +HELD SEPTEMBER 16, 2005 +General +These proxy materials and +the enclosed proxy card are being furnished in connection with the solicitation +of proxies by the Board of Directors of Iteris, Inc., a Delaware +corporation (“Iteris” or the “Company”), to be voted at the 2005 Annual Meeting +of Stockholders (the “Annual Meeting”) to be held on September 16, 2005 +and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. +Pacific Time, at the Company’s principal executive offices located at 1515 +South Manchester Avenue, Anaheim, California 92802. These proxy materials and the form of proxy +are expected to be mailed to the Company’s stockholders who are entitled to +vote at the Annual Meeting on or about August 10, 2005. +Purpose +of Meeting +The specific proposals to +be considered and acted upon at the Annual Meeting are summarized in the +accompanying Notice of the Annual Meeting of Stockholders and are described in +more detail in this proxy statement. +Voting +Rights +The record date for +determining those stockholders who are entitled to notice of, and to vote at, +the Annual Meeting has been fixed as July 26, 2005. At the close of business on the record date, 28,409,905 +shares of the Company’s common stock, par value $0.10 per share, were +outstanding and no shares of the Company’s preferred stock were +outstanding. Each stockholder is +entitled to one vote for each share of common stock held by such stockholder as +of the record date. +The presence in person or +by proxy of the holders of a majority of the outstanding shares of the common +stock entitled to vote will constitute a quorum for the transaction of business +at the Annual Meeting. If a quorum is +not present, the Annual Meeting will be adjourned until a quorum is obtained. +In the election of +directors under Proposal One, directors will be elected by a plurality of the +common stock entitled to vote and present in person or represented by proxy at +the Annual Meeting, unless cumulative voting is in effect. Pursuant to the bylaws of Iteris, no +stockholder is entitled to cumulate his or her votes (as described above) for +candidates other than those whose names have been placed in nomination prior to +the commencement of voting and unless at least one stockholder has given notice +prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, +then each stockholder may cumulate votes by multiplying the number of shares of +common stock the stockholder is entitled to vote by the number of directors to +be elected. The number of cumulative +votes thus determined may be voted all for one candidate or distributed among +several candidates, at the discretion of the stockholder. The candidates receiving the highest number +of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the +persons named in the accompanying proxy will vote the shares of common stock +covered by proxies received by them (unless authority to vote for directors is +withheld) among the named candidates as they determine. +1 +Proposals Two and Three +require the approval of the affirmative vote of a majority of the common stock +present in person or represented by proxy at the Annual Meeting and entitled to +vote on the matter. +All votes will be +tabulated by the inspector of election appointed for the Annual Meeting, who +will separately tabulate affirmative and negative votes, abstentions and broker +non-votes. Broker non-votes occur when +brokers who hold stock in “street name” return proxy cards stating that they do +not have authority to vote the stock which they hold on behalf of beneficial +owners. Abstentions and broker non-votes +are counted as present for purposes of determining the presence or absence of a +quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on +proposals presented to the stockholders and will have the same effect as +negative votes. Broker non-votes will +not be counted for purposes of determining whether a proposal has been +approved. The election of directors in +Proposal One and the ratification of the selection of the independent auditors +in Proposal Three are matters on which a broker or other nominee is generally +empowered to vote. Therefore, no broker +non-votes will exist in connection with Proposal One or Proposal Three. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically +over the Internet or by telephone, or (iii) by ballot in person at the Annual +Meeting. If you are a “registered +holder,” that is your shares are registered in your own name through our +transfer agent, you may vote by returning a completed proxy card in the +enclosed postage-paid envelope. If your +shares are held in “street name,” that is, your shares are held in the name of +a brokerage firm, bank or other nominee, in lieu of a proxy card you should +receive a voting instruction form from that institution by mail. The voting instruction form should indicate +whether the institution has a process for beneficial holders to vote over the +Internet or by telephone. A large number +of banks and brokerage firms are participating in the ADP Investor Communication +Services online program. This program +provides eligible stockholders who receive a paper copy of the proxy statement +the opportunity to vote over the Internet or by telephone. The +Internet and telephone voting facilities will close at 11:59 p.m. Eastern +Time on Thursday, September 15, 2005 . Stockholders who vote over the Internet or by +telephone need not return a proxy card or voting instruction form by mail, but +may incur costs, such as usage charges, from telephone companies or Internet +service providers. If your voting +instruction form does not reference Internet or telephone information, please +complete and return the paper voting instruction form in the self-addressed, +postage-paid envelope provided. +If you are a registered +holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and +you wish to vote in person at the meeting, you must obtain a proxy issued in +your name from the record holder and bring it with you to the Annual Meeting. The Company recommends that you vote your +shares in advance as described above so that your vote will be counted if you +later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed +proxy card to vote by mail. If your +shares are held in street name, then in lieu of a proxy card you should receive +from that institution an instruction form for voting by mail, the Internet or +by telephone. Should you receive more +than one proxy card or voting instruction form because your shares are held in +multiple accounts or registered in different names or addresses, please be sure +to complete, sign, date and return each proxy card or voting instruction form +to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms +that have been signed, dated and timely returned will be counted in the quorum +and voted. Properly executed proxies +will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted FOR the election +of the directors proposed by the Board under Proposal One unless the authority +to vote for the election of any director is withheld and, if no contrary +instructions are given, the proxy will be voted FOR the approval of Proposals +Two and Three as described in this proxy statement and the accompanying +notice. However, if your shares are held +in street name and you do not specify how the shares represented thereby are to +be voted for Proposal Two, the record holder will not be permitted to vote your +shares with respect to these matters as bylaw amendments are generally not +matters on which the nominees are empowered to vote without instructions. +2 +The enclosed proxy also +grants the proxy holders discretionary authority to vote on any other business +that may properly come before the Annual Meeting as well as any procedural +matters. The Company has not been +notified by any stockholder of his or her intent to present a stockholder +proposal at the Annual Meeting. +If your shares are held +in your name, you may revoke or change your vote at any time before the Annual +Meeting by filing a notice of revocation or another signed proxy card with a +later date with the Company’s Secretary at the Company’s principal executive +offices at 1515 South Manchester Avenue, Anaheim, California 92802. If your shares are held in street name, you +should contact the record holder to obtain instructions if you wish to revoke +or change your vote before the Annual Meeting. +If you attend the Annual Meeting and vote by ballot, any proxy that you +submitted previously to vote the same shares will be revoked automatically and +only your vote at the Annual Meeting will be counted. Please note, however, that +if your shares are held in street name, your vote in person at the Annual +Meeting will not be effective unless you have obtained and present a proxy +issued in your name from the record holder. +Attendance at the Annual Meeting will not, by itself, revoke +a proxy. +Solicitation +The enclosed proxy is +being solicited by the Company’s Board of Directors. The Company will bear the entire cost of +proxy solicitation, including the costs of preparing, assembling, printing and +mailing this proxy statement, the proxy card and any additional material +furnished to the stockholders. Copies of +the solicitation materials will be furnished to brokerage houses, fiduciaries +and custodians holding shares in their names that are beneficially owned by +others so that they may forward this solicitation material to such beneficial +owners. In addition, the Company may +reimburse such persons for their reasonable expenses in forwarding the +solicitation materials to the beneficial owners. The original solicitation of proxies by mail +may be supplemented by a solicitation by personal contact, telephone, +facsimile, email or any other means by the Company’s directors, officers or +employees. No additional compensation +will be paid to these individuals for any such services. +In the discretion of +management, the Company reserves the right to retain a professional firm of +proxy solicitors to assist in solicitation of proxies. Although the Company does not currently +expect to retain such a firm, it estimates that the fees of such firm would +range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be +paid by the Company. +3 +MATTERS +TO BE CONSIDERED AT THE ANNUAL MEETING +PROPOSAL +ONE: +ELECTION +OF DIRECTORS +General +Nine directors are to be +elected at the Annual Meeting to hold office until their successors are duly +elected and qualified at the next annual meeting of stockholders. The nine candidates receiving the highest +number of affirmative votes, present in person or represented by proxies and entitled +to vote at the Annual Meeting, will be elected as directors of Iteris. However, if cumulative voting is in effect, +the proxy holders will have the right to cumulate and allocate votes among +those nominees standing for election as such proxy holders in their discretion +elect. +In the event that the +Company’s stockholders approve the bylaw amendment set forth in Proposal Two, +the Board of Directors intends to appoint Richard Char and Abbas Mohaddes to +fill the vacancies on the Board that will be created when the size of the Board +is increased to eleven directors. In +addition, upon such appointment, the Board of Directors intends to appoint Mr. Char +to the Audit Committee to serve as its Chairman. Information regarding Messrs. Char and +Mohaddes are set forth below. +Information +with Respect to Nominees +The following table sets +forth certain information, as of July 1, 2005, concerning the director nominees. +Name +Age +Current Positions with +Iteris and Its Subsidiaries +Director +Since +Nominees for +Election: +Kevin C. Daly, Ph.D.(2)(3) +60 +Director of Iteris +1993 +Gary Hernandez(3) +45 +Director of Iteris +2004 +Jack Johnson +58 +President, Chief Executive Officer and +Director of Iteris; +Director of Meyer, Mohaddes Associates, Inc. +2004 +Dr. Hartmut Marwitz +63 +Director of Iteris +2004 +Gregory A. Miner +50 +Chairman of +the Board of +Iteris +1998 +John W. Seazholtz(1)(2)(3) +68 +Director of Iteris +1998 +Joel Slutzky +66 +Director of Iteris; +Director of Meyer, Mohaddes Associates, Inc. +1969 +Thomas L. Thomas(1)(2)(3) +56 +Director of Iteris +1999 +Paul E. Wright(1) +74 +Director of Iteris +1993 +Persons to be +Appointed as Directors in the Event of Stockholder Approval of Proposal Two: +Richard Char +46 +N/A +N/A +Abbas Mohaddes +48 +Executive Vice President, General Manager and +Assistant Secretary of Iteris; +President, Chief Executive Officer and Director +of Meyer, +Mohaddes Associates, Inc. +N/A +(1) Member of the Audit Committee. +(2) Member of the Compensation Committee. +(3) Member of the Nominating and Corporate +Governance Committee. +4 +Nominees for Election +Kevin +C. Daly, Ph.D. has served as a director +of Iteris since 1993. Since July 2002 +until June 2005, Dr. Daly was the Chief Executive Officer of Avamar +Technologies, Inc., a provider of high availability storage software +solutions. He continues to serve as an +advisor to Avamar. Dr. Daly was +previously Chief Technical Officer of Quantum Corporation’s Storage Solutions +Group from October 2001 to July 2002 and, prior to that, he was Chief +Executive Officer of ATL Products, Inc., a former subsidiary of the +Company, from ATL’s formation in 1993 until 2001. Dr. Daly also served as Chief Technical +Officer of Iteris from 1985 until ATL’s separation from Iteris in an initial +public offering in 1997. Prior to +joining Iteris, Dr. Daly was Director of the Control and Dynamics Division +of the Charles Stark Draper Laboratory at MIT from 1974 through 1985. Dr. Daly is also a member of the Board +of Directors of Danka Business Systems PLC. +Gary +Hernandez has served as a director +of Iteris since September 2004. He +also served as a director of the Company’s former Iteris, Inc. subsidiary +(the “Iteris Subsidiary”) from January 1999 to October 2004. Mr. Hernandez has been a partner in the +law firm of Sonnenschein, Nath and Rosenthal LLP since December 1997. From December 1995 to December 1997, +Mr. Hernandez was a partner in the law firm of Long & Levit. Mr. Hernandez served as Deputy Insurance +Commissioner of California from April 1991 to November 1995. Mr. Hernandez received his B.A. degree +from the University of California, Berkeley and his J.D. degree from the +University of California, Davis. +Jack +Johnson has served as the +President and Chief Executive Officer of Iteris since October 2004 and as +a director since September 2004. +Prior to that, Mr. Johnson served as the President, Chief Executive +Officer and a director of the Iteris Subsidiary from December 1999 to October 2004, +when the Iteris Subsidiary was merged into the Company. Mr. Johnson also served as a Vice +President of Iteris from 1986 to October 2004, as the General Manager of +the Company’s ITS division (which became the Iteris Subsidiary), prior to its +incorporation, from 1996 to 1998 and as the General Manager of the Company’s +Customer Service division from 1990 to 1996. +Mr. Johnson has served in various other capacities with Iteris and +its subsidiaries since joining the Company in 1974, including the Vice +President and General Manager of the Company’s Omutec division from 1986 to +1990, the Director of Contracts for the Space division of Iteris from 1980 to +1986, the Controller of Infodetics, a former subsidiary of Iteris, from 1975 to +1980 and the Controller of Iteris from 1974 to 1975. Prior to joining Iteris, Mr. Johnson +served as a certified public accountant with Peat Marwick. +Dr. Hartmut +Marwitz has served as a director +of Iteris since September 2004. Dr. Marwitz +also served as a director of the Iteris Subsidiary from 1999 to October 2004 +and has served as the Vice-President of Engineering Mercedes-Benz Trucks of +DaimlerChrysler in Germany since 1995. +Previously, Dr. Marwitz served with Daimler-Benz AG as Director of +Truck Powertrain Testing. Furthermore, Dr. Marwitz +has broad experiences in the field of passenger car development. Before joining Daimler-Benz AG, Dr. Marwitz +worked as Senior Manager for Rheinmetall in the field of Special Machinery +Development in Germany and Spain. Dr. Marwitz +holds an Engineering Degree in Mechanical Engineering and a Doctoral Degree in +Experimental Mechanics from the Technical University of Munich, Germany. Since 2003, Dr. Marwitz has held an +honorary professorship as the Chair of Machine and Design at the Institute of +Machine Design and Automotive Engineering at the Technical University of +Karlsruhe (Germany). +Gregory +A. Miner has served as a director +of Iteris since 1998 and as its +Chairman of the Board of Directors since October 2004. Mr. Miner +is also the Managing Partner of Merchant Capital Source, LLC, a company that +provides working capital financing solutions to merchants. Prior to that, Mr. Miner +served as the Company’s Chief Executive Officer from February 2002 to October 2004 +and as the Company’s Chief Financial Officer from January 1994 to October 2004. He also served as the Company’s Chief +Operating Officer from +1998 to 2002 and as the Chairman of the Board of the Iteris Subsidiary from December 2003 +to October 2004. Mr. Miner has +served in various capacities for the other subsidiaries of Iteris from time to +time. From December 1984 +5 +until +joining Iteris, Mr. Miner served as the Vice President, Chief Financial +Officer and a director of Laser Precision Corporation, a manufacturer of +telecommunications test equipment. Mr. Miner +is a Certified Public Accountant and, from 1979 to 1984, was employed by +Deloitte Haskins and Sells (now known as Deloitte & Touche LLP) in +various capacities, the most recent of which was Audit Manager. +John +W. Seazholtz has served as a director +of Iteris since May 1998. From May 1998 +to April 2000, Mr. Seazholtz served as the President and Chief +Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief +Technology Officer of Bell Atlantic after 36 years of service with that company +and its predecessor. Mr. Seazholtz +was a senior officer of Bell Atlantic from 1986, serving in various positions, +including the positions of Vice President, Operations and Engineering, Vice +President, Marketing, Vice President of New Services, and Vice President, +Technology and Information Systems. Mr. Seazholtz +currently serves as the Chairman of the Board of Westell Technologies, Inc. +and is a member of the Board of Directors of Advanced Switching Communications, Inc. +Joel +Slutzky has served as a director +of Iteris since he co-founded the Company in 1969. Mr. Slutzky was the Chairman of the +Board of Directors from 1969 to October 2004 and the Company’s Chief +Executive Officer from 1975 to February 2002. Mr. Slutzky also served as the Chairman +of the Board of the Iteris Subsidiary until December 2003 and served in +various capacities for other subsidiaries of Iteris from time to time. Mr. Slutzky currently serves on the +Board of Directors of the American Electronics Association, KOCE, Future +Scientists and Engineers of America and the Orange County Business Council +Workforce Task Group. Mr. Slutzky +is also the Chairman of Project Tomorrow, an organization focused on improving +Kindergarten through 12th grade science education in Orange County, California. +Thomas +L. Thomas has served as a director +of Iteris since May 1999. Mr. Thomas +served as the Chairman of the Board, President and Chief Executive Officer of +HAHT Commerce, a provider of software applications that enable companies to use +the Internet to conduct business, from February 2000 until February 2004 +when HAHT Commerce was sold to Global Exchange Services. Mr. Thomas +currently serves as a consultant to the Chief Executive Officer of Global +Exchange Services. A veteran Silicon +Valley executive, Mr. Thomas was previously the President and Chief +Executive Officer of Ajuba Solutions, a provider of B2B integration solution +software, which was sold to Interwoven in October 2000. From April 1999 +until January 2000, he served as the President, Chief Executive Officer +and Chairman of the Board of Vantive Corporation, a customer relationship +management software vendor which was acquired by Peoplesoft in January 2000. Prior to that, from September 1995 to April 1999, +Mr. Thomas served as the Senior Vice President of e-Business and +Information Services and Chief Information Officer at 3Com Corporation. From 1993 to 1995, Mr. Thomas served as +a Vice President and the Chief Information Officer of Dell Computer +Corporation. From 1987 to 1993, he +served as the Vice President of Management Information Systems at Kraft General +Foods, and at Sara Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of +Directors of iManage, Inc. +Paul +E. Wright has served as a director +of Iteris since June 1993. He also +served as a director of the Iteris Subsidiary from January 1999 to October 2004. Mr. Wright is the President of Wright +Associates—Engineering and Business Consultants, a company he formed in +1997. From 1988 until his retirement in +1997, Mr. Wright served as the Chairman of Chrysler Technologies Corp., +the aerospace and defense electronics subsidiary of Chrysler Corporation. From 1986 to 1988, Mr. Wright served as +the President and Chief Operating Officer of Fairchild Industries, Inc. +Prior to joining Fairchild, he was employed for 28 years by RCA Corporation, +where he last served as the Senior Vice President, responsible for planning RCA’s +merger into General Electric Corporation. +Persons +to be Appointed as Directors in the Event of Stockholder Approval of Proposal +Two +Richard +Char is expected +to be appointed as a director of Iteris to fill a vacancy which will be created if +Proposal Two is approved by the stockholders. +From March 2003 to April 2005, Mr. Char served as the +President and Chief Executive Officer of IC Media, a developer of CMOS image +sensors that was acquired in April 2005 by MagnaChip Semiconductors, a developer +and manufacturer of mixed-signal and digital multimedia semiconductors. Prior to joining IC Media, from March 1999 +to January 2002, Mr. Char was Managing Director with the Technology +Group of Credit Suisse First Boston. +From 1997 to 1999, Mr. Char was Co-Head of Technology Investment +Banking at Cowen & Company +6 +and +from 1984 to 1997, he was a partner in the law firm of Wilson Sonsini Goodrich & +Rosati. Mr. Char received his A.B. +degree from Harvard College and his J.D. degree from Stanford Law School. +Abbas +Mohaddes is expected to be +appointed as a director of Iteris to fill a vacancy which will be created if +Proposal Two is approved by the stockholders. +Mr. Mohaddes served as an Executive Vice President and General Manager of Iteris +since October 2004 and as an Assistant Secretary since May 2004. He was the Executive Vice President of the +Iteris Subsidiary from March 2004 to October 2004 and its Secretary +from September 2001 to October 2004. +Prior to that, he served as the Senior Vice President and Director of +Transportation Systems of the Iteris Subsidiary from May 2000 to March 2004 +and as its Vice President and Deputy Director of Transportation from October 1998 +to May 2000. Mr. Mohaddes has +also served as President and Chief Executive Officer of Meyer, Mohaddes +Associates, Inc. (“MMA”), an ITS and transportation firm that he +co-founded in 1991, which was acquired by the Iteris Subsidiary in October 1998. Prior to establishing MMA, from 1986 to 1990, +he was a principal and Southern California Director of Operations for DKS +Associates, a consulting firm. Mr. Mohaddes +is a nationally recognized expert in ITS and has published over 20 articles and +made over 50 presentations at ITS Transportation engineering professional +societies. Mr. Mohaddes is a +founding member of ITS America and member of several trade organizations +including Transportation Research Board, Institute of Transportation Engineers, +and the Design/Build Institute of America. +All directors are elected +annually and hold office until the next annual meeting of stockholders and +until their successors are duly elected and qualified. All of the nominees have indicated that they +are willing to continue to serve as directors. +In the event any nominee is unable or declines to serve as a director at +the time of the Annual Meeting, the proxies will be voted for an additional +nominee who shall be designated by the current Board of Directors. As of the date of this proxy statement, the +Board of Directors is not aware of any nominee who is unable or unwilling to +serve as director. +Corporate +Governance +The Company’s Board of +Directors has adopted a Code of Ethics and Business Conduct which applies to +all directors, officers (including the Company’s principal executive officer, +principal financial officer, principal accounting officer or controller, or +persons performing similar functions) and employees. The full text of the Company’s Code of Ethics +and Business Conduct is available on the Investor Relations section of the +Company’s website at www.iteris.com. The +Company intends to disclose future amendments to certain provisions of the Code +of Ethics and Business Conduct, and any waivers of provisions of the Code of +Ethics required to be disclosed under the rules of the Securities and +Exchange Commission (“SEC”), at the same location on the Company’s website. +Board +Meetings and Committees +The Board of Directors +held four meetings during the fiscal year ended March 31, 2005. All of the directors attended or participated +in at least 75% of the aggregate number of meetings of the Board of +Directors. Each director attended at +least 75% of the aggregate number of meetings of those committees of the Board +of Directors on which such person served, which were held during such +period. The Board has determined that +each of the Company’s directors other than Messrs. Johnson, Marwitz, Miner +and Slutzky satisfies the requirements for “independence” under the listing +standards of the American Stock Exchange. +Iteris currently has +several standing committees of the Board of Directors, including the Audit +Committee, the Compensation Committee, and the Nominating and Corporate +Governance Committee. The Audit +Committee, the Compensation Committee, and the Nominating and Corporate +Governance Committee each has a written charter that is reviewed annually and +revised as appropriate. A copy of each +committee’s charter is available on the Investor Relations section of the +Company’s website at www.iteris.com. +Audit +Committee. The current members of the Company’s Audit +Committee are Messrs. Seazholtz, Thomas and Wright. Each member of the Audit Committee is “independent” +under the current listing standards of the American Stock Exchange and the SEC rules regarding +audit committee memberships. The Board +has identified Mr. Wright as the member of the Audit Committee who +qualifies as an “audit committee financial expert” under applicable SEC rules and +regulations governing the composition of the Audit Committee. The Board anticipates that +7 +Mr. Char will be appointed to serve on the Audit +Committee as its Chairman if Proposal Two is approved by the stockholders. The Audit Committee held nine meetings during +the fiscal year ended March 31, 2005. +The Audit Committee +oversees on behalf of the Board (a) the conduct of the accounting and +financial reporting processes, the audits of the Iteris financial statements +and the integrity of its +audited financial statements and other financial reports; (b) the +performance of the internal accounting and financial controls function of +Iteris; (c) the engagement, replacement, compensation, qualifications, +independence and performance of the independent auditors for Iteris; and (d) the +portions of the Code of Ethics and Business Conduct and related policies +regarding the accounting, internal accounting controls or auditing matters of +Iteris. +The Audit Committee meets +privately with the independent auditors of Iteris, and the independent auditors +have unrestricted access to and report directly to the Audit Committee. The Audit Committee has selected McGladrey & +Pullen, LLP as the Company’s independent auditors for the fiscal year ending March 31, +2006 and is recommending that the stockholders of Iteris ratify this +appointment at the Annual Meeting. +The Board of Directors +initially adopted the Audit Committee Charter in 2000 and approved an amended +and restated Audit Committee Charter in July 2002. The Board subsequently further amended and +restated the Audit Committee Charter in March 2004. A copy of the current charter was filed as an +appendix to the proxy statement for the annual meeting of stockholders held in September 2004. +Compensation +Committee. The current members of the Company’s Compensation +Committee are Messrs. Daly, Seazholtz and Thomas. The Board has concluded that each member of +the Compensation Committee is “independent” under the listing standards of the +American Stock Exchange. The +Compensation Committee held one meeting during the fiscal year ended March 31, +2005. +The Compensation +Committee (a) evaluates officer and director compensation policies, goals, +plans and programs; (b) determines the cash and non-cash compensation of +the “executive officers” of the Company as defined in the rules promulgated +under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange +Act”); (c) reviews and makes recommendations to the Board with respect to +the Company’s equity-based and other incentive compensation plans for employees; +(d) evaluates the performance of the Company’s executive officers; (e) assists +the Board in evaluating potential candidates for executive officer positions +with the Company and oversee management succession planning; and (f) produces +the Committee report required by the applicable rules and regulations of +the SEC and other regulatory bodies for inclusion in the Company’s annual proxy +statement. +Nominating +and Corporate Governance Committee. The current +members of the Nominating and Corporate Governance Committee are Messrs. Daly, +Hernandez, Seazholtz and Thomas. The Board has determined that each of the +members of this committee are “independent” under the listing standards of the +American Stock Exchange. The Nominating +and Corporate Governance Committee held one meeting during the fiscal year +ended March 31, 2005. +The primary purposes of +the Nominating and Corporate Governance Committee are to (a) identify, +screen and review individuals qualified to serve as directors of the Company; (b) select +or recommend to the Board of Directors the selection of nominees for election +at the next annual meeting of stockholders; (c) recommend to the Board of +Directors candidates to fill any vacancies on the Board; (d) oversee the +implementation and monitoring the effectiveness of the Company’s corporate +governance policies and developing and recommending to the Board modifications +and or additions to such policies; and (e) review on a regular basis the +overall corporate governance of the Company and recommend improvements when +necessary. +In connection with their +recommendations regarding the size and composition of the Board, the Nominating +and Corporate Governance Committee reviews the appropriate qualities and skills +required of directors in the context of the then current make-up of the +Board. This includes an assessment of +each candidate’s independence, personal and professional integrity, financial +literacy or other professional or business experience relevant to an +understanding of the Company’s business, ability to think and act independently +and with sound judgment, and ability to serve the Company’s and its +stockholders’ long-term interests. These +factors, and others as considered useful by the +8 +Nominating and Corporate Governance Committee, are +reviewed in the context of an assessment of the perceived needs of the Board at +a particular point in time. As a result, +the priorities and emphasis of the Nominating and Corporate Governance +Committee and of the Board may change from time to time to take into account +changes in business and other trends, and the portfolio of skills and +experience of current and prospective directors. The Nomination and Corporate Governance +Committee leads the search for and selects, or recommends that the Board +select, candidates for election to the Board. +Consideration of new director candidates typically involves a series of +committee discussions, review of information concerning candidates and +interviews with selected candidates. +Candidates for nomination to the Company’s Board typically have been +suggested by other members of the Board or by the Company’s executive +officers. From time to time, the +Nomination and Corporate Governance Committee may engage the services of a +third-party search firm to identify director candidates. +The Nominating and +Corporate Governance Committee will consider candidates for directors +recommended by stockholders of Iteris who meet the eligibility requirements for +submitting stockholder proposals for inclusion in the Company’s next proxy +statement. This committee will evaluate +such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a +nominee must submit such recommendation in writing to the Chair, Nomination +Committee, care of the corporate Secretary of the Company, by the deadline for +stockholder proposals set forth in the Company’s last proxy statement, +specifying the following information: (a) the name and address of the nominee, +(b) the name and address of the stockholder making the nomination, (c) a +representation that the nominating stockholder is a stockholder of record of +the Company’s stock entitled to vote at the next annual meeting and intends to +appear in person or by proxy at such meeting to nominate the person specified +in the notice, (d) the nominee’s qualifications for membership on the +Board, (e) a resume of the candidate’s business experience and educational +background as well as all of the information that would be required in a proxy +statement soliciting proxies for the election of the nominee as a director, (f) a +description of all direct or indirect arrangements or understandings between +the nominating stockholder and the nominee and any other person or persons +(naming such person or persons) pursuant to whose request the nomination is +being made by the stockholder, (g) all other companies to which the +nominee is being recommended as a nominee for director, and (h) a signed +consent of the nominee to cooperate with reasonable background checks and +personal interviews, and to serve as a director of the Company, if +elected. In connection with its +evaluation, the Nominating and Corporate Governance Committee may request additional +information from the candidate or the recommending stockholder, and may request +an interview with the candidate. The +Nominating and Corporate Governance Committee has the discretion to decide +which individuals to recommend for nomination as directors. +No candidates for +director nominations were submitted to the Nominating and Corporate Governance +Committee by any stockholder in connection with the election of directors at +the Annual Meeting. On the +recommendation of the Nominating and Corporate Governance Committee, the Board +has selected and approved the appointment of Messrs. Char and Mohaddes to +the Board in the event the bylaw amendment under Proposal Two is approved by +the stockholders. Each of the director +nominees standing for election at this Annual Meeting is a current director of +Iteris. +Compensation +of Directors +Directors who are not +employees of Iteris or any of its subsidiaries receive an annual fee of $12,000 +per year, paid quarterly, in addition to $1,500 for each Board meeting attended +in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their +out-of-pocket expenses incurred in attending meetings of the Company’s Board of +Directors and its committees. +Non-employee directors +are also eligible to receive periodic option grants pursuant to the Automatic +Option Grant Program under the Company’s 1997 Stock Incentive Plan. Under this plan, each non-employee director +receives an option to purchase 20,000 shares of common stock upon his initial +appointment to the Board of Directors and an additional option to purchase +5,000 shares of common stock on the date of each annual meeting after his +appointment. Each option granted to +non-employee directors under the Automatic Option Grant Program will have an +exercise price equal to the fair market value of the common stock on the grant +date and will have a maximum term of ten years, subject to earlier termination +following the optionee’s cessation of service as a Board member. +9 +Stockholder +Communications +The Board has implemented +a process by which stockholders may send written communications directly to the +attention of the Board, any committee of the Board or any individual Board +member, care of Iteris’ corporate Secretary. +The name of any specific intended Board recipient should be noted in the +communication. Iteris’ corporate +Secretary will be primarily responsible for collecting, organizing and +monitoring communications from stockholders and, where appropriate depending on +the facts and circumstances outlined in the communication, providing copies of +such communications to the intended recipients. +Communications will be forwarded to directors if they relate to +appropriate and important substantive corporate or Board matters. Communications that are of a commercial or +frivolous nature or otherwise inappropriate for the Board’s consideration will +not be forwarded to the Board. +Stockholders who wish to communicate with the Board can write to the +corporate Secretary at Iteris, Inc., 1515 South Manchester Avenue, +Anaheim, California 92802. +Annual +Meeting Attendance +Iteris does not have a +formal policy regarding attendance by members of its Board of Directors at +annual meetings of its stockholders; however, directors are encouraged to attend +all such meetings. Three of the Company’s +current directors attended Iteris’ 2004 annual meeting of stockholders. +Recommendation +of the Board of Directors +The Board of Directors recommends +a vote “FOR” the nominees listed above. +Proxies returned to Iteris will be voted “FOR” each nominee unless +otherwise instructed in writing on such proxy. +10 +PROPOSAL +TWO: +APPROVAL +OF AMENDMENT OF THE COMPANY’S BYLAWS +TO INCREASE THE SIZE OF THE BOARD OF DIRECTORS +The stockholders are +being asked to approve an amendment of the Company’s bylaws which would +increase the maximum size of the Company’s Board of Directors to eleven +members. The Company’s bylaws currently +provide for a Board of not less than five nor more than nine members, with the +exact number set at nine. The proposed +amendment would provide for a Board of not less than seven nor more than eleven +members, with the exact number to be set at eleven. +The proposed change to +the bylaws would be effected by amending Section 1, Article III of +the Company’s bylaws to read as follows: +“The Board of +Directors shall consist of not less than seven nor more than eleven members, +the exact number of which shall be eleven until changed, within the limits +specified above by a resolution duly adopted by the Board of Directors or by +the stockholders. The indefinite number of directors may be +changed, or a definite number fixed without provisions for an indefinite +number, by a bylaw amending this Section 1; provided, however, that an amendment reducing the +number of directors to a number less than five cannot be adopted if the votes +cast against its adoption at a meeting, or the shares not consenting in the +case of action by written consent, are equal to more than 16-2/3% of the +outstanding shares entitled to vote. +Except as provided in Section 2 of this Article, directors shall be +elected by a plurality of the votes cast at the Annual Meetings of +Stockholders, and each director so elected shall hold office until the next +Annual Meeting and until his successor is duly elected and qualified, or until +his earlier resignation or removal. Any +director may resign at any time upon notice to the Corporation. Directors need not be stockholders.” +The Board of +Directors believes that increasing the size of the Board will enhance its +operations and effectiveness. An +increase to the size of the Board will permit the recruitment of individuals +with supplemental or complimentary skills and experience, to enhance the Board’s +performance of its advisory and oversight functions. In addition, recent legislative and +administrative developments with respect to corporate governance impose +significant additional responsibilities and obligations on directors of public +companies. All members of the Audit +Committee, the Compensation Committee and the Nominating and Corporate +Governance Committee must satisfy SEC and American Stock Exchange standards +regarding “independence”. Several +members of the Board currently serve on at least two committees of the Board. The addition of two new Board members would +provide for greater flexibility in committee composition and also allow +directors serving on the committees to further their focus on such committees. +If the amendment is +approved, the Board may vote, at any time thereafter, to fill the two vacancies +created by the amendment without the further vote of the stockholders. The Board currently intends to fill the two +vacancies that would be created upon approval of the proposed amendment with Messrs. Richard +Char and Abbas Mohaddes. Information +regarding Messrs. Char and Mohaddes and their business experience is set +forth under Proposal One. +Stockholder +Approval +The affirmative vote of a +majority of the common stock present or represented and entitled to vote at the +Annual Meeting will be required for the approval of the amendment of the bylaws +as proposed in Proposal Two. +Recommendation +of the Board of Directors +The Board of Directors recommends +that the stockholders vote “FOR” the amendment of the Company’s bylaws to +change the size of the Board of Directors to not less than seven members nor +more than eleven members. +11 +PROPOSAL +THREE: +RATIFICATION +OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of +McGladrey & Pullen, LLP was engaged in October 2004 to serve as +the Company’s independent auditors for the fiscal year ended March 31, +2005. The Audit Committee of the Board +of Directors has selected that firm to continue in this capacity for the fiscal +year ending March 31, 2006. The +Company is asking the stockholders to ratify the selection by the Audit +Committee of McGladrey & Pullen, LLP as the independent auditors of +Iteris to audit the Company’s consolidated financial statements for the fiscal +year ending March 31, 2006 and to perform other appropriate services. Stockholder ratification of the selection of +McGladrey & Pullen, LLP as the Company’s independent auditors is not +required by the Company’s bylaws or otherwise. +In the event that the stockholders fail to ratify the appointment, the +Audit Committee will reconsider its selection. +Even if the selection is ratified, the Audit Committee, in its sole discretion, +may direct the appointment of a different independent accounting firm at any +time during the year if the committee feels that such a change would be in the +best interests of the Company and its stockholders. +A representative of +McGladrey & Pullen, LLP is expected to be present at the Annual +Meeting to respond to stockholders’ questions, and that representative will +have the opportunity to make a brief presentation to the stockholders if he or +she so desires, and will be available to respond to appropriate questions from +stockholders. +Stockholder +Approval +The affirmative vote of a +majority of the common stock of Iteris, present or represented by proxy and +entitled to vote at the Annual Meeting will be required for ratification of the +selection of McGladrey & Pullen, LLP as the Company’s independent +auditors for the fiscal year ending March 31, 2006. +Recommendation +of the Board of Directors +The Board of Directors recommends +that the stockholders vote “FOR” the ratification and approval of the selection +of McGladrey & Pullen, LLP as the independent auditors of Iteris for +the fiscal year ending March 31, 2006. +12 +FEES PAID +TO INDEPENDENT AUDITORS +Fees Billed to the Company by +Ernst & Young LLP and McGladrey & Pullen, LLP +During the Fiscal Years Ended March 31, +2004 and 2005 +The following table +presents the aggregate fees billed for the indicated services performed by +Ernst & Young LLP, the Company’s independent auditors for the fiscal +year ended March 31, 2004, and McGladrey & Pullen, LLP, the +Company’s independent auditors for the fiscal year ended March 31, 2005: +Fiscal Year Ended March 31, +2004 +2005 +E&Y +McGladrey +Audit Fees +$ +325,000 +21,000 +$ +435,000 +Audit-Related Fees +69,000 +95,000 +14,000 +Tax Fees +62,000 +66,000 +7,000 +All Other Fees +¾ +12,000 +— +Total Fees +$ +456,000 +$ +194,000 +$ +456,000 +Audit +Fees. Audit fees consist of fees billed by Ernst & +Young LLP and McGladrey & Pullen, LLP for professional services +rendered in connection with the audit of Iteris’ annual consolidated financial +statements and review of those consolidated financial statements included in +Iteris’ quarterly reports on Forms 10-Q and other regulatory filings. +Audit-Related +Fees. Audit-related fees consist of fees billed for +professional services that are reasonably related to the performance of the +audit or review of the Company’s consolidated financial statements but are not +reported under “Audit Fees.” Such fees +include, among other things, fees for +registration statements, fees for internal control reviews and +assistance with meeting the requirements of Section 404 the Sarbanes-Oxley +Act, and fees for acquisition +or asset sale-related work and certain consultations concerning financial +accounting and reporting standards. +Tax +Fees. Tax fees consist of fees billed for +professional services for tax compliance, which include the preparation of +federal, state and international tax returns, and fees billed for tax +consultations, including federal, state and international tax advice, tax +planning and assistance with tax audits. +All +Other Fees. All other +fees billed by Ernst & Young LLP during the fiscal year ended March 31, +2005 consist of fees for preparation of documents relating to a former +subsidiary. There were no other fees +billed to the Company by McGladrey & Pullen, LLP during the fiscal years +ended March 31, 2004 and 2005. +Determination of Independence +The Audit Committee of +the Board of Directors has determined that the provision by McGladrey & +Pullen, LLP of the non-audit related services described above is compatible +with maintaining the independence of McGladrey & Pullen, LLP. +Audit +Committee Pre-Approval of Audit and Permissible Non-Audit Services of +Independent Auditors +All engagements for +services by McGladrey & Pullen, LLP or other independent registered +public accountants are subject to prior approval by the Audit Committee; +however, de minimis non-audit services may instead be approved in accordance +with applicable SEC rules. The prior +approval of the Audit Committee was obtained for all services provided by +McGladrey & Pullen, LLP in the fiscal year ended March 31, 2005. +13 +Changes +in Accountants +On +October 5, 2004, the Company notified Ernst & Young LLP (“E&Y”), +its previous independent auditors, of its decision to dismiss E&Y. The decision was made primarily in order to +reduce the Company’s audit fees and to engage another firm as the Company’s +independent registered accounting firm. +The Company appointed Mc Gladrey & +Pullen, LLP as its new independent registered accounting firm, to perform +auditing services beginning with the second quarter ended September 2004. The Audit Committee of the Company’s Board of +Directors unanimously approved such change. +The +reports of E&Y on the Company’s financial statements for the years ended March 31, +2003 and 2004 did not contain any adverse opinion or disclaimer of opinion, and +were not otherwise qualified as to uncertainty, audit scope or accounting +principles. E&Y’s report on the Company’s consolidated financial statements +for the year ended March 31, 2003 contained an explanatory paragraph +indicating that the consolidated financial statements have been prepared +assuming the Company will continue as a going concern. +During +the two years ended March 31, 2004 and through September 30, 2004, +there were no disagreements with E&Y on any matter of accounting principles +or practices, financial statement disclosure, or auditing scope or procedure, +which disagreements if not resolved to the satisfaction of E&Y would have +caused them to make reference thereto in their reports on the financial +statements for such years. In addition, +there were no such disagreements between September 30, 2004 and October 5, +2004, the date the engagement of E&Y was terminated. +During +the two years ended March 31, 2004 and from April 1, 2004 through October 7, +2004, there were no “reportable events” as such term is described in Item +304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, +as amended; however, the Company has been advised by E&Y that there was a +lack of adequate controls related to the Company’s financial statement close +process that led to an excessive length of time by the Company to close its +books and issue its consolidated financial statements for the year ended March 31, +2004, which was determined to be a reportable condition under the standards +established by the American Institute of Certified Public Accountants. +Management +has reported to the Company’s Audit Committee that this matter is not believed +to be a material weakness in the Company’s internal controls. The Company believes that the delays were +largely the result of the Company’s divestiture of its other subsidiaries and +related restructuring during 2003, as well as its transition to a new chief +accounting officer, who previously served only as the controller of the Iteris +Subsidiary. Management has addressed +this matter by instituting more formal closing procedures and has recruited a +financial reporting manager to supplement its accounting staff. +The +disclosures regarding the change in accountants set forth above were included +in a Current Report on Form 8-K filed with the SEC on October 12, +2004, as amended on November 12, 2004. +The Company had requested that E&Y furnish the Company with a letter +addressed to the SEC stating whether E&Y agrees with the above +statements. E&Y furnished such a +letter, dated October 12, 2004, and another letter dated November 12, +2004, copies of which were included as exhibits to the Company’s Form 8-K +and Form 8-K/A filings on October 12, 2004 and November 12, +2004. +14 +PRINCIPAL +STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF +CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets +forth, as of July 1, 2005, the number and percentage ownership of the +common stock of Iteris by (i) all persons known to Iteris to beneficially +own more than 5% of the outstanding common stock, (ii) each of the Named +Executive Officers in the Summary Compensation Table which appears elsewhere +herein, (iii) each director of Iteris, and (iv) all executive +officers and directors of Iteris as a group. +To the knowledge of Iteris, except as otherwise indicated, each of the +persons named in this table has sole voting and investment power with respect +to the common stock shown as beneficially owned, subject to community property +and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe and David M. Greenhouse(4) +4,448,908 +15.0 +Bryant R. Riley(5) +3,006,963 +10.4 +Lloyd I. Miller, III(6) +1,577,982 +5.3 +Jack Johnson(7) +973,173 +3.4 +Abbas Mohaddes(8) +1,051,419 +3.7 +Greg McKhann(9) +244,954 +* +Francis Memole(10) +249,436 +* +Richard D. Crawshaw(11) +190,554 +* +Kevin C. Daly, Ph.D.(12) +378,132 +1.3 +Gary Hernandez(13) +70,000 +* +Dr. Hartmut Marwitz(14) +40,000 +* +Gregory A. Miner(15) +961,015 +3.3 +John W. Seazholtz(16) +92,547 +* +Joel Slutzky(17) +2,116,770 +7.4 +Thomas L. Thomas(18) +64,000 +* +Paul E. Wright(19) +167,794 +* +All executive officers and directors as a group (15 persons)(20) +7,085,893 +22.6 +* +Less than 1%. +(1) +The address for +Messrs. Marxe and Greenhouse is 153 E. 53 rd St., 51 st +Floor, New York, New York 10022. The +address for Bryant R. Riley is 11550 Santa Monica Blvd., Suite 750, Los +Angeles, California 90025. The address +for Lloyd I. Miller, III is 4550 Gordon Drive, Naples, Florida +34102. The +address of all other persons named in the table is 1515 South Manchester +Avenue, Anaheim, California 92802. +(2) +Based on +28,409,905 shares of common +stock outstanding as of July 1, 2005. +Shares of common stock subject to options or warrants which are +exercisable within 60 days of July 1, 2005 are deemed to be beneficially +owned by the person holding such options or warrants for the purpose of +computing the percentage of ownership of such person but are not treated as +outstanding for the purpose of computing the +15 +percentage of +any other person. Other than as +described in the preceding sentence, shares issuable upon exercise of +outstanding options and warrants are not deemed to be outstanding for +purposes of this calculation. +(3) +In addition to +the shares held in the individual’s name, this column also includes shares +held for the benefit of the named person under the Company’s 401(k) and Stock +Ownership Plan and the Deferred Compensation Savings +Plan. +(4) +Includes +1,250,000 shares issuable upon exercise of warrants that were issued to +Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P. and +Special Situations Private Equity Fund, L.P. (collectively, the “Special +Situations Funds”). Pursuant to a +Schedule 13G filed on February 11, 2005 with the SEC, +Messrs. Marxe and Greenhouse reported that they had shared voting power +and shared dispositive power over the shares of common stock (including the +1,250,000 shares issuable upon exercise of warrants) held by the Special +Situations Funds. Messrs. Marxe +and Greenhouse are the controlling principals of AWM Investment +Company, Inc. (“AWM”), the general partner of Special Situations Cayman +Fund, L.P. AWM is the general partner +of MGP Advisers Limited Partnership, the general partner of Special +Situations Fund III, L.P. In addition, +Messrs. Marxe and Greenhouse are members of MG Advisers L.L.C., the +general partner of Special Situations Private Equity Fund, L.P. +(5) +Includes +(i) 88,640 shares issuable upon conversion of convertible debentures +held by Mr. Riley’s children and (ii) 495,570 shares issuable upon +exercise of warrants held by Mr. Riley, his children, B. +Riley & Co., Inc. and SACC Partners L.P. that are currently +exercisable. Mr. Riley owns all +of the outstanding shares of B. Riley & Co., Inc., an NASD +member broker-dealer. Mr. Riley +also manages and owns all of the outstanding membership interests of Riley +Investment Management LLC (“RIM”), a California registered investment +adviser. RIM is the investment adviser +to and general partner of SACC Partners L.P. +B. Riley & Co., Inc. has provided financial advisory +services to us and has received payments (including warrants) for such +services. Mr. Riley disclaims +beneficial ownership of the shares held for his children’s accounts. +(6) +Includes +(i) 5,000 shares held by the Lloyd I. Miller Trust A-2; (ii) 5,000 +shares held by Lloyd I. Miller Trust A-3; (iii) 725 shares held by +Milfam I L.P.; (iv) 2,650 shares held by Milfam II L.P.; (v) 3,000 +shares held by Lloyd I. Miller, III; (vi) shares issuable upon +conversion of convertible debentures held by Milfam I L.P., Milfam II L.P., +Lloyd I. Miller Trust A-4 and Lloyd I. Miller, III; and (vii) 126,704 +shares subject to warrants held by Milfam I L.P., Milfam II L.P., the Lloyd +I. Miller Trust A-4 and Mr. Miller which are currently exercisable. Pursuant to a Schedule 13G filed on +May 20, 2005 with the SEC, Mr. Miller reported that he had sole +voting and dispositive power over 1,032,151 shares and shared voting and +dispositive power over 545,831 shares of common stock. Lloyd I. Miller, III is the manager of +Milfam LLC. Milfam LLC is the managing +general partner of Milfam I L.P. and Milfam II L.P. Mr. Miller is the advisor to the +trustee of the Lloyd I. Miller Trust A-2, Lloyd I. Miller Trust A-3 and Lloyd +I. Miller Trust A-4. +(7) +Includes +(i) 27,700 shares issuable upon conversion of convertible debentures +held by Mr. Johnson’s IRA, (ii) 6,335 shares issuable upon exercise +of warrants held by Mr. Johnson’s IRA which are currently exercisable, +and (iii) 563,980 shares issuable upon exercise of options held by +Mr. Johnson that are currently exercisable or will become exercisable +within 60 days after July 1, 2005, and (iv) shares held by a family +trust. +(8) +Includes +(i) 13,850 shares issuable upon conversion of convertible debentures, +(ii) 3,167 shares issuable upon exercise of warrants that are currently +exercisable, (iii) 228,000 shares issuable upon exercise of options that +are currently exercisable or will become exercisable within 60 days after +July 1, 2005, and (iv) shares held by a family trust. +(9) +Includes 191,581 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +16 +(10) +Includes +(i) 13,850 shares issuable upon conversion of convertible debentures +held by Mr. Memole’s IRA, (ii) 3,167 shares issuable upon exercise +of warrants held by Mr. Memole’s IRA which are currently exercisable, +and (iii) 180,496 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after +July 1, 2005. +(11) +Includes 178,663 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +(12) +Includes +(i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares +held by a trust to which Dr. Daly serves as a trustee, and +(iii) 33,000 shares issuable upon exercise of options that are currently +exercisable or will become exercisable within 60 days after July 1, +2005. +(13) +Consists of +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +(14) +Includes +(i) 13,850 shares issuable upon conversion of shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2005. +(15) +Includes +(i) 13,850 shares issuable upon conversion of convertible debentures +held by Mr. Miner’s IRA, (ii) 19,834 shares issuable upon exercise +of warrants held by Mr. Miner’s IRA that are currently exercisable, +(iii) 19,230 shares held by Mr. Miner’s IRA, (iv) 19,230 +shares held by Mr. Miner’s wife’s IRA and (v) 510,000 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +(16) +Includes 190,000 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. Excludes shares of common stock held in +trust for the benefit of the children and relatives of Mr. Slutzky as +well as shares in the Joel Slutzky Family Trust; Mr. Slutzky has no +investment or voting power with respect to the shares in such trusts and +disclaims any beneficial ownership. +(17) +Includes 190,000 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. Excludes shares of common stock held in +trust for the benefit of the children and relatives of Mr. Slutzky as +well as shares in the Joel Slutzky Family Trust; Mr. Slutzky has no +investment or voting power with respect to the shares in such trusts and +disclaims any beneficial ownership. +(18) +Includes 113,000 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +(19) +Includes 113,000 +shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2005. +(20) +Includes +(i) 83,100 shares issuable upon conversion of convertible debentures, +(ii) 35,670 shares issuable upon exercise of warrants which are +currently exercisable, and (iii) 2,749,704 shares issuable upon exercise +of options that are currently exercisable or will become exercisable within +60 days after July 1, 2005. +17 +EQUITY +COMPENSATION PLANS +The following table +provides information as of March 31, 2005 with respect to shares of the +Company’s common stock that may be issued under existing equity compensation +plans. The table does not include +information with respect to shares of the Company’s common stock subject to +outstanding options granted under equity compensation plans or option +agreements that were assumed in connection with the merger of the Iteris +Subsidiary into the Company in October 2004. However, Note 1 to the table sets forth the +total number of shares of common stock issuable upon the exercise of those +assumed options as of March 31, 2005 and the weighted average exercise +price of those options. Except for the +adjustments described in Note 1 with respect to the outstanding assumed +options, no additional options may be granted under those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity Compensation Plans Approved +by Security Holders +1997 Stock Incentive Plan +1,283,709 +$ +3.00 +355,625 +Equity Compensation Plans Not +Approved by Security Holders +None +Total(1) +1,283,709 +$ +3.00 +355,625 +(1) The table does not include information +with respect to the equity +compensation plan or +option agreements that were assumed by the Company in connection with +the merger of the Iteris Subsidiary into the Company in October 2004. As of March 31, 2005, a total of 6,039,556 shares of +common stock were issuable upon exercise of outstanding options under the +assumed plan and agreements. No +additional options may be granted under the assumed plan. The +weighted average exercise price of all such assumed options to acquire shares +of the Company’s common stock was $1.08 per share. +18 +EXECUTIVE +COMPENSATION AND OTHER INFORMATION +Executive +Officers +The following table sets +forth certain information regarding all executive officers of Iteris as of July 1, +2005. +Name +Age +Capacities in Which Served +Jack Johnson +58 +President, Chief Executive Officer and Director of Iteris; +Director of Meyer, Mohaddes Associates, Inc. +Richard D. Crawshaw +50 +Vice President of Iteris +Gregory McKhann +42 +Senior Vice President and General Manager of Iteris +Francis Memole +47 +Senior Vice President and General Manager of Iteris +James S. Miele +37 +Vice President, Chief +Financial Officer and Secretary of Iteris +Abbas Mohaddes +48 +Executive Vice President, General +Manager and Assistant Secretary of Iteris; +President, Chief Executive Officer and Director +of Meyer, Mohaddes Associates, Inc. +Stephen Edwin Rowe +69 +Senior Vice President of Iteris +The following is a brief +description of the capacities in which each of the executive officers has +served during the past five years. The +biographies of Messrs. Johnson and Mohaddes appear earlier in this proxy statement. See Proposal +One: “Election of Directors.” +Richard +D. Crawshaw has served as the Vice +President of Engineering of Iteris since October 2004. Prior to that, from January 1999 to +October 2004, Mr. Crawshaw was the Vice President of Engineering of +the Iteris Subsidiary. Mr. Crawshaw +also served as the Director of Engineering of the Iteris Subsidiary from +January 1998 to December 1998 and as a Product Manager of the Company’s ITS division, prior to its incorporation +as the Iteris Subsidiary, +from November 1995 to December 1997. +Prior to joining Iteris, Mr. Crawshaw worked as a Senior Software +Engineer at Hewlett Packard. +Gregory +McKhann has served as a Senior +Vice President and General Manager of Iteris since October 2004. Mr. McKhann was a Senior Vice President of the +Iteris Subsidiary from March 2004 to October 2004, its Vice President +and General Manager of Roadway Sensors from December 1998 to March 2004, +its Vice President, Strategic Business Development from October 1999 to +May 2000 and the Marketing Director of the Company’s ITS division (which became the +Iteris Subsidiary) from July 1997 to +October 1999. Prior to joining +Iteris, Mr. McKhann served as a Business Development Manager at Rockwell +International from 1990 to 1997. While +at Rockwell, Mr. McKhann developed a joint business relationship between +Rockwell and Honeywell and was a founding member of Rockwell Transportation +Systems business. Prior to 1990, +Mr. McKhann held a variety of Engineering and Project Management positions +at Rockwell International. +Francis +Memole has served as a Senior +Vice President and General Manager of Iteris since October 2004. Mr. Memole was a Senior Vice President +of the Iteris Subsidiary from March 2004 to October 2004, its Vice President +of Vehicle Sensors from December 1998 to March 2004 and the Marketing Director of the Company’s +ITS division (which became the Iteris Subsidiary) from +June 1997 to December 1998. +Prior to joining Iteris, Mr. Memole was one of the founding members +of the Rockwell Transportation Systems business at Rockwell International. At Rockwell, Mr. Memole started two new +business initiatives, which now include key aspects of Iteris, including +Transportation Systems and In-Vehicle Systems. +James +S. Miele has served as the Vice +President of Finance and Chief Financial Officer of Iteris since +October 2004 and as the Secretary since March 2004. Mr. Miele was the Controller of Iteris +from October 2003 to October 2004 and the Controller of the Iteris +Subsidiary from April 2001 to October 2004. Prior to that, from October 1998 to +June 2000, Mr. Miele served as an audit manager at Ernst & +Young LLP, supervising financial statement audits for a variety of public and +privately held companies. Mr. Miele +also served in Ernst & Young’s +19 +Assurance +and Advisory Business Services group from 1994 to 1998. Mr. Miele is a Certified Public +Accountant and holds a B.S. degree in Accounting from San Diego State +University. +Stephen +Edwin Rowe has served as a Senior Vice President of Iteris since October 2004. Prior to that, Mr. Rowe was a Senior +Vice President of the Iteris Subsidiary from January 1999 to +October 2004 and the Director of Transportation Systems and Vice President +of the Company’s ITS division (which +became the Iteris Subsidiary) from June 1997 to January 1999. From 1995 to 1997, Mr. Rowe founded +and was the Chief Executive Office of Gardner-Rowe Systems. From 1993 to 1995, he founded and was the +President of S.E. Rowe and Associates. +Mr. Rowe served as the General Manager of the Los Angeles +Department of Transportation between 1987 and +1993 and has also served for two terms on the Board of Directors of ITS +America. +Officers serve at the +discretion of the Board of Directors. +Summary of Cash and Certain Other Compensation +The following table +provides certain summary information concerning the compensation earned by the Company’s Chief Executive Officer +and each of its four other most highly +compensated executive officers whose total cash salary and bonus during the fiscal year ended +March 31, 2005 exceeded $100,000 (collectively, the “Named Executive +Officers”) for each of the three fiscal years ended March 31, 2003, 2004 +and 2005. +SUMMARY +COMPENSATION TABLE +Long-Term Compensation +Annual Compensation +Awards +Name and Principal Positions with Iteris +Fiscal +Year +Salary ($)(1) +Bonus ($) +Restricted +Stock ($)(2) +Securities +Underlying +Options (#)(2) +All +Other +Compensation +($)(3) +Jack Johnson(4) +2005 +$ +250,359 +$ +26,152 +— +— +$ +8,295 +President, Chief Executive Officer +2004 +225,373 +— +— +— +6,761 +and Director +2003 +202,086 +— +— +68,000 +(5) +4,263 +Abbas Mohaddes +2005 +209,951 +14,941 +— +— +8,758 +Executive +Vice President, General Manager and Assistant Secretary +2004 +193,892 +82,000 +— +— +8,097 +2003 +181,895 +76,000 +— +44,000 +(6) +6,449 +Gregory McKhann +2005 +182,214 +34,498 +— +— +5,466 +Senior Vice President and General +2004 +165,447 +— +— +— +4,963 +Manager +2003 +159,347 +— +— +34,000 +(6) +5,680 +Francis Memole +2005 +169,231 +42,003 +— +— +5,827 +Senior Vice President and General +2004 +162,047 +25,000 +— +— +5,431 +Manager +2003 +155,125 +19,000 +— +20,000 +(6) +5,404 +Richard D. Crawshaw +2005 +176,784 +14,855 +— +— +1,414 +Vice President +2004 +155,866 +— +— +— +1,237 +2003 +153,340 +5,000 +— +28,000 +(6) +— +Gregory A. Miner(4) +2005 +203,423 +— +— +— +813,477 +(8) +Chairman +of the Board; +2004 +261,602 +— +$ +65,000 +200,000 +7,848 +Former Chief +Executive Officer and Chief Financial Officer +2003 +284,169 +— +— +310,000 +(7) +5,671 +__________________________ +(1) Represents all amounts earned from Iteris +and its subsidiaries during the fiscal years shown, including amounts deferred +under the Deferred Compensation Savings Plan +and the Company’s 401(k) and Stock Ownership Plan. +20 +(2) Consists of options granted pursuant to the +Company’s 1997 Stock Incentive Plan and options assumed by the Company pursuant +to the Company’s October 2004 merger with the Iteris Subsidiary. +(3) Consists solely of the matching +contribution of the Company to the respective accounts of the Named Executive +Officers under the Company’s 401(k) and Stock Ownership Plan. +(4) In October 2004, the Company merged +the Iteris Subsidiary with and into itself. +After the effectiveness of such merger, Jack Johnson, the Chief +Executive Officer of the Iteris Subsidiary, assumed the role of President and +Chief Executive Officer of the Company, replacing Mr. Miner. Mr. Miner assumed the role of Chairman +of the Board, replacing Joel Slutzky. +(5) Includes options to purchase shares of +the common stock of the Iteris Subsidiary, which were assumed by the Company in +October 2004 and converted into options to purchase shares of the Company’s +common stock. +(6) Consists of options to purchase shares of +the common stock of the Iteris Subsidiary, which were assumed by the Company in +October 2004 and converted into options to purchase shares of the Company’s +common stock. +(7) Includes 110,000 shares underlying the +regrant option issued in May 2002 to replace options cancelled in November 2001. +(8) Includes +severance of $807,375 in the aggregate, payable over 30 months, pursuant to a +change-in-control agreement which was triggered in connection with the Company’s merger with the +Iteris Subsidiary . See also “Employment +Contracts, Termination of Employment Agreements and Change of Control +Arrangements”. +Option/SAR Grants in Last +Fiscal Year +No option grants were made to the Company’s Named +Executive Officers during the fiscal year ended March 31, 2005, and no +stock appreciation rights were granted to any of the Named Executive Officers +during such fiscal year. +21 +Aggregated +Option Exercises and Fiscal Year End Values +The following table +provides information with respect to the Named Executive Officers concerning +the unexercised options held by them at of the end of the fiscal year ended March 31, +2005 None of the Named Officers +exercised any options or stock appreciation rights during the fiscal year ended +March 31, 2005 and no stock appreciation rights were held by the Named +Executive Officers at the end of such fiscal year. +AGGREGATED +OPTION EXERCISES IN LAST FISCAL YEAR +AND FISCAL YEAR END OPTION VALUES +Number of Securities Underlying +Unexercised Options at Fiscal +Year End (#) (1) +Value of Unexercised In-the-Money +Options at Fiscal Year End ($) +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Jack Johnson(2) +563,980 +34,000 +$ +1,376,111 +$ +82,960 +Abbas Mohaddes +228,000 +76,000 +556,320 +185,440 +Gregory McKhann +191,581 +32,500 +467,458 +79,300 +Francis Memole +180,496 +20,000 +440,410 +48,800 +Richard D. Crawshaw +178,663 +19,833 +435,938 +48,393 +Gregory A. Miner(2) +433,000 +67,000 +1,056,520 +163,480 +(1) Includes both in-the-money and out-of-the +money options. +(2) Mr. Miner served as the Company’s +Chief Executive Officer and Chief Financial Officer until the merger of the +Iteris Subsidiary into the Company in October 2004. After the effectiveness of such merger, Mr. Johnson, +the Chief Executive Officer of the Iteris Subsidiary, assumed the role of +President and Chief Executive Officer of the Company, replacing Mr. Miner. Mr. Miner assumed the role of Chairman +of the Board, replacing Joel Slutzky. +Employment +Contracts, Termination of Employment Agreements and Change of Control +Arrangements +In May 2003, the +Company entered into change in control agreements with each of Gregory Miner +and Jack Johnson. In the event of an +involuntary termination of the officer’s employment within three months prior +to or twenty-four months after a change in control, the agreements provide for +a severance payment to such officer of 200% of such officer’s annual base pay +plus target bonus for the current fiscal year. +In addition, such officer and his dependents are entitled to all +insurance benefits for up to twenty-four months or until such officer obtains +new employment with comparable benefits, whichever is earlier. Upon the merger of the Iteris Subsidiary into +the Company in October 2004, Mr. Johnson, the Chief Executive Officer +of the Iteris Subsidiary, assumed the role of President and Chief Executive +Officer of the Company, replacing Mr. Miner. The merger and subsequent change in position +triggered the payment of severance to Mr. Miner under the terms of his +agreement. +Iteris does not currently +have any employment contracts in effect with any of its Named Executive +Officers other than the change in control agreements with Messrs. Johnson +and Miner as described above. Iteris +provides incentives such as salary, benefits and option grants to attract and +retain executive officers and other key associates. The Compensation Committee, as Plan +Administrator of the 1997 Plan, has the authority to provide for the +accelerated vesting of outstanding options held by an individual, in connection +with the termination of such individual’s employment following an acquisition +in which these options are assumed or the repurchase rights with respect to the +unvested shares are assigned or upon certain hostile changes in control of +Iteris. Other than such accelerated +vesting and the agreements described above, there is no agreement or policy +which would entitle any executive officer to severance payments or any other +compensation as a result of such officer’s termination. +22 +Indemnification +of Directors and Officers +Under Section 145 of +the Delaware General Corporation Law, Iteris can indemnify its directors and +officers against liabilities they may incur in such capacities, including +liabilities under the Securities Act of 1933, as amended (the “Securities Act”). The certificate of incorporation and the +bylaws of Iteris provides that Iteris will indemnify its directors and officers +to the fullest extent permitted by law, and the bylaws require Iteris to +advance litigation expenses upon receipt by Iteris of an undertaking by the +director or officer to repay such advances if it is ultimately determined that +the director or officer is not entitled to indemnification. The bylaws further provide that rights +conferred under such bylaws do not exclude any other right such persons may +have or acquire under any bylaw, agreement, vote of stockholders or +disinterested directors or otherwise. +Iteris’ certificate of +incorporation provides that, pursuant to Delaware law, its directors shall not +be liable for monetary damages for breach of the directors’ fiduciary duty of +care to Iteris and its stockholders. +This provision in the certificate of incorporation does not eliminate +the duty of care, and in appropriate circumstances equitable remedies such as +injunctive or other forms of non-monetary relief will remain available under +Delaware law. In addition, each director +will continue to be subject to liability for breach of the director’s duty of +loyalty to Iteris or its stockholders, for acts or omissions not in good faith +or involving intentional misconduct or knowing violations of law, for actions +leading to improper personal benefit to the director, and for payment of +dividends or approval of stock repurchases or redemptions that are unlawful +under Delaware law. The provision also +does not affect a director’s responsibilities under any other law, such as the +federal securities laws or state or federal environmental laws. +Iteris has entered into +agreements to indemnify its directors and certain of its officers in addition +to the indemnification provided for in the certificate of incorporation and +bylaws. These agreements, among other +things, indemnify Iteris’ directors and certain of its officers for certain +expenses (including attorneys’ fees), judgments, fines and settlement amounts +incurred by such person in any action or proceeding, including any action by or +in the right of Iteris, on account of services as a director or officer of +Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at the request of Iteris. +Compensation +Committee Interlocks and Insider Participation +The members of the +Compensation Committee of Iteris’ Board of Directors during the fiscal year +ended March 31, 2005 were Messrs. Daly, Seazholtz and Thomas. None of these individuals was an officer or +employee of Iteris or its subsidiaries at any time during the fiscal year ended +March 31, 2005. +No executive officer of +Iteris has served on the Board of Directors or on the compensation committee of +any other entity that has, or has had, one or more executive officers serving +as a member of the Board of Directors or on the Compensation Committee of +Iteris. +23 +COMPENSATION +COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers the +Company’s fiscal year ended March 31, 2005. The Compensation Committee for the fiscal +year ended March 31, 2005 was comprised of three outside directors, Messrs. Daly, +Seazholtz and Thomas. The Compensation +Committee recommends the general compensation levels for executives. The Compensation Committee meets periodically +to review and recommend for approval by the Board of Directors, the salaries, +bonuses and benefit plans for officers and key associates. During the fiscal year ended March 31, +2005, the Compensation Committee held one meeting. +General Compensation Policy +The guiding principle of +the Compensation Committee is to establish a compensation program that aligns +executive compensation with the Company’s objectives and business strategies as +well as with financial and operational performance. In keeping with this principle the +Compensation Committee seeks to: +(1) Attract and retain qualified senior +executives who can play a significant role in the achievement of the Company’s +goals; +(2) Reward executives for strategic +management and the long-term enhancement of stockholder value; and +(3) Create a performance-oriented environment +that rewards performance with respect to the financial and operational goals of +Iteris. +In the fiscal year ended March 31, +2005, the annual compensation for the executive officers included base salaries +and cash bonuses. +The Company establishes +salaries for the officers by considering the salaries of officers at comparably +sized companies according to data obtained by the Compensation Committee from +executive compensation consultants and from other independent outside sources, +including the American Electronics Association annual survey of executive +compensation. +The Company also has a Deferred Compensation Savings Plan pursuant to which +executive officers of the Company may defer some or all of their salaries. No amounts were deferred by any executive +officer in the fiscal year ended March 31, 2005. +A substantial portion of +the compensation of executive officers has historically been based upon the +award of stock options which rely on increases in the value of the Company’s +securities. The award of options is +intended to encourage executives to establish a meaningful, long-term ownership +interest in the Company consistent with the interests of Iteris’ +stockholders. Under Iteris’ stock option +plans, options are granted from time to time to certain officers and key +associates of the Company and its subsidiaries at the fair market value of the +shares of common stock at the time of grant. +Because the compensation element of options is dependent on increases +over time in the market value of such shares, stock options represent +compensation that is tied to the Company’s long-term performance. The award of stock options to the executive +officers of the Company is determined based upon individual performance, level +of base salary and position with the Company. +The Compensation +Committee has reviewed the base salaries for the fiscal year ended March 31, +2005 of each of the executive officers and is of the opinion that such salaries +are not unreasonable in view of those paid by the Company’s competitors and by +other companies of similar size. +CEO Compensation +In setting the total +compensation payable to Jack Johnson, the Company’s President and Chief +Executive Officer, for the fiscal year ended March 31, 2005, the +Compensation Committee sought to make such compensation competitive with that +provided by other companies with which the Company competes for executive +talent. +With respect to the base +salary of Mr. Johnson, it was the Compensation Committee’s intent to +provide him with a level of stability and certainty each year. The Compensation Committee believes the base +salary of +24 +Mr. Johnson for the fiscal year ended March 31, +2005 is at a competitive level with the base salaries in effect for similarly +situated chief executive officers. The +remaining components of Mr. Johnson’s compensation for the fiscal year +ended March 31, 2005, however, were primarily dependent upon corporate +performance. Based upon such +performance, among other factors, a bonus to Mr. Johnson of $26,152 was +approved for the fiscal year ended March 31, 2005. No options were granted to him for the fiscal +year ended March 31, 2005. +Compliance with Internal Revenue +Code Section 162(m) +Section 162(m) of +the Internal Revenue Code generally disallows a tax deduction to publicly held +corporations for compensation exceeding $1.0 million paid to certain of the +corporation’s executive officers. The +limitation applies only to compensation which is not considered to be +performance-based. The nonperformance +based compensation to be paid to the Company’s executive officers for the +fiscal year ended March 31, 2005 did not exceed the $1.0 million limit per +officer, nor is it expected that the nonperformance based compensation to be +paid to the Company’s executive officers for the next fiscal year will exceed +that limit. The Company’s 1997 Stock +Incentive Plan is structured so that any compensation deemed paid to an +executive officer in connection with the exercise of option grants made under +that plan will qualify as performance-based compensation which will not be +subject to the $1.0 million limitation. +Because it is very unlikely that the cash compensation payable to any of +the Company’s executive officers in the foreseeable future will approach the +$1.0 million limit, the Compensation Committee has decided at this time not to +take any other action to limit or restructure the elements of cash compensation +payable to the executive officers. The +Compensation Committee will reconsider this decision should the individual +compensation of any executive officer ever approach the $1.0 million level. +Submitted by the +Compensation Committee +of the Board of +Directors: +Kevin C. Daly, +Ph.D. +John W. +Seazholtz +Thomas L. Thomas +25 +AUDIT +COMMITTEE REPORT +The following is the +report of the Audit Committee with respect to the Company’s audited +consolidated financial statements for the fiscal year ended March 31, 2005 +included in the Company’s Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has +reviewed and discussed the audited consolidated financial statements with the +Company’s management. +Review and Discussions with +Independent Auditors +The Audit Committee has +discussed with the Company’s independent auditors, McGladrey & Pullen, +LLP, the matters required to be discussed by SAS 61 (Codification of Statements +on Auditing Standards, AU Section 380), as amended, which includes, among +other items, matters related to the conduct of the audit of the consolidated +financial statements of Iteris. +The Audit Committee has +received the written disclosures and the letter from McGladrey & +Pullen, LLP required by Independence Standards Board Standard No. 1 (“Independence +Discussions with Audit Committees”), as amended, and has discussed with +McGladrey & Pullen, LLP the independence of McGladrey & Pullen, +LLP from Iteris. +Conclusion +Based on the review and +discussions referred to above in this report, the Audit Committee recommended +to the Company’s Board of Directors that the audited financial statements be +included in the Company’s Annual Report on Form 10-K for the year ended March 31, +2005 for filing with the Securities and Exchange Commission. +Submitted by the +Audit Committee +of the Board of +Directors: +John W. +Seazholtz +Thomas L. Thomas +Paul E. Wright +26 +PERFORMANCE +GRAPH FOR ITERIS, INC. +INDEXED +COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph +shows the cumulative total return on investment assuming an investment of $100 +on March 31, 2000 in the Company’s common stock, the Nasdaq Stock Market +Index and a peer group which is made up of the remaining members of the index +used by the Company last year, the Media General Industry Group 836 for +Diversified Electronics, which is no longer a published index. The Company’s common stock is currently +listed on the American Stock Exchange under the symbol “ITI” and began trading +on such exchange on December 9, 2004. +The Company’s common stock (formerly the Class A common stock) was +listed on the Nasdaq National Market until April 2002 and on the Nasdaq +SmallCap Market from April 2002 to August 2003 and quoted on the OTC +Bulletin Board from August 2003 to December 2004. The total stockholder return assumes +reinvestment of dividends on a daily basis, although cash dividends have not been +declared on the Company’s common stock. +The stockholder returns shown in the following graph are not necessarily +indicative of future performance. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG ITERIS INC. THE NASDAQ STOCK MARKET (U.S.) INDEX +AND A PEER GROUP +Measurement Period +2000 +2001 +2002 +2003 +2004 +2005 +Iteris Common Stock +100.00 +24.55 +11.27 +4.80 +29.09 +17.75 +Nasdaq Market Index +100.00 +47.20 +41.66 +22.38 +38.67 +37.64 +Peer Group +100.00 +63.22 +50.48 +33.79 +53.93 +48.49 +Notwithstanding anything to the +contrary set forth in any of the Company’s previous or future filings under the +Securities Act or the Exchange Act, as amended, that might incorporate this +proxy statement or future filings made by the Company under those statutes, the +Compensation Committee Report, the Audit Committee Report, the Audit Committee +Charter, reference to the independence of the Audit Committee members and the +Performance Graph are not deemed filed with the Securities and Exchange +Commission and shall not be deemed incorporated by reference into any of those +prior filings or into any future filings made by the Company under those +statutes. +27 +CERTAIN +TRANSACTIONS +In May 2004, the +Company entered into a Debenture and Warrant Purchase Agreement with a group of +institutional investors, which included certain of the Company’s officers and +directors, pursuant to which the Company sold and issued subordinated +convertible debentures in the aggregate principal amount of $10.1 million and +issued warrants to purchase an aggregate of 639,847 shares of the Company’s +common stock. The debentures are due in +five years, provide for 6.0% annual interest, payable quarterly, and are convertible +into common stock at an initial conversion price of $3.61 per share, subject to +certain adjustments, including adjustments for dilutive issuances. From May 19, 2007 until May 18, +2008, the debentures may be redeemed by the Company, at its option, at 120% of +the principal amount being redeemed; and from May 19, 2008 until the +maturity date of May 18, 2009, the debentures may be redeemed at 110% of +the principal amount being redeemed. +Pursuant to the Debenture +Purchase Agreement, each investor also received two warrants to purchase shares +of Iteris’ common stock. For every +dollar of debenture purchased, each investor received one warrant to purchase +approximately 0.03235 shares of the Company’s common stock at an exercise price +of $3.86 per share and a second warrant to purchase approximately 0.03100 +shares of the Company’s common stock at an exercise price of $4.03 per +share. The exercise prices are subject +to certain adjustments, including adjustments for dilutive issuances. The warrants expire on May 18, 2009. +In June 2004, the +Company entered into an exchange agreement with certain of the holders of the +common stock of the Iteris Subsidiary, including Messrs. Daly, Miner, +Mohaddes and Slutzky, pursuant to which such holders agreed to exchange an +aggregate of 1,319,541 shares of the Iteris Subsidiary common stock for an +aggregate of 2,639,082 shares of the Company’s common stock. The exchange of shares was part of a plan +were part of a plan of reorganization to consolidate and merge the Iteris Subsidiary +into the Company, pursuant to which all of the outstanding shares of common +stock of the Iteris Subsidiary converted into shares of the Company’s common +stock. +In October 2004, the +Company completed the merger of the Iteris Subsidiary into the Company. Pursuant to such merger, all of the +outstanding shares of common stock of the Iteris Subsidiary and all of the +outstanding options and warrants to purchase shares of common stock of the +Iteris Subsidiary, including the shares and options held by Messrs. Hernandez, +Johnson, McKhann, Memole, Miele and Rowe and certain warrants held by Bryant +Riley and persons affiliated with B. Riley & Co., Inc., converted +into shares of the Company’s common stock and options and warrants to purchase +shares of the Company’s common stock, all at a two-for-one ratio. 1,228,981 shares of common stock of the +Iteris Subsidiary were converted into 2,457,962 shares of the Company’s common +stock and options and warrants to purchase an aggregate of 3,019,778 shares and +327,359 shares, respectively, of the Iteris Subsidiary common stock were +converted into options and warrants to purchase 6,039,556 shares and 654,718 +shares, respectively, of the Company’s common stock. +In addition, upon the +merger of the Iteris Subsidiary into the Company in October 2004, Mr. Johnson, +the Chief Executive Officer of the Iteris Subsidiary, assumed the role of +President and Chief Executive Officer of the Company, replacing Mr. Miner. The merger and subsequent change in position +triggered the payment of severance to Mr. Miner under the terms of his May 2003 +change in control agreement, as described in “Employment Contracts, Termination +of Employment Agreements and Change of Control Arrangements” above. +Section 16(a) Beneficial +Ownership Reporting Compliance +Under the federal +securities laws, Iteris’ directors and officers and any persons holding more +than 10% of Iteris’ common stock are required to report their ownership of +Iteris’ common stock and any changes in that ownership to the SEC. Specific due dates for these reports have +been established, and Iteris is required to report in this proxy statement any +failure to file by these dates. Based +solely on its review of copies of the reports on Forms 3, 4 and 5 received by +Iteris with respect to the fiscal year ended March 31, 2005, and the +written representations received from the reporting persons that no other +reports were required, Iteris believes that all directors, executive officers +and persons who own more than 10% of Iteris’ common stock +have complied with the reporting requirements of Section 16(a) and +have filed all reports required by such section. +28 +Annual +Report +A copy of Iteris’ annual +report on Form 10-K for the fiscal year ended March 31, 2005 +(excluding the exhibits thereto) accompanies the proxy materials being mailed +to all stockholders. The annual report +is not incorporated into this proxy statement and is not considered proxy +solicitation material. Stockholders may +obtain a copy of the annual report and any of the Company’s other filings with +the SEC, without charge, by writing to Investor Relations, Iteris, Inc., +1515 South Manchester Avenue, Anaheim, California 92802. The annual report on Form 10-K +(including the exhibits thereto) is also available on the Securities and +Exchange Commission’s website at www.sec.gov. +Deadline +for Receipt of Stockholder Proposals +In the event that a +stockholder desires to have a proposal considered for presentation at the +annual meeting of stockholders to be held in 2006, and included in the Company’s +proxy statement and form of proxy card used in connection with such meeting, +the proposal must be forwarded in writing to the Company’s Secretary so that it +is received no later than April 12, 2006. Any such proposal must comply with the +requirements of Rule 14a-8 promulgated under the Exchange Act. +If a stockholder, rather +than including a proposal in the proxy statement as discussed above, commences +his or her own proxy solicitation for the 2006 Annual Meeting of Stockholders +or seeks to nominate a candidate for election as a director or to propose +business for consideration at such meeting, the Company must receive notice of +such proposal on or before June 26, 2006. If the notice is not received on or before June 26, +2006, it will be considered untimely under Rule 14a-4(c)(1) promulgated +under the Exchange Act, and the Company will have discretionary voting +authority under proxies solicited for the 2006 Annual Meeting of Stockholders +with respect to such proposal, if presented at the meeting. +Please address any +stockholder proposals or notices of proposals to the corporate Secretary of +Iteris at the principal executive offices of Iteris located at 1515 South +Manchester Avenue, Anaheim, California 92802. +Other +Business +The Board of Directors is +not aware of any other matter which will be presented for action at the Annual +Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the +stockholders arise, it is intended that the proxy holders will vote the shares +they represent as the Board of Directors may recommend. Discretionary authority with respect to such +other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF +DIRECTORS OF +ITERIS, INC. +Anaheim, +California +August 10, 2005 +29 +PROXY +ITERIS, +INC. +COMMON +STOCK +THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned +stockholder of ITERIS, INC. hereby appoints JACK JOHNSON and JAMES S. MIELE, +and each of them, proxies of the undersigned, each with full power to act +without the other and with power of substitution, to represent the undersigned +at the Annual Meeting of Stockholders of Iteris to be held at 1515 South +Manchester Avenue, Anaheim, California 92802 on September 16, 2005 at +10:00 a.m. Pacific +Time, and at +any adjournments thereof, and to vote all shares of common stock of Iteris held +of record by the undersigned on July 26, 2005, with all the powers the +undersigned would possess if personally present, in accordance with the +instructions on the reverse hereof. +The undersigned hereby +revokes any other proxy to vote at such Annual Meeting of Stockholders and +hereby ratifies and confirms all that said proxies, and each of them, may +lawfully do by virtue hereof. The +undersigned also acknowledges receipt of the Notice of the Annual Meeting of +Stockholders, the proxy statement and the annual report to stockholders on Form 10-K +for the year ended March 31, 2005, which were furnished with this proxy. +THIS PROXY, WHEN +PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR +IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS ONE, +TWO AND THREE, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH +REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR +ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +CONTINUED +AND TO BE SIGNED ON REVERSE SIDE +SEE +REVERSE SIDE +ý +Please mark votes as in this example. +1. +Election of +Directors +Nominees +standing for election by holders of common stock: Kevin C. Daly, Ph.D., Gary Hernandez, Jack +Johnson, Dr. Hartmut Marwitz, Gregory A. Miner, John W. Seazholtz, Joel +Slutzky, Thomas L. Thomas and Paul E. Wright. +o FOR +o WITHHOLD AUTHORITY to vote for all +nominees listed below +(Instruction: +To withhold authority to vote for any individual nominee, write that nominee’s +name in the space provided above.) +2. +Approval of the +amendment of the bylaws of Iteris to change the size of the Board +of Directors to not less than seven members nor more than eleven members, with the exact number to be set at eleven +directors until changed within the foregoing limits by resolution of the +Board of the stockholders. +o FOR +o AGAINST +o ABSTAIN +3. +Ratification of +McGladrey & Pullen, LLP as the independent auditors of Iteris for +the fiscal year ending March 31, 2006. +o FOR +o AGAINST +o ABSTAIN +MARK HERE FOR +ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU +PLAN TO ATTEND THE MEETING +o +Signature: +Date +Signature: +Date: +(This Proxy must +be signed exactly as your name appears hereon. +Executors, administrators, trustees, etc., should give full title as +such. If the stockholder is a +corporation, a duly authorized officer should sign on behalf of the corporation +and should indicate his or her title.) +PLEASE MARK, SIGN, +DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-05-035178/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-05-035178/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-06-049985/proxy.txt b/raw/proxies/0000350868/0001104659-06-049985/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d2e9e9354f13164382bcf8f56146c9d99990413b --- /dev/null +++ b/raw/proxies/0000350868/0001104659-06-049985/proxy.txt @@ -0,0 +1,1846 @@ +DEF 14A +1 +a06-17064_1def14a.htm +DEFINITIVE PROXY STATEMENT +UNITED STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE 14A +Proxy Statement +Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as +permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +ITERIS, INC. +(Name of Registrant +as Specified In Its Charter) +(Name of Person(s) +Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) +and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing +fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by +Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, +INC. +NOTICE OF +THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 14, 2006 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of +Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation (“Iteris” +or the “Company”), will be held on Thursday, September 14, 2006 at 10:00 a.m. +Pacific Time, at the principal executive offices of Iteris located at 1515 +South Manchester Avenue, Anaheim, California 92802 for the following purposes, +as more fully described in the proxy statement accompanying this Notice: +1. To elect eleven directors to serve on the +Board of Directors until the next annual meeting of stockholders. The nominees for election are Richard Char, +Kevin C. Daly, Ph.D., Gary Hernandez, Jack Johnson, Dr. Hartmut Marwitz, +Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky, Thomas L. +Thomas and Paul E. Wright. +2. To ratify the appointment of McGladrey +& Pullen, LLP as the independent auditors of Iteris for the fiscal year +ending March 31, 2007. +3. To transact any other business which may +properly come before the Annual Meeting or any adjournment(s) or +postponement(s) thereof. +All stockholders of record as of the close of business +on July 25, 2006 are entitled to notice of and to vote at the Annual Meeting +and at any postponement(s) or adjournment(s) thereof. A list of stockholders entitled to vote at +the Annual Meeting will be available for inspection at the principal executive +offices of Iteris. +We cordially invite all stockholders to attend the +Annual Meeting. Whether or not you plan +to attend, it is important that your shares be represented and voted at the +Annual Meeting. You can vote your shares +by completing and returning the enclosed proxy card. If your shares are held in +“street name,” that is, your shares are held in the name of a brokerage firm, +bank or other nominee, in lieu of a proxy card you should receive from that +institution an instruction form for voting by mail and you may also be eligible +to vote your shares electronically over the Internet or by telephone. Should +you receive more than one proxy card or voting instruction form because your +shares are held in multiple accounts or registered in different names or +addresses, please sign, date and return each proxy card or voting +instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior +to the Annual Meeting. If you attend the +Annual Meeting and vote by ballot, any proxy that you previously submitted will +be revoked automatically and only your vote at the Annual Meeting will be +counted. For further information, please see the discussion of voting rights +and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ Jack Johnson +Anaheim, +California +Jack Johnson +August 9, 2006 +President and Chief Executive Officer +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER +OF SHARES YOU OWN. PLEASE READ THE +ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY +CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, +INC. +1515 +South Manchester Avenue +Anaheim, California 92802 +PROXY +STATEMENT +FOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 14, 2006 +General +These proxy materials and the enclosed proxy card are +being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), +to be voted at the 2006 Annual Meeting of Stockholders (the “Annual Meeting”) +to be held on September 14, 2006 and at any adjournment(s) or postponement(s) +of the meeting. The Annual Meeting will +be held at 10:00 a.m. Pacific Time, at the Company’s principal executive +offices located at 1515 South Manchester Avenue, Anaheim, California +92802. These proxy materials and the +form of proxy are expected to be mailed to the Company’s stockholders who are +entitled to vote at the Annual Meeting on or about August 9, 2006. +Purpose +of Meeting +The specific proposals to +be considered and acted upon at the Annual Meeting are summarized in the +accompanying Notice of the Annual Meeting of Stockholders and are described in +more detail in this proxy statement. +Voting +Rights +The record date for determining those stockholders who +are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +July 25, 2006. At the close of business +on the record date, 28,825,582 shares of the Company’s common stock, par value +$0.10 per share, were outstanding and no shares of the Company’s preferred +stock were outstanding. Each stockholder +is entitled to one vote for each share of common stock held by such stockholder +as of the record date. +The presence in person or by proxy of the holders of a +majority of the outstanding shares of the common stock entitled to vote will +constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual +Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, +directors will be elected by a plurality of the common stock entitled to vote +and present in person or represented by proxy at the Annual Meeting, unless +cumulative voting is in effect. Pursuant +to the bylaws of Iteris, no stockholder is entitled to cumulate his or her +votes (as described above) for candidates other than those whose names have +been placed in nomination prior to the commencement of voting and unless at +least one stockholder has given notice prior to commencement of voting of his +or her intention to cumulate votes. If +any stockholder has given such notice, then each stockholder may cumulate votes +by multiplying the number of shares of common stock the stockholder is entitled +to vote by the number of directors to be elected. The number of cumulative votes thus +determined may be voted all for one candidate or distributed among several +candidates, at the discretion of the stockholder. The candidates receiving the highest number +of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the +persons named in the accompanying proxy will vote the shares of common stock +covered by proxies received by them (unless authority to vote for directors is +withheld) among the named candidates as they determine. +1 +Proposal Two requires the approval of the affirmative +vote of a majority of the common stock present in person or represented by +proxy at the Annual Meeting and entitled to vote on the matter. +All votes will be tabulated by the inspector of +election appointed for the Annual Meeting, who will separately tabulate +affirmative and negative votes, abstentions and broker non-votes. Broker non-votes occur when brokers who hold +stock in “street name” return proxy cards stating that they do not have +authority to vote the stock which they hold on behalf of beneficial +owners. Abstentions and broker non-votes +are counted as present for purposes of determining the presence or absence of a +quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on +proposals presented to the stockholders and will have the same effect as +negative votes. Broker non-votes will +not be counted for purposes of determining whether a proposal has been approved. The election of directors in Proposal One and +the ratification of the selection of the independent auditors in Proposal Two +are matters on which a broker or other nominee is generally empowered to vote. Therefore, no broker non-votes will exist in +connection with Proposal One or Proposal Two. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically +over the Internet or by telephone, or (iii) by ballot in person at the Annual +Meeting. If you are a “registered +holder,” that is your shares are registered in your own name through our +transfer agent, you may vote by returning a completed proxy card in the +enclosed postage-paid envelope. If your +shares are held in “street name,” that is, your shares are held in the name of +a brokerage firm, bank or other nominee, +in lieu of a proxy card you should receive a voting instruction form from that +institution by mail. The voting +instruction form should indicate whether the institution has a process for +beneficial holders to vote over the Internet or by telephone. A large number of banks and brokerage firms +are participating in the ADP Investor Communication Services online +program. This program provides eligible +stockholders who receive a paper copy of the proxy statement the opportunity to +vote over the Internet or by telephone. The Internet and telephone voting facilities will +close at 11:59 p.m. Eastern Time on Wednesday, September 13, 2006 . Stockholders who vote over the Internet or by +telephone need not return a proxy card or voting instruction form by mail, but +may incur costs, such as usage charges, from telephone companies or Internet +service providers. If your voting +instruction form does not reference Internet or telephone information, please +complete and return the paper voting instruction form in the self-addressed, +postage-paid envelope provided. +If you are a registered holder, you may also vote your +shares in person at the Annual Meeting. +If your shares are held in street name and you wish to vote in person at +the meeting, you must obtain a proxy issued in your name from the record holder +and bring it with you to the Annual Meeting. +The Company recommends that you vote your shares in advance as described +above so that your vote will be counted if you later decide not to attend the +Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by +mail. If your shares are held in street +name, then in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please be sure to complete, sign, +date and return each proxy card or voting instruction form to ensure that all +of your shares will be voted. Only proxy +cards and voting instruction forms that have been signed, dated and timely +returned will be counted in the quorum and voted. Properly executed proxies will be voted in +the manner directed by the stockholders. +If the proxy does not specify how the shares represented thereby are to +be voted, the proxy will be voted FOR the election of the directors proposed by +the Board under Proposal One unless the authority to vote for the election of +any director is withheld and, if no contrary instructions are given, the proxy +will be voted FOR the approval of Proposal Two as described in this proxy +statement and the accompanying notice. +The enclosed proxy also grants the proxy holders +discretionary authority to vote on any other business that may properly come +before the Annual Meeting as well as any procedural matters. The Company has not been notified by any +stockholder of his or her intent to present a stockholder proposal at the +Annual Meeting. +2 +If your shares are held in your name, you may revoke +or change your vote at any time before the Annual Meeting by filing a notice of +revocation or another signed proxy card with a later date with the Company’s +Secretary at the Company’s principal executive offices at 1515 South Manchester +Avenue, Anaheim, California 92802. If +your shares are held in street name, you should contact the record holder to +obtain instructions if you wish to revoke or change your vote before the Annual +Meeting. If you attend the Annual +Meeting and vote by ballot, any proxy that you submitted previously to vote the +same shares will be revoked automatically and only your vote at the Annual +Meeting will be counted. Please note, however, that if your shares are held in street name, your +vote in person at the Annual Meeting will not be effective unless you have +obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting +will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by the Company’s +Board of Directors. The Company will +bear the entire cost of proxy solicitation, including the costs of preparing, +assembling, printing and mailing this proxy statement, the proxy card and any +additional material furnished to the stockholders. Copies of the solicitation materials will be +furnished to brokerage houses, fiduciaries and custodians holding shares in +their names that are beneficially owned by others so that they may forward this +solicitation material to such beneficial owners. In addition, the Company may reimburse such +persons for their reasonable expenses in forwarding the solicitation materials +to the beneficial owners. The original +solicitation of proxies by mail may be supplemented by a solicitation by +personal contact, telephone, facsimile, email or any other means by the Company’s +directors, officers or employees. No +additional compensation will be paid to these individuals for any such +services. +In the discretion of management, the Company reserves +the right to retain a professional firm of proxy solicitors to assist in +solicitation of proxies. Although the +Company does not currently expect to retain such a firm, it estimates that the +fees of such firm would range from $5,000 to $20,000 plus out-of-pocket +expenses, all of which would be paid by the Company. +3 +MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING +PROPOSAL ONE: +ELECTION OF DIRECTORS +Eleven directors are to be elected at the Annual +Meeting to hold office until their successors are duly elected and qualified at +the next annual meeting of stockholders. +The eleven candidates receiving the highest number of affirmative votes, +present in person or represented by proxies and entitled to vote at the Annual +Meeting, will be elected as directors of Iteris. However, if cumulative voting is in effect, +the proxy holders will have the right to cumulate and allocate votes among +those nominees standing for election as such proxy holders in their discretion +elect. +Information with Respect to +Nominees +The following table sets forth certain information, as +of July 1, 2006, concerning the director nominees. +Name +Age +Current Position(s) with Iteris +Director +Since +Richard Char(1) +47 +Director +2005 +Kevin C. Daly, +Ph.D.(2)(3) +61 +Director +and Assistant Secretary +1993 +Gary Hernandez(3) +46 +Director +2004 +Jack Johnson +59 +President, +Chief Executive Officer and Director +2004 +Dr. Hartmut Marwitz +64 +Director +2004 +Gregory A. Miner +51 +Chairman +of the Board +1998 +Abbas Mohaddes +49 +Executive +Vice President, General Manager, Assistant +2005 +Secretary +and Director +John W. +Seazholtz(1)(2)(3) +69 +Director +1998 +Joel Slutzky +67 +Director +and Assistant Secretary +1969 +Thomas L. +Thomas(1)(2)(3) +57 +Director +1999 +Paul E. Wright +75 +Director +1993 +(1) Member of the Audit Committee. +(2) Member of the Compensation Committee. +(3) Member of the Nominating and +Corporate Governance Committee. +Richard Char has served as a director of Iteris since September 2005. Since June 2006, Mr. Char has served as +Senior Vice President of Corporate Development and General Counsel at Blackhawk +Network, Inc., a provider of card-based financial solutions, including +third-party prepaid cards. From March +2003 to April 2005, Mr. Char served as the President and Chief Executive +Officer of IC Media, a developer of CMOS image sensors that was acquired in +April 2005 by MagnaChip Semiconductors, a developer and manufacturer of +mixed-signal and digital multimedia semiconductors. Prior to joining IC Media, from March 1999 to +January 2002, Mr. Char was Managing Director with the Technology Group of +Credit Suisse First Boston. From 1997 to +1999, Mr. Char was Co-Head of Technology Investment Banking at Cowen & +Company and from 1984 to 1997, he was a partner in the law firm of Wilson +Sonsini Goodrich & Rosati. Mr. Char +received his A.B. degree from Harvard College and his J.D. degree from Stanford +Law School. +Kevin C. Daly, Ph.D. has served as a director of Iteris since 1993. Since November 2005, Dr. Daly has served as +the Chief Executive Officer of MAXxess Systems, Inc., a provider of electronic +security solutions, which he joined in June 2005. From June 2002 to June 2005, Dr. Daly was the +Chief Executive Officer of Avamar Technologies, Inc., a provider of high +availability storage software solutions. +Dr. Daly was Chief Technical Officer +4 +of +Quantum Corporation’s Storage Solutions Group from October 2001 to July 2002 +and, prior to that, he was Chief Executive Officer of ATL Products, Inc., a +former subsidiary of the Company, from ATL’s formation in 1993 until 2001. Dr. Daly also served as Chief Technical +Officer of Iteris from 1985 until ATL’s separation from Iteris in an initial +public offering in 1997. Prior to +joining Iteris, Dr. Daly was Director of the Control and Dynamics Division of +the Charles Stark Draper Laboratory at MIT from 1974 through 1985. Dr. Daly is also a member of the Board of +Directors of Danka Business Systems PLC and iStor Networks Inc. +Gary Hernandez has served as a director of Iteris since September 2004. He also served as a director of the Company’s +former Iteris, Inc. subsidiary (the “Iteris Subsidiary”) from January 1999 to +October 2004. Mr. Hernandez has been a +partner in the law firm of Sonnenschein, Nath and Rosenthal LLP since December +1997. From December 1995 to December +1997, Mr. Hernandez was a partner in the law firm of Long & Levit. Mr. Hernandez served as Deputy Insurance +Commissioner of California from April 1991 to November 1995. Mr. Hernandez received his B.A. degree from the +University of California, Berkeley and his J.D. degree from the University of California, +Davis. +Jack Johnson has served as the President and Chief Executive Officer of Iteris +since October 2004 and as a director since September 2004. Prior to that, Mr. Johnson served as the +President, Chief Executive Officer and a director of the Iteris Subsidiary from +December 1999 to October 2004, when the Iteris Subsidiary was merged into the +Company. Mr. Johnson also served as a +Vice President of Iteris from 1986 to October 2004, as the General Manager of +the Company’s ITS division (which became the Iteris Subsidiary), prior to its +incorporation, from 1996 to 1998 and as the General Manager of the Company’s +Customer Service division from 1990 to 1996. +Mr. Johnson has served in various other capacities with Iteris and its +subsidiaries since joining the Company in 1974, including the Vice President +and General Manager of the Company’s Omutec division from 1986 to 1990, the +Director of Contracts for the Space division of Iteris from 1980 to 1986, the +Controller of Infodetics, a former subsidiary of Iteris, from 1975 to 1980 and +the Controller of Iteris from 1974 to 1975. +Prior to joining Iteris, Mr. Johnson served as a certified public +accountant with Peat Marwick. +Dr. Hartmut Marwitz has served as a director of Iteris since September 2004. Dr. Marwitz also served as a director of the +Iteris Subsidiary from 1999 to October 2004 and has served as the +Vice-President of Engineering Mercedes-Benz Trucks of DaimlerChrysler in +Germany since 1995. Previously, Dr. Marwitz +served with Daimler-Benz AG as Director of Truck Powertrain Testing. Furthermore, Dr. Marwitz has broad +experiences in the field of passenger car development. Before joining Daimler-Benz AG, Dr. Marwitz +worked as Senior Manager for Rheinmetall in the field of Special Machinery +Development in Germany and Spain. Dr. +Marwitz holds an Engineering Degree in Mechanical Engineering and a Doctoral +Degree in Experimental Mechanics from the Technical University of Munich, +Germany. Since 2003, Dr. Marwitz has +held an honorary professorship as the Chair of Machine and Design at the +Institute of Machine Design and Automotive Engineering at the Technical +University of Karlsruhe (Germany). +Gregory A. Miner has served as a director of Iteris since 1998 and as its Chairman of +the Board of Directors since October 2004. +Mr. Miner is also the Managing Partner of Merchant Capital Source, LLC, +a company that provides working capital financing solutions to merchants. Prior to that, Mr. Miner served as the +Company’s Chief Executive Officer from February 2002 to October 2004 and as the +Company’s Chief Financial Officer from January 1994 to October 2004. He also served as the Company’s Chief +Operating Officer from 1998 to 2002 and as the Chairman of the Board of the +Iteris Subsidiary from December 2003 to October 2004. Mr. Miner has served in various capacities +for the other subsidiaries of Iteris from time to time. From December 1984 until joining Iteris, Mr. +Miner served as the Vice President, Chief Financial Officer and a director of +Laser Precision Corporation, a manufacturer of telecommunications test +equipment. Mr. Miner is a Certified +Public Accountant and, from 1979 to 1984, was employed by Deloitte Haskins and +Sells (now known as Deloitte & Touche LLP) in various capacities, the most +recent of which was Audit Manager. +Abbas Mohaddes has served as a director since September 2005, an Executive Vice +President and General Manager of Iteris since October 2004 and as an Assistant +Secretary since May 2004. He was the +Executive Vice President of the Iteris Subsidiary from March 2004 to October +2004 and its Secretary from September 2001 to October 2004. Prior to that, he served as the Senior Vice +President and Director of Transportation Systems of the +5 +Iteris +Subsidiary from May 2000 to March 2004 and as its Vice President and Deputy +Director of Transportation from October 1998 to May 2000. Mr. Mohaddes also served as President and +Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), an ITS and +transportation firm that he co-founded in 1991, which was acquired by the +Iteris Subsidiary in October 1998 and dissolved in April 2006. Prior to establishing MMA, from 1986 to 1990, +he was a principal and Southern California Director of Operations for DKS +Associates, a consulting firm. Mr. +Mohaddes is a nationally recognized expert in ITS and has published over 20 +articles and made over 50 presentations at ITS Transportation engineering +professional societies. Mr. Mohaddes is +a founding member of ITS America and member of several trade organizations including +Transportation Research Board, Institute of Transportation Engineers, and the +Design/Build Institute of America. +John W. Seazholtz has served as a director of Iteris since May 1998. From May 1998 to April 2000, Mr. Seazholtz +served as the President and Chief Executive Officer of Telesoft America, +Inc. He retired in April 1998 as the +Chief Technology Officer of Bell Atlantic after 36 years of service with that +company and its predecessor. Mr. +Seazholtz was a senior officer of Bell Atlantic from 1986, serving in various +positions, including the positions of Vice President, Operations and +Engineering, Vice President, Marketing, Vice President of New Services, and +Vice President, Technology and Information Systems. Mr. Seazholtz currently serves as the +Chairman of the Board of Westell Technologies, Inc. and is a member of the +Board of Directors of Advanced Switching Communications, Inc. +Joel Slutzky has served as a director of Iteris since he co-founded the Company in +1969. Mr. Slutzky was the Chairman of +the Board of Directors from 1969 to October 2004 and the Company’s Chief +Executive Officer from 1975 to February 2002. +Mr. Slutzky also served as the Chairman of the Board of the Iteris +Subsidiary until December 2003 and served in various capacities for other +subsidiaries of Iteris from time to time. +Mr. Slutzky currently serves on the Board of Directors of the American +Electronics Association, KOCE, Future Scientists and Engineers of America and +the Orange County Business Council Workforce Task Group. Mr. Slutzky is also the Chairman of Project +Tomorrow, an organization focused on improving Kindergarten through 12th grade +science education in Orange County, California. +Thomas L. Thomas has served as a director of Iteris since May 1999. Mr. Thomas served as the Chairman of the +Board, President and Chief Executive Officer of HAHT Commerce, a provider of +software applications that enable companies to use the Internet to conduct +business, from February 2000 until February 2004 when HAHT Commerce was sold to +Global Exchange Services, or GXS. Mr. +Thomas currently serves as the President and Chief Operating Officer of GXS, a +provider of business-to-business EDI and supply chain management solutions. Mr. Thomas was previously the President and +Chief Executive Officer of Ajuba Solutions, a provider of B2B integration +solution software, which was sold to Interwoven in October 2000. From April +1999 until January 2000, he served as the President, Chief Executive Officer +and Chairman of the Board of Vantive Corporation, a customer relationship +management software vendor which was acquired by Peoplesoft in January +2000. Prior to that, from September 1995 +to April 1999, Mr. Thomas served as the Senior Vice President of e-Business and +Information Services and Chief Information Officer at 3Com Corporation. From 1993 to 1995, Mr. Thomas served as a +Vice President and the Chief Information Officer of Dell Computer +Corporation. From 1987 to 1993, he +served as the Vice President of Management Information Systems at Kraft General +Foods, and at Sara Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of +Directors of iManage, Inc. +Paul E. Wright has served as a director of Iteris since June 1993. He also served as a director of the Iteris +Subsidiary from January 1999 to October 2004. +Mr. Wright is the President of Wright Associates—Engineering and +Business Consultants, a company he formed in 1997. From 1988 until his retirement in 1997, Mr. +Wright served as the Chairman of Chrysler Technologies Corp., the aerospace and +defense electronics subsidiary of Chrysler Corporation. From 1986 to 1988, Mr. Wright served as the +President and Chief Operating Officer of Fairchild Industries, Inc. Prior to +joining Fairchild, he was employed for 28 years by RCA Corporation, where he +last served as the Senior Vice President, responsible for planning RCA’s merger +into General Electric Corporation. +All directors are elected annually and hold office +until the next annual meeting of stockholders and until their successors are +duly elected and qualified. All of the +nominees have indicated that they are willing to continue to serve as +directors. In the event any nominee is +unable or declines to serve as a director at the time of the Annual Meeting, +the proxies will be voted for an additional nominee who shall be designated by +the current Board of Directors. As of +the date of this proxy statement, the Board of Directors is not aware of any +nominee who is unable or unwilling to serve as director. +6 +Corporate +Governance +The Company’s Board of Directors has adopted a Code of +Ethics and Business Conduct which applies to all directors, officers (including +the Company’s principal executive officer, principal financial officer, +principal accounting officer or controller, or persons performing similar +functions) and employees. The full text +of the Company’s Code of Ethics and Business Conduct is available on the +Investor Relations section of the Company’s website at www.iteris.com. The Company intends to disclose future +amendments to certain provisions of the Code of Ethics and Business Conduct, +and any waivers of provisions of the Code of Ethics required to be disclosed +under the rules of the Securities and Exchange Commission (“SEC”), at the same +location on the Company’s website. +Board +Meetings and Committees +The Board of Directors held four meetings during the +fiscal year ended March 31, 2006. All of +the directors attended or participated in at least 75% of the aggregate number +of meetings of the Board of Directors. +Each director attended at least 75% of the aggregate number of meetings +of those committees of the Board of Directors on which such person served, +which were held during such period. The +Board has determined that each of the Company’s directors other than Messrs. Johnson, +Marwitz, Miner, Mohaddes and Slutzky satisfies the requirements for “independence” +under the listing standards of the American Stock Exchange. +Iteris currently has several standing committees of +the Board of Directors, including the Audit Committee, the Compensation +Committee, and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation +Committee, and the Nominating and Corporate Governance Committee each has a +written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is +available on the Investor Relations section of the Company’s website at +www.iteris.com. +Audit Committee. +The current members of the Company’s Audit Committee are Messrs. Char, +Seazholtz and Thomas. Each member of the +Audit Committee is “independent” under the current listing standards of the +American Stock Exchange and the SEC rules regarding audit committee +memberships. The Board has identified +Mr. Char as the member of the Audit Committee who qualifies as an “audit +committee financial expert” under applicable SEC rules and regulations +governing the composition of the Audit Committee. The Audit Committee held eleven meetings +during the fiscal year ended March 31, 2006. +The Audit Committee oversees on behalf of the Board +(a) the conduct of the accounting and financial reporting processes, the audits +of the Iteris financial statements and the integrity of its audited financial +statements and other financial reports; (b) the performance of the internal +accounting and financial controls function of Iteris; (c) the engagement, +replacement, compensation, qualifications, independence and performance of the +independent auditors for Iteris; and (d) the portions of the Code of Ethics and +Business Conduct and related policies regarding the accounting, internal +accounting controls or auditing matters of Iteris. +The Audit Committee meets privately with the +independent auditors of Iteris, and the independent auditors have unrestricted +access to and report directly to the Audit Committee. The Audit Committee has selected McGladrey +& Pullen, LLP as the Company’s independent auditors for the fiscal year +ending March 31, 2007 and is recommending that the stockholders of Iteris +ratify this appointment at the Annual Meeting. +The Board of Directors initially adopted the Audit +Committee Charter in 2000 and approved an amended and restated Audit Committee +Charter in July 2002. The Board +subsequently further amended and restated the Audit Committee Charter in March +2004. A copy of the current charter was +filed as an appendix to the proxy statement for the annual meeting of +stockholders held in September 2004. +Compensation Committee. +The current members of the Company’s Compensation Committee are Messrs. +Daly, Seazholtz and Thomas. The Board +has concluded that each member of the Compensation Committee is “independent” +under the listing standards of the American Stock Exchange. The Compensation Committee held two meetings +during the fiscal year ended March 31, 2006. +7 +The Compensation Committee (a) evaluates officer and +director compensation policies, goals, plans and programs; (b) determines the +cash and non-cash compensation of the “executive officers” of the Company as +defined in the rules promulgated under Section 16 of the Securities Exchange +Act of 1934, as amended (the “Exchange Act”); (c) reviews and makes +recommendations to the Board with respect to the Company’s equity-based and +other incentive compensation plans for employees; (d) evaluates the performance +of the Company’s executive officers; (e) assists the Board in evaluating +potential candidates for executive officer positions with the Company and +oversee management succession planning; and (f) produces the Committee report +required by the applicable rules and regulations of the SEC and other +regulatory bodies for inclusion in the Company’s annual proxy statement. +Nominating and Corporate +Governance Committee. The current members of the +Nominating and Corporate Governance Committee are Messrs. Daly, Hernandez, +Seazholtz and Thomas. The Board has +determined that each of the members of this committee are “independent” under +the listing standards of the American Stock Exchange. The Nominating and Corporate Governance +Committee held no meetings during the fiscal year ended March 31, 2006. +The primary purposes of the Nominating and Corporate +Governance Committee are to (a) identify, screen and review individuals +qualified to serve as directors of the Company; (b) select or recommend to the +Board of Directors the selection of nominees for election at the next annual +meeting of stockholders; (c) recommend to the Board of Directors candidates to +fill any vacancies on the Board; (d) oversee the implementation and monitoring +the effectiveness of the Company’s corporate governance policies and developing +and recommending to the Board modifications and or additions to such policies; +and (e) review on a regular basis the overall corporate governance of the +Company and recommend improvements when necessary. +In connection with their recommendations regarding the +size and composition of the Board, the Nominating and Corporate Governance +Committee reviews the appropriate qualities and skills required of directors in +the context of the then current make-up of the Board. This includes an assessment of each candidate’s +independence, personal and professional integrity, financial literacy or other +professional or business experience relevant to an understanding of the Company’s +business, ability to think and act independently and with sound judgment, and +ability to serve the Company’s and its stockholders’ long-term interests. These factors, and others as considered +useful by the Nominating and Corporate Governance Committee, are reviewed in +the context of an assessment of the perceived needs of the Board at a +particular point in time. As a result, +the priorities and emphasis of the Nominating and Corporate Governance +Committee and of the Board may change from time to time to take into account +changes in business and other trends, and the portfolio of skills and +experience of current and prospective directors. The Nomination and Corporate Governance +Committee leads the search for and selects, or recommends that the Board select, +candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information +concerning candidates and interviews with selected candidates. Candidates for nomination to the Company’s +Board typically have been suggested by other members of the Board or by the +Company’s executive officers. From time +to time, the Nomination and Corporate Governance Committee may engage the +services of a third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will +consider candidates for directors recommended by stockholders of Iteris who +meet the eligibility requirements for submitting stockholder proposals for +inclusion in the Company’s next proxy statement. This committee will evaluate such +recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a +nominee must submit such recommendation in writing to the Chair, Nomination +Committee, care of the corporate Secretary of the Company, by the deadline for +stockholder proposals set forth in the Company’s last proxy statement, +specifying the following information: (a) the name and address of the nominee, +(b) the name and address of the stockholder making the nomination, (c) a +representation that the nominating stockholder is a stockholder of record of +the Company’s stock entitled to vote at the next annual meeting and intends to +appear in person or by proxy at such meeting to nominate the person specified +in the notice, (d) the nominee’s qualifications for membership on the Board, +(e) a resume of the candidate’s business experience and educational background +as well as all of the information that would be required in a proxy statement +8 +soliciting proxies for the election of the nominee as +a director, (f) a description of all direct or indirect arrangements or +understandings between the nominating stockholder and the nominee and any other +person or persons (naming such person or persons) pursuant to whose request the +nomination is being made by the stockholder, (g) all other companies to which +the nominee is being recommended as a nominee for director, and (h) a signed +consent of the nominee to cooperate with reasonable background checks and +personal interviews, and to serve as a director of the Company, if +elected. In connection with its +evaluation, the Nominating and Corporate Governance Committee may request +additional information from the candidate or the recommending stockholder, and +may request an interview with the candidate. +The Nominating and Corporate Governance Committee has the discretion to +decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted +to the Nominating and Corporate Governance Committee by any stockholder in +connection with the election of directors at the Annual Meeting. Each of the director nominees standing for +election at this Annual Meeting is a current director of Iteris. +Compensation +of Directors +Directors who are not employees of Iteris or any of +its subsidiaries receive an annual fee of $12,000 per year, paid quarterly, in +addition to $1,500 for each Board meeting attended in person and $250 for each +telephone conference Board meeting. All +directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of the Company’s Board of Directors and its committees. +Non-employee directors are also eligible to receive +periodic option grants pursuant to the Automatic Option Grant Program under the +Company’s 1997 Stock Incentive Plan. +Under this plan, each non-employee director receives an option to +purchase 20,000 shares of common stock upon his initial appointment to the +Board of Directors and an additional option to purchase 5,000 shares of common +stock on the date of each annual meeting after his appointment. Each option granted to non-employee directors +under the Automatic Option Grant Program will have an exercise price equal to +the fair market value of the common stock on the grant date and will have a +maximum term of ten years, subject to earlier termination following the +optionee’s cessation of service as a Board member. +Stockholder +Communications +The Board has implemented a process by which +stockholders may send written communications directly to the attention of the +Board, any committee of the Board or any individual Board member, care of +Iteris’ corporate Secretary. The name of +any specific intended Board recipient should be noted in the +communication. Iteris’ corporate +Secretary will be primarily responsible for collecting, organizing and +monitoring communications from stockholders and, where appropriate depending on +the facts and circumstances outlined in the communication, providing copies of +such communications to the intended recipients. +Communications will be forwarded to directors if they relate to +appropriate and important substantive corporate or Board matters. Communications that are of a commercial or +frivolous nature or otherwise inappropriate for the Board’s consideration will +not be forwarded to the Board. +Stockholders who wish to communicate with the Board can write to the +corporate Secretary at Iteris, Inc., 1515 South Manchester Avenue, Anaheim, +California 92802. +Annual +Meeting Attendance +Iteris does not have a formal policy regarding +attendance by members of its Board of Directors at annual meetings of its +stockholders; however, directors are encouraged to attend all such +meetings. Four of the Company’s current +directors attended Iteris’ 2005 annual meeting of stockholders. +Recommendation +of the Board of Directors +The Board of Directors recommends +a vote “FOR” the nominees listed above. +Proxies returned to Iteris will be voted “FOR” each nominee unless +otherwise instructed in writing on such proxy. +9 +PROPOSAL TWO: +RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of McGladrey & Pullen, LLP was +engaged to serve as the Company’s independent auditors for the fiscal year +ended March 31, 2006. The Audit +Committee of the Board of Directors has selected that firm to continue in this +capacity for the fiscal year ending March 31, 2007. The Company is asking the stockholders to +ratify the selection by the Audit Committee of McGladrey & Pullen, LLP as +the independent auditors of Iteris to audit the Company’s consolidated +financial statements for the fiscal year ending March 31, 2007 and to perform +other appropriate services. Stockholder +ratification of the selection of McGladrey & Pullen, LLP as the Company’s +independent auditors is not required by the Company’s bylaws or otherwise. In the event that the stockholders fail to +ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit +Committee, in its sole discretion, may direct the appointment of a different +independent accounting firm at any time during the year if the committee feels +that such a change would be in the best interests of the Company and its +stockholders. +A representative of McGladrey & Pullen, LLP is +expected to be present at the Annual Meeting to respond to stockholders’ +questions, and that representative will have the opportunity to make a brief +presentation to the stockholders if he or she so desires and will be available +to respond to appropriate questions from stockholders. +Stockholder +Approval +The affirmative vote of a majority of the common stock +of Iteris, present or represented by proxy and entitled to vote at the Annual +Meeting will be required for ratification of the selection of McGladrey & +Pullen, LLP as the Company’s independent auditors for the fiscal year ending +March 31, 2007. +Recommendation +of the Board of Directors +The Board of Directors recommends that the +stockholders vote “FOR” the ratification and approval of the selection of +McGladrey & Pullen, LLP as the independent auditors of Iteris for the +fiscal year ending March 31, 2007. +10 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed +for the indicated services performed by McGladrey & Pullen, LLP for the +fiscal years ended March 31, 2005 and 2006: +Fiscal Year Ended March 31, +2005 +2006 +Audit Fees +$ +435,000 +$ +309,000 +Audit-Related +Fees +14,000 +38,000 +Tax Fees +7,000 +37,000 +All Other Fees +¾ +¾ +Total Fees +$ +456,000 +$ +384,000 +Audit Fees. +Audit fees consist of fees billed by McGladrey & Pullen, LLP for +professional services rendered in connection with the audit of Iteris’ annual +consolidated financial statements and review of those consolidated financial +statements included in Iteris’ quarterly reports on Forms 10-Q and other +regulatory filings. +Audit-Related Fees. +Audit-related fees consist of fees billed for professional services that +are reasonably related to the performance of the audit or review of the Company’s +consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees +for registration statements, fees for internal control reviews and assistance +with meeting the requirements of Section 404 the Sarbanes-Oxley Act, and fees +for acquisition or asset sale-related work and certain consultations concerning +financial accounting and reporting standards. +Tax Fees. +Tax fees consist of fees billed for professional services for tax +compliance, which include the preparation of federal, state and international +tax returns, and fees billed for tax consultations, including federal, state +and international tax advice, tax planning and assistance with tax audits. +All Other Fees. +There were no other fees billed to the Company by McGladrey & +Pullen, LLP during the fiscal years ended March 31, 2005 and 2006. +Determination of Independence +The Audit Committee of the Board of Directors has determined +that the provision by McGladrey & Pullen, LLP of the non-audit related +services described above is compatible with maintaining the independence of +McGladrey & Pullen, LLP. +Audit +Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent +Auditors +All engagements for services by McGladrey & +Pullen, LLP or other independent registered public accountants are subject to +prior approval by the Audit Committee; however, de minimis non-audit services +may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was +obtained for all services provided by McGladrey & Pullen, LLP in the fiscal +year ended March 31, 2006. +11 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 1, 2006, +the number and percentage ownership of the common stock of Iteris by (i) all +persons known to Iteris to beneficially own more than 5% of the outstanding +common stock, (ii) each of the Named Executive Officers in the Summary +Compensation Table which appears elsewhere herein, (iii) each director of +Iteris, and (iv) all executive officers and directors of Iteris as a +group. To the knowledge of Iteris, +except as otherwise indicated, each of the persons named in this table has sole +voting and investment power with respect to the common stock shown as +beneficially owned, subject to community property and similar laws, where +applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe +and David M. Greenhouse(4) +4,303,408 +14.9 +% +Bryant R. +Riley(5) +2,740,383 +9.3 +Clint D. +Coghill(6) +1,477,500 +5.1 +John D. Gruber +and J. Patterson McBaine(7) +1,892,597 +6.6 +Jack Johnson(8) +1,010,408 +3.4 +Abbas +Mohaddes(9) +1,127,426 +3.9 +Greg McKhann(10) +277,650 +1.0 +Francis +Memole(11) +271,655 +* +Richard D. +Crawshaw(12) +213,318 +* +Richard Char(13) +20,000 +* +Kevin C. Daly, +Ph.D.(14) +383,132 +1.3 +Gary +Hernandez(13) +75,000 +* +Dr. Hartmut +Marwitz(13) +45,000 +* +Gregory A. +Miner(15) +966,945 +3.3 +John W. +Seazholtz(16) +97,547 +* +Joel Slutzky(17) +2,117,113 +7.3 +Thomas L. +Thomas(18) +69,000 +* +Paul E. +Wright(19) +172,794 +* +All executive officers +and directors as a group (15 persons)(20) +6,907,015 +21.9 +% +* Less than 1%. +(1) The address for Messrs. Marxe and +Greenhouse is 527 Madison Avenue, Suite 2600, New York, NY 10022. The address for Bryant R. Riley is 11550 +Santa Monica Blvd., Suite 750, Los Angeles, CA 90025. The address for Clint D. Coghill is One North +Wacker Drive, Suite 4350, Chicago, IL 60606. +The address for Messrs. Gruber and McBaine is 50 Osgood Place, San +Francisco, CA 94133. The address of all +other persons named in the table is 1515 South Manchester Avenue, Anaheim, CA +92802. +(2) Based on 28,790,767 shares of common +stock outstanding as of July 1, 2006. +Shares of common stock subject to options or warrants which are +exercisable within 60 days of July 1, 2006 are deemed to be beneficially owned +by the person holding such options or warrants for the purpose of computing the +percentage of ownership of such person but are not treated as outstanding for +the purpose of computing the percentage of any other person. Other than as described in the preceding +sentence, shares issuable upon exercise of outstanding options and warrants are +not deemed to be outstanding for purposes of this calculation. +12 +(3) In addition to the shares held in the +individual’s name, this column also includes shares held for the benefit of the +named person under the Company’s 401(k) and Stock Ownership Plan and the +Deferred Compensation Savings Plan. +(4) Includes 1,250,000 shares issuable upon +exercise of warrants that were issued to Special Situations Cayman Fund, L.P., +Special Situations Fund III, L.P., Special Situations Fund III QP, L.P and +Special Situations Private Equity Fund, L.P. (collectively, the “Special +Situations Funds”). Pursuant to a +Schedule 13G/A filed on February 15, 2006 with the SEC, Messrs. Marxe and +Greenhouse reported that they had shared voting power and shared dispositive +power over the shares of common stock (including the 1,250,000 shares issuable +upon exercise of warrants) held by the Special Situations Funds. Messrs. Marxe and Greenhouse are the +controlling principals of AWM Investment Company, Inc. (“AWM”), the general +partner of Special Situations Cayman Fund, L.P. +AWM is the general partner of MGP Advisers Limited Partnership, the +general partner of Special Situations Fund III, L.P. and Special Situations +Fund III QP, L.P. In addition, Messrs. +Marxe and Greenhouse are members of MG Advisers L.L.C., the general partner of +Special Situations Private Equity Fund, L.P. +(5) Includes (i) 88,640 shares issuable upon +conversion of convertible debentures held by Mr. Riley’s children and (ii) +495,570 shares issuable upon exercise of warrants held by Mr. Riley, his +children, B. Riley & Co., Inc. and SACC Partners L.P. that are currently +exercisable. Mr. Riley owns all of the +outstanding shares of B. Riley & Co., Inc., an NASD member broker-dealer. Mr. Riley also manages and owns all of the +outstanding membership interests of Riley Investment Management LLC (“RIM”), a +California registered investment adviser. +RIM is the investment adviser to and general partner of SACC Partners +L.P. B. Riley & Co., Inc. has +provided financial advisory services to us and has received payments (including +warrants) for such services. Mr. Riley +disclaims beneficial ownership of the shares held for his children’s accounts. +(6) Pursuant to a Schedule 13G filed on +February 9, 2006 with the SEC, CCM Master Qualified Fund, Ltd., Coghill Capital +Management, L.L.C. and Clint D. Coghill reported that they had shared voting +power and shared dispositive power over the shares of common stock held by the +CCM Master Qualified Fund, Ltd. Mr. +Coghill and Coghill Capital Management, L.L.C. are the principals of the +investment manager or investment manager to the investment management entity of +CCM Master Qualified Fund, Ltd. The +reporting persons disclaim beneficial ownership of the securities except to the +extent of their pecuniary interest therein. +(7) Pursuant to a Schedule 13G filed on +February 8, 2006 with the SEC, Gruber & McBaine Capital Management, LLC (“GMCM”), +Jon D. Gruber, J. Patterson McBaine and Eric Swergold reported that they had +shared voting power and shared dispositive power over 1,892,597 shares of +common stock. The table does not include +362,665 shares, 32,350 shares and 20,600 shares over which Messrs. Gruber, +McBaine and Swergold, respectively, have sole voting and dispositive power. GMCM is a registered investment advisor whose +clients have the right to receive or the power to direct the receipt of +dividends from, or the proceeds from the sale of the shares. Messrs. Gruber and McBaine are the Managers, +controlling persons and portfolio managers of GMCM. No individual client’s holdings of the shares +of Iteris common stock is more than five percent of the outstanding shares of +Iteris. Lagunitas is an investment +limited partnership of which GMCM is the general partner. GMCM, Gruber, McBaine and Swergold constitute +a group within the meaning of Rule 13d-5(b). +Lagunitas is not a member of any group and disclaims beneficial +ownership of the securities with respect to its ownership is reposited. +(8) Includes (i) 27,700 shares issuable upon +conversion of convertible debentures held by Mr. Johnson’s IRA, (ii) 6,335 +shares issuable upon exercise of warrants held by Mr. Johnson’s IRA which are +currently exercisable, and (iii) 597,980 shares issuable upon exercise of +options held by Mr. Johnson that are currently exercisable or will become exercisable +within 60 days after July 1, 2006, and (iv) shares held by a family trust. +(9) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures, (ii) 3,167 shares issuable upon exercise +of warrants that are currently exercisable, (iii) 304,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006, and (iv) shares held by a family trust. +13 +(10) Includes 224,081 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +(11) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures held by Mr. Memole’s IRA, (ii) 3,167 +shares issuable upon exercise of warrants held by Mr. Memole’s IRA which are +currently exercisable, and (iii) 202,496 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after July 1, 2006. +(12) Includes 200,163 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +(13) Consists of shares issuable upon exercise +of options that are currently exercisable or will become exercisable within 60 +days after July 1, 2006. +(14) Includes (i) 100 shares held by Dr. Daly’s +spouse, (ii) 329,032 shares held by a trust to which Dr. Daly serves as a +trustee, and (iii) 38,000 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after July 1, +2006. +(15) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures held by Mr. Miner’s IRA, (ii) 19,834 +shares issuable upon exercise of warrants held by Mr. Miner’s IRA that are +currently exercisable, (iii) 185,897 shares held by Mr. Miner’s IRA, (iv) +19,230 shares held by Mr. Miner’s wife’s IRA and (v) 515,000 shares issuable +upon exercise of options that are currently exercisable or will become +exercisable within 60 days after July 1, 2006. +(16) Includes 54,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +(17) Includes 195,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +Excludes shares of common stock held in trust for the benefit of the +children and relatives of Mr. Slutzky as well as shares in the Joel Slutzky +Family Trust; Mr. Slutzky has no investment or voting power with respect to the +shares in such trusts and disclaims any beneficial ownership. +(18) Includes 50,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +(19) Includes 118,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2006. +(20) Includes (i) 69,250 shares issuable upon +conversion of convertible debentures, (ii) 32,503 shares issuable upon exercise +of warrants which are currently exercisable, and (iii) 2,690,720 shares +issuable upon exercise of options that are currently exercisable or will become +exercisable within 60 days after July 1, 2006. +14 +EQUITY COMPENSATION PLANS +The following table provides information as of March +31, 2006 with respect to shares of the Company’s common stock that may be +issued under existing equity compensation plans. The table does not include information with +respect to shares of the Company’s common stock subject to outstanding options +granted under equity compensation plans or option agreements that were assumed +in connection with the merger of the Iteris Subsidiary into the Company in +October 2004. However, Note 1 to the +table sets forth the total number of shares of common stock issuable upon the +exercise of those assumed options as of March 31, 2006 and the weighted average +exercise price of those options. Except +for the adjustments described in Note 1 with respect to the outstanding assumed +options, no additional options may be granted under those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity Compensation Plans Approved by Security +Holders +1997 Stock Incentive Plan +1,372,991 +$ +2.85 +256,718 +Equity Compensation Plans Not Approved by +Security Holders +None +Total(1) +1,372,991 +$ +2.85 +256,718 +(1) The table does not include information +with respect to the equity compensation plan or option agreements that were +assumed by the Company in connection with the merger of the Iteris Subsidiary +into the Company in October 2004. As of +March 31, 2006, a total of 5,604,428 shares of common stock were issuable upon +exercise of outstanding options under the assumed plan and agreements. No additional options may be granted under +the assumed plan. The weighted average exercise +price of all such assumed options to acquire shares of the Company’s common +stock was $1.07 per share. +15 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets +forth certain information regarding the executive officers of Iteris as of July +1, 2006. +Name +Age +Capacities in Which Served +Jack Johnson +59 +President, Chief +Executive Officer and Director +Abbas Mohaddes +49 +Executive Vice +President, General Manager, Assistant Secretary and Director +Gregory McKhann +43 +Senior Vice President +and General Manager +Francis Memole +48 +Senior Vice President +and General Manager +James S. Miele +38 +Vice President, Chief +Financial Officer and Secretary +Richard D. +Crawshaw +51 +Vice President +The following is a brief description of the capacities +in which each of the executive officers has served during the past five +years. The biographies of Messrs. +Johnson and Mohaddes appear earlier in this proxy statement. See Proposal One: “Election of Directors.” +Gregory McKhann has served as a Senior Vice President and General Manager of Iteris +since October 2004. Mr. McKhann was a +Senior Vice President of the Iteris Subsidiary from March 2004 to October 2004, +its Vice President and General Manager of Roadway Sensors from December 1998 to +March 2004, its Vice President, Strategic Business Development from October +1999 to May 2000 and the Marketing Director of the Company’s ITS division +(which became the Iteris Subsidiary) from July 1997 to October 1999. Prior to joining Iteris, Mr. McKhann served +as a Business Development Manager at Rockwell International from 1990 to +1997. While at Rockwell, Mr. McKhann +developed a joint business relationship between Rockwell and Honeywell and was +a founding member of Rockwell Transportation Systems business. Prior to 1990, Mr. McKhann held a variety of +Engineering and Project Management positions at Rockwell International. +Francis Memole has served as a Senior Vice President and General Manager of Iteris +since October 2004. Mr. Memole was a +Senior Vice President of the Iteris Subsidiary from March 2004 to October 2004, +its Vice President of Vehicle Sensors from December 1998 to March 2004 and the +Marketing Director of the Company’s ITS division (which became the Iteris +Subsidiary) from June 1997 to December 1998. +Prior to joining Iteris, Mr. Memole was one of the founding members of +the Rockwell Transportation Systems business at Rockwell International. At Rockwell, Mr. Memole started two new +business initiatives, which now include key aspects of Iteris, including +Transportation Systems and In-Vehicle Systems. +James S. Miele has served as the Vice President of Finance and Chief Financial Officer +of Iteris since October 2004 and as the Secretary since March 2004. Mr. Miele was the Controller of Iteris from +October 2003 to October 2004 and the Controller of the Iteris Subsidiary from +April 2001 to October 2004. Prior to +that, from October 1998 to June 2000, Mr. Miele served as an audit manager at +Ernst & Young LLP, supervising financial statement audits for a variety of +public and privately held companies. Mr. +Miele also served in Ernst & Young’s Assurance and Advisory Business +Services group from 1994 to 1998. Mr. +Miele is a Certified Public Accountant and holds a B.S. degree in Accounting +from San Diego State University. +Richard D. Crawshaw has served as the Vice President of Engineering of Iteris since October +2004. Prior to that, from January 1999 +to October 2004, Mr. Crawshaw was the Vice President of Engineering of the +Iteris Subsidiary. Mr. Crawshaw also +served as the Director of Engineering of the Iteris Subsidiary from January +1998 to December 1998 and as a Product Manager of the Company’s ITS division, +prior to its incorporation as the Iteris Subsidiary, from November 1995 to +December 1997. Prior to joining Iteris, +Mr. Crawshaw worked as a Senior Software Engineer at Hewlett Packard. +Officers serve at the discretion of the Board of +Directors. +16 +Summary of Cash and Certain Other +Compensation +The following table provides certain summary +information concerning the compensation earned by the Company’s Chief Executive +Officer and each of its four other most highly compensated executive officers +whose total cash salary and bonus during the fiscal year ended March 31, 2006 +exceeded $100,000 (collectively, the “Named Executive Officers”) for each of +the three fiscal years ended March 31, 2004, 2005 and 2006. +SUMMARY +COMPENSATION TABLE +Annual Compensation +Long-Term Compensation +Awards +Name and Principal Positions with Iteris +Fiscal +Year +Salary ($)(1) +Bonus ($) +Restricted +Stock ($) +Securities +Underlying +Options (#) +All Other +Compensation +($)(2) +Jack Johnson +2006 +$ +259,615 +$ +40,919 +— +— +$ +7,077 +President, Chief Executive +2005 +250,359 +26,152 +— +— +8,295 +Officer and Director +2004 +225,373 +— +— +— +6,761 +Abbas Mohaddes +2006 +228,419 +72,005 +— +— +7,301 +Executive Vice President, General +2005 +209,951 +14,941 +— +— +8,758 +Manager and Assistant Secretary +2004 +193,892 +82,000 +— +— +8,097 +Gregory McKhann +2006 +203,053 +38,441 +— +— +4,753 +Senior Vice President and +2005 +182,214 +34,498 +— +— +5,466 +General Manager +2004 +165,447 +— +— +— +4,963 +Francis Memole +2006 +193,158 +10,000 +— +— +4,566 +Senior Vice President and +2005 +169,231 +42,003 +— +— +5,827 +General Manager +2004 +162,047 +25,000 +— +— +5,431 +Richard D. Crawshaw +2006 +171,343 +30,500 +— +— +2,994 +Vice President +2005 +161,784 +14,855 +— +— +1,414 +2004 +155,866 +15,000 +— +— +1,237 +(1) Represents all amounts earned from Iteris +and its subsidiaries during the fiscal years shown, including amounts deferred +under the Deferred Compensation Savings Plan and the Company’s 401(k) and Stock +Ownership Plan. +(2) Consists solely of the matching +contribution of the Company to the respective accounts of the Named Executive +Officers under the Company’s 401(k) and Stock Ownership Plan. +Option/SAR +Grants in Last Fiscal Year +No option grants were +made to the Company’s Named Executive Officers during the fiscal year ended +March 31, 2006, and no stock appreciation rights were granted to any of the +Named Executive Officers during such fiscal year. +Aggregated Option Exercises and Fiscal Year End +Values +The following table +provides information with respect to the Named Executive Officers concerning +the unexercised options held by them at of the end of the fiscal year ended +March 31, 2006 None of the Named +Officers exercised any options or stock appreciation rights during the fiscal +year ended March 31, 2006 and no stock appreciation rights were held by the +Named Executive Officers at the end of such fiscal year. +17 +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR +AND FISCAL YEAR END OPTION VALUES +Number of Securities Underlying +Unexercised Options at Fiscal +Year End (#)(1) +Value of Unexercised In-the-Money +Options at Fiscal Year End ($) +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Jack Johnson +583,980 +14,000 +$ +1,511,306 +$ +32,900 +Abbas Mohaddes +293,000 +11,000 +711,950 +25,850 +Gregory McKhann +215,581 +8,500 +527,909 +18,800 +Francis Memole +197,496 +29,000 +507,604 +56,870 +Richard D. Crawshaw +193,163 +7,000 +496,668 +16,450 +(1) Includes both in-the-money and out-of-the +money options. +Employment +Contracts, Termination of Employment Agreements and Change of Control +Arrangements +In May 2003, the Company entered into change in +control agreements with each of Gregory Miner and Jack Johnson. In the event of an involuntary termination of +the officer’s employment within three months prior to or twenty-four months +after a change in control, the agreements provide for a severance payment to +such officer of 200% of such officer’s annual base pay plus target bonus for the +current fiscal year. In addition, such +officer and his dependents are entitled to all insurance benefits for up to +twenty-four months or until such officer obtains new employment with comparable +benefits, whichever is earlier. Upon the +merger of the Iteris Subsidiary into the Company in October 2004, Mr. Johnson +assumed the role of President and Chief Executive Officer of the Company, +replacing Mr. Miner. The merger and +subsequent change in position triggered the payment of severance to Mr. Miner +under the terms of his agreement. +Iteris does not currently have any employment +contracts in effect with any of its Named Executive Officers other than the +change in control agreements with Messrs. Johnson and Miner as described +above. Iteris provides incentives such +as salary, benefits and option grants to attract and retain executive officers +and other key associates. The plan +administrator of the 1997 Plan has the authority to provide for the accelerated +vesting of outstanding options held by an individual, in connection with the +termination of such individual’s employment following an acquisition in which +these options are assumed or the repurchase rights with respect to the unvested +shares are assigned or upon certain hostile changes in control of Iteris. Other than such accelerated vesting and the +agreements described above, there is no agreement or policy which would entitle +any executive officer to severance payments or any other compensation as a +result of such officer’s termination. +Indemnification +of Directors and Officers +Under Section 145 of the Delaware General Corporation +Law, Iteris can indemnify its directors and officers against liabilities they +may incur in such capacities, including liabilities under the Securities Act of +1933, as amended (the “Securities Act”). +The certificate of incorporation and the bylaws of Iteris provides that +Iteris will indemnify its directors and officers to the fullest extent +permitted by law, and the bylaws require Iteris to advance litigation expenses +upon receipt by Iteris of an undertaking by the director or officer to repay +such advances if it is ultimately determined that the director or officer is +not entitled to indemnification. The +bylaws further provide that rights conferred under such bylaws do not exclude +any other right such persons may have or acquire under any bylaw, agreement, +vote of stockholders or disinterested directors or otherwise. +18 +Iteris’ certificate of incorporation provides that, +pursuant to Delaware law, its directors shall not be liable for monetary +damages for breach of the directors’ fiduciary duty of care to Iteris and its +stockholders. This provision in the +certificate of incorporation does not eliminate the duty of care, and in +appropriate circumstances equitable remedies such as injunctive or other forms +of non-monetary relief will remain available under Delaware law. In addition, each director will continue to +be subject to liability for breach of the director’s duty of loyalty to Iteris +or its stockholders, for acts or omissions not in good faith or involving +intentional misconduct or knowing violations of law, for actions leading to +improper personal benefit to the director, and for payment of dividends or +approval of stock repurchases or redemptions that are unlawful under Delaware +law. The provision also does not affect +a director’s responsibilities under any other law, such as the federal +securities laws or state or federal environmental laws. +Iteris has entered into agreements to indemnify its +directors and certain of its officers in addition to the indemnification +provided for in the certificate of incorporation and bylaws. These agreements, among other things, +indemnify Iteris’ directors and certain of its officers for certain expenses +(including attorneys’ fees), judgments, fines and settlement amounts incurred +by such person in any action or proceeding, including any action by or in the +right of Iteris, on account of services as a director or officer of Iteris, or +as a director or officer of any other company or enterprise to which the person +provides services at the request of Iteris. +Compensation +Committee Interlocks and Insider Participation +The members of the Compensation Committee of Iteris’ +Board of Directors during the fiscal year ended March 31, 2006 were Messrs. Daly, +Seazholtz and Thomas. None of these +individuals was an officer or employee of Iteris or its subsidiaries at any +time during the fiscal year ended March 31, 2006. +No executive officer of Iteris has served on the Board +of Directors or on the compensation committee of any other entity that has, or +has had, one or more executive officers serving as a member of the Board of +Directors or on the Compensation Committee of Iteris. +19 +COMPENSATION +COMMITTEE REPORT ON EXECUTIVE COMPENSATION +This report covers the Company’s fiscal year ended +March 31, 2006. The Compensation +Committee for the fiscal year ended March 31, 2006 was comprised of three +outside directors, Messrs. Daly, Seazholtz and Thomas. The Compensation Committee recommends the +general compensation levels for executives. +The Compensation Committee meets periodically to review and recommend +for approval by the Board of Directors, the salaries, bonuses and benefit plans +for officers and key associates. During +the fiscal year ended March 31, 2006, the Compensation Committee held one +meeting. +General +Compensation Policy +The guiding +principle of the Compensation Committee is to establish a compensation program +that aligns executive compensation with the Company’s objectives and business +strategies as well as with financial and operational performance. In keeping with this principle the +Compensation Committee seeks to: +(1) Attract +and retain qualified senior executives who can play a significant role in the +achievement of the Company’s goals; +(2) Reward +executives for strategic management and the long-term enhancement of +stockholder value; and +(3) Create +a performance-oriented environment that rewards performance with respect to the +financial and operational goals of Iteris. +In the fiscal year ended March 31, 2006, the annual +compensation for the executive officers included base salaries and cash +bonuses. +The Company establishes salaries for the officers by +considering the salaries of officers at comparably sized companies according to +data obtained by the Compensation Committee from executive compensation +consultants and from other independent outside sources, including the American +Electronics Association annual survey of executive compensation. +The Company also has a Deferred Compensation Savings +Plan pursuant to which executive officers of the Company may defer some or all +of their salaries. No amounts were +deferred by any executive officer in the fiscal year ended March 31, 2006. +A portion of the compensation of executive officers +has historically been based upon the award of stock options which rely on +increases in the value of the Company’s securities. The award of options is intended to encourage +executives to establish a meaningful, long-term ownership interest in the +Company consistent with the interests of Iteris’ stockholders. Under Iteris’ stock option plans, options are +granted from time to time to certain officers and key associates of the Company +and its subsidiaries at the fair market value of the shares of common stock at +the time of grant. Because the +compensation element of options is dependent on increases over time in the +market value of such shares, stock options represent compensation that is tied +to the Company’s long-term performance. +The award of stock options to the executive officers of the Company is +determined based upon individual performance, level of base salary and position +with the Company. +The Compensation Committee has reviewed the base salaries +for the fiscal year ended March 31, 2006 of each of the executive officers and +is of the opinion that such salaries are not unreasonable in view of those paid +by the Company’s competitors and by other companies of similar size. +20 +CEO +Compensation +In setting the total compensation payable to Jack +Johnson, the Company’s President and Chief Executive Officer, for the fiscal +year ended March 31, 2006, the Compensation Committee sought to make such +compensation competitive with that provided by other companies with which the +Company competes for executive talent. +With respect to the base salary of Mr. Johnson, it was +the Compensation Committee’s intent to provide him with a level of stability +and certainty each year. The +Compensation Committee believes the base salary of Mr. Johnson for the fiscal +year ended March 31, 2006 is at a competitive level with the base salaries in +effect for similarly situated chief executive officers. The remaining components of Mr. Johnson’s +compensation for the fiscal year ended March 31, 2006, however, were primarily +dependent upon corporate performance. +Based upon such performance, among other factors, a bonus to Mr. Johnson +of $40,919 was approved for the fiscal year ended March 31, 2006. No options were granted to him for the fiscal +year ended March 31, 2006. +Compliance with +Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code generally +disallows a tax deduction to publicly held corporations for compensation +exceeding $1.0 million paid to certain of the corporation’s executive +officers. The limitation applies only to +compensation which is not considered to be performance-based. The nonperformance based compensation to be +paid to the Company’s executive officers for the fiscal year ended March 31, 2006 +did not exceed the $1.0 million limit per officer, nor is it expected that the +nonperformance based compensation to be paid to the Company’s executive +officers for the next fiscal year will exceed that limit. The Company’s 1997 Stock Incentive Plan is +structured so that any compensation deemed paid to an executive officer in +connection with the exercise of option grants made under that plan will qualify +as performance-based compensation which will not be subject to the $1.0 million +limitation. Because it is very unlikely +that the cash compensation payable to any of the Company’s executive officers +in the foreseeable future will approach the $1.0 million limit, the +Compensation Committee has decided at this time not to take any other action to +limit or restructure the elements of cash compensation payable to the executive +officers. The Compensation Committee +will reconsider this decision should the individual compensation of any +executive officer ever approach the $1.0 million level. +Submitted by the Compensation +Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +21 +AUDIT +COMMITTEE REPORT +The following is the report of the Audit Committee +with respect to the Company’s audited consolidated financial statements for the +fiscal year ended March 31, 2006 included in the Company’s Annual Report on +Form 10-K for that year. +Review with +Management +The Audit Committee has reviewed and discussed the +audited consolidated financial statements with the Company’s management. +Review and +Discussions with Independent Auditors +The Audit Committee has discussed with the Company’s +independent auditors, McGladrey & Pullen, LLP, the matters required to be +discussed by SAS 61 (Codification of Statements on Auditing Standards, AU +Section 380), as amended, which includes, among other items, matters related to +the conduct of the audit of the consolidated financial statements of Iteris. +The Audit Committee has received the written +disclosures and the letter from McGladrey & Pullen, LLP required by +Independence Standards Board Standard No. 1 (“Independence Discussions with +Audit Committees”), as amended, and has discussed with McGladrey & Pullen, +LLP the independence of McGladrey & Pullen, LLP from Iteris. +Conclusion +Based on the review and discussions referred to above +in this report, the Audit Committee recommended to the Company’s Board of +Directors that the audited financial statements be included in the Company’s +Annual Report on Form 10-K for the year ended March 31, 2006 for filing with +the Securities and Exchange Commission. +Submitted by the Audit +Committee +of the Board of Directors: +Richard Char +John W. Seazholtz +Thomas L. Thomas +22 +PERFORMANCE GRAPH +FOR ITERIS, INC. +INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN +The performance graph shows the cumulative total +return on investment assuming an investment of $100 on March 31, 2001 in the +Company’s common stock, the Nasdaq Stock Market Index and the same peer group used +by the Company last year, which is made up of the remaining members of the +index used by the Company in prior years, the Media General Industry Group 836 +for Diversified Electronics, which is no longer a published index. The Company’s common stock is currently +listed on the American Stock Exchange under the symbol “ITI” and began trading +on such exchange on December 9, 2004. +The Company’s common stock (formerly the Class A common stock) was +listed on the Nasdaq National Market (now called the Nasdaq Global Market) until +April 2002 and on the Nasdaq SmallCap Market (now called the Nasdaq Capital +Market) from April 2002 to August 2003 and quoted on the OTC Bulletin Board +from August 2003 to December 2004. The +total stockholder return assumes reinvestment of dividends on a daily basis, +although cash dividends have not been declared on the Company’s common +stock. The stockholder returns shown in +the following graph are not necessarily indicative of future performance. +Measurement Period +2001 +2002 +2003 +2004 +2005 +2006 +Iteris Common +Stock +100.00 +45.93 +19.56 +118.52 +72.30 +78.22 +Nasdaq Market +Index +100.00 +103.39 +77.21 +113.36 +113.86 +135.02 +Peer Group +100.00 +75.03 +47.61 +86.20 +66.03 +87.03 +Notwithstanding +anything to the contrary set forth in any of the Company’s previous or future +filings under the Securities Act or the Exchange Act, as amended, that might +incorporate this proxy statement or future filings made by the Company under +those statutes, the Compensation Committee Report, the Audit Committee Report, +the Audit Committee Charter, reference to the independence of the Audit +Committee members and the Performance Graph are not deemed filed with the +Securities and Exchange Commission and shall not be deemed incorporated by +reference into any of those prior filings or into any future filings made by +the Company under those statutes. +23 +CERTAIN +TRANSACTIONS +Since April 1, 2005, other than the payments to +Gregory Miner pursuant to the change in control agreement described in +“Executive Compensation and Other Information–Employment Contracts, Termination +of Employment Agreements and Change of Control Arrangements,” there have been +no transaction, or series of similar transactions, to which the Company or any +of its subsidiaries was or is to be a party, in which the amount involved exceeds +$60,000 and in which any of the directors or executive officers of the Company, +any greater than 5% stockholder of the Company or any member of the immediate +family of any of the foregoing person had a direct or indirect material +interest. In addition, there are no +relationships between our directors and entities with which we do business of +the type required to be disclosed pursuant to Item 404(b) of Regulation S-K. +SECTION 16(A) +BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, Iteris’ directors +and officers and any persons holding more than 10% of Iteris’ common stock are +required to report their ownership of Iteris’ common stock and any changes in +that ownership to the SEC. Specific due +dates for these reports have been established, and Iteris is required to report +in this proxy statement any failure to file by these dates. Based solely on its review of copies of the +reports on Forms 3, 4 and 5 received by Iteris with respect to the fiscal year +ended March 31, 2006, and the written representations received from the +reporting persons that no other reports were required, Iteris believes that all +directors, executive officers and persons who own more than 10% of Iteris’ +common stock have complied with the reporting requirements of Section 16(a) and +have filed all reports required by such section. +ANNUAL REPORT +A copy of Iteris’ annual report on Form 10-K for the +fiscal year ended March 31, 2006 (excluding the exhibits thereto) accompanies +the proxy materials being mailed to all stockholders. The annual report is not incorporated into +this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the annual report +and any of the Company’s other filings with the SEC, without charge, by writing +to Investor Relations, Iteris, Inc., 1515 South Manchester Avenue, Anaheim, +California 92802. The annual report on +Form 10-K (including the exhibits thereto) is also available on the Securities +and Exchange Commission’s website at www.sec.gov. +DEADLINE FOR +RECEIPT OF STOCKHOLDER PROPOSALS +In the event that a stockholder desires to have a +proposal considered for presentation at the annual meeting of stockholders to +be held in 2006, and included in the Company’s proxy statement and form of +proxy card used in connection with such meeting, the proposal must be forwarded +in writing to the Company’s Secretary so that it is received no later than +April 11, 2007. Any such proposal must +comply with the requirements of Rule 14a-8 promulgated under the Exchange Act. +If a stockholder, rather than including a proposal in +the proxy statement as discussed above, commences his or her own proxy +solicitation for the 2006 Annual Meeting of Stockholders or seeks to nominate a +candidate for election as a director or to propose business for consideration +at such meeting, the Company must receive notice of such proposal on or before +June 25, 2007. If the notice is not +received on or before June 25, 2007, it will be considered untimely under Rule +14a-4(c)(1) promulgated under the Exchange Act, and the Company will have +discretionary voting authority under proxies solicited for the 2006 Annual +Meeting of Stockholders with respect to such proposal, if presented at the +meeting. +Please address any stockholder proposals or notices of +proposals to the corporate Secretary of Iteris at the principal executive +offices of Iteris located at 1515 South Manchester Avenue, Anaheim, California +92802. +24 +OTHER +BUSINESS +The Board of Directors is not aware of any other +matter which will be presented for action at the Annual Meeting other than the +matters set forth in this proxy statement. +If any other matter requiring a vote of the stockholders arise, it is +intended that the proxy holders will vote the shares they represent as the +Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by +the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Anaheim, California +August 9, 2006 +25 +PROXY +ITERIS, INC. +COMMON STOCK +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby +appoints JACK JOHNSON and JAMES S. MIELE, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of +Stockholders of Iteris to be held at 1515 South Manchester Avenue, Anaheim, +California 92802 on September 14, 2006 at 10:00 a.m. Pacific Time, and at any +adjournments or postponements thereof, and to vote all shares of common stock +of Iteris held of record by the undersigned on July 25, 2006, with all the +powers the undersigned would possess if personally present, in accordance with +the instructions on the reverse hereof. +The undersigned hereby revokes any other proxy to vote +at such Annual Meeting of Stockholders and hereby ratifies and confirms all +that said proxies, and each of them, may lawfully do by virtue hereof. The undersigned also acknowledges receipt of +the Notice of the Annual Meeting of Stockholders, the proxy statement and the +annual report to stockholders on Form 10-K for the year ended March 31, 2006, +which were furnished with this proxy. +CONTINUED AND TO +BE SIGNED ON REVERSE SIDE +SEE REVERSE SIDE +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN +ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, +THIS PROXY WILL BE VOTED FOR PROPOSALS ONE AND TWO, AND IN ACCORDANCE WITH THE +DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY +BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT +THEREOF. +x Please mark votes as in this example. +1. Election of +Directors +Nominees standing for +election by holders of common stock: +Richard Char, Kevin C. Daly, Ph.D., Gary Hernandez, Jack Johnson, Dr. +Hartmut Marwitz, Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel +Slutzky, Thomas L. Thomas and Paul E. Wright. +o FOR o WITHHOLD AUTHORITY to vote for all nominees +listed below +(Instruction: +To withhold authority to vote for any individual nominee, write that +nominee’s name in the space provided above.) +2. Ratification +of McGladrey & Pullen, LLP as the independent auditors of Iteris for the +fiscal year ending +March 31, 2007. +o +FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN +TO ATTEND THE MEETING o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name +appears hereon. Executors, +administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly +authorized officer should sign on behalf of the corporation and should indicate +his or her title.) +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD +PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-06-049985/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-06-049985/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-07-061094/proxy.txt b/raw/proxies/0000350868/0001104659-07-061094/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6490e9fa27e0dd453b9645a7715932f559be2987 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-07-061094/proxy.txt @@ -0,0 +1,4567 @@ +DEF 14A +1 +a07-16543_2def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the +Registrant x +Filed by a Party +other than the Registrant o +Check the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy +Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other +than the Registrant) +Payment of +Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on +table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class +of securities to which transaction applies: +(2) +Aggregate number +of securities to which transaction applies: +(3) +Per unit price +or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum +aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid +previously with preliminary materials. +o +Check box if any +part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount +Previously Paid: +(2) +Form, Schedule +or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 21, 2007 +To the Stockholders of +Iteris, Inc.: +NOTICE IS HEREBY +GIVEN that the 2007 Annual Meeting of Stockholders (the “Annual Meeting”) of +Iteris, Inc., a Delaware corporation, will be held on Thursday, September 21, +2007 at 10:00 a.m. Pacific Time, at the Doubletree Hotel Anaheim/Orange County, +located at 100 The City Drive, Orange, California 92868, for the following +purposes, as more fully described in the proxy statement accompanying this +Notice: +1. To +elect seven directors to serve on the Board of Directors until the next annual +meeting of stockholders. The nominees for election are Richard Char, Kevin C. +Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky +and Thomas L. Thomas. +2. To +approve the amendment of our certificate of incorporation to increase the +number of authorized shares of our common stock by 20,000,000, from 50,000,000 +shares to 70,000,000 shares. +3. To +approve the Iteris, Inc. 2007 Omnibus Incentive Plan and the issuance of up to +850,000 shares of common stock thereunder. +4. To +ratify the appointment of McGladrey & Pullen, LLP as our independent +auditors for the fiscal year ending March 31, 2008. +5. To +transact any other business which may properly come before the Annual Meeting +or any adjournment(s) or postponement(s) thereof. +All stockholders +of record as of the close of business on July 25, 2007 are entitled to notice +of and to vote at the Annual Meeting and at any postponement(s) or +adjournment(s) thereof. You are cordially invited to be present and to vote at +this Annual Meeting. Whether or not you plan to attend, it is important that +your shares be represented and voted at the Annual Meeting. You can vote your +shares by completing and returning the enclosed proxy card. If your shares are +held in “street name,” that is, your shares are held in the name of a brokerage +firm, bank or other nominee, in lieu of a proxy card you should receive from +that institution an instruction form for voting by mail and you may also be +eligible to vote your shares electronically over the Internet or by telephone. +Should you receive more than one proxy card or voting instruction form because +your shares are held in multiple accounts or registered in different names or +addresses, please sign, date and return each proxy card or voting +instruction form to ensure that all of your shares are voted. You may revoke +your proxy at any time prior to the Annual Meeting. If you attend the Annual +Meeting and vote by ballot, any proxy that you previously submitted will be +revoked automatically and only your vote at the Annual Meeting will be counted. +For further information, please see the discussion of voting rights and proxies +beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD +OF DIRECTORS +Anaheim, California +Abbas Mohaddes +August 10, 2007 +Chief Executive Officer and President +YOUR +VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE +READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE +ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED +ENVELOPE. +ITERIS, INC. +1515 South Manchester Avenue +Anaheim, California 92802* +PROXY STATEMENT +FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 21, 2007 +General +These proxy materials and the enclosed proxy card are +being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), +to be voted at the 2007 Annual Meeting of Stockholders (the “Annual Meeting”) +to be held on September 21, 2007 and at any adjournment(s) or postponement(s) +of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at +the Doubletree Hotel Anaheim/Orange County, located at 100 The City Drive, +Orange, California 92868. These proxy materials and the form of proxy are expected +to be mailed to our stockholders who are entitled to vote at the Annual Meeting +on or about August 13, 2007. +Purpose of Meeting +The specific +proposals to be considered and acted upon at the Annual Meeting are summarized +in the accompanying Notice of the Annual Meeting of Stockholders and are +described in more detail in this proxy statement. +Voting Rights +The record date +for determining those stockholders who are entitled to notice of, and to vote +at, the Annual Meeting has been fixed as July 25, 2007. At the close of +business on the record date, 32,764,826 shares of our common stock, par value +$0.10 per share, were outstanding and no shares of our preferred stock were +outstanding. Each stockholder is entitled to one vote for each share of common +stock held by such stockholder as of the record date. +The presence in +person or by proxy of the holders of a majority of the outstanding shares of +the common stock entitled to vote will constitute a quorum for the transaction +of business at the Annual Meeting. If a quorum is not present, the Annual +Meeting will be adjourned until a quorum is obtained. +In the election of +directors under Proposal One, directors will be elected by a plurality of the +common stock entitled to vote and present in person or represented by proxy at +the Annual Meeting, unless cumulative voting is in effect. Pursuant to our +bylaws, no stockholder is entitled to cumulate his or her votes (as described +above) for candidates other than those whose names have been placed in +nomination prior to the commencement of voting and unless at least one +stockholder has given notice prior to commencement of voting of his or her +intention to cumulate votes. If any stockholder has given such notice, then +each stockholder may cumulate votes by multiplying the number of shares of +common stock the stockholder is entitled to vote by the number of directors to +be elected. The +* We expect +that our headquarters and principal operations will be relocated in September +2007 to 1700 East Carnegie Avenue, Santa Ana, California 92705. +1 +number of cumulative +votes thus determined may be voted all for one candidate or distributed among +several candidates, at the discretion of the stockholder. The candidates +receiving the highest number of votes, up to the number of directors to be +elected, will be elected. If cumulative voting is in effect, the persons named +in the accompanying proxy will vote the shares of common stock covered by +proxies received by them (unless authority to vote for directors is withheld) +among the named candidates as they determine. +Proposal Two +requires the approval of the affirmative vote of a majority of the common stock +outstanding and entitled to vote on the matter. Proposals Three and Four +require the approval of the affirmative vote of a majority of the common stock +present in person or represented by proxy at the Annual Meeting and entitled to +vote on the matter. +All votes will be +tabulated by the inspector of election appointed for the Annual Meeting, who +will separately tabulate affirmative and negative votes, abstentions and broker +non-votes. Broker non-votes occur when brokers who hold stock in “street name” +return proxy cards stating that they do not have authority to vote the stock +which they hold on behalf of beneficial owners. Abstentions and broker +non-votes are counted as present for purposes of determining the presence or +absence of a quorum for the transaction of business. Abstentions will be +counted towards the tabulations of votes cast on proposals presented to the +stockholders and will have the same effect as negative votes. Broker non-votes +will not be counted for purposes of determining whether a proposal has been +approved. The election of directors in Proposal One and the ratification of the +selection of the independent auditors in Proposal Four are matters on which a +broker or other nominee is generally empowered to vote. Therefore, no broker +non-votes will exist in connection with Proposal One or Proposal Four. +Voting +You may vote by +one of three ways: (i) by mail, (ii) electronically over the Internet or by +telephone, or (iii) by ballot in person at the Annual Meeting. If you are a “registered +holder,” that is, your shares are registered in your own name through our +transfer agent, you may vote by returning a completed proxy card in the +enclosed postage-paid envelope. If your shares are held in “street name,” that +is, your shares are held in the name of a brokerage firm, bank or other +nominee, in lieu of a proxy card you should receive a voting instruction form +from that institution by mail. The voting instruction form should indicate +whether the institution has a process for beneficial holders to vote over the +Internet or by telephone. Stockholders who vote over the Internet or by +telephone need not return a proxy card or voting instruction form by mail, but +may incur costs, such as usage charges, from telephone companies or Internet +service providers. If your voting instruction form does not reference Internet +or telephone information, please complete and return the paper voting +instruction form in the self-addressed, postage-paid envelope provided. +If you are a +registered holder, you may also vote your shares in person at the Annual +Meeting. If your shares are held in street name and you wish to vote in person +at the meeting, you must obtain a proxy issued in your name from the record +holder and bring it with you to the Annual Meeting. We recommend that you vote +your shares in advance as described above so that your vote will be counted if +you later decide not to attend the Annual Meeting. +Proxies +Please use the +enclosed proxy card to vote by mail. If your shares are held in street name, +then in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail, the Internet or by telephone. Should you +receive more than one proxy card or voting instruction form because your shares +are held in multiple accounts or registered in different names or addresses, +please be sure to complete, sign, date and return each proxy card or voting +instruction form to ensure that all of your shares will be voted. Only proxy +cards and voting instruction forms that have been signed, dated and timely +returned (or otherwise properly voted by Internet or telephone) will be counted +in the quorum and voted. Properly executed proxies will be voted in the manner +directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted FOR the election +of the directors proposed by the Board under Proposal One unless the authority +to vote for the election of any director is withheld and, if no contrary +instructions are given, the proxy will be voted FOR the approval of each of the +other proposals as described in this proxy statement and the accompanying +notice. +2 +The enclosed proxy +also grants the proxy holders discretionary authority to vote on any other +business that may properly come before the Annual Meeting as well as any +procedural matters. We have not been notified by any stockholder of his or her +intent to present a stockholder proposal at the Annual Meeting. +If your shares are +held in your name, you may revoke or change your vote at any time before the +Annual Meeting by filing a notice of revocation or another signed proxy card +with a later date with our Secretary at our principal executive offices. If +your shares are held in street name, you should contact the record holder to +obtain instructions if you wish to revoke or change your vote before the Annual +Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that +you submitted previously to vote the same shares will be revoked automatically +and only your vote at the Annual Meeting will be counted. Please note, +however, that if your shares are held in street name, your vote in person at +the Annual Meeting will not be effective unless you have obtained and present a +proxy issued in your name from the record holder. Attendance at the +Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy +is being solicited by our Board of Directors. We will bear the entire cost of +proxy solicitation, including the costs of preparing, assembling, printing and +mailing this proxy statement, the proxy card and any additional material +furnished to the stockholders. Copies of the solicitation materials will be +furnished to brokerage houses, fiduciaries and custodians holding shares in +their names that are beneficially owned by others so that they may forward this +solicitation material to such beneficial owners. In addition, we may reimburse such +persons for their reasonable expenses in forwarding the solicitation materials +to the beneficial owners. The original solicitation of proxies by mail may be +supplemented by a solicitation by personal contact, telephone, facsimile, email +or any other means by our directors, officers or employees. No additional +compensation will be paid to these individuals for any such services. +In the discretion +of management, we reserve the right to retain a professional firm of proxy +solicitors to assist in solicitation of proxies. Although we do not currently +expect to retain such a firm, it estimates that the fees of such firm would +range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be +paid by us. +3 +PROPOSAL +ONE: +ELECTION +OF DIRECTORS +Our bylaws provide for a Board of Directors consisting +of not less than seven nor more than eleven members. The exact number may be +changed, within such limits, by a resolution duly adopted by the Board or by +the stockholders. The number of directors constituting the full Board is +currently set at eleven. We currently have ten directors and one vacancy. Three +of the current directors will not be standing for re-election at the Annual +Meeting, and the size of the Board will be reduced to seven persons immediately +prior to the Annual Meeting. +On the recommendation of the Nominating and Corporate +Governance Committee, our Board of Directors selected and approved the +following persons as nominees for election at the Annual Meeting to serve until +the next annual meeting of stockholders, or until their successors are duly +elected and qualified or until their earlier resignation or removal: Richard +Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, +Joel Slutzky and Thomas L. Thomas. Each nominee for election is currently a +member of our Board of Directors and has agreed to serve if elected. We have no +reason to believe that any of the nominees will be unavailable to serve. In the +event any of the nominees named herein is unable to serve or declines to serve +at the time of the Annual Meeting, the persons named in the enclosed proxy will +exercise discretionary authority to vote for substitutes. Unless otherwise +instructed, the proxy holders will vote the proxies received by them FOR the +nominees named above. +Stockholder Approval +The seven candidates receiving the highest number of +affirmative votes, present in person or represented by proxies and entitled to +vote at the Annual Meeting, will be elected as our directors. However, if +cumulative voting is in effect, the proxy holders will have the right to +cumulate and allocate votes among those nominees standing for election as such +proxy holders in their discretion elect. +Recommendation of the Board of +Directors +Our Board of +Directors recommends a vote “FOR” the seven director nominees listed above. +Directors and Nominees +The following table sets +forth certain information, as of July 1, 2007, concerning our directors and +director nominees. +Name +Age +Current Position(s) with Iteris +Director +Since +Richard Char(1) +48 +Director +2005 +Kevin C. Daly, +Ph.D.(2)(3) +62 +Director +and Assistant Secretary +1993 +Gary Hernandez(3)* +48 +Director +2004 +Dr. Hartmut Marwitz* +65 +Director +2004 +Gregory A. Miner +52 +Chairman +of the Board +1998 +Abbas Mohaddes +50 +Chief +Executive Officer, President, Assistant Secretary and Director +2005 +John W. +Seazholtz(1)(2)(3) +70 +Director +1998 +Joel Slutzky +68 +Director +and Assistant Secretary +1969 +Thomas L. +Thomas(1)(2)(3) +58 +Director +1999 +Paul E. Wright* +76 +Director +1993 +* Not +a director nominee for the Annual Meeting. +(1) Member +of the Audit Committee. +(2) Member +of the Compensation Committee. +(3) Member +of the Nominating and Corporate Governance Committee. +4 +Abbas +Mohaddes has served as our Chief Executive Officer and +President since March 2007, as an Assistant Secretary since May 2004 and as a +director since September 2005. Prior to his promotion in March 2007, Mr. +Mohaddes served as our Executive Vice President and a General Manager from +October 2004. He was the Executive Vice President of our former Iteris, Inc. +subsidiary (the “Iteris Subsidiary”) from March 2004 to October 2004 and its +Secretary from September 2001 to October 2004. Prior to that, he served as the +Senior Vice President and Director of Transportation Systems of the Iteris +Subsidiary from May 2000 to March 2004 and as its Vice President and Deputy +Director of Transportation from October 1998 to May 2000. Mr. Mohaddes also served +as President and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), +an ITS and transportation firm that he co-founded in 1991, which was acquired +by the Iteris Subsidiary in October 1998 and dissolved in April 2006. Mr. +Mohaddes is a founding and a current board member of ITS America and a member +of several trade organizations including Transportation Research Board, +Institute of Transportation Engineers, and the Design/Build Institute of +America. +Richard +Char has served as a director since September 2005. Since June 2006, Mr. +Char has served as Senior Vice President of Corporate Development and General +Counsel at Blackhawk Network, Inc., a provider of card-based financial +solutions, including third-party prepaid cards. From March 2003 to April 2005, +Mr. Char served as the President and Chief Executive Officer of IC Media, a +developer of CMOS image sensors that was acquired in April 2005 by MagnaChip +Semiconductors, a developer and manufacturer of mixed-signal and digital +multimedia semiconductors. Prior to joining IC Media, from March 1999 to +January 2002, Mr. Char was Managing Director with the Technology Group of +Credit Suisse First Boston. From 1997 to 1999, Mr. Char was Co-Head of +Technology Investment Banking at Cowen & Company and from 1984 to 1997, he +was a partner in the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Char +received his A.B. degree from Harvard College and his J.D. degree from Stanford +Law School. +Kevin +C. Daly, Ph.D. has served as a director since 1993. Since +November 2005, Dr. Daly has served as the Chief Executive Officer of MAXxess +Systems, Inc., a provider of electronic security solutions, which he joined in +June 2005. From June 2002 to June 2005, Dr. Daly was the Chief Executive +Officer of Avamar Technologies, Inc., a provider of high availability storage +software solutions. Dr. Daly was Chief Technical Officer of Quantum Corporation’s +Storage Solutions Group from October 2001 to July 2002 and, prior to that, he +was Chief Executive Officer of ATL Products, Inc., one or our former +subsidiaries, from ATL’s formation in 1993 until 2001. Dr. Daly also served as +our Chief Technical Officer from 1985 until ATL’s separation from us in an +initial public offering in 1997. Prior to joining us, Dr. Daly was Director of +the Control and Dynamics Division of the Charles Stark Draper Laboratory at MIT +from 1974 through 1985. Dr. Daly is also a member of the Board of Directors of +Danka Business Systems PLC and iStor Networks Inc. +Gary +Hernandez has served as a director since September 2004. He +also served as a director of the Iteris Subsidiary from January 1999 to October +2004. Mr. Hernandez has been a partner in the law firm of Sonnenschein, Nath +and Rosenthal LLP since December 1997. From December 1995 to December 1997, Mr. +Hernandez was a partner in the law firm of Long & Levit. Mr. Hernandez +served as Deputy Insurance Commissioner of California from April 1991 to +November 1995. Mr. Hernandez received his B.A. degree from the University of +California, Berkeley and his J.D. degree from the University of California, +Davis. +Dr. +Hartmut Marwitz has served as a director since September 2004. Dr. +Marwitz also served as a director of the Iteris Subsidiary from 1999 to October +2004 and has served as the Vice-President of Engineering Mercedes-Benz Trucks +of DaimlerChrysler in Germany since 1995. Previously, Dr. Marwitz served with +Daimler-Benz AG as Director of Truck Powertrain Testing. Furthermore, Dr. +Marwitz has broad experiences in the field of passenger car development. Before +joining Daimler-Benz AG, Dr. Marwitz worked as Senior Manager for Rheinmetall +in the field of Special Machinery Development in Germany and Spain. Dr. Marwitz +holds an Engineering Degree in Mechanical Engineering and a Doctoral Degree in +Experimental Mechanics from the Technical University of Munich, Germany. Since +2003, Dr. Marwitz has held an honorary professorship as the Chair of Machine +and Design at the Institute of Machine Design and Automotive Engineering at the +Technical University of Karlsruhe (Germany). +5 +Gregory +A. Miner has served as a director since 1998 and as our +Chairman of the Board of Directors since October 2004. Mr. Miner is also the +Managing Partner of Merchant Capital Source, LLC, a company that provides +working capital financing solutions to merchants. Prior to that, Mr. Miner +served as our Chief Executive Officer from February 2002 to October 2004 and as +our Chief Financial Officer from January 1994 to October 2004. He also served +as our Chief Operating Officer from 1998 to 2002 and as the Chairman of the +Board of the Iteris Subsidiary from December 2003 to October 2004. Mr. Miner +has served in various capacities for our other subsidiaries from time to time. +From December 1984 until joining us, Mr. Miner served as the Vice President, +Chief Financial Officer and a director of Laser Precision Corporation, a +manufacturer of telecommunications test equipment. Mr. Miner is a Certified +Public Accountant and, from 1979 to 1984, was employed by Deloitte Haskins and +Sells (now known as Deloitte & Touche LLP) in various capacities, the most +recent of which was Audit Manager. +John +W. Seazholtz has served as a directors since May 1998. From May +1998 to April 2000, Mr. Seazholtz served as the President and Chief Executive +Officer of Telesoft America, Inc. He retired in April 1998 as the Chief +Technology Officer of Bell Atlantic after 36 years of service with that company +and its predecessor. Mr. Seazholtz was a senior officer of Bell Atlantic from +1986, serving in various positions, including the positions of Vice President, +Operations and Engineering, Vice President, Marketing, Vice President of New +Services, and Vice President, Technology and Information Systems. Mr. Seazholtz +currently serves as the Chairman of the Board of Westell Technologies, Inc. +Joel +Slutzky has served as a director since he co-founded our company in 1969. Mr. +Slutzky was the Chairman of the Board of Directors from 1969 to October 2004 +and our Chief Executive Officer from 1975 to February 2002. Mr. Slutzky also +served as the Chairman of the Board of the Iteris Subsidiary until December +2003 and served in various capacities for our other subsidiaries from time to +time. Mr. Slutzky currently serves on the Board of Directors of Project +Tomorrow, an organization focused on improving Kindergarten through 12th grade +science education in Orange County, California. +Thomas +L. Thomas has served as a director since May 1999. Mr. Thomas +served as the Chairman of the Board, President and Chief Executive Officer of +HAHT Commerce, a provider of software applications that enable companies to use +the Internet to conduct business, from February 2000 until February 2004 when +HAHT Commerce was sold to Global Exchange Services, or GXS. Mr. Thomas +currently serves as the President and Chief Operating Officer of GXS, a +provider of business-to-business EDI and supply chain management solutions. Mr. +Thomas was previously the President and Chief Executive Officer of Ajuba +Solutions, a provider of B2B integration solution software, which was sold to +Interwoven in October 2000. From April 1999 until January 2000, he served as +the President, Chief Executive Officer and Chairman of the Board of Vantive +Corporation, a customer relationship management software vendor which was +acquired by Peoplesoft in January 2000. Prior to that, from September 1995 to +April 1999, Mr. Thomas served as the Senior Vice President of e-Business and +Information Services and Chief Information Officer at 3Com Corporation. From +1993 to 1995, Mr. Thomas served as a Vice President and the Chief Information +Officer of Dell Computer Corporation. From 1987 to 1993, he served as the Vice +President of Management Information Systems at Kraft General Foods, and at Sara +Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of +Directors of iManage, Inc. +Paul +E. Wright has served as a director since June 1993. He also +served as a director of the Iteris Subsidiary from January 1999 to October +2004. Mr. Wright is the President of Wright Associates—Engineering and Business +Consultants, a company he formed in 1997. From 1988 until his retirement in +1997, Mr. Wright served as the Chairman of Chrysler Technologies Corp., the +aerospace and defense electronics subsidiary of Chrysler Corporation. From 1986 +to 1988, Mr. Wright served as the President and Chief Operating Officer of +Fairchild Industries, Inc. Prior to joining Fairchild, he was employed for 28 +years by RCA Corporation, where he last served as the Senior Vice President, +responsible for planning RCA’s merger into General Electric Corporation. +All directors are +elected annually and hold office until the next annual meeting of stockholders +and until their successors are duly elected and qualified. All of the nominees +have indicated that they are willing to continue to serve as directors. In the +event any nominee is unable or declines to serve as a director at the time of +the Annual Meeting, the proxies will be voted for an additional nominee who +shall be designated by the current Board of Directors. As of the date of this +proxy statement, the Board of Directors is not aware of any nominee who is +unable or unwilling to serve as director. +6 +Family Relationships +There are no +family relationships among any of our directors, director nominees or executive +officers. +CORPORATE +GOVERNANCE +Code of Ethics and Business +Conduct +Our Board of +Directors has adopted a Code of Ethics and Business Conduct which applies to +all directors, officers (including our principal executive officer, principal +financial officer, principal accounting officer or controller, or persons +performing similar functions) and employees. The full text of our Code of +Ethics and Business Conduct is available on the Investor Relations section of +our website at www.iteris.com . We +intend to disclose future amendments to certain provisions of the Code of +Ethics and Business Conduct, and any waivers of provisions of the Code of +Ethics required to be disclosed under the rules of the Securities and Exchange +Commission (“SEC”), at the same location on our website. +Director Independence +The Board of Directors +has determined that Messrs. Char, Daly, Seazholtz, Slutzky and Thomas each +satisfies the requirements for “independence” under the listing standards of +the American Stock Exchange. +Board Meetings and Committees +The Board of +Directors held six meetings during the fiscal year ended March 31, 2007 (“Fiscal +2007”). All of the directors attended or participated in at least 75% of the +aggregate number of meetings of the Board of Directors. Each director attended +at least 75% of the aggregate number of meetings of those committees of the +Board of Directors on which such person served, which were held during such +period. We currently have several standing committees of the Board of +Directors, including the Audit Committee, the Compensation Committee, and the +Nominating and Corporate Governance Committee. The Audit Committee, the +Compensation Committee, and the Nominating and Corporate Governance Committee +each has a written charter that is reviewed annually and revised as +appropriate. A copy of each committee’s charter is available on the Investor +Relations section of our website at www.iteris.com . +Audit +Committee. The current members of our Audit Committee are +Messrs. Char, Seazholtz and Thomas. Each member of the Audit Committee is “independent” +under the current listing standards of the American Stock Exchange and the SEC +rules regarding audit committee memberships. The Board has identified Mr. Char +as the member of the Audit Committee who qualifies as an “audit committee +financial expert” under applicable SEC rules and regulations governing the +composition of the Audit Committee. The Audit Committee held nine meetings +during Fiscal 2007. +The Audit +Committee oversees on behalf of the Board (a) the conduct of the accounting and +financial reporting processes, the audits of our financial statements and the +integrity of our audited financial statements and other financial reports; (b) +the performance of our internal accounting and financial controls function; (c) +the engagement, replacement, compensation, qualifications, independence and +performance of our independent auditors; and (d) the portions of the Code of +Ethics and Business Conduct and related policies regarding our accounting, +internal accounting controls or auditing matters. +The Audit +Committee meets privately with our independent auditors, and the independent +auditors have unrestricted access to and report directly to the Audit +Committee. The Audit Committee has selected McGladrey & Pullen, LLP as our +independent auditors for the fiscal year ending March 31, 2008 and is +recommending that our stockholders ratify this appointment at the Annual +Meeting. +7 +Compensation +Committee. The current members of our Compensation +Committee are Messrs. Daly, Seazholtz and Thomas. The Board has concluded that +each member of the Compensation Committee is “independent” under the listing +standards of the American Stock Exchange. The Compensation Committee held one +meeting during Fiscal 2007. +The Compensation +Committee (a) evaluates officer and director compensation policies, goals, +plans and programs; (b) determines the cash and non-cash compensation of our “executive +officers” as defined in the rules promulgated under Section 16 of the +Securities Exchange Act of 1934, as amended (the “Exchange Act”); (c) reviews +and makes recommendations to the Board with respect to our equity-based and +other incentive compensation plans for employees; (d) evaluates the performance +of our executive officers; (e) assists the Board in evaluating potential +candidates for executive officer positions and oversee management succession +planning; and (f) produces the Committee report required by the applicable +rules and regulations of the SEC and other regulatory bodies for inclusion in +our annual proxy statement. +Nominating +and Corporate Governance Committee. The current members +of the Nominating and Corporate Governance Committee are Messrs. Daly, +Hernandez, Seazholtz and Thomas. The Board has determined that each of the +members of this committee are “independent” under the listing standards of the +American Stock Exchange. The Nominating and Corporate Governance Committee held +one meeting during Fiscal 2007. +The primary purposes +of the Nominating and Corporate Governance Committee are to (a) identify, +screen and review individuals qualified to serve as directors; (b) select or +recommend to the Board of Directors the selection of nominees for election at +the next annual meeting of stockholders; (c) recommend to the Board of +Directors candidates to fill any vacancies on the Board; (d) oversee the +implementation and monitoring the effectiveness of our corporate governance +policies and developing and recommending to the Board modifications and or +additions to such policies; and (e) review on a regular basis our overall +corporate governance and recommend improvements when necessary. +In connection with +their recommendations regarding the size and composition of the Board, the Nominating +and Corporate Governance Committee reviews the appropriate qualities and skills +required of directors in the context of the then current make-up of the Board. +This includes an assessment of each candidate’s independence, personal and +professional integrity, financial literacy or other professional or business +experience relevant to an understanding of our business, ability to think and +act independently and with sound judgment, and ability to serve our company’s +and our stockholders’ long-term interests. These factors, and others as +considered useful by the Nominating and Corporate Governance Committee, are +reviewed in the context of an assessment of the perceived needs of the Board at +a particular point in time. As a result, the priorities and emphasis of the +Nominating and Corporate Governance Committee and of the Board may change from +time to time to take into account changes in business and other trends, and the +portfolio of skills and experience of current and prospective directors. The +Nomination and Corporate Governance Committee leads the search for and selects, +or recommends that the Board select, candidates for election to the Board. +Consideration of new director candidates typically involves a series of +committee discussions, review of information concerning candidates and +interviews with selected candidates. Candidates for nomination to our Board +typically have been suggested by other members of the Board or by our executive +officers. From time to time, the Nomination and Corporate Governance Committee +may engage the services of a third-party search firm to identify director +candidates. +8 +The Nominating and Corporate Governance Committee will +consider candidates for directors recommended by our stockholders who meet the +eligibility requirements for submitting stockholder proposals for inclusion in +our next proxy statement. This committee will evaluate such recommendations +applying its regular nominee criteria. Eligible stockholders wishing to +recommend a nominee must submit such recommendation in writing to the Chair, Nominating +and Corporate Governance Committee, care of our corporate Secretary, by the +deadline for stockholder proposals set forth in our last proxy statement, +specifying the following information: (a) the name and address of the nominee, +(b) the name and address of the stockholder making the nomination, (c) a +representation that the nominating stockholder is a stockholder of record of +our stock entitled to vote at the next annual meeting and intends to appear in +person or by proxy at such meeting to nominate the person specified in the +notice, (d) the nominee’s qualifications for membership on the Board, (e) a +resume of the candidate’s business experience and educational background as +well as all of the information that would be required in a proxy statement +soliciting proxies for the election of the nominee as a director, (f) a +description of all direct or indirect arrangements or understandings between +the nominating stockholder and the nominee and any other person or persons +(naming such person or persons) pursuant to whose request the nomination is +being made by the stockholder, (g) all other companies to which the nominee is +being recommended as a nominee for director, and (h) a signed consent of the +nominee to cooperate with reasonable background checks and personal interviews, +and to serve as a director, if elected. In connection with its evaluation, the +Nominating and Corporate Governance Committee may request additional +information from the candidate or the recommending stockholder, and may request +an interview with the candidate. The Nominating and Corporate Governance +Committee has the discretion to decide which individuals to recommend for +nomination as directors. +No candidates for +director nominations were submitted to the Nominating and Corporate Governance +Committee by any stockholder in connection with the election of directors at +the Annual Meeting. Each of the director nominees standing for election at this +Annual Meeting is a current director. +Compensation of Directors +Non-employee +directors receive an annual fee of $12,000 per year, paid quarterly, in +addition to $1,500 for each Board meeting attended in person and $250 for each +telephone conference Board meeting. All directors are reimbursed for their +out-of-pocket expenses incurred in attending meetings of our Board of Directors +and its committees. +Non-employee directors were also eligible to receive +periodic option grants pursuant to the Automatic Option Grant Program under our +1997 Stock Incentive Plan. Under this plan, each non-employee director received +an option to purchase 20,000 shares of common stock upon his initial +appointment to the Board of Directors and an additional option to purchase +5,000 shares of common stock on the date of each annual meeting after his +appointment. Each option granted to non-employee directors under the Automatic +Option Grant Program had an exercise price equal to the fair market value of +the common stock on the grant date and a maximum term of ten years, subject to +earlier termination following the optionee’s cessation of service as a Board +member. The 1997 Stock Incentive Plan will expire prior to the Annual Meeting. +If the 2007 Omnibus Incentive Plan is approved by the stockholders, +non-employee directors will be eligible to receive periodic option grants +pursuant to the Directors’ Automatic Option Grant Program of the new plan, +having substantially the same terms as the grants under the 1997 Stock +Incentive Plan. +9 +Stockholder Communications +The Board has +implemented a process by which stockholders may send written communications +directly to the attention of the Board, any committee of the Board or any +individual Board member, care of our corporate Secretary. The name of any +specific intended Board recipient should be noted in the communication. Our +corporate Secretary will be primarily responsible for collecting, organizing +and monitoring communications from stockholders and, where appropriate +depending on the facts and circumstances outlined in the communication, providing +copies of such communications to the intended recipients. Communications will +be forwarded to directors if they relate to appropriate and important +substantive corporate or Board matters. Communications that are of a commercial +or frivolous nature or otherwise inappropriate for the Board’s consideration +will not be forwarded to the Board. Stockholders who wish to communicate with +the Board can write to the corporate Secretary at Iteris, Inc., 1515 South +Manchester Avenue, Anaheim, California 92802.* +Annual Meeting Attendance +We do not have a formal +policy regarding attendance by members of our Board of Directors at annual +meetings of our stockholders; however, directors are encouraged to attend all +such meetings. Eight of our current directors attended our 2006 annual meeting +of stockholders. +* We expect that +our headquarters and principal operations will be relocated in September 2007 +to 1700 East Carnegie Avenue, Santa Ana, California 92705. +10 +PROPOSAL +TWO: +APPROVAL +OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION +TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK +Under our present capital structure, we are authorized +to issue 50,000,000 shares of common stock, par value $0.10 per share, and 2,000,000 +shares of preferred stock, par value $1.00 per share. The Board believes this +capital structure is inadequate for our present and future needs. Therefore, +the Board has approved the amendment of Paragraph 1 of Article FOURTH of our +Certificate of Incorporation to increase the number of shares of common stock +authorized for issuance by 20,000,000 shares, from 50,000,000 to 70,000,000 +shares. The Board believes this capital structure more appropriately reflects +our present and future needs and recommends that the stockholders approve such +amendment. On July 25, 2007, 32,764,826 shares of the common stock and no +shares of preferred stock were outstanding. In addition, as of July 25, 2007, +4,740,588 shares were issuable upon exercise of outstanding options; 1,317,361 +shares were issuble upon exercise of outstanding warrants, and 2,728,532 shares +were issuable upon conversion of outstanding convertible debentures. +Purpose +of Authorizing Additional Common Stock +The authorization +of an additional 20,000,000 shares of common stock would give the Board the +express authority to issue such shares of common stock from time to time as the +Board deems necessary. The Board believes it is necessary to have the ability +to issue such additional shares of common stock for any proper corporate +purpose, such as for future acquisitions, option grants, and convertible debt +and equity financings. +We have no present +specific plans, understandings or agreements for the issuance of the proposed +additional shares of common stock. The Board of Directors, however, believes +that if an increase in the authorized number of shares of common stock were to +be postponed until a specific need arose, the delay and expense incident to +obtaining the approval of our stockholders at that time could significantly +impair our ability to meet financing requirements or other objectives. The +additional shares of common stock would be available for issuance by the Board +without any future action by the stockholders, unless such action were specifically +required by applicable law or the rules of any stock exchange or quotation +system on which our securities may then be listed. +Possible +Effects of Increase in Authorized Shares +The proposed +increase in the authorized number of shares of common stock could have a number +of effects on our stockholders depending upon the exact nature and +circumstances of any actual issuances of authorized but unissued shares. The +increase could have an anti-takeover effect, in that additional shares could be +issued (within the limits imposed by applicable law) in one or more +transactions that could make a change in control or takeover of us more +difficult. For example, additional shares could be issued by us to dilute the +stock ownership or voting rights of persons seeking to obtain control of us. +Similarly, the issuance of additional shares to certain persons allied with our +management could have the effect of making it more difficult to remove our +current management by diluting the stock ownership or voting rights of persons +seeking to cause such removal. In addition, an issuance of additional shares by +us could have an effect on the potential realizable value of a stockholder’s +investment. In the absence of a proportionate increase in our earnings and book +value, an increase in the aggregate number of outstanding shares of the common +stock caused by the issuance of additional shares would dilute the earnings per +share and book value per share of all outstanding shares of our capital stock. +If such factors were reflected in the price per share of common stock, the +potential realizable value of a stockholder’s investment could be adversely +affected. +Stockholder Approval +The affirmative +votes of a majority of all outstanding shares of the common stock entitled to +vote is required for approval of the amendment of our Certificate of +Incorporation to increase the number of authorized shares of common stock +issuable thereunder by 20,000,000 shares, from 50,000,000 shares to 70,000,000 +shares. +11 +Recommendation of the Board of Directors +The Board of Directors +recommends that the stockholders vote “FOR” the amendment of the Certificate of +Incorporation to increase the authorized number of shares of common stock by +20,000,000, from 50,000,000 shares to 70,000,000 shares. +12 +PROPOSAL +THREE: +APPROVAL +OF 2007 OMNIBUS INCENTIVE PLAN +On July 19, 2007, +the Board of Directors adopted the 2007 Omnibus Incentive Plan (the “2007 Plan”), +subject to stockholder approval. If approved by the stockholders, the 2007 Plan +will become effective as of the date of the stockholder approval. Our 1997 +Stock Incentive Plan (the “1997 Plan”) will terminate in September 2007 prior +to the Annual Meeting; however, all outstanding awards under our 1997 Plan will +remain outstanding pursuant to the terms of such options. This proposal, and +the effectiveness of the 2007 Plan, will not affect awards already granted +under the 1997 Plan. As of July 25, 2007, there were options outstanding to +purchase 4,740,588 shares of common stock, granted under the 1997 Plan or +assumed in connection with our October 2004 merger with our Iteris Subsidiary, +and aggregate remaining authority to grant awards for the issuance of 35,088 +shares of common stock under our 1997 Plan. +We are required to obtain stockholder approval of the +2007 Plan under the rules of the American Stock Exchange. Such approval is also +necessary to permit us to grant incentive stock options to employees under +Section 422 of the Internal Revenue Code, as amended (the “Code”), and to +ensure that compensation paid under the 2007 Plan is eligible for an exemption +from the limits on tax deductibility imposed by Section 162(m) of the Code, +which limits the deductibility of certain compensation paid to individuals who +are, at the end of the tax year for which we would otherwise claim our tax +deduction, our chief executive officer and our four other most highly paid +executive officers. +Our stockholders are being asked to approve the 2007 +Plan and to authorize the issuance of 850,000 shares of common stock thereunder. +The Board believes that the 2007 Plan is necessary for us to be able to attract +and retain the services of individuals essential to our long-term growth and +success. +2007 Omnibus Incentive Plan +The following is a summary of the principal features +of the 2007 Plan and is qualified in its entirety by reference to the 2007 +Plan. A copy of the 2007 Plan document as proposed to be adopted may be found +at Appendix A at the end of this proxy statement. Any stockholder who wishes to +obtain an additional copy of the actual plan document may do so upon written +request to us at our principle executive offices. +Purpose. The 2007 Plan is +designed to serve as a comprehensive equity incentive program to attract and +retain the services of individuals essential to our long-term growth and +financial success. Accordingly, our officers and other employees, non-employee +directors and other consultants and advisors will have the opportunity to +acquire a meaningful equity interest in the Company through their participation +in the 2007 Plan. +Administration. Both the Board +and the Compensation Committee have the authority to administer the 2007 Plan. +The Board may at any time appoint a secondary committee comprised of two or +more directors to have concurrent authority to make grants and issuances of any +equity-based instruments permissible under the 2007 Plan to individuals other +than executive officers and non-employee directors. The committee administering +the 2007 Plan will have full power and authority to determine when and to whom +awards will be granted, and the type, amount, form of payment and other terms +and conditions of each award, consistent with the provisions of the 2007 Plan. +Subject to the provisions of the 2007 Plan, the committee may amend or waive +the terms and conditions, or accelerate the exercisability, of an outstanding +award. The committee has authority to interpret the 2007 Plan, and establish +rules and regulations for the administration of the 2007 Plan. In addition, the +Board may exercise the powers of the committee at any time, except with respect +to the grant of awards to our executive officers and non-employee directors. +Eligible Participants . +Any employee, officer, consultant, advisor or director providing services to us +or any of our affiliates (including our current and future subsidiaries), who +is selected by the committee, is eligible to receive an award under the 2007 +Plan. As of July 25, 2007, 245 employees (including officers) and nine +non-employee directors were eligible to be selected by the committee to receive +awards under the 2007 Plan. +13 +Shares Available For Awards . +The aggregate number of shares of common stock that may be issued under all +stock-based awards made under the 2007 Plan will be 850,000. The shares of +common stock issuable under the 2007 Plan may be drawn from shares of +authorized but unissued common stock or from shares of common stock that the +Company acquires. +A maximum of 850,000 shares will be available for +granting incentive stock options under the 2007 Plan, subject to the provisions +of Section 422 or 424 of the Code or any successor provision. In addition, no +person may be granted under the 2007 Plan stock options or SARs (defined below) +with respect to more than 500,000 shares of common stock in the aggregate within +any fiscal year. +The committee may adjust the number of shares and +share limits described above in the case of a stock dividend or other +distribution, including a stock split, merger or other similar corporate +transaction or event, in order to prevent dilution or enlargement of the +benefits or potential benefits intended to be provided under the 2007 Plan. +If any shares of our common stock subject to any award +or to which an award relates are forfeited or are reacquired by the Company, or +if any award terminates without the delivery of any shares, the shares +previously set aside for such awards will be available for future awards under +the 2007 Plan. +Types of Awards and Terms +and Conditions . The 2007 Plan +permits the granting of: +· stock options +(including both incentive and non-qualified stock options); +· stock +appreciation rights (“SARs”); +· restricted stock +and restricted stock units; +· performance +awards of cash, stock or property; +· dividend +equivalents; +· other stock +grants; and +· other +stock-based awards. +Awards may be granted alone, in addition to, in +combination with or in substitution for, any other award granted under the 2007 +Plan or any other compensation plan. Awards can be granted for no cash +consideration or for cash or other consideration as determined by the committee +or as required by applicable law. Awards may provide that upon the grant or +exercise thereof, the holder will receive shares of our common stock or other +securities or property, or any combination of these, in a single payment or +installments. The exercise price per share under any stock option and the grant +price of any SAR will be determined by the committee and may not be less than +the fair market value on the date of grant of such option or SAR, or less than +110% of fair market value for incentive stock options granted to holders of +more than 10% of our common stock. Determinations of fair market value under +the 2007 Plan will be made in accordance with methods and procedures +established by the committee. The term of awards will not be longer than 10 +years, or in the case of incentive stock options, longer than 5 years with +respect to holders of more than 10% of our common stock. +Stock Options . The +holder of an option will be entitled to purchase a number of shares of our common +stock at a specified exercise price during a specified time period, all as +determined by the committee. The option exercise price may be payable either in +cash or, at the discretion of the committee, in other securities or other +property having a fair market value on the exercise date equal to the exercise +price. The shares subject to each option will generally vest in one or more +installments over a specified period of service measured from the grant date. +We receive no payment for the grant of an option. Upon cessation of service, +the optionee will have a limited period of time in which to exercise his or her +outstanding options to the extent exercisable for vested shares. +14 +Stock Appreciation Rights . +The holder of a SAR is entitled to receive the excess of the fair market value +(calculated as of the exercise date or, at the committee’s discretion, as of +any time during a specified period before or after the exercise date) of a +specified number of shares of our common stock over the grant price of the SAR, +as determined by the committee, paid solely in shares of common stock. SARs +vest and become exercisable in accordance with a vesting schedule established +by the committee. This type of SAR is sometimes described as a “stock only +settled stock appreciation right.” +Restricted Stock and Restricted +Stock Units . The holder of restricted stock will own shares +of our common stock subject to restrictions imposed by the committee +(including, for example, restrictions on transferability or on the right to +vote the restricted shares or to receive any dividends with respect to the +shares) for a specified time period determined by the committee. The +restrictions, if any, may lapse or be waived separately or collectively, in +installments or otherwise, as the committee may determine. The holder of +restricted stock units will have the right, subject to any restrictions imposed +by the committee, to receive shares of our common stock at some future date +determined by the committee. The committee also may permit accelerated vesting +in the case of a participant’s death, disability or retirement, or a change in +control. If the participant’s employment or service as a director terminates +during the vesting period for any other reason, the restricted stock and +restricted stock units will be forfeited, unless the committee determines that +it would be in our best interest to waive the remaining restrictions. +Performance Awards . +Performance awards granted under the 2007 Plan are intended to qualify as “performance-based +compensation” within the meaning of Section 162(m) of the Code. Performance +awards give participants the right to receive payments in stock or property +based solely upon the achievement of certain performance goals during a +specified performance period. The committee must designate all participants for +each performance period, and establish performance goals and target awards for +each participant no later than 90 days after the beginning of each performance +period within the parameters of Section 162(m) of the Code. Performance goals +must be based solely on one or more of the following business criteria: (i) +revenue; (ii) cash flow; (iii) gross profit; (iv) earnings before interest and +taxes; (v) earnings before interest, taxes, depreciation and amortization; (vi) +net earnings; (vii) diluted earnings per share; (viii) margins, including gross +profit, operating and net income margins; (ix) returns, including return on +assets, equity, investment, capital and revenue and total stockholder return; +(x) stock price; (xi) economic value added; (xii) working capital; (xiii) +market share; (xiv) cost reductions; (xv) workforce satisfaction and diversity +goals; (xvi) employee retention; (xvii) customer satisfaction; (xviii) +completion of key projects; and (ixx) strategic plan development and +implementation. +The measure of performance may be set by reference to +an absolute standard or a comparison to specified companies or groups of +companies, or other external measures, and may be applied at individual or +organizational levels. No person may be granted under the 2007 Plan qualified +performance based awards which could result in such person receiving more than +$1,500,000 in cash or the equivalent fair market value of shares of common +stock determined at the date of grant for each full or partial fiscal year +contained in the performance period of a particular qualified performance based +award, except that if any other qualified performance based awards are +outstanding for such person for a given fiscal year, such dollar limitation +shall be reduced for each such fiscal year by the amount that could be received +by the person under all such qualified performance based awards, divided, for +each such qualified performance based award, by the number of full or partial +fiscal years contained in the performance period of each such outstanding +qualified performance based award (subject to adjustment in the case of a stock +dividend or other distribution, including a stock split, merger or other +similar corporate transaction or event, but only to the extent that such +adjustment does not affect the status of any award intended to qualify as “performance +based compensation” under Section 162(m) of the Code. +Dividend Equivalents . +The holder of a dividend equivalent will be entitled to receive payments in shares +of our common stock, other securities or other property equivalent to the +amount of cash dividends paid by us or our stockholders, with respect to the +number of shares determined by the committee. Dividend equivalents will be +subject to other terms and conditions determined by the committee. +Stock Awards . The +committee may grant unrestricted shares of our common stock, subject to terms +and conditions determined by the committee and the 2007 Plan limitations. +15 +Automatic Option Grant Program . +Under the automatic option grant program, eligible non-employee Board members +receive a series of option grants over their period of Board service. Under +this proposal, each non-employee Board member will, at the time of his or her +initial election or appointment to the Board, receive an option grant for +20,000 shares of common stock provided such individual has not been in the +previous employ of the Company. In addition, under this proposal, on the date +of each annual stockholders meeting, beginning with the Annual Meeting, each +individual who is to continue to serve as a non-employee Board member will +automatically be granted an option to purchase 5,000 shares of common stock, +provided he or she has served as a non-employee Board member for at least six +(6) months. There will be no limit on the number of such 5,000-share option +grants any one eligible non-employee Board member may receive over his or her +period of continued Board service. +Stockholder approval of this proposal will also +constitute pre-approval of each option granted under the automatic option grant +program on or after the date of the annual stockholders meeting and the +subsequent exercise of that option in accordance with the terms of the program +summarized below. +Each automatic grant will have an exercise price per +share equal to the fair market value per share of common stock on the grant +date and will have a maximum term of 10 years, subject to earlier termination +following the optionee’s cessation of Board service. Each automatic option will +be immediately exercisable for any or all of the option shares; the shares +acquired under those options will be subject to repurchase by the Company, at +the exercise price paid per share, if the optionee ceases service with the +Company prior to vesting in those shares. Each initial 20,000-share automatic +option will be fully vested on the grant date. Each annual 5,000-share +automatic option will vest in four (4) successive equal annual installments +upon the optionee’s completion of each year of service as a director, measured +from the grant date. However, each outstanding automatic option grant will +automatically accelerate and become immediately exercisable for any or all of +the option shares as fully-vested shares upon certain changes in control or +ownership of the Company or upon the optionee’s death or disability while a +Board member. Following the optionee’s cessation of Board service for any +reason, each option will remain exercisable for a 12-month period and may be +exercised during that time for any or all shares in which the optionee is +vested at the time of such cessation of service as a director. +Duration, Termination and Amendment . +Unless earlier discontinued or terminated by the Board, the 2007 Plan will +expire on the tenth anniversary of its adoption by the Board. No awards may be +made after that date. However, unless otherwise expressly provided in an +applicable award agreement, any award granted under the 2007 Plan prior to +expiration of the 2007 Plan may extend beyond the end of the expiration of the plan +through the award’s normal expiration date. +The Board and, pursuant to the delegation of its +authority, the committee may amend, alter or discontinue the 2007 Plan at any +time, although stockholder approval must be obtained for any action that would, +absent such approval, (i) violate the rules and regulations of any securities +exchange applicable to the Company, (ii) cause Rule 16b-3 of the Securities +Exchange Act of 1934 or Section 162(m) of the Internal Revenue Code to become +unavailable with respect to the 2007 Plan or (iii) cause the Company to be +unable under the Internal Revenue Code to grant incentive stock options under +the 2007 Plan. +Acceleration . In +the event that we are acquired by merger, asset sale or sale by the +stockholders of more than 50% of our outstanding voting stock recommended by +the Board, each outstanding option under the 2007 Plan that is not to be +assumed or replaced by the successor corporation or otherwise continued in +effect will automatically accelerate in full, and all unvested shares +outstanding under the 2007 Plan will immediately vest, except to the extent our +repurchase rights with respect to those shares are to be assigned to the +successor corporation or otherwise continued in effect. +The plan administrator will have the authority under +the 2007 Plan to provide that options and other awards granted under the 2007 +Plan will automatically vest in full (i) upon an acquisition of the Company, +whether or not those awards are assumed or replaced, (ii) upon a hostile change +in control of the Company effected through a tender offer for more than 50% of +our outstanding voting stock or by proxy contest for the election of Board +members, or (iii) in the event the individual’s service is terminated, whether +involuntarily or through a resignation for good reason, within a designated +period (not to exceed 18 months) following an acquisition in which the options +are +16 +assumed or replaced or otherwise continued in effect +upon a hostile change in control. The options granted under the director +automatic option grant program will automatically accelerate and become +exercisable in full upon any acquisition or change in control transaction. +The acceleration of vesting in the event of a change +in the ownership or control of the Company may be seen as an anti-takeover +provision and may have the effect of discouraging a merger proposal, a takeover +attempt or other efforts to gain control of the Company. +Transferability of Awards . +Unless otherwise provided by the committee, awards under the 2007 Plan may only +be transferred by will or by the laws of descent and distribution. +Delivery of Shares for Tax +Obligation . Under the 2007 Plan, the committee may permit +participants receiving or exercising awards, subject to the discretion of the +committee and upon such terms and conditions as it may impose, to deliver +shares of our common stock (either shares received upon the receipt or exercise +of the award or shares previously owned by the holder of the option) to the +Company to satisfy federal and state income tax obligations. +Certain +Federal Income Tax Consequences +The following is a summary of the principal U.S. +federal income tax consequences generally applicable to awards under the 2007 +Plan. +Grant of Options and SARs . +The grant of a stock option or SAR is not expected to result in any taxable +income for the recipient. +Exercise of Options and SARs . +Upon exercising a non-qualified stock option, the optionee will recognize +ordinary income equal to the excess of the fair market value of the shares of +our common stock acquired on the date of exercise over the exercise price, and +we will generally be entitled at that time to an income tax deduction for the +same amount. Upon exercising an incentive stock option, the optionee generally +will not recognize taxable income (except that an alternative minimum tax +liability may arise), and we will not be entitled to an income tax deduction. +Upon exercising a SAR, the recipient of the SAR will recognize ordinary income +in an amount equal to the fair market value on the exercise date of any shares +of our common stock received, and we will receive an income tax deduction in +the same amount. +Disposition of Shares Acquired Upon +Exercise of Options and SARs . The tax consequence upon a +disposition of shares acquired through the exercise of an option or SAR will +depend on how long the shares have been held and whether the shares were +acquired by exercising an incentive stock option or by exercising a +non-qualified stock option or SAR. Generally, there will be no tax consequence to +us in connection with the disposition of shares acquired under an option or +SAR, except that we may be entitled to an income tax deduction in the case of +the disposition of shares acquired under an incentive stock option before the +applicable incentive stock option holding periods set forth in the Code have +been satisfied. +Awards Other than Options and SARs . +As to other awards granted under the 2007 Plan that are payable in either cash +or shares of our common stock that are either transferable or not subject to +substantial risk of forfeiture, the holder of the award must recognize ordinary +income equal to (a) the amount of cash received or, as applicable, (b) the +excess of (i) the fair market value of the shares received (determined as of +the date of receipt) over (ii) the amount (if any) paid for the shares by the +holder of the award. We will generally be entitled at that time to an income +tax deduction for the same amount. +As to an award that is payable in shares of our common +stock that are restricted from transfer and subject to substantial risk of +forfeiture, unless a special election is made by the holder of the award under +the Code, the holder must recognize ordinary income equal to the excess of (i) +the fair market value of the shares received (determined as of the first time +the shares become transferable or not subject to substantial risk of +forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for +the shares by the holder of the award. We will generally be entitled at that +time to an income tax deduction for the same amount. +17 +Income Tax Deduction . +Subject to the usual rules concerning reasonable compensation, and assuming +that, as expected, performance awards paid under the 2007 Plan are “qualified +performance-based compensation” within the meaning of Section 162(m) of the +Code, we will generally be entitled to a corresponding income tax deduction at +the time a participant recognizes ordinary income from awards made under the +2007 Plan. +Application of Section 16 . +Special rules may apply to individuals subject to Section 16 of the Exchange +Act. In particular, unless a special election is made pursuant to the Code, +shares received through the exercise of a stock option or SAR may be treated as +restricted as to transferability and subject to a substantial risk of +forfeiture for a period of up to six months after the date of exercise. +Accordingly, the amount of any ordinary income recognized and the amount of our +income tax deduction will be determined as of the end of that period. +Deductibility of Executive +Compensation Under Code Section 162(m) . Section 162(m) of the +Code generally limits to $1,000,000 the amount that a publicly-held corporation +is allowed each year to deduct for the compensation paid to each of the +corporation’s chief executive officer and the corporation’s other four most +highly compensated executive officers. However, “qualified performance-based +qualified compensation” is not subject to the $1,000,000 deduction limit. In +general, to qualify as performance-based compensation, the following +requirements need to be satisfied: (1) payments must be computed on the basis +of an objective, performance-based compensation standard determined by a +committee consisting solely of two or more “outside directors,” (2) the +material terms under which the compensation is to be paid, including the +business criteria upon which the performance goals are based, and a limit on +the maximum bonus amount which may be paid to any participant pursuant with +respect to any performance period, must be approved by a majority of our +stockholders and (3) the committee must certify that the applicable performance +goals were satisfied before payment of any performance-based compensation. +The 2007 Plan has been designed to permit grants of +stock options and SARs issued under the 2007 Plan to qualify under the +performance-based compensation rules so that income attributable to the +exercise of a non-qualified stock option or a SAR may be exempt from the +$1,000,000 deduction limit. Grants of other awards under the 2007 Plan may not +so qualify for this exemption. The 2007 Plan’s provisions are consistent in +form with the performance-based compensation rules, so that if the committee +that grants options or SARs consists exclusively of members of the board of +directors of the Company who qualify as “outside directors,” and the exercise +price (or deemed exercise price, with respect to SARs) is not less than the +fair market value of the shares of common stock to which such grants relate, +the compensation income arising on exercise of those options or SARs should +qualify as performance-based compensation which is deductible even if that +income would be in excess of the otherwise applicable limits on deductible +compensation income under Code Section 162(m). +New Plan +Benefits +No benefits or amounts have been granted, awarded or +received under the 2007 Plan. In addition, the committee in its sole discretion +will determine the number and types of awards that will be granted. Thus, it is +not possible to determine the benefits that will be received by eligible +participants if the 2007 Plan were to be approved by the stockholders. The fair +market value per share of common stock on any relevant date under the 2007 Plan +will be the closing selling price per share on that date on the American Stock +Exchange. The closing price of a share of our common stock as reported on the +American Stock Exchange on July 25, 2007 was $2.40. Other than the option to be +granted to Mr. Mohaddes, disclosed under “Executive Officers and Other +Information,” in accordance with his March 2007 offer letter relating to his +promotion as our Chief Executive Officer, we do not have any specific current +plans or commitments for any awards under the 2007 Plan. +18 +Stockholder +Approval +The affirmative vote of at least a majority of the +shares of common stock present in person or by proxy at the Annual Meeting and +entitled to vote on this matter is required for approval of the 2007 Plan. +Should such stockholder approval not be obtained, then the 2007 Plan will not +be adopted. +Recommendation of the Board of +Directors +The Board of +Directors recommends a vote “FOR” adoption of the 2007 Omnibus Incentive Plan. +19 +PROPOSAL +FOUR: +RATIFICATION +OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of McGladrey & Pullen, LLP was +engaged to serve as our independent auditors for the fiscal year ended March +31, 2007. The Audit Committee of the Board of Directors has selected that firm +to continue in this capacity for the fiscal year ending March 31, 2008. We are +asking our stockholders to ratify the selection by the Audit Committee of +McGladrey & Pullen, LLP as our independent auditors to audit our +consolidated financial statements for the fiscal year ending March 31, 2007 and +to perform other appropriate services. Stockholder ratification of the +selection of McGladrey & Pullen, LLP as our independent auditors is not +required by our bylaws or otherwise. In the event that the stockholders fail to +ratify the appointment, the Audit Committee will reconsider its selection. Even +if the selection is ratified, the Audit Committee, in its sole discretion, may +direct the appointment of a different independent accounting firm at any time +during the year if the committee feels that such a change would be in the best +interests of us and our stockholders. +A representative of McGladrey & Pullen, LLP is +expected to be present at the Annual Meeting to respond to stockholders’ +questions, and that representative will have the opportunity to make a brief +presentation to the stockholders if he or she so desires and will be available +to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common +stock, present or represented by proxy and entitled to vote at the Annual +Meeting will be required for ratification of the selection of McGladrey & +Pullen, LLP as our independent auditors for the fiscal year ending March 31, +2008. +Recommendation of the Board of +Directors +The Board of +Directors recommends that the stockholders vote “FOR” the ratification and +approval of the selection of McGladrey & Pullen, LLP as our independent +auditors for the fiscal year ending March 31, 2008. +20 +FEES PAID +TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following +table presents the aggregate fees billed for the indicated services performed +by McGladrey & Pullen, LLP for the fiscal years ended March 31, 2006 and +2007: +Fiscal Year Ended March 31, +2006 +2007 +Audit Fees +$ +309,000 +$ +341,000 +Audit-Related Fees +38,000 +48,000 +Tax Fees +37,000 +¾ +All Other Fees +¾ +¾ +Total Fees +$ +384,000 +$ +389,000 +Audit +Fees. Audit fees consist of fees billed by +McGladrey & Pullen, LLP for professional services rendered in connection +with the audit of our annual consolidated financial statements and review of +those consolidated financial statements included in our quarterly reports on +Forms 10-Q and other regulatory filings. +Audit-Related +Fees. Audit-related fees consist of fees billed for +professional services that are reasonably related to the performance of the +audit or review of our consolidated financial statements but are not reported +under “Audit Fees.” Such fees include, among other things, fees for +registration statements, fees for internal control reviews and assistance with +meeting the requirements of Section 404 of the Sarbanes-Oxley Act and certain +consultations concerning financial accounting and reporting standards. +Tax +Fees. Tax fees consist of fees billed for +professional services for tax compliance, which include the preparation of +federal, state and international tax returns, and fees billed for tax +consultations, including federal, state and international tax advice, tax planning +and assistance with tax audits. +All +Other Fees. All Other Fees consist of fees for +products and services other than the services reported above. There were no +other fees billed to us by McGladrey & Pullen, LLP during the fiscal years +ended March 31, 2006 and 2007. +Determination of Independence +The Audit +Committee of the Board of Directors has determined that the provision by +McGladrey & Pullen, LLP of the non-audit related services described above +is compatible with maintaining the independence of McGladrey & Pullen, LLP. +Audit Committee Pre-Approval Policies and +Procedures +All engagements +for services by McGladrey & Pullen, LLP or other independent registered +public accountants are subject to prior approval by the Audit Committee; +however, de minimis non-audit services may instead be approved in accordance +with applicable SEC rules. The prior approval of the Audit Committee was +obtained for all services provided by McGladrey & Pullen, LLP in the fiscal +year ended March 31, 2007. +21 +AUDIT +COMMITTEE REPORT +The following is +the report of the Audit Committee with respect to our audited consolidated +financial statements for the fiscal year ended March 31, 2007 included in our +Annual Report on Form 10-K for that year. +Review with Management +The Audit +Committee has reviewed and discussed the audited consolidated financial +statements with our management. +Review and Discussions with Independent +Auditors +The Audit +Committee has discussed with our independent auditors, McGladrey & Pullen, +LLP, the matters required to be discussed by SAS 61 (Codification of Statements +on Auditing Standards, AU Section 380), as amended, which includes, among other +items, matters related to the conduct of the audit of our consolidated +financial statements. +The Audit +Committee has received the written disclosures and the letter from McGladrey +& Pullen, LLP required by Independence Standards Board Standard No. 1 (“Independence +Discussions with Audit Committees”), as amended, and has discussed with +McGladrey & Pullen, LLP the independence of McGladrey & Pullen, LLP +from Iteris. +Conclusion +Based on the +review and discussions referred to above in this report, the Audit Committee +recommended to our Board of Directors that the audited financial statements be +included in our Annual Report on Form 10-K for the year ended March 31, 2007 +for filing with the Securities and Exchange Commission. +Submitted by the Audit Committee +of the Board of Directors: +Richard Char +John W. Seazholtz +Thomas L. Thomas +22 +EXECUTIVE +COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below +sets forth certain information, as of July 1, 2007, regarding our executive +officers. +Name +Age +Capacities in Which Served +Abbas +Mohaddes +50 +Chief +Executive Officer, President, Assistant Secretary and Director +Gregory +McKhann +44 +Senior +Vice President and General Manager +Francis +Memole +49 +Senior +Vice President and General Manager +James S. Miele +39 +Vice President, Chief +Financial Officer and Secretary +The following is a +brief description of the capacities in which each of the executive officers has +served during the past five years. The biography of Mr. Mohaddes appears +earlier in this proxy statement. See Proposal One: “Election of Directors.” +Gregory +McKhann has served as a Senior Vice President and General Manager since +October 2004. Mr. McKhann was a Senior Vice President of the Iteris Subsidiary +from March 2004 to October 2004, its Vice President and General Manager of +Roadway Sensors from December 1998 to March 2004, its Vice President, Strategic +Business Development from October 1999 to May 2000 and the Marketing Director +of our ITS division (which became the Iteris Subsidiary) from July 1997 to +October 1999. Prior to joining us, Mr. McKhann served as a Business Development +Manager at Rockwell International from 1990 to 1997. While at Rockwell, Mr. +McKhann was one of the founding members of the Rockwell Transportation Systems +business unit. Prior to 1990, Mr. McKhann held a variety of Engineering and +Project Management positions at Rockwell International. +Francis +Memole has served as a Senior Vice President and General Manager since +October 2004. Mr. Memole was a Senior Vice President of the Iteris Subsidiary +from March 2004 to October 2004, its Vice President of Vehicle Sensors from +December 1998 to March 2004 and the Marketing Director of our ITS division +(which became the Iteris Subsidiary) from June 1997 to December 1998. Prior to +joining us, Mr. Memole was one of the founding members of the Rockwell +Transportation Systems business unit at Rockwell International. At Rockwell, +Mr. Memole was also involved in the Transportation Systems and In-Vehicle +Systems business initiatives. +James +S. Miele has served as our Vice President of Finance and +Chief Financial Officer since October 2004 and as the Secretary since March +2004. Mr. Miele was our Controller from October 2003 to October 2004 and the +Controller of the Iteris Subsidiary from April 2001 to October 2004. Prior to +that, from October 1998 to June 2000, Mr. Miele served as an audit manager at +Ernst & Young LLP, supervising financial statement audits for a variety of +public and privately held companies. Mr. Miele also served in Ernst & Young’s +Assurance and Advisory Business Services group from 1994 to 1998. Mr. Miele is +a Certified Public Accountant and holds a B.S. degree in Accounting from San +Diego State University. +Officers serve at +the discretion of the Board of Directors. +Compensation Discussion and +Analysis +General Compensation Policy +The guiding +principle of our compensation policies is to align executive compensation with +the Company’s objectives and business strategies as well as with financial and +operational performance. In keeping with this principle, the Compensation +Committee seeks to: +(1) Attract +and retain qualified senior executives who can play a significant role in the +achievement of the Company goals; +(2) Reward +executives for strategic management and the long-term enhancement of +stockholder value; and +(3) Create +a performance-oriented environment that rewards performance with respect to our +financial and operational goals. +23 +The Compensation +Committee meets periodically to review and recommend for approval by the Board +of Directors, the salaries, bonuses and benefit plans for our executive +officers and key associates. Our management provides recommendations to the +Compensation Committee with respect to most compensation matters, including +executive compensation, and we utilize independent third party salary survey +data as reference points. However, the final decisions regarding the +compensation of our executive officers are made by the Compensation Committee. +In measuring the executive officers’ contributions to the Company, the +Compensation Committee considers a number of factors, including our revenue +growth, net income and other financial performance measurements. +In Fiscal 2007, +the annual compensation for the named executive officers included base +salaries, cash bonuses and stock option grants. In setting the total +compensation payable to our named executive officers for Fiscal 2007, the +Compensation Committee sought to make such compensation competitive with that +provided by other companies with which we compete for executive talent while +providing short and long-term incentives for the achievement of measurable +corporate and individual performance objectives in keeping with the +compensation principles described above. The primary components of our +executive compensation program for Fiscal 2008 are expected to continue to +consist of base salaries, cash incentive opportunities and long-term equity +incentive opportunities in the form of stock options. In the future, such +long-term equity opportunities may also include other types of equity +instruments including, but not limited to, restricted stock or restricted stock +units. Executives also participate in employee benefit programs available to +the broader employee population. +Our compensation +plans and the amount of each compensation element to pay our named executive +officers are generally developed and determined on an individual, case-by-case +basis utilizing a number of factors, including publicly available data from +independent outside sources, including the American Electronics Association +annual survey of executive compensation, our general business conditions and +objectives, as well as our subjective determination with respect to the +executive’s individual contributions to such objectives. For our executive +officers, the Compensation Committee has adopted a policy of setting total +compensation at approximately the 75th to 100th percentile level of comparable +companies in order to effectively recruit and retain key executives. The cash +compensation, including the base salaries and bonuses, for Fiscal 2007 for our +executive officers was established generally at the higher end of such +percentile range, while the equity compensation generally was at the lower end +of such range. +Elements of Compensation +Base +Salary +We seek to provide +our senior management with a base salary appropriate to their roles and +responsibilities, and to provide them with a level of stability and certainty +each year. We establish salaries for the named executive officers by +considering the salaries of officers at comparably sized companies according to +data obtained by the Compensation Committee from independent outside sources, +including the American Electronics Association annual survey of executive +compensation. Our Chief Executive Officer does not participate in the +discussions regarding his own compensation but does provide input to the +Compensation Committee regarding the compensation of other executive officers. +We have generally established base salaries for our executive officers at the +higher end of our target percentile range, with the exact base salaries for our +executives based on the executive’s qualifications and experience, scope of +responsibilities, and the executive’s past performance and future potential. +Base salaries are reviewed annually, and adjusted from time to time to realign +salaries with market levels after taking into account such individual factors, +including responsibilities, performance and experience. The Compensation +Committee has reviewed the base salaries for Fiscal 2007 of each of the named +executive officers and is of the opinion that such salaries are at a +competitive level with the base salaries in effect for similarly situated +officers and are not unreasonable in view of those paid by our competitors and +by other companies of similar size. +24 +In addition, as +described below under the caption “Non-Qualified Deferred Compensation,” we +have a Deferred Compensation Savings Plan pursuant to which our executive +officers may defer some or all of their salaries. No amounts were deferred by +any executive officer in Fiscal 2007. +Incentive +Cash Bonuses +The remaining cash +component of the named executive officers’ compensation for Fiscal 2007 was an +annual cash bonus determined by the Compensation Committee based upon criteria +established by the committee at the beginning of the fiscal year. For Fiscal +2007, the bonuses were primarily dependent upon corporate and business unit +performance. 80% of the potential bonus for the Chief Executive Officer and the +Chief Financial Officer was based on total revenue and operating income +achieved for the year, and the remaining 20% of the potential bonus was based +on the applicable officer’s achievement of individual objectives that were +qualitative in nature and were established by the Compensation Committee. The +potential bonus for each of the other named executive officers, including Mr. +Mohaddes who served as our Executive Vice President during almost all of Fiscal +2007, were based on revenue and operating income achieved by the business unit +for which such officer had primary responsibility, as well as the operating +income achieved by the Company. +For the fiscal +year ending March 31, 2008 (“Fiscal 2008”), the potential bonuses for our named +executive officers have similarly been set based primarily on our overall +corporate and business unit performance, with 80% of the potential bonus for +Messrs. Mohaddes and Miele to be based on the total revenue and operating +income achieved by the Company for the year, and 80% of the potential bonus for +each of Messrs. McKhann and Memole to be based on revenue and operating income +achieved by the business unit for which such officer has primary responsibility, +as well as the operating income achieved by the Company. The remaining 20% of +the potential bonus for each named executive officer will be based on the +officer’s achievement of individual objectives. +The individual +objectives in Fiscal 2007 for the Chief Executive Officer and the Chief +Financial Officer were primarily focused on such officer’s management of his +area of responsibility. The objectives for Mr. Johnson, our Chief Executive +Officer until March 2007, generally included enhancing the relationship of the +Company with the financial community and increasing Company market value. The +objectives for Mr. Miele principally included strategic development of the +Company and increasing Company market value. For Fiscal 2008, the objectives +for Messrs. Mohaddes and Miele were established by the Compensation Committee +and included strategic development of the Company and Company market value +enhancement. The Fiscal 2008 objectives for the other named executive officers +were established by our Chief Executive Officer and primarily consisted of +operational objectives within their business area of responsibility for each of +Messrs. McKhann and Memole. +In Fiscal 2007, +the target bonuses under the plan as a percent of the officer’s base salary +ranged from 30% to 55%, with the Chief Executive Officer’s target bonus set at +55% of his base salary. The target bonuses for the other named executive +officers were 20% to 45% of the applicable officer’s base salary. For Fiscal +2008, the target bonuses were set at 35% to 46% of base salaries, with the +Chief Executive Officer’s target bonus set at 43% of his base salary and the +target bonus for all other named executive officers set at 35% to 46% of the +applicable officer’s base salary. Revenue and operating income goals +established for bonus purposes are generally higher than the goals established +by the Company for the operation of the business in general, and may thus be +difficult to attain without a high degree of effort. If the Company performance +exceeds the targets set for bonus purposes, the executives can earn, in the +aggregate, up to 150% of the target bonus award. Bonus achievement or +overachievement is determined on a factor-by-factor basis. +Based upon the +above described criteria, cash bonuses for the named executive officers in the +following amounts were approved for Fiscal 2007: Mr. Mohaddes — $66,487; Mr. +Johnson — $29,531; Mr. McKhann — $80,285; Mr. Memole — $2,585; and Mr. Miele — +$17,680. +Long-Term +Equity Compensation +A portion of the +compensation of executive officers has historically been based upon the award +of stock options which rely on increases in the value of our securities. The +award of options is intended to encourage executives to establish a meaningful, +long-term ownership interest in the company consistent with the interests of +our stockholders. Under our equity incentive plans, options are granted from +time to time to certain officers and key +25 +associates of us and our +subsidiaries at the fair market value of the shares of common stock at the time +of grant. We do not have a formal policy as to the amount or timing of grants +to executive officers. Because the compensation element of options is dependent +on increases over time in the market value of such shares, stock options +represent compensation that is tied to our long-term performance. The award of +stock options to our executive officers is determined based upon individual +performance, level of base salary and position with us. +In Fiscal 2007, we +granted to our named executive officers stock options for the following number +of shares: Mr. Mohaddes — 130,000 shares; Mr. McKhann — 30,000 shares; Mr. +Memole — 30,000 shares; and Mr. Miele — 15,000 shares. The options granted to +Mr. Mohaddes in Fiscal 2007 included an option for 100,000 shares granted to +him in connection with his promotion as our Chief Executive Officer and +President in March 2007. In the event that our stockholders approve the 2007 +Omnibus Incentive Plan, Mr. Mohaddes will be granted a stock option for 200,000 +additional shares of our common stock, pursuant to the offer letter relating to +his March 2007 promotion. The options granted to our named executive officers +generally have an exercise price equal to the fair market value on the date of +grant, vest in equal annual installments over four years, and are not +exercisable until vested. +Other +Compensation +Our executive +officers are eligible to receive the same benefits, including non-cash group +life and health benefits, that are available to all employees. Certain +additional benefits may be provided to our executives such as a car allowance, +but each on a case-by-case basis. +Summary Compensation Table +The following +table shows information regarding the compensation earned during Fiscal 2007 by +our Chief Executive Officer, Chief Financial Officer and our two other +executive officers who were employed by us as of March 31, 2007 and whose total +compensation exceeded $100,000 during that fiscal year, as well as information +regarding the compensation earned during Fiscal 2007 by our former Chief +Executive Officer and another former executive officer whose total compensation +exceeded $100,000 during Fiscal 2007. The officers listed below will be +collectively referred to as the “named executive officers” in this proxy +statement. +Name +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation (2) +Change +in Pension Value +and Non-Qualified +Deferred +Compensation +Earnings(3) +All Other +Compensation +(4) +Total +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +$ +227,483 +$ +14,655 +$ +66,487 +$ +¾ +$ +13,276 +$ +321,901 +Jack Johnson(5) +Former Chief Executive Officer and President +304,611 +3,141 +29,531 +¾ +11,150 +348,433 +Gregory McKhann +Senior Vice President and General Manager +192,004 +11,786 +80,285 +¾ +4,515 +288,590 +Francis Memole +Senior Vice President and General Manager +198,319 +22,041 +2,585 +¾ +13,220 +236,165 +James S. Miele +Vice President, Chief Financial Officer and Secretary +156,625 +14,912 +17,680 +¾ +5,325 +194,542 +Richard D. Crawshaw(6) +Former Vice President of Engineering +152,964 +1,371 +¾ +¾ +5,503 +158,838 +(footnotes +on next page) +26 +(footnotes +from prior page) +(1) Represents +the expense recognized by us for Fiscal 2007 for the stock options granted, +determined pursuant to SFAS 123(R) utilizing assumptions discussed in Note 1 to +our consolidated financial statements in our annual report for Fiscal 2007 (the +“Annual Report”) regarding assumptions underlying valuation of equity awards. +See also our discussion of share-based compensation under “Management’s +Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +(2) The +amounts shown in this column constitute the cash bonuses made to each named +executive officer based on the attainment of certain criteria pre-established +by the Compensation Committee. These awards are discussed in further detail +under “Compensation Discussion and Analysis” above. +(3) No +compensation was deferred in Fiscal 2007 under the Deferred Compensation +Savings Plan by any named executive officer. The non-cash assets of the +Deferred Compensation Savings Plan consist of shares of our common stock. As +such, the value of such assets are based on the market value of our common +stock and there were no above-market or preferential earnings on the assets +held under the plan. +(4) Represents +401(k) plan employer contributions and automobile allowances paid by us. +(5) Mr. +Johnson served as our Chief Executive Officer and President and as a director +until March 2007. Included in Mr. Johnson’s Fiscal 2007 salary was $54,611 for +accrued vacation that was paid to him upon his departure. +(6) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +Employment Contracts; Termination +of Employment and Change of Control Arrangements +On February 28, +2007, we entered into an offer letter agreement with Abbas Mohaddes in +connection with his promotion as our Chief Executive Officer effective as of +March 2007. The offer letter agreement provides for a base salary of $350,000 +per year, a potential bonus of $150,000 for the fiscal year ending March 31, +2008 and the grant of an option to purchase 100,000 shares of our common stock +(the “New Option”). In addition, upon approval by our stockholders of the 2007 +Omnibus Incentive Plan described in Proposal Three, Mr. Mohaddes will be +entitled to a stock option to purchase an additional 200,000 shares of our +common stock. Under the terms of the offer letter, in the event that his +employment with us is terminated for any reason other than cause within three +years of his promotion to Chief Executive Officer, Mr. Mohaddes will also be +entitled to receive one year’s severance, based on his then current base +salary, as well as 50% of his then current on-target bonus amount. In the event +of his death or disability, Mr. Mohaddes or his estate will be entitled to one +year’s acceleration on the vesting of the New Option. If a triggering event +under the severance provisions of his agreement had occurred on the last +business day of Fiscal 2007, then Mr. Mohaddes would have been entitled to a +payment of approximately $425,000, based on his current base salary and +on-target bonus. +On March 1, 2007, we entered into a Separation +Agreement and Release of Claims with Jack Johnson in connection with his +resignation from all officer and director positions with us, although he +remained employed by us until March 31, 2007 to assist with the transition in +management. Under the terms of the agreement, we agreed to pay Mr. Johnson one +year’s compensation, based on his salary as of his resignation, payable in accordance +with our regular payroll practices, together with certain healthcare benefits +through March 31, 2008. +27 +We do not +currently have any employment contracts in effect with any of our named +executive officers other than the agreements described above. We provide +incentives such as salary, benefits and option grants to attract and retain +executive officers and other key associates. The plan administrator of the 1997 +Plan has the authority to provide for the accelerated vesting of outstanding +options held by an individual, in connection with the termination of such +individual’s employment following an acquisition in which these options are +assumed or the repurchase rights with respect to the unvested shares are +assigned or upon certain hostile changes in control of the Company. Other than +such accelerated vesting and the agreements described above, there is no agreement +or policy which would entitle any executive officer to severance payments or +any other compensation as a result of such officer’s termination. +Grants of Plan-Based Awards +The following +table sets forth certain information with respect to the options granted during +Fiscal 2007 to our named executive officers, as well as bonuses that were +potentially payable to such officers under our bonus plan. All options were +granted under our 1997 Stock Incentive Plan and are incentive stock options, to +the extent permissible under the Internal Revenue Code. The exercise price per +share of each option granted to our named executive officers was equal to the +fair market value of our common stock on the date of grant. Except as otherwise +noted below, each option vests at the rate of 25% on each of the first four +anniversaries of the grant date. +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards(1) +All Other +Option +Awards: +Number +of Securities +Underlying +Exercise +or Base Price +of Option +Awards +Grant Date +Fair Value +of Option +Name +Grant Date +Threshold +Target +Maximum +Options (#) +($/Share) +Awards(2) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +03/14/07 +06/15/06 +— +$ +99,000 +(3) +$ +148,500 +(3) +100,000 +30,000 +$ +2.55 +2.21 +$ +201,500 +53,160 +Jack Johnson(4) +Former Chief Executive Officer and President +— +— +137,500 +206,250 +— +— +— +Gregory McKhann +Senior Vice President and General Manager +06/15/06 +— +86,400 +129,600 +30,000 +2.21 +53,160 +Francis Memole +Senior Vice President and General Manager +06/15/06 +— +86,400 +129,600 +30,000 +2.21 +53,160 +James S. Miele +Vice President, Chief Financial Officer and Secretary +06/15/06 +— +47,100 +70,650 +15,000 +2.21 +26,580 +Richard D. Crawshaw(5) +Former Vice President of Engineering +— +— +34,000 +51,000 +— +— +— +(1) Consists +of amounts that were potentially payable as cash bonuses based on the +attainment of certain criteria pre-established by the Compensation Committee. +These awards are discussed in further detail under “Compensation Discussion and +Analysis” above. The “Target” amounts represent the maximum amounts that could +have been awarded to the executives if the pre-established criteria had been +attained. The “Maximum” amounts consist of the “Target” amounts plus the +maximum overachievement bonuses that could have been awarded to the executives. +28 +(2) Represents +the grant date fair value of the stock options granted, determined pursuant to +SFAS 123(R) utilizing assumptions discussed in Note 1 to our consolidated +financial statements in our Annual Report. See also our discussion of +share-based compensation under “Management’s Discussion and Analysis of +Financial Condition and Results of Operations—Critical Accounting Policies and +Estimates” in the Annual Report. The amounts listed represent the total +share-based compensation to be recognized by us over the vesting period. +(3) Reflects +the amounts that were potentially payable to him in his prior position with the +Company, as our Executive Vice President and General Manager. +(4) Mr. +Johnson served as our Chief Executive Officer and President and as a director +until March 2007. +(5) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +Outstanding Equity Awards at +Fiscal Year-End +The following +table presents the outstanding equity awards held by each of the named +executive officers as March 31, 2007. Each option vests at the rate of 25% on +each of the first four anniversaries of the grant date. +Option Awards +Name +Number +of Securities +Underlying +Unexercised +Options (#) +Exercisable +Number +of Securities +Underlying +Unexercised +Options (#) +Unexercisable +Equity Incentive +Plan Awards: +Number +of Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price ($) +Option +Expiration +Date +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +220,000 +44,000 +― +― +― +― +30,000 +100,000 +― +― +― +― +$ +1.19 +1.40 +2.21 +2.55 +09/26/11 +04/30/12 +06/14/16 +03/13/17 +Jack Johnson(1) +Former Chief Executive Officer and President +449,980 +80,000 +12,000 +56,000 +― +― +― +― +― +― +― +― +0.53 +1.19 +1.40 +1.40 +06/28/07 +06/28/07 +06/28/07 +06/28/07 +Gregory McKhann +Senior Vice President and General Manager +12,500 +333 +56,248 +96,000 +34,000 +― +― +― +― +― +― +30,000 +― +― +― +― +― +― +0.53 +4.63 +1.07 +1.19 +1.40 +2.21 +09/29/07 +01/17/08 +05/13/08 +09/26/11 +04/30/12 +06/14/16 +Francis Memole +Senior Vice President and General Manager +87,496 +2,000 +68,000 +20,000 +6,000 +― +― +― +― +― +18,000 +30,000 +― +― +― +― +― +― +0.53 +4.63 +1.19 +1.40 +3.21 +2.21 +09/29/07 +01/17/08 +09/26/11 +04/30/12 +08/28/15 +06/14/16 +James S. Miele +Vice President, Chief Financial Officer and Secretary +40,000 +12,000 +5,000 +― +― +― +15,000 +15,000 +― +― +― +― +1.19 +1.40 +3.26 +2.21 +09/26/11 +04/30/12 +09/01/15 +06/14/16 +Richard D. Crawshaw(2) +Former Vice President of Engineering +1,667 +― +― +4.63 +04/26/07 +(1) Mr. +Johnson served as our Chief Executive Officer and President and as a director +until March 2007. +(2) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +29 +Option Exercises and Stock Vested +The following +table includes certain information with respect to the options exercised by the +named executive officers during Fiscal 2007. +Option Awards +Name and Principal Position +Number of Shares +Acquired on Exercise (#) +Value Realized +on Exercise ($) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +40,000 +$ +94,600 +Jack Johnson(1) +Former Chief Executive Officer and President +― +― +Gregory McKhann +Senior Vice President and General Manager +25,000 +60,875 +Francis Memole +Senior Vice President and General Manager +25,000 +65,500 +James S. Miele +Vice President, Chief Financial Officer and Secretary +― +― +Richard D. Crawshaw(2) +Former Vice President of Engineering +198,496 +504,080 +(1) Mr. +Johnson served as our Chief Executive Officer and President and as a director +until March 2007. +(2) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +Pension Benefits +We do not have any +qualified or non-qualified defined benefit plans. +Non-Qualified Deferred +Compensation +During the year +ended March 31, 2003, the Iteris Subsidiary adopted the Iteris, Inc. Deferred +Compensation Savings Plan (the “Deferred Compensation Plan”). The plan was +assumed by us in connection with the merger of the Iteris Subsidiary into us in +October 2004. The Deferred Compensation Plan is a non-qualified voluntary +deferral plan that, prior to 2005, permitted eligible executives to defer up to +a total of 50% of their regular salary and 100% of their bonuses in exchange +for phantom stock units representing the value of our common stock in any plan +year, which begins on January 1 and ends on December 31 of each calendar year. +Prior to the +merger of the Iteris Subsidiary into us in October 2004, the plan held shares +of the Iteris Subsidiary’s common stock. In connection with the merger of the +Iteris Subsidiary into us, shares of Iteris Subsidiary common stock held by the +plan were exchanged for shares of our common stock. No deferrals have been +credited to the Deferred Compensation Plan since January 1, 2005(and no +employer contributions have been permitted since the Plan’s inception). +30 +A participant’s +entire account balance becomes distributable in the form of our common stock +upon the earlier of the participant’s death, disability or termination of +employment. Distribution may be made in two substantially equal lump sum +payments, monthly installments over five years, or monthly installments over +ten years, as elected by the participant in his or her benefit agreement +received upon commencement of participation. The plan also permits participants +to receive payment while employed either (i) due to hardship or (ii) for any +reason if the participant forfeits 12 months of earnings. Because all amounts +in the Deferred Compensation Plan were both earned and vested prior to January +1, 2005, the plan is exempt from the application of section 409A of the +Internal Revenue Code. +All deferrals to +the Deferred Compensation Plan are considered part of our general assets. As +general assets, they are subject to the claims of our creditors, and the +participants are considered an unsecured creditor with respect to them. We have +established a “rabbi trust” which holds our common stock that is used to make +payments to participants. The purpose of the trust is to protect participants +against a refusal to pay payments (for example, in the event of a change in control). +The trust does not, however, protect the account balance in the event that we +become insolvent or bankrupt. +At March 31, 2007, +the Deferred Compensation Plan held 310,510 shares of our common stock and +$15,000 in cash. Changes in the value of our common stock held by the Deferred +Compensation Plan are determined based on changes in the quoted market price of +our common stock at the close of each reporting period and presented within +operating expenses in the accompanying consolidated statements of operations. +The following +table sets forth information with respect to the accounts of the named +executive officers under the Deferred Compensation Plan. +Name +Executive +Contributions +in Last +Fiscal Year ($) +Registrant +Contributions +in Last +Fiscal Year ($) +Aggregate +Earnings +in Last +Fiscal Year ($)(1) +Aggregate +Withdrawals/ +Distributions($) +Aggregate +Balance +at Last +Fiscal Year +End ($) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +$ ― +$ ― +$ +(2,477 +) +$ +— +$ +19,458 +Jack Johnson(2) +Former Chief Executive Officer and President +― +― +(83,238 +) +― +674,685 +Gregory McKhann +Senior Vice President and General Manager +― +― +(4,505 +) +― +35,383 +Francis Memole +Senior Vice President and General Manager +― +― +― +― +— +James S. Miele +Vice President, Chief Financial Officer and Secretary +― +― +― +― +— +Richard D. Crawshaw(3) +Former Vice President of Engineering +― +― +― +― +— +(1) Reflects +the difference between the value of shares of our common stock held in such +officer’s Deferred Compensation Plan account as of March 31, 2007 compared to +the value of such shares as of March 31, 2006. +(2) Mr. +Johnson served as our Chief Executive Officer and President and as a director until +March 2007. In May 2007, Mr. Johnson, elected to receive a distribution of 50% +of his Deferred Compensation Plan balance, representing 143,333 shares of our +common stock and $8,000 in cash, on or before June 30, 2007, and his remaining +deferred compensation plan balance of 143,333 shares of our common stock and +$7,000 in cash on the one year anniversary of this election. +(3) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +31 +Director Compensation +Directors who are +not employees of Iteris or any of its subsidiaries receive an annual fee of +$12,000 per year, paid quarterly, in addition to $1,500 for each Board meeting +attended in person and $250 for each telephone conference Board meeting. All +directors are reimbursed for their out-of-pocket expenses incurred in attending +meetings of our Board of Directors and its committees. +Non-employee +directors were also eligible to receive periodic option grants pursuant to the +Automatic Option Grant Program under our 1997 Stock Incentive Plan. Under this +plan, each non-employee director received an option to purchase 20,000 shares +of common stock upon his initial appointment to the Board of Directors and an +additional option to purchase 5,000 shares of common stock on the date of each +annual meeting after his appointment. The annual grants vest in equal annual +installments over four years, but are immediately exercisable. Each option +granted to non-employee directors under the Automatic Option Grant Program will +have an exercise price equal to the fair market value of the common stock on +the grant date and will have a maximum term of ten years, subject to earlier +termination following the optionee’s cessation of service as a Board member. If +the stockholders approve the 2007 Omnibus Incentive Plan, non-employee +directors would continue to receive the initial and annual option grants +described above. +The following +table sets forth a summary of the compensation earned in Fiscal 2007 by each +person who served as a director during such year, who is not a named executive +officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +All Other +Compensation ($) +Total ($) +Richard Char +$ +18,750 +$ +1,302 +$ +― +$ +20,052 +Kevin C. Daly, +Ph.D. +18,750 +1,302 +― +20,052 +Gary Hernandez +17,250 +1,302 +― +18,552 +Dr. Hartmut +Marwitz +16,500 +1,302 +― +17,802 +Gregory A. Miner +18,250 +1,302 +300,000 +(3) +319,552 +John W. +Seazholtz +20,750 +1,302 +― +22,052 +Joel Slutzky +18,250 +1,302 +― +19,552 +Thomas L. Thomas +19,250 +1,302 +― +20,552 +Paul E. Wright +18,000 +1,302 +― +19,302 +(1) Represents +amounts earned by the directors based on the compensation arrangement for +described above. +(2) Stock +options were granted pursuant to our 1997 Stock Incentive Plan. The amounts +listed represent the expense recognized by us for fiscal year ended March 31, +2007 for the stock options granted, determined pursuant to SFAS 123(R) +utilizing assumptions discussed in Note 1 to our consolidated financial +statements in our Annual Report. See also our discussion of share-based +compensation under “Management’s Discussion and Analysis of Financial Condition +and Results of Operations—Critical Accounting Policies and Estimates” in the +Annual Report. For the options granted in Fiscal 2007, the total share-based +compensation to be recognized over the vesting period are as follows: Richard +Char — $10,125; Kevin C. Daly, Ph.D. — $10,125; Gary Hernandez — $10,125; Dr. +Hartmut Marwitz — $10,125; Gregory A. Miner — $10,125; John W. Seazholtz — $10,125; +Joel Slutzky — $10,125; Thomas L. Thomas — $10,125; and Paul E. Wright — $10,125. +As of March 31, 2007, the non-employee directors held options for the following +number of shares of common stock: Richard Char — 25,000 shares; Kevin C. Daly, +Ph.D. — 43,000 shares; Gary Hernandez — 80,000 shares; Dr. Hartmut Marwitz — +50,000 shares; Gregory A. Miner — 520,000 shares; John W. Seazholtz — 59,000 +shares; Joel Slutzky — 200,000 shares; Thomas L. Thomas — 55,000 shares; and +Paul E. Wright — 123,000 shares. +(3) Prior +to our merger with our Iteris Subsidiary in October 2004, Mr. Miner served as +our Chief Executive Officer and Chief Financial Officer. In accordance with his +May 2003 change in control agreement, we paid to Mr. Miner severance payments +totaling $300,000 during Fiscal 2007. See “Certain Transactions”. +32 +Indemnification of Directors and +Officers +Under Section 145 +of the Delaware General Corporation Law, we can indemnify our directors and +officers against liabilities they may incur in such capacities, including +liabilities under the Securities Act of 1933, as amended (the “Securities Act”). +Our certificate of incorporation and bylaws provide that we will indemnify our +directors and officers to the fullest extent permitted by law, and our bylaws +require us to advance litigation expenses upon receipt of an undertaking by the +director or officer to repay such advances if it is ultimately determined that +the director or officer is not entitled to indemnification. The bylaws further +provide that rights conferred under such bylaws do not exclude any other right +such persons may have or acquire under any bylaw, agreement, vote of +stockholders or disinterested directors or otherwise. +Our certificate of +incorporation provides that, pursuant to Delaware law, our directors shall not +be liable for monetary damages for breach of the directors’ fiduciary duty of +care to us and our stockholders. This provision in the certificate of +incorporation does not eliminate the duty of care, and in appropriate +circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each +director will continue to be subject to liability for breach of the director’s +duty of loyalty to us or our stockholders, for acts or omissions not in good +faith or involving intentional misconduct or knowing violations of law, for actions +leading to improper personal benefit to the director, and for payment of +dividends or approval of stock repurchases or redemptions that are unlawful +under Delaware law. The provision also does not affect a director’s +responsibilities under any other law, such as the federal securities laws or +state or federal environmental laws. +We have entered +into agreements to indemnify our directors and certain of our officers in +addition to the indemnification provided for in the certificate of incorporation +and bylaws. These agreements, among other things, indemnify our directors and +certain of our officers for certain expenses (including attorneys’ fees), +judgments, fines and settlement amounts incurred by such person in any action +or proceeding, including any action by or in the right of our company, on +account of services as a director or officer of Iteris, or as a director or +officer of any other company or enterprise to which the person provides +services at our request. +Compensation Committee Interlocks +and Insider Participation +The members of the +Compensation Committee of our Board of Directors during the fiscal year ended +March 31, 2007 were Messrs. Daly, Seazholtz and Thomas. None of the members of +our Compensation Committee at any time has been one of our officers or +employees or an officer or employee of one of our subsidiaries at any time +during the fiscal year ended March 31, 2007. None of our executive officers +currently serves, or in the year ended March 31, 2007 has served, as a member of +the board of directors or compensation committee of any entity that has one or +more executive officers on our Board of Directors or Compensation Committee. +33 +COMPENSATION +COMMITTEE REPORT +We have reviewed and discussed with the management of +Iteris the Compensation Discussion and Analysis to be included in the proxy +statement on Schedule 14A for the 2007 Annual Meeting of Stockholders. Based on +the reviews and discussions referred to above, we recommended to the Board of +Directors that the Compensation Discussion and Analysis referred to above be +included in such proxy statement. +Submitted by the Compensation Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +34 +EQUITY +COMPENSATION PLANS +The following +table provides information as of March 31, 2007 with respect to shares of our +common stock that may be issued under existing equity compensation plans. The +table does not include information with respect to shares of our common stock +subject to outstanding options granted under equity compensation plans or +option agreements that were assumed in connection with the merger of the Iteris +Subsidiary into us in October 2004. However, Note 1 to the table sets forth the +total number of shares of common stock issuable upon the exercise of those +assumed options as of March 31, 2007 and the weighted average exercise price of +those options. Except for the adjustments described in Note 1 with respect to +the outstanding assumed options, no additional options may be granted under +those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity +Compensation Plans Approved by Security Holders +1997 Stock Incentive Plan +1,550,830 +$ +2.83 +8,879 +Equity +Compensation Plans Not Approved by Security Holders +None +Total(1) +1,550,830 +2.83 +8,879 +(1) The table does not +include information with respect to the equity compensation plan or option +agreements that were assumed by us in connection with the merger of the Iteris +Subsidiary into us in October 2004. As of March 31, 2007, a total of 4,266,770 +shares of common stock were issuable upon exercise of outstanding options under +the assumed plan and agreements. No additional options may be granted under the +assumed plan. The weighted average exercise price of all such assumed options +to acquire shares of our common stock was $1.15 per share. +35 +PRINCIPAL +STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of July 1, 2007, +the number and percentage ownership of our common stock by (i) all persons +known to us to beneficially own more than 5% of the outstanding common stock, +(ii) each of the named executive officers in the Summary Compensation Table +which appears elsewhere herein, (iii) each of our directors, and (iv) all of +our executive officers and directors as a group. To our knowledge, except as +otherwise indicated, each of the persons named in this table has sole voting +and investment power with respect to the common stock shown as beneficially +owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe and +David M. Greenhouse(4) +4,549,658 +13.9 +% +Bryant R. Riley(5) +3,515,743 +10.7 +John D. Gruber, J. +Patterson McBaine and Eric Swergold(6) +2,742,837 +8.4 +Clint D. Coghill(7) +1,670,100 +5.1 +Abbas Mohaddes(8) +1,032,873 +3.1 +Jack Johnson(9) +872,352 +2.7 +Greg McKhann(10) +245,913 +* +Francis Memole(11) +176,079 +* +James S. Miele(12) +69,068 +* +Richard D. Crawshaw(13) +— +— +Richard Char(14) +25,000 +* +Kevin C. Daly, +Ph.D.(15) +388,132 +1.2 +Gary Hernandez(14) +80,000 +* +Dr. Hartmut Marwitz(14) +50,000 +* +Gregory A. Miner(16) +947,828 +2.9 +John W. Seazholtz(17) +107,547 +* +Joel Slutzky(18) +2,041,032 +6.2 +Thomas L. Thomas(19) +74,000 +* +Paul E. Wright(20) +177,794 +* +All executive officers and directors as a group (13 persons)(21) +5,415,266 +15.7 +% +* Less +than 1%. +(1) The address for +Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New York, NY +10022. The address for Bryant R. Riley is 11550 Santa Monica Blvd., Suite 750, +Los Angeles, CA 90025. The address for Messrs. Gruber, McBaine and Swergold is +50 Osgood Place, San Francisco, CA 94133. The address for Clint D. Coghill is +One North Wacker Drive, Suite 4350, Chicago, IL 60606. The address of all other +persons named in the table is 1515 South Manchester Avenue, Anaheim, CA 92802. +(2) Based +on 32,584,830 shares of common stock outstanding as of July 1, 2007. Shares of +common stock subject to options or warrants which are exercisable within 60 +days of July 1, 2007 are deemed to be beneficially owned by the person holding +such options or warrants for the purpose of computing the +36 +percentage of ownership +of such person but are not treated as outstanding for the purpose of computing +the percentage of any other person. Other than as described in the preceding +sentence, shares issuable upon exercise of outstanding options and warrants are +not deemed to be outstanding for purposes of this calculation. +(3) In +addition to the shares held in the individual’s name, this column also includes +shares held for the benefit of the named person under our 401(k) and Stock Ownership +Plan and the Deferred Compensation Savings Plan. +(4) Includes +246,250 shares issuable upon exercise of warrants that were issued to Special +Situations Cayman Fund, L.P., Special Situations Fund III, L.P., Special +Situations Fund III QP, L.P. and Special Situations Private Equity Fund, L.P. +(collectively, the “Special Situations Funds”). Pursuant to a Schedule 13G +filed on February 14, 2007 with the SEC, Messrs. Marxe and Greenhouse reported +that they had shared voting power and shared dispositive power over the shares +of common stock (including the 246,250 shares issuable upon exercise of +warrants) held by the Special Situations Funds. Messrs. Marxe and Greenhouse +are the controlling principals of AWM Investment Company, Inc. (“AWM”), the +general partner of and investment adviser to Special Situations Cayman Fund, +L.P. AWM is the general partner of MGP Advisers Limited Partnership, the +general partner of and investment adviser to Special Situations Fund III, L.P. +and the general partner of Special Situations Fund III QP, L.P. In addition, +Messrs. Marxe and Greenhouse are members of MG Advisers L.L.C., the general +partner of Special Situations Private Equity Fund, L.P. AWM serves as the +investment adviser to Special Situations Fund III QP, L.P. and Special +Situations Private Equity Fund, L.P. +(5) Includes +(i) 2,944,801 shares owned by Riley Investment Partners Master Fund, L.P. (“RIPMF”), +(ii) 41,667 shares owned by B. Riley and Co. Inc. held in Mr. Riley’s +proprietary account, (iii) 50,000 shares owned by B. Riley & Co. Retirement +Trust, of which Mr. Riley serves as trustee, (iv) 88,640 shares issuable upon +conversion of convertible debenture owned by custodial accounts of Mr. Riley’s +children, for which Mr. Riley controls voting and investment decisions in his +role as custodian for such accounts, (v) 120,065 shares owned by an investment +advisory client of Riley Investment Management LLC (“RIM”) over which RIM has +shared voting and dispositive power and (vi) 237,237 shares issuable upon +exercise of warrants held by Mr. Riley, his children’s accounts, B. Riley & +Co., Inc. and RIPMF that are currently exercisable. Pursuant to a Schedule 13G +filed on January 25, 2007 with the SEC, Mr. Riley reported that because RIM has +sole voting and investment power over RIPMF’s security holdings and Mr. Riley, +in his role as the sole manager of RIM, controls its voting and investment +decisions, each of RIM, RIPMF, and Mr. Riley may be deemed to have beneficial +ownership of the shares held by, or issuable to, RIPMF. Mr. Riley controls RIM’s +voting and investment decisions for its investment advisory clients, but +disclaims beneficial ownership of the 120,065 shares owned by the investment +advisory client of RIM. Mr. Riley also disclaims beneficial ownership of the +shares held in his children’s accounts. +(6) Pursuant +to a Schedule 13G filed on January 29, 2007 with the SEC, Gruber & McBaine +Capital Management, LLC (“GMCM”), Jon D. Gruber, J. Patterson McBaine and Eric +Swergold reported that they had shared voting power and shared dispositive +power over 2,233,547 shares of common stock. The table also includes 437,665 +shares, 36,100 shares and 35,525 shares over which Messrs. Gruber, McBaine and +Swergold, respectively, have sole voting and dispositive power. GMCM is a +registered investment advisor whose clients have the right to receive or the +power to direct the receipt of dividends from, or the proceeds from the sale of +the shares. Messrs. Gruber and McBaine are the Managers, controlling persons +and portfolio managers of GMCM. No individual client’s holdings of the shares +of our common stock are more than five percent of our outstanding shares. +Lagunitas and Firefly are investment limited partnerships of which GMCM is the +general partner. GMCM, Gruber, McBaine and Swergold constitute a group within +the meaning of Rule 13d-5(b). Lagunitas and Firefly is not a member of any +group and each disclaims beneficial ownership of the securities with respect to +its ownership is reposited. +(7) Pursuant +to a Schedule 13G filed on February 14, 2007 with the SEC, CCM Master Qualified +Fund, Ltd., Coghill Capital Management, L.L.C. and Clint D. Coghill reported +that they had shared voting power and shared dispositive power over the shares +of common stock held by the CCM Master Qualified Fund, Ltd. Mr. Coghill is the +managing member of Coghill Capital Management, L.L.C., which serves as the +investment manager of CCM Master Qualified Fund, Ltd. The reporting persons +disclaim beneficial ownership of the securities except to the extent of their +pecuniary interest therein. +37 +(8) Includes +(i) 13,850 shares issuable upon conversion of convertible debentures, (ii) +3,167 shares issuable upon exercise of warrants that are currently exercisable, +(iii) 271,500 shares issuable upon exercise of options that are currently +exercisable or will become exercisable within 60 days after July 1, 2007 and +(iv) 11,540 shares held by Mr. Mohaddes’ IRA. +(9) Includes +(i) 27,700 shares issuable upon conversion of convertible debentures held by +Mr. Johnson’s IRA and (ii) 6,335 shares issuable upon exercise of warrants held +by Mr. Johnson’s IRA which are currently exercisable. Mr. Johnson served as our +Chief Executive Officer and President and as a director until March 2007. +(10) Includes +194,081 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(11) Includes +(i) 13,850 shares issuable upon conversion of convertible debentures held by +Mr. Memole’s IRA, (ii) 3,167 shares issuable upon exercise of warrants held by +Mr. Memole’s IRA which are currently exercisable, and (iii) 109,500 shares +issuable upon exercise of options that are currently exercisable or will become +exercisable within 60 days after July 1, 2007. +(12) Includes +60,750 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(13) Mr. +Crawshaw served as our Vice President of Engineering until January 2007. +(14) Consists +of shares issuable upon exercise of options that are currently exercisable or +will become exercisable within 60 days after July 1, 2007. +(15) Includes +(i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares held by a trust +to which Dr. Daly serves as a trustee, and (iii) 43,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after July 1, 2007. +(16) Includes +(i) 13,850 shares issuable upon conversion of convertible debentures held by +Mr. Miner’s IRA, (ii) 3,167 shares issuable upon exercise of warrants held by +Mr. Miner’s IRA that are currently exercisable, (iii) 183,334 shares held by +Mr. Miner’s IRA, (iv) 19,230 shares held by Mr. Miner’s wife’s IRA and (v) +520,000 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(17) Includes +59,000 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(18) Includes +(i) 144,616 shares held by Mr. Slutzsky’s IRA and (ii) 200,000 shares issuable +upon exercise of options that are currently exercisable or will become +exercisable within 60 days after July 1, 2007. Excludes shares of common stock +held in trust for the benefit of the children and relatives of Mr. Slutzky as +well as shares in the Joel Slutzky Family Trust; Mr. Slutzky has no investment +or voting power with respect to the shares in such trusts and disclaims any +beneficial ownership. +(19) Includes +55,000 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(20) Includes +123,000 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after July 1, 2007. +(21) Includes (i) 41,550 shares +issuable upon conversion of convertible debentures, (ii) 9,501 shares issuable +upon exercise of warrants which are currently exercisable, and (iii) 1,790,831 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after July 1, 2007; does not include shares +held by Jack Johnson and Richard Crawshaw, who are not currently employed by +us. +38 +CERTAIN +TRANSACTIONS +Since April 1, 2006, other than the agreements and +transactions described in “Executive Compensation and Other Information” and +the transactions described below, there has not been, nor is there any proposed +transaction, where we (or any of our subsidiaries) were or will be a party in +which the amount involved exceeded or will exceed $120,000 and in which any +director, director nominee, executive officer, holder of more than 5% of any +class of our voting securities, or any member of the immediate family of any of +the foregoing persons had or will have a direct or indirect material interest. +In May 2003, we entered into change in control +agreement with Gregory Miner, who was then serving as our Chief Executive +Officer and Chief Financial Officer. In the event of an involuntary termination +of his employment within three months prior to or twenty-four months after a +change in control, the agreements provided for a severance payment to him of +200% of his annual base pay plus target bonus for the current fiscal year. In +addition, Mr. Miner and his dependents were entitled to all insurance benefits +for up to twenty-four months or until he obtained new employment with +comparable benefits, whichever was earlier. Upon the merger of the Iteris Subsidiary +into us in October 2004, Jack Johnson assumed the role of President and Chief +Executive Officer of Iteris, replacing Mr. Miner. The merger and subsequent +change in position triggered the payment of severance to Mr. Miner under the +terms of his agreement. The severance amount was paid to Mr. Miner in bi-weekly +installments over 30 months, and the final payment was made in April 2007. The +severance amounts paid to Mr. Miner in Fiscal 2007 totaled $300,000. +On October 18, 2006, we entered into a Joint +Development Agreement (the “Joint Development Agreement”) with Transportation +Planning Group, Inc. d/b/a Crain and Associates of Southern California (“Crain”), +a 20 person Southern California consulting firm focused on providing +transportation planning services for private development projects. Abbas +Mohaddes, our current Chief Executive Officer and President, had acquired all +of the outstanding capital stock of Crain following the death of Crain’s +founder and President, who was a close friend of Mr. Mohaddes. Under the terms +of the Joint Development Agreement, we were to provide staffing support to +Crain. Under the agreement, Crain was required to reimburse us at a rate of +$8,000 per month during the first six months of the agreement and $4,000 per month +for the last six months of the agreement, plus an additional $80 per hour to +the extent the hours provided exceeded target hour amounts. The agreement also +provided for additional consideration to be paid to us in the event Crain was +sold for gross proceeds in excess of $1.0 million no later than five years +after the termination of the agreement. We were also granted a right of first +refusal to purchase Crain. +On May 30, 2007, we entered into a Termination +Agreement with Crain and Mr. Mohaddes, pursuant to which the parties agreed to +terminate the Joint Development Agreement. The termination of the Joint +Development Agreement became effective upon the closing of the sale by Mr. +Mohaddes of his interest in Crain to a third-party buyer, which occurred on May +31, 2007. In connection with such sale, we also waived our right of first +refusal with respect to Mr. Mohaddes’ interest in Crain. +Pursuant to its written charter, the Audit Committee +of the Board of Directors is responsible for reviewing and approving all +related party transactions. The Audit Committee monitors and reviews potential +conflict of interest situations involving a principal stockholder, a member of +the Board of Directors or senior management.. +SECTION +16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and +officers and any persons holding more than 10% of our common stock are required +to report their ownership of our common stock and any changes in that ownership +to the SEC. Specific due dates for these reports have been established, and we +are required to report any failure to file by such dates. In Fiscal 2007, the +Form 4 filings for the annual option grants to non-employee directors, +consisting of Messrs. Char, Daly, Hernandez, Marwitz, Miner, Seazholtz, +Slutzky, Thomas and Wright, were not filed within two business days of the +grant date. Based solely on our review of copies of the reports on Forms 3, 4 and +5 received by us with respect to the fiscal year ended March 31, 2007 and the +written representations received from the reporting persons that no other +reports were required, except as indicated in the foregoing sentence, we +believe that all directors, executive officers and persons who own more than +10% of our common stock have complied with the reporting requirements of +Section 16(a) and have filed all reports required by such section. +39 +ANNUAL +REPORT +A copy of our annual report on Form 10-K for the fiscal +year ended March 31, 2007 (excluding the exhibits thereto) accompanies the +proxy materials being mailed to all stockholders. The annual report is not +incorporated into this proxy statement and is not considered proxy solicitation +material. Stockholders may obtain a copy of the annual report and any of our +other filings with the SEC, without charge, by writing to Investor Relations, +Iteris, Inc., 1515 South Manchester Avenue, Anaheim, California 92802.* The +annual report on Form 10-K (including the exhibits thereto) is also available +on the Securities and Exchange Commission’s website at www.sec.gov . +DEADLINE +FOR RECEIPT OF STOCKHOLDER PROPOSALS +In the event that +a stockholder desires to have a proposal considered for presentation at the +annual meeting of stockholders to be held in 2007, and included in our proxy +statement and form of proxy card used in connection with such meeting, the +proposal must be forwarded in writing to our Secretary so that it is received +no later than April 15, 2008. Any such proposal must comply with the +requirements of Rule 14a-8 promulgated under the Exchange Act. +If a stockholder, +rather than including a proposal in the proxy statement as discussed above, +commences his or her own proxy solicitation for the 2008 Annual Meeting of +Stockholders or seeks to nominate a candidate for election as a director or to +propose business for consideration at such meeting, we must receive notice of +such proposal on or before June 29, 2008. If the notice is not received on +or before June 29, 2008, it will be considered untimely under Rule 14a-4(c)(1) +promulgated under the Exchange Act, and we will have discretionary voting +authority under proxies solicited for the 2008 Annual Meeting of Stockholders +with respect to such proposal, if presented at the meeting. +Please address any stockholder proposals or notices of +proposals to our corporate Secretary at our principal executive offices located +at 1515 South Manchester Avenue, Anaheim, California 92802. * +OTHER +BUSINESS +The Board of Directors is not aware of any other +matter which will be presented for action at the Annual Meeting other than the +matters set forth in this proxy statement. If any other matter requiring a vote +of the stockholders arise, it is intended that the proxy holders will vote the +shares they represent as the Board of Directors may recommend. Discretionary +authority with respect to such other matters is granted by the execution of the +enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Anaheim, California +August 10, 2007 +* +We expect that our headquarters and principal operations will be relocated in +September 2007 to 1700 East Carnegie Avenue, Santa Ana, California 92705. +40 +ITERIS, +INC. +2007 +OMNIBUS INCENTIVE PLAN +Table of +Contents +Section 1. +Purpose +Section 2. +Definitions +Section 3. +Administration +(a) +Power and +Authority of the Committee +(b) +Power and +Authority of the Board +Section 4. +Shares +Available for Awards +(a) +Shares Available +(b) +Accounting for Awards +(c) +Adjustments +(d) +Section +162(m) Award Limitations Under the Plan +Section 5. +Eligibility +Section 6. +Awards +(a) +Options +(b) +Stock Appreciation +Rights +(c) +Restricted +Stock and Restricted Stock Units +(d) +Performance Awards +(e) +Dividend Equivalents +(f) +Other Stock Grants +(g) +Other Stock-Based +Awards +(h) +General +(i) +Directors’ +Automatic Option Grant Program +Section 7. +Amendment +and Termination; Adjustments +(a) +Amendments to the Plan +(b) +Amendments to Awards +(c) +Correction +of Defects, Omissions and Inconsistencies +Section 8. +Income Tax +Withholding +Section 9. +General Provisions +(a) +No Rights to Awards +(b) +Award Agreements +(c) +Plan Provisions Control +(d) +No Rights of +Stockholders +(e) +No Limit on +Other Compensation Arrangements +(f) +No Right to Employment +(g) +Governing Law +(h) +Severability +(i) +No Trust or Fund Created +ii +(j) +Other +Benefits +(k) +No +Fractional Shares +(l) +Headings +(m) +Section 16 +Compliance; Section 162(m) Administration +(n) +Conditions +Precedent to Issuance of Shares +Section 10. +Effective +Date of the Plan +Section 11. +Term of the Plan +iii +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +Section 1. Purpose +The purpose of the +Plan is to promote the interests of the Company and its stockholders by aiding +the Company in attracting and retaining employees, officers, consultants, +independent contractors, advisors and directors capable of assuring the future +success of the Company, to offer such persons incentives to continue in the +Company’s employ or service and to afford such persons an opportunity to +acquire a proprietary interest, or otherwise increase their proprietary +interest, in the Company. +Section 2. Definitions +As used in the +Plan, the following terms shall have the meanings set forth below: +(a) “ Affiliate ” +shall mean (i) any entity that, directly or indirectly through one or more +intermediaries, is controlled by the Company and (ii) any entity in which the +Company has a significant equity interest, in each case as determined by the +Committee. +(b) “ Award ” +shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted +Stock Unit, Performance Award, Dividend Equivalent, Other Stock Grant or Other +Stock-Based Award granted under the Plan. +(c) “ Award +Agreement ” shall mean any written agreement, contract or other +instrument or document evidencing an Award granted under the Plan. Each Award +Agreement shall be subject to the applicable terms and conditions of the Plan +and any other terms and conditions (not inconsistent with the Plan) determined +by the Committee. +(d) “ Board ” +shall mean the Board of Directors of the Company. +(e) “ Change +in Control ” shall mean a change in ownership or control of the +Company effected through any of the following transactions: (i) a merger, +consolidation or other reorganization unless securities representing more than +50% of the total combined voting power of the voting securities of the +successor corporation are immediately thereafter beneficially owned, directly +or indirectly and in substantially the same proportion, by the persons who +beneficially owned the Company’s outstanding voting securities immediately prior +to such transaction; (ii) a sale, transfer or other disposition of all or +substantially all of the Company’s assets; or (iii) the acquisition, directly +or indirectly, by any person or related group of persons (other than the +Company or a person that directly or indirectly controls, is controlled by, or +is under common control with, the Company), of beneficial ownership (within the +meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than +50% of the total combined voting power of the Company’s outstanding securities +pursuant to a tender or exchange offer made directly to the Company’s +stockholders. +(f) “ Code ” +shall mean the Internal Revenue Code of 1986, as amended from time to time, and +any regulations promulgated thereunder. +(g) “ Committee ” +shall mean one or more committees of Directors designated by the Board to +administer the Plan, of which the Company’s compensation committee shall +initially be the primary committee. The primary Committee shall be comprised of +at least two Directors but not less than such number of Directors as shall be +required to permit Awards granted under the Plan to qualify under Rule 16b-3 +and Section 162(m) of the Code, and each member of the primary Committee shall +be a “ Non-Employee Director ” and +an “ Outside Director .” Any +secondary Committee shall be comprised of at least two Directors. +(h) “ Company ” +shall mean Iteris, Inc., a Delaware corporation, and any successor corporation. +(i) “ Director ” +shall mean a member of the Board, including any Non-Employee Director. +(j) “ Dividend +Equivalent ” shall mean any right granted under Section 6(e) of the +Plan. +(k) “ Eligible +Person ” shall mean any employee, officer, consultant, independent +contractor, advisor or director providing services to the Company or any +Affiliate who the Committee determines to be an Eligible Person. +(l) “ Exchange +Act ” shall mean the Securities Exchange Act of 1934, as amended. +(m) “ Fair +Market Value ” shall mean, with respect to any property (including, +without limitation, any Shares or other securities), the fair market value of +such property determined by such methods or procedures as shall be established +from time to time by the Committee. Notwithstanding the foregoing and unless +otherwise determined by the Committee, if the Shares are at the time listed on +any stock exchange in the United States, the Fair Market Value of a Share as of +a given date shall be the closing sale price of one Share as reported on the +principal United States exchange on which the Shares are listed on the date as +of which Fair Market Value is being determined, or, if there is no closing +sales price for the Shares on the date in question, then the Fair Market Value +shall be the closing sales price on the last preceding date for which such +price exists. +(n) “ Incentive +Stock Option ” shall mean an option granted under Section 6(a) of the +Plan that is intended to qualify as an “incentive stock option” in accordance +with the terms of Section 422 of the Code or any successor provision. +(o) “ Non-Employee +Director ” shall mean any Director who is not also an employee of the +Company or an Affiliate within the meaning of Rule 16b-3. +(p) “ Non-Qualified +Stock Option ” shall mean an option granted under Section 6(a) of the +Plan that is not an Incentive Stock Option. +(q) “ Option ” +shall mean an Incentive Stock Option or a Non-Qualified Stock Option. +(r) “ Other +Stock Grant ” shall mean any right granted under Section 6(f) of the +Plan. +2 +(s) “ Other +Stock-Based Award ” shall mean any right granted under Section 6(g) +of the Plan. +(t) “ Outside +Director ” shall mean any Director who is an “outside director” +within the meaning of Section 162(m) of the Code. +(u) “ Participant ” +shall mean an Eligible Person designated to be granted an Award under the Plan. +(v) “ Performance +Award ” shall mean any right granted under Section 6(d) of the Plan. +(w) “ Performance +Goal ” shall mean one or more of the following performance goals, +either individually, alternatively or in any combination, applied on a +corporate, subsidiary or business unit basis: revenue, cash flow, gross profit, +earnings before interest and taxes, earnings before interest, taxes, +depreciation and amortization and net earnings, earnings per share, margins +(including one or more of gross, operating and net income margins), returns +(including one or more of return on assets, equity, investment, capital and +revenue and total stockholder return), stock price, economic value added, +working capital, market share, cost reductions, workforce satisfaction and +diversity goals, employee retention, customer satisfaction, completion of key +projects and strategic plan development and implementation. Such goals may +reflect absolute entity or business unit performance or a relative comparison +to the performance of a peer group of entities or other external measure of the +selected performance criteria. Pursuant to rules and conditions adopted by the +Committee on or before the 90th day of the applicable performance period for +which Performance Goals are established, the Committee may appropriately adjust +any evaluation of performance under such goals to exclude the effect of certain +events, including any of the following events: asset write-downs; litigation or +claim judgments or settlements; changes in tax law, accounting principles or +other such laws or provisions affecting reported results; severance, contract +termination and other costs related to exiting certain business activities; and +gains or losses from the disposition of businesses or assets or from the early +extinguishment of debt. +(x) “ Person ” +shall mean any individual or entity, including a corporation, partnership, +limited liability company, association, joint venture or trust. +(y) “ Plan ” +shall mean the Iteris, Inc. 2007 Omnibus Incentive Plan, as amended from time +to time, the provisions of which are set forth herein. +(z) “ Qualified +Performance Based Award ” shall have the meaning set forth in Section +6(d) of the Plan. +(aa) “ Restricted +Stock ” shall mean any Share granted under Section 6(c) of the Plan. +(bb) “ Restricted +Stock Unit ” shall mean any unit granted under Section 6(c) of the +Plan evidencing the right to receive a Share (or evidencing the right to +receive a cash payment equal to the Fair Market Value of a Share if explicitly +so provided in the Award Agreement) at some future date. +3 +(cc) “ Rule +16b-3 ” shall mean Rule 16b-3 promulgated by the Securities and +Exchange Commission under the Exchange Act, or any successor rule or +regulation. +(dd) “ Section +162(m) ” shall mean Section 162(m) of the Code and the applicable +Treasury Regulations promulgated thereunder. +(ee) “ Securities +Act ” shall mean the Securities Act of 1933, as amended. +(ff) “ Service ” +shall mean the performance of services for the Company (or any Affiliate) by a +person in the capacity of an employee, a member of the board of directors or a +consultant, except to the extent otherwise specifically provided in the Award +Agreement. +(gg) “ Share ” +or “ Shares ” shall mean a share or +shares of common stock, $0.10 par value per share, of the Company or such other +securities or property as may become subject to Awards pursuant to an +adjustment made under Section 4(c) of the Plan. +(hh) “ Stock +Appreciation Right ” shall mean any right granted under Section 6(b) +of the Plan. +Section 3. Administration +(a) Power and Authority of the +Committee . The Plan +shall be administered by the Board and the primary Committee. The Board may +designate a secondary Committee to have concurrent authority to administer the +Plan, provided that the secondary Committee shall not have any authority (i) +with regard to grants of Options to be made to officers or directors of the +Company or any Affiliate who are subject to Section 16 of the Exchange Act, +(ii) in such a manner as would cause the Plan not to comply with the +requirements of Section 162(m) of the Code or (iii) in such a manner as would contravene +Section 157 of the Delaware General Corporation Law. Any Awards made to members +of the Committee, however, should be authorized by a disinterested majority of +the Board. Subject to the express provisions of the Plan and to applicable law, +the Committee (or the Board, as applicable) shall have full power and authority +to: (i) designate Participants; (ii) determine the type or types of Awards to +be granted to each Participant under the Plan; (iii) determine the number of +Shares to be covered by (or the method by which payments or other rights are to +be determined in connection with) each Award; (iv) determine the terms and +conditions of any Award or Award Agreement; (v) amend the terms and conditions +of any Award or Award Agreement and accelerate the exercisability of any Option +or waive any restrictions relating to any Award; (vi) determine whether, to +what extent and under what circumstances Awards may be exercised in cash, +Shares, other securities, other Awards or other property, or canceled, forfeited +or suspended; (vii) interpret and administer the Plan and any instrument or +agreement, including an Award Agreement, relating to the Plan; (viii) +establish, amend, suspend or waive such rules and regulations and appoint such +agents as it shall deem appropriate for the proper administration of the Plan; +and (ix) make any other determination and take any other action that the +Committee deems necessary or desirable for the administration of the Plan. +Unless otherwise expressly provided in the Plan, all designations, +determinations, interpretations and other decisions under or with respect to +the Plan or any Award or Award Agreement shall be within the sole discretion of +the Committee, may be made at any time and shall be final, conclusive and +binding upon any Eligible Person and any holder or beneficiary of any Award. +4 +(b) Power and Authority of the Board . Notwithstanding anything to the +contrary contained herein, the Board may, at any time and from time to time, +without any further action of the Committee, exercise the powers and duties of +the Committee under the Plan. +Section 4. Shares Available for Awards +(a) Shares Available . Subject to adjustment as provided in +Section 4(c) of the Plan, the aggregate number of Shares that may be issued +under the Plan shall be Eight Hundred Fifty Thousand (850,000). Shares to be issued under the Plan +may be either authorized but unissued Shares or Shares re-acquired and held in +treasury. Notwithstanding the foregoing, (x) the number of Shares available for +granting Incentive Stock Options under the Plan shall not exceed Eight Hundred +Fifty Thousand (850,000), subject to adjustment as provided in Section 4(c) of +the Plan and subject to the provisions of Section 422 or 424 of the Code or any +successor provision and (y) the number of Shares available for granting +Restricted Stock and Restricted Stock Units shall not exceed Eight Hundred +Fifty Thousand (850,000), subject to adjustment as provided in Section 4(c) of +the Plan. +(b) Accounting for Awards . For purposes of this Section 4, if an +Award entitles the holder thereof to receive or purchase Shares, the number of +Shares covered by such Award or to which such Award relates shall be counted on +the date of grant of such Award against the aggregate number of Shares +available for granting Awards under the Plan. In addition, if any Shares +covered by an Award or to which an Award relates are not purchased or are +forfeited, or if an Award otherwise terminates without delivery of any Shares, +then the number of Shares counted against the aggregate number of Shares +available under the Plan with respect to such Award, to the extent of any such +forfeiture or termination, shall again be available for granting Awards under +the Plan. +(c) Adjustments . In the event any dividend or other distribution +(whether in the form of cash, Shares, other securities or other property), +recapitalization, stock split, reverse stock split, reorganization, merger, +consolidation, split-up, spin-off, combination, repurchase or exchange of +Shares or other securities of the Company, issuance of warrants or other rights +to purchase Shares or other securities of the Company or other similar +corporate transaction or event affects the Shares such that an adjustment is +necessary in order to prevent dilution or enlargement of the benefits or +potential benefits intended to be made available under the Plan, then the +Committee shall, in such manner as it may deem equitable, adjust any or all of +(i) the number and type of Shares (or other securities or other property) that +thereafter may be made the subject of Awards, (ii) the number and type of +Shares (or other securities or other property) subject to outstanding Awards, +(iii) the purchase price or exercise price with respect to any Award and (iv) +the limitations contained in Section 4(d) of the Plan; provided , +however , that the number of Shares +covered by any Award or to which such Award relates shall always be a whole +number. +5 +(d) Section 162(m) Award Limitations +Under the Plan . +Notwithstanding any other provision of the Plan other than Section 4(c), if the +Committee provides that this Section 4(d) is applicable to a particular Award, +no Participant receiving such an Award shall be granted: (i) Options or SARs +with respect to more than 500,000 Shares in the aggregate within any fiscal +year of the Company; or (ii) Qualified Performance Based Awards which could +result in such Participant receiving more than $1,500,000 in cash or the +equivalent Fair Market Value of Shares determined at the date of grant for each +full or partial fiscal year of the Company contained in the performance period +of a particular Qualified Performance Based Award; provided , however , +that, if any other Qualified Performance Based Awards are outstanding for such +Participant for a given fiscal year, such dollar limitation shall be reduced +for each such given fiscal year by the amount that could be received by the +Participant under all such Qualified Performance Based Awards, divided, for +each such Qualified Performance Based Award, by the number of full or partial +fiscal years of the Company contained in the performance period of each such +outstanding Qualified Performance Based Award; provided , +however , that the limitations set +forth in this Section 4(d) shall be subject to adjustment under Section 4(c) of +the Plan only to the extent that such adjustment does not affect the status of +any Award intended under Section 6(d) to qualify as “performance based +compensation” under Section 162(m) of the Code. +Section 5. Eligibility +Any Eligible +Person shall be eligible to be designated a Participant. In determining which +Eligible Persons shall receive an Award and the terms of any Award, the +Committee may take into account the nature of the services rendered by the +respective Eligible Persons, their present and potential contributions to the +success of the Company or such other factors as the Committee, in its +discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive +Stock Option may only be granted to full-time or part-time employees (which +term as used herein includes, without limitation, officers and directors who +are also employees), and an Incentive Stock Option shall not be granted to an +employee of an Affiliate unless such Affiliate is also a “subsidiary +corporation” of the Company within the meaning of Section 424(f) of the Code or +any successor provision. +Section 6. Awards +(a) Options . +The Committee is hereby authorized to grant Options to Eligible Persons with +the following terms and conditions and with such additional terms and +conditions not inconsistent with the provisions of the Plan as the Committee +shall determine: +(i) Exercise Price . +The purchase price per Share purchasable under an Option shall be determined by +the Committee; provided , however , +that such purchase price shall not be less than 100% of the Fair Market Value +of a Share on the date of grant of such Option. +(ii) Option Term . +The term of each Option shall be fixed by the Committee at the time of grant, +but shall not be longer than 10 years from the date of grant. +(iii) Time and Method +of Exercise . The Committee shall determine the time or times at which an +Option may be exercised in whole or in part and the method or methods by which, +and the form or forms (including, without limitation, cash, Shares, other +securities, other Awards or other property, or any combination thereof, having +a +6 +Fair Market +Value on the exercise date equal to the applicable exercise price) in which, +payment of the exercise price with respect thereto may be made or deemed to +have been made. The Committee shall have the discretion to grant Options that +are exercisable for unvested Shares. Should the Participant’s Service cease +while the Shares issued upon the early exercise of the Participant’s Options +are still unvested, the Company shall have the right to repurchase any or all +of those unvested Shares at a price per share determined by the Committee. The +terms upon which such repurchase right shall be exercisable (including the +period and procedure for exercise and the appropriate vesting schedule for the purchased +shares) shall be established by the Committee and set forth in the Award +Agreement. Any repurchases must be made in compliance with the relevant +provisions of Delaware law. +(iv) Incentive Stock +Options . Notwithstanding anything in the Plan to the contrary, the +following additional provisions shall apply to the grant of stock options which +are intended to qualify as Incentive Stock Options: +(A) The Committee will +not grant Incentive Stock Options in which the aggregate Fair Market Value +(determined as of the time the option is granted) of the Shares with respect to +which Incentive Stock Options are exercisable for the first time by any +Participant during any calendar year (under this Plan and all other plans of +the Company and its Affiliates) shall exceed $100,000. +(B) All Incentive Stock +Options must be granted within ten years from the earlier of the date on which +this Plan was adopted by the Board or the date this Plan was approved by the +stockholders of the Company. +(C) Unless sooner +exercised, all Incentive Stock Options shall expire and no longer be +exercisable no later than 10 years after the date of grant; provided , however , that +in the case of a grant of an Incentive Stock Option to a Participant who, at +the time such Option is granted, owns (within the meaning of Section 422 of the +Code) stock possessing more than 10% of the total combined voting power of all +classes of stock of the Company or of its Affiliate, such Incentive Stock +Option shall expire and no longer be exercisable no later than 5 years from the +date of grant. +(D) The purchase price +per Share for an Incentive Stock Option shall be not less than 100% of the Fair +Market Value of a Share on the date of grant of the Incentive Stock Option; provided , however , that, +in the case of the grant of an Incentive Stock Option to a Participant who, at +the time such Option is granted, owns (within the meaning of Section 422 of the +Code) stock possessing more than 10% of the total combined voting power of all +classes of stock of the Company or of its Affiliate, the purchase price per +Share purchasable under an Incentive Stock Option shall be not less than 110% +of the Fair Market Value of a Share on the date of grant of the Inventive Stock +Option. +(E) Any Incentive Stock +Option authorized under the Plan shall contain such other provisions as the +Committee shall deem advisable, but shall in all events be consistent with and +contain all provisions required in order to qualify the Option as an Incentive +Stock Option. +7 +(b) Stock Appreciation Rights . The Committee is hereby authorized +to grant Stock Appreciation Rights to Eligible Persons subject to the terms of +the Plan and any applicable Award Agreement. Each Stock Appreciation Right +granted under the Plan shall confer on the holder upon exercise the right to +receive a number of Shares equal to the excess of (a) the Fair Market Value of +one Share on the date of exercise (or, if the Committee shall so determine, at +any time during a specified period before or after the date of exercise) over +(b) the grant price of the Stock Appreciation Right as determined by the +Committee, which grant price shall not be less than 100% of the Fair Market +Value of one Share on the date of grant of the Stock Appreciation Right. +Subject to the terms of the Plan, the grant price, term, methods of exercise, +dates of exercise and any other terms and conditions (including conditions or +restrictions on the exercise thereof) of any Stock Appreciation Right shall be +as determined by the Committee. +(c) Restricted Stock and Restricted Stock +Units . The Committee +is hereby authorized to grant Restricted Stock and Restricted Stock Units to +Eligible Persons with the following terms and conditions and with such +additional terms and conditions not inconsistent with the provisions of the +Plan as the Committee shall determine: +(i) Restrictions . +Shares of Restricted Stock and Restricted Stock Units shall be subject to such +restrictions as the Committee may impose (including, without limitation, a +restriction on or prohibition against the right to receive any dividend or +other right or property with respect thereto), which restrictions may lapse +separately or in combination at such time or times, in such installments or +otherwise as the Committee may deem appropriate. +(ii) Issuance of +Shares . Any Restricted Stock granted under the Plan may be evidenced in +such manner as the Board may deem appropriate, including book-entry +registration or issuance of a stock certificate or certificates which +certificate or certificates shall be held by the Company. Such certificate or +certificates shall be registered in the name of the Participant and shall bear +an appropriate legend referring to the restrictions applicable to such +Restricted Stock. +(iii) Forfeiture . +Except as otherwise determined by the Committee, upon a Participant’s +termination of Service (as determined under criteria established by the +Committee) during the applicable restriction period, all Shares of Restricted +Stock and Restricted Stock Units at such time subject to restriction shall be +forfeited and reacquired by the Company; provided , however , that the Committee may, when it finds that a waiver +would be in the best interest of the Company, waive in whole or in part any or +all remaining restrictions with respect to Shares of Restricted Stock or Restricted +Stock Units. +(d) Performance Awards . The Committee is hereby authorized to +grant Performance Awards to Eligible Persons subject to the terms of the Plan. +A Performance Award granted under the Plan (i) may be denominated or payable in +cash, Shares (including, without limitation, Restricted Stock and Restricted +Stock Units), other securities, other Awards or other property +8 +and (ii) shall confer on +the holder thereof the right to receive payments, in whole or in part, upon the +achievement of such performance goals during such performance periods as the +Committee shall establish. Subject to the terms of the Plan, the performance +goals to be achieved during any performance period, the length of any +performance period, the amount of any Performance Award granted, the amount of +any payment or transfer to be made pursuant to any Performance Award and any +other terms and conditions of any Performance Award shall be determined by the +Committee. From time to time, the Committee may designate an Award granted pursuant +to the Plan as an award of “qualified performance-based compensation” within +the meaning of Section 162(m) of the Code (a “ Qualified +Performance Based Award ”). Qualified Performance Based Awards shall, +to the extent required by Section 162(m), be conditioned solely on the +achievement of one or more objective Performance Goals, and such Performance +Goals shall be established by the Committee within the time period prescribed +by, and shall otherwise comply with the requirements of, Section 162(m). The +Committee shall also certify in writing that such Performance Goals have been +met prior to payment of the Qualified Performance Based Awards to the extent +required by Section 162(m). +(e) Dividend Equivalents . The Committee is hereby authorized to +grant Dividend Equivalents to Eligible Persons under which the Participant +shall be entitled to receive payments (in cash, Shares, other securities, other +Awards or other property as determined in the discretion of the Committee) +equivalent to the amount of cash dividends paid by the Company to holders of +Shares with respect to a number of Shares determined by the Committee. Subject +to the terms of the Plan, such Dividend Equivalents may have such terms and +conditions as the Committee shall determine. +(f) Other Stock Grants . The Committee is hereby authorized, +subject to the terms of the Plan, to grant to Eligible Persons Shares without +restrictions thereon (“ Other Stock Grants ”) +as are deemed by the Committee to be consistent with the purpose of the Plan. +Subject to the terms of the Plan and any applicable Award Agreement, such Other +Stock Grant may have such terms and conditions as the Committee shall +determine. +(g) Other Stock-Based Awards . The Committee is hereby authorized to +grant to Eligible Persons, subject to the terms of the Plan, such other Awards +that are denominated or payable in, valued in whole or in part by reference to, +or otherwise based on or related to, Shares (including, without limitation, +securities convertible into Shares), as are deemed by the Committee to be +consistent with the purpose of the Plan. Shares or other securities delivered +pursuant to a purchase right granted under this Section 6(g) shall be purchased +for such consideration, which may be paid by such method or methods and in such +form or forms (including, without limitation, cash, Shares, other securities, +other Awards or other property or any combination thereof), as the Committee +shall determine, the value of which consideration, as established by the +Committee, shall not be less than 100% of the Fair Market Value of such Shares +or other securities as of the date such purchase right is granted. +(h) General . +(i) Consideration +for Awards . Awards may be granted for no cash consideration or for any cash +or other consideration as determined by the Committee and required by +applicable law. +9 +(ii) Awards May Be +Granted Separately or Together . Awards may, in the discretion of the +Committee, be granted either alone or in addition to, in tandem with or in +substitution for any other Award or any award granted under any plan of the +Company or any Affiliate. Awards granted in addition to or in tandem with other +Awards or in addition to or in tandem with awards granted under any such other +plan of the Company or any Affiliate may be granted either at the same time as +or at a different time from the grant of such other Awards or awards. +(iii) Forms of Payment +under Awards . Subject to the terms of the Plan and of any applicable Award +Agreement, payments or transfers to be made by the Company or an Affiliate upon +the grant, exercise or payment of an Award may be made in such form or forms as +the Committee shall determine (including, without limitation, cash, Shares, +other securities, other Awards or other property or any combination thereof), +and may be made in a single payment or transfer, in installments or on a +deferred basis, in each case in accordance with rules and procedures +established by the Committee. Such rules and procedures may include, without +limitation, provisions for the payment or crediting of reasonable interest on +installment or deferred payments or the grant or crediting of Dividend +Equivalents with respect to installment or deferred payments. +(iv) Limits on +Transfer of Awards . No Award (other than Other Stock Grants) and no right +under any such Award shall be transferable by a Participant other than by will +or by the laws of descent and distribution and the Company shall not be +required to recognize any attempted assignment of such rights by any +Participant; provided , however , +that, if so determined by the Committee, a Participant may, in the manner +established by the Committee, designate a beneficiary or beneficiaries to +exercise the rights of the Participant and receive any property distributable +with respect to any Award upon the death of the Participant; provided , further , that, +if so determined by the Committee, a Participant may, at any time that such +Participant holds such Option, transfer a Non-Qualified Stock Option to any “Family +Member” (as such term is defined in the General Instructions to Form S-8, or +any successor to such Instructions or such Form), or to an inter vivos or testamentary trust in which +Family Members have a beneficial interest of more than 50% and which provides +that such Option is to be transferred to the beneficiaries upon the Participant’s +death, provided that the +Participant may not receive any consideration for such transfer, the Family +Member may not make any subsequent transfers other than by will or by the laws +of descent and distribution and the Company receives written notice of such +transfer, provided , further , +that, if so determined by the Committee and except in the case of an Incentive +Stock Option, Awards may be transferable as determined by the Committee. Except +as otherwise determined by the Committee, each Award (other than an Incentive +Stock Option) or right under any such Award shall be exercisable during the +Participant’s lifetime only by the Participant or, if permissible under +applicable law, by the Participant’s guardian or legal representative. Except +as otherwise determined by the Committee, no Award (other than an Incentive +Stock Option) or right under any such Award may be pledged, alienated, attached +or otherwise encumbered, and any purported pledge, alienation, attachment or +other encumbrance thereof shall be void and unenforceable against the Company +or any Affiliate. +10 +(v) Term of Awards . +The term of each Award shall be fixed by the Committee at the time of grant, +but shall not be longer than 10 years from the date of grant. +(vi) Restrictions; +Securities Exchange Listing . All Shares or other securities delivered under +the Plan pursuant to any Award or the exercise thereof shall be subject to such +stop transfer orders and other restrictions as the Committee may deem advisable +under the Plan, applicable federal or state securities laws and regulatory +requirements, and the Committee may direct appropriate stop transfer orders and +cause other legends to be placed on the certificates for such Shares or other +securities to reflect such restrictions. If the Shares or other securities are +traded on a securities exchange, the Company shall not be required to deliver +any Shares or other securities covered by an Award unless and until such Shares +or other securities have been and continue to be admitted for trading on such +securities exchange. No Shares or other assets shall be issued or delivered +pursuant to the Plan unless and until there shall have been compliance with all +applicable requirements of applicable securities laws, including the filing and +effectiveness of the Form S-8 registration statement for the Shares issuable +pursuant to the Plan, and all applicable listing requirements of any stock +exchange or trading system on which Common Stock is then traded. No Shares +shall be issued or delivered pursuant to the Plan if doing so would violate any +internal policies of the Company. +(vii) Prohibition on +Repricing . Except as provided in Section 4(c) of the Plan, no Option or +Stock Appreciation Right may be amended to reduce its initial exercise or grant +price and no Option or Stock Appreciation Right shall be canceled and replaced +with Options or Stock Appreciation Rights having a lower exercise or grant +price, without the approval of the stockholders of the Company or unless there +would be no material adverse effect on the Company’s financial statements as +prepared in accordance with generally accepted accounting principles in the +United States. +(i) Directors’ Automatic Option Grant +Program . +(i) Annual Grant . +Subject to approval of the Plan by the Company’s stockholders, beginning with +the 2007 Annual Stockholders Meeting, each Non-Employee Director shall receive +annually on the date of each annual stockholders’ meeting a Non-Qualified Stock +Option to purchase Five Thousand (5,000) Shares, provided that such +Non-Employee Director has served as a Non-Employee Director for at least six +(6) months and is to continue to serve as a Non-Employee Director, whether or +not he or she is standing for reelection at that particular Annual Meeting. The +exercise price for the Shares shall be 100% of the Fair Market Value of the +Shares on the date of grant. Each Option shall be exercisable immediately upon +grant, shall be exercisable for ten (10) years following the date of grant and +shall be generally subject to the terms and conditions set forth in the Plan. +Each such Option shall vest in four (4) equal annual installments upon the +Non-Employee Director’s completion of each year of Board service measured from +the grant date. There shall be no limit on the number of such automatic Option +grants any one Non-Employee Director may receive over his or her period of +Board service, and Non-Employee Directors who have previously been employees of +the Company (or any Affiliate) or who have received one or more Option grants +from the Company prior to becoming a Non-Employee Director shall be eligible to +receive one or more such automatic Option grants over their period of continued +Board service. +11 +(ii) Initial Grant . +Upon appointment or initial election to the Board, each Non-Employee Director +shall receive a Non-Qualified Stock Option to purchase Twenty Thousand (20,000) +Shares, provided such individual was not previously in the Company’s employ. +The exercise price for such Shares shall be 100% of the Fair Market Value of +the Shares on the date of grant. Each Option shall be exercisable immediately +upon grant, shall be exercisable for 10 years following the date of grant and +shall be generally subject to the terms and conditions set forth in the Plan. +(iii) Termination of +Board Service . The following provisions shall govern the exercise of any +options granted to Non-Employee Directors pursuant to the Automatic Option +Grant Program that are outstanding at the time the Non-Employee Director ceases +to serve as a Board member: +(A) Should the +Non-Employee Director’s service as a Board member cease for any reason while +one or more Options granted pursuant to this Automatic Option Grant Program are +outstanding, then each such Option shall remain exercisable, for any or all of +the vested Shares for which the Option is exercisable at the time of such +cessation of Board service, until the earlier of (i) the termination date of +the Option or (ii) the expiration of the one-year period measured from the date +the Non-Employee Director’s Board service ceases. Upon the expiration of the +one-year post-termination exercise period, or (if earlier) upon the termination +date of the Option, the Option shall terminate with respect to any vested +Shares for which the Option has not been exercised. +(B) Should the +Non-Employee Director cease to serve as a Board member by reason of death or +Permanent Disability, then all shares at the time subject to the Option granted +pursuant to this Automatic Option Grant Program shall immediately vest so that +such Option may, during the twelve (12) month exercise period following such +cessation of Board service, be exercised for all or any portion of those shares +as fully vested shares of Common Stock. “ Permanent +Disability ” for purposes of this section shall mean the inability of +the Non-Employee Director to perform his or her usual duties as a Board member +by reason of any medically determinable physical or mental impairment expected +to result in death or to be of continuous duration of twelve (12) months or +more. +(C) Each Option granted +pursuant to this Automatic Option Grant Program that is outstanding at the time +of the Non-Employee Director’s cessation of Board service shall immediately +terminate and cease to remain outstanding with respect to any and all unvested +Shares for which the Option is not otherwise at that time exercisable. +12 +(iv) Change in Control . +In the event of a Change in Control effected during the Non-Employee Director’s +period of Board service, the vesting, if any, of each Option granted pursuant +to this Automatic Option Grant Program at the time held by such Non-Employee +Director shall automatically accelerate so that each such Option shall, +immediately prior to the specified effective date for the Change in Control, +become exercisable for all of the Shares at the time subject to such Option and +may be exercised for all or any portion of such Shares. Upon t he consummation +of the Change in Control, all Options granted pursuant to this Automatic Option +Grant Program shall terminate and cease to be outstanding. +(v) Remaining Terms . +The remaining terms and conditions of each Option granted pursuant to this +Automatic Option Grant Program shall be substantially the same as the terms in +effect for Options made under the Planand shall be set forth in an Option +Agreement. +Section 7. Amendment and Termination; Adjustments +(a) Amendments to the Plan . The Board may amend, alter, suspend, +discontinue or terminate the Plan at any time; provided , +however , that, notwithstanding any other +provision of the Plan or any Award Agreement, without the approval of the +stockholders of the Company, no such amendment, alteration, suspension, +discontinuation or termination shall be made that, absent such approval: +(i) violates the rules +or regulations of the National Association of Securities Dealers, Inc. or any +other securities exchange that are applicable to the Company; +(ii) causes the Company +to be unable, under the Code, to grant Incentive Stock Options under the Plan; +(iii) increases the +number of shares authorized under the Plan as specified in Section 4(a); +(iv) permits the award of +Options or Stock Appreciation Rights at a price less than 100% of the Fair +Market Value of a Share on the date of grant of such Option or Stock +Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b) of the Plan or +the repricing of Options or Stock Appreciation Rights, as prohibited by Section +6(h)(vii) of the Plan; or +(v) would prevent the +grant of Options or Stock Appreciation Rights that would qualify under Section +162(m) of the Code. +(b) Amendments to Awards . The Committee may waive any conditions +of or rights of the Company under any outstanding Award, prospectively or +retroactively. Except as otherwise provided herein or in an Award Agreement, +the Committee may not amend, alter, suspend, discontinue or terminate any +outstanding Award, prospectively or retroactively, if such action would +adversely affect the rights of the holder of such Award, without the consent of +the Participant or holder or beneficiary thereof. Notwithstanding the +foregoing, the Committee shall not waive any conditions or rights of the +Company, or otherwise amend or alter any outstanding Qualified Performance +Based Awards in such a manner as to cause such Award not to qualify as +performance based compensation within the meaning of Section 162(m) of the +Code. +13 +(c) Correction of Defects, Omissions +and Inconsistencies . +The Committee may correct any defect, supply any omission or reconcile any +inconsistency in the Plan or in any Award or Award Agreement in the manner and +to the extent it shall deem desirable to implement or maintain the +effectiveness of the Plan. +Section 8. Income Tax Withholding +In order to comply +with all applicable federal, state or local income tax laws or regulations, the +Company may take such action as it deems appropriate to ensure that all +applicable federal, state or local payroll, withholding, income or other taxes, +which are the sole and absolute responsibility of a Participant, are withheld +or collected from such Participant. In order to assist a Participant in paying +all or a portion of the federal, state and local taxes to be withheld or +collected upon exercise or receipt of (or the lapse of restrictions relating +to) an Award, the Committee, in its discretion and subject to such additional +terms and conditions as it may adopt, may permit the Participant to satisfy +such tax obligation by (i) electing to have the Company withhold a portion of +the Shares otherwise to be delivered upon exercise or receipt of (or the lapse +of restrictions relating to) such Award with a Fair Market Value equal to the +amount of such taxes or (ii) delivering to the Company Shares other than Shares +issuable upon exercise or receipt of (or the lapse of restrictions relating to) +such Award with a Fair Market Value equal to the amount of such taxes. The +election, if any, must be made on or before the date that the amount of tax to +be withheld is determined. +Section 9. General Provisions +(a) No Rights to Awards . No Eligible Person or other Person shall +have any claim to be granted any Award under the Plan, and there is no +obligation for uniformity of treatment of Eligible Persons or holders or +beneficiaries of Awards under the Plan. The terms and conditions of Awards need +not be the same with respect to any Participant or with respect to different +Participants. +(b) Award Agreements . No Participant will have rights under an +Award granted to such Participant unless and until an Award Agreement shall +have been duly executed on behalf of the Company and, if requested by the +Company, signed by the Participant. +(c) Plan Provisions Control . In the event that any provision of an +Award Agreement conflicts with or is inconsistent in any respect with the terms +of the Plan as set forth herein or subsequently amended, the terms of the Plan +shall control. +(d) No Rights of Stockholders . Except with respect to Shares of +Restricted Stock as to which the Participant has been granted the right to +vote, neither a Participant nor the Participant’s legal representative shall +be, or have any of the rights and privileges of, a stockholder of the Company +with respect to any Shares issuable to such Participant upon the exercise or +payment of any Award, in whole or in part, unless and until such Shares have +been issued in the name of such Participant or such Participant’s legal +representative without restrictions thereto. +(e) No Limit on Other Compensation +Arrangements . +Nothing contained in the Plan shall prevent the Company or any Affiliate from +adopting or continuing in effect other or additional compensation arrangements, +and such arrangements may be either generally applicable or applicable only in +specific cases. +14 +(f) No Right to Employment . The grant of an Award shall not be +construed as giving a Participant the right to be retained in the employ, or as +giving a director of the Company or an Affiliate the right to continue as a +director or an Affiliate of the Company or any Affiliate, nor will it affect in +any way the right of the Company or an Affiliate to terminate a Participant’s +employment or Service at any time, with or without cause. In addition, the Company +or an Affiliate may at any time dismiss a Participant from employment, or +terminate the term of a director of the Company or an Affiliate, free from any +liability or any claim under the Plan or any Award, unless otherwise expressly +provided in the Plan or in any Award Agreement. Nothing in this Plan shall +confer on any person any legal or equitable right against the Company or any +Affiliate, directly or indirectly, or give rise to any cause of action at law +or in equity against the Company or an Affiliate. The Awards granted hereunder +shall not form any part of the wages or salary of any Eligible Person for +purposes of severance pay or termination indemnities, irrespective of the +reason for termination of employment. Under no circumstances shall any person +ceasing to be an employee of the Company or any Affiliate be entitled to any +compensation for any loss of any right or benefit under the Plan which such +employee might otherwise have enjoyed but for termination of employment, +whether such compensation is claimed by way of damages for wrongful or unfair +dismissal, breach of contract or otherwise. By participating in the Plan, each +Participant shall be deemed to have accepted all the conditions of the Plan and +the terms and conditions of any rules and regulations adopted by the Committee +and shall be fully bound thereby. +(g) Governing Law . The validity, construction and effect of the +Plan or any Award, and any rules and regulations relating to the Plan or any +Award, shall be determined in accordance with the internal laws, and not the +law of conflicts, of the State of Delaware. +(h) Severability . If any provision of the Plan or any Award is +or becomes or is deemed to be invalid, illegal or unenforceable in any +jurisdiction or would disqualify the Plan or any Award under any law deemed +applicable by the Committee, such provision shall be construed or deemed +amended to conform to applicable laws, or if it cannot be so construed or +deemed amended without, in the determination of the Committee, materially +altering the purpose or intent of the Plan or the Award, such provision shall +be stricken as to such jurisdiction or Award, and the remainder of the Plan or +any such Award shall remain in full force and effect. +(i) No Trust or Fund Created . Neither the Plan nor any Award shall +create or be construed to create a trust or separate fund of any kind or a +fiduciary relationship between the Company or any Affiliate and an Eligible +Person or any other Person. To the extent that any Person acquires a right to +receive payments from the Company or any Affiliate pursuant to an Award, such +right shall be no greater than the right of any unsecured general creditor of +the Company or any Affiliate. +(j) Other Benefits . No compensation or benefit awarded to or +realized by any Participant under the Plan shall be included for the purpose of +computing such Participant’s compensation under any compensation-based +retirement, disability, or similar plan of the Company unless required by law +or otherwise provided by such other plan. +15 +(k) No Fractional Shares . No fractional Shares shall be issued or +delivered pursuant to the Plan or any Award, and the Committee shall determine +whether cash shall be paid in lieu of any fractional Shares or whether such +fractional Shares or any rights thereto shall be canceled, terminated or +otherwise eliminated. +(l) Headings . Headings are given to the Sections and subsections +of the Plan solely as a convenience to facilitate reference. Such headings +shall not be deemed in any way material or relevant to the construction or +interpretation of the Plan or any provision thereof. +(m) Section 16 Compliance; Section +162(m) Administration . +The Plan is intended to comply in all respects with Rule 16b-3 or any successor +provision, as in effect from time to time, and in all events the Plan shall be +construed in accordance with the requirements of Rule 16b-3. If any Plan +provision does not comply with Rule 16b-3 as hereafter amended or interpreted, +the provision shall be deemed inoperative. The Board of Directors, in its absolute +discretion, may bifurcate the Plan so as to restrict, limit or condition the +use of any provision of the Plan with respect to persons who are officers or +directors subject to Section 16 of the Exchange Act without so restricting, +limiting or conditioning the Plan with respect to other Eligible Persons. With +respect to Options and Stock Appreciation Rights, the Company intends to have +the Plan administered in accordance with the requirements for the award of “qualified +performance-based compensation” within the meaning of Section 162(m) of the +Code. +(n) Conditions Precedent to Issuance +of Shares . Shares +shall not be issued pursuant to the exercise or payment of the purchase price +relating to an Award unless such exercise or payment and the issuance and delivery +of such Shares pursuant thereto shall comply with all relevant provisions of +law, including, without limitation, the Securities Act, the Exchange Act, the +rules and regulations promulgated thereunder, the requirements of any +applicable Stock Exchange and the Delaware General Corporation Law. As a +condition to the exercise or payment of the purchase price relating to such +Award, the Company may require that the person exercising or paying the +purchase price represent and warrant that the Shares are being purchased only +for investment and without any present intention to sell or distribute such +Shares if, in the opinion of counsel for the Company, such a representation and +warranty is required by law. +Section 10. Effective Date of the Plan +The Plan shall be +effective upon approval by the Company’s stockholders. +Section 11. Term of the Plan +No Award shall be +granted under the Plan after ten years from the earlier of the date on which +this Plan was adopted by the Board or the date this Plan was approved by the +stockholders of the Company, or any earlier date of discontinuation or +termination established pursuant to Section 7(a) of the Plan. However, unless +otherwise expressly provided in the Plan or in an applicable Award Agreement, +any Award theretofore granted may extend beyond such date, and the authority of +the Committee provided for hereunder with respect to the Plan and any Awards, +and the authority of the Board to amend the Plan, shall extend beyond the +termination of the Plan. +16 +ITERIS, INC. +INCENTIVE STOCK OPTION AGREEMENT +This INCENTIVE STOCK OPTION AGREEMENT (the “ Agreement ”) is made this +day of , , +by and between Iteris, Inc. , a +Delaware corporation (the “ Company ”) +and , an individual +resident of , +(“ Optionee ”). Capitalized terms +used but not otherwise defined herein shall have the meaning ascribed to such +terms in the Iteris, Inc. 2007 Omnibus Incentive Plan (the “ Plan ”). +1. Grant of Option . The +Company hereby grants Optionee the option (the “ Option ”) to purchase all or any part of an aggregate of +shares (the “ Shares ”) of common +stock, $0.10 par value (“ Common Stock ”), +of the Company at the exercise price of $ +per share according to the terms and conditions set forth in this Agreement and +in the Plan. The Option will be treated as an incentive stock option within the +meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “ Code ”). The Option is issued under the +Plan and is subject to its terms and conditions. A copy of the Plan will be +furnished upon request of Optionee. +The Option shall +terminate at the close of business ten (10) years from the date hereof; provided , however , +that if Optionee owns (within the meaning of Section 422 of the Code) as of the +date hereof stock possessing more than 10% of the total combined voting power +of all classes of stock of the Company or of its Affiliates, the Option shall +terminate at the close of business five (5) years from the date hereof. +2. Vesting of Option Rights . +(a) Except +as otherwise provided in this Agreement, the Option may be exercised by +Optionee in accordance with the following schedule: +On or after each of +the following dates +Number of Shares +with respect to which +the Option is exercisable +(b) During +the lifetime of Optionee, the Option shall be exercisable only by Optionee and +shall not be assignable or transferable by Optionee, other than by will or the +laws of descent and distribution. +(c) Optionee +understands that to the extent that the aggregate fair market value (determined +at the time the option was granted) of the shares of Common Stock of the +Company with respect to which all options that are incentive stock options +within the meaning of Section 422 of the Code are exercisable for the first +time by Optionee during any calendar year exceed $100,000, in accordance with +Section 422(d) of the Code, such options shall be treated as options that do +not qualify as incentive stock options. +3. Exercise of Option after Death +or Termination of Employment or Service . The Option shall terminate +and may no longer be exercised if Optionee ceases to be employed by or provide +Service to the Company or its Affiliates, except that: +(a) If Optionee’s +employment shall be terminated for any reason, voluntary or involuntary, other +than for “Cause” (as defined in Section 3(e)) or Optionee’s death or disability +(within the meaning of Section 22(e)(3) of the Code), Optionee may at any time +within a period of 3 months after such termination exercise the Option to the +extent the Option was exercisable by Optionee on the date of the termination of +Optionee’s employment. +(b) If Optionee’s +employment is terminated for Cause, the Option shall be terminated as of the +date of the act giving rise to such termination. +(c) If Optionee shall die +while the Option is still exercisable according to its terms or if employment +is terminated because Optionee has become disabled (within the meaning of +Section 22(e)(3) of the Code) while in the employ of the Company and Optionee +shall not have fully exercised the Option, such Option may be exercised at any +time within 12 months after Optionee’s death or date of termination of +employment for disability by Optionee, personal representatives or +administrators or guardians of Optionee, as applicable or by any person or +persons to whom the Option is transferred by will or the applicable laws of +descent and distribution, to the extent of the full number of Shares Optionee +was entitled to purchase under the Option on (i) the earlier of the date of +death or termination of employment or (ii) the date of termination for such +disability, as applicable. +(d) Notwithstanding the +above, in no case may the Option be exercised to any extent by anyone after the +termination date of the Option. +(e) “ Cause ” shall mean shall mean the +commission of any act of fraud, embezzlement or dishonesty by the Optionee, any +unauthorized use or disclosure by such person of confidential information or +trade secrets of the Company (or any Affiliate), or any other intentional +misconduct by such person adversely affecting the business or affairs of the +Company (or any Affiliate) in a material manner. The foregoing definition shall +not be deemed to be inclusive of all the acts or omissions which the Company +(or any Affiliate) may consider as grounds for the dismissal or discharge of +any Optionee in the Service of the Company (or any Affiliate). However, if the +term or concept has been defined in an employment agreement between the Company +and Optionee, then Cause shall have the definition set forth in such employment +agreement. For purposes of this paragraph, no action or failure to act on +Optionee’s part shall be considered “willful” unless done or omitted to be +done, by Optionee in bad faith and without reasonable belief that his or her +action or omission was in the best interests of the Company. +2 +4. Method of Exercise of Option . Subject +to the foregoing, the Option may be exercised in whole or in part from time to +time by serving written notice of exercise on the Company at its principal +office within the Option period. The notice shall state the number of Shares as +to which the Option is being exercised and shall be accompanied by payment of +the exercise price. Payment of the exercise price shall be made (i) in cash +(including bank check, personal check or money order payable to the Company), +(ii) with the approval of the Company (which may be given in its sole +discretion), by delivering to the Company for cancellation shares of the +Company’s Common Stock already owned by Optionee having a Fair Market Value +equal to the full exercise price of the Shares being acquired, (iii) with the +approval of the Company (which may be given in its sole discretion) and subject +to Section 402 of the Sarbanes-Oxley Act of 2002, by delivering to the Company +the full exercise price of the Shares being acquired in a combination of cash +and Optionee’s full recourse liability promissory note with a principal amount +not to exceed eighty percent (80%) of the exercise price and a term not to +exceed five (5) years, which promissory note shall provide for interest on the +unpaid balance thereof which at all times is not less than the minimum rate +required to avoid the imputation of income, original issue discount or a +below-market rate loan pursuant to Sections 483, 1274 or 7872 of the Code or +any successor provisions thereto, (iv) subject to Section 402 of the +Sarbanes-Oxley Act of 2002, to the extent this Option is exercised for vested +shares, through a special sale and remittance procedure pursuant to which +Optionee shall concurrently provide irrevocable instructions (1) to Optionee’s +brokerage firm to effect the immediate sale of the purchased Shares and remit +to the Company, out of the sale proceeds available on the settlement date, +sufficient funds to cover the aggregate exercise price payable for the +purchased Shares plus all applicable income and employment taxes required to be +withheld by the Company by reason of such exercise and (2) to the Company to +deliver the certificates for the purchased shares directly to such brokerage +firm in order to complete the sale, or (v) with the approval of the Company +(which may be given in its sole discretion) and subject to Section 402 of the +Sarbanes-Oxley Act of 2002, by delivering to the Company a combination of any +of the forms of payment described above. This Option may be exercised only with +respect to full shares and no fractional share of stock shall be issued. +5. Change in Control . +(a) Immediately +prior to the effective date of a “Change in Control” (as defined in Section +5(e)), this Option shall vest and become exercisable for all of the Shares and +may be exercised for any or all of those Shares. However, this Option shall not +vest and become exercisable on an accelerated basis if and to the extent: (i) +this Option is to be assumed by the successor corporation (or parent thereof) +or is otherwise to be continued in full force and effect pursuant to the terms +of the Change in Control transaction or (ii) this Option is to be replaced with +a cash incentive program of the successor corporation which preserves the +spread existing at the time of the Change in Control on the Shares for which +this Option is not otherwise at that time exercisable (the excess of the Fair +Market Value of those Shares over the aggregate exercise price payable for such +Shares) and provides for subsequent payout of that spread no later than the +time this Option would have vested and become exercisable for those Shares. +(b) Immediately +following the consummation of the Change in Control, this Option shall terminate, +except to the extent assumed by the successor corporation (or parent thereof) +or otherwise continued in effect pursuant to the terms of the Change in Control +transaction. +3 +(c) If this Option is assumed or +otherwise continued in effect in connection with a Change in Control, then this +Option shall be appropriately adjusted, upon such Change in Control, to apply +to the number and class of securities which would have been issuable to +Optionee in consummation of such Change in Control had this Option been exercised +immediately prior to such Change in Control, and appropriate adjustments shall +also be made to the exercise price, provided the aggregate exercise price shall +remain the same. To the extent that the holders of Common Stock receive cash +consideration for their Common Stock in consummation of the Change in Control, +the successor corporation (or its parent) may, in connection with the +assumption of this Option, substitute one or more shares of its own common +stock with a fair market value equivalent to the cash consideration paid per +share of Common Stock in such Change in Control. +(d) This +Agreement shall not in any way affect the right of the Company to adjust, +reclassify, reorganize or otherwise change its capital or business structure or +to merge, consolidate, dissolve, liquidate or sell or transfer all or any part +of its business or assets. +(e) For +purposes of this Agreement, “ Change in +Control ” shall mean a change in ownership or control of the Company +effected through any of the following transactions: (i) a merger, consolidation +or other reorganization unless securities representing more than 50% of the +total combined voting power of the voting securities of the successor +corporation are immediately thereafter beneficially owned, directly or indirectly +and in substantially the same proportion, by the persons who beneficially owned +the Company’s outstanding voting securities immediately prior to such +transaction; (ii) a sale, transfer or other disposition of all or substantially +all of the Company’s assets; or (iii) the acquisition, directly or indirectly, +by any person or related group of persons (other than the Company or a person +that directly or indirectly controls, is controlled by, or is under common +control with, the Company), of beneficial ownership (within the meaning of Rule +13d-3 of the Exchange Act) of securities possessing more than 50% of the total +combined voting power of the Company’s outstanding securities pursuant to a +tender or exchange offer made directly to the Company’s stockholders. +6. Capital Adjustments and +Reorganization . Should any change be made to the Common Stock by +reason of any stock split, reverse stock split, stock dividend, +recapitalization, combination of shares, exchange of shares or other change +affecting the outstanding Common Stock as a class without the Company’s receipt +of consideration, appropriate adjustments shall be made to (a) the number +and/or class of securities subject to this Option and (b) the exercise price in +order to reflect such change and thereby preclude a dilution or enlargement of +benefits hereunder. +7. Miscellaneous . +(a) Entire +Agreement; Plan Provisions Control . This Agreement (and any addendum +hereto) and the Plan constitute the entire agreement between the parties hereto +with regard to the subject matter hereof. In the event that any provision of +the Agreement conflicts with or is inconsistent in any respect with the terms +of the Plan, the terms of the Plan shall control. All decisions of the +Committee with respect to any question or issue arising under the Plan or this +Agreement shall be and binding on all persons having an interest in this +Option. All capitalized terms used in this Agreement and not otherwise defined +in this Agreement shall have the meaning assigned to them in the Plan. +4 +(b) No +Rights of Stockholders . Neither Optionee, Optionee’s legal +representative nor a permissible assignee of this Option shall have any of the +rights and privileges of a stockholder of the Company with respect to the +Shares, unless and until such Shares have been issued in the name of Optionee, +Optionee’s legal representative or permissible assignee, as applicable, without +restrictions thereto. +(c) No +Right to Employment . The grant of the Option shall not be construed +as giving Optionee the right to be retained in the employ of, or if Optionee is +a director of the Company or an Affiliate as giving the Optionee the right to +continue as a director of, the Company or an Affiliate, nor will it affect in +any way the right of the Company or an Affiliate to terminate such employment +or position at any time, with or without cause. In addition, the Company or an +Affiliate may at any time dismiss Optionee from employment, or terminate the +term of a director of the Company or an Affiliate, free from any liability or +any claim under the Plan or the Agreement. Nothing in the Agreement shall +confer on any person any legal or equitable right against the Company or any +Affiliate, directly or indirectly, or give rise to any cause of action at law +or in equity against the Company or an Affiliate. The Option granted hereunder +shall not form any part of the wages or salary of Optionee for purposes of +severance pay or termination indemnities, irrespective of the reason for +termination of employment. Under no circumstances shall any person ceasing to +be an employee of the Company or any Affiliate be entitled to any compensation +for any loss of any right or benefit under the Agreement or Plan which such +employee might otherwise have enjoyed but for termination of employment, +whether such compensation is claimed by way of damages for wrongful or unfair +dismissal, breach of contract or otherwise. By participating in the Plan, +Optionee shall be deemed to have accepted all the conditions of the Plan and +the Agreement and the terms and conditions of any rules and regulations adopted +by the Committee and shall be fully bound thereby. +(d) Governing +Law . The validity, construction and effect of the Plan and the +Agreement, and any rules and regulations relating to the Plan and the +Agreement, shall be determined in accordance with the internal laws, and not +the law of conflicts, of the State of Delaware. +(e) Severability . If +any provision of the Agreement is or becomes or is deemed to be invalid, +illegal or unenforceable in any jurisdiction or would disqualify the Agreement under +any law deemed applicable by the Committee, such provision shall be construed +or deemed amended to conform to applicable laws, or if it cannot be so +construed or deemed amended without, in the determination of the Committee, +materially altering the purpose or intent of the Plan or the Agreement, such +provision shall be stricken as to such jurisdiction or the Agreement, and the +remainder of the Agreement shall remain in full force and effect. +(f) No +Trust or Fund Created . Neither the Plan nor the Agreement shall +create or be construed to create a trust or separate fund of any kind or a +fiduciary relationship between the Company or any Affiliate and Optionee or any +other person. +5 +(g) Headings . Headings +are given to the Sections and subsections of the Agreement solely as a +convenience to facilitate reference. Such headings shall not be deemed in any +way material or relevant to the construction or interpretation of the Agreement +or any provision thereof. +(h) Notices . Any +notice required to be given or delivered to the Company under the terms of this +Agreement shall be addressed to the Company at its principal corporate offices. +Any notice required to be given or delivered to Optionee shall be addressed to +Optionee at the address of record provided to the Company by Optionee in +connection with Optionee’s employment with or Services provided to the Company +or such other address as Optionee may designate by ten (10) days’ advance +written notice to the Company. Any notice required to be given under this +Agreement shall be in writing and shall be deemed effective upon personal +delivery or upon the third (3rd) day following deposit in the U.S. mail, +registered or certified, postage prepaid and properly addressed to the party +entitled to such notice. +(i) Conditions +Precedent to Issuance of Shares . Shares shall not be issued pursuant +to the exercise of the Option unless such exercise and the issuance and +delivery of the applicable Shares pursuant thereto shall comply with all +relevant provisions of law, including, without limitation, the Securities Act +of 1933, as amended, the Exchange Act of 1934, as amended, the rules and +regulations promulgated thereunder, state blue sky laws, the requirements of +any applicable Stock Exchange or the Nasdaq Stock Market and the Delaware +General Corporation Law. As a condition to the exercise of the purchase price +relating to the Option, the Company may require that the person exercising or +paying the purchase price represent and warrant that the Shares are being +purchased only for investment and without any present intention to sell or +distribute such Shares if, in the opinion of counsel for the Company, such a +representation and warranty is required by law. +(j) Withholding . If +Optionee shall dispose of any of the shares of Common Stock acquired upon +exercise of the Option within two (2) years from the date the Option was +granted or within one (1) year after the date of exercise of the Option, then, +in order to provide the Company with the opportunity to claim the benefit of +any income tax deduction, Optionee shall promptly notify the Company of the +dates of acquisition and disposition of such shares, the number of shares so +disposed of, and the consideration, if any, received for such shares. In order +to comply with all applicable federal or state income tax laws or regulations, +the Company may take such action as it deems appropriate to assure (i) notice +to the Company of any disposition of the shares of the Company within the time +periods described above, and (ii) that, if necessary, all applicable federal or +state payroll, withholding, income or other taxes are withheld or collected +from Optionee. +(k) Consultation +With Professional Tax and Investment Advisors . Optionee acknowledges +that the grant, exercise and vesting with respect to this Option, and the sale +or other taxable disposition of the Shares, may have tax consequences pursuant +to the Code or under local, state or international tax laws. Optionee further +acknowledges that Optionee is relying solely and exclusively on Optionee’s own +professional tax and investment advisors with respect to any and all such +matters (and is not relying, in any manner, on the Company or any of its +employees or representatives). Optionee understands and agrees that any and all +tax consequences resulting from the Option and its grant, exercise and vesting, +and the sale or other taxable disposition of the Shares, is solely and +exclusively the responsibility of Optionee without any expectation or +understanding that the Company or any of its employees or representatives will +pay or reimburse Optionee for such taxes or other items. +6 +(l) Acceptance +of Option . By accepting this Agreement, Optionee hereby agrees to the +terms and conditions set forth in this Agreement and the Plan with respect to +the Option and any Shares issued as a result of the exercise of the Option, in +whole or in part. +IN +WITNESS WHEREOF , the Company has executed this Agreement and +caused this Option to be issued to Optionee on the date set forth in the first +paragraph above. +ITERIS, INC. +By: +Name: +Title: +7 +ITERIS, INC. +NON-INCENTIVE STOCK OPTION AGREEMENT +This NON-INCENTIVE +STOCK OPTION AGREEMENT (the “ Agreement ”) +is made this day +of , , +by and between Iteris, Inc., a Delaware corporation (the “ Company ”), and , +an individual resident of , +(“ Optionee ”). Capitalized terms used but not +otherwise defined herein shall have the meaning ascribed to such terms in the +Iteris, Inc. 2007 Omnibus Incentive Plan (the “ Plan ”). +1. Grant of Option . The +Company hereby grants Optionee the option (the “ Option ”) to purchase all or any part of an aggregate of +shares (the “ Shares ”) of common +stock, $0.10 par value (“ Common Stock ”), +of the Company at the exercise price of $ +per share according to the terms and conditions set forth in this Agreement and +in the Plan. The Option will not be treated as an incentive stock option within the +meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “ Code ”). The Option is issued under the +Plan and is subject to its terms and conditions. A copy of the Plan will be +furnished upon request of Optionee. +The Option shall +terminate at the close of business ten (10) years from the date hereof. +2. Vesting of Option Rights . +(a) Except +as otherwise provided in this Agreement, the Option may be exercised by +Optionee in accordance with the following schedule: +On or after each of +the following dates +Number of Shares +with respect to which +the Option is exercisable +(b) During +the lifetime of Optionee, the Option shall be exercisable only by Optionee and +shall not be assignable or transferable by Optionee, other than by will or the +laws of descent and distribution. Notwithstanding the foregoing, Optionee may +transfer the Option to any Family Member (as such term is defined in the +General Instructions to Form S-8 (or successor to such Instructions or such +Form)); provided , however , that (i) Optionee may not receive any consideration +for such transfer, (ii) the Family Member must agree in writing not to make any +subsequent transfers of the Option other than by will or the laws of the +descent and distribution and (iii) the Company receives prior written notice of +such transfer. +3. Exercise of Option after Death +or Termination of Employment or Service . The Option shall terminate +and may no longer be exercised if Optionee ceases to be employed by or provide +Service to the Company or its Affiliates, except that: +(a) If Optionee’s +employment shall be terminated for any reason, voluntary or involuntary, other +than for “Cause” (as defined in Section 3(e)) or Optionee’s death or disability +(within the meaning of Section 22(e)(3) of the Code), Optionee may at any time +within a period of 3 months after such termination exercise the Option to the +extent the Option was exercisable by Optionee on the date of the termination of +Optionee’s employment. +(b) If Optionee’s +employment is terminated for Cause, the Option shall be terminated as of the +date of the act giving rise to such termination. +(c) If Optionee shall +die while the Option is still exercisable according to its terms or if +employment is terminated because Optionee has become disabled (within the +meaning of Section 22(e)(3) of the Code) while in the employ of the Company and +Optionee shall not have fully exercised the Option, such Option may be +exercised at any time within 12 months after Optionee’s death or date of +termination of employment for disability by Optionee, personal representatives +or administrators or guardians of Optionee, as applicable or by any person or +persons to whom the Option is transferred by will or the applicable laws of +descent and distribution, to the extent of the full number of Shares Optionee +was entitled to purchase under the Option on (i) the earlier of the date of +death or termination of employment or (ii) the date of termination for such +disability, as applicable. +(d) Notwithstanding the +above, in no case may the Option be exercised to any extent by anyone after the +termination date of the Option. +(e) “ Cause ” shall mean shall mean the +commission of any act of fraud, embezzlement or dishonesty by the Optionee, any +unauthorized use or disclosure by such person of confidential information or +trade secrets of the Company (or any Affiliate), or any other intentional +misconduct by such person adversely affecting the business or affairs of the +Company (or any Affiliate) in a material manner. The foregoing definition shall +not be deemed to be inclusive of all the acts or omissions which the Company +(or any Affiliate) may consider as grounds for the dismissal or discharge of +any Optionee in the Service of the Company (or any Affiliate). However, if the +term or concept has been defined in an employment agreement between the Company +and Optionee, then Cause shall have the definition set forth in such employment +agreement. For purposes of this paragraph, no action or failure to act on +Optionee’s part shall be considered “willful” unless done or omitted to be +done, by Optionee in bad faith and without reasonable belief that his or her +action or omission was in the best interests of the Company. +4. Method of Exercise of Option . Subject +to the foregoing, the Option may be exercised in whole or in part from time to +time by serving written notice of exercise on the Company at its principal +office within the Option period. The notice shall state the number of Shares as +to which the Option is being exercised and shall be accompanied by payment of +the exercise price. Payment of the exercise price shall be made (i) in cash +(including bank check, personal check or money order payable to the Company), +(ii) with the approval of the Company (which may be given in its sole +discretion), by delivering to the Company for cancellation shares of the Company’s +Common Stock already owned by Optionee having a Fair Market Value equal +2 +to the full exercise +price of the Shares being acquired, (iii) with the approval of the Company +(which may be given in its sole discretion) and subject to Section 402 of the +Sarbanes-Oxley Act of 2002, by delivering to the Company the full exercise +price of the Shares being acquired in a combination of cash and Optionee’s full +recourse liability promissory note with a principal amount not to exceed eighty +percent (80%) of the exercise price and a term not to exceed five (5) years, +which promissory note shall provide for interest on the unpaid balance thereof +which at all times is not less than the minimum rate required to avoid the +imputation of income, original issue discount or a below-market rate loan +pursuant to Sections 483, 1274 or 7872 of the Code or any successor provisions +thereto, (iv) subject to Section 402 of the Sarbanes-Oxley Act of 2002, to the +extent this Option is exercised for vested shares, through a special sale and +remittance procedure pursuant to which Optionee shall concurrently provide +irrevocable instructions (1) to Optionee’s brokerage firm to effect the +immediate sale of the purchased Shares and remit to the Company, out of the +sale proceeds available on the settlement date, sufficient funds to cover the +aggregate exercise price payable for the purchased Shares plus all applicable +income and employment taxes required to be withheld by the Company by reason of +such exercise and (2) to the Company to deliver the certificates for the +purchased shares directly to such brokerage firm in order to complete the sale, +or (v) with the approval of the Company (which may be given in its sole +discretion) and subject to Section 402 of the Sarbanes-Oxley Act of 2002, by delivering +to the Company a combination of any of the forms of payment described above. +This Option may be exercised only with respect to full shares and no fractional +share of stock shall be issued. +5. Change in Control . +(a) Immediately prior to +the effective date of a “Change in Control” (as defined in Section 5(e)), this +Option shall vest and become exercisable for all of the Shares and may be +exercised for any or all of those Shares. However, this Option shall not vest +and become exercisable on an accelerated basis if and to the extent: (i) this +Option is to be assumed by the successor corporation (or parent thereof) or is +otherwise to be continued in full force and effect pursuant to the terms of the +Change in Control transaction or (ii) this Option is to be replaced with a cash +incentive program of the successor corporation which preserves the spread +existing at the time of the Change in Control on the Shares for which this +Option is not otherwise at that time exercisable (the excess of the Fair Market +Value of those Shares over the aggregate exercise price payable for such +Shares) and provides for subsequent payout of that spread no later than the +time this Option would have vested and become exercisable for those Shares. +(b) Immediately +following the consummation of the Change in Control, this Option shall +terminate, except to the extent assumed by the successor corporation (or parent +thereof) or otherwise continued in effect pursuant to the terms of the Change +in Control transaction. +(c) If this Option is +assumed or otherwise continued in effect in connection with a Change in +Control, then this Option shall be appropriately adjusted, upon such Change in +Control, to apply to the number and class of securities which would have been +issuable to Optionee in consummation of such Change in Control had this Option +been exercised immediately prior to such Change in Control, and appropriate +adjustments shall also be made to the exercise price, provided the aggregate +exercise price shall remain the +3 +same. To the +extent that the holders of Common Stock receive cash consideration for their +Common Stock in consummation of the Change in Control, the successor +corporation may, in connection with the assumption of this Option, substitute +one or more shares of its own common stock with a fair market value equivalent +to the cash consideration paid per share of Common Stock in such Change in +Control. +(d) This Agreement shall +not in any way affect the right of the Company to adjust, reclassify, +reorganize or otherwise change its capital or business structure or to merge, +consolidate, dissolve, liquidate or sell or transfer all or any part of its +business or assets. +(e) For purposes of this +Agreement, “ Change in Control ” +shall mean a change in ownership or control of the Company effected through any +of the following transactions: (i) a merger, consolidation or other +reorganization unless securities representing more than 50% of the total +combined voting power of the voting securities of the successor corporation are +immediately thereafter beneficially owned, directly or indirectly and in +substantially the same proportion, by the persons who beneficially owned the +Company’s outstanding voting securities immediately prior to such transaction; +(ii) a sale, transfer or other disposition of all or substantially all of the +Company’s assets; or (iii) the acquisition, directly or indirectly, by any +person or related group of persons (other than the Company or a person that +directly or indirectly controls, is controlled by, or is under common control +with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 +of the Exchange Act) of securities possessing more than 50% of the total +combined voting power of the Company’s outstanding securities pursuant to a +tender or exchange offer made directly to the Company’s stockholders. +6. Capital Adjustments and +Reorganization . Should any change be made to the Common Stock by +reason of any stock split, reverse stock split, stock dividend, +recapitalization, combination of shares, exchange of shares or other change +affecting the outstanding Common Stock as a class without the Company’s receipt +of consideration, appropriate adjustments shall be made to (a) the number +and/or class of securities subject to this Option and (b) the exercise price in +order to reflect such change and thereby preclude a dilution or enlargement of +benefits hereunder. +7. Miscellaneous . +(a) Entire +Agreement; Plan Provisions Control . This Agreement (and any addendum +hereto) and the Plan constitute the entire agreement between the parties hereto +with regard to the subject matter hereof. In the event that any provision of +the Agreement conflicts with or is inconsistent in any respect with the terms +of the Plan, the terms of the Plan shall control. All decisions of the +Committee with respect to any question or issue arising under the Plan or this +Agreement shall be and binding on all persons having an interest in this +Option. All capitalized terms used in this Agreement and not otherwise defined +in this Agreement shall have the meaning assigned to them in the Plan. +4 +(b) No +Rights of Stockholders . Neither Optionee, Optionee’s legal +representative nor a permissible assignee of this Option shall have any of the +rights and privileges of a stockholder of the Company with respect to the +Shares, unless and until such Shares have been issued in the name of Optionee, +Optionee’s legal representative or permissible assignee, as applicable, without +restrictions thereto. +(c) No +Right to Employment . The grant of the Option shall not be construed +as giving Optionee the right to be retained in the employ of, or if Optionee is +a director of the Company or an Affiliate as giving the Optionee the right to +continue as a director of, the Company or an Affiliate, nor will it affect in +any way the right of the Company or an Affiliate to terminate such employment +or position at any time, with or without cause. In addition, the Company or an +Affiliate may at any time dismiss Optionee from employment, or terminate the +term of a director of the Company or an Affiliate, free from any liability or +any claim under the Plan or the Agreement. Nothing in the Agreement shall +confer on any person any legal or equitable right against the Company or any +Affiliate, directly or indirectly, or give rise to any cause of action at law +or in equity against the Company or an Affiliate. The Option granted hereunder +shall not form any part of the wages or salary of Optionee for purposes of +severance pay or termination indemnities, irrespective of the reason for +termination of employment. Under no circumstances shall any person ceasing to +be an employee of the Company or any Affiliate be entitled to any compensation +for any loss of any right or benefit under the Agreement or Plan which such +employee might otherwise have enjoyed but for termination of employment, +whether such compensation is claimed by way of damages for wrongful or unfair +dismissal, breach of contract or otherwise. By participating in the Plan, +Optionee shall be deemed to have accepted all the conditions of the Plan and +the Agreement and the terms and conditions of any rules and regulations adopted +by the Committee and shall be fully bound thereby. +(d) Governing +Law . The validity, construction and effect of the Plan and the +Agreement, and any rules and regulations relating to the Plan and the +Agreement, shall be determined in accordance with the internal laws, and not +the law of conflicts, of the State of Delaware. +(e) Severability . If +any provision of the Agreement is or becomes or is deemed to be invalid, +illegal or unenforceable in any jurisdiction or would disqualify the Agreement under +any law deemed applicable by the Committee, such provision shall be construed +or deemed amended to conform to applicable laws, or if it cannot be so +construed or deemed amended without, in the determination of the Committee, +materially altering the purpose or intent of the Plan or the Agreement, such +provision shall be stricken as to such jurisdiction or the Agreement, and the +remainder of the Agreement shall remain in full force and effect. +(f) No +Trust or Fund Created . Neither the Plan nor the Agreement shall +create or be construed to create a trust or separate fund of any kind or a +fiduciary relationship between the Company or any Affiliate and Optionee or any +other person. +(g) Headings . Headings +are given to the Sections and subsections of the Agreement solely as a +convenience to facilitate reference. Such headings shall not be deemed in any +way material or relevant to the construction or interpretation of the Agreement +or any provision thereof. +5 +(h) Notices . Any +notice required to be given or delivered to the Company under the terms of this +Agreement shall be addressed to the Company at its principal corporate offices. +Any notice required to be given or delivered to Optionee shall be addressed to +Optionee at the address of record provided to the Company by Optionee in +connection with Optionee’s employment with or Services provided to the Company +or such other address as Optionee may designate by ten (10) days’ advance +written notice to the Company. Any notice required to be given under this +Agreement shall be in writing and shall be deemed effective upon personal +delivery or upon the third (3rd) day following deposit in the U.S. mail, +registered or certified, postage prepaid and properly addressed to the party +entitled to such notice. +(i) Conditions +Precedent to Issuance of Shares . Shares shall not be issued pursuant +to the exercise of the Option unless such exercise and the issuance and +delivery of the applicable Shares pursuant thereto shall comply with all +relevant provisions of law, including, without limitation, the Securities Act +of 1933, as amended, the Exchange Act of 1934, as amended, the rules and +regulations promulgated thereunder, state blue sky laws, the requirements of +any applicable Stock Exchange or the Nasdaq Stock Market and the Delaware +General Corporation Law. As a condition to the exercise of the purchase price +relating to the Option, the Company may require that the person exercising or +paying the purchase price represent and warrant that the Shares are being +purchased only for investment and without any present intention to sell or +distribute such Shares if, in the opinion of counsel for the Company, such a +representation and warranty is required by law. +(j) Withholding . In +order to provide the Company with the opportunity to claim the benefit of any +income tax deduction which may be available to it upon the exercise of the +Option and in order to comply with all applicable federal or state income tax +laws or regulations, the Company may take such action as it deems appropriate +to insure that, if necessary, all applicable federal or state payroll, +withholding, income or other taxes are withheld or collected from Optionee. +(k) Consultation +With Professional Tax and Investment Advisors . Optionee acknowledges +that the grant, exercise and vesting with respect to this Option, and the sale +or other taxable disposition of the Shares, may have tax consequences pursuant +to the Code or under local, state or international tax laws. Optionee further +acknowledges that Optionee is relying solely and exclusively on Optionee’s own +professional tax and investment advisors with respect to any and all such +matters (and is not relying, in any manner, on the Company or any of its +employees or representatives). Optionee understands and agrees that any and all +tax consequences resulting from the Option and its grant, exercise and vesting, +and the sale or other taxable disposition of the Shares, is solely and +exclusively the responsibility of Optionee without any expectation or +understanding that the Company or any of its employees or representatives will +pay or reimburse Optionee for such taxes or other items. +(l) Acceptance +of Option . By accepting this Agreement, Optionee hereby agrees to the +terms and conditions set forth in this Agreement and the Plan with respect to +the Option and any Shares issued as a result of the exercise of the Option, in +whole or in part. +6 +IN +WITNESS WHEREOF , the Company has executed this Agreement and +caused this Option to be issued to Optionee on the date set forth in the first +paragraph above. +ITERIS, INC. +By: +Name: +Title: +7 +PROXY +ITERIS, +INC. +THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby +appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of +Stockholders of Iteris to be held at the Doubletree Hotel Anaheim/Orange +County, located at 100 The City Drive, Orange, California 92868, on September +21, 2007 at 10:00 a.m. Pacific Time, and at any adjournments or postponements +thereof, and to vote all shares of common stock of Iteris held of record by the +undersigned on July 25, 2007, with all the powers the undersigned would possess +if personally present, in accordance with the instructions on the reverse +hereof. +The undersigned hereby revokes any other proxy to vote +at such Annual Meeting of Stockholders and hereby ratifies and confirms all +that said proxies, and each of them, may lawfully do by virtue hereof. The +undersigned also acknowledges receipt of the Notice of the Annual Meeting of +Stockholders, the proxy statement and the annual report to stockholders on Form +10-K for the year ended March 31, 2007, which were furnished with this proxy. +CONTINUED AND TO BE SIGNED ON +REVERSE SIDE +SEE +REVERSE SIDE +THIS PROXY, WHEN +PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR +IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, +3 AND 4, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD +TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY +ADJOURNMENT OR POSTPONEMENT THEREOF. +x Please mark votes as in this example. +1. +Election of Directors +Nominees standing for election by holders of common +stock: Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, +John W. Seazholtz, Joel Slutzky and Thomas L. Thomas. +o FOR +o WITHHOLD +AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for +any individual nominee, write that nominee’s name in the space provided +above.) +2. +To approve the amendment of our certificate of +incorporation to increase the number of authorized shares of our common stock +by 20,000,000, from 50,000,000 shares to 70,000,000 shares. +o FOR +o AGAINST +o ABSTAIN +3. +To approve the Iteris, Inc. 2007 Omnibus Incentive +Plan and the issuance of up to 850,000 shares of common stock thereunder. +o FOR +o AGAINST +o ABSTAIN +4. +Ratification of McGladrey & Pullen, LLP as the +independent auditors of Iteris for the fiscal year ending March 31, +2008. +o FOR +o AGAINST +o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW +ADDRESS o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING o +Signature: +Date: +Signature: +Date: +(This Proxy must be +signed exactly as your name appears hereon. Executors, administrators, +trustees, etc., should give full title as such. If the stockholder is a +corporation, a duly authorized officer should sign on behalf of the corporation +and should indicate his or her title.) +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-07-061094/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-07-061094/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..5b8f73b01326bf93979f14d292192d92f61b4ebc --- /dev/null +++ b/raw/proxies/0000350868/0001104659-07-061094/proxy_rpt.txt @@ -0,0 +1,4 @@ +related party transactions. The Audit Committee monitors and reviews potential +conflict of interest situations involving a principal stockholder, a member of +the Board of Directors or senior management.. +SECTION \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-08-048350/proxy.txt b/raw/proxies/0000350868/0001104659-08-048350/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..69a2482293aa0333d356fccf595ac12b60323c40 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-08-048350/proxy.txt @@ -0,0 +1,2294 @@ +DEF 14A +1 +a08-12231_3def14a.htm +DEF 14A +UNITED +STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the +Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for +Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to +§240.14a-12 +ITERIS, +INC. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the +appropriate box): +x +No fee required. +o +Fee computed on table below per +Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to +which transaction applies: +(2) +Aggregate number of securities to +which transaction applies: +(3) +Per unit price or other underlying +value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth +the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of +transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary +materials. +o +Check box if any part of the fee is +offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the date +of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration +Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 19, 2008 +To the Stockholders of +Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2008 Annual Meeting of +Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, +will be held on September 19, 2008 at 10:00 a.m. Pacific Time, at our +principal executive offices located at 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705, for the following purposes, as more fully described in the +proxy statement accompanying this Notice: +1. To elect seven directors to serve on the +Board of Directors until the next annual meeting of stockholders. The nominees for election are Richard Char, +Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, +Joel Slutzky and Thomas L. Thomas. +2. To ratify the appointment of McGladrey & +Pullen, LLP as our independent auditors for the fiscal year ending March 31, +2009. +3. To transact any other business which may +properly come before the Annual Meeting or any adjournment(s) or +postponement(s) thereof. +All stockholders of record as of the close of business +on July 22, 2008 are entitled to notice of and to vote at the Annual +Meeting and at any postponement(s) or adjournment(s) thereof. You are cordially invited to be present and +to vote at this Annual Meeting. Whether +or not you plan to attend, it is important that your shares be represented and +voted at the Annual Meeting. You can +vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name,” +that is, your shares are held in the name of a brokerage firm, bank or other +nominee, in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail and you may also be eligible to vote your +shares electronically over the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please sign, date and return each +proxy card or voting instruction form to ensure that all of your shares are +voted. You may revoke your proxy at any +time prior to the Annual Meeting. If you +attend the Annual Meeting and vote by ballot, any proxy that you previously +submitted will be revoked automatically and only your vote at the Annual +Meeting will be counted. For further +information, please see the discussion of voting rights and proxies beginning +on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD +OF DIRECTORS +Abbas Mohaddes +Chief Executive Officer +and President +Santa Ana, +California +July 29, 2008 +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER +OF SHARES YOU OWN. PLEASE READ THE +ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY +CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2008 ANNUAL MEETING OF +STOCKHOLDERS +TO BE HELD SEPTEMBER 19, 2008 +General +These proxy materials and the enclosed proxy card are +being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), +to be voted at the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) +to be held on September 19, 2008 and at any adjournment(s) or +postponement(s) of the meeting. The +Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal +executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, +CA 92705. These proxy materials and the +form of proxy are expected to be mailed to our stockholders who are entitled to +vote at the Annual Meeting on or about August 6, 2008. +Purpose +of Meeting +The specific proposals to +be considered and acted upon at the Annual Meeting are summarized in the +accompanying Notice of the Annual Meeting of Stockholders and are described in +more detail in this proxy statement. +Voting +Rights +The record date for determining those stockholders who +are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +July 22, 2008. At the close of +business on the record date, 33,968,502 shares of our common stock, par value +$0.10 per share, were outstanding and no shares of our preferred stock were +outstanding. Each stockholder is +entitled to one vote for each share of common stock held by such stockholder as +of the record date. +The presence in person or by proxy of the holders of a +majority of the outstanding shares of the common stock entitled to vote will +constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual +Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, +directors will be elected by a plurality of the common stock entitled to vote +and present in person or represented by proxy at the Annual Meeting, unless +cumulative voting is in effect. Pursuant +to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates +other than those whose names have been placed in nomination prior to the +commencement of voting and unless at least one stockholder has given notice +prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, +then each stockholder may cumulate votes by multiplying the number of shares of +common stock the stockholder is entitled to vote by the number of directors to +be elected. The number of cumulative votes +thus determined may be voted all for one candidate or distributed among several +candidates, at the discretion of the stockholder. The candidates receiving the highest number +of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons +named in the accompanying proxy will vote the shares of common stock covered by +proxies received by them (unless authority to vote for directors is withheld) +among the named candidates as they determine. +1 +With regard to Proposal Two, the affirmative vote of +the holders of a majority of our common stock present or represented by proxy +and entitled to vote at the Annual Meeting is being sought. +All votes will be tabulated by the inspector of +election appointed for the Annual Meeting, who will separately tabulate +affirmative and negative votes, abstentions and broker non-votes. Broker non-votes occur when brokers who hold +stock in “street name” return proxy cards stating that they do not have +authority to vote the stock which they hold on behalf of beneficial +owners. Abstentions and broker non-votes +are counted as present for purposes of determining the presence or absence of a +quorum for the transaction of business. +With regard to Proposal One, broker non-votes and votes marked “withheld” +will not be counted towards the tabulation of votes cast on such proposal +presented to the stockholders. With regard to Proposal Two, abstentions will be +counted towards the tabulation of votes cast on such proposal presented to the +stockholders and will have the same effect as negative votes, whereas broker +non-votes will not be counted for purposes of determining whether such proposal +has been approved and will not have the effect of negative votes. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically +over the Internet or by telephone, or (iii) by ballot in person at the +Annual Meeting. If you are a “registered +holder,” that is, your shares are registered in your own name through our +transfer agent, you may vote by returning a completed proxy card in the +enclosed postage-paid envelope. If your +shares are held in “street name,” that is, your shares are held in the name of +a brokerage firm, bank or other nominee, in lieu of a proxy card you should +receive a voting instruction form from that institution by mail. The voting instruction form should indicate +whether the institution has a process for beneficial holders to vote over the +Internet or by telephone. Stockholders +who vote over the Internet or by telephone need not return a proxy card or +voting instruction form by mail, but may incur costs, such as usage charges, +from telephone companies or Internet service providers. If your voting instruction form does not +reference Internet or telephone information, please complete and return the +paper voting instruction form in the self-addressed, postage-paid envelope +provided. +If you are a registered holder, you may also vote your +shares in person at the Annual Meeting. +If your shares are held in street name and you wish to vote in person at +the meeting, you must obtain a proxy issued in your name from the record holder +and bring it with you to the Annual Meeting. +We recommend that you vote your shares in advance as described above so +that your vote will be counted if you later decide not to attend the Annual +Meeting. +Proxies +Please use the enclosed proxy card to vote by +mail. If your shares are held in street +name, then in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please be sure to complete, sign, +date and return each proxy card or voting instruction form to ensure that all +of your shares will be voted. Only proxy +cards and voting instruction forms that have been signed, dated and timely +returned (or otherwise properly voted by Internet or telephone) will be counted +in the quorum and voted. Properly +executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted FOR the election +of the directors proposed by the Board under Proposal One unless the authority +to vote for the election of any director is withheld and, if no contrary +instructions are given, the proxy will be voted FOR the ratification of the +selection of the independent auditors under Proposal Two. +The enclosed proxy also grants the proxy holders +discretionary authority to vote on any other business that may properly come +before the Annual Meeting as well as any procedural matters. We have not been notified by any stockholder +of his or her intent to present a stockholder proposal at the Annual Meeting. +If your shares are held in your name, you may revoke +or change your vote at any time before the Annual Meeting by filing a notice of +revocation or another signed proxy card with a later date with our Secretary at +our principal executive offices. If your +shares are held in street name, you should contact the record holder to obtain +instructions if you wish to revoke or change your vote before the Annual +Meeting. If you attend the Annual +Meeting and vote by ballot, any proxy that you submitted previously to vote the +same shares will be revoked automatically and only your vote at the Annual +Meeting will be counted. Please note, however, that if your shares are held in street name, your +vote in person at the Annual Meeting will not be effective unless you have +obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting +will not, by itself, revoke a proxy. +2 +Solicitation +The enclosed proxy is being solicited by our Board of +Directors. We will bear the entire cost +of proxy solicitation, including the costs of preparing, assembling, printing +and mailing this proxy statement, the proxy card and any additional material +furnished to the stockholders. Copies of +the solicitation materials will be furnished to brokerage houses, fiduciaries +and custodians holding shares in their names that are beneficially owned by +others so that they may forward this solicitation material to such beneficial +owners. In addition, we may reimburse +such persons for their reasonable expenses in forwarding the solicitation +materials to the beneficial owners. The +original solicitation of proxies by mail may be supplemented by a solicitation +by personal contact, telephone, facsimile, email or any other means by our +directors, officers or employees. No +additional compensation will be paid to these individuals for any such +services. +In the discretion of management, we reserve the right +to retain a professional firm of proxy solicitors to assist in solicitation of +proxies. Although we do not currently +expect to retain such a firm, it estimates that the fees of such firm would +range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be +paid by us. +3 +PROPOSAL ONE: +ELECTION +OF DIRECTORS +Our bylaws provide for a Board of Directors consisting +of not less than seven nor more than eleven members. The exact number may be changed, within such +limits, by a resolution duly adopted by the Board or by the stockholders. The number of directors constituting the full +Board is currently set at seven. All +directors are elected annually and hold office until the next annual meeting of +stockholders and until their successors are duly elected and qualified. +On the recommendation of the Nominating and Corporate +Governance Committee, our Board of Directors selected and approved the +following persons as nominees for election at the Annual Meeting to serve until +the next annual meeting of stockholders, or until their successors are duly +elected and qualified or until their earlier resignation or removal: Richard Char, Kevin C. Daly, Ph.D., Gregory +A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky and Thomas L. +Thomas. Each nominee for election is +currently a member of our Board of Directors and has agreed to serve if +elected. We have no reason to believe +that any of the nominees will be unavailable to serve. In the event any of the nominees named herein +is unable to serve or declines to serve at the time of the Annual Meeting, the +persons named in the enclosed proxy will exercise discretionary authority to +vote for substitutes. Unless otherwise +instructed, the proxy holders will vote the proxies received by them FOR the +nominees named above. +Stockholder +Approval +The seven candidates receiving the highest number of +affirmative votes, present in person or represented by proxies and entitled to +vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, +the proxy holders will have the right to cumulate and allocate votes among +those nominees standing for election as such proxy holders in their discretion +elect. +Recommendation +of the Board of Directors +Our Board of Directors recommends a +vote “FOR” the seven director nominees listed above. +Directors +and Nominees +The following table sets +forth certain information, as of July 1, 2008, concerning our directors and +director nominees. +Name +Age +Current Position(s) with Iteris +Director +Since +Richard Char(1) +49 +Director +2005 +Kevin C. Daly, +Ph.D.(2)(3) +63 +Director and Assistant +Secretary +1993 +Gregory A. Miner +53 +Chairman of the Board +1998 +Abbas Mohaddes +51 +Chief Executive +Officer, President, Assistant Secretary and Director +2005 +John W. +Seazholtz(1)(2)(3) +71 +Director +1998 +Joel Slutzky (3) +69 +Director and Assistant +Secretary +1969 +Thomas L. +Thomas(1)(2)(3) +59 +Director +1999 +(1) Member of the Audit Committee. +(2) Member of the Compensation Committee. +(3) Member of the Nominating and Corporate +Governance Committee. +Abbas Mohaddes has served as our Chief Executive Officer and President since March 2007, +as an Assistant Secretary since May 2004 and as a director since September 2005. Prior to his promotion in March 2007, Mr. Mohaddes +served as our Executive Vice President and a General Manager from October 2004. He was the Executive Vice President of our +former Iteris, Inc. subsidiary (the “Iteris Subsidiary”) from March 2004 +to October 2004 and its Secretary from September 2001 to October 2004. Prior to that, he served as the Senior Vice +President +4 +and Director of Transportation Systems of the +Iteris Subsidiary from May 2000 to March 2004 and as its Vice +President and Deputy Director of Transportation from October 1998 to May 2000. Mr. Mohaddes also served as President +and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), +an ITS and transportation firm that he co-founded in 1991, which was acquired +by the Iteris Subsidiary in October 1998 and dissolved in April 2006. Mr. Mohaddes is a founding and a current +board member of ITS America and a member of several trade organizations +including Transportation Research Board, Institute of Transportation Engineers, +and the Design/Build Institute of America. +Richard Char has served as a director since September 2005. Since June 2006, Mr. Char has +served as Senior Vice President of Corporate Development and General Counsel at +Blackhawk Network, Inc., a provider of prepaid merchant gift cards and +network branded cards. From March 2003 +to April 2005, Mr. Char served as the President and Chief Executive +Officer of IC Media, a developer of CMOS image sensors that was acquired in April 2005 +by MagnaChip Semiconductors, a developer and manufacturer of mixed-signal and +digital multimedia semiconductors. Prior +to joining IC Media, from March 1999 to January 2002, Mr. Char +was Managing Director with the Technology Group of Credit Suisse First +Boston. From 1997 to 1999, Mr. Char +was Co-Head of Technology Investment Banking at Cowen & Company and +from 1984 to 1997, he was a partner in the law firm of Wilson Sonsini Goodrich & +Rosati. Mr. Char received his A.B. +degree from Harvard College and his J.D. degree from Stanford Law School. +Kevin C. Daly, Ph.D. has served as a director since 1993. +Dr. Daly assumed the responsibility of Chief Executive Officer of +iStor Networks, Inc., a leading supplier of network storage solutions, in August 2007. He has also served as the Chief Executive +Officer of MAXxess Systems, Inc., a provider of electronic security +solutions, since November 2005. +From June 2002 to June 2005, Dr. Daly was the Chief +Executive Officer of Avamar Technologies, Inc., a provider of high +availability storage software solutions. +Dr. Daly was Chief Technical Officer of Quantum Corporation’s +Storage Solutions Group from October 2001 to July 2002. Dr. Daly is also a member of the Board +of Directors of Danka Business Systems PLC and iStor Networks Inc. +Gregory A. Miner has served as a director since 1998 and as our Chairman of the Board +of Directors since October 2004. Mr. Miner +is also the Managing Partner of Merchant Capital Source, LLC, a company that +provides working capital financing solutions to merchants. Prior to that, Mr. Miner served as our +Chief Executive Officer from February 2002 to October 2004 and as our +Chief Financial Officer from January 1994 to October 2004. He also served as our Chief Operating Officer +from 1998 to 2002 and as the Chairman of the Board of the Iteris Subsidiary +from December 2003 to October 2004. +Mr. Miner has served in various capacities for our other +subsidiaries from time to time. From December 1984 +until joining us, Mr. Miner served as the Vice President, Chief Financial +Officer and a director of Laser Precision Corporation, a manufacturer of +telecommunications test equipment. Mr. Miner +is a Certified Public Accountant and, from 1979 to 1984, was employed by +Deloitte Haskins and Sells (now known as Deloitte & Touche LLP) in +various capacities, the most recent of which was Audit Manager. +John W. Seazholtz has served as a director since May 1998. From May 1998 to April 2000, Mr. Seazholtz +served as the President and Chief Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief +Technology Officer of Bell Atlantic after 36 years of service with that company +and its predecessor. Mr. Seazholtz +was a senior officer of Bell Atlantic from 1986, serving in various positions, +including the positions of Vice President, Operations and Engineering, Vice +President, Marketing, Vice President of New Services, and Vice President, +Technology and Information Systems. Mr. Seazholtz +currently serves as the Chairman of the Board of Westell Technologies, Inc. +Joel Slutzky has served as a director since he co-founded our company in 1969. Mr. Slutzky was the Chairman of the +Board of Directors from 1969 to October 2004 and our Chief Executive +Officer from 1975 to February 2002. +Mr. Slutzky also served as the Chairman of the Board of the Iteris +Subsidiary until December 2003 and served in various capacities for our +other subsidiaries from time to time. Mr. Slutzky +currently serves on the Board of Directors of Project Tomorrow, an organization +focused on improving Kindergarten through 12th grade science education in +Orange County, California and the Butterfly Connection, an organization that +promotes creativity and critical thinking skills in K-12 education. +5 +Thomas L. Thomas has served as a director since May 1999. Mr. Thomas served as the Chairman of the +Board, President and Chief Executive Officer of HAHT Commerce, a provider of +software applications that enable companies to use the Internet to conduct +business, from February 2000 until February 2004 when HAHT Commerce +was sold to Global Exchange Services, or GXS. +Mr. Thomas currently serves as the President and Chief Operating +Officer of GXS, a provider of business-to-business EDI and supply chain +management solutions. Mr. Thomas +was previously the President and Chief Executive Officer of Ajuba Solutions, a +provider of B2B integration solution software, which was sold to Interwoven in October 2000. +From April 1999 until January 2000, he served as the President, Chief +Executive Officer and Chairman of the Board of Vantive Corporation, a customer +relationship management software vendor which was acquired by Peoplesoft in January 2000. Prior to that, from September 1995 to April 1999, +Mr. Thomas served as the Senior Vice President of e-Business and +Information Services and Chief Information Officer at 3Com Corporation. From 1993 to 1995, Mr. Thomas served as +a Vice President and the Chief Information Officer of Dell Computer +Corporation. From 1987 to 1993, he +served as the Vice President of Management Information Systems at Kraft General +Foods, and at Sara Lee Corporation from 1981 to 1987. Mr. Thomas also serves on the Board of +Directors of Interwoven, Inc. +Family +Relationships +There are no family relationships among any of our +directors, director nominees or executive officers. +CORPORATE +GOVERNANCE +Code of +Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics +and Business Conduct which applies to all directors, officers (including our +principal executive officer, principal financial officer, principal accounting +officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and +Business Conduct is available on the Investor Relations section of our website +at www.iteris.com . We intend to disclose future amendments to +certain provisions of the Code of Ethics and Business Conduct, and any waivers +of provisions of the Code of Ethics required to be disclosed under the rules of +the Securities and Exchange Commission (“SEC”), at the same location on our +website. +Director +Independence +The Board of Directors has determined that Messrs. Char, +Daly, Seazholtz, Slutzky and Thomas each satisfies the requirements for “independence” +under the listing standards of the American Stock Exchange. +Board +Meetings and Committees +We currently have several standing committees of the +Board of Directors, including the Audit Committee, the Compensation Committee, +and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation +Committee, and the Nominating and Corporate Governance Committee each has a +written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is +available on the Investor Relations section of our website at www.iteris.com . +During the fiscal year ended March 31, 2008 (“Fiscal +2008”), the Board of Directors and the various committees of the Board held the +following number of meetings: Board of +Directors—six; Audit Committee—nine; Compensation Committee—one; and Nominating +and Corporate Governance Committee—one. +During Fiscal 2008, no director attended fewer than 75% of the aggregate +of the total number of meetings of the Board of Directors and the total number +of meetings of any committees of the Board held while he was serving on the +Board or such committee. +Audit Committee. +The current members of our Audit Committee are Messrs. Char, Seazholtz +and Thomas. Each member of the Audit +Committee is “independent” under the current listing standards of the American +Stock Exchange and the SEC rules regarding audit committee memberships. The Board has identified Mr. Char as the +member of the Audit Committee who qualifies as an “audit committee financial +expert” under applicable SEC rules and regulations governing the +composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the +conduct of the accounting and financial reporting processes, the audits of our +financial statements and the integrity of our audited financial statements and +other financial reports; (b) the performance of our internal accounting +and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent +auditors; and (d) the portions of the Code of Ethics and Business Conduct +and related policies regarding our accounting, internal accounting controls or +auditing matters. +6 +The Audit Committee meets privately with our +independent auditors, and the independent auditors have unrestricted access to +and report directly to the Audit Committee. +The Audit Committee has selected McGladrey & Pullen, LLP as our +independent auditors for the fiscal year ending March 31, 2009 and is +recommending that our stockholders ratify this appointment at the Annual +Meeting. +Compensation Committee. +The current members of our Compensation Committee are Messrs. Daly, +Seazholtz and Thomas. The Board has +concluded that each member of the Compensation Committee is “independent” under +the listing standards of the American Stock Exchange. +The Compensation Committee (a) evaluates officer +and director compensation policies, goals, plans and programs; (b) determines +the cash and non-cash compensation of our “executive officers” as defined in +the rules promulgated under Section 16 of the Securities Exchange Act +of 1934, as amended (the “Exchange Act”); (c) reviews and makes +recommendations to the Board with respect to our equity-based and other +incentive compensation plans for employees; (d) evaluates the performance +of our executive officers; (e) assists the Board in evaluating potential +candidates for executive officer positions and oversee management succession +planning; and (f) produces the Committee report required by the applicable +rules and regulations of the SEC and other regulatory bodies for inclusion +in our annual proxy statement. +Nominating and Corporate +Governance Committee. The current members of the +Nominating and Corporate Governance Committee are Messrs. Daly, Seazholtz, +Slutzky and Thomas. The Board has +determined that each of the members of this committee are “independent” under +the listing standards of the American Stock Exchange. +The primary purposes of the Nominating and Corporate +Governance Committee are to (a) identify, screen and review individuals +qualified to serve as directors; (b) select or recommend to the Board of +Directors the selection of nominees for election at the next annual meeting of +stockholders; (c) recommend to the Board of Directors candidates to fill +any vacancies on the Board; (d) oversee the implementation and monitoring +the effectiveness of our corporate governance policies and developing and +recommending to the Board modifications and or additions to such policies; and (e) review +on a regular basis our overall corporate governance and recommend improvements +when necessary. +In connection with their recommendations regarding the +size and composition of the Board, the Nominating and Corporate Governance +Committee reviews the appropriate qualities and skills required of directors in +the context of the then current make-up of the Board. This includes an assessment of each candidate’s +independence, personal and professional integrity, financial literacy or other +professional or business experience relevant to an understanding of our +business, ability to think and act independently and with sound judgment, and +ability to serve our company’s and our stockholders’ long-term interests. These factors, and others as considered +useful by the Nominating and Corporate Governance Committee, are reviewed in +the context of an assessment of the perceived needs of the Board at a particular +point in time. As a result, the +priorities and emphasis of the Nominating and Corporate Governance Committee +and of the Board may change from time to time to take into account changes in +business and other trends, and the portfolio of skills and experience of +current and prospective directors. The +Nominating and Corporate Governance Committee leads the search for and selects, +or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information +concerning candidates and interviews with selected candidates. Candidates for nomination to our Board +typically have been suggested by other members of the Board or by our executive +officers. From time to time, the +Nominating and Corporate Governance Committee may engage the services of a +third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will +consider candidates for directors recommended by our stockholders who meet the +eligibility requirements for submitting stockholder proposals for inclusion in +our next proxy statement. This committee +will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a +nominee must submit such recommendation in writing to the Chair, Nominating and +Corporate Governance Committee, care of our corporate Secretary, by the +7 +deadline for stockholder +proposals set forth in our last proxy statement, specifying the following +information: (a) the name and address of the nominee, (b) the name +and address of the stockholder making the nomination, (c) a representation +that the nominating stockholder is a stockholder of record of our stock +entitled to vote at the next annual meeting and intends to appear in person or +by proxy at such meeting to nominate the person specified in the notice, (d) the +nominee’s qualifications for membership on the Board, (e) a resume of the +candidate’s business experience and educational background as well as all of +the information that would be required in a proxy statement soliciting proxies +for the election of the nominee as a director, (f) a description of all +direct or indirect arrangements or understandings between the nominating +stockholder and the nominee and any other person or persons (naming such person +or persons) pursuant to whose request the nomination is being made by the +stockholder, (g) all other companies to which the nominee is being +recommended as a nominee for director, and (h) a signed consent of the +nominee to cooperate with reasonable background checks and personal interviews, +and to serve as a director, if elected. +In connection with its evaluation, the Nominating and Corporate +Governance Committee may request additional information from the candidate or +the recommending stockholder, and may request an interview with the +candidate. The Nominating and Corporate +Governance Committee has the discretion to decide which individuals to +recommend for nomination as directors. +No candidates for director nominations were submitted +to the Nominating and Corporate Governance Committee by any stockholder in +connection with the election of directors at the Annual Meeting. Each of the director nominees standing for +election at this Annual Meeting is a current director. +Compensation +of Directors +Non-employee directors receive an annual fee of +$12,000 per year, paid quarterly, in addition to $1,500 for each Board meeting +attended in person and $250 for each telephone conference Board meeting. All directors are reimbursed for their +out-of-pocket expenses incurred in attending meetings of our Board of Directors +and its committees. +Non-employee directors were also eligible to receive +periodic option grants pursuant to the Directors’ Automatic Option Grant +Program under our 2007 Omnibus Incentive Plan (the “2007 Plan”). Under the 2007 Plan, each non-employee +director receives an option to purchase 20,000 shares of common stock upon his +initial appointment to the Board of Directors and an additional option to +purchase 5,000 shares of common stock on the date of each annual meeting after +his appointment, provided he has served on the Board for at least six months. Each option granted to non-employee directors +under the Directors’ Automatic Option Grant Program will have an exercise price +equal to the fair market value of the common stock on the grant date and a +maximum term of ten years, subject to earlier termination following the optionee’s +cessation of service as a Board member. +Prior to the adoption of the 2007 Plan, non-employee directors received +option grants pursuant to the Automatic Option Grant Program of our 1997 Stock +Incentive Plan (the “1997 Plan”), having substantially the same terms as the +grants provided under the 2007 Plan. +Stockholder +Communications +The Board has implemented a process by which +stockholders may send written communications directly to the attention of the +Board, any committee of the Board or any individual Board member, care of our +corporate Secretary. The name of any +specific intended Board recipient should be noted in the communication. Our corporate Secretary will be primarily +responsible for collecting, organizing and monitoring communications from +stockholders and, where appropriate depending on the facts and circumstances +outlined in the communication, providing copies of such communications to the +intended recipients. Communications will +be forwarded to directors if they relate to appropriate and important +substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise +inappropriate for the Board’s consideration will not be forwarded to the +Board. Stockholders who wish to +communicate with the Board can write to the corporate Secretary at Iteris, Inc., +1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual +Meeting Attendance +We do not have a formal policy regarding attendance by +members of our Board of Directors at annual meetings of our stockholders; +however, directors are encouraged to attend all such meetings. Four of our current directors attended our +2007 annual meeting of stockholders. +8 +PROPOSAL TWO: +RATIFICATION +OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of McGladrey & Pullen, +LLP was engaged to serve as our independent auditors for the fiscal year ended March 31, +2008. The Audit Committee of the Board +of Directors has selected that firm to continue in this capacity for the fiscal +year ending March 31, 2009. We are +asking our stockholders to ratify the selection by the Audit Committee of +McGladrey & Pullen, LLP as our independent auditors to audit our +consolidated financial statements for the fiscal year ending March 31, +2009 and to perform other appropriate services. +Stockholder ratification of the selection of McGladrey & +Pullen, LLP as our independent auditors is not required by our bylaws or +otherwise. In the event that the +stockholders fail to ratify the appointment, the Audit Committee will +reconsider its selection. Even if the +selection is ratified, the Audit Committee, in its sole discretion, may direct +the appointment of a different independent accounting firm at any time during +the year if the committee feels that such a change would be in the best +interests of us and our stockholders. +A representative of McGladrey & Pullen, LLP +is expected to be present at the Annual Meeting to respond to stockholders’ +questions, and that representative will have the opportunity to make a brief +presentation to the stockholders if he or she so desires and will be available +to respond to appropriate questions from stockholders. +Stockholder +Approval +The affirmative vote of a majority of the common +stock, present or represented by proxy and entitled to vote at the Annual +Meeting will be required for ratification of the selection of McGladrey & +Pullen, LLP as our independent auditors for the fiscal year ending March 31, +2009. +Recommendation +of the Board of Directors +The Board of Directors recommends that the +stockholders vote “FOR” the ratification and approval of the selection of +McGladrey & Pullen, LLP as our independent auditors for the fiscal +year ending March 31, 2009. +9 +FEES PAID +TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed +for the indicated services performed by McGladrey & Pullen, LLP for +the fiscal years ended March 31, 2007 and 2008: +Fiscal Year Ended March 31, +2007 +2008 +Audit Fees +$ +368,000 +$ +412,000 +Audit-Related +Fees +48,000 +77,000 +Tax Fees +¾ +¾ +All Other Fees +¾ +¾ +Total Fees +$ +416,000 +$ +489,000 +Audit Fees. +Audit fees consist of fees billed by McGladrey & Pullen, LLP +for professional services rendered in connection with the audit of our annual +consolidated financial statements and review of those consolidated financial +statements included in our quarterly reports on Forms 10-Q and other regulatory +filings. +Audit-Related Fees. +Audit-related fees consist of fees billed for professional services that +are reasonably related to the performance of the audit or review of our +consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees +for registration statements, fees for internal control reviews and assistance +with meeting the requirements of Section 404 of the Sarbanes-Oxley Act and +certain consultations concerning financial accounting and reporting standards. +Tax Fees. +There were no tax fees billed to us by McGladrey & Pullen, LLP +during the fiscal years ended March 31, 2007 and 2008. +All Other Fees. +There were no other fees billed to us by McGladrey & Pullen, +LLP during the fiscal years ended March 31, 2007 and 2008. +Determination of Independence +McGladrey & Pullen, LLP did not provide any +non-audit related services during the fiscal years ended March 31, 2007 +and 2008. +Audit Committee Pre-Approval +Policies and Procedures +All engagements for services by McGladrey & +Pullen, LLP or other independent registered public accountants are subject to +prior approval by the Audit Committee; however, de minimis non-audit services +may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was +obtained for all services provided by McGladrey & Pullen, LLP in the +fiscal year ended March 31, 2008. +10 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee +with respect to our audited consolidated financial statements for the fiscal +year ended March 31, 2008 included in our Annual Report on Form 10-K +for that year. +Review with Management +The Audit Committee has reviewed and discussed the +audited consolidated financial statements with our management. +Review and Discussions with +Independent Auditors +The Audit Committee has discussed with our independent +auditors, McGladrey & Pullen, LLP, the matters required to be +discussed by SAS 61 (Codification of Statements on Auditing Standards, AU Section 380), +as amended, which includes, among other items, matters related to the conduct +of the audit of our consolidated financial statements. +The Audit Committee has received the written +disclosures and the letter from McGladrey & Pullen, LLP required by +Independence Standards Board Standard No. 1 (Independence Discussions with +Audit Committees), as amended, and has discussed with McGladrey & +Pullen, LLP the independence of McGladrey & Pullen, LLP from the +Company. +Conclusion +Based on the review and discussions referred to above +in this report, the Audit Committee recommended to our Board of Directors that +the audited financial statements be included in our Annual Report on Form 10-K +for the year ended March 31, 2008 for filing with the SEC. +Submitted by the Audit +Committee +of the Board of +Directors: +Richard Char +John W. Seazholtz +Thomas L. Thomas +11 +EXECUTIVE COMPENSATION AND OTHER +INFORMATION +Executive Officers and Key +Employees +The table below sets forth certain information, as of July 1, +2008, regarding our executive officers and a key employee. +Name +Age +Capacities in Which Served +Abbas Mohaddes +51 +Chief Executive Officer, President, Assistant +Secretary and Director +Alan Clelland +56 +Senior Vice President and General Manager +Gregory McKhann +45 +Senior Vice President and General Manager +Francis Memole +50 +Senior Vice President and General Manager +James S. Miele +40 +Vice President, Chief Financial Officer and +Secretary +Todd Kreter +48 +Vice President of Engineering +The following is a brief description of the capacities +in which each of the above persons has served during the past five years. The biography of Mr. Mohaddes appears +earlier in this proxy statement. See +Proposal One: “Election of Directors.” +Alan Clelland has served as a Senior Vice President +and General Manager since October 2007. +Prior to joining us, from May 2000 to September 2007, Mr. Clelland +worked at the Siemens ITS business unit of Siemens Energy & Automation, +Inc., serving in the role of Marketing Director then as Director of +Consulting. From August 1998 to April +2000, Mr. Clelland was Senior Vice President, Operations for Gardner Systems, +an ITS consulting company. Prior to +that, from May 1996 to July 1998, Mr. Clelland was Marketing Director of +TransCore, a company of Science Applications International Corporation +(SAIC). From May 1987 to April 1996, he +was a Senior Associate, then Associate Vice President at JHK & Associates, +Inc., a transportation engineering +company, which was acquired by SAIC. +Mr. Clelland’s prior experience also includes working as the +International Product Marketing Manager for Power Semiconductors in the Elcoma +Division of Philips BV, The Netherlands and in local government traffic +engineering, university research, manufacturing and consulting. Mr. Clelland holds a B.Sc. degree in Physics +and Electronic Engineering from the University of Leeds in the United Kingdom. +Gregory McKhann has served as a Senior Vice President and General Manager since October 2004. Mr. McKhann was a Senior Vice President +of the Iteris Subsidiary from March 2004 to October 2004, its Vice +President and General Manager of Roadway Sensors from December 1998 to March 2004, +its Vice President, Strategic Business Development from October 1999 to May 2000 +and the Marketing Director of our ITS division (which became the Iteris +Subsidiary) from July 1997 to October 1999. Prior to joining us, Mr. McKhann served +as a Business Development Manager at Rockwell International from 1990 to +1997. While at Rockwell, Mr. McKhann +was one of the founding members of the Rockwell Transportation Systems business +unit. Prior to 1990, Mr. McKhann +held a variety of Engineering and Project Management positions at Rockwell +International. +Francis Memole has served as a Senior Vice President and General Manager since October 2004. Mr. Memole was a Senior Vice President +of the Iteris Subsidiary from March 2004 to October 2004, its Vice +President of Vehicle Sensors from December 1998 to March 2004 and the +Marketing Director of our ITS division (which became the Iteris Subsidiary) +from June 1997 to December 1998. +Prior to joining us, Mr. Memole was one of the founding members of +the Rockwell Transportation Systems business unit at Rockwell +International. At Rockwell, Mr. Memole +was also involved in the Transportation Systems and In-Vehicle Systems business +initiatives. +James S. Miele has served as our Vice President of Finance and Chief Financial +Officer since October 2004 and as the Secretary since March 2004. Mr. Miele was our Controller from October 2003 +to October 2004 and the Controller of the Iteris Subsidiary from April 2001 +to October 2004. Prior to that, +from October 1998 to June 2000, Mr. Miele served as an audit +manager at Ernst & Young LLP, supervising financial statement audits +for a variety of public and privately held companies. Mr. Miele also served in Ernst & +Young’s Assurance and Advisory Business Services group from 1994 to 1998. Mr. Miele is a Certified Public +Accountant and holds a B.S. degree in Accounting from San Diego State +University. +12 +Todd Kreter has served as our Vice President of Engineering since November 2007. Prior to joining Iteris, from June 2004 +to January 2007, Mr. Kreter was the VP Global Services at Quantum +Corporation where he managed the company’s worldwide customer service organization. From May 1998 to June 2004, Mr. Kreter +held several positions, including VP Operations, VP Engineering and VP Quality, +at Quantum Corporation. From 1994 to +1998, Mr. Kreter held management positions in engineering and operations +with ATL Products, Inc. where he was responsible for the design, +development and production of various products. +Mr. Kreter holds an executive M.B.A. from Stanford/AEA and a B.S. +degree in mechanical engineering from California State University, Fullerton. +Compensation Discussion and +Analysis +General Compensation Policy +The guiding principle of our compensation policies is +to align executive compensation with Company objectives and business strategies +as well as with financial and operational performance. In keeping with this principle, the +Compensation Committee seeks to: +(1) Attract and retain qualified senior +executives who can play a significant role in the achievement of Company goals; +(2) Reward executives for strategic +management and the long-term enhancement of stockholder value; and +(3) Create a performance-oriented environment +that rewards performance with respect to our financial and operational goals. +The Compensation Committee meets periodically to review and recommend +for approval by the Board of Directors, the salaries, bonuses and benefit plans +for our executive officers and key associates. +Our Chief Executive Officer provides recommendations to the Compensation +Committee with respect to compensation matters, including executive +compensation, and we utilize independent third party salary survey data as +reference points. However, the final +decisions regarding the compensation of our executive officers are made by the +Compensation Committee. In measuring the +executive officers’ contributions to the Company, the Compensation Committee +considers a number of factors, including our revenue growth, net income and +other financial performance measurements, as well as qualitative and +non-financial measures such as key milestone achievements. +In Fiscal 2008, the annual compensation for the named executive +officers included base salaries, cash bonuses and stock option grants. In setting the total compensation payable to +our named executive officers for Fiscal 2008, the Compensation Committee sought +to make such compensation competitive with that provided by other companies +with which we compete for executive talent while providing short and long-term +incentives for the achievement of measurable corporate and individual +performance objectives in keeping with the compensation principles described +above. The primary components of our +executive compensation program for the fiscal year ending March 31, 2009 (“Fiscal +2009”) are expected to continue to consist of base salaries, cash incentive +opportunities and long-term equity incentive opportunities in the form of stock +options. In the future, such long-term +equity opportunities may also include other types of equity instruments +including, but not limited to, restricted stock or restricted stock units. Executives also participate in employee +benefit programs available to the broader employee population. +Our compensation plans and the amount of each compensation element to +pay our named executive officers are generally developed and determined on an +individual, case-by-case basis utilizing a number of factors, including +publicly available data from independent outside sources, including the +American Electronics Association annual survey of executive compensation, our +general business conditions and objectives, as well as our subjective +determination with respect to the executive’s individual contributions to such +objectives. For our executive officers, +the Compensation Committee has adopted a policy of setting total compensation +at approximately the 75th to 100th percentile level of comparable companies in +order to effectively recruit and retain key executives. The cash compensation, including the base +salaries and bonuses, for Fiscal 2008 for our executive officers was +established generally at the higher end of such percentile range, while the +equity compensation generally was at the lower end of such range. +13 +Elements +of Compensation +Base +Salary +We seek to provide our senior management with a base +salary appropriate to their roles and responsibilities, and to provide them +with a level of stability and certainty each year. We establish salaries for the named executive +officers by considering the salaries of officers at comparably sized companies +according to data obtained by the Compensation Committee from independent +outside sources, including the American Electronics Association annual survey +of executive compensation. Our Chief +Executive Officer does not participate in the discussions regarding his own +compensation but does provide input to the Compensation Committee regarding the +compensation of other executive officers. +We have generally established base salaries for our executive officers +at the higher end of our target percentile range, with the exact base salaries +for our executives based on the executive’s qualifications and experience, +scope of responsibilities, and the executive’s past performance and future +potential. Base salaries are reviewed +annually, and adjusted from time to time to realign salaries with market levels +after taking into account such individual factors, including responsibilities, +performance and experience. The +Compensation Committee has reviewed the base salaries for Fiscal 2008 of each +of the named executive officers and is of the opinion that such salaries are at +a competitive level with the base salaries in effect for similarly situated +officers and are not unreasonable in view of those paid by our competitors and +by other companies of similar size. +In addition, as described below under the caption “Non-Qualified +Deferred Compensation,” we have a Deferred Compensation Savings Plan pursuant +to which our executive officers may defer some or all of their salaries. No amounts were deferred by any executive +officer in Fiscal 2008. +Incentive +Cash Bonuses +The remaining cash component of the named executive officers’ +compensation for Fiscal 2008 was an annual cash bonus determined by the +Compensation Committee based upon criteria established by the committee at the +beginning of the fiscal year. For Fiscal +2008, the bonuses were primarily dependent upon corporate and business unit +performance. 80% of the potential bonus +for the Chief Executive Officer and the Chief Financial Officer was based on +total revenue and operating income achieved for the year, and the remaining 20% +of the potential bonus was based on the applicable officer’s achievement of +individual objectives that were qualitative in nature and were established by +the Compensation Committee for our CEO and established by the CEO for our CFO. 80% of the potential bonus for each of the +other named executive officers were based on revenue and operating income +achieved by the business unit for which such officer had primary +responsibility, as well as the operating income achieved by the Company, and +the remaining 20% of the potential bonus was based on the applicable officer’s +achievement of individual objectives that were qualitative in nature and were +established by the CEO. +For Fiscal 2009, the potential bonuses for our named executive officers +have similarly been set based primarily on our overall corporate and business +unit performance, with 80% of the potential bonus for Messrs. Mohaddes and +Miele to be based on the total revenue and operating income achieved by the +Company for the year, and 80% of the potential bonus for each of Messrs. Clelland, +McKhann and Memole to be based on revenue and operating income achieved by the +business unit for which such officer has primary responsibility, as well as the +operating income achieved by the Company. +The remaining 20% of the potential bonus for each named executive +officer will be based on the officer’s achievement of individual objectives. +The individual objectives in Fiscal 2008 for the Chief Executive +Officer and the Chief Financial Officer were primarily focused on such +officer’s management of his area of responsibility. The objectives for Mr. Mohaddes generally +included enhancing the relationship of the Company with the financial community +and increasing Company market value as well as implementation of the Company’s +strategic plan. The objectives for Mr. +Miele principally included enhancement of our financial position and increasing +Company market value. For Fiscal 2009, +the objectives for Mr. Mohaddes was established by the Compensation Committee +and included strategic development of the Company, financial achievement of the +revenue and operating income plan as well as Company market value +enhancement. The Fiscal 2009 objectives +for the other named executive officers were established by our Chief Executive +Officer and primarily consisted of financial and management objectives for Mr. +Miele, and operational objectives within their business area of responsibility +for each of Messrs. Clelland, McKhann and Memole. +14 +In Fiscal 2008, the target bonuses under the plan as a percent of the +officer’s base salary ranged from 35% to 48%, with the Chief Executive Officer’s +target bonus set at 43% of his base salary. +The target bonuses for the other named executive officers were 35% to +48% of the applicable officer’s base salary. +For Fiscal 2009, the target bonuses were set at 41% to 58% of base +salaries, with the Chief Executive Officer’s target bonus set at 49% of his +base salary and the target bonus for all other named executive officers set at +41% to 58% of the applicable officer’s base salary. Revenue and operating income goals +established for bonus purposes are generally higher than the goals established +by us for the operation of the business in general, and may thus be difficult +to attain without a high degree of effort. +If our performance exceeds the targets set for bonus purposes, the +executives can earn, in the aggregate, up to 150% of the target bonus +award. Bonus achievement or overachievement +is determined on a factor-by-factor basis. +Based upon the above described criteria, cash bonuses for the named +executive officers in the following amounts were approved for Fiscal 2008: Mr. Mohaddes – $100,079; Mr. Clelland +– $48,232; Mr. McKhann – $69,065; Mr. Memole – $38,221; and Mr. Miele +– $39,801. +Long-Term +Equity Compensation +A portion of the compensation of executive officers has historically +been based upon the award of stock options which rely on increases in the value +of our securities. The options granted +to our named executive officers generally have an exercise price equal to the +fair market value on the date of grant, vest in equal annual installments over +four years, and are not exercisable until vested. The award of options is intended to encourage +executives to establish a meaningful, long-term ownership interest in the +Company consistent with the interests of our stockholders. Under our equity incentive plans, options are +granted from time to time to certain officers and key associates of us and our +subsidiaries at the fair market value of the shares of common stock at the time +of grant. We do not have a formal policy +as to the amount or timing of grants to executive officers. Because the compensation element of options +is dependent on increases over time in the market value of such shares, stock +options represent compensation that is tied to our long-term performance. The award of stock options to our executive +officers is determined based upon individual performance, level of base salary +and position with us. +In Fiscal 2008, we granted to Mr. Mohaddes, in connection with his +promotion as our Chief Executive Officer and President in March 2007, an +option to purchase 200,000 shares of our common stock. In addition, we granted to Mr. Clelland, +in connection with his initial hire, an option to purchase 25,000 shares of our +common stock. Each such option has an +exercise price equal to the fair market value on the date of grant, vests in +equal annual installments over four years, and is not exercisable until +vested. No options were granted to any +of our other named executive officers. +Other +Compensation +Our executive officers are eligible to receive the same benefits, +including non-cash group life and health benefits, that are available to all +employees. Certain additional benefits +may be provided to our executives such as a car allowance, but each on a +case-by-case basis. +15 +Summary +Compensation Table +The following table shows information regarding the compensation earned +during Fiscal 2007 and Fiscal 2008 by our Chief Executive Officer, Chief +Financial Officer and our three other executive officers who were employed by +us as of March 31, 2008 and whose total compensation exceeded $100,000 +during that fiscal year. The officers +listed below will be collectively referred to as the “named executive officers” +in this proxy statement. +Name +Fiscal +Year +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation +(2) +Change in +Pension Value +and Non- +Qualified +Deferred +Compensation +Earnings(3) +All Other +Compen- +sation (4) +Total +Abbas Mohaddes +2008 +$ +350,022 +$ +108,422 +$ +100,079 +$ +85 +$ +15,064 +$ +573,672 +Chief Executive +Officer, President, Assistant Secretary and Director +2007 +227,483 +14,655 +66,487 +¾ +13,276 +321,901 +James S. Miele +2008 +175,480 +15,224 +39,801 +¾ +5,795 +236,300 +Vice President, Chief +Financial Officer and Secretary +2007 +156,625 +14,912 +17,680 +¾ +5,325 +194,542 +Alan Clelland(5) +2008 +86,540 +1,259 +48,232 +¾ +2,596 +138,627 +Senior Vice President +and General Manager +2007 +¾ +¾ +¾ +¾ +¾ +¾ +Gregory McKhann +2008 +199,533 +12,492 +69,065 +154 +5,630 +286,874 +Senior Vice President +and General Manager +2007 +192,004 +11,786 +80,285 +¾ +4,515 +288,590 +Francis Memole +2008 +186,057 +23,092 +38,221 +¾ +4,366 +251,736 +Senior Vice President +and General Manager +2007 +198,319 +22,041 +2,585 +¾ +13,220 +236,165 +(1) +Represents the expense recognized by us in the +applicable year for the stock options granted, determined pursuant to SFAS +123(R) utilizing assumptions discussed in Note 1 to our consolidated +financial statements in our annual report for Fiscal 2008 (the “Annual +Report”) regarding assumptions underlying valuation of equity awards. See +also our discussion of share-based compensation under “Management’s +Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +(2) +The amounts shown in this column constitute the cash +bonuses made to each named executive officer based on the attainment of +certain criteria pre-established by the Compensation Committee. These awards +are discussed in further detail under “Compensation Discussion and Analysis” +above. +(3) +No compensation was deferred in Fiscal 2007 or +Fiscal 2008 under the Deferred Compensation Savings Plan by any named +executive officer. The non-cash assets of the Deferred Compensation Savings +Plan consist of shares of our common stock. As such, the value of such assets +are based on the market value of our common stock and there were no +above-market or preferential earnings on the assets held under the plan. +(4) +Represents 401(k) plan employer contributions +and automobile allowances paid by us. +(5) +Mr. Clelland joined us in October 2007, +and was not employed by us prior to that time. +16 +Employment +Contracts; Termination of Employment and Change of Control Arrangements +On February 28, 2007, we entered into an offer +letter agreement with Abbas Mohaddes in connection with his promotion as our +Chief Executive Officer effective as of March 2007. The offer letter agreement provides for a +base salary of $350,000 per year, a bonus of up to $150,000 for the fiscal year +ended March 31, 2008 and the grant of an option to purchase 100,000 shares +of our common stock (“Option One”) and a second option to purchase an +additional 200,000 shares of our common stock. +Under the terms of the offer letter, in the event that his employment +with us is terminated for any reason other than cause within three years of his +promotion to Chief Executive Officer, Mr. Mohaddes will also be entitled +to receive one year’s severance, based on his then current base salary, as well +as 50% of his then current on-target bonus amount. In the event of his death or disability, Mr. Mohaddes +or his estate will be entitled to one year’s acceleration on the vesting of +Option One. If a triggering event under +the severance provisions of his agreement had occurred on the last business day +of Fiscal 2008, then Mr. Mohaddes would have been entitled to a payment of +approximately $425,000, based on his then current base salary and on-target +bonus. +On June 11, 2008, we entered into a change in +control agreement with James Miele, our Chief Financial Officer. Pursuant to the terms of the agreement, in +the event of an involuntary termination of Mr. Miele’s employment in +connection with or within twelve months after a change in control, Mr. Miele +will be entitled to receive a lump sum severance payment of up to one year’s +base pay and 50% of his target bonus for the year. In addition, Mr. Miele will be entitled +to receive reimbursement for the cost of COBRA coverage for a period of up to +one year following the termination of his employment. The agreement terminates on the fifth +anniversary of the date of the agreement, unless earlier terminated in +accordance with the agreement. If a +triggering event under the severance provisions of his agreement had occurred +on the last business day of Fiscal 2008, then Mr. Miele would have been +entitled to a payment of approximately $206,300, based on his then current base +salary and on-target bonus, plus COBRA premium reimbursements. +We do not currently have any employment contracts in effect with any of +our named executive officers other than the agreements described above. We provide incentives such as salary, +benefits and option grants to attract and retain executive officers and other +key associates. The plan administrators +of the 1997 Plan and the 2007 Plan have the authority to provide for the +accelerated vesting of outstanding options held by an individual, in connection +with the termination of such individual’s employment following an acquisition +in which these options are assumed or the repurchase rights with respect to the +unvested shares are assigned or upon certain hostile changes in control of the +Company. Other than such accelerated +vesting and the agreements described above, there is no agreement or policy +which would entitle any executive officer to severance payments or any other +compensation as a result of such officer’s termination. +17 +Grants of Plan-Based Awards +The following table sets forth certain information +with respect to the options granted during Fiscal 2008 to our named executive +officers, as well as bonuses that were potentially payable to such officers +under our bonus plan. All options were +granted under our 2007 Plan and are incentive stock options, to the extent +permissible under the Internal Revenue Code. +The exercise price per share of each option granted to our named +executive officers was equal to the fair market value of our common stock on +the date of grant. Except as otherwise +noted below, each option vests at the rate of 25% on each of the first four +anniversaries of the grant date. +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Exercise +or Base +Price of +Option +Awards +Grant Date +Fair Value of +Option +Name +Threshold +Target +Maximum +Grant Date +Options (#) +($/Share) +Awards (2) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +— +$ +150,000 +$ +225,000 +10/02/07 +200,000 +$ +2.34 +$ +364,404 +James S. Miele +Vice President, Chief Financial Officer and Secretary +— +61,000 +91,500 +— +— +— +— +Alan Clelland(3) +Senior Vice President and General Manager +— +50,000 +75,000 +¾ +¾ +¾ +¾ +Gregory McKhann +Senior Vice President and General Manager +— +95,000 +142,500 +— +— +— +— +Francis Memole +Senior Vice President and General Manager +— +86,000 +129,000 +— +— +— +— +(1) +Consists of amounts that were potentially payable as +cash bonuses based on the attainment of certain criteria pre-established by +the Compensation Committee. These awards are discussed in further detail +under “Compensation Discussion and Analysis” above. The “Target” amounts +represent the maximum amounts that could have been awarded to the executives +if the pre-established criteria had been attained. The “Maximum” amounts +consist of the “Target” amounts plus the maximum overachievement bonuses that +could have been awarded to the executives. +(2) +Represents the grant date fair value of the stock +options granted, determined pursuant to SFAS 123(R) utilizing +assumptions discussed in Note 1 to our consolidated financial statements in +our Annual Report. See also our discussion of share-based compensation under +“Management’s Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +The amounts listed represent the total share-based compensation to be +recognized by us over the vesting period. +(3) +Mr. Clelland joined us in October 2007, +and was not employed by us prior to that time. +18 +Outstanding Equity Awards at +Fiscal Year-End +The following table presents the outstanding equity +awards held by each of the named executive officers as March 31, 2008. Each option vests at the rate of 25% on each +of the first four anniversaries of the grant date. +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Equity Incentive Plan +Awards: Number of +Securities Underlying +Unexercised Unearned +Options +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Abbas Mohaddes +Chief Executive Officer, +President, Assistant Secretary +and Director +220,000 +44,000 +7,500 +25,000 +— +— +— +22,500 +75,000 +200,000 +— +— +— +— +— +$ +1.19 +1.40 +2.21 +2.55 +2.34 +09/26/11 +04/30/12 +06/14/16 +03/13/17 +10/01/17 +James S. Miele +Vice President, Chief Financial +Officer and Secretary +40,000 +12,000 +10,000 +3,750 +— +— +10,000 +11,250 +— +— +— +— +1.19 +1.40 +3.26 +2.21 +09/26/11 +04/30/12 +09/01/15 +06/14/16 +Alan Clelland +Senior Vice President and +General Manager +— +25,000 +— +2.46 +02/20/18 +Gregory McKhann +Senior Vice President and +General Manager +96,000 +34,000 +7,500 +— +— +22,500 +— +— +— +1.19 +1.40 +2.21 +09/26/11 +04/30/12 +06/14/16 +Francis Memole +Senior Vice President and +General Manager +68,000 +20,000 +12,000 +7,500 +— +— +12,000 +22,500 +— +— +— +— +1.19 +1.40 +3.21 +2.21 +09/26/11 +04/30/12 +08/28/15 +06/14/16 +19 +Option Exercises +and Stock Vested +The following table includes certain information with respect to the +options exercised by the named executive officers during Fiscal 2008. +Option Awards +Name and Principal Position +Number of Shares +Acquired on +Exercise (#) +Value Realized on +Exercise ($) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +— +$ +— +James S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +Alan Clelland +Senior Vice President and General Manager +— +— +Gregory McKhann +Senior Vice President and General Manager +68,748 +173,307 +Francis Memole +Senior Vice President and General Manager +87,496 +208,740 +Pension +Benefits +We do not have any qualified or non-qualified defined benefit plans. +Non-Qualified +Deferred Compensation +During the fiscal year ended March 31, 2003, the Iteris Subsidiary +adopted the Iteris, Inc. Deferred Compensation Savings Plan (the “Deferred +Compensation Plan”). The plan was +assumed by us in connection with the merger of the Iteris Subsidiary into us in +October 2004. The Deferred +Compensation Plan is a non-qualified voluntary deferral plan that, prior to +2005, permitted eligible executives to +defer up to a total of 50% of their regular salary and 100% of their bonuses in +exchange for phantom stock units representing the value of our common stock in +any plan year, which begins on January 1 and ends on December 31 of +each calendar year. +Prior to the merger of the Iteris Subsidiary into us in October 2004, +the plan held shares of the Iteris Subsidiary’s common stock. In connection with the merger of the Iteris +Subsidiary into us, shares of Iteris Subsidiary common stock held by the plan +were exchanged for shares of our common stock. +No deferrals have been credited to the Deferred Compensation Plan since January 1, +2005 (and no employer contributions have been permitted since the Plan’s +inception). +A participant’s entire account balance becomes distributable in the +form of our common stock upon the earlier of the participant’s death, +disability or termination of employment. +Distribution may be made in two substantially equal lump sum payments, +monthly installments over five years, or monthly installments over ten years, +as elected by the participant in his or her benefit agreement received upon +commencement of participation. The plan +also permits participants to receive payment while employed either (i) due +to hardship or (ii) for any reason if the participant forfeits 12 months +of earnings. Because all amounts in the +Deferred Compensation Plan were both earned and vested prior to January 1, +2005, the plan is exempt from the application of section 409A of the Internal +Revenue Code. +20 +All deferrals to the Deferred Compensation Plan are considered part of +our general assets. As general assets, +they are subject to the claims of our creditors, and the participants are +considered an unsecured creditor with respect to them. We have established a “rabbi trust” which +holds our common stock that is used to make payments to participants. The purpose of the trust is to protect +participants against a refusal to pay payments (for example, in the event of a +change in control). The trust does not, +however, protect the account balance in the event that we become insolvent or +bankrupt. +At March 31, 2008, the Deferred Compensation Plan held 23,844 +shares of our common stock held by current executives. Changes in the value of our common stock held +by the Deferred Compensation Plan are determined based on changes in the quoted +market price of our common stock at the close of each reporting period and +presented within operating expenses in the accompanying consolidated statements +of operations. +The following table sets forth information with respect to the accounts +of the named executive officers under the Deferred Compensation Plan. +Name +Executive +Contributions +in Last Fiscal +Year($) +Registrant +Contributions +in Last Fiscal +Year ($) +Aggregate +Earnings in +Last Fiscal +Year ($)(1) +Aggregate +Withdrawals/ +Distributions($) +Aggregate +Balance at +Last Fiscal +Year End ($) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +$ +— +$ +— +$ +85 +— +$ +19,543 +James S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +— +— +— +Alan Clelland +Senior Vice President and General Manager +— +— +— +— +— +Gregory McKhann +Senior Vice President and General Manager +— +— +154 +— +35,537 +Francis Memole +Senior Vice President and General Manager +— +— +— +— +— +(1) Reflects the difference +between the value of shares of our common stock held in such officer’s Deferred +Compensation Plan account as of March 31, 2008 compared to the value of +such shares as of March 31, 2007. +Director +Compensation +Directors who are not employees of Iteris or any of its subsidiaries +receive an annual fee of $12,000 per year, paid quarterly, in addition to +$1,500 for each Board meeting attended in person and $250 for each telephone +conference Board meeting. All directors +are reimbursed for their out-of-pocket expenses incurred in attending meetings +of our Board of Directors and its committees. +Non-employee directors are also eligible to receive periodic option +grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 +Omnibus Incentive Plan (the “2007 Plan”). +Under the 2007 Plan, each non-employee director receives an option to +purchase 20,000 shares of common stock upon his initial appointment to the +Board of Directors and an additional option to purchase 5,000 shares of common +stock on the date of each annual meeting after his appointment, provided he has +served on the Board for at least six months. +Each option granted to non-employee directors under the Directors’ +Automatic Option Grant Program will have an exercise price equal to the fair +market value of the common stock on the grant date and a maximum term of ten +years, subject to earlier termination following the optionee’s cessation of +service as a Board member. +21 +The following table sets forth a summary of the compensation earned in +Fiscal 2008 by each person who served as a director during such year, who is +not a named executive officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +All Other +Compensation ($) +Total ($) +Richard Char +$ +19,000 +3,510 +$ +— +$ +22,510 +Kevin C. Daly, +Ph.D. +17,500 +7,804 +— +25,304 +Gary +Hernandez(3) +9,250 +4,887 +— +14,137 +Dr. Hartmut +Marwitz(3) +9,250 +6,243 +— +15,493 +Gregory A. Miner +18,500 +12,746 +11,538 +(4) +42,784 +John W. +Seazholtz +19,250 +7,804 +— +27,054 +Joel Slutzky +18,500 +7,816 +— +26,316 +Thomas L. Thomas +20,250 +7,804 +— +28,054 +Paul E. +Wright(3) +9,500 +5,046 +— +14,546 +(1) +Represents amounts earned by the directors based on +the compensation arrangement described above. +(2) +Stock options were granted pursuant to our 2007 +Plan. The amounts listed represent the expense recognized by us for fiscal +year ended March 31, 2008 for the stock options granted, determined +pursuant to SFAS 123(R) utilizing assumptions discussed in Note 1 to our +consolidated financial statements in our Annual Report. See also our +discussion of share-based compensation under “Management’s Discussion and +Analysis of Financial Condition and Results of Operations—Critical Accounting +Policies and Estimates” in the Annual Report. For the options granted in +Fiscal 2008, the total share-based compensation to be recognized over the +vesting period are as follows: Richard Char — $8,616; Kevin C. Daly, Ph.D. — +$8,616; Gregory A. Miner — $8,616; John W. Seazholtz — $8,616; Joel Slutzky — +$8,616; and Thomas L. Thomas — $8,616. As of March 31, 2008, the non-employee +directors held options for the following number of shares of common stock: +Richard Char — 30,000 shares; Kevin C. Daly, Ph.D. — 48,000 shares; Gary +Hernandez — 105,000 shares; Dr. Hartmut Marwitz — 38,750 shares; Gregory A. +Miner — 525,000 shares; John W. Seazholtz — 64,000 shares; Joel Slutzky — +190,000 shares; Thomas L. Thomas — 60,000 shares; and Paul E. Wright — +148,000 shares. +(3) +Messrs. Hernandez, Marwitz and Wright served as +directors of the Company until the expiration of their terms in +September 2007. +(4) +Prior to our merger with our Iteris Subsidiary in +October 2004, Mr. Miner served as our Chief Executive Officer and +Chief Financial Officer. In accordance with his May 2003 change in +control agreement, we paid to Mr. Miner severance payments totaling +$11,538 during Fiscal 2008. See “Certain Transactions”. +Indemnification of Directors and +Officers +Under Section 145 of the Delaware General +Corporation Law, we can indemnify our directors and officers against +liabilities they may incur in such capacities, including liabilities under the +Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation and bylaws +provide that we will indemnify our directors and officers to the fullest extent +permitted by law, and our bylaws require us to advance litigation expenses upon +receipt of an undertaking by the director or officer to repay such advances if +it is ultimately determined that the director or officer is not entitled to +indemnification. The bylaws further +provide that rights conferred under such bylaws do not exclude any other right +such persons may have or acquire under any bylaw, agreement, vote of stockholders +or disinterested directors or otherwise. +Our certificate of incorporation provides that, +pursuant to Delaware law, our directors shall not be liable for monetary +damages for breach of the directors’ fiduciary duty of care to us and our +stockholders. This provision in the +certificate of incorporation does not eliminate the duty of care, and in +appropriate circumstances equitable remedies such as injunctive or other forms +of non-monetary relief will remain available under Delaware law. In addition, each director will continue to +be subject to liability for breach of the director’s duty of loyalty to us or +our stockholders, for acts or omissions not in good faith or involving +intentional misconduct or knowing violations of law, for actions leading to +improper personal benefit to the director, and for payment of dividends or +approval of stock repurchases or redemptions that are unlawful under Delaware +law. The provision also does not affect +a director’s responsibilities under any other law, such as the federal +securities laws or state or federal environmental laws. +22 +We have entered into agreements to indemnify our +directors and certain of our officers in addition to the indemnification +provided for in the certificate of incorporation and bylaws. These agreements, among other things, +indemnify our directors and certain of our officers for certain expenses +(including attorneys’ fees), judgments, fines and settlement amounts incurred +by such person in any action or proceeding, including any action by or in the +right of our company, on account of services as a director or officer of +Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at our request. +Compensation +Committee Interlocks and Insider Participation +The members of the Compensation Committee of our Board of Directors +during the fiscal year ended March 31, 2008 were Messrs. Daly, +Seazholtz and Thomas. None of the +members of our Compensation Committee at any time has been one of our officers +or employees or an officer or employee of one of our subsidiaries at any time +during the fiscal year ended March 31, 2008. None of our executive officers currently +serves, or in the year ended March 31, 2008 has served, as a member of the +board of directors or compensation committee of any entity that has one or more +executive officers on our Board of Directors or Compensation Committee. +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed with the management of Iteris the +Compensation Discussion and Analysis to be included in the proxy statement on +Schedule 14A for the 2008 Annual Meeting of Stockholders. Based on the reviews and discussions referred +to above, we recommended to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in such proxy statement. +Submitted by the Compensation Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +23 +EQUITY COMPENSATION PLANS +The following table provides information as of March 31, 2008 with +respect to shares of our common stock that may be issued under existing equity +compensation plans. The table does not +include information with respect to shares of our common stock subject to +outstanding options granted under equity compensation plans or option +agreements that were assumed in connection with the merger of the Iteris +Subsidiary into us in October 2004. +However, Note 1 to the table sets forth the total number of shares of +common stock issuable upon the exercise of those assumed options as of March 31, +2008 and the weighted average exercise price of those options. Except for the adjustments described in Note +1 with respect to the outstanding assumed options, no additional options may be +granted under those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation +Plans (excluding some +securities reflected in first +column) +Equity +Compensation Plans Approved by Security Holders +1997 Stock +Incentive Plan +1,406,572 +$ +2.75 +— +2007 Omnibus +Incentive Plan +389,000 +2.38 +461,000 +Equity +Compensation Plans Not Approved by Security Holders +None +Total(1) +1,795,572 +$ +2.67 +461,000 +(1) The table does not include information +with respect to the equity compensation plan or option agreements that were +assumed by us in connection with the merger of the Iteris Subsidiary into us in +October 2004. As of March 31, +2008, a total of 2,728,894 shares of common stock were issuable upon exercise +of outstanding options under the assumed plan and agreements. No additional options may be granted under +the assumed plan. The weighted average +exercise price of all such assumed options to acquire shares of our common +stock was $1.27 per share. +24 +PRINCIPAL STOCKHOLDERS AND COMMON +STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth, as of June 30, +2008, the number and percentage ownership of our common stock by (i) all +persons known to us to beneficially own more than 5% of the outstanding common +stock, (ii) each of the named executive officers in the Summary +Compensation Table which appears elsewhere herein, (iii) each of our +directors, and (iv) all of our executive officers and directors as a +group. To our knowledge, except as +otherwise indicated, each of the persons named in this table has sole voting +and investment power with respect to the common stock shown as beneficially +owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe +and David M. Greenhouse(4) +4,492,571 +13.2 +% +Bryant R. +Riley(5) +3,490,554 +10.2 +John D. Gruber, +J. Patterson McBaine and Eric Swergold(6) +1,871,922 +5.5 +Abbas +Mohaddes(7) +1,085,375 +3.2 +Alan Clelland +893 +* +Greg McKhann(8) +253,082 +* +Francis +Memole(9) +181,582 +* +James S. +Miele(10) +78,199 +* +Richard Char(11) +30,000 +* +Kevin C. Daly, +Ph.D.(12) +393,132 +1.2 +Gregory A. +Miner(13) +952,828 +2.8 +John W. +Seazholtz(14) +112,547 +* +Joel Slutzky(15) +2,046,032 +6.0 +Thomas L. +Thomas(16) +79,000 +* +All executive +officers and directors as a group (11 persons)(17) +5,212,670 +14.7 +% +* Less than 1%. +(1) The address for Messrs. Marxe and Greenhouse is +527 Madison Avenue, Suite 2600, New York, NY 10022. The address for Bryant R. Riley is 11550 +Santa Monica Blvd., Suite 750, Los Angeles, CA 90025. The address for Messrs. Gruber, McBaine +and Swergold is 50 Osgood Place, San Francisco, CA 94133. The address of all other persons named in the +table is 1515 South Manchester Avenue, Anaheim, CA 92802. +(2) Based on 33,891,002 shares of common stock outstanding +as of June 30, 2008. Shares of +common stock subject to options or warrants which are exercisable within 60 +days of June 30, 2008 are deemed to be beneficially owned by the person +holding such options or warrants for the purpose of computing the percentage of +ownership of such person but are not treated as outstanding for the purpose of +computing the percentage of any other person. +Other than as described in the preceding sentence, shares issuable upon +exercise of outstanding options and warrants are not deemed to be outstanding +for purposes of this calculation. +(3) In addition to the shares held in the individual’s +name, this column also includes shares held for the benefit of the named person +under our 401(k) and Stock Ownership Plan and the Deferred Compensation +Savings Plan. +25 +(4) Includes 246,250 shares issuable upon exercise of +warrants that were issued to Special Situations Cayman Fund, L.P., Special +Situations Fund III, L.P., Special Situations Fund III QP, L.P. and Special +Situations Private Equity Fund, L.P. (collectively, the “Special Situations +Funds”). Messrs. Marxe and +Greenhouse have shared voting power and shared dispositive power over the +shares of common stock (including the 246,250 shares issuable upon exercise of +warrants) held by the Special Situations Funds. +Messrs. Marxe and Greenhouse are the controlling principals of AWM +Investment Company, Inc. (“AWM”), the general partner of and investment +adviser to Special Situations Cayman Fund, L.P. +AWM is the general partner of MGP Advisers Limited Partnership, the +general partner of and investment adviser to Special Situations Fund III, L.P. +and the general partner of Special Situations Fund III QP, L.P. In addition, Messrs. Marxe and +Greenhouse are members of MG Advisers L.L.C., the general partner of Special +Situations Private Equity Fund, L.P. AWM +serves as the investment adviser to Special Situations Fund III QP, L.P. and +Special Situations Private Equity Fund, L.P. +(5) Includes (i) 731,571 shares owned by Riley +Investment Partners Master Fund, L.P. (“RIPMF”), (ii) 33,333 shares held +in a joint account with Mr. Riley’s spouse, (iii) 41,000 shares owned +by B. Riley & Co. Retirement Trust, of which Mr. Riley serves as +trustee, (iv) 88,640 shares issuable upon conversion of convertible +debenture owned by custodial accounts of Mr. Riley’s children, for which Mr. Riley +controls voting and investment decisions in his role as custodian for such +accounts, (v) 200,212 shares owned by B. Riley & Co., LLC., of +which Mr. Riley is the Chairman and sole indirect equity owner, and (vi) 237,237 +shares issuable upon exercise of warrants held by Mr. Riley, his children’s +accounts, B. Riley & Co., Inc. and RIPMF that are currently +exercisable. Pursuant to a Schedule 13G +filed on February 8, 2008 with the SEC, Mr. Riley reported that +because RIM has sole voting and investment power over RIPMF’s security holdings +and Mr. Riley, in his role as the sole manager of RIM, controls its voting +and investment decisions, each of RIM, RIPMF, and Mr. Riley may be deemed +to have beneficial ownership of the shares held by, or issuable to, RIPMF. Mr. Riley controls RIM’s voting and +investment decisions for its investment advisory clients, but disclaims +beneficial ownership of the shares owned by the non-affiliated managed accounts +of RIM. Mr. Riley also disclaims +beneficial ownership of the shares held in his children’s accounts. +(6) Pursuant to a Schedule 13G filed on February 7, +2008 with the SEC, Gruber & McBaine Capital Management, LLC (“GMCM”), +Jon D. Gruber, J. Patterson McBaine and Eric Swergold reported that they had +shared voting power and shared dispositive power over 1,498,161 shares of +common stock. The table also includes +325,411 shares, 23,000 shares and 25,350 shares over which Messrs. Gruber, +McBaine and Swergold, respectively, have sole voting and dispositive +power. GMCM is a registered investment +advisor whose clients have the right to receive or the power to direct the +receipt of dividends from, or the proceeds from the sale of the shares. Messrs. Gruber and McBaine are the +Managers, controlling persons and portfolio managers of GMCM. Lagunitas and Firefly are investment limited +partnerships of which GMCM is the general partner. GMCM, Gruber, McBaine and Swergold constitute +a group within the meaning of Rule 13d-5(b). Lagunitas and Firefly is not a member of any +group and each disclaims beneficial ownership of the securities with respect to +its ownership is reposited. +(7) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures, (ii) 3,167 shares issuable upon +exercise of warrants that are currently exercisable, (iii) 304,000 shares +issuable upon exercise of options that are currently exercisable or will become +exercisable within 60 days after June 30, 2008 and (iv) 11,540 shares +held by Mr. Mohaddes’ IRA. +(8) Includes 145,000 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 30, 2008. +(9) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures held by Mr. Memole’s IRA, (ii) 3,167 +shares issuable upon exercise of warrants held by Mr. Memole’s IRA which +are currently exercisable, and (iii) 115,000 shares issuable upon exercise +of options that are currently exercisable or will become exercisable within 60 +days after June 30, 2008. +(10) Includes 69,500 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 30, 2008. +(11) Consists of shares issuable upon exercise of options +that are currently exercisable or will become exercisable within 60 days after June 30, +2008. +26 +(12) Includes (i) 100 shares held by Dr. Daly’s +spouse, (ii) 329,032 shares held by a trust to which Dr. Daly serves +as a trustee, and (iii) 48,000 shares issuable upon exercise of options +that are currently exercisable or will become exercisable within 60 days after June 30, +2008. +(13) Includes (i) 13,850 shares issuable upon +conversion of convertible debentures held by Mr. Miner’s IRA, (ii) 3,167 +shares issuable upon exercise of warrants held by Mr. Miner’s IRA that are +currently exercisable, (iii) 183,334 shares held by Mr. Miner’s IRA, (iv) 19,230 +shares held by Mr. Miner’s wife’s IRA and (v) 525,000 shares issuable +upon exercise of options that are currently exercisable or will become exercisable +within 60 days after June 30, 2008. +(14) Includes 64,000 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 30, 2008. +(15) Includes (i) 144,616 shares held by Mr. Slutzsky’s +IRA and (ii) 205,000 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after June 30, +2008. Excludes shares of common stock +held in trust for the benefit of the children and relatives of Mr. Slutzky +as well as shares in the Joel Slutzky Family Trust; Mr. Slutzky has no +investment or voting power with respect to the shares in such trusts and +disclaims any beneficial ownership. +(16) Includes 60,000 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 30, 2008. +(17) Includes (i) 41,550 shares issuable upon +conversion of convertible debentures, (ii) 9,501 shares issuable upon +exercise of warrants which are currently exercisable, and (iii) 1,565,500 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2008. +27 +CERTAIN TRANSACTIONS +Since April 1, 2007, other than the agreements +and transactions described in “Executive Compensation and Other Information” +and the transactions described below, there has not been, nor is there any +proposed transaction, where we (or any of our subsidiaries) were or will be a +party in which the amount involved exceeded or will exceed the lesser of +$120,000 or the average of the Company’s total assets at year end for the last +two fiscal years and in which any director, +director nominee, executive officer, holder of more than 5% of any class of our +voting securities, or any member of the immediate family of any of the +foregoing persons had or will have a direct or indirect material interest. +In May 2003, we entered into change in control +agreement with Gregory Miner, who was then serving as our Chief Executive +Officer and Chief Financial Officer. In +the event of an involuntary termination of his employment within three months +prior to or twenty-four months after a change in control, the agreements +provided for a severance payment to him of 200% of his annual base pay plus +target bonus for the current fiscal year. +In addition, Mr. Miner and his dependents were entitled to all +insurance benefits for up to twenty-four months or until he obtained new +employment with comparable benefits, whichever was earlier. The involuntary termination provision was +triggered in connection with the merger of the Iteris Subsidiary into us in October 2004. The severance amount was paid to Mr. Miner +in bi-weekly installments over 30 months, and the final payment was made in April 2007. The severance amounts paid to Mr. Miner +in Fiscal 2008 totaled $11,538. +We previously subleased office space to MAXxess +Systems, Inc. (“MAXxess”), a former subsidiary of the Company that was +sold by the Company in September 2003 and is currently owned by an +investor group that includes two of our directors, one of which is the Chief +Executive Officer of MAXxess. At March 31, +2008, MAXxess owed the Company an aggregate of $274,000 related to this +sublease, which terminated in September 2007, and certain related +ancillary services that were provided by the Company to MAXxess. +Pursuant to its written charter, the Audit Committee +of the Board of Directors is responsible for reviewing and approving all +related party transactions. The Audit +Committee monitors and reviews potential conflict of interest situations +involving a principal stockholder, a member of the Board of Directors or senior +management. +SECTION 16(A) BENEFICIAL +OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and +officers and any persons holding more than 10% of our common stock are required +to report their ownership of our common stock and any changes in that ownership +to the SEC. Specific due dates for these +reports have been established, and we are required to report any failure to +file by such dates. In the fiscal year ended March 31, 2007, the Form 4 for +Abbas Mohaddes with respect to an option granted on March 14, 2007 was not +filed within two business days of the grant date. Based solely on our review of copies of the +reports on Forms 3, 4 and 5 received by us with respect to the fiscal year +ended March 31, 2008 and the written representations received from the +reporting persons that no other reports were required, except as indicated in +the foregoing sentence or as indicated in our prior proxy statements, we +believe that all directors, executive officers and persons who own more than +10% of our common stock have complied with the reporting requirements of Section 16(a) and +have filed all reports required by such section. +ANNUAL REPORT +A copy of our annual report on Form 10-K for the +fiscal year ended March 31, 2008 (excluding the exhibits thereto) +accompanies the proxy materials being mailed to all stockholders. The annual report is not incorporated into +this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the annual +report and any of our other filings with the SEC, without charge, by writing to +Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, +Santa Ana, California 92705. The annual +report on Form 10-K (including the exhibits thereto) is also available on +the SEC’s website at www.sec.gov . +DEADLINE FOR RECEIPT OF +STOCKHOLDER PROPOSALS +In the event that a stockholder desires to have a +proposal considered for presentation at the annual meeting of stockholders to +be held in 2009, and included in our proxy statement and form of proxy card +used in connection with such meeting, the proposal must be forwarded in writing +to our Secretary so that it is received no later than April 8, 2009. Any such proposal must comply with the +requirements of Rule 14a-8 promulgated under the Exchange Act. +28 +If a stockholder, rather than including a proposal in +the proxy statement as discussed above, commences his or her own proxy +solicitation for the 2009 Annual Meeting of Stockholders or seeks to nominate a +candidate for election as a director or to propose business for consideration +at such meeting, we must receive notice of such proposal on or before June 22, +2009. If the notice is not received on +or before June 22, 2009, it will be considered untimely under Rule 14a-4(c)(1) promulgated +under the Exchange Act, and we will have discretionary voting authority under +proxies solicited for the 2009 Annual Meeting of Stockholders with respect to +such proposal, if presented at the meeting. +Please address any stockholder proposals or notices of +proposals to our corporate Secretary at our principal executive offices located +at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +OTHER BUSINESS +The Board of Directors is not aware of any other +matter which will be presented for action at the Annual Meeting other than the +matters set forth in this proxy statement. +If any other matter requiring a vote of the stockholders arise, it is +intended that the proxy holders will vote the shares they represent as the +Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by +the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Anaheim, California +July 29, 2008 +29 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF +OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby +appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of +Stockholders of Iteris to be held at the Company’s principal executive offices +located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 19, +2008 at 10:00 a.m. Pacific Time, and at any adjournments or postponements +thereof, and to vote all shares of common stock of Iteris held of record by the +undersigned on July 22, 2008, with all the powers the undersigned would +possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote +at such Annual Meeting of Stockholders and hereby ratifies and confirms all +that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY +EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO +INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND +IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER +MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR +POSTPONEMENT THEREOF. +x Please mark votes as in this example. +1. +Election of Directors +Nominees standing for +election by holders of common stock: Richard Char, Kevin C. Daly, Ph.D., +Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky and Thomas +L. Thomas. +o +FOR o WITHHOLD AUTHORITY to vote for all +nominees listed below +(Instruction: To withhold +authority to vote for any individual nominee, write that nominee’s name in +the space provided above.) +2. +Ratification of +McGladrey & Pullen, LLP as the independent auditors of Iteris for +the fiscal year ending March 31, 2009. +o FOR o AGAINST +o ABSTAIN +MARK HERE FOR ADDRESS +CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN TO +ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be +signed exactly as your name appears hereon. +Executors, administrators, trustees, etc., should give full title as +such. If the stockholder is a +corporation, a duly authorized officer should sign on behalf of the corporation +and should indicate his or her title.) +PLEASE MARK, SIGN, DATE +AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-08-048350/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-08-048350/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8aa6e6f546b7d8b58cd83cd3636bcb8fd9bf84a5 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-08-048350/proxy_rpt.txt @@ -0,0 +1,4 @@ +related party transactions. The Audit +Committee monitors and reviews potential conflict of interest situations +involving a principal stockholder, a member of the Board of Directors or senior +management. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-09-045270/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-09-045270/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8aa6e6f546b7d8b58cd83cd3636bcb8fd9bf84a5 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-09-045270/proxy_rpt.txt @@ -0,0 +1,4 @@ +related party transactions. The Audit +Committee monitors and reviews potential conflict of interest situations +involving a principal stockholder, a member of the Board of Directors or senior +management. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-10-040524/proxy.txt b/raw/proxies/0000350868/0001104659-10-040524/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..bddb44fda4550c4535ff4e796bce347d7751659d --- /dev/null +++ b/raw/proxies/0000350868/0001104659-10-040524/proxy.txt @@ -0,0 +1,2378 @@ +DEF 14A +1 +a10-13927_1def14a.htm +DEF 14A +UNITED +STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the +Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for +Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to +§240.14a-12 +ITERIS, +INC. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the +appropriate box): +x +No fee required. +o +Fee computed on table below per +Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to +which transaction applies: +(2) +Aggregate number of securities to +which transaction applies: +(3) +Per unit price or other underlying +value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth +the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of +transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary +materials. +o +Check box if any part of the fee is +offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the date +of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration +Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF +STOCKHOLDERS +TO BE HELD SEPTEMBER 17, 2010 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2010 Annual Meeting of Stockholders +(the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be +held on September 17, 2010 at 10:00 a.m. Pacific Time, at our +principal executive offices located at 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705, for the following purposes, as more fully described in the +proxy statement accompanying this Notice: +1. To elect +Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John +W. Seazholtz, Joel Slutzky, and Thomas L. Thomas to the Board of Directors, +each to hold such office until the next annual meeting of stockholders or until +his successor is elected and qualified. +2. To ratify the +appointment of McGladrey & Pullen, LLP as our independent registered +public accounting firm for the fiscal year ending March 31, 2011. +3. To transact any +other business which may properly come before the Annual Meeting or any +adjournment(s) or postponement(s) thereof. +All stockholders of record as of the close of business on July 21, +2010 are entitled to notice of and to vote at the Annual Meeting and at any +postponement(s) or adjournment(s) thereof. You are cordially invited to be present and +to vote at this Annual Meeting. Whether +or not you plan to attend, it is important that your shares be represented and +voted at the Annual Meeting. You can +vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name,” +that is, your shares are held in the name of a brokerage firm, bank or other +nominee, in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail and you may also be eligible to vote your +shares electronically over the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please sign, date and return each +proxy card or voting instruction form to ensure that all of your shares are +voted. You may revoke your proxy at any +time prior to the Annual Meeting. If you +attend the Annual Meeting and vote by ballot, any proxy that you previously +submitted will be revoked automatically and only your vote at the Annual +Meeting will be counted. For further +information, please see the discussion of voting rights and proxies beginning +on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Abbas Mohaddes +Chief Executive Officer and President +Santa Ana, California +July 29, 2010 +YOUR VOTE IS VERY IMPORTANT +REGARDLESS OF THE NUMBER OF SHARES YOU OWN. +PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND +DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE +ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2010 ANNUAL MEETING OF +STOCKHOLDERS +TO BE HELD SEPTEMBER 17, 2010 +General +These proxy materials and the enclosed proxy card are being furnished +in connection with the solicitation of proxies by the Board of Directors of +Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), to be +voted at the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) to be +held on September 17, 2010 and at any adjournment(s) or +postponement(s) of the meeting. The +Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal +executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, +CA 92705. These proxy materials and the +form of proxy are expected to be mailed to our stockholders who are entitled to +vote at the Annual Meeting on or about August 5, 2010. +Purpose of Meeting +The specific proposals to be +considered and acted upon at the Annual Meeting are summarized in the +accompanying Notice of the Annual Meeting of Stockholders and are described in +more detail in this proxy statement. +Internet +Availability of Materials +IMPORTANT +NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER +MEETING TO BE HELD ON SEPTEMBER 17, 2010: +The Proxy Statement, proxy card, and Annual Report on Form 10-K for +the fiscal year ended March 31, 2010 are available at www.edocumentview.com/ITI, +or at www.envisionreports.com/ITI for registered holders (Internet voting +included). +Voting Rights +The record date for determining those stockholders who are entitled to +notice of, and to vote at, the Annual Meeting has been fixed as July 21, +2010. At the close of business on the +record date, 34,331,756 shares of our common stock, par value $0.10 per share, +were outstanding and no shares of our preferred stock were outstanding. Each stockholder is entitled to one vote for +each share of common stock held by such stockholder as of the record date. +The presence in person or by proxy of the holders of a majority of the +outstanding shares of the common stock entitled to vote will constitute a +quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual +Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, directors will be +elected by a plurality of the common stock entitled to vote and present in +person or represented by proxy at the Annual Meeting, unless cumulative voting +is in effect. Pursuant to our bylaws, no +stockholder is entitled to cumulate his or her votes for candidates other than +those whose names have been placed in nomination prior to the commencement of +voting and unless at least one stockholder has given notice prior to +commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, +then each stockholder may cumulate votes by multiplying the number of shares of +common stock the stockholder is entitled to vote by the number of directors to +be elected. The number of cumulative +votes thus determined may be voted all for one candidate or distributed among +several candidates, at the discretion of the stockholder. The candidates receiving the highest number +of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the +persons named in the accompanying proxy will vote the shares of common stock +covered by proxies received by them (unless authority to vote for directors is +withheld) among the named candidates as they determine. +With regard to Proposal Two, the affirmative vote of the holders of a +majority of our common stock present or represented by proxy and entitled to +vote at the Annual Meeting is being sought. +1 +All votes will be tabulated by the inspector of election appointed for +the Annual Meeting, who will separately tabulate affirmative and negative +votes, abstentions, and broker non-votes. +Broker non-votes occur when brokers who hold stock in “street name” +return proxy cards stating that they do not have authority to vote the stock +which they hold on behalf of beneficial owners. +Abstentions and broker non-votes are counted as present for purposes of +determining the presence or absence of a quorum for the transaction of +business. Abstentions will be counted +towards the tabulations of votes cast on proposals presented to the stockholders +and will have the same effect as negative votes. Broker non-votes will not be counted for +purposes of determining whether a proposal has been approved. +Voting +You may vote by one of three ways: (i) by mail, +(ii) electronically over the Internet or by telephone, or (iii) by +ballot in person at the Annual Meeting. +If you are a “registered holder,” that is, your shares are registered in +your own name through our transfer agent, you may vote by returning a completed +proxy card in the enclosed postage-paid envelope or through the Internet at +www.envisionreports.com/ITI. If your +shares are held in “street name,” that is, your shares are held in the name of +a brokerage firm, bank or other nominee, in lieu of a proxy card you should +receive a voting instruction form from that institution by mail. The voting instruction form should indicate +whether the institution has a process for beneficial holders to vote over the +Internet or by telephone. Stockholders +who vote over the Internet or by telephone need not return a proxy card or +voting instruction form by mail, but may incur costs, such as usage charges, +from telephone companies or Internet service providers. If your voting instruction form does not +reference Internet or telephone information, please complete and return the +paper voting instruction form in the self-addressed, postage-paid envelope +provided. +If you are a registered holder, you may also vote your shares in person +at the Annual Meeting. If your shares +are held in street name and you wish to vote in person at the meeting, you must +obtain a proxy issued in your name from the record holder and bring it with you +to the Annual Meeting. We recommend that +you vote your shares in advance as described above so that your vote will be +counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then +in lieu of a proxy card you should receive from that institution an instruction +form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please be sure to complete, sign, +date, and return each proxy card or voting instruction form to ensure that all +of your shares will be voted. Only proxy +cards and voting instruction forms that have been signed, dated, and timely +returned (or otherwise properly voted by Internet or telephone) will be counted +in the quorum and voted. Properly +executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted FOR the election +of the directors proposed by the Board under Proposal One unless the authority +to vote for the election of any director is withheld and, if no contrary +instructions are given, the proxy will be voted FOR the approval of each of the +other proposals as described in this proxy statement and the accompanying +notice. +The enclosed proxy also grants the proxy holders discretionary +authority to vote on any other business that may properly come before the +Annual Meeting as well as any procedural matters. We have not been notified by any stockholder +of his or her intent to present a stockholder proposal at the Annual Meeting. +If your shares are held in your name, you may revoke or change your +vote at any time before the Annual Meeting by filing a notice of revocation or +another signed proxy card with a later date with our Secretary at our principal +executive offices. If your shares are +held in street name, you should contact the record holder to obtain +instructions if you wish to revoke or change your vote before the Annual +Meeting. If you attend the Annual +Meeting and vote by ballot, any proxy that you submitted previously to vote the +same shares will be revoked automatically and only your vote at the Annual +Meeting will be counted. Please note, however, that if your shares are held in street name, your +vote in person at the Annual Meeting will not be effective unless you have +obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting +will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy +solicitation, including the costs of preparing, assembling, printing, and +mailing this proxy statement, the proxy card, and any additional material +furnished to the stockholders. Copies of +the solicitation materials will be furnished to brokerage houses, fiduciaries, +and custodians holding shares in their names that are beneficially owned by +others so that they may forward this solicitation material to such beneficial +owners. In +2 +addition, we may reimburse such persons for their reasonable expenses +in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail +may be supplemented by a solicitation by personal contact, telephone, +facsimile, email or any other means by our directors, officers, or +employees. No additional compensation +will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a +professional firm of proxy solicitors to assist in solicitation of +proxies. Although we do not currently +expect to retain such a firm, we estimate that the fees of such firm would +range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be +paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +Our bylaws provide for a Board of Directors consisting of not less than +seven nor more than eleven members. The +exact number may be changed, within such limits, by a resolution duly adopted +by the Board or by the stockholders. The +number of directors constituting the full Board is currently set at seven. All directors are elected annually and hold +office until the next annual meeting of stockholders and until their successors +are duly elected and qualified. +On the recommendation of the Nominating and Corporate Governance +Committee, our Board of Directors selected and approved the following persons +as nominees for election at the Annual Meeting to serve until the next annual +meeting of stockholders, or until their successors are duly elected and +qualified or until their earlier resignation or removal: Richard Char, Kevin C. Daly, Ph.D., Gregory +A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky, and Thomas L. +Thomas. Each nominee for election is +currently a member of our Board of Directors and has agreed to serve if +elected. We have no reason to believe +that any of the nominees will be unavailable to serve. In the event any of the nominees named herein +is unable to serve or declines to serve at the time of the Annual Meeting, the +persons named in the enclosed proxy will exercise discretionary authority to +vote for substitutes. Unless otherwise +instructed, the proxy holders will vote the proxies received by them FOR the +nominees named above. +Stockholder Approval +The seven candidates receiving the highest number of affirmative votes, +present in person or represented by proxies and entitled to vote at the Annual +Meeting, will be elected as our directors. +However, if cumulative voting is in effect, the proxy holders will have +the right to cumulate and allocate votes among those nominees standing for +election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” the +seven director nominees listed above. +Directors and Nominees +The table and narrative below set forth information regarding each +director and director nominee, including the year they first became directors, +business experience during at least the past five years, public company boards +they currently serve on or have served on during the past five years, and +certain other biographical information and attributes that the Nominating and +Corporate Governance Committee determined qualify them to serve as directors. The Nominating and Corporate Governance +Committee believes that the directors and director nominees have the following +other key attributes that are important to an effective board of directors: +integrity and demonstrated high ethical standards; sound judgment; analytical +skills; the ability to engage management and each other in a constructive and +collaborative fashion; diversity of experience and thought; and the commitment +to devote significant time and energy to service on the Board and its +committees. +Name +Age +Current Position(s) with Iteris +Director +Since +Richard Char(1) +51 +Director +2005 +Kevin C. Daly, Ph.D.(2)(3) +65 +Director +and Assistant Secretary +1993 +Gregory A. Miner +55 +Chairman +of the Board +1998 +Abbas Mohaddes +53 +Chief +Executive Officer, President, Assistant Secretary and Director +2005 +John W. Seazholtz(1)(2)(3) +73 +Director +1998 +Joel Slutzky (3) +71 +Director +and Assistant Secretary +1969 +Thomas L. Thomas(1)(2)(3) +61 +Director +1999 +(1) Member of the Audit +Committee. +(2) Member of the +Compensation Committee. +(3) Member of the +Nominating and Corporate Governance Committee. +4 +Abbas Mohaddes has served as our Chief Executive Officer and +President since March 2007, as an Assistant Secretary since May 2004 +and as a director since September 2005. +Prior to his promotion in March 2007, Mr. Mohaddes served as +our Executive Vice President and a General Manager from October 2004. He was the Executive Vice President of our former +Iteris, Inc. subsidiary (the “Iteris Subsidiary”) from March 2004 to +October 2004 and its Secretary from September 2001 to +October 2004. Prior to that, he +served as the Senior Vice President and Director of Transportation Systems of +the Iteris Subsidiary from May 2000 to March 2004 and as its Vice +President and Deputy Director of Transportation from October 1998 to +May 2000. Mr. Mohaddes also +served as President and Chief Executive Officer of Meyer, Mohaddes +Associates, Inc. (“MMA”), an ITS and transportation firm that he +co-founded in 1991, which was acquired by the Iteris Subsidiary in +October 1998 and dissolved in April 2006. Mr. Mohaddes is a founding and a current +board member of ITS America and a member of several trade organizations +including Transportation Research Board, Institute of Transportation +Engineers, and the Design/Build Institute of America. Mr. Mohaddes provides extensive +technology, industry, and management experience to the Board, as well as a +substantial understanding of the Company and its operations resulting from his +service as an officer of our Iteris Subsidiary and as the founder of MMA. +Richard Char has served as a director since +September 2005. From October 2008 +to March 2010, Mr. Char served as CEO of VIPGift LLC, a provider of corporate +and consumer loyalty and incentive programs. From June 2006 to July 2008, +Mr. Char was the Senior Vice President of Corporate Development and +General Counsel at Blackhawk Network, Inc., a provider of prepaid merchant +gift cards and network branded cards. +From March 2003 to April 2005, Mr. Char served as the +President and Chief Executive Officer of IC Media, a developer of CMOS image +sensors that was acquired in April 2005 by MagnaChip Semiconductors, a +developer and manufacturer of mixed-signal and digital multimedia +semiconductors. Prior to joining IC +Media, from March 1999 to January 2002, Mr. Char was Managing +Director with the Technology Group of Credit Suisse First Boston. From 1997 to 1999, Mr. Char was Co-Head +of Technology Investment Banking at Cowen & Company, and from 1984 to +1997, he was a partner in the law firm of Wilson Sonsini Goodrich & +Rosati. Mr. Char currently serves +on the board of directors of Netlist, Inc. (NASDAQ: NLST) and serves as +the chairman of its audit committee and a member of its compensation +committee. Mr. Char received his +A.B. degree from Harvard College and his J.D. degree from Stanford Law School. Mr. Char brings to the Board of +Directors executive leadership experience, as well as significant corporate +finance, legal and corporate development experience with the financial acumen +requisite to serve as a financial expert on our Audit Committee. +Kevin C. Daly, Ph.D. has served as +a director since 1993. Dr. Daly has +been CEO of MAXxess Systems, Inc., one of our former subsidiaries and a +provider of electronic security systems, since November 2005. Between August 2007 and August 2009 Dr. Daly +also served as CEO of iStor Networks, Inc., a manufacturer of IP SAN +storage systems. From June 2002 to June 2005, Dr. Daly +was CEO of Avamar Technologies, Inc., a developer of storage deduplication +technology; Avamar was subsequently acquired by EMC Corporation in 2006. Prior to Avamar, Dr. Daly was CEO of ATL +Products, Inc., a provider of tape automation systems. ATL Products completed an IPO in 1997 and was +subsequently acquired by Quantum Corporation. +Dr. Daly is also a member of the Board of Directors of STEC, Inc. +(NASDAQ: STEC), a provider of solid state disk systems. Having served as the CEO of several +technology companies and as a director of both private and public companies, Dr. Daly +offers to the Board a wealth of management and leadership experience as well as +an understanding of issues faced by such companies. +Gregory A. Miner has served as a director since 1998 and as our +Chairman of the Board of Directors since October 2004. Mr. Miner is also the Managing Partner +of Merchant Capital Source, LLC, a company that provides working capital +financing solutions to merchants. Prior +to that, Mr. Miner served as our Chief Executive Officer from +February 2002 to October 2004 and as our Chief Financial Officer from +January 1994 to October 2004. +He also served as our Chief Operating Officer from 1998 to 2002 and as +the Chairman of the Board of the Iteris Subsidiary from December 2003 to +October 2004. Mr. Miner has +served in various capacities for our other subsidiaries from time to time. From December 1984 until joining us, +Mr. Miner served as the Vice President, Chief Financial Officer and a +director of Laser Precision Corporation, a manufacturer of telecommunications +test equipment. Mr. Miner is a +Certified Public Accountant and, from 1979 to 1984, was employed by Deloitte +Haskins and Sells (now known as Deloitte & Touche LLP) in various +capacities, the most recent of which was Audit Manager. Through his service in a variety of executive +positions with us and our subsidiaries, Mr. Miner has a deep and broad +understanding of our business as well as the leadership skills and the +operational understanding to provide sound guidance in continuing to grow our +business. +John W. Seazholtz has served as a director since +May 1998. From May 1998 to +April 2000, Mr. Seazholtz served as the President and Chief Executive +Officer of Telesoft America, Inc. +He retired in April 1998 as the Chief Technology Officer of Bell +Atlantic after 36 years of service with that company and its predecessor. Mr. Seazholtz was a senior officer of +Bell Atlantic from 1986, serving in various positions, including the positions +of Vice President, Operations and Engineering, Vice President, Marketing, Vice +President of New Services, and Vice President, Technology and Information +Systems. Mr. Seazholtz currently +serves as the Chairman of the Board of Westell Technologies, Inc. (NASDAQ: WSTL). Mr. Seazholtz provides executive +leadership experience and strong sales and marketing expertise in the +technology industry, combined with extensive public company experience. +5 +Joel Slutzky has served as a director since he co-founded the +Company in 1969. Mr. Slutzky was +the Chairman of the Board of Directors from 1969 to October 2004 and our +Chief Executive Officer from 1975 to February 2002. Mr. Slutzky also served as the Chairman +of the Board of the Iteris Subsidiary until December 2003 and served in +various capacities for our other subsidiaries from time to time. Mr. Slutzky currently serves on the +Board of Directors of Project Tomorrow, an organization focused on improving +Kindergarten through 12th grade science education in Orange County, California +and the Butterfly Connection, an organization that promotes creativity and +critical thinking skills in K-12 education. As the co-founder of the Company with over 20 +years of experience in the transportation industry and 40 years of experience +with technology companies, Mr. Slutzky is uniquely qualified to provide +insights into and guidance on the industry and growth and development of the +Company. +Thomas L. Thomas has served as a director +since May 1999. From September of +2009 to present Mr. Thomas has served as Executive Chairman of +International Decision Systems, a provider of software and solutions for the +equipment finance market. From February 2004 +to July 2008, Mr. Thomas served as the President and Chief Operating +Officer of Global Exchange Services (“GXS”), a provider of business-to-business +EDI and supply chain management solutions. +Mr. Thomas retired from GXS in July 2008, and currently has +his own management consulting business, T2 Partners, and also serves as +Executive Chairman of International Decision Systems. Prior to his service with GXS, Mr. Thomas +was the Chairman of the Board, President and Chief Executive Officer of HAHT +Commerce, a provider of software applications that enable companies to use the +Internet to conduct business, from February 2000 until February 2004 +when HAHT Commerce was sold to GXS. Mr. Thomas +also served as the President and Chief Executive Officer of Ajuba Solutions, a +provider of B2B integration solution software, from February 2000 until +its sale to Interwoven in October 2000, and as the President, Chief +Executive Officer and Chairman of the Board of Vantive Corporation, a customer +relationship management software vendor, from April 1999 until its +acquisition by Peoplesoft in January 2000. +From 1981 to 1999, Mr. Thomas served in various senior and +executive positions at 3Com Corporation, Dell Computer Corporation, Kraft +General Foods and Sara Lee Corporation. Mr. Thomas +also serves on the board of directors, and as the chairman of the compensation committee, +of info Group, Inc. (NASDAQ: +IUSA). He also serves on the board of +directors and the compensation committee and the audit committee of Front Range +Solutions, a developer of service management and IT asset management software +for mid-sized and distributed enterprises. +Mr. Thomas offers to the Board of Directors valuable business, +leadership and strategic insights obtained through his service in a variety of +industries, including a number of technology companies, and his experience in +working with companies through several stages of their development. +Family Relationships +There are no family relationships among any of our directors, director +nominees, or executive officers. +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business +Conduct which applies to all directors, officers (including our principal +executive officer, principal financial officer, principal accounting officer or +controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and +Business Conduct is available on the Investor Relations section of our website +at www.iteris.com . We intend to disclose future amendments to +certain provisions of the Code of Ethics and Business Conduct, and any waivers +of provisions of the Code of Ethics required to be disclosed under the +rules of the Securities and Exchange Commission (“SEC”), at the same +location on our website. +Director Independen c e +Our policy is to have at least a majority of the directors qualify as “independent” +under the listing standards of NYSE Amex. +The Board of Directors has determined that Messrs. Char, Daly, Miner, +Seazholtz, Slutzky, and Thomas each satisfy the requirements for “independence” +under such listing standards. +Board Structure +The Board does not have a policy regarding the separation of the roles +of the CEO and Chairman of the Board as the Board believes it is in the best +interest of the Company to make that determination based on the position and +direction of the Company and the membership of the Board from time to +time. However, the Board has determined +that having an independent director serve as the Chairman is currently in the +best interest of our stockholders in recognition of the different demands and +responsibilities of the roles and to emphasize the independence of the role of +Chairman. The Board also meets regularly +in executive sessions. +6 +Board Meetings and Committees +We currently have several standing committees of the Board of +Directors, including the Audit Committee, the Compensation Committee, and the +Nominating and Corporate Governance Committee. +The Audit Committee, the Compensation Committee, and the Nominating and +Corporate Governance Committee each has a written charter that is reviewed +annually and revised as appropriate. A +copy of each committee’s charter is available on the Investor Relations section +of our website at www.iteris.com. +During the fiscal year ended March 31, 2010 (“Fiscal 2010”), the +Board of Directors and the various committees of the Board held the following +number of meetings: Board of +Directors—eight; Audit Committee—eight; Compensation Committee—one; and +Nominating and Corporate Governance Committee—one. During Fiscal 2010, no director attended +fewer than 75% of the aggregate of the total number of meetings of the Board of +Directors and the total number of meetings of any committees of the Board held +while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee +are Messrs. Char, Seazholtz, and Thomas. +Each member of the Audit Committee is “independent” under the current +listing standards of NYSE Amex and the SEC rules regarding audit committee +memberships. The Board has identified +Mr. Char as the member of the Audit Committee who qualifies as an “audit +committee financial expert” under applicable SEC rules and regulations +governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the +conduct of the accounting and financial reporting processes, the audits of our +financial statements and the integrity of our audited financial statements and +other financial reports; (b) the performance of our internal accounting +and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent +registered public accounting firm; and (d) the portions of the Code of Ethics +and Business Conduct and related policies regarding our accounting, internal +accounting controls or auditing matters. +The Audit Committee meets privately with our independent registered +public accounting firm, and such firm has unrestricted access to and report +directly to the Audit Committee. The +Audit Committee has selected McGladrey & Pullen, LLP as our +independent registered public accounting firm for the fiscal year ending +March 31, 2011 and is recommending that our stockholders ratify this appointment +at the Annual Meeting. +Compensation Committee. The current members of our Compensation +Committee are Messrs. Daly, Seazholtz, and Thomas. The Board has concluded that each member of +the Compensation Committee is “independent” under the listing standards of NYSE +Amex. +The Compensation Committee (a) evaluates officer and director +compensation policies, goals, plans and programs; (b) determines the cash +and non-cash compensation of our “executive officers” as defined in the +rules promulgated under Section 16 of the Securities Exchange Act of +1934, as amended (the “Exchange Act”); (c) reviews and makes +recommendations to the Board with respect to our equity-based and other +incentive compensation plans for employees; (d) evaluates the performance +of our executive officers; (e) assists the Board in evaluating potential +candidates for executive officer positions and oversee management succession +planning; and (f) produces the Committee report required by the applicable +rules and regulations of the SEC and other regulatory bodies for inclusion +in our annual proxy statement. +Nominating and Corporate Governance Committee. The current members of the Nominating and +Corporate Governance Committee are Messrs. Daly, Seazholtz, Slutzky, and +Thomas. The Board has determined that +each of the members of this committee are “independent” under the listing +standards of NYSE Amex. +The primary purposes of the Nominating and Corporate Governance +Committee are to (a) identify, screen and review individuals qualified to serve +as directors; (b) select or recommend to the Board of Directors the +selection of nominees for election at the next annual meeting of stockholders; +(c) recommend to the Board of Directors candidates to fill any vacancies +on the Board; (d) oversee the implementation and monitoring the +effectiveness of our corporate governance policies and developing and +recommending to the Board modifications and or additions to such policies; and +(e) review on a regular basis our overall corporate governance and recommend +improvements when necessary. +In connection with their recommendations regarding the size and +composition of the Board, the Nominating and Corporate Governance Committee +reviews the appropriate qualities and skills required of directors in the +context of the then current make-up of the Board and the needs of the +Company. This includes an assessment of +each candidate’s independence, personal and professional integrity, financial +literacy or other professional or business experience relevant to an understanding +of our business, ability to think and act independently and with sound +judgment, and ability to serve the Company’s and our stockholders’ long-term +interests. While +7 +we do not have a formal policy with regard to the consideration of +diversity in identifying director nominees, the Nominating and Corporate +Governance Committee strives to nominate directors with a variety of +complementary skills and backgrounds so that as a group, the Board will possess +the appropriate talent, skills, insight and expertise to oversee our +business. These factors, and others as +considered useful by the Nominating and Corporate Governance Committee, are +reviewed in the context of an assessment of the perceived needs of the Board at +a particular point in time. As a result, +the priorities and emphasis of the Nominating and Corporate Governance +Committee and of the Board may change from time to time to take into account +changes in business and other trends, and the portfolio of skills and +experience of current and prospective directors. The Nominating and Corporate Governance +Committee generally leads the search for and selects, or recommends that the +Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information +concerning candidates and interviews with selected candidates. Candidates for nomination to our Board +typically have been suggested by other members of the Board or by our executive +officers. From time to time, the +Nominating and Corporate Governance Committee may engage the services of a +third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will consider candidates +for directors recommended by our stockholders who meet the eligibility +requirements for submitting stockholder proposals for inclusion in our next +proxy statement. This committee will +evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a +nominee must submit such recommendation in writing to the Chair, Nominating and +Corporate Governance Committee, care of our corporate Secretary, by the +deadline for stockholder proposals set forth in our last proxy statement, +specifying the following information: (a) the name and address of the +nominee, (b) the name and address of the stockholder making the +nomination, (c) a representation that the nominating stockholder is a +stockholder of record of our stock entitled to vote at the next annual meeting +and intends to appear in person or by proxy at such meeting to nominate the +person specified in the notice, (d) the nominee’s qualifications for +membership on the Board, (e) a resume of the candidate’s business +experience and educational background as well as all of the information that +would be required in a proxy statement soliciting proxies for the election of +the nominee as a director, (f) a description of all direct or indirect +arrangements or understandings between the nominating stockholder and the +nominee and any other person or persons (naming such person or persons) +pursuant to whose request the nomination is being made by the stockholder, +(g) all other companies to which the nominee is being recommended as a +nominee for director, and (h) a signed consent of the nominee to cooperate +with reasonable background checks and personal interviews, and to serve as a +director, if elected. In connection with +its evaluation, the Nominating and Corporate Governance Committee may request +additional information from the candidate or the recommending stockholder, and +may request an interview with the candidate. +The Nominating and Corporate Governance Committee has the discretion to +decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the Nominating +and Corporate Governance Committee by any stockholder in connection with the +election of directors at the Annual Meeting. +Each of the director nominees standing for election at this Annual +Meeting is a current director. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its +duties in this regard are supplemented by committees of the Board. In particular, the Audit Committee focuses on +financial risk, including internal controls, and is responsible for discussing +with management and our independent auditors policies with respect to risk +assessment and risk management, including the process by which we undertake major +financial and accounting risk assessment and management. Risks related to our compensation programs +are reviewed by the Compensation Committee and legal and regulatory compliance +risks are reviewed by the Nominating and Corporate Governance Committee. In connection with its responsibilities +relating to risk assessment, our full Board periodically engages in discussions +of the most significant risks that the Company is facing and how these risks +are being managed. +Compensation of Directors +Non-employee directors receive an annual fee of $12,000 per year, paid +quarterly, in addition to $1,500 for each Board meeting attended in person, and +$250 for each telephone conference Board meeting. All directors are reimbursed for their +out-of-pocket expenses incurred in attending meetings of our Board of Directors +and its committees. +Non-employee directors were also eligible to receive periodic option +grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 +Omnibus Incentive Plan (the “2007 Plan”). +Under that plan, each non-employee director receives an option to +purchase 20,000 shares of common stock upon his initial appointment to the +Board of Directors and an additional option to purchase 5,000 shares of common +stock on the date of each annual meeting after his appointment, provided he has +served on the Board for at least six months. +Each option granted to non-employee directors under the Directors’ +Automatic Option Grant Program will have an exercise price equal to the fair +market value of the common stock on the grant date and a maximum term of ten +years, subject to earlier termination following the optionee’s cessation of +service as a Board member. Prior to the +adoption of the 2007 Plan, non-employee directors received option grants +pursuant to the Automatic Option Grant Program of our 1997 Stock Incentive Plan +(the “1997 Plan”), having substantially the same terms as the grants provided +under the 2007 Plan. +8 +Stockholder Communications +The Board has implemented a process by which stockholders may send +written communications directly to the attention of the Board, any committee of +the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board +recipient should be noted in the communication. +Our corporate Secretary will be primarily responsible for collecting, +organizing and monitoring communications from stockholders and, where +appropriate depending on the facts and circumstances outlined in the +communication, providing copies of such communications to the intended +recipients. Communications will be +forwarded to directors if they relate to appropriate and important substantive +corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise +inappropriate for the Board’s consideration will not be forwarded to the +Board. Stockholders who wish to +communicate with the Board can write to the corporate Secretary at +Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California +92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our +Board of Directors at annual meetings of our stockholders; however, directors +are encouraged to attend all such meetings. +Two of our current directors attended our 2009 annual meeting of +stockholders. +9 +PROPOSAL TWO: +RATIFICATION OF SELECTION OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of McGladrey & Pullen, LLP was engaged to +serve as our independent registered public accounting firm for the fiscal year +ended March 31, 2010. The Audit +Committee of the Board of Directors has selected that firm to continue in this +capacity for the fiscal year ending March 31, 2011. We are asking our stockholders to ratify the +selection by the Audit Committee of McGladrey & Pullen, LLP as our +independent registered public accounting firm to audit our consolidated +financial statements for the fiscal year ending March 31, 2011 and to +perform other appropriate services. +Stockholder ratification of the selection of McGladrey & +Pullen, LLP as our independent registered public accounting firm is not +required by our bylaws or otherwise. In +the event that the stockholders fail to ratify the appointment, the Audit +Committee will reconsider its selection. +Even if the selection is ratified, the Audit Committee, in its sole +discretion, may direct the appointment of a different independent registered +public accounting firm at any time during the year if the committee feels that +such a change would be in the best interests of us and our stockholders. +A representative of McGladrey & Pullen, LLP is expected to be +present at the Annual Meeting to respond to stockholders’ questions, and that +representative will have the opportunity to make a brief presentation to the +stockholders if he or she so desires and will be available to respond to +appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or +represented by proxy and entitled to vote at the Annual Meeting will be +required for ratification of the selection of McGladrey & Pullen, LLP +as our independent registered public accounting firm for the fiscal year ending +March 31, 2011. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the +ratification and approval of the selection of McGladrey & Pullen, LLP +as our independent registered public accounting firm for the fiscal year ending +March 31, 2011. +10 +FEES PAID TO INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed for the +indicated services performed by McGladrey & Pullen, LLP for the fiscal +years ended March 31, 2009 and 2010: +Fiscal Year Ended March 31, +2009 +2010 +Audit Fees +$ +314,000 +$ +320,000 +Audit-Related Fees +40,000 +46,000 +Tax Fees +¾ +¾ +All Other Fees +¾ +¾ +Total Fees +$ +354,000 +$ +366,000 +Audit Fees. Audit fees consist of fees billed by +McGladrey & Pullen, LLP for professional services rendered in +connection with the audit of our annual consolidated financial statements and +review of those consolidated financial statements included in our quarterly +reports on Forms 10-Q and other regulatory filings. +Audit-Related Fees. Audit-related fees consist of fees billed for +professional services that are reasonably related to the performance of the +audit or review of our consolidated financial statements but are not reported +under “Audit Fees.” Such fees include, +among other things, fees for registration statements, fees for internal control +reviews and assistance with meeting the requirements of Section 404 of the +Sarbanes-Oxley Act and certain consultations concerning financial accounting +and reporting standards. +Tax Fees. There were no tax fees billed to us by +McGladrey & Pullen, LLP during the fiscal years ended March 31, +2009 and 2010. +All Other Fees. There were no other fees billed to us by +McGladrey & Pullen, LLP during the fiscal years ended March 31, +2009 and 2010. +Determination of Independence +McGladrey & Pullen, LLP did not provide any non-audit related +services during the fiscal years ended March 31, 2009 and 2010. +Audit Committee Pre-Approval +Policies and Procedures +All engagements for services by McGladrey & Pullen, LLP or +other independent registered public accountants are subject to prior approval +by the Audit Committee; however, de minimis non-audit services may instead be +approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was +obtained for all services provided by McGladrey & Pullen, LLP in the +fiscal year ended March 31, 2010. +11 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to +Iteris’ audited consolidated financial statements for the fiscal year ended +March 31, 2010 included in its Annual Report on Form 10-K for that +year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated +financial statements with the Company’s management. +Review and Discussions with Independent Registered Public Accounting +Firm +The Audit Committee has discussed with the Company’s independent +registered public accounting firm, McGladrey & Pullen, LLP, the +matters required to be discussed by Statement on Auditing Standards No. 61, +as amended (AICPA, Professional Standards , +Vol. 1. AU Section 380), which +includes, among other items, matters related to the conduct of the audit of the +Company’s consolidated financial statements. +The Audit Committee has received the written disclosures and the letter +from McGladrey & Pullen, LLP required by applicable requirements of +the Public Company Accounting Oversight Board regarding the independent +accountant’s communications with the Audit Committee concerning independence, +and has discussed with McGladrey & Pullen, LLP its independence from +the Company. +Conclusion +Based on the review and discussions referred to above in this report, +the Audit Committee recommended to the Company’s Board of Directors that the +audited financial statements be included in the Company’s Annual Report on +Form 10-K for the year ended March 31, 2010 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Richard Char +John W. Seazholtz +Thomas L. Thomas +12 +EXECUTIVE COMPENSATION AND OTHER +INFORMATION +Executive Officers +The table below sets forth certain information, as of June 30, +2010, regarding our executive officers. +Name +Age +Capacities in Which Served +Abbas Mohaddes +53 +Chief +Executive Officer, President, Assistant Secretary and Director +Alan Clelland +57 +Senior +Vice President, Transportation Systems +Todd Kreter +50 +Senior +Vice President, Sensors Development and Operations +Gregory McKhann +47 +Senior +Vice President, Sensors Sales and Marketing +James S. Miele +42 +Vice +President, Chief Financial Officer and Secretary +The following is a brief description of the capacities in which each of +the above persons has served during the past five years. The biography of Mr. Mohaddes appears +earlier in this proxy statement. See +Proposal One: “Election of Directors.” +Alan Clelland has served as a Senior Vice +President of the Company since October 2007; he also held the title of +General Manager from October 2007 to May 2009. Prior to joining us, from May 2000 to September 2007, +Mr. Clelland worked at the Siemens ITS business unit of Siemens Energy & +Automation, Inc., serving in the role of Marketing Director then as +Director of Consulting. From August 1998 +to April 2000, Mr. Clelland was Senior Vice President, Operations for +Gardner Systems, an ITS consulting company. +Prior to that, from May 1996 to July 1998, Mr. Clelland +was Marketing Director of TransCore, a company of Science Applications +International Corporation (SAIC). From May 1987 +to April 1996, he was a Senior Associate, then Associate Vice President at +JHK & Associates, Inc., a transportation engineering company, +which was acquired by SAIC. Mr. Clelland’s +prior experience also includes working as the International Product Marketing +Manager for Power Semiconductors in the Elcoma Division of Philips BV, The +Netherlands and in local government traffic engineering, university research, +manufacturing and consulting. Mr. Clelland +holds a B.Sc. degree in Physics and Electronic Engineering from the University +of Leeds in the United Kingdom. +Todd Kreter has served as a Senior Vice President of the +Company since May 2009. Mr. Kreter served as our Vice President of +Engineering from November 2007 to May 2009. Prior to joining us, from June 2004 to +January 2007, Mr. Kreter was the VP Global Services at Quantum +Corporation where he managed the company’s worldwide customer service +organization. From May 1998 to +June 2004, Mr. Kreter held several positions, including VP +Operations, VP Engineering and VP Quality, at Quantum Corporation. From 1994 to 1998, Mr. Kreter held +management positions in engineering and operations with ATL Products, Inc. +where he was responsible for the design, development and production of various +products. Mr. Kreter holds an +executive M.B.A. from Stanford/AEA and a B.S. degree in mechanical engineering +from California State University, Fullerton. +Gregory McKhann has served as a Senior Vice President of the Company since October 2004; +he also held the title of General Manager from October 2007 to May 2009. Mr. McKhann was Senior Vice President of +the Iteris Subsidiary from March 2004 to October 2004, its Vice +President and General Manager of Roadway Sensors from December 1998 to +March 2004, its Vice President, Strategic Business Development from +October 1999 to May 2000 and the Marketing Director of our ITS +division (which became the Iteris Subsidiary) from July 1997 to +October 1999. Prior to joining us, +Mr. McKhann served as a Business Development Manager at Rockwell +International from 1990 to 1997. While +at Rockwell, Mr. McKhann was one of the founding members of the Rockwell +Transportation Systems business unit. +Prior to 1990, Mr. McKhann held a variety of Engineering and +Project Management positions at Rockwell International. +James S. Miele has served as our Vice President of Finance and +Chief Financial Officer since October 2004 and as the Secretary since +March 2004. Mr. Miele was our +Controller from October 2003 to October 2004 and the Controller of +the Iteris Subsidiary from April 2001 to October 2004. Prior to that, from October 1998 to +June 2000, Mr. Miele served as an audit manager at Ernst & +Young LLP, supervising financial statement audits for a variety of public and +privately held companies. Mr. Miele +also served in Ernst & Young’s Assurance and Advisory Business +Services group from 1994 to 1998. +Mr. Miele is a Certified Public Accountant in the State of +California (inactive) and holds a B.S. degree in Accounting from San Diego +State University. +13 +Compensation Discussion and Analysis +General +Compensation Policy +The guiding principle of our compensation policies is to align +executive compensation with Company objectives and business strategies as well +as with financial and operational performance. +In keeping with this principle, the Compensation Committee seeks to: +(1) Attract and +retain qualified senior executives who can play a significant role in the +achievement of Company goals; +(2) Reward +executives for strategic management and the long-term enhancement of +stockholder value; and +(3) Create a +performance-oriented environment that rewards performance with respect to our +financial and operational goals without encouraging excessive risk taking. +The Compensation Committee meets periodically to review and recommend +for approval by the Board of Directors, the salaries, bonuses and benefit plans +for our executive officers and key associates. +Our Chief Executive Officer provides recommendations to the Compensation +Committee with respect to compensation matters, including executive +compensation, and, where appropriate, we utilize independent third party salary +survey data as reference points. +However, the final decisions regarding the compensation of our executive +officers are made by the Compensation Committee. In measuring the executive officers’ +contributions to the Company, the Compensation Committee considers a number of +factors, including our revenue growth, net income and other financial +performance measurements, as well as qualitative and non-financial measures +such as key milestone achievements. +The three key elements of the current executive compensation program +are annual base salary, cash bonuses, and long-term, equity-based +incentives. We also provide our +executive officers with severance and change-in-control benefits as well as a +limited number of perquisites and other personal benefits. Executives also participate in employee +benefit programs available to the broader employee population. Our discussion below contains an additional explanation +of each of these elements. In evaluating the mix of these compensation +components, the Compensation Committee sought to make such compensation +competitive with that provided by other companies with which we compete for +executive talent while providing short and long-term incentives for the +achievement of measurable corporate and individual performance objectives in +keeping with the compensation principles described above. +Our compensation plans and the amount of each compensation element to +pay our named executive officers are generally developed and determined on an +individual, case-by-case basis utilizing a number of factors, including +publicly available data from independent outside sources, including the +TechAmerica (formerly American Electronics Association) annual survey of +executive compensation, our general business conditions and objectives, as well +as our subjective determination with respect to the executive’s individual +contributions to such objectives. For +our executive officers, the Compensation Committee has adopted a policy of +setting total compensation at approximately the 75th to 100th percentile level +of comparable companies in order to effectively recruit and retain key +executives. The cash compensation, +including the base salaries and bonuses, for Fiscal 2010 for our executive +officers was established generally at the higher end of such percentile range, +while the equity compensation generally was at the lower end of such range. +Elements of Compensation +Base Salary +We seek to provide our senior management with a base salary appropriate +to their roles and responsibilities, and to provide them with a level of +stability and certainty each year. We +establish salaries for the named executive officers by considering the salaries +of officers at comparably sized companies according to data obtained by the +Compensation Committee from independent outside sources, including the +TechAmerica (formerly American Electronics Association) annual survey of +executive compensation. Our Chief Executive +Officer does not participate in the discussions regarding his own compensation +but does provide input to the Compensation Committee regarding the compensation +of other executive officers. We have +generally established base salaries for our executive officers at the higher +end of our target percentile range, with the exact base salaries for our +executives based on the executive’s qualifications and experience, scope of +responsibilities, and the executive’s past performance and future +potential. Base salaries are reviewed +annually, and adjusted from time to time to realign salaries with market levels +after taking into account such individual factors, including responsibilities, +performance and experience. The +Compensation Committee has reviewed the current base salaries of each of the +named executive officers and is of the opinion that such salaries are at a +competitive level with the base salaries in effect for similarly situated +officers and are not unreasonable in view of those paid by our competitors and +by other companies of similar size. +14 +In addition, as described below under the caption “Non-qualified +Deferred Compensation Savings Plan,” we had a Deferred Compensation Savings +Plan pursuant to which our executive officers were permitted to defer some or +all of their salaries. The plan was +terminated by the Company’s Board of Directors in December 2008 and all +shares held in the plan were distributed to their respective owners in December 2009. No compensation was deferred by any named +executive officer in Fiscal 2010. +Incentive Cash Bonuses +The remaining cash component of the named executive officers’ +compensation for Fiscal 2010 was an annual cash bonus determined by the +Compensation Committee based upon criteria established by the committee at the +beginning of the fiscal year. For Fiscal +2010, the bonuses were primarily dependent upon corporate and business unit +performance. 80% of the potential bonus +for the CEO and 60% of the potential bonus for the CFO was based on the total +revenue and operating income achieved for the year, and the remaining 20% and +40%, respectively, of the potential bonus was based on the applicable officer’s +achievement of individual objectives that were qualitative in nature and were +established by the Compensation Committee for our CEO and established by the +CEO for our CFO. 70% to 80% of the +potential bonus for each of Messrs. Clelland, McKhann and Kreter were based +on revenue and operating income achieved by the business unit for which such +officer had primary responsibility, as well as the total revenue and operating +income achieved by the Company, and the remaining 20% to 30% of the potential +bonus was based on the applicable officer’s achievement of individual +objectives that were qualitative in nature and were established by the CEO. +For the fiscal year ending March 31, 2011 (“Fiscal 2011”), the +potential bonuses for our executive officers have similarly been set based +primarily on our overall corporate and business unit performance, with 80% of +the potential bonus for Mr. Mohaddes and 70% of the potential bonus for Mr. Miele +to be based on the total revenue and operating income achieved by the Company +for the year, and 70% to 80% of the potential bonus for each of +Messrs. Clelland, McKhann and Kreter to be based on revenue and operating +income achieved by the business unit for which such officer has primary +responsibility, as well as the operating income achieved by the Company. The remaining 20% to 30% of the potential +bonus for each executive officer will be based on the officer’s achievement of +individual objectives. +The individual objectives in Fiscal 2010 for the Chief Executive +Officer and the Chief Financial Officer were primarily focused on such officer’s +management of his area of responsibility. +The objectives for Mr. Mohaddes generally included strategic +development of the Company, achievement of the revenue and operating income +plan, and enhancing market value, as well as enhancing the relationship of the +Company with the financial community. +The objectives for Mr. Miele principally included enhancement of +our financial position and financial objectives, including accurate and timely +reporting of financial results and managing SEC compliance matters, while the +objectives for the other named executive officers primarily consisted of +operational and strategic objectives within their business area of +responsibility for each of Messrs. Clelland, McKhann and Kreter. The objectives for each named executive +officer will continue to have substantially the same focus for Fiscal 2011. +In Fiscal 2010, the target bonuses under the plan as a percent of the +officer’s base salary ranged from 41% to 58%, with the Chief Executive Officer’s +target bonus set at 50% of his base salary. +The target bonuses for the other named executive officers were 41% to +58% of the applicable officer’s base salary. +For Fiscal 2011, the target bonuses were set at 40% to 58% of base +salaries, with the Chief Executive Officer’s target bonus set at 50% of his +base salary and the target bonus for all other named executive officers set at +40% to 58% of the applicable officer’s base salary. In addition, if our performance exceeds the +revenue and operating income targets set for bonus purposes, the executives can +earn an additional bonus of up to 50% of the portion of the target bonus award +relating to our operational performance. +Revenue and operating income goals established for bonus purposes are +generally higher than the goals established by us for the operation of the +business, and are thus difficult to attain without a high degree of effort and +the right market or economic conditions. +For Fiscal 2010, the goals for bonus purposes were set in the range of +105% to 110% of the internal operating plan. +Bonus achievement or overachievement is determined on a factor-by-factor +basis. For 2010, we did not meet the +goals established by the Compensation Committee and no bonuses were awarded to +any of the named executive officers with respect to the portion of the bonuses +relating to the Company’s revenue and operating income or those of the business +units. The bonuses awarded to named +executive officers for Fiscal 2010 related solely to the discretionary portion +of the bonuses based on individual achievement of qualitative objectives by +such officers. +Based upon the above described criteria, cash bonuses for the named +executive officers in the following amounts were approved for Fiscal 2010: Mr. Mohaddes — $31,500; +Mr. Clelland — $16,000; Mr. Kreter— $21,600; Mr. McKhann — +$18,400; and Mr. Miele — $28,800. +15 +Long-Term Equity Compensation +A portion of the compensation of executive officers has historically +been based upon the award of stock options which rely on increases in the value +of our securities. Beginning in Fiscal +2011, the Compensation Committee intends to include awards of restricted stock +units, which the Compensation Committee believes provides a more direct +connection between executive compensation and the long term growth of the +Company, as part of the Company’s long-term equity compensation. +Stock options and restricted stock unit awards are intended to +encourage executives to establish a meaningful, long-term ownership interest in +the Company consistent with the interests of our stockholders. Under our equity incentive plans, such awards +are granted from time to time to certain officers and key associates. Options granted to our named executive +officers generally have an exercise price equal to the fair market value of our +common stock on the date of grant, vest in equal annual installments over four +years, and are not exercisable until vested. +Restricted stock unit awards will also generally vest over several years +and be issued upon vesting. Because the +compensation element of such awards is dependent on increases over time in the +market value of such shares, they represent compensation that is tied to our +long-term performance. We do not have a +formal policy as to the amount or timing of grants of equity-based awards to +executive officers. The grant of +options, restricted stock units or other equity-based awards to our executive +officers is determined based upon individual performance, level of base salary +and position with us. In May 2009, +we granted to each of our named executive officers, an option to acquire the +following number of shares of our common stock at an exercise price of $1.41 +per share, the then fair market value of our common stock, which option vests +annually over a four year period: Mr. Mohaddes +— 100,000 shares; Messrs. Clelland, Kreter, McKhann and Miele — 25,000 +shares. +Other Compensation +Our executive officers are eligible to receive the same benefits, +including non-cash group life and health benefits, that are available to all +employees. Certain additional benefits +may be provided to our executives such as a car allowance, but each on a +case-by-case basis. +Likelihood of Compensation Structure to Encourage +Excessive Risk Taking +The Compensation Committee reviewed the Company’s compensation policies +as they apply to all employees as well as our executive officers and believes +that the policies do not encourage unnecessary risk taking, and that the level +of risk that may be encouraged by the policies would not reasonably be likely +to have a material adverse effect on the Company. In this regard, we note that we provide base +salaries to provide stability and predictability of monthly income, and provide +incentive cash or long-term equity grants that we believe encourage focus on +profitability and growth of the Company over time. +Summary Compensation Table +The following table shows information regarding the compensation earned +during Fiscal 2009 and Fiscal 2010 by (i) our Chief Executive Officer, (ii) our +Chief Financial Officer, (iii) our three other executive officers who were +employed by us as of March 31, 2010 and whose total compensation exceeded +$100,000 during that fiscal year and (iv) a former executive officer who +would have been included in the group described in clause (iii) except +that he was not serving as an officer as of March 31, 2010. The officers listed below are collectively +referred to as the “named executive officers” in this proxy statement. +Name +Fiscal +Year +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation +(2) +All Other +Compensation (3) +Total +Abbas Mohaddes +2010 +$ +362,120 +$ +99,597 +$ +31,500 +$ +10,010 +$ +503,227 +Chief Executive Officer, President, Assistant Secretary and Director +2009 +350,022 +¾ +29,008 +20,210 +399,240 +James S. Miele +2010 +195,000 +24,899 +28,800 +2,363 +251,062 +Vice President, Chief Financial Officer and Secretary +2009 +193,105 +¾ +14,451 +9,775 +217,331 +16 +Name +Fiscal +Year +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation +(2) +All Other +Compensation (3) +Total +Alan Clelland +2010 +187,107 +24,899 +16,000 +1,454 +229,460 +Senior Vice President +2009 +180,003 +¾ +71,083 +6,847 +257,933 +Gregory McKhann +2010 +221,679 +24,899 +18,400 +2,903 +267,881 +Senior Vice President +2009 +213,825 +¾ +18,320 +12,015 +244,160 +Todd Kreter +2010 +182,109 +24,899 +21,600 +1,413 +230,022 +Senior Vice President +2009 +179,990 +¾ +22,238 +5,197 +207,425 +Francis Memole (4) +2010 +150,064 +¾ +¾ +773 +150,837 +Former Senior Vice President and General Manager +2009 +191,594 +¾ +¾ +10,478 +202,072 +(1) +The dollar amounts shown represent the estimated grant date fair +value of stock options granted during the applicable fiscal year determined +pursuant to the Black-Scholes-Merton option pricing formula, in accordance +with FASB Accounting Standards Codification Topic 718. For a discussion of +valuation assumptions used in the calculations, see Note 8 to our +consolidated financial statements in our annual report for Fiscal 2010 (the +“Annual Report”). See also our discussion of stock-based compensation under +“Management’s Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +(2) +The amounts shown in this column constitute the cash bonuses made to +each named executive officer based on the attainment of certain criteria +pre-established by the Compensation Committee. These awards are discussed in +further detail under “Compensation Discussion and Analysis” above. +(3) +Represents 401(k) plan employer contributions and automobile +allowances paid by us. +(4) +Mr. Memole served as our Senior Vice President and General +Manager of our Vehicle Sensors segment until May 2009. +Employment Contracts; Termination of Employment and Change of Control +Arrangements +We do not currently have any employment contracts in effect with any of +our named executive officers other than the agreements described below. We provide incentives such as salary, +benefits and option grants to attract and retain executive officers and other +key associates. The plan administrators +of the 1997 Plan and the 2007 Plan have the authority to provide for the +accelerated vesting of outstanding options held by an individual, in connection +with the termination of such individual’s employment following an acquisition +in which these options are assumed or the repurchase rights with respect to the +unvested shares are assigned or upon certain hostile changes in control of the +Company. Other than such accelerated +vesting and the agreements described above, there is no agreement or policy +which would entitle any executive officer to severance payments or any other +compensation as a result of such officer’s termination. +Agreements with Abbas Mohaddes +On February 28, 2007, we entered into an offer letter agreement +with Abbas Mohaddes in connection with his promotion as our Chief Executive +Officer effective as of March 2007. +The offer letter agreement provided for a base salary of $350,000 per +year, a bonus of up to $150,000 for the fiscal year ended March 31, 2008 +and the grant of an option to purchase 100,000 shares of our common stock (“Option +One”) and a second option to purchase an additional 200,000 shares of our +common stock. Under the terms of the +offer letter, in the event that his employment with us is terminated for any +reason other than cause within three years of his promotion to Chief Executive +Officer, Mr. Mohaddes was also entitled to receive one year’s severance, +based on his then current base salary, as well as 50% of his then current +on-target bonus amount. In the event of +his death or disability, Mr. Mohaddes or his estate was entitled to one +year’s acceleration on the vesting of Option One. If a triggering event under the severance +provisions of this agreement had occurred on the last business day of Fiscal +2010, then Mr. Mohaddes would have been entitled to a payment of up to +$435,000, based on his then current base salary and on-target bonus. He would have been entitled to the same +payment under either the letter agreement or change in control agreement described +below if those agreements had been in effect as of such triggering event. +17 +As described above, the severance provisions relating to the +above-described offer letter agreement expired in March 2010, or three +years from his promotion to CEO. +Accordingly, on July 27, 2010, we entered into a new letter +agreement with Mr. Mohaddes containing substantially the same severance +provisions. The new letter agreement +provides for salary continuation payments for 12 months following termination +and payment of 50% of his target bonus for the applicable year, payable at the +end of the 12 month salary continuation period, in the event that Mr. Mohaddes +is terminated without cause (as defined in the letter agreement) within three +years after the effective date of the agreement. If his employment is terminated as a result +of death or disability, then no salary continuation or other severance payments +will be made but the vesting of any options, restricted stock or other similar +awards then held by him will be accelerated by one year. The letter agreement also provides that Mr. Mohaddes +will be granted a restricted stock unit award covering 50,000 shares of our +common stock, which award will vest over four years. Also on July 27, 2010, we entered into a +change in control agreement with Mr. Mohaddes, which provides for a lump +sum payment of one year’s base pay and 50% of his target bonus for the year in +the event of an involuntary termination (as defined in the change in control +agreement) of Mr. Mohaddes’ employment in connection with or within 12 +months after a change in control, except that such payment will be reduced to +50% of the annual base pay and no bonus if the involuntary termination is due +to his voluntary resignation which does not occur within the first six months +after the change in control. Mr. Mohaddes +will also be entitled to receive reimbursement for the cost of COBRA coverage +for a period of up to one year following the involuntary termination of his +employment. The change in control agreement +terminates on the fifth anniversary of the date of the agreement, unless +earlier terminated in accordance therewith. +No amounts will be payable and no acceleration of the vesting of any +options or equity based awards will occur under the letter agreement in the +event of a termination of Mr. Mohaddes’ employment after a change in +control; after a change in control, the change in control agreement will +determine whether or not Mr. Mohaddes will be entitled to any payments or +benefits, and the amount of any payments or benefits, in the event of the +termination of his employment. +Agreement with James Miele +On June 11, 2008, we entered into a change in control agreement +with James Miele, our Chief Financial Officer. +Pursuant to the terms of the agreement, in the event of an involuntary +termination (as defined in the change in control agreement) of Mr. Miele’s +employment in connection with or within 12 months after a change in control, +Mr. Miele will be entitled to receive a lump sum payment of one year’s +base pay and 50% of his target bonus for the year, with such payment to be +reduced to 50% of the annual base pay and 25% of the bonus if the involuntary +termination is due to his voluntary resignation which does not occur within the +first six months after the change in control. +In addition, Mr. Miele will be entitled to receive reimbursement +for the cost of COBRA coverage for a period of up to one year following the +involuntary termination of his employment. +The agreement terminates on the fifth anniversary of the date of the +agreement, unless earlier terminated in accordance with the agreement. If a triggering event under the severance +provisions of his agreement had occurred on the last business day of Fiscal 2010, +then Mr. Miele would have been entitled to a payment of up to $235,000, +based on his then current base salary and on-target bonus, plus COBRA premium +reimbursements. +Agreement with Francis Memole +In May 2009, we entered +into a separation agreement with Francis Memole, the former Senior Vice +President and General Manager of our Vehicle Sensors segment, related to his +termination of employment with us. Under this agreement, we agreed to +pay four and one half months of severance to Mr. Memole for an aggregate +severance amount of approximately $72,000, in exchange for a broad release of +claims against us and our affiliates. In addition, we agreed to pay 65% +of Mr. Memole’s COBRA premiums until December 31, 2009 pursuant +to the American Recovery and Reinvestment Act, as well as the balance +of his first month’s COBRA premium. +18 +Grants of Plan-Based Awards +The following table sets forth certain information with respect to +bonuses that were potentially payable to our named executive officers under our +bonus plan for Fiscal 2010. No bonuses +were payable for Fiscal 2010 to Francis Memole, the former Senior Vice +President and General Manager of our Vehicle Sensors segment. +All Other +Option +Exercise +Grant +Awards: +or Base +Date Fair +Estimated Future Payouts Under +Number of +Price of +Vaule of +Non-Equity Incentive Plan Awards +Securities +Option +Option +(1) +Underlying +Awards +Awards +Name +Threshold +Target +Maximum +Grant Date +Options (#) +($/Share) +(2) +Abbas Mohaddes +Chief Executive Office, President, +Assistant Secretary and Director +— +$ +175,000 +$ +245,000 +05/27/09 +100,000 +$ +1.41 +$ +99,597 +James S. Miele +Vice President, Chief Financial Officer +and Secretary +— +80,000 +104,000 +05/27/09 +25,000 +1.41 +24,899 +Alan Clelland +Senior Vice President +— +100,000 +140,000 +05/27/09 +25,000 +1.41 +24,899 +Gregory McKhann +Senior Vice President +— +115,000 +161,000 +05/27/09 +25,000 +1.41 +24,899 +Todd Kreter +Senior Vice President +— +80,000 +108,000 +05/27/09 +25,000 +1.41 +24,899 +(1) +Consists of amounts that were potentially payable as cash bonuses +based on the attainment of certain criteria pre-established by the +Compensation Committee. These awards are discussed in further detail under +“Compensation Discussion and Analysis” above. The “Target” amounts represent +the maximum amounts that could have been awarded to the executives if the +pre-established criteria had been attained. The “Maximum” amounts consist of +the “Target” amounts plus the maximum overachievement bonuses that could have +been awarded to the executives. +(2) +The dollar amounts shown represent the estimated grant date fair +value of stock options granted during the applicable fiscal year determined +pursuant to the Black-Scholes-Merton option pricing formula, in accordance +with FASB Accounting Standards Codification Topic 718. For a discussion of +valuation assumptions used in the calculations, see Note 8 to our consolidated +financial statements in our Annual Report for Fiscal 2010. See also our +discussion of stock-based compensation under “Management’s Discussion and +Analysis of Financial Condition and Results of Operations—Critical Accounting +Policies and Estimates” in the Annual Report. +19 +Outstanding Equity Awards at Fiscal Year-End +The following table presents the outstanding equity awards held by each +of the named executive officers as of March 31, 2010. Each option vests at the rate of 25% on each +of the first four anniversaries of the grant date. No equity awards were held as of such date by +Francis Memole, the former Senior Vice President and General Manager of our +Vehicle Sensors segment. +Option Awards +Number of +Number of +Equity Incentive Plan +Securities +Securities +Awards: Number of +Underlying +Underlying +Securities Underlying +Option +Unexercised +Unexercised +Unexercised +Exercise +Option +Options (#) +Options (#) +Unearned Options +Price +Expiration +Name +Exercisable +Unexercisable +(#) +($) +Date +Abbas Mohaddes +210,000 +— +— +$ +1.19 +09/26/11 +Chief Executive Officer, President, Assistant Secretary and Director +44,000 +— +— +1.40 +04/30/12 +22,500 +7,500 +— +2.21 +06/14/16 +75,000 +25,000 +— +2.55 +03/13/17 +100,000 +100,000 +— +2.34 +10/01/17 +— +100,000 +— +1.41 +05/26/19 +James S. Miele +40,000 +— +— +1.19 +09/26/11 +Vice President, Chief Financial Officer and Secretary +12,000 +— +— +1.40 +04/30/12 +20,000 +— +— +3.26 +09/01/15 +11,250 +3,750 +— +2.21 +06/14/16 +— +25,000 +— +1.41 +05/26/19 +Alan Clelland +12,500 +12,500 +— +2.46 +02/20/18 +Senior Vice President +— +25,000 +— +1.41 +05/26/19 +Gregory McKhann +96,000 +— +— +1.19 +09/26/11 +Senior Vice President +34,000 +— +— +1.40 +04/30/12 +22,500 +7,500 +— +2.21 +06/14/16 +— +25,000 +— +1.41 +05/26/19 +Todd Kreter +12,500 +12,500 +— +2.46 +02/20/18 +Senior Vice President +— +25,000 +— +1.41 +05/26/19 +20 +Option +Exercises and Stock Vested +The following table includes certain information with respect to the +options exercised by the named executive officers during Fiscal 2010. +Option Awards +Name and Principal Position +Number of Shares +Acquired on +Exercise (#) +Value Realized on +Exercise (1) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +— +$ +— +James S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +Alan Clelland +Senior Vice President +— +— +Gregory McKhann +Senior Vice President +— +— +Todd Kreter +Senior Vice President +— +— +Francis Memole (2) +Former Senior Vice President and General Manager +68,000 +11,878 +(1) Based on the amount by which the market price of a +share of our common stock on the dates of exercise exceeded the applicable +exercise price per share of the option. +(2) Mr. Memole served as our Senior Vice President +and General Manager of our Vehicle Sensors segment until May 2009. +Pension Benefits +We do not have any qualified or non-qualified defined benefit plans. +Non-Qualified Deferred Compensation +The Iteris, Inc. Deferred Compensation Savings Plan (the “Deferred +Compensation Plan”) was a non-qualified voluntary deferral plan that permitted +eligible executives to defer a portion of their compensation in exchange for +phantom stock units representing the value of our common stock. The plan was terminated by our Board of +Directors in December 2008 and no additional deferrals of compensation +were made under the plan after such date. +No employer contributions have been permitted since the plan’s +inception. Any distribution of a +participant’s account balance will be made in the form of our common stock. +At March 31, 2009, the Deferred Compensation Plan held 23,844 +shares of our common stock held by current executives. In December 2009, +we distributed these remaining shares to their respective owners, which +effectively terminated the trust in which these remaining shares were held. +21 +The following table sets forth information with respect to the accounts +of the named executive officers under the Deferred Compensation Plan during +Fiscal 2010. +Name +Executive +Contributions +in Last Fiscal +Year($) +Registrant +Contributions +in Last Fiscal +Year ($) +Aggregate +Earnings +(Loss) in +Last Fiscal +Year ($) +Aggregate +Withdrawals/ +Distributions ($) +Aggregate +Balance at +Last Fiscal +Year End ($) +Abbas Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +$ +— +$ +— +$ +— +$ +12,098 +$ +— +James S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +— +— +— +Alan Clelland +Senior Vice President +— +— +— +— +— +Gregory McKhann +Senior Vice President +— +— +— +21,999 +— +Todd Kreter +Senior Vice President +— +— +— +— +— +Francis Memole (1) +Former Senior Vice President and General Manager +— +— +— +— +— +(1) Mr. Memole served as a Senior +Vice President and General Manager of our Vehicle Sensors segment until May 2009. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries receive +an annual fee of $12,000 per year, paid quarterly, in addition to $1,500 for +each Board meeting attended in person and $250 for each telephone conference +Board meeting. All directors are +reimbursed for their out-of-pocket expenses incurred in attending meetings of +our Board of Directors and its committees. +Non-employee directors are also eligible to receive periodic option +grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 +Plan. Under the 2007 Plan, each +non-employee director receives an option to purchase 20,000 shares of common +stock upon his initial appointment to the Board of Directors and an additional +option to purchase 5,000 shares of common stock on the date of each annual +meeting after his appointment, provided he has served on the Board for at least +six months. Each option granted to +non-employee directors under the Directors’ Automatic Option Grant Program will +have an exercise price equal to the fair market value of the common stock on +the grant date and a maximum term of ten years, subject to earlier termination +following the optionee’s cessation of service as a Board member. +The following table sets forth a summary of the compensation earned in +Fiscal 2010 by each person who served as a director during such year, who is +not a named executive officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +All Other +Compensation ($) +Total ($) +Richard Char +$ +21,750 +$ +6,002 +$ +— +$ +27,752 +Kevin C. Daly, Ph.D. +20,000 +6,002 +— +26,002 +Gregory A. Miner +20,000 +6,002 +— +26,002 +John W. Seazholtz +21,250 +6,002 +— +27,252 +Joel Slutzky +19,500 +6,002 +— +25,502 +Thomas L. Thomas +20,750 +6,002 +— +26,752 +(1) Represents +amounts earned by the directors based on the compensation arrangement described +above. +(2) The dollar +amounts shown represent the estimated grant date fair value of stock options +granted in Fiscal 2010 determined pursuant to the Black-Scholes-Merton option +pricing formula, in accordance with FASB Accounting Standards Codification +Topic 718. For a discussion of valuation assumptions used in the calculations, +see Note 8 to our consolidated financial statements in our Annual Report for +Fiscal 2010. See also our discussion of stock-based compensation under +“Management’s Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +22 +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can +indemnify our directors and officers against liabilities they may incur in such +capacities, including liabilities under the Securities Act of 1933, as amended +(the “Securities Act”). Our certificate +of incorporation and bylaws provide that we will indemnify our directors and +officers to the fullest extent permitted by law, and our bylaws require us to +advance litigation expenses upon receipt of an undertaking by the director or +officer to repay such advances if it is ultimately determined that the director +or officer is not entitled to indemnification. +The bylaws further provide that rights conferred under such bylaws do +not exclude any other right such persons may have or acquire under any bylaw, +agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware +law, our directors shall not be liable for monetary damages for breach of the +directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of +incorporation does not eliminate the duty of care, and in appropriate +circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to +be subject to liability for breach of the director’s duty of loyalty to us or +our stockholders, for acts or omissions not in good faith or involving +intentional misconduct or knowing violations of law, for actions leading to +improper personal benefit to the director, and for payment of dividends or +approval of stock repurchases or redemptions that are unlawful under Delaware +law. The provision also does not affect +a director’s responsibilities under any other law, such as the federal +securities laws or state or federal environmental laws. +We have entered into agreements to indemnify our directors and certain +of our officers in addition to the indemnification provided for in the +certificate of incorporation and bylaws. +These agreements, among other things, indemnify our directors and +certain of our officers for certain expenses (including attorneys’ fees), +judgments, fines and settlement amounts incurred by such person in any action +or proceeding, including any action by or in the right of the Company, on +account of services as a director or officer of Iteris, or as a director or +officer of any other company or enterprise to which the person provides +services at our request. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of our Board of Directors +during the fiscal year ended March 31, 2010 were Messrs. Daly, +Seazholtz and Thomas. None of the +members of our Compensation Committee at any time has been one of our officers +or employees or an officer or employee of one of our subsidiaries at any time +during the fiscal year ended March 31, 2010. None of our executive officers currently +serves, or in the year ended March 31, 2010 has served, as a member of the +board of directors or compensation committee of any entity that has one or more +executive officers on our Board of Directors or Compensation Committee. +23 +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed with the management of Iteris the +Compensation Discussion and Analysis to be included in the proxy statement on +Schedule 14A for the 2010 Annual Meeting of Stockholders. Based on the reviews and discussions referred +to above, we recommended to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in such proxy statement +and incorporated by reference into the Company’s Annual Report on Form 10-K +for the year ended March 31, 2010. +Submitted by the Compensation Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +John W. Seazholtz +Thomas L. Thomas +EQUITY COMPENSATION PLANS +The +following table provides information as of March 31, 2010 with respect to +shares of our common stock that may be issued under existing equity +compensation plans. The table does not +include information with respect to shares of our common stock subject to +outstanding options granted under equity compensation plans or option +agreements that were assumed in connection with the merger of the Iteris +Subsidiary into us in October 2004. +However, Note 1 to the table sets forth the total number of shares of +common stock issuable upon the exercise of those assumed options as of March 31, +2010 and the weighted average exercise price of those options. Except for the adjustments described in Note +1 with respect to the outstanding assumed options, no additional options may be +granted under those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation +Plans (excluding some +securities reflected in first +column) +Equity Compensation Plans +Approved by Security Holders +1997 Stock Incentive Plan +1,145,750 +$ +2.25 +— +2007 Omnibus Incentive Plan +768,000 +1.89 +882,000 +Equity Compensation Plans Not +Approved by Security Holders +None +Total(1) +1,913,750 +$ +2.10 +882,000 +(1) The table does +not include information with respect to the equity compensation plan or option +agreements that were assumed by us in connection with the merger of the Iteris +Subsidiary into us in October 2004. +As of March 31, 2010, a total of 1,304,000 shares of common stock +were issuable upon exercise of outstanding options under the assumed plan and +agreements. No additional options may be +granted under the assumed plan. The +weighted average exercise price of all such assumed options to acquire shares +of our common stock was $1.28 per share. +24 +PRINCIPAL STOCKHOLDERS AND COMMON +STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth, as of June 30, 2010, the number +and percentage ownership of our common stock by (i) all persons known to +us to beneficially own more than 5% of the outstanding common stock, +(ii) each of the named executive officers in the Summary Compensation +Table which appears elsewhere herein, other than Francis Memole who was not +serving as an officer as of June 30, 2010, (iii) each of our +directors, and (iv) all of our executive officers and directors as a +group. To our knowledge, except as +otherwise indicated, each of the persons named in this table has sole voting +and investment power with respect to the common stock shown as beneficially owned, +subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin W. Marxe and David M. Greenhouse(4) +4,339,707 +12.6 +% +Lloyd I. Miller, III(5) +3,873,146 +11.3 +Bryant R. Riley(6) +2,787,686 +8.1 +Abbas Mohaddes(7) +1,318,358 +3.8 +Alan Clelland(8) +24,431 +* +Greg McKhann(9) +274,332 +* +James S. Miele(10) +104,295 +* +Todd Kreter(11) +19,058 +* +Richard Char(12) +40,000 +* +Kevin C. Daly, Ph.D(13) +395,132 +1.1 +Gregory A. Miner(14) +962,485 +2.8 +John W. Seazholtz(15) +128,547 +* +Joel Slutzky(16) +2,076,185 +6.0 +Thomas L. Thomas(17) +94,000 +* +All executive officers and directors as a group +(11 persons)(18) +5,436,823 +15.1 +% +* Less than 1%. +(1) The address for +Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New +York, NY 10022. The address for Mr. Riley +is 11100 Santa Monica Blvd., Suite 810, Los Angeles, CA 90025. The address for Mr. Miller is 4550 +Gordon Drive, Naples, FL 34102. The +address of all other persons named in the table is 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705. +(2) Based on +34,331,756 shares of common stock outstanding as of June 30, 2010. Shares of common stock subject to options or +warrants which are exercisable within 60 days of June 30, 2010 are deemed +to be beneficially owned by the person holding such options or warrants for the +purpose of computing the percentage of ownership of such person but are not +treated as outstanding for the purpose of computing the percentage of any other +person. Other than as described in the +preceding sentence, shares issuable upon exercise of outstanding options and +warrants are not deemed to be outstanding for purposes of this calculation. +(3) In addition to +the shares held in the individual’s name, this column also includes shares held +for the benefit of the named person under our 401(k) and Stock Ownership +Plan. +(4) Pursuant to an +amendment to a Schedule 13G filed on February 12, 2010 with the SEC, +Messrs. Marxe and Greenhouse reported that, as of December 31, 2009, +they had shared voting power and shared dispositive power over 4,104,703 shares +of common stock and 235,004 shares issuable upon exercise of warrants held by +Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P., +Special Situations Fund III QP, L.P. and Special Situations Private Equity +Fund, L.P. (collectively, the “Special Situations Funds”). Messrs. Marxe and Greenhouse are the +controlling principals of AWM Investment Company, Inc. (“AWM”), the +general partner of and investment adviser to Special Situations Cayman Fund, +L.P. AWM is the general partner of MGP +Advisers Limited Partnership, the general partner of and investment adviser to +Special Situations Fund III, L.P. and the general partner of Special Situations +Fund III QP, L.P. In addition, +Messrs. Marxe and Greenhouse are members of MG Advisers L.L.C., the +general partner of Special Situations Private Equity Fund, L.P. AWM serves as the investment adviser to +Special Situations Fund III QP, L.P. and Special Situations Private Equity +Fund, L.P. +25 +(5) Pursuant to an +amendment to a Schedule 13G filed on February 9, 2010 with the SEC, Mr. Miller +reported that, as of February 3, 2010, he had shared dispositive and +voting power with respect to 2,317,096 shares as (i) an investment advisor +to the trustee of certain family trusts and (ii) an authorized person with +respect to a custody account. Mr. Miller +also had sole dispositive and voting power with respect to 1,556,050 of the +reported securities as (i) a manager of a limited liability company that +is the general partner of a certain limited partnership, (ii) the trustee +to certain grantor retained annuity trusts, and (iii) an individual. +(6) Pursuant to an +amendment to a Schedule 13G filed on February 12, 2010 with the SEC, Mr. Riley +reported that, as of December 31, 2009, (i) 99,032 shares were owned +by the B. Riley & Co. Retirement Trust, of which Mr. Riley serves +as trustee, (ii) 149,900 shares were owned by the custodial accounts of Mr. Riley’s +children, over which he controls the voting and investment decisions in his +role as custodian for the children’s accounts, and (iii) 2,538,754 shares +were held in the accounts of the investment advisory clients of Riley +Investment Management LLC (“RIM”), of which RIM has sole investment and voting +power over 1,099,185 shares and shared voting and dispositive power over +1,439,569 shares. Because RIM has sole +voting and investment power over the 1,099,185 shares held in the managed +accounts of its investment advisory clients and Mr. Riley, in his role as +the sole manager of RIM, controls its voting and investment decisions, each of +RIM and Mr. Riley may be deemed to have beneficial ownership of such +shares. Each of RIM and Mr. Riley +disclaims beneficial ownership of the 1,439,569 shares held by RIM’s investment +advisory clients over which RIM has shared voting and dispositive power. Mr. Riley also disclaims beneficial +ownership of the 149,900 shares held in his children’s accounts. +(7) Includes +(i) 484,000 shares issuable upon exercise of options that are currently +exercisable or will become exercisable within 60 days after June 30, 2010 +and (iv) 11,540 shares held by Mr. Mohaddes’ IRA. +(8) Includes 18,750 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(9) Includes +166,250 shares issuable upon exercise of options that are currently exercisable +or will become exercisable within 60 days after June 30, 2010. +(10) Includes 93,250 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(11) Includes 18,750 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(12) Consists of +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(13) Includes +(i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares +held by Dr. Daly’s IRA, and (iii) 50,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after June 30, 2010. +(14) Includes +(i) 183,334 shares held by Mr. Miner’s IRA, (ii) 19,230 shares +held by Mr. Miner’s wife’s IRA and (iii) 535,000 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after June 30, 2010. +(15) Includes 65,000 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(16) Includes +(i) 1,580,922 shares held by The J&J Slutzky Trust, of which Mr. Slutzky +is the co-trustee, (ii) 144,616 shares held by Mr. Slutzsky’s IRA and +(ii) 215,000 shares issuable upon exercise of options that are currently +exercisable or will become exercisable within 60 days after June 30, +2010. Excludes shares of common stock +held in the Joel Slutzky Family Trust for the benefit of the children and +relatives of Mr. Slutzky; Mr. Slutzky has no investment or voting +power with respect to the shares in such trust and disclaims any beneficial +ownership. +(17) Includes 65,000 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 30, 2010. +(18) Includes +1,751,000 shares issuable upon exercise of options that are currently +exercisable or will become exercisable within 60 days after June 30, +2010. Does not include shares, if any, held by Francis +Memole, who served as a Senior Vice President and our General Manager of the +Vehicle Sensors segment until May 2009. +26 +CERTAIN TRANSACTIONS +Since April 1, 2008, other than the agreements and transactions +described in “Executive Compensation and Other Information” and the +transactions described below, there has not been, nor is there any proposed transaction, +where we (or any of our subsidiaries) were or will be a party in which the +amount involved exceeded or will exceed the lesser of $120,000 or the average +of the Company’s total assets at year end for the last two fiscal years and in which any director, director nominee, executive +officer, holder of more than 5% of any class of our voting securities, or any +member of the immediate family of any of the foregoing persons had or will have +a direct or indirect material interest. +We previously subleased office space to MAXxess Systems, Inc. (“MAXxess”), +one of our former subsidiaries that we sold in September 2003 and is +currently owned by an investor group that includes two of our directors, one of +whom is the Chief Executive Officer of MAXxess. +The sublease terminated in September 2007, at which time MAXxess +owed us an aggregate of $274,000 related to this sublease and certain related +ancillary services that we provided to MAXxess. +We have previously fully reserved for amounts owed to us by MAXxess +under the terms of this sublease. In +August 2009, MAXxess executed a promissory note payable to Iteris for +$274,000. The promissory note bears +interest at a rate of 6% per annum, compounded annually, with accrued interest +to be paid annually on the first business day of each calendar year. Payments under the note may be made in bona +fide services rendered by MAXxess to Iteris to the extent such services and +amounts are pre-approved in writing by us. +All amounts outstanding under the note will become due and payable on +the earliest of (i) August 10, 2014, (ii) a change of control in +MAXxess, or (iii) a financing by MAXxess resulting in gross proceeds of at +least $10 million. As of March 31, +2010, the entire $274,000 principal balance was outstanding and payable to +Iteris and remains fully reserved. +SECTION 16(A) BENEFICIAL +OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any +persons holding more than 10% of our common stock are required to report their +ownership of our common stock and any changes in that ownership to the +SEC. Specific due dates for these +reports have been established, and we are required to report any failure to +file by such dates. Based solely on our +review of copies of the reports on Forms 3, 4 and 5 received by us with respect +to the fiscal year ended March 31, 2010 and the written representations +received from the reporting persons that no other reports were required, except +as indicated in the foregoing sentence or as indicated in our prior proxy +statements, we believe that all directors, executive officers and persons who +own more than 10% of our common stock have complied with the reporting +requirements of Section 16(a) and have filed all reports required by +such section. +ANNUAL REPORT +A copy of our annual report on Form 10-K for the fiscal year ended +March 31, 2010 (excluding the exhibits thereto) accompanies the proxy +materials being mailed to all stockholders. +The annual report is not incorporated into this proxy statement and is +not considered proxy solicitation material. +Stockholders may obtain a copy of the annual report and any of our other +filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., +1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The annual report on Form 10-K +(including the exhibits thereto) is also available on the SEC’s website at www.sec.gov . +27 +DEADLINE FOR RECEIPT OF +STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or +nominate persons for the election of directors only if they comply with the +requirements of the proxy rules established by the SEC and our bylaws. +Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals +may be eligible for inclusion in our proxy statement for the 2011 Annual +Meeting of Stockholders (the “2011 Annual Meeting”). Stockholder proposals that are intended to be +presented at our 2011 Annual Meeting and included in the proxy statement, form +of proxy and other proxy solicitation materials related to that meeting must be +received by us not later than April 7, 2011. +If a stockholder wishes to submit a proposal which is not intended to +be included in our proxy statement under Rule 14a-8 of the Exchange Act, +or wishes to nominate a person as a candidate for election to the Board, the +stockholder must submit the proposal or nomination on or between May 20, +2011 and June 19, 2011. If the date +of the 2011 Annual Meeting is called for a date that is not within 30 days +before or after the anniversary date of the 2010 Annual Meeting of Stockholders +(a situation that we do not anticipate), then the stockholder must submit any +such proposal or nomination not later than the close of business of the 10th +day following the earlier of (i) the day on which the notice of the +meeting was mailed or (ii) public disclosure of the date of such meeting +is first made. Stockholders are advised +to review our bylaws which contain these advance notice requirements with +respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents +at the 2011 Annual Meeting that is not submitted for inclusion in our proxy +materials pursuant to Rule 14a-8 under the Exchange Act, the proxy +solicited by the Board of Directors for such annual meeting will confer +discretionary voting authority to vote on such stockholder proposal to the +extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our +corporate Secretary, at our principal executive offices at 1700 Carnegie +Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders +submitting proposals direct them to our corporate Secretary and utilize +certified mail, return receipt requested in order to provide proof of timely +receipt. The presiding officer of the Annual Meeting reserves the right to +reject, rule out of order, or take other appropriate action with respect +to any proposal that does not comply with these and other applicable +requirements, including conditions set forth in our bylaws and conditions +established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be +presented for action at the Annual Meeting other than the matters set forth in +this proxy statement. If any other +matter requiring a vote of the stockholders arise, it is intended that the +proxy holders will vote the shares they represent as the Board of Directors may +recommend. Discretionary authority with +respect to such other matters is granted by the execution of the enclosed proxy +card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa Ana, California +July 29, 2010 +28 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF +OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints ABBAS +MOHADDES and JAMES S. MIELE, and each of them, proxies of the undersigned, each +with full power to act without the other and with power of substitution, to +represent the undersigned at the Annual Meeting of Stockholders of Iteris to be +held at the Company’s principal executive offices located at 1700 Carnegie +Avenue, Suite 100, Santa Ana, CA 92705, on September 17, 2010 at +10:00 a.m. Pacific Time, and at any adjournments or postponements thereof, +and to vote all shares of common stock of Iteris held of record by the +undersigned on July 21, 2010, with all the powers the undersigned would possess +if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual +Meeting of Stockholders and hereby ratifies and confirms all that said proxies, +and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH +THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE +VOTED FOR ALL PROPOSALS DESCRIBED BELOW, AND IN ACCORDANCE WITH THE DISCRETION +OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A +VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +x Please mark +votes as in this example. +1. +Election of Directors: To elect Richard Char, Kevin C. Daly, Ph.D., +Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky, and Thomas +L. Thomas to the Board of Directors, each to hold such office until the next +annual meeting of stockholders or until his successor is elected and +qualified. +o FOR o WITHHOLD +AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for +any individual nominee, write that nominee’s name in the space provided +above.) +2. +Ratification of McGladrey & Pullen, LLP as the independent +registered public accounting firm of Iteris for the fiscal year ending +March 31, 2011. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., +should give full title as such. If the +stockholder is a corporation, a duly authorized officer should sign on behalf +of the corporation and should indicate his or her title.) +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-10-040524/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-10-040524/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-11-041892/proxy.txt b/raw/proxies/0000350868/0001104659-11-041892/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7f6257558a7b653d263edefc09ca5c511cf341d2 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-11-041892/proxy.txt @@ -0,0 +1,895 @@ +DEF 14A +1 +a11-20611_1def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 16, 2011 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 16, 2011 at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in the proxy statement accompanying this Notice: +1. To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +2. To ratify the appointment of McGladrey & Pullen, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012. +3. To transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All stockholders of record as of the close of business on July 20, 2011 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or adjournment(s) thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Abbas Mohaddes +Chief Executive Officer and President +Santa Ana, California +July 29, 2011 +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2011 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 16, 2011 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), to be voted at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on September 16, 2011 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. These proxy materials and the form of proxy are expected to be mailed to our stockholders who are entitled to vote at the Annual Meeting on or about August 4, 2011. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON SEPTEMBER 16, 2011: The proxy statement, proxy card, and Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (the “Annual Report”) are available at www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 20, 2011. At the close of business on the record date, 34,379,076 shares of our common stock, par value $0.10 per share, were outstanding and no shares of our preferred stock were outstanding. Each stockholder is entitled to one vote for each share of common stock held by such stockholder as of the record date. +The presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in effect. Pursuant to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +1 +With regard to Proposal Two, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual Meeting is being sought. +All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. Broker non-votes occur when brokers who hold stock in “street name” return proxy cards stating that they do not have authority to vote the stock which they hold on behalf of beneficial owners. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a proposal has been approved. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically over the Internet or by telephone, or (iii) by ballot in person at the Annual Meeting. If you are a “registered holder” (i.e., your shares are registered in your own name through our transfer agent), you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive a voting instruction form from that institution by mail. The voting instruction form should indicate whether the institution has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should receive from that institution an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card or voting instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted FOR the election of the directors proposed by our Board of Directors (the “Board”) under Proposal One unless the authority to vote for the election of any director is withheld and, if no contrary instructions are given, the proxy will be voted FOR the approval of each of the other proposals as described in this proxy statement and the accompanying notice. +The enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. We have not been notified by any stockholder of his or her intent to present a stockholder proposal at the Annual Meeting. +If your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +2 +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +Our bylaws provide for a Board of Directors consisting of not less than seven nor more than eleven members. The exact number may be changed, within such limits, by a resolution duly adopted by the Board or by the stockholders. The number of directors constituting the full Board is currently set at eight. One of the current directors will not be standing for re-election at the Annual Meeting, and the size of the Board will be reduced to seven persons as of the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. +On the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors selected and approved the following persons as nominees for election at the Annual Meeting: Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams. Each nominee for election is currently a member of our Board of Directors and has agreed to serve if elected. We have no reason to believe that any of the nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +Stockholder Approval +The seven candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing for election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” the seven director nominees listed above. +Directors and Nominees +The table and narrative below set forth information as of July 1, 2011 regarding each director and director nominee, including the year they first became directors, business experience during at least the past five years, public company boards they currently serve on or have served on during the past five years, and certain other biographical information and attributes that the Nominating and Corporate Governance Committee determined qualify them to serve as directors. The Nominating and Corporate Governance Committee believes that the directors and director nominees have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the ability to engage management and each other in a constructive and collaborative fashion; diversity of experience and thought; and the commitment to devote significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +Richard Char(1) +52 +Director +Kevin C. Daly, Ph.D.(2)(3) +66 +Director and Assistant Secretary +Gregory A. Miner(1) +56 +Chairman of the Board +Abbas Mohaddes +54 +Chief Executive Officer, President, Assistant Secretary and Director +John W. Seazholtz*(1)(2)(3) +74 +Director +Joel Slutzky(3) +72 +Director and Assistant Secretary +Thomas L. Thomas(1)(2)(3) +62 +Director +Mikel Williams +54 +Director +* Not a director nominee for the Annual Meeting +(1) Member of the Audit Committee +(2) Member of the Compensation Committee +(3) Member of the Nominating and Corporate Governance Committee +4 +Richard Char has served as Senior Managing Director at Regent Pacific Management Corporation, a turnaround, restructuring, and performance improvement firm, since September 2010. From October 2008 to March 2010, Mr. Char served as CEO of VIPGift LLC, a provider of corporate and consumer loyalty and incentive programs. From June 2006 to July 2008, Mr. Char was the Senior Vice President of Corporate Development and General Counsel of Blackhawk Networks, Inc., an affiliate of Safeway which markets pre-paid gift cards through leading U.S. retailers. Mr. Char’s prior business experience includes serving as the President and Chief Executive Officer of IC Media, a developer of CMOS digital image sensors, as the Managing Director with the Technology Group of Credit Suisse First Boston, as Co-Head of Technology Investment Banking at Cowen & Company, and as a partner in the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Char currently serves on the board of directors of Netlist, Inc. and serves as the chairman of its audit committee and a member of its compensation committee. He received his A.B. degree from Harvard College and his J.D. degree from Stanford Law School. Mr. Char has served as a director since October 2005, and brings to the Board of Directors executive leadership experience, as well as significant corporate finance, legal and corporate development experience with the financial acumen requisite to serve as a financial expert on our Audit Committee. +Kevin C. Daly, Ph.D. has served as the CEO of MAXxess Systems, Inc., a former subsidiary of Iteris and a provider of electronic security systems, since November 2005. Between August 2007 and August 2009, Dr. Daly also served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. and ATL Products, Inc. Dr. Daly currently serves on the board of directors of STEC, Inc., a provider of solid state disk systems, and from 2002 to 2008, he served as a director of Danka Business Systems, PLC. Dr. Daly received a B.S. degree in electrical engineering from the University of Notre Dame and M.S., M.A. and Ph.D degrees in engineering from Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a director of both private and public companies, Dr. Daly offers to the Board a wealth of management and leadership experience as well as an understanding of issues faced by such companies. +Gregory A. Miner has served as a Managing Partner of Merchant Capital Source, LLC, a company that provides working capital financing solutions to merchants, since 2004. Prior to that, Mr. Miner served in a number of management positions with us and our subsidiaries, most recently as our Chief Executive Officer. Mr. Miner is a Certified Public Accountant and his business experience includes work at Deloitte Haskins and Sells (now known as Deloitte & Touche LLP). Mr. Miner has served as a director since 1998 and as our Chairman of the Board of Directors since 2004. Through his service in a variety of executive positions with us and our subsidiaries, Mr. Miner has a deep and broad understanding of our business as well as the leadership skills and the operational understanding to provide sound guidance in continuing to grow our business. +Abbas Mohaddes has served as our Chief Executive Officer and President since March 2007, as an Assistant Secretary since May 2004 and as a director since September 2005. Prior to his promotion in March 2007, Mr. Mohaddes served as our Executive Vice President from October 2004. He also served in a number of executive positions with our Iteris, Inc. subsidiary (“Iteris Subsidiary”), through which the majority of our current operations were conducted until we merged that subsidiary into us in October 2004. Mr. Mohaddes was also the President and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), an ITS and transportation firm that he co-founded, which was acquired by the Iteris Subsidiary in 1998. Mr. Mohaddes is the current chairman of the board and a founding member of ITS America and a member of several trade organizations, including Transportation Research Board, Institute of Transportation Engineers, and the Design/Build Institute of America. Mr. Mohaddes provides extensive technology, industry, and management experience to the Board, as well as a substantial understanding of the Company and its operations resulting from his service as an officer of our Iteris Subsidiary and as the founder of MMA. +John W. Seazholtz currently serves as the Chairman of the Board of Westell Technologies, Inc. He retired in 1998 from Bell Atlantic after serving in a number of executive positions, but served as the President and Chief Executive Officer of Telesoft America, Inc. from 1998 to 2000. Mr. Seazholtz has served as a director of Iteris since 1998, and has provided the Board with executive leadership experience and strong sales and marketing expertise in the technology industry, combined with extensive public company experience. +5 +Joel Slutzky is a co-founder of the Company and has served as a director since its incorporation and as the Chairman of the Board of Directors until October 2004. Prior to 2004, Mr. Slutzky served in various capacities for us and our subsidiaries, most recently as our Chief Executive Officer and as the Chairman of the Board of the Iteris Subsiary. Mr. Slutzky currently serves on the board of directors of Project Tomorrow, an organization focused on improving Kindergarten through 12th grade science education in Orange County, California and the Butterfly Connection, an organization that promotes creativity and critical thinking skills in K-12 education. As the co-founder of the Company with over 40 years of experience with technology companies, Mr. Slutzky is uniquely qualified to provide insights into and guidance on the industry and growth and development of the Company. +Thomas L. Thomas has served as the Executive Chairman of International Decision Systems, a provider of software and solutions for the equipment finance market, since September of 2009. He also owns a management consulting business, T2 Partners. From 2004 until his retirement in July 2008, Mr. Thomas was as the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and served in various senior and executive positions at 3Com Corporation, Dell Computer Corporation, Kraft General Foods and Sara Lee Corporation. Mr. Thomas currently serves on the board of directors, and as the chairman of the compensation committee, of infoGroup, Inc. He also serves on the board of directors and the compensation committee and the audit committee of Front Range Solutions, a developer of service management and IT asset management software for mid-sized and distributed enterprises. Mr. Thomas has served as a director of Iteris since 1999 and offers to the Board of Directors valuable business, leadership and strategic insights obtained through his service in a variety of industries, including a number of technology companies, and his experience in working with companies through several stages of their development. +Mikel Williams has served as the President and Chief Executive Officer of DDi Corporation, a leading provider of time-critical, technologically advanced electronics manufacturing services, since November 2005 and as a Senior Vice President and Chief Financial Officer of DDi prior to the promotion. Prior to that, Mr. Williams served in various management positions with several technology related companies, including as the President and sole member of Constellation Management Group, LLC, where he provided strategic, operational, and financial consulting services to companies in the telecommunications, software, and other technology-related industries., and various executive positions with Global TeleSystems, Inc. and its subsidiaries, a leading telecommunications company providing data and internet services in Europe. Mr. Williams began his career as a certified public accountant in the State of Maryland, working as an auditor for Price Waterhouse. Mr. Williams has served as a director since April 2011 and provides the Board of Directors with operational and public company experience and valuable strategic insights through his many years of leadership positions in technology-related companies with international operations. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +6 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and Business Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business Conduct, and any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission (“SEC”), at the same location on our website. +Director Independen c e +Our policy is to have at least a majority of the directors qualify as “independent” under the listing standards of NYSE Amex. The Board of Directors has determined that Messrs. Char, Daly, Miner, Seazholtz, Slutzky, Thomas and Williams each satisfy the requirements for “independence” under such listing standards. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee each has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During the fiscal year ended March 31, 2011 (“Fiscal 2011”), the Board of Directors and the various committees of the Board held the following number of meetings: Board of Directors—five; Audit Committee—five; Compensation Committee—two; and Nominating and Corporate Governance Committee—two. During Fiscal 2011, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any committees of the Board held while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee are Messrs. Char, Miner, Seazholtz, and Thomas. The Board has determined that each member of the Audit Committee is “independent” under the current listing standards of NYSE Amex and the SEC rules regarding audit committee memberships. The Board has identified Mr. Char as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. +The Audit Committee meets privately with our independent registered public accounting firm, and such firm has unrestricted access to and reports directly to the Audit Committee. The Audit Committee has selected McGladrey & Pullen, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +7 +Compensation Committee. The current members of our Compensation Committee are Messrs. Daly, Seazholtz, and Thomas. The Board has determined that each member of the Compensation Committee is “independent” under the listing standards of NYSE Amex. +The Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our “officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (c) reviews and makes recommendations to the Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our executive officers; and (e) assists the Board in evaluating potential candidates for executive officer positions and oversees management succession planning. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to the executive’s individual contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the executives, including himself, and recommendations with respect to all executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management engaged a compensation consultant to provide advice or recommendations on the amount or form of executive and director compensation during Fiscal 2011. +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are Messrs. Daly, Seazholtz, Slutzky, and Thomas. The Board has determined that each member of the Nominating and Corporate Governance Committee is “independent” under the listing standards of NYSE Amex. +The primary purposes of the Nominating and Corporate Governance Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or recommend to the Board of Directors the selection of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring the effectiveness of our corporate governance policies and developing and recommending to the Board modifications and or additions to such policies; and (e) review on a regular basis our overall corporate governance and recommend improvements when necessary. +In connection with their recommendations regarding the size and composition of the Board, the Nominating and Corporate Governance Committee reviews the appropriate qualities and skills required of directors in the context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate’s independence, personal and professional integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company’s and our stockholders’ long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and others as considered useful by the Nominating and Corporate Governance Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Nominating and Corporate Governance Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective directors. The Nominating and Corporate Governance Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been suggested by other members of the Board or by our executive officers. From time to time, the Nominating and Corporate Governance Committee may engage the services of a third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the Chair, Nominating and Corporate Governance Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, +8 +specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) a resume of the candidate’s business experience and educational background as well as all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the Nominating and Corporate Governance Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The Nominating and Corporate Governance Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the Nominating and Corporate Governance Committee by any stockholder in connection with the election of directors at the Annual Meeting. Each of the director nominees standing for election at this Annual Meeting is a current director. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by the Compensation Committee and legal and regulatory compliance risks are reviewed by the Nominating and Corporate Governance Committee. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can write to the corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. Four of our current directors attended our 2010 annual meeting of stockholders. +9 +PROPOSAL TWO: +RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of McGladrey & Pullen, LLP was engaged to serve as our independent registered public accounting firm for the fiscal year ended March 31, 2011. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2012. We are asking our stockholders to ratify the selection by the Audit Committee of McGladrey & Pullen, LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending March 31, 2012 and to perform other appropriate services. Stockholder ratification of the selection of McGladrey & Pullen, LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of us and our stockholders. +A representative of McGladrey & Pullen, LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting will be required for ratification of the selection of McGladrey & Pullen, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of McGladrey & Pullen, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012. +10 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed by McGladrey & Pullen, LLP for the indicated services for the fiscal years ended March 31, 2010 and 2011: +Fiscal Year Ended March 31, +2010 +2011 +Audit Fees +$ +320,000 +$ +320,000 +Audit-Related Fees +46,000 +41,000 +Tax Fees +¾ +75,000 +All Other Fees +¾ +¾ +Total Fees +$ +366,000 +$ +436,000 +Audit Fees. Audit fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements and review of the consolidated financial statements included in our quarterly reports on Forms 10-Q and other regulatory filings. +Audit-Related Fees. Audit-related fees consist of fees for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees for registration statements, fees for internal control reviews and assistance with meeting the requirements of Section 404 of the Sarbanes-Oxley Act and certain consultations concerning financial accounting and reporting standards. +Tax Fees. Tax fees consist of fees for tax compliance services, which include the preparation of federal, state and international tax returns, and for tax consultations, including tax planning and federal, state and international tax advice. There were no tax fees billed to us by McGladrey & Pullen, LLP during the fiscal year ended March 31, 2010. +All Other Fees. There were no other fees billed to us by McGladrey & Pullen, LLP during the fiscal years ended March 31, 2010 and 2011. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by McGladrey & Pullen, LLP or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by McGladrey & Pullen, LLP for the fiscal year ended March 31, 2011. +11 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2011 of Iteris, Inc. included in its Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company’s management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company’s independent registered public accounting firm, McGladrey & Pullen, LLP, the matters required to be discussed by auditing standards set forth in AU Section 380 established by the Public Company Accounting Oversight Board, which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements. +The Audit Committee has received the written disclosures and the letter from McGladrey & Pullen, LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with McGladrey & Pullen, LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Richard Char +Gregory A. Miner +John W. Seazholtz +Thomas L. Thomas +12 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of July 1, 2011, regarding our executive officers. +Name +Age +Capacities in Which Served +Abbas Mohaddes +54 +Chief Executive Officer, President, Assistant Secretary and Director +James S. Miele +43 +Chief Financial Officer, Vice President and Secretary +Todd Kreter +51 +Senior Vice President, Sensors Development and Operations +Gregory McKhann +48 +Senior Vice President, Sensors Sales and Marketing +Alan Clelland +58 +Senior Vice President, Transportation Systems +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Mohaddes appears earlier in this proxy statement. See Proposal One: “Election of Directors.” +James S. Miele has served as our Chief Financial Officer and Vice President of Finance since October 2004 and as the Secretary since March 2004. Mr. Miele previously served as our Controller and the Controller of our Iteris Subsidiary. Mr. Miele’s business experience includes working as an audit manager at Ernst & Young LLP, supervising financial statement audits for a variety of public and privately held companies. Mr. Miele is a Certified Public Accountant in the State of California (inactive) and holds a B.S. degree in Accounting from San Diego State University. +Todd Kreter has served as a Senior Vice President of the Company since May 2009. Mr. Kreter served as our Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds an executive M.B.A. from Stanford/AEA and a B.S. degree in mechanical engineering from California State University, Fullerton. +Gregory McKhann has served as a Senior Vice President of the Company since October 2004. Prior to that, Mr. McKhann served in various executive and management positions at the Iteris Subsidiary and at Rockwell International. Mr. McKhann holds a B.S. degree in computer science from Duke University and an MBA from University of California, Irvine. +Alan Clelland has served as a Senior Vice President of the Company since October 2007, focused on various activities in our Transportation Systems segment. Prior to joining us, Mr. Clelland worked in management positions at several ITS consulting and transportation engineering companies, including as the Marketing Director and then as the Director of Consulting at the Siemens ITS business unit of Siemens Energy & Automation, Inc. from 2000 to September 2007. Mr. Clelland holds a B.Sc. degree in Physics and Electronic Engineering from the University of Leeds in the United Kingdom. +13 +Summary Compensation Table +The following table shows information regarding the compensation earned during the fiscal years ended March 31, 2010 and 2011 by (i) our Chief Executive Officer, (ii) our Chief Financial Officer, and (iii) our three other executive officers. The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Stock +Awards(1) +Option +Awards(2) +Non-Equity +Incentive Plan +Compensation(3) +All Other +Compensation(4) +Total +Abbas Mohaddes +2011 +$ +350,022 +$ +74,000 +$ +— +$ +41,995 +$ +15,942 +$ +481,959 +Chief Executive Officer +2010 +362,120 +— +99,597 +31,500 +10,010 +503,227 +James S. Miele +2011 +199,434 +37,000 +— +25,798 +6,383 +268,615 +Chief Financial Officer +2010 +195,000 +— +24,899 +28,800 +2,363 +251,062 +Todd Kreter +2011 +197,702 +37,000 +— +43,875 +6,579 +285,156 +Senior Vice President +2010 +182,109 +— +24,899 +21,600 +1,413 +230,021 +Gregory McKhann +2011 +199,680 +37,000 +— +53,047 +6,223 +295,950 +Senior Vice President +2010 +221,679 +— +24,899 +18,400 +2,903 +267,881 +Alan Clelland +2011 +189,987 +37,000 +— +14,999 +6,180 +248,166 +Senior Vice President +2010 +187,107 +— +24,899 +16,000 +1,454 +229,460 +(1) The dollar amounts shown represent the grant date fair value of restricted stock units (“RSUs”) granted during the applicable fiscal year calculated in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, based on the closing sales price of the underlying shares of our common stock on the respective grant dates and without any adjustment for estimated forfeitures. Each RSU represents the right to receive one share of our common stock. The RSUs vest in equal annual installments over four years, with the first installment vesting on August 10, 2011. Vested shares are issued as soon as practicable after the applicable vesting date. +(2) The dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 10 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. Options to acquire the following number of shares of our common stock were granted to our named executive officers on May 27, 2009: Mr. Mohaddes — 100,000 shares; each of Messrs. Miele, Kreter, McKhann and Clelland — 25,000 shares. The options have an exercise price of $1.41 per share (the closing sales price of our common stock as of the grant date), vest in equal annual installments over four years, and are not exercisable until vested. +(3) The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain criteria pre-established by the Compensation Committee. These awards are discussed in further detail under “Grants of Plan-Based Awards—Incentive Cash Bonuses” below. +(4) Represents 401(k) plan employer contributions and automobile allowances paid by us. +14 +Grants of Plan-Based Awards +The following table sets forth certain information with respect to (i) bonuses that were potentially payable to our named executive officers under our bonus plan for Fiscal 2011 and (ii) RSUs granted to the NEOs in Fiscal 2011. +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards(1) +Grant +All Other Stock +Awards: +Number of +Shares of Stock +Grant Date +Fair Value of +Stock and +Option +Name +Threshold +Target +Maximum +Date +or Units (#)(2) +Awards (2) +Abbas Mohaddes +Chief Executive Officer +— +$ +175,000 +$ +245,000 +08/12/10 +50,000 +$ +74,000 +James S. Miele +Chief Financial Officer +— +80,000 +108,000 +08/12/10 +25,000 +37,000 +Todd Kreter +Senior Vice President +— +80,000 +108,000 +08/12/10 +25,000 +37,000 +Gregory McKhann +Senior Vice President +— +115,000 +161,000 +08/12/10 +25,000 +37,000 +Alan Clelland +Senior Vice President +— +100,000 +140,000 +08/12/10 +25,000 +37,000 +(1) Consists of amounts that were potentially payable as cash bonuses based on the attainment of certain criteria pre-established by the Compensation Committee. These awards are discussed in further detail below under “Incentive Cash Bonuses.” The “Target” amounts represent the maximum amounts that could have been awarded to the executives if the pre-established criteria had been attained. The “Maximum” amounts consist of the “Target” amounts plus the maximum overachievement bonuses that could have been awarded to the executives. +(2) The dollar amounts shown represent the grant date fair value of RSUs granted to the NEOs, calculated in accordance with FASB ASC Topic 718, based on the closing sales price of the underlying shares of our common stock on the respective grant dates and without any adjustment for estimated forfeitures. Each RSU represents the right to receive one share of our common stock. The RSUs vest in equal annual installments over four years, with the first installment vesting on August 10, 2011. Vested shares are issued as soon as practicable after the applicable vesting date. +Incentive Cash Bonuses +For Fiscal 2011, the potential compensation for named executive officers included an annual cash bonus based upon criteria established by the Compensation Committee at the beginning of the fiscal year. The bonuses were primarily dependent upon corporate and business unit performance. 80% of the potential bonus for the CEO and 70% of the potential bonus for the CFO were based on the total revenue and operating income achieved for the year, and the remaining 20% and 30%, respectively, of the potential bonus were based on the applicable officer’s achievement of individual objectives that were qualitative in nature and were established by the Compensation Committee for our CEO and established by the CEO for our CFO. 70% to 80% of the potential bonus for each of Messrs. Clelland, Kreter and McKhann was based on revenue and operating income achieved by the business unit for which such officer had primary responsibility, as well as the total revenue and operating income achieved by the Company, and the remaining 20% to 30% of the potential bonus was based on the applicable officer’s achievement of individual objectives that were qualitative in nature and were established by the CEO. +For the fiscal year ending March 31, 2012 (“Fiscal 2012”), the bonus plan will cover our CEO, CFO, SVP of Sensors Development and Operations, and SVP of Sensors Sales and Marketing, and will be entirely based on our corporate and business unit performance. The potential bonuses for Messrs. Mohaddes and Miele will be based on the total revenue and operating income achieved by the Company for the year, and the potential bonuses for Messrs. Kreter and McKhann will be based on revenue and operating income achieved by the Roadway and Vehicle Sensors segment, as well as the total revenue and operating income achieved by the Company. +15 +Performance Targets +The corporate and business unit performance targets for the annual cash bonuses for the named executive officers for Fiscal 2011 were as follows: +Performance Component(1) +No Bonuses At or Below +Target +Maximum +(in thousands) +Corporate Revenue +$ +56,550 +$ +67,300 +$ +70,650 +Corporate Operating Income +3,300 +4,700 +5,150 +Transportation Systems Revenue +25,900 +28,800 +30,250 +Transportation Systems Operating Income +1,650 +2,050 +2,350 +Roadway and Vehicle Sensors Revenue +34,650 +38,500 +40,450 +Roadway and Vehicle Sensors Operating Income +2,500 +3,150 +3,600 +(1) The corporate revenue and operating income goals were applicable to each NEO, the Transportation Systems revenue and operating income goals were applicable to Mr. Clelland, and the Sensors revenue and operating income goals were applicable to Messrs. Kreter and McKhann. +If our performance exceeds the revenue and operating income targets set for bonus purposes, the executives can earn an additional bonus of up to 50% of the portion of the target bonus award relating to our operational performance. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the revenue and operating income goals set forth under the “Maximum” column above. If the Company had achieved revenue and operating income which were less than the goals set forth under the “Maximum” column but more than the amounts set forth under the “Target” column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the performance had exceeded the Target goal by 25% (i.e., by 25% of the difference between the Maximum and Target amounts), then 25% of the additional bonus relating to such performance goal would have been payable. +Individual Objectives +The individual objectives for Fiscal 2011 for the Chief Executive Officer and the Chief Financial Officer were primarily focused on such officer’s management of his area of responsibility. The objectives for Mr. Mohaddes generally included strategic development of the Company, achievement of the revenue and operating income plan, and enhancing market value, as well as enhancing the relationship of the Company with the financial community. The objectives for Mr. Miele principally included enhancement of our financial position and financial objectives, including accurate and timely reporting of financial results and managing SEC compliance matters. The individual objectives for the other NEOs primarily consisted of broad, general and qualitative operational and strategic objectives for the business unit for which the NEO is responsible. The objectives for Mr. Kreter, the Company’s Senior Vice President of Sensors Development and Operations, generally included providing product on time according to the delivery schedule, improving products, assisting in M&A opportunities, retaining and attracting personnel, improving efficiency and reducing cost, and aligning the Company’s research and development emphasis appropriately. The objectives for Mr. McKhann, the Company’s Senior Vice President of Sensors Sales and Marketing, generally included focusing on sales and marketing activities for the Sensors unit as well as strategies to boost market penetration, organizing and implementing greater outreach, including by visiting a larger number of customers, hiring appropriate personnel for different markets, preparing and executing launch plans for new products, and working with the other business segments in joint marketing, business development and procurement of contracts. The objectives for Mr. Clelland, the Company’s Senior Vice President of Transportation Systems, generally included attracting the necessary staff to implement the Company’s plan for the business segment, focusing on strategic initiatives and M&A opportunities, improving efficiency and reducing costs as well as improving profitability, expanding the existing offices and opening new ones as appropriate, and working with the other business segments in joint marketing, business development and procurement of contracts. +Based upon the above described criteria, cash bonuses for the named executive officers in the following amounts were approved for Fiscal 2011: Mr. Mohaddes — $41,995; Mr. Miele — $25,798, Mr. Kreter— $43,875; Mr. McKhann — $53,047; and Mr. Clelland — $14,999. +16 +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth the outstanding equity awards held by each of the named executive officers as of March 31, 2011. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date(1) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested(2) +Market Value +of Shares or +Units of Stock +That Have Not +Vested(3) +Abbas Mohaddes +210,000 +— +1.19 +09/27/01 +09/26/11 +50,000 +$ +72,000 +Chief Executive +44,000 +— +1.40 +05/01/02 +04/30/12 +Officer +30,000 +— +2.21 +06/15/06 +06/14/16 +100,000 +— +2.55 +03/14/07 +03/13/17 +150,000 +50,000 +2.34 +10/02/07 +10/01/17 +25,000 +75,000 +1.41 +05/27/09 +05/26/19 +James S. Miele +40,000 +— +1.19 +09/27/01 +09/26/11 +25,000 +36,000 +Chief Financial +12,000 +— +1.40 +05/01/02 +04/30/12 +Officer +20,000 +— +3.26 +09/02/05 +09/01/15 +15,000 +— +2.21 +06/15/06 +06/14/16 +6,250 +18,750 +1.41 +05/27/09 +05/26/19 +Todd Kreter +18,750 +6,250 +2.46 +02/21/08 +02/20/18 +25,000 +36,000 +Senior Vice +6,250 +18,750 +1.41 +05/27/09 +05/26/19 +President +Gregory McKhann +96,000 +— +1.19 +09/27/01 +09/26/11 +25,000 +36,000 +Senior Vice +34,000 +— +1.40 +05/01/02 +04/30/12 +President +30,000 +— +2.21 +06/15/06 +06/14/16 +6,250 +18,750 +1.41 +05/27/09 +05/26/19 +Alan Clelland +18,750 +6,250 +2.46 +02/21/08 +02/20/18 +25,000 +36,000 +Senior Vice +6,250 +18,750 +1.41 +05/27/09 +05/26/19 +President +(1) Each option vests at the rate of 25% on each of the first four anniversaries of the grant date. +(2) Indicates the number of shares of common stock subject to RSUs granted in August 2010. Each RSU represents the right to receive one share of our common stock. The RSUs vest in equal annual installments over four years, with the first installment vesting on August 10, 2011. +(3) The dollar amounts represent the market value of the shares subject to the RSUs, calculated by multiplying the closing sales price of our common stock at the end of Fiscal 2011 by the applicable number of shares. +Option Exercises and Stock Vested +No options were exercised by the named executive officers, and no stock awards held by the named executive officers vested, during Fiscal 2011. +17 +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements described below. We provide incentives such as salary, benefits and option grants to attract and retain executive officers and other key associates. The plan administrators of the 1997 Stock Incentive Plan and the 2007 Omnibus Incentive Plan (the “2007 Plan”) have the authority to provide for the accelerated vesting of outstanding options held by an individual in connection with the termination of such individual’s employment following an acquisition in which these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain changes in control of the Company. Other than such accelerated vesting and the agreements described above, there is no agreement or policy which would entitle any executive officer to severance payments or any other compensation as a result of such officer’s termination. +Agreements with Abbas Mohaddes +On July 27, 2010, we entered into a letter agreement with Abbas Mohaddes (the “Employment Agreement”), our Chief Executive Officer. Under the terms of the Employment Agreement, in the event that he is terminated without cause (as defined in the agreement) within three years after the effective date of the agreement, Mr. Mohaddes is entitled to salary continuation payments for 12 months following termination and payment of 50% of his target bonus for the applicable year, payable at the end of the 12 month salary continuation period. If his employment is terminated as a result of death or disability, then no salary continuation or other severance payments will be made but the vesting of any options, restricted stock or other similar awards then held by him will be accelerated by one year. The Employment Agreement also provided that Mr. Mohaddes will be granted a restricted stock unit award covering 50,000 shares of our common stock, which award will vest over four years. +Also on July 27, 2010, we entered into a change in control agreement with Mr. Mohaddes (the “Change in Control Agreement”), which provides for a lump sum payment of one year’s base pay and 50% of his target bonus for the year in the event of an involuntary termination (as defined in the agreement) of Mr. Mohaddes’ employment in connection with or within 12 months after a change in control, except that such payment will be reduced to 50% of the annual base pay and no bonus if the involuntary termination is due to his voluntary resignation which does not occur within the first six months after the change in control. Mr. Mohaddes will also be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to one year following the involuntary termination of his employment. In the event of a termination of Mr. Mohaddes’ employment after a change in control, the Change in Control Agreement, and not the Employment Agreement, will determine whether Mr. Mohaddes will be entitled to any payments or benefits (including the acceleration of the vesting of any equity-based awards) and the amount of such payments or benefits. The Change in Control Agreement terminates on the fifth anniversary of the date of the agreement, unless earlier terminated in accordance therewith. +Agreement with James Miele +On June 11, 2008, we entered into a change in control agreement with James Miele, our Chief Financial Officer. Pursuant to the terms of the agreement, in the event of an involuntary termination (as defined in the agreement) of Mr. Miele’s employment in connection with or within 12 months after a change in control, Mr. Miele will be entitled to receive a lump sum payment of one year’s base pay and 50% of his target bonus for the year, with such payment to be reduced to 50% of the annual base pay and 25% of the bonus if the involuntary termination is due to his voluntary resignation which does not occur within the first six months after the change in control. In addition, Mr. Miele will be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to one year following the involuntary termination of his employment. The agreement terminates on the fifth anniversary of the date of the agreement, unless earlier terminated in accordance with the agreement. +Director Compensation +Until January 2011, directors who are not employees of Iteris or any of its subsidiaries received an annual retainer of $12,000 per year, paid quarterly, in addition to $1,500 for each Board meeting attended in person, $250 for each telephone conference Board meeting and $250 for each committee meeting (whether in person or by telephone conference). Beginning January 1, 2011, each non-employee director other than the Chairman of the Board receives an annual retainer of $28,000 per year, paid quarterly, and the Chairman of the Board receives $38,000 per year, paid quarterly; no additional amounts will be paid for attending meetings. In addition, beginning January 1, 2011, each non-employee director who serves on a Board committee receives the following annual amounts, paid quarterly: Audit Committee — $2,500 ($5,000 for the Chair); Compensation Committee - $1,500 ($3,000 for the Chair); Nominating and Governance Committee - $1,000 ($2,000 for the Chair); ad hoc committees - $500 ($1,000 for the Chair). All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board of Directors and its committees. +18 +Non-employee directors are also eligible to receive periodic option grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 Plan. Under the 2007 Plan, each non-employee director receives an option to purchase 20,000 shares of common stock upon his initial appointment to the Board of Directors, which option vests one year after the grant date, and an additional option to purchase shares of common stock on the date of each annual meeting provided he has served on the Board for at least six months as of such annual meeting. Prior to this Annual Meeting, such additional option grant was for 5,000 shares, vesting in equal annual installments over four years. Beginning with this Annual Meeting, the additional option grant will be for 10,000 shares, vesting one year after the grant date. Each option granted to non-employee directors under the Directors’ Automatic Option Grant Program will have an exercise price equal to the fair market value of the common stock on the grant date and a maximum term of ten years, subject to earlier termination following the optionee’s cessation of service as a Board member. +The following table sets forth a summary of the compensation earned in Fiscal 2011 by each person who served as a director during such year, who is not a named executive officer. Mikel Williams became a director in April 2011 and did not receive any compensation for Fiscal 2011. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +All Other +Compensation ($) +Total ($) +Richard Char +$ +23,375 +$ +4,275 +$ +— +$ +27,650 +Kevin C. Daly, Ph.D. +23,375 +4,275 +— +27,650 +Gregory A. Miner +24,625 +4,275 +— +28,900 +John W. Seazholtz +23,500 +4,275 +— +27,775 +Joel Slutzky +21,375 +4,275 +— +25,650 +Thomas L. Thomas +23,500 +4,275 +— +27,775 +(1) +Represents amounts earned by the directors based on the compensation arrangement described above. +(2) +The dollar amounts shown represent the grant date fair value of stock options granted in Fiscal 2011 determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 10 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. At the end of Fiscal 2011, the non-employee directors held options for the following number of shares of common stock: Richard Char — 45,000; Kevin C. Daly, Ph.D. - 50,000; Gregory A. Miner — 540,000; John W. Seazholtz - 50,000; Joel Slutzky - 220,000; and Thomas L. Thomas - 50,000. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We have entered into agreements to indemnify our directors and certain of our officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These agreements, among other things, indemnify our directors and certain of our officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +19 +EQUITY COMPENSATION PLANS +The following table provides information as of March 31, 2011 with respect to shares of our common stock that may be issued under existing equity compensation plans. The table does not include information with respect to shares of our common stock subject to outstanding options granted under equity compensation plans or option agreements that were assumed in connection with the merger of the Iteris Subsidiary into us in October 2004. However, Note 1 to the table sets forth the total number of shares of common stock issuable upon the exercise of those assumed options as of March 31, 2011 and the weighted average exercise price of those options. +Plan Category +Number of Securities to +be Issued Upon Exercise +of Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity Compensation Plans Approved by Security Holders +1997 Stock Incentive Plan +1,095,750 +$ +1.73 +— +2007 Omnibus Incentive Plan +998,500 +(2) +1.87 +(3) +651,500 +Equity Compensation Plans Not Approved by Security Holders +None +Total(1) +2,094,250 +$ +1.79 +(3) +651,500 +(1) +The table does not include information with respect to the equity compensation plan or option agreements that were assumed by us in connection with the merger of the Iteris Subsidiary into us in October 2004. As of March 31, 2011, a total of 1,231,000 shares of common stock were issuable upon exercise of outstanding options under the assumed plan and agreements. No additional options may be granted under the assumed plan. The weighted average exercise price of all such assumed options to acquire shares of our common stock was $1.28 per share. +(2) +Includes 214,000 shares of our common stock subject to RSUs that entitle each holder to one share of common stock for each such unit that vests over the holder’s period of continued service. +(3) +Calculated without taking into account the 214,000 shares of common stock subject to outstanding RSUs that become issuable as those units vest, without the payment of any additional consideration or exercise price. +20 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of June 1, 2011, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers in the Summary Compensation Table which appears elsewhere herein, (iii) each of our directors, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2) +Percent of Class(2) +Lloyd I. Miller, III(3) +4,591,337 +13.4 +% +Austin W. Marxe and David M. Greenhouse(4) +4,339,707 +12.5 +The PNC Financial Services Group, Inc.(5) +2,869,196 +8.3 +Abbas Mohaddes(6) +1,318,358 +3.8 +James S. Miele(7) +104,295 +* +Greg McKhann(8) +202,700 +* +Todd Kreter(9) +19,058 +* +Alan Clelland(10) +26,300 +* +Richard Char(11) +45,000 +* +Kevin C. Daly, Ph.D(12) +395,132 +1.1 +Gregory A. Miner(13) +967,485 +2.8 +John W. Seazholtz(14) +118,547 +* +Joel Slutzky(15) +2,044,259 +5.9 +Thomas L. Thomas(16) +79,000 +* +Mikel Williams +— +* +All executive officers and directors as a group (12 persons)(17) +5,320,134 +14.7 +% +* +Less than 1%. +(1) +The address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) +Based on 34,365,743 shares of common stock outstanding as of June 1, 2011. Shares of common stock subject to options or warrants which are exercisable within 60 days of June 1, 2011 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) and Stock Ownership Plan. +(3) +Pursuant to an amendment to a Schedule 13G filed on February 11, 2011 with the SEC, Mr. Miller reported that, as of December 31, 2010, he had shared dispositive and voting power with respect to 2,932,659 shares as (i) an investment advisor to the trustee of certain family trusts, and (ii) as an authorized person with respect to a custody account. Mr. Miller also had sole dispositive and voting power with respect to 1,658,678 shares as (x) a manager of a limited liability company that is the general partner of a certain limited partnership, (y) the trustee to a certain grantor retained annuity trust, and (z) an individual. The address for Mr. Miller is 4550 Gordon Drive, Naples, FL 34102. +(4) +Pursuant to an amendment to a Schedule 13G filed on February 12, 2010 with the SEC, Messrs. Marxe and Greenhouse reported that, as of December 31, 2009, they had shared voting power and shared dispositive power over 4,104,703 shares of common stock and 235,004 shares issuable upon exercise of warrants held by Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P., Special Situations Fund III QP, L.P. and Special Situations Private Equity Fund, L.P. (collectively, the “Special Situations Funds”). No subsequent amendment to such filing, indicating any changes to their holdings, was filed by the reporting persons. Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. (“AWM”), the general partner of and investment adviser to Special Situations Cayman Fund, L.P. AWM is the general partner of MGP Advisers Limited Partnership, the general partner of and investment adviser to Special Situations Fund III, L.P. and the general partner of Special Situations Fund III QP, L.P. In addition, Messrs. Marxe and Greenhouse are members of MG Advisers L.L.C., the general partner of Special Situations Private Equity Fund, L.P. AWM serves as the investment adviser to Special Situations Fund III QP, L.P. and Special Situations Private Equity Fund, L.P. The address for Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New York, NY 10022. +(5) +Pursuant to a Schedule 13G filed on February 11, 2011 with the SEC, The PNC Financial Services Group, Inc., PNC Bancorp, Inc. and PNC Bank, National Association reported that, as of December 31, 2010, they had shared dispositive and voting power with respect to the shares, which are held in trust accounts created by an Amended and Restated Trust Agreement dated September 20, 1983, in which Lloyd I. Miller, Jr. was Grantor and for which PNC Bank, National Association serves as Trustee. In connection with the trust accounts, Lloyd I. Miller, III and PNC Bank, National Association, in its capacity as Trustee, have entered into an Investment Advisory Agreement dated as of April 1, 2002. Either party may terminate the Investment Advisory Agreement on 30 days prior written notice. PNC Bank, National Association is a wholly-owned subsidiary of PNC Bancorp, Inc., and PNC Bancorp, Inc. is a wholly-owned subsidiary of The PNC Financial Services Group, Inc. The addresses for the PNC entities are as follows: The PNC Financial Services Group, Inc. — One PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707; PNC Bancorp, Inc. — 222 Delaware Avenue, Wilmington, DE 19801; PNC Bank, National Association — One PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707. +21 +(6) +Includes (i) 484,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011 and (iv) 11,540 shares held by Mr. Mohaddes’ IRA. +(7) +Includes 93,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(8) +Includes 166,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(9) +Includes 18,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(10) +Includes 18,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(11) +Consists of shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(12) +Includes (i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares held by Dr. Daly’s IRA, and (iii) 50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(13) +Includes (i) 183,334 shares held by Mr. Miner’s IRA, (ii) 19,230 shares held by Mr. Miner’s wife’s IRA and (iii) 540,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(14) +Includes 50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(15) +Includes (i) 1,584,922 shares held by The J&J Slutzky Trust, of which Mr. Slutzky is the co-trustee, (ii) 144,616 shares held by Mr. Slutzsky’s IRA and (ii) 220,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. Excludes shares of common stock held in the Joel Slutzky Family Trust for the benefit of the children and relatives of Mr. Slutzky; Mr. Slutzky has no investment or voting power with respect to the shares in such trust and disclaims any beneficial ownership. +(16) +Includes 50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +(17) +Includes 1,736,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 1, 2011. +22 +CERTAIN TRANSACTIONS +Since April 1, 2009, other than the agreements and transactions described in “Executive Compensation and Other Information” and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or the average of the Company’s total assets at year end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We previously subleased office space to MAXxess Systems, Inc. (“MAXxess”), one of our former subsidiaries that we sold in September 2003 and is currently owned by an investor group that includes two of our directors, one of whom is the Chief Executive Officer of MAXxess. The sublease terminated in September 2007, at which time MAXxess owed us an aggregate of $274,000 related to this sublease and certain related ancillary services that we provided to MAXxess. In August 2009, MAXxess executed a promissory note payable to us for $274,000. The promissory note bears interest at a rate of 6% per annum, compounded annually, with accrued interest to be paid annually on the first business day of each calendar year. Payments under the note may be made in bona fide services rendered by MAXxess to us to the extent such services and amounts are pre-approved in writing by us. All amounts outstanding under the note will become due and payable on the earliest of (i) August 10, 2014, (ii) a change of control in MAXxess, or (iii) a financing by MAXxess resulting in gross proceeds of at least $10 million. As of March 31, 2011, approximately $16,000 of accrued interest along with the entire $274,000 principal balance was outstanding and payable to us. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any persons holding more than 10% of our common stock are required to report their ownership of our common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file by such dates. For Fiscal 2011, the Form 4 filing for a sale of shares on August 5, 2010 by Mr. Slutzky, pursuant to his 10b5-1 plan, was not filed within two business days of such sale. Based solely on our review of copies of the reports on Forms 3, 4 and 5 received by us with respect to the fiscal year ended March 31, 2011 and the written representations received from the reporting persons that no other reports were required, except as indicated in the foregoing sentence or as indicated in our prior proxy statements, we believe that all directors, executive officers and persons who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section. +ANNUAL REPORT +A copy of our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our proxy statement for the 2012 Annual Meeting of Stockholders (the “2012 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2012 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than April 6, 2012. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the stockholder must submit the proposal or nomination on or between May 19, 2012 and June 18, 2012. If the date of the 2012 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the 2011 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +23 +In addition, with respect to any proposal that a stockholder presents at the 2012 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2012 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa Ana, California +July 29, 2011 +24 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 16, 2011 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof, and to vote all shares of common stock of Iteris held of record by the undersigned on July 20, 2011, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS DESCRIBED BELOW, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +x Please mark votes as in this example. +1. +Election of Directors: To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o FOR o WITHHOLD AUTHORITY to vote for all nominees listed below +(Instruction: To withhold authority to vote for any individual nominee, write that nominee’s name in the space provided above.) +2. +Ratification of McGladrey & Pullen, LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2012. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-11-041892/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-11-041892/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-12-052260/proxy.txt b/raw/proxies/0000350868/0001104659-12-052260/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d17e3055794ce2046511954e0b6279cabeee0ef8 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-12-052260/proxy.txt @@ -0,0 +1,1108 @@ +DEF 14A +1 +a12-16317_1def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 14, 2012 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2012 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 14, 2012 at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in the proxy statement accompanying this Notice: +1. To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +2. To approve the amendment of the Iteris, Inc. 2007 Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance under the plan by an additional 800,000 shares to 2,450,000 shares. +3. To ratify the appointment of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2013. +4. To transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All stockholders of record as of the close of business on July 25, 2012 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or adjournment(s) thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Abbas Mohaddes +Chief Executive Officer and President +Santa Ana, California +July 30, 2012 +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2012 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 14, 2012 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), to be voted at the 2012 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on September 14, 2012 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. These proxy materials and the form of proxy are expected to be mailed to our stockholders who are entitled to vote at the Annual Meeting on or about August 3, 2012. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON SEPTEMBER 14, 2012: The proxy statement, proxy card, and Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (the “Annual Report”) are available at www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 25, 2012. At the close of business on the record date, 33,631,230 shares of our common stock, par value $0.10 per share, were outstanding and no shares of our preferred stock were outstanding. Each stockholder is entitled to one vote for each share of common stock held by such stockholder as of the record date. +The presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in effect. Pursuant to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +1 +With regard to Proposals Two and Three, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual Meeting is being sought. +All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. Broker non-votes occur when brokers who hold stock in “street name” return proxy cards stating that they do not have authority to vote the stock which they hold on behalf of beneficial owners. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a proposal has been approved. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically over the Internet or by telephone, or (iii) by ballot in person at the Annual Meeting. If you are a “registered holder” (i.e., your shares are registered in your own name through our transfer agent), you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive a voting instruction form from that institution by mail. The voting instruction form should indicate whether the institution has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should receive from that institution an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card or voting instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted FOR the election of the directors proposed by our Board of Directors (the “Board”) under Proposal One unless the authority to vote for the election of any director is withheld and, if no contrary instructions are given, the proxy will be voted FOR the approval of each of the other proposals as described in this proxy statement and the accompanying notice. +The enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. We have not been notified by any stockholder of his or her intent to present a stockholder proposal at the Annual Meeting. +If your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +2 +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +Our bylaws provide for a Board of Directors consisting of not less than seven nor more than eleven members. The exact number may be changed, within such limits, by a resolution duly adopted by the Board or by the stockholders. The number of directors constituting the full Board is currently set at seven. All directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. +On the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors selected and approved the following persons as nominees for election at the Annual Meeting: Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams. Each nominee for election is currently a member of our Board of Directors and has agreed to serve if elected. We have no reason to believe that any of the nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +Stockholder Approval +The seven candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing for election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” the seven director nominees listed above. +Directors and Nominees +The table and narrative below set forth information as of July 15, 2012 regarding each director and director nominee, including the year they first became directors, business experience during at least the past five years, public company boards they currently serve on or have served on during the past five years, and certain other biographical information and attributes that the Nominating and Corporate Governance Committee determined qualify them to serve as directors. The Nominating and Corporate Governance Committee believes that the directors and director nominees have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the ability to engage management and each other in a constructive and collaborative fashion; diversity of experience and thought; and the commitment to devote significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +Richard Char(1)* +53 +Director +Kevin C. Daly, Ph.D.(2)(3) +68 +Director +Gregory A. Miner(1) +57 +Chairman of the Board +Abbas Mohaddes +55 +Chief Executive Officer, President and Director +Joel Slutzky(3) +73 +Director +Thomas L. Thomas(1)(2)(3) +63 +Director +Mikel Williams(1)(2) +55 +Director +* Mr. Char will not serve on the Audit Committee after the Annual Meeting. +(1) Member of the Audit Committee +(2) Member of the Compensation Committee +(3) Member of the Nominating and Corporate Governance Committee +4 +Richard Char has served as a Managing Director for Citi and as the Global Head of Information Services for the Citi Enterprise Payments division since August 2011. Prior to that Mr. Char served as the Senior Managing Director at Regent Pacific Management Corporation, a turnaround, restructuring, and performance improvement firm, from September 2010 to August 2011. From October 2008 to March 2010, Mr. Char served as CEO of VIPGift LLC, a provider of corporate and consumer loyalty and incentive programs. From June 2006 to July 2008, Mr. Char was the Senior Vice President of Corporate Development and General Counsel of Blackhawk Network, Inc., an affiliate of Safeway which markets pre-paid gift cards through leading U.S. retailers. Mr. Char’s prior business experience includes serving as the President and Chief Executive Officer of IC Media, a developer of CMOS digital image sensors, as the Managing Director with the Technology Group of Credit Suisse First Boston, as Co-Head of Technology Investment Banking at Cowen & Company, and as a partner in the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Char currently serves on the board of directors of Netlist, Inc. and serves as a member of its compensation committee. He received his A.B. degree from Harvard College and his J.D. degree from Stanford Law School. Mr. Char has served as a director since October 2005 and brings to the Board of Directors executive leadership experience, as well as significant corporate finance, legal and corporate development experience and financial acumen through his many years of work as a lawyer and in corporate finance. +Kevin C. Daly, Ph.D. has served as the CEO of MAXxess Systems, Inc., a provider of electronic security systems, since November 2005. Between August 2007 and August 2009, Dr. Daly also served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. and ATL Products, Inc. Dr. Daly currently serves on the board of directors of STEC, Inc., a provider of solid state disk systems, and from 2002 to 2008, he served as a director of Danka Business Systems, PLC. Dr. Daly received a B.S. degree in electrical engineering from the University of Notre Dame and M.S., M.A. and Ph.D degrees in engineering from Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a director of both private and public companies, Dr. Daly offers to the Board a wealth of management and leadership experience as well as an understanding of issues faced by such companies. +Gregory A. Miner has served as a Managing Partner of Merchant Capital Source, LLC, a company that provides working capital financing solutions to merchants, since 2004. Prior to that, Mr. Miner served in a number of management positions with us and our subsidiaries, most recently as our Chief Executive Officer. Mr. Miner is a Certified Public Accountant and his business experience includes work at Deloitte Haskins and Sells (now known as Deloitte & Touche LLP). Mr. Miner has served as a director since 1998 and as our Chairman of the Board of Directors since 2004. Through his service in a variety of executive positions with us and our subsidiaries, Mr. Miner has a deep and broad understanding of our business as well as the leadership skills and the operational understanding to provide sound guidance in continuing to grow our business. +Abbas Mohaddes has served as our Chief Executive Officer and President since March 2007 and as a director since September 2005. Prior to his promotion in March 2007, Mr. Mohaddes served as our Executive Vice President from October 2004. He also served in a number of executive positions with our Iteris, Inc. subsidiary (“Iteris Subsidiary”), through which the majority of our current operations were conducted until we merged that subsidiary into us in October 2004. Mr. Mohaddes was also the President and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), an ITS and transportation firm that he co-founded, which was acquired by the Iteris Subsidiary in 1998. Mr. Mohaddes is the past chairman of the board and a founding member of ITS America and a member of several trade organizations, including Transportation Research Board, Institute of Transportation Engineers, and the Design/Build Institute of America. Mr. Mohaddes provides extensive technology, industry and management experience to the Board, as well as a substantial understanding of the Company and its operations resulting from his service as an officer of our Iteris Subsidiary and as the founder of MMA. +Joel Slutzky is a co-founder of the Company and has served as a director since its incorporation and as the Chairman of the Board of Directors until October 2004. Prior to 2004, Mr. Slutzky served in various capacities for us and our subsidiaries, most recently as our Chief Executive Officer and as the Chairman of the Board of the Iteris Subsidiary. Mr. Slutzky currently serves on the board of directors of Project Tomorrow, an organization focused on improving Kindergarten through 12th grade science education in Orange County, California and the Butterfly Connection, an organization that promotes creativity and critical thinking skills in K-12 education. As the co-founder of the Company with over 40 years of experience with technology companies, Mr. Slutzky is uniquely qualified to provide insights into and guidance on the industry and growth and development of the Company. +Thomas L. Thomas has served as the Executive Chairman of International Decision Systems, a provider of software and solutions for the equipment finance market, since September of 2009. He also owns a management consulting business, T2 Partners. From 2004 until his retirement in July 2008, Mr. Thomas was as the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and served in various senior and executive positions at 3Com Corporation, Dell Computer Corporation, Kraft General Foods and Sara Lee Corporation. Mr. Thomas currently serves on the board of directors, and as the chairman of the compensation committee, of infoGroup, Inc. He also serves on the board of directors and the compensation committee and the audit committee of Front Range Solutions, a developer of service management and IT asset management software for mid-sized and distributed enterprises. Mr. Thomas has served as a director of Iteris since 1999 and offers to the Board of Directors valuable business, leadership and strategic insights obtained through his service in a variety of industries, including a number of technology companies, and his experience in working with companies through several stages of their development. +5 +Mikel Williams served as the President, Chief Executive Officer and a director of DDi Corporation, a leading provider of time-critical, technologically advanced electronics manufacturing services, from November 2005 to May 2012 and, prior to that, as a Senior Vice President and Chief Financial Officer of DDi. Mr. Williams has also served in various management positions with several technology related companies, including as the President and sole member of Constellation Management Group, LLC, where he provided strategic, operational, and financial consulting services to companies in the telecommunications, software and other technology-related industries, and in executive positions with Global TeleSystems, Inc. and its subsidiaries, a leading telecommunications company providing data and internet services in Europe. Mr. Williams began his career as a certified public accountant in the State of Maryland, working as an auditor for Price Waterhouse. Mr. Williams has served as a director since April 2011 and provides the Board of Directors with operational and public company experience and valuable strategic insights through his many years of leadership positions in technology-related companies with international operations, as well as valuable knowledge and insights in finance and financial reporting matters. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +6 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and Business Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business Conduct, and any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission (“SEC”), at the same location on our website. +Director Independen c e +Our policy is to have at least a majority of the directors qualify as “independent” under the listing standards of NYSE MKT. The Board of Directors has determined that Messrs. Char, Daly, Miner, Seazholtz, Slutzky, Thomas and Williams each satisfy (or did satisfy during his time of service) the requirements for “independence” under such listing standards. John Seazholtz served as a director until the expiration of his term at the 2011 Annual Meeting of Stockholders on September 16, 2011. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee each has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During the fiscal year ended March 31, 2012 (“Fiscal 2012”), the Board of Directors and the various committees of the Board held the following number of meetings: Board of Directors—six; Audit Committee—four; Compensation Committee—two; and Nominating and Corporate Governance Committee—two. During Fiscal 2012, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any committees of the Board held while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee are Messrs. Char, Miner, Thomas and Williams. Mr. Williams was appointed to the committee in May 2012. Mr. Char will not serve on the committee after the Annual Meeting. Mr. Seazholtz served on the committee until the expiration of his term as a director in September 2011. The Board has determined that each member of the Audit Committee is (or was during his time of service) “independent” under the listing standards of NYSE MKT and the SEC rules regarding audit committee memberships. The Board has identified Mr. Char as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. +The Audit Committee meets privately with our independent registered public accounting firm, and such firm has unrestricted access to and reports directly to the Audit Committee. The Audit Committee has selected McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2013 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +7 +Compensation Committee. The current members of our Compensation Committee are Messrs. Daly, Thomas and Williams. Mr. Williams was appointed to the committee in May 2012. Mr. Seazholtz served on the committee until the expiration of his term as a director in September 2011. The Board has determined that each member of the Compensation Committee is (or was during his time of service) “independent” under the listing standards of NYSE MKT. +The Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our “officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (c) reviews and makes recommendations to the Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our executive officers; and (e) assists the Board in evaluating potential candidates for executive officer positions and oversees management succession planning. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to the executive’s individual contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the executives, including himself, and recommendations with respect to all executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management engaged a compensation consultant to provide advice or recommendations on the amount or form of executive and director compensation during Fiscal 2012. +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are Messrs. Daly, Slutzky and Thomas. Mr. Seazholtz served on the committee until the expiration of his term as a director in September 2011. The Board has determined that each member of the Nominating and Corporate Governance Committee is (or was during his time of service) “independent” under the listing standards of NYSE MKT. +The primary purposes of the Nominating and Corporate Governance Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or recommend to the Board of Directors the selection of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring the effectiveness of our corporate governance policies and developing and recommending to the Board modifications and or additions to such policies; and (e) review on a regular basis our overall corporate governance and recommend improvements when necessary. +In connection with their recommendations regarding the size and composition of the Board, the Nominating and Corporate Governance Committee reviews the appropriate qualities and skills required of directors in the context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate’s independence, personal and professional integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company’s and our stockholders’ long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and others as considered useful by the Nominating and Corporate Governance Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Nominating and Corporate Governance Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective directors. The Nominating and Corporate Governance Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been suggested by other members of the Board or by our executive officers. From time to time, the Nominating and Corporate Governance Committee may engage the services of a third-party search firm to identify director candidates. +8 +The Nominating and Corporate Governance Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the Chair, Nominating and Corporate Governance Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) a resume of the candidate’s business experience and educational background as well as all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the Nominating and Corporate Governance Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The Nominating and Corporate Governance Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the Nominating and Corporate Governance Committee by any stockholder in connection with the election of directors at the Annual Meeting. Each of the director nominees standing for election at this Annual Meeting is a current director. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by the Compensation Committee and legal and regulatory compliance risks are reviewed by the Nominating and Corporate Governance Committee. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can write to the corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. Three of our current directors attended our 2011 annual meeting of stockholders. +9 +PROPOSAL TWO: +APPROVAL OF AN AMENDMENT TO THE 2007 OMNIBUS INCENTIVE PLAN +The Iteris, Inc. 2007 Omnibus Incentive Plan was adopted by our Board of Directors on July 19, 2007 and approved by our stockholders on September 21, 2007. As of June 30, 2012, there were options to purchase 1,695,750 shares of common stock and restricted stock unit awards for 235,000 shares outstanding under the plan, and an aggregate remaining authority to grant awards for the issuance of 335,000 shares of common stock. On July 20, 2012, our Board of Directors adopted an amendment of the plan, subject to stockholder approval, to increase the number of shares of common stock reserved for issuance thereunder by 800,000 shares to 2,450,000 shares. +Under applicable NYSE MKT rules, we are required to obtain stockholder approval of the amendment to the plan. Such approval is also necessary to permit us to grant incentive stock options to employees under Section 422 of the Internal Revenue Code, as amended (the “Code”), and to ensure that compensation paid under the plan is eligible for an exemption from the limits on tax deductibility imposed by Section 162(m) of the Code, which limits the deductibility of certain compensation paid to individuals who are, at the end of the tax year for which we would otherwise claim our tax deduction, our chief executive officer and certain other highly paid executive officers. +We are asking our stockholders to approve the amendment to the plan to authorize the issuance of an additional 800,000 shares of common stock thereunder. Our Board of Directors believes the amendment is necessary to assure that a sufficient reserve of the common stock remains available for issuance under the plan to allow us to continue to utilize equity incentives to attract and retain the services of individuals essential to our long-term growth and success. +Amended Plan Description +The following is a summary of the principal features of the 2007 Omnibus Incentive Plan, as amended (the “2007 Plan”), and is qualified in its entirety by reference to the full text of the plan. A copy of the plan, as amended, may be found at Appendix A at the end of this proxy statement. Any stockholder who wishes to obtain an additional copy of the actual plan document may do so upon written request to us at our principal executive offices. +Administration. Both the Board and the Compensation Committee have the authority to administer the 2007 Plan. The Board may at any time appoint a secondary committee comprised of two or more directors to have concurrent authority to make grants and issuances of any equity-based instruments permissible under the 2007 Plan to individuals other than executive officers and non-employee directors. The committee administering the 2007 Plan will have full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment, and other terms and conditions of each award, consistent with the provisions of the 2007 Plan. Subject to the provisions of the 2007 Plan, the committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The committee has authority to interpret the 2007 Plan, and establish rules and regulations for the administration of the 2007 Plan. In addition, the Board may exercise the powers of the committee at any time. +Eligible Participants . Any employee, officer, consultant, advisor or director providing services to us or any of our affiliates (including our current and future subsidiaries) is eligible to receive an award under the 2007 Plan. As of June 30, 2012, 269 employees (including officers) and six non-employee directors were eligible to receive awards under the 2007 Plan. +Shares Available For Awards . The aggregate number of shares of common stock that may be issued under all stock-based awards made under the 2007 Plan will be 2,450,000. The shares of common stock issuable under the 2007 Plan may be drawn from shares of authorized but unissued common stock or from shares of common stock that the Company acquires. Subject to the provisions of Section 422 or 424 of the Code or any successor provision, all of the shares reserved for issuance under the 2007 Plan may be used for grants of incentive stock options under the plan. No person may be granted stock options or SARs (defined below) under the 2007 Plan with respect to more than 500,000 shares of common stock in the aggregate within any fiscal year. +10 +The committee may adjust the number of shares and share limits described above in the case of a stock dividend or other distribution, including a stock split, merger or other similar corporate transaction or event, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the 2007 Plan. If any shares of our common stock subject to any award or to which an award relates are forfeited or are reacquired by the Company, or if any award terminates without the delivery of any shares, the shares previously set aside for such awards will be available for future awards under the 2007 Plan. +Types of Awards and Terms and Conditions . The 2007 Plan permits the granting of: +· stock options (including both incentive and non-qualified stock options); +· stock appreciation rights (“SARs”); +· restricted stock and restricted stock units; +· performance awards of cash, stock or property; +· dividend equivalents; +· other stock grants; and +· other stock-based awards. +Awards may be granted alone, in addition to, in combination with or in substitution for, any other award granted under the 2007 Plan or any other compensation plan. Awards can be granted for no cash consideration or for cash or other consideration as determined by the committee or as required by applicable law. Awards may provide that upon the grant or exercise thereof, the holder will receive shares of our common stock or other securities or property, or any combination of these, in a single payment or installments. The exercise price per share under any stock option and the grant price of any SAR will be determined by the committee and may not be less than the fair market value on the date of grant of such option or SAR, or less than 110% of fair market value for incentive stock options granted to holders of more than 10% of our common stock. When our common stock is listed on a stock exchange in the U.S., the fair market value is the closing sale price of one share of our common stock on the date of determination (or the last preceding date for which such price exists), as reported on the principal U.S. exchange on which our common stock is listed. If our common stock is not listed on a stock exchange in the U.S., the fair market value will be determined in accordance with methods and procedures established by the committee. The term of awards will not be longer than 10 years, or in the case of incentive stock options, longer than 5 years with respect to holders of more than 10% of our common stock. +Stock Options . The holder of an option will be entitled to purchase a number of shares of our common stock at a specified exercise price during a specified time period, all as determined by the committee. The option exercise price may be payable either in cash or, at the discretion of the committee, in other securities or other property having a fair market value on the exercise date equal to the exercise price. The shares subject to each option will generally vest in one or more installments over a specified period of service measured from the grant date. We receive no payment for the grant of an option. Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the extent exercisable for vested shares. +Stock Appreciation Rights . The holder of a SAR is entitled to receive the excess of the fair market value (calculated as of the exercise date or, at the committee’s discretion, as of any time during a specified period before or after the exercise date) of a specified number of shares of our common stock over the grant price of the SAR, as determined by the committee, paid solely in shares of common stock. SARs vest and become exercisable in accordance with a vesting schedule established by the committee. This type of SAR is sometimes described as a “stock only settled stock appreciation right.” +Restricted Stock and Restricted Stock Units . The holder of restricted stock will own shares of our common stock subject to restrictions imposed by the committee (including, for example, restrictions on transferability or on the right to vote the restricted shares or to receive any dividends with respect to the shares) for a specified time period determined by the committee. The restrictions may lapse or be waived separately or collectively, in installments or otherwise, as the committee may determine. The holder of restricted stock units will have the right, subject to any restrictions imposed by the committee, to receive shares of our common stock at some future date determined by the committee. The committee also may permit accelerated vesting in the case of a participant’s death, disability or retirement, or a change in control. If the participant’s employment or service as a director terminates during the vesting period for any other reason, the restricted stock and restricted stock units will be forfeited, unless the committee determines that it would be in our best interest to waive the remaining restrictions. +11 +Performance Awards . Performance awards granted under the 2007 Plan are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code. Performance awards give participants the right to receive payments in stock or property based solely upon the achievement of certain performance goals during a specified performance period. The committee must designate all participants for each performance period, and establish performance goals and target awards for each participant no later than 90 days after the beginning of each performance period within the parameters of Section 162(m) of the Code. Performance goals must be based solely on one or more of the following business criteria: (i) revenue; (ii) cash flow; (iii) gross profit; (iv) earnings before interest and taxes; (v) earnings before interest, taxes, depreciation and amortization; (vi) net earnings; (vii) earnings per share; (viii) margins, including gross profit, operating and net income margins; (ix) returns, including return on assets, equity, investment, capital and revenue and total stockholder return; (x) stock price; (xi) economic value added; (xii) working capital; (xiii) market share; (xiv) cost reductions; (xv) workforce satisfaction and diversity goals; (xvi) employee retention; (xvii) customer satisfaction; (xviii) completion of key projects; and (xix) strategic plan development and implementation. +The measure of performance may be set by reference to an absolute standard or a comparison to specified companies or groups of companies, or other external measures, and may be applied at individual or organizational levels. No person may be granted under the 2007 Plan qualified performance based awards which could result in such person receiving more than $1,500,000 in cash or the equivalent fair market value of shares of common stock determined at the date of grant for each full or partial fiscal year contained in the performance period of a particular qualified performance based award, except that if any other qualified performance based awards are outstanding for such person for a given fiscal year, such dollar limitation shall be reduced for each such fiscal year by the amount that could be received by the person under all such qualified performance based awards, divided, for each such qualified performance based award, by the number of full or partial fiscal years contained in the performance period of each such outstanding qualified performance based award (subject to adjustment in the case of a stock dividend or other distribution, including a stock split, merger or other similar corporate transaction or event, but only to the extent that such adjustment does not affect the status of any award intended to qualify as “performance based compensation” under Section 162(m) of the Code. +Dividend Equivalents . The holder of a dividend equivalent will be entitled to receive payments in shares of our common stock, other securities or other property equivalent to the amount of cash dividends paid by us or our stockholders, with respect to the number of shares determined by the committee. Dividend equivalents will be subject to other terms and conditions determined by the committee. +Stock Awards . The committee may grant unrestricted shares of our common stock, subject to terms and conditions determined by the committee and the 2007 Plan limitations. +Automatic Option Grant Program . Under the automatic option grant program, eligible non-employee Board members receive a series of option grants over their period of Board service. Each non-employee Board member will, at the time of his or her initial election or appointment to the Board, receive an option grant for 20,000 shares of common stock provided such individual has not been in the previous employ of the Company. In addition, on the date of each annual stockholders meeting, each individual who is to continue to serve as a non-employee Board member will automatically be granted an option to purchase 10,000 shares of common stock, provided he or she has served as a non-employee Board member for at least six (6) months. There will be no limit on the number of such 10,000-share option grants any one eligible non-employee Board member may receive over his or her period of continued Board service. +Each automatic grant will have an exercise price per share equal to the fair market value per share of common stock on the grant date and will have a maximum term of 10 years, subject to earlier termination following the optionee’s cessation of Board service. Each automatic option will be immediately exercisable for any or all of the option shares; the shares acquired under those options will be subject to repurchase by the Company, at the exercise price paid per share, if the optionee ceases service with the Company prior to vesting in those shares. Each initial 20,000-share automatic option and each annual 10,000-share automatic option will vest in full upon the optionee’s completion of one (1) year of service, measured from the grant date. However, the vesting of each outstanding automatic option grant will automatically accelerate in full upon certain changes in control of the Company or upon the optionee’s death or disability while a Board member. Following the optionee’s cessation of Board service for any reason, each option will remain exercisable for a 12-month period and may be exercised during that time for any or all shares in which the optionee is vested at the time of such cessation of service as a director. +Duration, Termination and Amendment . Unless earlier discontinued or terminated by the Board, the 2007 Plan will expire on July 19, 2017. No awards may be made after that date. However, unless otherwise expressly provided in an applicable award agreement, any award granted under the 2007 Plan prior to expiration of the 2007 Plan may extend beyond the end of the expiration of the plan through the award’s normal expiration date. +The Board and, pursuant to the delegation of its authority, the committee may amend, alter or discontinue the 2007 Plan at any time, although stockholder approval must be obtained for any action that would, absent such approval, (i) violate the rules and regulations of any securities exchange applicable to the Company, (ii) cause Rule 16b-3 of the Securities Exchange Act of 1934 or Section 162(m) of the Code to become unavailable with respect to the 2007 Plan or (iii) cause the Company to be unable under the Code to grant incentive stock options under the 2007 Plan. +12 +Acceleration . In the event that we are acquired by merger, asset sale or sale by the stockholders of more than 50% of our outstanding voting stock recommended by the Board, each outstanding option under the 2007 Plan that is not to be assumed or replaced by the successor corporation or otherwise continued in effect will automatically accelerate in full, and all unvested shares outstanding under the 2007 Plan will immediately vest, except to the extent our repurchase rights with respect to those shares are to be assigned to the successor corporation or otherwise continued in effect. +The plan administrator will have the authority under the 2007 Plan to provide that options and other awards granted under the 2007 Plan will automatically vest in full (i) upon an acquisition of the Company, whether or not those awards are assumed or replaced, (ii) upon a hostile change in control of the Company effected through a tender offer for more than 50% of our outstanding voting stock or by proxy contest for the election of Board members, or (iii) in the event the individual’s service is terminated, whether involuntarily or through a resignation for good reason, within a designated period following an acquisition in which the options are assumed or replaced or otherwise continued in effect upon a hostile change in control. The options granted under the director automatic option grant program will automatically accelerate and become exercisable in full upon any acquisition or change in control transaction. +The acceleration of vesting in the event of a change in control of the Company may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or other efforts to gain control of the Company. +Transferability of Awards . Unless otherwise provided by the committee, awards under the 2007 Plan may only be transferred by will or by the laws of descent and distribution. +Delivery of Shares for Tax Obligation . Under the 2007 Plan, the committee may permit participants receiving or exercising awards, subject to the discretion of the committee and upon such terms and conditions as it may impose, to deliver shares of our common stock (either shares received upon the receipt or exercise of the award or shares previously owned by the holder of the option) to the Company to satisfy federal and state income tax obligations. +Certain Federal Income Tax Consequences +The following is a summary of the principal U.S. federal income tax consequences generally applicable to awards under the 2007 Plan. +Grant of Options and SARs . The grant of a stock option or SAR is not expected to result in taxable income for the recipient. +Exercise of Options and SARs . Upon exercising a non-qualified stock option, the optionee will recognize ordinary income equal to the excess of the fair market value of the shares of our common stock acquired on the date of exercise over the exercise price, and we will generally be entitled at that time to an income tax deduction for the same amount. Upon exercising an incentive stock option, the optionee generally will not recognize taxable income (except that an alternative minimum tax liability may arise), and we will not be entitled to an income tax deduction. Upon exercising a SAR, the recipient of the SAR will recognize ordinary income in an amount equal to the fair market value on the exercise date of any shares of our common stock received, and we will receive an income tax deduction in the same amount. +Disposition of Shares Acquired Upon Exercise of Options and SARs . The tax consequence upon a disposition of shares acquired through the exercise of an option or SAR will depend on how long the shares have been held and whether the shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option or SAR. Generally, there will be no tax consequence to us in connection with the disposition of shares acquired under an option or SAR, except that we may be entitled to an income tax deduction in the case of the disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Code have been satisfied. +Awards Other than Options and SARs . As to other awards granted under the 2007 Plan that are payable in either cash or shares of our common stock that are either transferable or not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to (a) the amount of cash received or, as applicable, (b) the excess of (i) the fair market value of the shares received (determined as of the date of receipt) over (ii) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount. +13 +As to an award that is payable in shares of our common stock that are restricted from transfer and subject to substantial risk of forfeiture, unless a special election is made by the holder of the award under the Code, the holder must recognize ordinary income equal to the excess of (i) the fair market value of the shares received (determined as of the first time the shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount. +Income Tax Deduction . Subject to the usual rules concerning reasonable compensation, and assuming that, as expected, performance awards paid under the 2007 Plan are “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, we will generally be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from awards made under the 2007 Plan. +Application of Section 16 . Special rules may apply to individuals subject to Section 16 of the Exchange Act. In particular, unless a special election is made pursuant to the Code, shares received through the exercise of a stock option or SAR may be treated as restricted as to transferability and subject to a substantial risk of forfeiture for a period of up to six months after the date of exercise. Accordingly, the amount of any ordinary income recognized and the amount of our income tax deduction will be determined as of the end of that period. +Deductibility of Executive Compensation Under Code Section 162(m) . Section 162(m) of the Code generally limits to $1,000,000 the amount that a publicly-held corporation is allowed each year to deduct for the compensation paid to each of the corporation’s chief executive officer and the corporation’s other four most highly compensated executive officers. However, “qualified performance-based qualified compensation” is not subject to the $1,000,000 deduction limit. In general, to qualify as performance-based compensation, the following requirements need to be satisfied: (1) payments must be computed on the basis of an objective, performance-based compensation standard determined by a committee consisting solely of two or more “outside directors,” (2) the material terms under which the compensation is to be paid, including the business criteria upon which the performance goals are based, and a limit on the maximum bonus amount which may be paid to any participant pursuant with respect to any performance period, must be approved by a majority of our stockholders and (3) the committee must certify that the applicable performance goals were satisfied before payment of any performance-based compensation. +The 2007 Plan has been designed to permit grants of stock options and SARs issued under the 2007 Plan to qualify under the performance-based compensation rules so that income attributable to the exercise of a non-qualified stock option or a SAR may be exempt from the $1,000,000 deduction limit. Grants of other awards under the 2007 Plan may not so qualify for this exemption. The 2007 Plan’s provisions are consistent in form with the performance-based compensation rules, so that if the committee that grants options or SARs consists exclusively of members of the board of directors of the Company who qualify as “outside directors,” and the exercise price (or deemed exercise price, with respect to SARs) is not less than the fair market value of the shares of common stock to which such grants relate, the compensation income arising on exercise of those options or SARs should qualify as performance-based compensation which is deductible even if that income would be in excess of the otherwise applicable limits on deductible compensation income under Code Section 162(m). +Amended Plan Benefits +The committee in its sole discretion determines the number and types of awards that will be granted in the future. Thus, other than with respect to the Automatic Grant Program described above, it is not possible to determine at this time the amount or dollar value of awards to be provided under the 2007 Plan. +Stockholder Approval +The affirmative vote of a majority of the shares of common stock present in person or by proxy at the Annual Meeting and entitled to vote on this matter is required for approval of the proposed amendment to the 2007 Omnibus Incentive Plan. Should such stockholder approval not be obtained, then the share reserve will not be increased. The plan will, however, continue to remain in effect, and option grants and stock issuances may continue to be made pursuant to the provisions of the plan prior to its amendment until the available reserve common stock under the plan is issued. +Recommendation of the Board of Directors +The Board of Directors recommends a vote “FOR” approval of the amendment to the 2007 Omnibus Incentive Plan to increase the number of shares reserved for issuance thereunder by 800,000 shares. +14 +PROPOSAL THREE: +RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of McGladrey LLP was engaged to serve as our independent registered public accounting firm for the fiscal year ended March 31, 2012. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2013. We are asking our stockholders to ratify the selection by the Audit Committee of McGladrey LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending March 31, 2013 and to perform other appropriate services. Stockholder ratification of the selection of McGladrey LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of us and our stockholders. +A representative of McGladrey LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting will be required for ratification of the selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2013. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2013. +15 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed by McGladrey LLP for the indicated services for the fiscal years ended March 31, 2011 and 2012: +Fiscal Year Ended March 31, +2011 +2012 +Audit Fees +$ +320,000 +$ +326,000 +Audit-Related Fees +41,000 +15,000 +Tax Fees +75,000 +79,000 +All Other Fees +¾ +¾ +Total Fees +$ +436,000 +$ +420,000 +Audit Fees. Audit fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements and review of the consolidated financial statements included in our quarterly reports on Form 10-Q and other regulatory filings. +Audit-Related Fees. Audit-related fees consist of fees for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees for registration statements, fees for internal control reviews and assistance with meeting the requirements of Section 404 of the Sarbanes-Oxley Act and certain consultations concerning financial accounting and reporting standards. +Tax Fees. Tax fees consist of fees for tax compliance services, which include the preparation of federal, state and international tax returns, and for tax consultations, including tax planning and federal, state and international tax advice. +All Other Fees. There were no other fees billed to us by McGladrey LLP during the fiscal years ended March 31, 2011 and 2012. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by McGladrey LLP or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by McGladrey LLP for the fiscal year ended March 31, 2012. +16 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2012 of Iteris, Inc. included in its Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company’s management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company’s independent registered public accounting firm, McGladrey LLP, the matters required to be discussed by auditing standards set forth in AU Section 380 established by the Public Company Accounting Oversight Board, which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements. +The Audit Committee has received the written disclosures and the letter from McGladrey LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with McGladrey LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Richard Char +Gregory A. Miner +Thomas L. Thomas +Mikel Williams +17 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of July 15, 2012, regarding our executive officers. +Name +Age +Capacities in Which Served +Abbas Mohaddes +55 +Chief Executive Officer, President and Director +James S. Miele +44 +Chief Financial Officer, Vice President and Secretary +Todd Kreter +52 +Senior Vice President, Sensors Development and Operations +Gregory McKhann +49 +Senior Vice President, Sensors Sales and Marketing +Thomas N. Blair +48 +Senior Vice President, iPerform +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Mohaddes appears earlier in this proxy statement. See Proposal One: “Election of Directors.” +James S. Miele has served as our Chief Financial Officer and Vice President of Finance since October 2004 and as the Secretary since March 2004. Mr. Miele previously served as our Controller and the Controller of our Iteris Subsidiary. Mr. Miele’s business experience includes working as an audit manager at Ernst & Young LLP, supervising financial statement audits for a variety of public and privately held companies. Mr. Miele is a Certified Public Accountant in the State of California (inactive) and holds a B.S. degree in Accounting from San Diego State University. +Todd Kreter has served as Senior Vice President, Sensors Development and Operations, of the Company since May 2009. Mr. Kreter served as our Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds an executive M.B.A. from Stanford/AEA and a B.S. degree in mechanical engineering from California State University, Fullerton. +Gregory McKhann has served as Senior Vice President, Sensors Sales and Marketing, of the Company since October 2004. Prior to that, Mr. McKhann served in various executive and management positions at the Iteris Subsidiary and at Rockwell International. Mr. McKhann holds a B.S. degree in computer science from Duke University and an MBA from University of California, Irvine. +Thomas N. Blair has served as Senior Vice President, iPerform, of the Company since July 2012. Prior to that, Mr. Blair served as general manager for Trimble Navigation Limited, a provider of integrated positioning, wireless, and software technology solutions, from 2007 to August 2011, and as vice president for new business development at @Road, Inc., a leading provider of mobile resource management solutions, from 2006 to 2007. He also worked as director of business and corporate development at iAnywhere Solutions, a Sybase company, from 2003 to 2006. Mr. Blair holds a B.S. degree in Management Information Systems from DeVry Institute of Technology and an M.S. degree in Computer Science from Rochester Institute of Technology. +18 +Summary Compensation Table +The following table shows information regarding the compensation earned during the fiscal years ended March 31, 2011 and 2012 by (i) our Chief Executive Officer, (ii) our Chief Financial Officer and (iii) our two most highly compensated executive officers, other than the CEO and the CFO, who were serving as executive officers at the end of the last completed fiscal year. The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Bonus(1) +Stock +Awards(2) +Option +Awards(3) +Non-Equity +Incentive Plan +Compensation(4) +All Other +Compensation +(5) +Total +Abbas Mohaddes +2012 +$ +370,290 +$ +30,000 +$ +— +$ +44,083 +$ +114,254 +$ +13,225 +$ +571,852 +Chief Executive Officer +2011 +350,022 +— +74,000 +— +41,995 +15,942 +481,959 +James S. Miele +2012 +214,028 +15,000 +22,000 +17,633 +65,288 +5,788 +339,737 +Chief Financial Officer +2011 +199,434 +— +37,000 +— +25,798 +6,383 +268,615 +Todd Kreter +2012 +208,276 +15,000 +22,000 +17,633 +39,173 +7,405 +309,487 +Senior Vice President +2011 +197,702 +— +37,000 +— +43,875 +6,579 +285,156 +Gregory McKhann +2012 +208,121 +— +22,000 +17,633 +45,049 +6,278 +299,081 +Senior Vice President +2011 +199,680 +— +37,000 +— +53,047 +6,223 +295,950 +(1) +Discretionary cash bonus. +(2) +The dollar amounts shown represent the grant date fair value of restricted stock units (“RSUs”) granted during the applicable fiscal year calculated in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, based on the closing sales price of the underlying shares of our common stock on the respective grant dates and without any adjustment for estimated forfeitures. Each RSU represents the right to receive one share of our common stock. The RSUs vest in equal annual installments over four years, with the first installment vesting on August 10, 2012 for awards granted in Fiscal 2012 and on August 10, 2011 for awards granted in the prior fiscal year. Vested shares are issued as soon as practicable after the applicable vesting date. +(3) +The dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. Options to acquire the following number of shares of our common stock were granted to our named executive officers on August 10, 2011: Mr. Mohaddes — 75,000 shares; each of Messrs. Miele, Kreter and McKhann — 30,000 shares. The options have an exercise price of $1.10 per share (the closing sales price of our common stock as of the grant date), vest in equal annual installments over four years, and are not exercisable until vested. +(4) +The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain criteria pre-established by the Compensation Committee. These awards are discussed in further detail under “Plan-Based Bonuses” below. +(5) +Represents 401(k) plan employer contributions and automobile allowances paid by us. +Plan-Based Bonuses +For Fiscal 2012, the potential compensation for named executive officers included an annual cash bonus based upon criteria established by the Compensation Committee at the beginning of the fiscal year. The bonuses were entirely based on our corporate and business unit performance. 100% of the potential bonus for the CEO and CFO was based on the total revenue and operating income achieved by the Company for the year. 60% of the potential bonus for each of Messrs. Kreter and McKhann was based on revenue and operating income achieved by the Roadway Sensors segment, and 40% of their potential bonus was based on the total revenue and operating income achieved by the Company. +The corporate and business unit performance targets for the annual cash bonuses for the named executive officers for Fiscal 2012 were as follows: +Performance Component(1) +No Bonuses At or Below +Target +Maximum +(in thousands) +Corporate Revenue +$ +53,400 +$ +62,800 +$ +69,100 +Corporate Operating Income +2,900 +3,600 +3,950 +Roadway Sensors Revenue +29,050 +32,300 +33,900 +Roadway Sensors Operating Income +3,500 +4,350 +5,000 +(1) The corporate revenue and operating income goals were applicable to each NEO, and the Roadway Sensors revenue and operating income goals were applicable to Messrs. Kreter and McKhann. +19 +The potential bonus at target for Fiscal 2012 were as follows: Mr. Mohaddes — $175,000; Mr. Miele — $100,000; Mr. Kreter — $100,000 and Mr. McKhann — $115,000. If our performance exceeded the revenue and operating income targets set for bonus purposes, the executives could have earned an additional bonus of up to 50% of the target bonus award. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the revenue and operating income goals set forth under the “Maximum” column above. If the Company had achieved revenue and operating income which were less than the goals set forth under the “Maximum” column but more than the amounts set forth under the “Target” column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the performance had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been payable. In addition, for Fiscal 2012, in determining the final bonus awards, pro forma adjustments were made to the actual corporate operating income results, to account for certain costs related to the Vehicle Sensors segment and the sale of substantially all of the assets of such segment during the fiscal year. +Based upon the above described criteria, cash bonuses for the named executive officers in the following amounts were approved for Fiscal 2012: Mr. Mohaddes — $114,254; Mr. Miele — $65,288; Mr. Kreter— $39,173; and Mr. McKhann — $45,049. +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2012. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date(1) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested(2) +Market Value +of Shares or +Units of Stock +That Have Not +Vested(3) +Abbas Mohaddes +Chief Executive Officer +44,000 +30,000 +100,000 +200,000 +50,000 +— +— +— +— +— +50,000 +75,000 +1.40 +2.21 +2.55 +2.34 +1.41 +1.10 +05/01/02 +06/15/06 +03/14/07 +10/02/07 +05/27/09 +08/10/11 +04/30/12 +06/14/16 +03/13/17 +10/01/17 +05/26/19 +08/09/21 +37,500 +(4) +$ +55,875 +James S. Miele +Chief Financial Officer +12,000 +20,000 +15,000 +12,500 +— +— +— +— +12,500 +30,000 +1.40 +3.26 +2.21 +1.41 +1.10 +05/01/02 +09/02/05 +06/15/06 +05/27/09 +08/10/11 +04/30/12 +09/01/15 +06/14/16 +05/26/19 +08/09/21 +18,750 +20,000 +(4) +(5) +27,938 +29,800 +Todd Kreter +Senior Vice President +25,000 +12,500 +— +— +12,500 +30,000 +2.46 +1.41 +1.10 +02/21/08 +05/27/09 +08/10/11 +02/20/18 +05/26/19 +08/09/21 +18,750 +20,000 +(4) +(5) +27,938 +29,800 +Gregory McKhann +Senior Vice President +34,000 +30,000 +12,500 +— +— +— +12,500 +30,000 +1.40 +2.21 +1.41 +1.10 +05/01/02 +06/15/06 +05/27/09 +08/10/11 +04/30/12 +06/14/16 +05/26/19 +08/09/21 +18,750 +20,000 +(4) +(5) +27,938 +29,800 +(1) Each option vests at the rate of 25% on each of the first four anniversaries of the grant date. +(2) Indicates the number of shares of common stock subject to RSU awards. Each RSU represents the right to receive one share of our common stock. +(3) The dollar amounts represent the market value of the shares subject to the RSUs, calculated by multiplying the closing sales price of our common stock on the last business day of Fiscal 2012 by the applicable number of shares. +(4) The original RSU award vests in equal annual installments over four years. The first installment vested on August 10, 2011; the shares indicated represent the remaining unvested amount. +(5) The RSUs vest in equal annual installments over four years, with the first installment vesting on August 10, 2012. +20 +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements described below. We provide incentives such as salary, benefits and option grants to attract and retain executive officers and other key associates. The plan administrators of the 1997 Stock Incentive Plan and the 2007 Omnibus Incentive Plan have the authority to provide for the accelerated vesting of outstanding options held by an individual in connection with the termination of such individual’s employment following an acquisition in which these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain changes in control of the Company. Other than such accelerated vesting and the agreements described above, there is no agreement or policy which would entitle any executive officer to severance payments or any other compensation as a result of such officer’s termination. +Agreements with Abbas Mohaddes +On July 27, 2010, we entered into a letter agreement with Abbas Mohaddes (the “Employment Agreement”), our Chief Executive Officer. Under the terms of the Employment Agreement, in the event that he is terminated without cause (as defined in the agreement) within three years after the effective date of the agreement, Mr. Mohaddes is entitled to salary continuation payments for 12 months following termination and payment of 50% of his target bonus for the applicable year, payable at the end of the 12 month salary continuation period. If his employment is terminated as a result of death or disability, then no salary continuation or other severance payments will be made but the vesting of any options, restricted stock or other similar awards then held by him will be accelerated by one year. The Employment Agreement also provided that Mr. Mohaddes will be granted a restricted stock unit award covering 50,000 shares of our common stock, which award will vest over four years. +Also on July 27, 2010, we entered into a change in control agreement with Mr. Mohaddes (the “Change in Control Agreement”), which provides for a lump sum payment of one year’s base pay and 50% of his target bonus for the year in the event of an involuntary termination (as defined in the agreement) of Mr. Mohaddes’ employment in connection with or within 12 months after a change in control, except that such payment will be reduced to 50% of the annual base pay and no bonus if the involuntary termination is due to his voluntary resignation which does not occur within the first six months after the change in control. Mr. Mohaddes will also be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to one year following the involuntary termination of his employment. In the event of a termination of Mr. Mohaddes’ employment after a change in control, the Change in Control Agreement, and not the Employment Agreement, will determine whether Mr. Mohaddes will be entitled to any payments or benefits (including the acceleration of the vesting of any equity-based awards) and the amount of such payments or benefits. The Change in Control Agreement terminates on the fifth anniversary of the date of the agreement, unless earlier terminated in accordance therewith. +Agreement with James Miele +On June 11, 2008, we entered into a change in control agreement with James Miele, our Chief Financial Officer. Pursuant to the terms of the agreement, in the event of an involuntary termination (as defined in the agreement) of Mr. Miele’s employment in connection with or within 12 months after a change in control, Mr. Miele will be entitled to receive a lump sum payment of one year’s base pay and 50% of his target bonus for the year, with such payment to be reduced to 50% of the annual base pay and 25% of the bonus if the involuntary termination is due to his voluntary resignation which does not occur within the first six months after the change in control. In addition, Mr. Miele will be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to one year following the involuntary termination of his employment. The agreement terminates on the fifth anniversary of the date of the agreement, unless earlier terminated in accordance with the agreement. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries receive an annual retainer of $28,000 per year, paid quarterly, with the Chairman of the Board receiving an additional $10,000 per year. No additional amounts are paid for attending meetings. In addition, each non-employee director who serves on a Board committee receives the following annual amounts, paid quarterly: Audit Committee — $2,500 ($5,000 for the Chair); Compensation Committee - $1,500 ($3,000 for the Chair); Nominating and Governance Committee - $1,000 ($2,000 for the Chair); ad hoc committees - $500 ($1,000 for the Chair). All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board of Directors and its committees. +21 +Non-employee directors are also eligible to receive periodic option grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 Plan. Under the 2007 Plan, each non-employee director receives an option to purchase 20,000 shares of common stock upon his initial appointment to the Board of Directors, which option vests one year after the grant date, and an additional option to purchase 10,000 shares of common stock on the date of each annual meeting provided he has served on the Board for at least six months as of such annual meeting. Each option granted to non-employee directors under the Directors’ Automatic Option Grant Program will have an exercise price equal to the fair market value of the common stock on the grant date and a maximum term of ten years, subject to earlier termination following the optionee’s cessation of service as a Board member. The vesting of each such option will accelerate in full upon certain changes in control of the Company or upon the optionee’s death or disability while a director. +The following table sets forth a summary of the compensation earned in Fiscal 2012 by each person who served as a director during such year, who is not a named executive officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +Total ($) +Richard Char +$ +33,500 +$ +6,300 +$ +39,800 +Kevin C. Daly, Ph.D. +33,500 +6,300 +39,800 +Gregory A. Miner +41,500 +6,300 +47,800 +John W. Seazholtz(3) +16,500 +— +16,500 +Joel Slutzky +29,500 +6,300 +35,800 +Thomas L. Thomas +33,000 +6,300 +39,300 +Mikel Williams +28,000 +6,300 +34,300 +(1) +Represents amounts earned by the directors based on the compensation arrangement described above. +(2) +The dollar amounts shown represent the grant date fair value of stock options granted in Fiscal 2012 determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. At the end of Fiscal 2012, the non-employee directors held options for the following number of shares of common stock: Richard Char — 55,000; Kevin C. Daly, Ph.D. — 55,000; Gregory A. Miner — 240,000; Joel Slutzky — 70,000; Thomas L. Thomas — 55,000; and Mikel Williams — 20,000. +(3) +Mr. Seazholtz’ term as a director expired at the 2011 Annual Meeting of Stockholders on September 16, 2011 and options for 7,500 shares of common stock were cancelled on that date because they had not yet vested. As of March 31, 2012, Mr. Seazholtz held options for 37,500 shares of common stock, which options will be cancelled on September 16, 2012 unless exercised. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +22 +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We have entered into agreements to indemnify our directors and certain of our officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These agreements, among other things, indemnify our directors and certain of our officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +EQUITY COMPENSATION PLANS +The following table provides information as of March 31, 2012 with respect to shares of our common stock that may be issued under existing equity compensation plans. The table does not include information with respect to shares of our common stock subject to outstanding options granted under equity compensation plans or option agreements that were assumed in connection with the merger of the Iteris Subsidiary into us in October 2004. However, Note 1 to the table sets forth the total number of shares of common stock issuable upon the exercise of those assumed options as of March 31, 2012 and the weighted average exercise price of those options. +Plan Category +Number of Securities to +be Issued Upon Exercise +of Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity Compensation Plans Approved by Security Holders +1997 Stock Incentive Plan +1,061,000 +$ +1.71 +— +2007 Omnibus Incentive Plan +1,257,000 +(2) +1.66 +(3) +335,000 +Equity Compensation Plans Not Approved by Security Holders +None +Total(1) +2,318,000 +$ +1.68 +(3) +335,000 +(1) The table does not include information with respect to the equity compensation plan or option agreements that were assumed by us in connection with the merger of the Iteris Subsidiary into us in October 2004. As of March 31, 2012, a total of 410,000 shares of common stock were issuable upon exercise of outstanding options under the assumed plan and agreements. No additional options may be granted under the assumed plan. The weighted average exercise price of all such assumed options to acquire shares of our common stock was $1.40 per share. +(2) Includes 235,000 shares of our common stock subject to RSUs that entitle each holder to one share of common stock for each such unit that vests over the holder’s period of continued service. +(3) Calculated without taking into account the 235,000 shares of common stock subject to outstanding RSUs that become issuable as those units vest, without the payment of any additional consideration or exercise price. +23 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of June 30, 2012, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers in the Summary Compensation Table which appears elsewhere herein, (iii) each of our directors, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2) +Percent of Class(2) +Lloyd I. Miller, III(3) +4,791,325 +14.2 +% +Austin W. Marxe and David M. Greenhouse(4) +4,104,703 +12.2 +Abbas Mohaddes(5) +1,308,108 +3.8 +James S. Miele(6) +89,004 +* +Todd Kreter(7) +69,058 +* +Greg McKhann(8) +118,200 +* +Richard Char(9) +55,000 +* +Kevin C. Daly, Ph.D(10) +400,132 +1.2 +Gregory A. Miner(11) +667,485 +2.0 +Joel Slutzky(12) +1,887,003 +5.6 +Thomas L. Thomas(13) +84,000 +* +Mikel Williams(14) +30,000 +* +All executive officers and directors as a group (11 persons)(15) +4,707,990 +13.5 +% +* Less than 1%. +(1) The address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) Based on 33,690,075 shares of common stock outstanding as of June 30, 2012. Shares of common stock subject to options or warrants which are exercisable within 60 days of June 30, 2012 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) and Stock Ownership Plan. +(3) Pursuant to an amendment to a Schedule 13G filed on February 14, 2012 with the SEC, Mr. Miller reported that, as of December 31, 2011, he had shared dispositive and voting power with respect to 127,843 shares as (i) an investment advisor to the trustee of a certain family trust, (ii) an authorized person with respect to a custody account, and (iii) co-member and co-manager of a limited liability company. Mr. Miller also had sole dispositive and voting power with respect to 4,663,482 shares as (i) a manager of a limited liability company that is the general partner of a certain limited partnership, (ii) the manager of a limited liability company that is the adviser to certain family trusts, and (iii) an individual. The address for Mr. Miller is 222 Lakeview Avenue, Suite 160-365, West Palm Beach, Florida 33401. +(4) Pursuant to an amendment to a Schedule 13G filed on February 13, 2012 with the SEC, Messrs. Marxe and Greenhouse reported that, as of December 31, 2011, they shared sole voting and dispositive power over 728,203 shares owned by Special Situations Cayman Fund, L.P. (“Cayman”), 2,266,850 shares owned by Special Situations Fund III QP, L.P. (“SSFQP”) and 1,109,650 shares owned by Special Situations Private Equity Fund, L.P. (“SSPE”, and collectively with Cayman and SSFQP, the “SS Funds”). Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. (“AWM”), the general partner of and investment adviser to Cayman. AWM also serves as the general partner of MGP Advisers Limited Partnership, the general partner of and investment adviser to SSFQP. Messrs. Marxe and Greenhouse are also members of MG Advisers L.L.C., the general partner of SSPE. AWM serves as the investment adviser to SSFQP and SSPE. The principal business of each SS Fund is to invest in equity and equity-related securities and other securities of any kind or nature. The address for Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New York, NY 10022. +24 +(5) Includes (i) 423,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012, (ii) 12,500 shares issuable within 60 days after June 30, 2012 upon vesting of RSUs and (iii) 11,540 shares held by Mr. Mohaddes’ IRA. +(6) Includes (i) 61,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012 and (ii) 11,500 shares issuable within 60 days after June 30, 2012 upon vesting of RSUs. +(7) Includes (i) 51,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012 and (ii) 11,500 shares issuable within 60 days after June 30, 2012 upon vesting of RSUs. +(8) Includes (i) 56,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012 and (ii) 11,500 shares issuable within 60 days after June 30, 2012 upon vesting of RSUs. +(9) Includes (i) 55,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012 and (ii) 9,000 shares held by the Char-Yoshida Family Trust, of which Mr. Char is a co-trustee. +(10) Includes (i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares held by Dr. Daly’s IRA, and (iii) 55,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012. +(11) Includes (i) 183,334 shares held by Mr. Miner’s IRA, (ii) 19,230 shares held by Mr. Miner’s wife’s IRA and (iii) 240,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012. +(12) Includes (i) 1,584,922 shares held by The J&J Slutzky Trust, of which Mr. Slutzky is the co-trustee, (ii) 144,616 shares held by Mr. Slutzsky’s IRA and (ii) 70,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012. +(13) Includes 55,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012. +(14) Includes 20,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012. +(15) Includes (i) 1,087,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2012 and (ii) 46,250 shares issuable within 60 days after June 30, 2012 upon vesting of RSUs. Includes Thomas Blair, who joined us as Senior Vice President, iPerform, in July 2012. +25 +CERTAIN TRANSACTIONS +Since April 1, 2010, other than the agreements and transactions described in “Executive Compensation and Other Information” and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or the average of the Company’s total assets at year end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We previously subleased office space to MAXxess Systems, Inc. (“MAXxess”), one of our former subsidiaries that we sold in September 2003 and is currently owned by an investor group that includes two of our directors, Messrs. Daly and Slutzky. The sublease terminated in September 2007, at which time MAXxess owed us an aggregate of $274,000 related to this sublease and certain ancillary corporate services that we provided to MAXxess. In August 2009, MAXxess executed a promissory note payable to us for $274,000. The promissory note bears interest at a rate of 6% per annum, compounded annually, with accrued interest to be paid annually on the first business day of each calendar year. Payments under the note may be made in bona fide services rendered by MAXxess to us to the extent such services and amounts are pre-approved in writing by us. All amounts outstanding under the note will become due and payable on the earliest of (i) August 10, 2014, (ii) a change of control in MAXxess, or (iii) a financing by MAXxess resulting in gross proceeds of at least $10 million. As of March 31, 2012, approximately $259,000 of the original principal balance was outstanding and payable to Iteris. During Fiscal 2012, approximately $16,000 of accrued interest along with $15,000 of the principal balance were paid off through the rendering of agreed-upon bona fide services by MAXxess to Iteris. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any persons holding more than 10% of our common stock are required to report their ownership of our common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file by such dates. For Fiscal 2012, the Form 4 filings for the following persons were not filed within two business days of the grants, which occurred on August 10, 2011: (i) a stock option grant and restricted stock unit award to each of Messrs. Kreter, Miele and McKhann and (ii) a stock option grant to Mr. Mohaddes. Based solely on our review of copies of the reports on Forms 3, 4 and 5 received by us with respect to the fiscal year ended March 31, 2012 and the written representations received from the reporting persons that no other reports were required, except as indicated in the foregoing sentence or as indicated in our prior proxy statements, we believe that all directors, executive officers and persons who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section. +ANNUAL REPORT +A copy of our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our proxy statement for the 2013 Annual Meeting of Stockholders (the “2013 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2013 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than April 5, 2013. +26 +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the stockholder must submit the proposal or nomination on or between May 17, 2013 and June 16, 2013. If the date of the 2013 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the 2013 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents at the 2013 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2013 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF ITERIS, INC. +Santa Ana, California +July 30, 2012 +27 +Appendix A +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(amended and restated as of July 20, 2012) +n +Table of Contents +Section 1. +Purpose +A-1 +Section 2. +Definitions +A-1 +Section 3. +Administration +A-3 +(a) +Power and Authority of the Committee +A-3 +(b) +Power and Authority of the Board +A-4 +Section 4. +Shares Available for Awards +A-4 +(a) +Shares Available +A-4 +(b) +Accounting for Awards +A-4 +(c) +Adjustments +A-4 +(d) +Section 162(m) Award Limitations Under the Plan +A-4 +Section 5. +Eligibility +A-5 +Section 6. +Awards +A-5 +(a) +Options +A-5 +(b) +Stock Appreciation Rights +A-6 +(c) +Restricted Stock and Restricted Stock Units +A-6 +(d) +Performance Awards +A-6 +(e) +Dividend Equivalents +A-7 +(f) +Other Stock Grants +A-7 +(g) +Other Stock-Based Awards +A-7 +(h) +General +A-7 +(i) +Directors’ Automatic Option Grant Program +A-8 +Section 7. +Amendment and Termination; Adjustments +A-10 +(a) +Amendments to the Plan +A-10 +(b) +Amendments to Awards +A-10 +(c) +Correction of Defects, Omissions and Inconsistencies +A-10 +Section 8. +Income Tax Withholding +A-10 +Section 9. +General Provisions +A-11 +(a) +No Rights to Awards +A-11 +(b) +Award Agreements +A-11 +(c) +Plan Provisions Control +A-11 +(d) +No Rights of Stockholders +A-11 +(e) +No Limit on Other Compensation Arrangements +A-11 +(f) +No Right to Employment +A-11 +(g) +Governing Law +A-11 +(h) +Severability +A-11 +(i) +No Trust or Fund Created +A-12 +(j) +Other Benefits +A-12 +(k) +No Fractional Shares +A-12 +(l) +Headings +A-12 +(m) +Section 16 Compliance; Section 162(m) Administration +A-12 +(n) +Conditions Precedent to Issuance of Shares +A-12 +Section 10. +Effective Date of the Plan +A-12 +Section 11. +Term of the Plan +A-12 +A-i +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(amended and restated as of July 20, 2012) +Section 1. Purpose +The purpose of the Plan is to promote the interests of the Company and its stockholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors, advisors and directors capable of assuring the future success of the Company, to offer such persons incentives to continue in the Company’s employ or service and to afford such persons an opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company. +Section 2. Definitions +As used in the Plan, the following terms shall have the meanings set forth below: +(a) “ Affiliate ” shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee. +(b) “ Award ” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, Other Stock Grant or Other Stock-Based Award granted under the Plan. +(c) “ Award Agreement ” shall mean any written agreement, contract or other instrument or document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee. +(d) “ Board ” shall mean the Board of Directors of the Company. +(e) “ Change in Control ” shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) a merger, consolidation or other reorganization unless securities representing more than 50% of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction; (ii) a sale, transfer or other disposition of all or substantially all of the Company’s assets; or (iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders. +(f) “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. +(g) “ Committee ” shall mean one or more committees of Directors designated by the Board to administer the Plan, of which the Company’s compensation committee shall initially be the primary committee. The primary Committee shall be comprised of at least two Directors but not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3 and Section 162(m) of the Code, and each member of the primary Committee shall be a “ Non-Employee Director ” and an “ Outside Director .” Any secondary Committee shall be comprised of at least two Directors. +A-1 +(h) “ Company ” shall mean Iteris, Inc., a Delaware corporation, and any successor corporation. +(i) “ Director ” shall mean a member of the Board, including any Non-Employee Director. +(j) “ Dividend Equivalent ” shall mean any right granted under Section 6(e) of the Plan. +(k) “ Eligible Person ” shall mean any employee, officer, consultant, independent contractor, advisor or director providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person. +(l) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended. +(m) “ Fair Market Value ” shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing and unless otherwise determined by the Committee, if the Shares are at the time listed on any stock exchange in the United States, the Fair Market Value of a Share as of a given date shall be the closing sale price of one Share as reported on the principal United States exchange on which the Shares are listed on the date as of which Fair Market Value is being determined, or, if there is no closing sales price for the Shares on the date in question, then the Fair Market Value shall be the closing sales price on the last preceding date for which such price exists. +(n) “ Incentive Stock Option ” shall mean an option granted under Section 6(a) of the Plan that is intended to qualify as an “incentive stock option” in accordance with the terms of Section 422 of the Code or any successor provision. +(o) “ Non-Employee Director ” shall mean any Director who is not also an employee of the Company or an Affiliate within the meaning of Rule 16b-3. +(p) “ Non-Qualified Stock Option ” shall mean an option granted under Section 6(a) of the Plan that is not an Incentive Stock Option. +(q) “ Option ” shall mean an Incentive Stock Option or a Non-Qualified Stock Option. +(r) “ Other Stock Grant ” shall mean any right granted under Section 6(f) of the Plan. +(s) “ Other Stock-Based Award ” shall mean any right granted under Section 6(g) of the Plan. +(t) “ Outside Director ” shall mean any Director who is an “outside director” within the meaning of Section 162(m) of the Code. +(u) “ Participant ” shall mean an Eligible Person designated to be granted an Award under the Plan. +(v) “ Performance Award ” shall mean any right granted under Section 6(d) of the Plan. +(w) “ Performance Goal ” shall mean one or more of the following performance goals, either individually, alternatively or in any combination, applied on a corporate, subsidiary or business unit basis: revenue, cash flow, gross profit, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net earnings, earnings per share, margins (including one or more of gross, operating and net income margins), returns (including one or more of return on assets, equity, investment, capital and revenue and total stockholder return), stock price, economic value added, working capital, market share, cost reductions, workforce satisfaction and diversity goals, employee retention, customer satisfaction, and completion of key projects and strategic plan development and implementation. Such goals may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities or other external measure of the selected performance criteria. Pursuant to rules and conditions adopted by the Committee on or before the 90th day of the applicable performance period for which Performance Goals are established, the Committee may appropriately adjust any evaluation of performance under such goals to exclude the effect of certain events, including any of the following events: asset write-downs; litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; severance, contract termination and other costs related to exiting certain business activities; and gains or losses from the disposition of businesses or assets or from the early extinguishment of debt. +A-2 +(x) “ Person ” shall mean any individual or entity, including a corporation, partnership, limited liability company, association, joint venture or trust. +(y) “ Plan ” shall mean the Iteris, Inc. 2007 Omnibus Incentive Plan, as amended from time to time, the provisions of which are set forth herein. +(z) “ Qualified Performance Based Award ” shall have the meaning set forth in Section 6(d) of the Plan. +(aa) “ Restricted Stock ” shall mean any Share granted under Section 6(c) of the Plan. +(bb) “ Restricted Stock Unit ” shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or evidencing the right to receive a cash payment equal to the Fair Market Value of a Share if explicitly so provided in the Award Agreement) at some future date. +(cc) “ Rule 16b-3 ” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation. +(dd) “ Section 162(m) ” shall mean Section 162(m) of the Code and the applicable Treasury Regulations promulgated thereunder. +(ee) “ Securities Act ” shall mean the Securities Act of 1933, as amended. +(ff) “ Service ” shall mean the performance of services for the Company (or any Affiliate) by a person in the capacity of an employee, a member of the board of directors or a consultant, except to the extent otherwise specifically provided in the Award Agreement. +(gg) “ Share ” or “ Shares ” shall mean a share or shares of common stock, $0.10 par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. +(hh) “ Stock Appreciation Right ” shall mean any right granted under Section 6(b) of the Plan. +Section 3. Administration +(a) Power and Authority of the Committee . The Plan shall be administered by the Board and the primary Committee. The Board may designate a secondary Committee to have concurrent authority to administer the Plan, provided that the secondary Committee shall not have any authority (i) with regard to grants of Options to be made to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Exchange Act, (ii) in such a manner as would cause the Plan not to comply with the requirements of Section 162(m) of the Code or (iii) in such a manner as would contravene Section 157 of the Delaware General Corporation Law. Any Awards made to members of the Committee, however, should be authorized by a disinterested majority of the Board. Subject to the express provisions of the Plan and to applicable law, the Committee (or the Board, as applicable) shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be determined in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of any Option or waive any restrictions relating to any Award; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the +A-3 +administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Eligible Person and any holder or beneficiary of any Award. +(b) Power and Authority of the Board . Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan. +Section 4. Shares Available for Awards +(a) Shares Available . Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under the Plan shall be Two Million Four Hundred Fifty Thousand (2,450,000). Shares to be issued under the Plan may be either authorized but unissued Shares or Shares re-acquired and held in treasury. Notwithstanding the foregoing, (x) the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed Two Million Four Hundred Fifty Thousand (2,450,000), subject to adjustment as provided in Section 4(c) of the Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision, and (y) the number of Shares available for granting Restricted Stock and Restricted Stock Units shall not exceed Two Million Four Hundred Fifty Thousand (2,450,000), subject to adjustment as provided in Section 4(c) of the Plan. +(b) Accounting for Awards . For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. +(c) Adjustments . In the event any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards, (iii) the purchase price or exercise price with respect to any Award and (iv) the limitations contained in Section 4(d) of the Plan; provided , however , that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. +(d) Section 162(m) Award Limitations Under the Plan . Notwithstanding any other provision of the Plan other than Section 4(c), if the Committee provides that this Section 4(d) is applicable to a particular Award, no Participant receiving such an Award shall be granted: (i) Options or SARs with respect to more than 500,000 Shares in the aggregate within any fiscal year of the Company; or (ii) Qualified Performance Based Awards which could result in such Participant receiving more than $1,500,000 in cash or the equivalent Fair Market Value of Shares determined at the date of grant for each full or partial fiscal year of the Company contained in the performance period of a particular Qualified Performance Based Award; provided , however , that, if any other Qualified Performance Based Awards are outstanding for such Participant for a given fiscal year, such dollar limitation shall be reduced for each such given fiscal year by the amount that could be received by the Participant under all such Qualified Performance Based Awards, divided, for each such Qualified Performance Based Award, by the number of full or partial fiscal years of the Company contained in the performance period of each such outstanding Qualified Performance Based Award; provided , however , that the limitations set forth in this Section 4(d) shall be subject to adjustment under Section 4(c) of the Plan only to the extent that such adjustment does not affect the status of any Award intended under Section 6(d) to qualify as “performance based compensation” under Section 162(m) of the Code. +A-4 +Section 5. Eligibility +Any Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full-time or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any successor provision. +Section 6. Awards +(a) Options . The Committee is hereby authorized to grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: +(i) Exercise Price . The purchase price per Share purchasable under an Option shall be determined by the Committee; provided , however , that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. +(ii) Option Term . The term of each Option shall be fixed by the Committee at the time of grant, but shall not be longer than 10 years from the date of grant. +(iii) Time and Method of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the applicable exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. The Committee shall have the discretion to grant Options that are exercisable for unvested Shares. Should the Participant’s Service cease while the Shares issued upon the early exercise of the Participant’s Options are still unvested, the Company shall have the right to repurchase any or all of those unvested Shares at a price per share determined by the Committee. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Committee and set forth in the Award Agreement. Any repurchases must be made in compliance with the relevant provisions of Delaware law. +(iv) Incentive Stock Options . Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options: +(A) The Committee will not grant Incentive Stock Options in which the aggregate Fair Market Value (determined as of the time the option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under this Plan and all other plans of the Company and its Affiliates) shall exceed $100,000. +(B) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by the Board or the date this Plan was approved by the stockholders of the Company. +(C) Unless sooner exercised, all Incentive Stock Options shall expire and no longer be exercisable no later than 10 years after the date of grant; provided , however , that in the case of a grant of an Incentive Stock Option to a Participant who, at the time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Affiliate, such Incentive Stock Option shall expire and no longer be exercisable no later than 5 years from the date of grant. +A-5 +(D) The purchase price per Share for an Incentive Stock Option shall be not less than 100% of the Fair Market Value of a Share on the date of grant of the Incentive Stock Option; provided , however , that, in the case of the grant of an Incentive Stock Option to a Participant who, at the time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Affiliate, the purchase price per Share purchasable under an Incentive Stock Option shall be not less than 110% of the Fair Market Value of a Share on the date of grant of the Inventive Stock Option. +(E) Any Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the Option as an Incentive Stock Option. +(b) Stock Appreciation Rights . The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. Each Stock Appreciation Right granted under the Plan shall confer on the holder upon exercise the right to receive a number of Shares equal to the excess of (a) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (b) the grant price of the Stock Appreciation Right as determined by the Committee, which grant price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan, the grant price, term, methods of exercise, dates of exercise and any other terms and conditions (including conditions or restrictions on the exercise thereof) of any Stock Appreciation Right shall be as determined by the Committee. +(c) Restricted Stock and Restricted Stock Units . The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: +(i) Restrictions . Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. +(ii) Issuance of Shares . Any Restricted Stock granted under the Plan may be evidenced in such manner as the Board may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions applicable to such Restricted Stock. +(iii) Forfeiture . Except as otherwise determined by the Committee, upon a Participant’s termination of Service (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided , however , that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. +(d) Performance Awards . The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject to the terms of the Plan. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the +A-6 +length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee. From time to time, the Committee may designate an Award granted pursuant to the Plan as an award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code (a “ Qualified Performance Based Award ”). Qualified Performance Based Awards shall, to the extent required by Section 162(m), be conditioned solely on the achievement of one or more objective Performance Goals, and such Performance Goals shall be established by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). The Committee shall also certify in writing that such Performance Goals have been met prior to payment of the Qualified Performance Based Awards to the extent required by Section 162(m). +(e) Dividend Equivalents . The Committee is hereby authorized to grant Dividend Equivalents to Eligible Persons under which the Participant shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan, such Dividend Equivalents may have such terms and conditions as the Committee shall determine. +(f) Other Stock Grants . The Committee is hereby authorized, subject to the terms of the Plan, to grant to Eligible Persons Shares without restrictions thereon (“ Other Stock Grants ”) as are deemed by the Committee to be consistent with the purpose of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, such Other Stock Grant may have such terms and conditions as the Committee shall determine. +(g) Other Stock-Based Awards . The Committee is hereby authorized to grant to Eligible Persons, subject to the terms of the Plan, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(g) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. +(h) General . +(i) Consideration for Awards . Awards may be granted for no cash consideration or for any cash or other consideration as determined by the Committee and required by applicable law. +(ii) Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. +(iii) Forms of Payment under Awards . Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments. +A-7 +(iv) Limits on Transfer of Awards . No Award (other than Other Stock Grants) and no right under any such Award shall be transferable by a Participant other than by will or by the laws of descent and distribution and the Company shall not be required to recognize any attempted assignment of such rights by any Participant; provided , however , that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; provided , further , that, if so determined by the Committee, a Participant may, at any time that such Participant holds such Option, transfer a Non-Qualified Stock Option to any “Family Member” (as such term is defined in the General Instructions to Form S-8, or any successor to such Instructions or such Form), or to an inter vivos or testamentary trust in which Family Members have a beneficial interest of more than 50% and which provides that such Option is to be transferred to the beneficiaries upon the Participant’s death, provided that the Participant may not receive any consideration for such transfer, the Family Member may not make any subsequent transfers other than by will or by the laws of descent and distribution and the Company receives written notice of such transfer, provided , further , that, if so determined by the Committee and except in the case of an Incentive Stock Option, Awards may be transferable as determined by the Committee. Except as otherwise determined by the Committee, each Award (other than an Incentive Stock Option) or right under any such Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. Except as otherwise determined by the Committee, no Award (other than an Incentive Stock Option) or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or other encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. +(v) Term of Awards . The term of each Award shall be fixed by the Committee at the time of grant, but shall not be longer than 10 years from the date of grant. +(vi) Restrictions; Securities Exchange Listing . All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may direct appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been and continue to be admitted for trading on such securities exchange. No Shares or other assets shall be issued or delivered pursuant to the Plan unless and until there shall have been compliance with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration statement for the Shares issuable pursuant to the Plan, and all applicable listing requirements of any stock exchange or trading system on which Common Stock is then traded. No Shares shall be issued or delivered pursuant to the Plan if doing so would violate any internal policies of the Company. +(vii) Prohibition on Repricing . Except as provided in Section 4(c) of the Plan, no Option or Stock Appreciation Right may be amended to reduce its initial exercise or grant price and no Option or Stock Appreciation Right shall be canceled and replaced with Options or Stock Appreciation Rights having a lower exercise or grant price, without the approval of the stockholders of the Company or unless there would be no material adverse effect on the Company’s financial statements as prepared in accordance with generally accepted accounting principles in the United States. +(i) Directors’ Automatic Option Grant Program . +(i) Annual Grant . Beginning with the 2011 Annual Stockholders Meeting, each Non-Employee Director shall receive annually on the date of each annual stockholders’ meeting a Non-Qualified Stock Option to purchase Ten Thousand (10,000) Shares, provided that such Non-Employee Director has served as a Non-Employee Director for at least six (6) months and is to continue to serve as a Non-Employee Director, whether or not he or she is standing for reelection at that particular Annual Meeting. The exercise price for the Shares shall be 100% of the Fair Market Value of the Shares on the +A-8 +date of grant. Each Option shall be exercisable immediately upon grant, shall be exercisable for ten (10) years following the date of grant and shall be generally subject to the terms and conditions set forth in the Plan. Each such Option shall initially be unvested and shall vest in full upon the Non-Employee Director’s completion of one (1) year of Board service measured from the grant date. There shall be no limit on the number of such automatic Option grants any one Non-Employee Director may receive over his or her period of Board service, and Non-Employee Directors who have previously been employees of the Company (or any Affiliate) or who have received one or more Option grants from the Company prior to becoming a Non-Employee Director shall be eligible to receive one or more such automatic Option grants over their period of continued Board service. +(ii) Initial Grant . Upon appointment or initial election to the Board, each Non-Employee Director shall receive a Non-Qualified Stock Option to purchase Twenty Thousand (20,000) Shares, provided such individual was not previously in the Company’s employ. The exercise price for such Shares shall be 100% of the Fair Market Value of the Shares on the date of grant. Each Option shall be exercisable immediately upon grant, shall be exercisable for 10 years following the date of grant and shall be generally subject to the terms and conditions set forth in the Plan. Each such Option shall initially be unvested and shall vest in full upon the Non-Employee Director’s completion of one (1) year of Board service measured from the grant date. +(iii) Termination of Board Service . The following provisions shall govern the exercise of any options granted to Non-Employee Directors pursuant to the Automatic Option Grant Program that are outstanding at the time the Non-Employee Director ceases to serve as a Board member: +(A) Should the Non-Employee Director’s service as a Board member cease for any reason while one or more Options granted pursuant to this Automatic Option Grant Program are outstanding, then each such Option shall remain exercisable, for any or all of the vested Shares for which the Option is exercisable at the time of such cessation of Board service, until the earlier of (i) the termination date of the Option or (ii) the expiration of the one-year period measured from the date the Non-Employee Director’s Board service ceases. Upon the expiration of the one-year post-termination exercise period, or (if earlier) upon the termination date of the Option, the Option shall terminate with respect to any vested Shares for which the Option has not been exercised. +(B) Should the Non-Employee Director cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the Option granted pursuant to this Automatic Option Grant Program shall immediately vest so that such Option may, during the twelve (12) month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully vested shares of Common Stock. “ Permanent Disability ” for purposes of this section shall mean the inability of the Non-Employee Director to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. +(C) Each Option granted pursuant to this Automatic Option Grant Program that is outstanding at the time of the Non-Employee Director’s cessation of Board service shall immediately terminate and cease to remain outstanding with respect to any and all unvested Shares for which the Option is not otherwise at that time exercisable. +(iv) Change in Control . In the event of a Change in Control effected during the Non-Employee Director’s period of Board service, the vesting, if any, of each Option granted pursuant to this Automatic Option Grant Program at the time held by such Non-Employee Director shall automatically accelerate so that each such Option shall, immediately prior to the specified effective date for the Change in Control, become fully-vested and exercisable for all of the Shares at the time subject to such Option and may be exercised for all or any portion of such Shares. Upon the consummation of the Change in Control, all Options granted pursuant to this Automatic Option Grant Program shall terminate and cease to be outstanding. +A-9 +(v) Remaining Terms . The remaining terms and conditions of each Option granted pursuant to this Automatic Option Grant Program shall be substantially the same as the terms in effect for Options made under the Plan and shall be set forth in an Option Agreement. +Section 7. Amendment and Termination; Adjustments +(a) Amendments to the Plan . The Board may amend, alter, suspend, discontinue or terminate the Plan at any time; provided , however , that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: +(i) violates the rules or regulations of the Financial Industry Regulatory Authority, Inc. or any other regulatory organization or securities exchange that are applicable to the Company; +(ii) causes the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan; +(iii) increases the number of shares authorized under the Plan as specified in Section 4(a); +(iv) permits the award of Options or Stock Appreciation Rights at a price less than 100% of the Fair Market Value of a Share on the date of grant of such Option or Stock Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b) of the Plan or the repricing of Options or Stock Appreciation Rights, as prohibited by Section 6(h)(vii) of the Plan; or +(v) would prevent the grant of Options or Stock Appreciation Rights that would qualify under Section 162(m) of the Code. +(b) Amendments to Awards . The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof. Notwithstanding the foregoing, the Committee shall not waive any conditions or rights of the Company, or otherwise amend or alter any outstanding Qualified Performance Based Awards in such a manner as to cause such Award not to qualify as performance based compensation within the meaning of Section 162(m) of the Code. +(c) Correction of Defects, Omissions and Inconsistencies . The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award or Award Agreement in the manner and to the extent it shall deem desirable to implement or maintain the effectiveness of the Plan. +Section 8. Income Tax Withholding +In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal, state and local taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. +A-10 +Section 9. General Provisions +(a) No Rights to Awards . No Eligible Person or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. +(b) Award Agreements . No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant. +(c) Plan Provisions Control . In the event that any provision of an Award Agreement conflicts with or is inconsistent in any respect with the terms of the Plan as set forth herein or subsequently amended, the terms of the Plan shall control. +(d) No Rights of Stockholders . Except with respect to Shares of Restricted Stock as to which the Participant has been granted the right to vote, neither a Participant nor the Participant’s legal representative shall be, or have any of the rights and privileges of, a stockholder of the Company with respect to any Shares issuable to such Participant upon the exercise or payment of any Award, in whole or in part, unless and until such Shares have been issued in the name of such Participant or such Participant’s legal representative without restrictions thereto. +(e) No Limit on Other Compensation Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. +(f) No Right to Employment . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a director of the Company or an Affiliate the right to continue as a director or an Affiliate of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate a Participant’s employment or Service at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a director of the Company or an Affiliate, free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement. Nothing in this Plan shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate. The Awards granted hereunder shall not form any part of the wages or salary of any Eligible Person for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Company or any Affiliate be entitled to any compensation for any loss of any right or benefit under the Plan which such employee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, each Participant shall be deemed to have accepted all the conditions of the Plan and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby. +(g) Governing Law . The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Delaware. +(h) Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. +A-11 +(i) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and an Eligible Person or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. +(j) Other Benefits . No compensation or benefit awarded to or realized by any Participant under the Plan shall be included for the purpose of computing such Participant’s compensation under any compensation-based retirement, disability, or similar plan of the Company unless required by law or otherwise provided by such other plan. +(k) No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. +(l) Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. +(m) Section 16 Compliance; Section 162(m) Administration . The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Eligible Persons. With respect to Options and Stock Appreciation Rights, the Company intends to have the Plan administered in accordance with the requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. +(n) Conditions Precedent to Issuance of Shares . Shares shall not be issued pursuant to the exercise or payment of the purchase price relating to an Award unless such exercise or payment and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange and the Delaware General Corporation Law. As a condition to the exercise or payment of the purchase price relating to such Award, the Company may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation and warranty is required by law. +Section 10. Effective Date of the Plan +The Plan became effective on September 21, 2007, the date of approval of the Plan by the Company’s stockholders. +Section 11. Term of the Plan +No Award shall be granted under the Plan after (i) July 19, 2017 or (ii) any earlier date of discontinuation or termination established pursuant to Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan. +A-12 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 14, 2012 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof, and to vote all shares of common stock of Iteris held of record by the undersigned on July 25, 2012, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS DESCRIBED BELOW, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +x Please mark votes as in this example. +1. +Election of Directors: To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Joel Slutzky, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o FOR ALL o WITHHOLD FOR ALL o For All EXCEPT* +(*Instructions: To withhold authority to vote for any individual nominee, mark the “For All EXCEPT” box above and write that nominee’s name in the space provided above.) +2. +To approve the amendment of the Iteris, Inc. 2007 Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance under the plan by an additional 800,000 shares to 2,450,000 shares. +o FOR o AGAINST o ABSTAIN +3. +Ratification of McGladrey LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2013. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.) +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-12-052260/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-12-052260/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-13-063806/proxy.txt b/raw/proxies/0000350868/0001104659-13-063806/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..305adfa3f87c4f10d7ff8bda6a95bcd30a07de92 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-13-063806/proxy.txt @@ -0,0 +1,753 @@ +DEF 14A +1 +a13-16701_1def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 23, 2013 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2013 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 23, 2013 at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in the proxy statement accompanying this Notice: +1. To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +2. To ratify the appointment of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2014. +3. To approve, by advisory vote, the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +4. To conduct an advisory vote on the frequency of conducting future advisory votes on the compensation of our named executive officers. +5. To transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All stockholders of record as of the close of business on July 25, 2013 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or adjournment(s) thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Abbas Mohaddes +Chief Executive Officer and President +Santa Ana, California +August 14, 2013 +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2013 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 23, 2013 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), to be voted at the 2013 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on September 23, 2013 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. These proxy materials and the form of proxy are expected to be mailed to our stockholders who are entitled to vote at the Annual Meeting on or about August 20, 2013. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON SEPTEMBER 23, 2013: The proxy statement, proxy card, and Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as amended by Amendment No. 1 on Form 10-K/A (the “Annual Report”), are available at www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as July 25, 2013. At the close of business on the record date, 32,470,331 shares of our common stock, par value $0.10 per share, were outstanding and no shares of our preferred stock were outstanding. Each stockholder is entitled to one vote for each share of common stock held by such stockholder as of the record date. +The presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in effect. Pursuant to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +1 +With regard to Proposals Two and Three, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual Meeting is being sought. With respect to Proposal Four, there is no threshold vote that must be obtained for the proposal. The Board of Directors will consider the frequency that receives the highest number of votes by stockholders to be the frequency that is preferred by stockholders. +If you hold your shares in “street name” (i.e., your shares are held in the name of a brokerage firm, bank or other nominee (each, a “custodian”)), your custodian is considered to be the stockholder of record for purposes of voting at the Annual Meeting. Your custodian is required to vote your shares on your behalf in accordance with your instructions. If you do not give instructions to your custodian, your custodian is permitted to vote your shares with respect to “routine” matters, such as the ratification of the appointment of McGladrey LLP as our independent registered public accounting firm under Proposal Two. However, if you do not give instructions to your custodian, your custodian will NOT be permitted to vote your shares with respect to “non-routine” matters. All other proposals described in this proxy statement are considered non-routine matters. Accordingly, if you do not give your custodian specific instructions for voting on Proposals One, Three or Four, then your shares will be treated as “broker non-votes” with respect to such proposal(s) and will not be voted on the proposal(s) for which you did not provide instructions. +All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a proposal has been approved. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically over the Internet or by telephone, or (iii) by ballot in person at the Annual Meeting. If you are a “registered holder” (i.e., your shares are registered in your own name through our transfer agent), you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in “street name”, in lieu of a proxy card you should receive a voting instruction form from that custodian by mail. The voting instruction form should indicate whether the custodian has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should receive from that custodian an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card or voting instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted (i) FOR the election of the directors proposed by our Board of Directors (the “Board”) under Proposal One, (ii) for THREE YEARS with respect to Proposal Four and (iii) FOR the approval of each of the other proposals as described in this proxy statement and the accompanying notice. +The enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. We have not been notified by any stockholder of an intent to present a stockholder proposal at the Annual Meeting. +2 +If your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +Seven directors are to be elected at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors selected and approved the following persons as nominees for election at the Annual Meeting: Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas and Mikel Williams. Each nominee, other than Mr. Mooney, is currently a member of our Board of Directors. Joel Slutzky, one of our current directors, will not be standing for reelection at the Annual Meeting. Each nominee for election has agreed to serve if elected, and we have no reason to believe that any of the nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +Stockholder Approval +The seven candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing for election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” the seven director nominees listed above. +Directors and Nominees +The table and narrative below set forth information as of August 1, 2013 regarding each director (other than Mr. Slutzky who will not be serving as a director after the Annual Meeting) and each director nominee, including the year they first became directors, business experience during at least the past five years, public company boards they currently serve on or have served on during the past five years, and certain other biographical information and attributes that the Nominating and Corporate Governance Committee determined qualify them to serve as directors. The Nominating and Corporate Governance Committee believes that the directors and director nominees have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the ability to engage management and each other in a constructive and collaborative fashion; diversity of experience and thought; and the commitment to devote significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +Richard Char(3) +54 +Director +Kevin C. Daly, Ph.D.(2)(3) +69 +Director +Gregory A. Miner(1) +58 +Chairman of the Board +Abbas Mohaddes +56 +Chief Executive Officer, President and Director +Gerard M. Mooney +59 +Director Nominee +Thomas L. Thomas(1)(2)(3) +64 +Director +Mikel Williams(1)(2) +56 +Director +(1) Member of the Audit Committee +(2) Member of the Compensation Committee +(3) Member of the Nominating and Corporate Governance Committee +Richard Char has served as a Managing Director with Citi Enterprise Payments since August 2011. He is currently the Global Head of Digital Networks and Retail Solutions. Prior to joining Citi, Mr. Char was the Senior Managing Director at Regent Pacific Management Corporation, a turnaround, restructuring, and performance improvement firm, from September 2010 to August 2011. From October 2008 to March 2010, Mr. Char served as CEO of Incentium, LLC (formerly, VIPGift LLC), a provider of corporate and consumer loyalty and incentive programs. Incentium filed for bankruptcy protection in February 2011. +4 +From June 2006 to July 2008, Mr. Char was the Senior Vice President of Corporate Development and General Counsel of Blackhawk Network, Inc., an affiliate of Safeway which markets pre-paid gift cards through leading U.S. retailers. Mr. Char’s prior business experience includes serving as the President and Chief Executive Officer of IC Media, a developer of CMOS digital image sensors, as the Managing Director with the Technology Group of Credit Suisse First Boston, as Co-Head of Technology Investment Banking at Cowen & Company, and as a partner in the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Char also served on the board of directors of Netlist, Inc. from January 2010 until December 2012. He received his A.B. degree from Harvard College and his J.D. degree from Stanford Law School. Mr. Char has served as a director since October 2005 and brings to the Board of Directors executive leadership experience, as well as significant corporate finance, legal and corporate development experience and financial acumen through his many years of work as a lawyer and in corporate finance. +Kevin C. Daly, Ph.D. has served as the CEO of Maxxess Systems, Inc., a provider of electronic security systems, since November 2005. Between August 2007 and August 2009, Dr. Daly also served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. and ATL Products, Inc. Dr. Daly currently serves on the board of directors of STEC, Inc., a provider of solid state disk systems, and from 2002 to 2008, he served as a director of Danka Business Systems, PLC. Dr. Daly received a B.S. degree in electrical engineering from the University of Notre Dame and M.S., M.A. and Ph.D degrees in engineering from Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a director of both private and public companies, Dr. Daly offers to the Board a wealth of management and leadership experience as well as an understanding of issues faced by such companies. +Gregory A. Miner has served as a Managing Partner of Merchant Capital Source, LLC, a company that provides working capital financing solutions to merchants, since 2004. Prior to that, Mr. Miner served in a number of management positions with us and our subsidiaries, most recently as our Chief Executive Officer. Mr. Miner is a Certified Public Accountant and his business experience includes work at Deloitte Haskins and Sells (now known as Deloitte LLP). Mr. Miner has served as a director since 1998 and as our Chairman of the Board of Directors since 2004. Through his service in a variety of executive positions with us and our subsidiaries, Mr. Miner has a deep and broad understanding of our business as well as the leadership skills and the operational understanding to provide sound guidance in continuing to grow our business. +Abbas Mohaddes has served as our Chief Executive Officer and President since March 2007 and as a director since September 2005. Prior to his promotion in March 2007, Mr. Mohaddes served as our Executive Vice President from October 2004. He also served in a number of executive positions with our former Iteris, Inc. subsidiary (“Iteris Subsidiary”), through which the majority of our current operations were conducted until we merged that subsidiary into us in October 2004. Mr. Mohaddes was also the President and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), an ITS and transportation firm that he co-founded, which was acquired by the Iteris Subsidiary in 1998. Mr. Mohaddes is the past chairman of the board and a founding member of Intelligent Transportation Society of America and a member of several trade organizations, including Transportation Research Board, Institute of Transportation Engineers, and the Design/Build Institute of America. Mr. Mohaddes provides extensive technology, industry and management experience to the Board, as well as a substantial understanding of the Company and its operations resulting from his service as an officer of our Iteris Subsidiary and as the founder of MMA. +Gerard M. Mooney has served in a number of senior positions at International Business Machines Corporation (“IBM”) since 2000. He is currently the Vice President Strategy for IBM’s Public Sector and served as the General Manager, Global Smarter Cities for IBM from November 2011 to February 2012 and as the General Manager, Global Government and Education for IBM from April 2008 to November 2011. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company for six years. Mr. Mooney has extensive operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies. He is actively involved in the intelligent transportation market and serves as a member of the board of directors of the Intelligent Transportation Society of America. He also has considerable experience with the major customers in the professional transportation market. He received a B.A. degree from Mount Saint Mary’s College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. Mr. Mooney brings to the Board of Directors extensive experience in setting and implementing strategy for both large and small technology organizations, deep category knowledge of the intelligent transportation market, and familiarity with many key customers for intelligent transportation solutions. +Thomas L. Thomas has served as the Executive Chairman of International Decision Systems, a provider of software and solutions for the equipment finance market, since September of 2009. He also owns a management consulting business, T2 Partners. From 2004 until his retirement in July 2008, Mr. Thomas was as the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and served in various senior and executive positions at 3Com Corporation, Dell Computer Corporation, Kraft General Foods and Sara Lee Corporation. Mr. Thomas also served on the board of directors of infoGroup, Inc. from January 2009 to July 2010. Mr. Thomas has served as a director of Iteris since 1999 and offers to the Board of Directors valuable business, leadership and strategic insights obtained through his service in a variety of industries, including a number of technology companies, and his experience in working with companies through several stages of their development. +Mikel Williams has served as the Chief Executive Officer and a director of JPS Industries, Inc., a manufacturer of extruded urethane film, sheet and tubing, ethylene vinyl acetate film and sheet and mechanically formed glass and aramid substrate materials for specialty applications, since May 2013. Prior to that, Mr. Williams was the President, Chief Executive Officer and a director of DDi Corporation, a leading provider of time-critical, technologically advanced electronics manufacturing services, from November 2005 to May 2012 and a Senior Vice President and Chief Financial Officer of DDi from November 2004 to October +5 +2005. Mr. Williams has also served in various management positions with several technology related companies, including as the President and sole member of Constellation Management Group, LLC, where he provided strategic, operational, and financial consulting services to companies in the telecommunications, software and other technology-related industries, and in executive positions with Global TeleSystems, Inc. and its subsidiaries, a leading telecommunications company providing data and internet services in Europe. Mr. Williams began his career as a certified public accountant in the State of Maryland, working as an auditor for Price Waterhouse. Mr. Williams also serves on the boards of directors of Tellabs, Inc. and Lightbridge Communications Corporation. Mr. Williams has served as a director of Iteris since April 2011 and provides the Board of Directors with operational and public company experience and valuable strategic insights through his many years of leadership positions in technology-related companies with international operations, as well as valuable knowledge and insights in finance and financial reporting matters. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +6 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and Business Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business Conduct, and any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission (“SEC”), at the same location on our website. +Director Independen c e +Our policy is to have at least a majority of the directors qualify as “independent” under the listing standards of NYSE MKT. The Board of Directors has determined that each of Messrs. Char, Daly, Miner, Mooney, Slutzky, Thomas and Williams satisfies the requirements for “independence” under such listing standards. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee each has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During the fiscal year ended March 31, 2013 (“Fiscal 2013”), the Board of Directors and the various committees of the Board held the following number of meetings: Board of Directors—seven; Audit Committee—four; Compensation Committee—two; and Nominating and Corporate Governance Committee—one. During Fiscal 2013, no director, other than Mr. Char, attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any committees of the Board held while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee are Messrs. Miner, Thomas and Williams. The Board has determined that each member of the Audit Committee is “independent” under the listing standards of NYSE MKT and the SEC rules regarding audit committee memberships. The Board has identified Mr. Williams as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. +The Audit Committee meets privately with our independent registered public accounting firm, and such firm has unrestricted access to and reports directly to the Audit Committee. The Audit Committee has selected McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2014 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +7 +Compensation Committee. The current members of our Compensation Committee are Messrs. Daly, Thomas and Williams. The Board has determined that each member of the Compensation Committee is (or was during his time of service) “independent” under the listing standards of NYSE MKT. +The Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our “officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (c) reviews and makes recommendations to the Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our executive officers; and (e) assists the Board in evaluating potential candidates for executive officer positions and oversees management succession planning. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to the executive’s individual contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the executives, including himself, and recommendations with respect to all executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management engaged a compensation consultant to provide advice or recommendations on the amount or form of executive and director compensation during Fiscal 2013. +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are Messrs. Char, Daly, Slutzky and Thomas. The Board has determined that each member of the Nominating and Corporate Governance Committee is (or was during his time of service) “independent” under the listing standards of NYSE MKT. +The primary purposes of the Nominating and Corporate Governance Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or recommend to the Board of Directors the selection of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring the effectiveness of our corporate governance policies and developing and recommending to the Board modifications and or additions to such policies; and (e) review on a regular basis our overall corporate governance and recommend improvements when necessary. +In connection with their recommendations regarding the size and composition of the Board, the Nominating and Corporate Governance Committee reviews the appropriate qualities and skills required of directors in the context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate’s independence, personal and professional integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company’s and our stockholders’ long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and others as considered useful by the Nominating and Corporate Governance Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Nominating and Corporate Governance Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective directors. The Nominating and Corporate Governance Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been suggested by other members of the Board or by our executive officers. From time to time, the Nominating and Corporate Governance Committee may engage the services of a third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the Chair, Nominating and Corporate Governance +8 +Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) a resume of the candidate’s business experience and educational background as well as all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the Nominating and Corporate Governance Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The Nominating and Corporate Governance Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the Nominating and Corporate Governance Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by the Compensation Committee and legal and regulatory compliance risks are reviewed by the Nominating and Corporate Governance Committee. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can write to the corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. Three of our current directors attended our 2012 annual meeting of stockholders. +9 +PROPOSAL TWO: +RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of McGladrey LLP was engaged to serve as our independent registered public accounting firm for the fiscal year ended March 31, 2013. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2014. We are asking our stockholders to ratify the selection by the Audit Committee of McGladrey LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending March 31, 2014 and to perform other appropriate services. Stockholder ratification of the selection of McGladrey LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of us and our stockholders. +A representative of McGladrey LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2014. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2014. +10 +PROPOSAL THREE: +ADVISORY VOTE REGARDING EXECUTIVE COMPENSATION +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. Commonly known as a “say-on-pay” vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation policies and programs and the compensation paid to the named executive officers. +We are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution at the Annual Meeting: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2013 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved.” +The Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company’s executive compensation policies and practices are effective in achieving the Company’s goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives’ interests with those of the stockholders. +The vote on this proposal is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. +11 +PROPOSAL FOUR: +ADVISORY VOTE ON FREQUENCY OF +FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION +Section 14A of the Exchange Act also requires us to provide stockholders with the opportunity to indicate at least once every six years, on an advisory basis, their preference as to the frequency of future advisory votes on the compensation of our named executive officers. Accordingly, we are asking stockholders to vote on whether future say-on-pay votes should occur once every year, every two years or every three years. Stockholders also may abstain from voting on this proposal. +We believe that once every three years is the optimal frequency for say-on-pay votes for the Company. Our executive compensation programs are designed to promote a long-term connection between pay and performance and a three-year cycle will provide stockholders with sufficient time to evaluate the effectiveness of our overall compensation philosophy, policies and practices in the context of our long-term business results, and avoid over emphasizing short-term variations. A vote every three years will also provide sufficient time for the Board of Directors and the Compensation Committee to consider the results of the advisory vote and to implement any changes to our compensation practices and for the stockholders to observe and evaluate the impact of any changes to our executive compensation policies and practices, which have occurred since the last advisory vote on executive compensation, before stockholders must evaluate the effectiveness of such changes in conjunction with our related business results. Accordingly, the Board of Directors recommends that the stockholders vote for a frequency of every three years for future advisory votes on the compensation of our named executive officers. +Although this vote is advisory and not binding, the Board of Directors and the Compensation Committee will take into consideration the outcome of the vote in setting a policy with respect to the frequency of future advisory votes on executive compensation. However, when considering the frequency of future advisory votes on executive compensation, the Board of Directors and the Compensation Committee may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the most votes cast by our stockholders. If the policy is determined in accordance with the Board’s current recommendation, the next say-on-pay vote would he held at the 2016 annual meeting of stockholders. +Stockholder Approval +Stockholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. There is no threshold vote that must be obtained for this proposal. The Company will consider the frequency that receives the highest number of votes by stockholders to be the frequency that is preferred by stockholders. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote for every “THREE YEARS” as the preferred frequency for advisory votes on the compensation of our named executive officers. +12 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed by McGladrey LLP for the indicated services for the fiscal years ended March 31, 2012 and 2013: +Fiscal Year Ended March 31, +2012 +2013 +Audit Fees +$ +290,000 +$ +275,000 +Audit-Related Fees +51,000 +52,000 +Tax Fees +79,000 +105,000 +All Other Fees +— +— +Total Fees +$ +420,000 +$ +432,000 +Audit Fees. Audit fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements and review of the consolidated financial statements included in our quarterly reports on +Form 10-Q and other regulatory filings. Additionally, audit fees include professional services rendered in connection with the Company’s annual statutory overhead rate audits. +Audit-Related Fees. Audit-related fees consist of fees for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees for registration statements, fees for internal control reviews and assistance with meeting the requirements of Section 404 of the Sarbanes-Oxley Act and certain consultations concerning financial accounting and reporting standards. +Tax Fees. Tax fees consist of fees billed to us by McGladrey LLP during the fiscal years ended March 31, 2012 and 2013 for tax compliance services, which include the preparation of federal, state and international tax returns, and for tax consultations, including tax planning and federal, state and international tax advice. +All Other Fees. There were no other fees billed to us by McGladrey LLP during the fiscal years ended March 31, 2012 and 2013. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by McGladrey LLP or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by McGladrey LLP for the fiscal year ended March 31, 2013. +13 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2013 of Iteris, Inc. included in its Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company’s management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company’s independent registered public accounting firm, McGladrey LLP, the matters required to be discussed by auditing standards set forth in AU Section 380 established by the Public Company Accounting Oversight Board, which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements. +The Audit Committee has received the written disclosures and the letter from McGladrey LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with McGladrey LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gregory A. Miner +Thomas L. Thomas +Mikel Williams +14 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of August 1, 2013, regarding our executive officers. +Name +Age +Capacities in Which Served +Abbas Mohaddes +56 +Chief Executive Officer, President and Director +James S. Miele +45 +Chief Financial Officer, Vice President and Secretary +Todd Kreter +53 +Senior Vice President, Sensors Development and Operations +Thomas N. Blair +49 +Senior Vice President, iPerform +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Mohaddes appears earlier in this proxy statement. See Proposal One: “Election of Directors.” +James S. Miele has served as our Chief Financial Officer and Vice President of Finance since October 2004 and as the Secretary since March 2004. Mr. Miele previously served as our Controller and the Controller of our Iteris Subsidiary. Mr. Miele’s business experience includes working as an audit manager at Ernst & Young LLP, supervising financial statement audits for a variety of public and privately held companies. Mr. Miele is a Certified Public Accountant in the State of California (inactive) and holds a B.S. degree in Accounting from San Diego State University. +Todd Kreter has served as Senior Vice President, Sensors Development and Operations, of the Company since May 2009. Mr. Kreter served as our Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds an executive M.B.A. from Stanford/AEA and a B.S. degree in mechanical engineering from California State University, Fullerton. +Thomas N. Blair has served as Senior Vice President, iPerform, of the Company since July 2012. Prior to that, Mr. Blair served as general manager for Trimble Navigation Limited, a provider of integrated positioning, wireless, and software technology solutions, from 2007 to August 2011, and as vice president for new business development at @Road, Inc., a leading provider of mobile resource management solutions, from 2006 to 2007. He also worked as director of business and corporate development at iAnywhere Solutions, a Sybase company, from 2003 to 2006. Mr. Blair holds a B.S. degree in Management Information Systems from DeVry Institute of Technology and an M.S. degree in Computer Science from Rochester Institute of Technology. +Summary Compensation Table +The following table shows information regarding the compensation earned during the fiscal years ended March 31, 2012 and 2013 by (i) our Chief Executive Officer and (ii) our other executive officers. The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Bonus (1) +Stock +Awards (2) +Option +Awards (3) +Non-Equity +Incentive Plan +Compensation (4) +All Other +Compensation +(5) +Total +Abbas Mohaddes +2013 +$ +380,016 +$ +— +$ +— +$ +— +$ +39,039 +$ +13,581 +$ +432,636 +Chief Executive Officer +2012 +370,290 +30,000 +— +44,083 +114,254 +13,225 +571,852 +James S. Miele +2013 +216,010 +— +— +— +25,657 +7,540 +249,207 +Chief Financial Officer +2012 +214,028 +15,000 +22,000 +17,633 +65,288 +5,788 +339,737 +Todd Kreter +2013 +215,266 +— +— +— +20,871 +7,608 +243,745 +Senior Vice President +2012 +208,276 +15,000 +22,000 +17,633 +39,173 +7,405 +309,487 +Thomas N. Blair (6) +2013 +160,894 +— +75,000 +79,100 +50,000 +1,858 +366,852 +Senior Vice President +2012 +— +— +— +— +— +— +— +(1) +Discretionary cash bonus. +15 +(2) +The dollar amounts shown represent the grant date fair value of restricted stock units (“RSUs”) granted during the applicable fiscal year calculated in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, based on the closing sales price of the underlying shares of our common stock on the respective grant dates and without any adjustment for estimated forfeitures. Each RSU represents the right to receive one share of our common stock. The RSU awards vest in equal annual installments over four years, with the first installment vesting approximately one year after the grant date. Vested shares are issued as soon as practicable after the applicable vesting date. +(3) +The dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date, vest in equal annual installments over four years, and are not exercisable until vested. +(4) +The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain criteria pre-established by the Compensation Committee and, with respect to Mr. Blair, by Mr. Mohaddes. These awards are discussed in further detail under “Plan-Based Bonuses” below. +(5) +Represents 401(k) plan employer contributions and automobile allowances paid by us. +(6) +Mr. Blair was hired on July 10, 2012 at an annual salary of $230,000. The Fiscal 2013 salary noted above represents the amount earned by Mr. Blair from his hire date to the end of Fiscal 2013. +Plan-Based Bonuses +For Fiscal 2013, the potential compensation for Messrs. Mohaddes, Miele and Kreter included an annual cash bonus based upon criteria established by the Compensation Committee at the beginning of the fiscal year. The bonuses were entirely based on our corporate and business unit performance. For the CEO and CFO, 90% of their potential bonus was based on the total revenue and operating income achieved by the Company for the year and 10% of their potential bonus was based on revenue achieved by the iPerform segment. For Mr. Kreter, 50% of his potential bonus was based on the total revenue and operating income achieved by the Company, 40% of his potential bonus was based on revenue and operating income achieved by the Roadway Sensors segment, and 10% of his potential bonus was based on revenue achieved by the iPerform segment. +The corporate and business unit performance targets for the annual cash bonuses for Messrs. Mohaddes, Miele and Kreter for Fiscal 2013 were as follows: +Performance Component(1) +No Bonuses At or Below +Target +Maximum +(in thousands) +Corporate Revenue +$ +59,500 +$ +70,000 +$ +77,000 +Corporate Operating Income +3,500 +4,350 +4,800 +Roadway Sensors Revenue +29,700 +33,000 +34,650 +Roadway Sensors Operating Income +3,850 +4,800 +5,500 +iPerform Revenue +2,900 +3,200 +3,350 +(1) The corporate revenue and operating income goals and the iPerform revenue goal were applicable to each NEO, and the Roadway Sensors revenue and operating income goals were applicable to Mr. Kreter. +The potential bonuses at target for Fiscal 2013 were as follows: Mr. Mohaddes — $175,000; Mr. Miele — $115,000; and Mr. Kreter — $115,000. If our performance for Fiscal 2013 exceeded the revenue and operating income targets set for bonus purposes, the executives could have earned an additional bonus of up to 50% of the target bonus award. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the revenue and operating income goals set forth under the “Maximum” column above. If the Company had achieved revenue and operating income which were less than the goals set forth under the “Maximum” column but more than the amounts set forth under the “Target” column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the performance had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been payable. +16 +In Fiscal 2013, our revenue and operating results for the Company and for the relevant business units were as follows: Corporate Revenue — $61.7 million; Corporate Operating Income — $1.6 million; Roadway Sensors Revenue — $26.0 million; Roadway Sensors Operating Income — $1.6 million; iPerform Revenue — $3.3 million. As a percentage of the targets set for bonus purposes, the results were as follows: Corporate Revenue — 88.1%; Corporate Operating Income — 37.6%; Roadway Sensors Revenue — 78.8%; Roadway Sensors Operating Income — 32.8%; iPerform Revenue — 102.9%. For bonus purposes, segment operating income results include certain corporate allocations. Accordingly, based upon the above described criteria, bonuses in the following amounts were approved for Fiscal 2013: Mr. Mohaddes — $39,039; Mr. Miele — $25,657; and Mr. Kreter— $20,871. +Mr. Blair joined the Company in July 2012 and was not included in the bonus plan described above for Fiscal 2013. Pursuant to his offer letter, for Fiscal 2013, Mr. Blair was entitled to a bonus of up to $100,000 (with a guaranteed minimum of $50,000) based on criteria established by the CEO. 15% of the potential bonus was based on the total revenue and operating income achieved by the Company for the year, 20% of the potential bonus was based on revenue and operating income achieved by the iPerform segment and 20% of the potential bonus was based on the amount of backlog for the iPerform segment. The remaining 45% of the potential bonus was based on Mr. Blair’s achievement of individual objectives focused on management of the iPerform business unit. The minimum/maximum performance targets for Mr. Blair were as follows: Corporate Revenue — $57.8 million/$74.8 million; Corporate Operating Income — $3.3 million/$4.5 million; iPerform Revenue — $2.8 million/$3.3 million; iPerform Operating Income — $(0.6) million/$(0.8) million; iPerform Backlog — $5.1 million/$6.0 million. The amounts payable in connection with such targets were proportional, based on the level of the maximum goal achieved when measured from the minimum amount. In Fiscal 2013, our revenue and operating results were as described in the paragraph immediately above and as follows: iPerform Operating Income — $(0.7) million; iPerform Backlog — $3.3 million. Based upon the above described criteria, Mr. Blair was paid his guaranteed bonus of $50,000 for Fiscal 2013. +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2013. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date (1) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested (2) +Market Value +of Shares or +Units of Stock +That Have Not +Vested (3) +Abbas Mohaddes +Chief Executive Officer +30,000 +— +$ +2.21 +06/15/06 +06/14/16 +25,000 +(4) +$ +44,500 +100,000 +— +2.55 +03/14/07 +03/13/17 +200,000 +— +2.34 +10/02/07 +10/01/17 +75,000 +25,000 +1.41 +05/27/09 +05/26/19 +18,750 +56,250 +1.10 +08/10/11 +08/09/21 +James S. Miele +Chief Financial Officer +20,000 +— +3.26 +09/02/05 +09/01/15 +12,500 +(4) +22,750 +15,000 +— +2.21 +06/15/06 +06/14/16 +15,000 +(5) +27,300 +18,750 +6,250 +1.41 +05/27/09 +05/26/19 +7,500 +22,500 +1.10 +08/10/11 +08/09/21 +Todd Kreter +Senior Vice President +25,000 +— +2.46 +02/21/08 +02/20/18 +12,500 +(4) +22,750 +18,750 +6,250 +1.41 +05/27/09 +05/26/19 +15,000 +(5) +27,300 +7,500 +22,500 +1.10 +08/10/11 +08/09/21 +Thomas N. Blair +Senior Vice President +— +100,000 +1.50 +08/09/12 +08/08/22 +50,000 +(6) +91,000 +(1) Each option vests at the rate of 25% on each of the first four anniversaries of the grant date. +17 +(2) Indicates the number of shares of common stock subject to RSU awards. Each RSU represents the right to receive one share of our common stock. +(3) The dollar amounts represent the market value of the shares subject to the RSUs, calculated by multiplying the closing sales price of our common stock on the last business day of Fiscal 2013 by the applicable number of shares. +(4) The original RSU award was granted on August 12, 2010 and vests in equal annual installments over four years. The first installment vested on August 10, 2011. The shares indicated represent the remaining unvested amount. +(5) The original RSU award was granted on August 10, 2011 and vests in equal annual installments over four years. The first installment vested on August 10, 2012. The shares indicated represent the remaining unvested amount. +(6) The RSU award was granted on August 9, 2012 and vests in equal annual installments over four years, with the first installment vesting on August 9, 2013. +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements described below. We provide incentives such as salary, benefits and option grants to attract and retain executive officers and other key associates. The plan administrators of the 1997 Stock Incentive Plan and the 2007 Omnibus Incentive Plan have the authority to provide for the accelerated vesting of outstanding options held by an individual in connection with the termination of such individual’s employment following an acquisition in which these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain changes in control of the Company. Other than such accelerated vesting and the agreements described below, there is no agreement or policy which would entitle any executive officer to severance payments or any other compensation as a result of such officer’s termination. +Agreement with Abbas Mohaddes +On July 29, 2013, we entered into an Employment Agreement (the “Employment Agreement”) with Abbas Mohaddes, our Chief Executive Officer, which combines and supersedes, to the extent such agreements were not previously terminated, his letter agreement with the Company dated July 27, 2010 and his Change in Control Agreement with the Company dated July 27, 2010 (collectively, the “Prior Agreements”). The principal terms of the Employment Agreement are substantially similar to the Prior Agreements. The Employment Agreement has an initial term of three years and thereafter renews automatically for successive one year periods until ten years after the effective date (such initial term together with any renewal periods, the “Employment Period”), unless either party provides written notice of nonrenewal at least 30 days prior to the end of the initial term or any renewal period. Under the terms of the Employment Agreement, Mr. Mohaddes is entitled to an initial base salary of $380,000 per year, which may be increased from time to time at the sole discretion of the Compensation Committee of our Board of Directors. In the event that he is terminated without cause (as defined in the Employment Agreement) during the Employment Period, Mr. Mohaddes is entitled to (i) salary continuation for 12 months following termination (or a lump sum payment equal to his base salary in the event the termination without cause occurs within 12 months after a Change in Control (as defined in the Employment Agreement)), (ii) a lump sum payment equal to 50% of his average annual target bonus for the two years immediately preceding the year of termination, payable no later than 30 days following termination, and (iii) reimbursement for the cost to continue health benefit coverage under COBRA for a period of up to one year following termination. If his employment is terminated as a result of death or disability, then Mr. Mohaddes (or his estate) will be entitled to, in the case of death, a lump sum payment equal to 50% of his then effective base salary and, in the case of disability, salary continuation of up to 90 days until he is eligible for short-term disability payments. In the event that he resigns for Good Reason (as defined in the Employment Agreement) after a Change in Control, in lieu of any other benefits under the Employment Agreement, Mr. Mohaddes will be entitled to (I) a lump sum payment equal to one year’s base salary plus an amount equal to 50% of his average annual target bonus for the two years immediately preceding the year of termination, payable no later than 30 days following termination, and (II) reimbursement for the cost to continue health benefit coverage under COBRA for a period of up to one year following termination. +18 +Agreement with James Miele +On June 11, 2008, we entered into a change in control agreement with James Miele, our Chief Financial Officer. Pursuant to the terms of the agreement, in the event of an involuntary termination (as defined in the agreement) of Mr. Miele’s employment in connection with or within 12 months after a change in control, Mr. Miele would have been entitled to receive a lump sum payment of one year’s base pay and 50% of his target bonus for the year, with such payment to be reduced to 50% of the annual base pay and 25% of the bonus if the involuntary termination were due to his voluntary resignation which does not occur within the first six months after the change in control. In addition, Mr. Miele would have been entitled to receive reimbursement for the cost of COBRA coverage for a period of up to one year following the involuntary termination of his employment. The agreement terminated on June 11, 2013. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries receive an annual retainer of $28,000 per year, paid quarterly, with the Chairman of the Board receiving an additional $10,000 per year. No additional amounts are paid for attending meetings. In addition, each non-employee director who serves on a Board committee receives the following annual amounts, paid quarterly: Audit Committee — $2,500 ($5,000 for the Chair); Compensation Committee - $1,500 ($3,000 for the Chair); Nominating and Governance Committee - $1,000 ($2,000 for the Chair); ad hoc committees - $500 ($1,000 for the Chair). All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board of Directors and its committees. +Non-employee directors are also eligible to receive periodic option grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 Omnibus Incentive Plan. Under that plan, each non-employee director receives an option to purchase 20,000 shares of common stock upon his initial appointment to the Board of Directors and an additional option to purchase 10,000 shares of common stock on the date of each annual meeting provided he has served on the Board for at least six months as of such annual meeting. Each such option is immediately exercisable for any or all of the option shares, but the shares acquired are subject to repurchase by the Company at the exercise price paid per share if the optionee ceases service with the Company prior to vesting in those shares. Each option vests in full upon the optionee’s completion of one year of service measured from the grant date. However, the vesting of each such option will accelerate in full upon certain changes in control of the Company or upon the optionee’s death or disability while a director. Each option granted to non-employee directors under the Directors’ Automatic Option Grant Program will have an exercise price equal to the fair market value of the common stock on the grant date and a maximum term of ten years, subject to earlier termination following the optionee’s cessation of service as a Board member. Following the optionee’s cessation of Board service for any reason, each option will remain exercisable for a 12-month period and may be exercised during that time for any or all shares in which the optionee is vested at the time of such cessation of service as a director. +The following table sets forth a summary of the compensation earned in Fiscal 2013 by each person who served as a director during such year, who is not a named executive officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +Total ($) +Richard Char +$ +31,000 +$ +8,508 +$ +39,508 +Kevin C. Daly, Ph.D. +33,500 +8,508 +42,008 +Gregory A. Miner +41,500 +8,508 +50,008 +Joel Slutzky +29,500 +8,508 +38,008 +Thomas L. Thomas +33,000 +8,508 +41,508 +Mikel Williams +32,250 +8,508 +40,758 +(1) +Represents amounts earned by the directors based on the compensation arrangement described above. +(2) +The dollar amounts shown represent the grant date fair value of stock options granted in Fiscal 2013 determined pursuant to the Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in our Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report. At the end of Fiscal 2013, the non-employee directors held options for the following number of shares of common stock: Richard Char — 65,000; Kevin C. Daly, Ph.D. — 60,000; Gregory A. Miner — 250,000; Joel Slutzky — 65,000; Thomas L. Thomas — 60,000; and Mikel Williams — 30,000. +19 +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of June 30, 2013, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers in the Summary Compensation Table which appears elsewhere herein, (iii) each of our directors and director nominees, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner (1) +Amount and Nature of +Beneficial +Ownership (2) +Percent of Class (2) +Lloyd I. Miller, III (3) +5,402,794 +16.6 +% +Austin W. Marxe and David M. Greenhouse (4) +3,340,929 +10.3 +Abbas Mohaddes (5) +1,359,902 +4.1 +James S. Miele (6) +110,732 +* +Todd Kreter (7) +90,048 +* +Thomas N. Blair (8) +37,500 +* +Richard Char (9) +74,000 +* +Kevin C. Daly, Ph.D (10) +410,132 +1.3 +Gregory A. Miner (11) +677,485 +2.1 +Joel Slutzky (12) +1,882,853 +5.8 +Thomas L. Thomas (13) +94,000 +* +Mikel Williams (14) +40,000 +* +Gerard M. Mooney +— +— +All executive officers and directors as a group (10 persons) (15) +4,776,652 +14.2 +% +* Less than 1%. +(1) The address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +20 +(2) Based on 32,470,331 shares of common stock outstanding as of June 30, 2013. Shares of common stock subject to options or warrants which are exercisable within 60 days of June 30, 2013 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) and Stock Ownership Plan. +(3) Pursuant to an amendment to a Schedule 13G filed on February 14, 2013 with the SEC, Mr. Miller reported that, as of December 31, 2012, he had shared dispositive and voting power with respect to 200,017 shares as (i) an advisor to the trustee of a certain trust, (ii) an authorized person with respect to a custody account and (iii) the co-manager of a limited liability company. Mr. Miller also had sole dispositive and voting power with respect to 5,202,777 shares as (i) the manager of a limited liability company that is the general partner of certain limited partnerships, (ii) the manager of a limited liability company that is the adviser to certain trusts and (iii) an individual. The address for Mr. Miller is 222 Lakeview Avenue, Suite 160-365, West Palm Beach, Florida 33401. +(4) Pursuant to an amendment to a Schedule 13G filed on February 13, 2013 with the SEC and subsequent Form 4 filings through February 26, 2013, Messrs. Marxe and Greenhouse reported that they shared voting and dispositive power over 610,795 shares owned by Special Situations Cayman Fund, L.P. (“Cayman”), 1,901,340 shares owned by Special Situations Fund III QP, L.P. (“SSFQP”) and 828,794 shares owned by Special Situations Private Equity Fund, L.P. (“SSPE”, and collectively with Cayman and SSFQP, the “SS Funds”). Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. (“AWM”), the general partner of and investment adviser to Cayman. AWM also serves as the general partner of MGP Advisers Limited Partnership, the general partner of SSFQP. Messrs. Marxe and Greenhouse are also members of MG Advisers L.L.C., the general partner of SSPE. AWM serves as the investment adviser to SSFQP and SSPE. The principal business of each SS Fund is to invest in equity and equity-related securities and other securities of any kind or nature. The address for Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New York, NY 10022. +(5) Includes (i) 467,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013, (ii) 12,500 shares issuable within 60 days after June 30, 2013 upon vesting of RSUs and (iii) 11,540 shares held by Mr. Mohaddes’ IRA. +(6) Includes (i) 75,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013 and (ii) 11,250 shares issuable within 60 days after June 30, 2013 upon vesting of RSUs. +(7) Includes (i) 65,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013 and (ii) 11,250 shares issuable within 60 days after June 30, 2013 upon vesting of RSUs. +(8) Includes (i) 25,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013 and (ii) 12,500 shares issuable within 60 days after June 30, 2013 upon vesting of RSUs. +(9) Includes (i) 65,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013 and (ii) 9,000 shares held by the Char-Yoshida Family Trust, of which Mr. Char is a co-trustee. +(10) Includes (i) 100 shares held by Dr. Daly’s spouse, (ii) 329,032 shares held by Dr. Daly’s IRA, and (iii) 60,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013. +(11) Includes (i) 183,334 shares held by Mr. Miner’s IRA, (ii) 19,230 shares held by Mr. Miner’s wife’s IRA and (iii) 250,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013. +21 +(12) Includes (i) 1,553,922 shares held by The J&J Slutzky Trust, of which Mr. Slutzky is the co-trustee, (ii) 144,616 shares held by Mr. Slutzsky’s IRA and (ii) 65,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013. +(13) Includes 60,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013. +(14) Includes 30,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013. +(15) Includes (i) 1,162,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2013 and (ii) 47,500 shares issuable within 60 days after June 30, 2013 upon vesting of RSUs. +CERTAIN TRANSACTIONS +Since April 1, 2011, other than the agreements and transactions described in “Executive Compensation and Other Information” and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or the average of the Company’s total assets at year end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We previously subleased office space to Maxxess Systems, Inc. (“Maxxess”), one of our former subsidiaries that we sold in September 2003 and is currently owned by an investor group that includes two of our directors, Messrs. Daly and Slutzky. The sublease terminated in September 2007, at which time Maxxess owed us an aggregate of $274,000 related to this sublease and certain ancillary corporate services that we provided to Maxxess. In August 2009, Maxxess executed a promissory note payable to us for $274,000. The promissory note bears interest at a rate of 6% per annum, compounded annually, with accrued interest to be paid annually on the first business day of each calendar year. Payments under the note may be made in bona fide services rendered by Maxxess to us to the extent such services and amounts are pre-approved in writing by us. All amounts outstanding under the note will become due and payable on the earliest of (i) August 10, 2014, (ii) a change of control in Maxxess, or (iii) a financing by Maxxess resulting in gross proceeds of at least $10 million. As of March 31, 2013, approximately $259,000 of the original principal balance and interest for calendar year 2012 of approximately $15,000 was outstanding and payable to Iteris. During the quarter ended June 30, 2013, the interest payment was received in full. +On July 23, 2013, the promissory note with Maxxess was amended and restated. The amended and restated note bears interest at a rate of 6% per annum, compounded annually, with accrued interest to be paid quarterly on the first business day of each calendar quarter. Payments under the amended and restated note may only be made in cash and all amounts outstanding will become due and payable on the earliest of (i) August 10, 2016, (ii) a change of control in Maxxess or (iii) a financing by Maxxess resulting in gross proceeds of at least $10 million. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any persons holding more than 10% of our common stock are required to report their ownership of our common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file by such dates. For Fiscal 2013, our 10% stockholders, Messrs. Austin W. Marxe and David M. Greenhouse, did not file Form 4 reports for the following transactions within two business days of the applicable transaction: (i) sale of 32,400 shares of common stock on October 4, 2012 and (ii) sale of 21,207 shares of common stock on February 15, 2013. Based solely on our review of copies of the reports on Forms 3, 4 and 5 received by us during or with respect to the fiscal year ended March 31, 2013 and written representations received from the reporting persons that no other reports were required, except as indicated in the foregoing sentence, we believe that all directors, executive officers and persons who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a) and have filed all reports required by such section. +22 +ANNUAL REPORT +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our proxy statement for the 2014 Annual Meeting of Stockholders (the “2014 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2014 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than April 22, 2014. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the stockholder must submit the proposal or nomination on or between May 26, 2014 and June 25, 2014. If the date of the 2014 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the 2013 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents at the 2014 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2014 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa Ana, California +August 14, 2013 +23 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 23, 2013 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof, and to vote all shares of common stock of Iteris held of record by the undersigned on July 25, 2013, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED OR, IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL ONE, “FOR” EACH OF PROPOSALS TWO AND THREE, AND FOR EVERY “3 YEARS” WITH RESPECT TO PROPOSAL FOUR, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +The Board of Directors recommends a vote FOR all the nominees listed, FOR Proposals 2 and 3 and 3 YEARS for Proposal 4. +x Please mark votes as in this example. +1. +Election of Directors: To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas and Mikel Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o FOR ALL +o WITHHOLD FOR ALL +o For All EXCEPT* +(*Instructions: To withhold authority to vote for any individual nominee, mark the “For All EXCEPT” box above and write that nominee’s name in the space provided above.) +2. +Ratification of McGladrey LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2014. +o FOR +o AGAINST +o ABSTAIN +3. +Approve, by advisory vote, the compensation of named executive officers. +o FOR +o AGAINST +o ABSTAIN +4. +Advisory vote on the frequency of conducting advisory votes on the compensation of named executive officers. +o 1 YEAR +o 2 YEARS +o 3 YEARS +o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS +o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.) \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-13-063806/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-13-063806/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000913241/0001019056-05-000455/proxy.txt b/raw/proxies/0000913241/0001019056-05-000455/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..57e23e0fec91f28c04121dddada0e8c59524719f --- /dev/null +++ b/raw/proxies/0000913241/0001019056-05-000455/proxy.txt @@ -0,0 +1,1751 @@ +DEF 14A +1 +smadden_def14a.txt +DEFINITIVE 14A +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +[X] Filed by Registrant +[ ] Filed by a Party other than the Registrant +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined.): +N/A +----------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +N/A +----------------------------------------------------------------------- +5) Total fee paid: +N/A +----------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials: +N/A +----------------------------------------------------------------------- +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +N/A +----------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +N/A +----------------------------------------------------------------------- +3) Filing Party: +N/A +----------------------------------------------------------------------- +4) Date Filed: +N/A +----------------------------------------------------------------------- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 27, 2005 +---------------------------------------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual +Meeting") of the Company will be held on May 27, 2005, at the Company's showroom +located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 +a.m., local time, and thereafter as it may from time to time be adjourned, for +the purposes stated below. +1. To elect nine (9) directors to the Board of Directors of the Company +to serve until the next annual meeting of the Company's stockholders +or until their successors are duly elected and qualified; +2. To ratify the appointment of Eisner LLP as the Company's independent +auditors for the fiscal year ending December 31, 2005; +3. To approve the issuance of an aggregate of 100,000 shares of our +common stock, $.0001 par value, to certain of our executive officers +pursuant to their employment agreements; and +4. To transact such other business as may properly come before the Annual +Meeting or any adjournments thereof. +All stockholders are cordially invited to attend the Annual Meeting. Only +those stockholders of record at the close of business on April 15, 2005 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Annual Meeting and for ten days prior to the meeting +for any purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 +p.m. at our principal executive offices at 52-16 Barnett Avenue, Long Island +City, NY 11104, by contacting the Secretary of the Company. +BY ORDER OF THE BOARD OF DIRECTORS +April 27, 2005 /s/ JAMIESON A. KARSON +------------------------------------------------- +Jamieson A. Karson +Chairman of the Board and Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND +SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED +ENVELOPE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW +YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy Statement and the accompanying Notice of Annual Meeting of +Stockholders and form of proxy are being furnished to the holders of common +stock of Steven Madden, Ltd., a Delaware corporation (the "Company"), in +connection with the solicitation of proxies by the Board of Directors of the +Company (the "Board of Directors") for use at the 2005 Annual Meeting of +Stockholders of the Company (the "Annual Meeting") to be held at the Company's +showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York +on Friday, May 27, 2005 at 10:00 a.m, Eastern Daylight Time, and at any +adjournments thereof. These proxy materials are being sent on or about April 27, +2005 to holders of record of common stock, $.0001 par value (the "Common +Stock"), of the Company at the close of business on April 15, 2005 (the "Record +Date"). The Company's Annual Report for the fiscal year ended December 31, 2004, +including audited financial statements, is being sent to stockholders together +with these proxy materials. +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect nine (9) directors to the Board of Directors +of the Company to serve until the next annual meeting of the Company's +stockholders or until their successors are duly elected and qualified, (ii) to +ratify the appointment of Eisner LLP as the Company's independent auditors for +the fiscal year ending December 31, 2005, (iii) to approve the issuance of an +aggregate of 100,000 shares of our Common Stock to certain of our executive +officers pursuant to their employment agreements, and (iv) to transact such +other business as may properly come before the Annual Meeting or any +adjournments thereof. The Board of Directors knows of no other matters to be +presented for action at the Annual Meeting. However, if any other matters +properly come before the Annual Meeting, the persons named in the proxy will +vote on such other matters and/or for other nominees in accordance with their +best judgment. The Company's Board of Directors recommends that the stockholders +vote in favor of each of the proposals. Only holders of record of the Common +Stock of the Company at the close of business on the Record Date will be +entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 Barnett +Avenue, Long Island City, NY 11104 and its telephone number is (718) 446-1800. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 13,241,617 shares of Common +Stock (excluding treasury shares) held by approximately 72 holders of record and +2,502 beneficial owners. Only holders of shares of Common Stock on the Record +Date will be entitled to vote at the Annual Meeting. The holders of Common Stock +are entitled to one vote on all matters presented at the meeting for each share +held of record. The presence in person or by proxy of holders of record of a +majority of the shares outstanding and entitled to vote as of the Record Date +shall be required for a quorum to transact business at the Annual Meeting. If a +quorum should not be present, the Annual Meeting may be adjourned until a quorum +is obtained. Each nominee to be elected as a director named in Proposal 1 must +receive a plurality of the votes cast by the holders of Common Stock present in +person or represented by proxy at the Annual Meeting with respect to such +proposal. The ratification of the appointment of Eisner LLP as the Company's +independent auditors for the fiscal year ending December 31, 2005 described in +Proposal 2 and the approval of the issuance of an aggregate of 100,000 shares of +our Common Stock to certain of our executive officers pursuant to their +employment agreements described in Proposal 3 must be approved by the +affirmative vote of the holders of a majority of the total votes cast on such +proposals in person or by proxy. Abstentions and broker non-votes are counted as +present and entitled to vote and are, therefore, included for purposes of +determining whether a quorum of shares is present at the meeting. An abstention +from a vote with respect to Proposal 1 will have no effect. An abstention from a +vote with respect to Proposal 2 or Proposal 3 will have the same practical +effect as a vote against such proposal. Broker "non-votes" are not deemed to be +"votes cast." As a result, broker "non-votes" are not included in the tabulation +of the voting result on the election of directors or issues requiring approval +-1- +of a majority of the votes cast and, therefore, do not have the effect of votes +in opposition in such tabulations and as such will have the practical effect of +reducing the number of affirmative votes required to achieve a majority vote for +a matter by reducing the total number of shares from which a majority is +calculated. Brokers who hold shares in street name may vote on behalf of +beneficial owners with respect to Proposals 1 and 2. The approval of all other +matters to be considered at the Annual Meeting requires the affirmative vote of +a majority of the eligible votes cast at the Annual Meeting on such matters. +The expense of preparing, printing and mailing this Proxy Statement, the +exhibits hereto and the proxies solicited hereby will be borne by the Company. +In addition to the use of the mails, proxies may be solicited by officers and +directors and regular employees of the Company, without additional remuneration, +by personal interviews, telephone, telegraph or facsimile transmission. The +Company will also request brokerage firms, nominees, custodians and fiduciaries +to forward proxy materials to the beneficial owners of shares of Common Stock +held of record and will provide reimbursements for the cost of forwarding the +material in accordance with customary charges. The Company has entered into an +agreement with The Proxy Advisory Group of Strategic Stock Surveillance, LLC to +assist in the solicitation of proxies and provide related advice and +informational support. The total expense of this engagement, including customary +disbursements, is not expected to exceed $20,000 in the aggregate. +Proxies given by stockholders of record for use at the Annual Meeting may +be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing, or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy shall +be revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED +ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY +SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to any +statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder's shares. +-2- +PROPOSAL ONE +TO ELECT NINE DIRECTORS TO SERVE UNTIL THE NEXT ANNUAL MEETING +OF THE COMPANY'S STOCKHOLDERS OR UNTIL THEIR SUCCESSORS +ARE DULY ELECTED AND QUALIFIED +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), the +Board of Directors of the Company is required to be comprised of a minimum of +one (1) director. Subject to the foregoing limitation, the number of directors +may be fixed from time to time by action of the directors. The Company's board +presently consists of eight (8) directors whose terms expire at the Annual +Meeting. Walter Yetnikoff will stand for election for the first time at the +Annual Meeting.(1) +The Nominating/Corporate Governance Committee of the Board and the Board +have nominated and are recommending the election of each of the nine (9) +nominees set forth below to serve as a director of the Company until the next +annual meeting of the Company's stockholders or until his successor is duly +elected and qualified. The names and biographical summaries of the nine (9) +persons who have been nominated by the Nominating/Corporate Governance Committee +of the Board and the Board to stand for election at the Annual Meeting have been +provided below for your information. Proxies will be voted for the election of +the nine (9) nominees listed below as directors of the Company unless otherwise +specified on the proxy. A plurality of the votes of shares of Common Stock +present in person or represented by proxy at the Annual Meeting will be +necessary to elect the directors listed below. If, for any reason, any of the +nominees shall be unable or unwilling to serve, the proxies will be voted for a +substitute nominee who will be designated by the Board of Directors at the +Annual Meeting. Stockholders may abstain from voting by marking the appropriate +boxes on the enclosed proxy. Abstentions shall be counted separately and shall +be used for purposes of calculating whether a quorum is present at the meeting. +Biographical Summaries of Nominees for the Board of Directors +Jamieson A. Karson has been the Chief Executive Officer of the Company and +Chairman of the Board of Directors since July 22, 2004 and was the Chief +Executive Officer of the Company and Vice Chairman of the Board of Directors of +the Company since July 1, 2001. Mr. Karson has been a director of the Company +since January 2, 2001. Prior to joining the Company as Chief Executive Officer, +Mr. Karson practiced law for over 17 years. He was a partner in the New York +City law firm of Tannenbaum Helpern Syracuse & Hirshtritt LLP from January 1, +1997 through June 30, 2001, where he served on the firm's three person Finance +Committee. He was a partner at the law firm of Karson McCormick from February +1992 through December 31, 1996. Prior to that, Mr. Karson was an associate +attorney at the law firm of Shea & Gould. +Jeffrey Birnbaum has been a director of the Company since June 2003. Mr. +Birnbaum has been the Product Development Manager of Dolphin Shoe Company since +August 1982. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Currently, Mr. Cooper serves as a director of Maxcor Financial Group Inc. and +North Atlantic Trading Company, Inc. +Harold Kahn has been a director of the Company since December 2004. Mr. +Kahn currently heads HDK Associates, a consulting company that advises financial +and investment groups. Mr. Kahn also serves as an independent consultant for +Judith Leiber LLC. Mr. Kahn served as the Chief Executive Officer of Macy's East +from January 1994 through March 2004. Currently, Mr. Kahn also serves as a +director of The Wet Seal, Inc. and House of Brussels Chocolate Inc. +------------------------------- +(1) Under the terms of the Settlement Agreement dated February 2, 2005 between +the Company and the Barington Group and related entities, the Company agreed to +seek, in its sole discretion, at least one additional independent candidate to +stand for election to the Board of Directors. Mr. Yetnikoff has been nominated +by the Company's Board of Directors upon the recommendation of the +Nominating/Corporate Governance Committee and has no association, and has never +had any association with, the Barington Group. +-3- +John L. Madden has been a director of the Company since the Company's +inception. Since April 1998, Mr. Madden has owned and managed a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, +Mr. Madden formed JLM Consultants, Inc. which acted as a branch office of Merit +Capital, Inc. for several broker-dealers. John Madden and JLM Consultants, Inc. +are party to a consulting agreement with the Company, as further described under +"Certain Relationships and Related Transactions." From May 1994 to May 1996, Mr. +Madden served as Vice President of Investments for GKN Securities, Inc. From +August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. +as Managing Director and registered sales representative. Mr. Madden is the +brother of Steven Madden, the Company's former Chief Executive Officer. +Peter Migliorini has been a director of the Company since October 1996. Mr. +Migliorini has served as Sales Manager for Greschlers, Inc., a supply company +located in Brooklyn, New York since 1994. From 1987 to 1994 Mr. Migliorini +served as Director of Operations for Mackroyce Group. Mr. Migliorini has +previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator for several shoe companies including Meldisco Shoes, +Perry Shoes, and Fasco Shoes. +Thomas H. Schwartz has been a director of the Company since May 2004. Mr. +Schwartz has been a managing director of Helmsley-Spear, Inc. since 1984, where +he was also a salesman since 1973. As managing director, among other things, Mr. +Schwartz is responsible for the leasing and sales brokerage of real estate, +management of real estate leasing and supervising managers of properties. +Awadhesh Sinha has been a director of the Company since October 2002. Mr. +Sinha has served as Chief Operating Officer and Chief Financial Officer of WEAR +ME Apparel Inc., a company that designs, manufactures and markets branded and +non-branded children's clothing, since 2003. Prior to that, Mr. Sinha worked for +Salant Corporation, a company that designs, manufactures and markets men's +clothing, for 22 years, and held the position of Chief Operating Officer and +Chief Financial Officer of Salant Corporation from 1998 to 2003. +Walter Yetnikoff is a new nominee for director. Mr. Yetnikoff has served as +Chief Executive Officer of Commotion Records, a company he co-founded, since +2003. From 2001 through 2003 Mr. Yetnikoff was self employed as a researcher and +writer. Mr. Yetnikoff served as president of CBS Records from 1975 to 1990 and +served on the Board of Directors of CBS, Inc. from 1975 through 1988. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the Board +unanimously recommend a vote FOR the election of Messrs. Jamieson A. Karson, +Jeffrey Birnbaum, Marc Cooper, Harold Kahn, John L. Madden, Peter Migliorini, +Thomas H. Schwartz, Awadhesh Sinha and Walter Yetnikoff. Unless otherwise +instructed or unless authority to vote is withheld, the enclosed proxy will be +voted FOR the election of the above listed nominees and AGAINST any other +nominees. +Director Independence +The Board of Directors is currently comprised of eight (8) members. Walter +Yetnikoff has been nominated to stand for election for the first time at the +Annual Meeting. The Board has determined that the following director nominees +are "independent" for purposes of The Nasdaq National Market listing standards: +Messrs. Cooper, Kahn, Migliorini, Schwartz, Sinha and Yetnikoff. If the nine (9) +nominees set forth above are elected, the Board will be comprised of a majority +of independent directors. The Board has adopted a policy whereby the independent +directors have regularly-scheduled executive sessions at least twice a year. On +February 28, 2005, the Board appointed Peter Migliorini to serve as Presiding +Director of the executive sessions. +Directors' Attendance at Annual Meetings +The Company encourages all of its directors to attend annual meetings of +the Company's stockholders. Four directors attended the Company's 2004 annual +meeting of stockholders. +-4- +Communications with Directors +The Company has adopted a procedure by which stockholders may send +communications as defined within Item 7(h) of Schedule 14A under the Exchange +Act to one or more members of the Board of Directors by writing to such +director(s) or to the whole Board of Directors in care of the Corporate +Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, NY +11104. Any such communications will be promptly distributed by the Corporate +Secretary to such individual director(s) or to all directors if addressed to the +whole Board of Directors. +Director Compensation +Directors who are also employees of the Company are not paid any fees or +other remuneration for service on the Board or any of its Committees. In 2004, +each non-employee director received the following compensation: (i) a grant of +options to purchase 10,000 shares of Common Stock at an exercise price per share +equal to the fair market value of the Common Stock on the date of grant and (ii) +fifty thousand dollars ($50,000) in immediately available funds. Members of the +Audit Committee, Nominating/Corporate Governance Committee and Compensation +Committee each received an additional five thousand dollars ($5,000) for service +on such committees, except that Awadhesh Sinha received twenty-five thousand +dollars ($25,000) for serving as chairperson of the Audit Committee and Peter +Migliorini received seven thousand five hundred dollars ($7,500) for serving as +chairperson of the Compensation Committee. In addition, non-employee directors +are reimbursed by the Company for all expenses related to attending meetings. +Meetings and Committees of the Board of Directors +The Board of Directors met six times during the fiscal year ended December +31, 2004. The Board of Directors has the following standing committees: Audit +Committee, Compensation Committee, Nominating/Corporate Governance Committee, +Real Estate Committee and Cash Investment Committee. In addition, the Company +has an Ad Hoc Committee made up of certain board members and executive officers +which meets to discuss general issues regarding the business and strategic +growth of the Company. +Audit Committee +During the year ended December 31, 2004, the Audit Committee of the Board +of Directors consisted of directors Awadhesh Sinha (chairman), Thomas Schwartz +and Peter Migliorini. The Audit Committee is comprised of directors who are +"independent" for purposes of The Nasdaq National Market listing standards and +who meet the independence requirements contained in Exchange Act Rule +10A-3(b)(1). The Board has determined that Awadhesh Sinha meets the SEC criteria +of an "audit committee financial expert." The Audit Committee is primarily +responsible for reviewing the services performed by the Company's independent +public accountants, evaluating the Company's accounting policies and its system +of internal controls, and reviewing significant finance transactions. During +2004, the Audit Committee met ten times. +The Audit Committee is responsible for reviewing and helping to ensure the +integrity of the Company's financial statements. Among other matters, the Audit +Committee, with management and independent and internal auditors, reviews the +adequacy of the Company's internal accounting controls that could significantly +affect the Company's financial statements. The Audit Committee is also directly +and solely responsible for the appointment, retention, compensation, oversight +and termination of the Company's independent accountants. In addition, the Audit +Committee also functions as the Company's Qualified Legal Compliance Committee +(the "QLCC"). The purpose of the QLCC is to receive, retain and investigate +reports made directly, or otherwise made known, of evidence of material +violations of any United States federal or state law, including any breach of +fiduciary duty by the Company, its officers, directors, employees or agents, and +if the QLCC believes appropriate, to recommend courses of action to the Company. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent public accountants and with appropriate Company financial personnel. +Meetings are held with the independent public accountants who have unrestricted +access to the Audit Committee. In addition, the Audit Committee reviews the +Company's financing plans and reports recommendations to the full Board of +Directors for approval and to authorize action. The Board has adopted a written +charter setting out the audit related functions the Audit Committee is to +-5- +perform. A copy of the Audit Committee Charter is attached as Annex A to the +Company's 2004 Proxy Statement and is available on the Company's website. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with accounting +principles generally accepted in the United States of America and discuss with +the Audit Committee any issues they believe should be raised with the Audit +Committee. +The following Audit Committee Report does not constitute soliciting +material and shall not be deemed filed or incorporated by reference into any +other Company filing under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, except to the extent the Company +specifically incorporates this Audit Committee Report by reference therein. +AUDIT COMMITTEE REPORT +The Audit Committee reviewed the Company's audited financial statements for +the fiscal year ended December 31, 2004 and met with both management and Eisner +LLP, the Company's independent public accountants, to discuss such audited +financial statements. Management and the Company's independent public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61. Based on +these reviews and discussions, the Audit Committee recommended to the Board that +the Company's audited financial statements be included in the Company's Annual +Report on Form 10-K for the fiscal year ended December 31, 2004. +AUDIT COMMITTEE +Thomas Schwartz +Peter Migliorini +Awadhesh Sinha, Chairman +Nominating/Corporate Governance Committee +In April 2004 the Board of Directors created a Nominating/Corporate +Governance Committee and appointed Peter Migliorini and Awadhesh Sinha as the +initial members of such committee. The Nominating/Corporate Governance Committee +is comprised of directors who are "independent" for purposes of The Nasdaq +National Market listing standards. The Nominating/Corporate Governance Committee +considers and makes recommendations to the Board of Directors with respect to +the size and composition of the Board of Directors and identifies potential +candidates to serve as directors. The Nominating/Corporate Governance Committee +identifies candidates to the Board of Directors by introductions from +management, members of the Board of Directors, employees or other sources and +stockholders that satisfy the Company's policy regarding stockholder recommended +candidates. The Nominating/Corporate Governance Committee does not evaluate +director candidates recommended by stockholders differently than director +candidates recommended by other sources. A copy of the Nominating/Corporate +Governance Committee Charter is attached as Annex B to the Company's 2004 Proxy +Statement and is available on the Company's website. +Stockholders wishing to submit recommendations for the 2005 Annual Meeting +should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett +Avenue, Long Island City, NY 11104. Any such stockholder must (x) comply with +the director nomination provisions of the Company's By-Laws, (y) meet and +evidence the minimum eligibility requirements specified in Exchange Act Rule +14a-8 and (z) submit, within the same timeframe for submitting a stockholder +proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of +compliance with the stockholder eligibility requirements, (2) the written +consent of the candidate(s) for nomination as a director, (3) a resume or other +-6- +written statement of the qualifications of the candidate(s) for nomination as a +director, and (4) all information regarding the candidate(s) and the submitting +stockholder that would be required to be disclosed in a proxy statement filed +with the SEC if the candidate(s) were nominated for election to the Board of +Directors. +In considering Board of Directors candidates, the Nominating/Corporate +Governance Committee takes into consideration the Company's Board Candidate +Guidelines, attached as Annex C to the Company's 2004 Proxy Statement and +available on the Company's website, the Company's policy regarding stockholder +recommended director candidates, as set forth above, and all other factors that +they deem appropriate, including, but not limited to, the individual's +character, education, experience, knowledge and skills. In addition, the +Nominating/Corporate Governance Committee develops and recommends corporate +governance principles for the Company; makes recommendations to the Board of +Directors in support of such principles; takes a leadership role in the shaping +of the corporate governance of the Company; and oversees the evaluation of the +Board of Directors and management. +During 2004, the Nominating/Corporate Governance Committee met three times. +Compensation Committee +The Compensation Committee of the Board of Directors for the year ended +December 31, 2004 consisted of directors Peter Migliorini (chairman) and Thomas +Schwartz. The Compensation Committee is comprised of directors who are +"independent" for purposes of The Nasdaq National Market listing standards. The +Compensation Committee is primarily responsible for approving salaries, bonuses +and other compensation for the Company's Chief Executive Officer and named +executive officers, reviewing management recommendations relating to new +incentive compensation plans and changes to existing incentive compensation +plans, and administering the Company's stock plans, including granting options +and setting the terms thereof pursuant to such plans (all subject to approval by +the Board of Directors). During 2004, the Compensation Committee met four times. +Real Estate Committee +The Real Estate Committee of the Company for the year ended December 31, +2004 consisted of Jamieson A. Karson and Arvind Dharia. The Real Estate +Committee is primarily responsible for overseeing real estate transactions for +the Company. In light of the Company's aggressive retail store expansion plan, +the Real Estate Committee was formed to consider proposed real estate +transactions for approval. +Cash Investment Committee +In February 2004 the Board of Directors created a Cash Investment Committee +and appointed Jamieson A. Karson, John Madden and Marc Cooper as the initial +members of such committee. The Cash Investment Committee is primarily +responsible for setting the Company's policy with respect to cash investments. +During 2004, the Cash Investment Committee met three times. +Ad Hoc Committee +For the year ended December 31, 2004 the Ad Hoc Committee consisted of +Jamieson A. Karson, John Madden, Richard Olicker, Arvind Dharia and Robert +Schmertz. The Ad Hoc Committee meets to discuss general issues regarding the +business and strategic growth of the Company. The Ad Hoc Committee met five +times in 2004. +Code of Business Conduct and Ethics +All of the Company's employees, officers (including senior executive, +financial and accounting officers) and directors are held accountable for +adherence to the Company's Code of Business Conduct and Ethics (the "Code"). The +Code is intended to establish standards necessary to deter wrongdoing and to +promote compliance with applicable governmental laws, rules and regulations and +honest and ethical conduct. The Code covers all areas of professional conduct, +including conflicts of interest, fair dealing, financial reporting and +disclosure, protection of Company assets and confidentiality. Employees have an +obligation to promptly report any known or suspected violation of the Code +without fear of retaliation. Waiver of any provision of the Code for executive +officers and directors may only be granted by the Board of Directors or one of +-7- +its committees and any such waiver or modification of the Code relating to such +individuals will be disclosed by the Company. A copy of the Code is attached as +Annex D to the Company's 2004 Proxy Statement, is available on the Company's +website and may also be obtained by any stockholder without charge upon request +by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett +Avenue, Long Island City, NY 11104. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires +that the Company's directors and executive officers, and persons who own more +than ten percent (10%) of a registered class of the Company's equity securities, +file with the Securities and Exchange Commission ("SEC") reports of initial +ownership of the Company's common stock and subsequent changes in that ownership +and furnish the Company with copies of all forms they file pursuant to Section +16(a). To the Company's knowledge, based solely on its review of the copies of +such reports furnished to the Company during the year ended December 31, 2004, +all Section 16(a) filing requirements applicable to its officers, directors and +greater than ten percent beneficial owners were complied with, except that Mr. +Steven Madden failed to timely file one Form 4 relating to the exercise of stock +options that were previously granted to him. +Equity Compensation Plan Information +The following table provides information as of December 31, 2004 with +respect to the Company's Common Stock that may be issued under its existing +equity compensation plans: The table shows the number of securities to be issued +under compensation plans that have been approved by stockholders and those that +have not been so approved. The footnotes and other information following the +table are intended to provide additional detail on the compensation plans. +Number of securities +Number of securities remaining available for +to be issued upon Weighted-average exercise future issuance under +exercise of price of outstanding equity compensation plans +outstanding options, options, warrants and (excluding securities +Plan category warrants and rights rights reflected in column (a)) +----------------------------------- --------------------- ------------------------- -------------------------- +Equity compensation plans +approved by security holders +Equity Stock Option Plans (1) 2,113,000 $14.78 255,100 +Equity compensation plans not +approved by security holders +Non-Qualified Options (2) 400,000 $ 1.75 0 +Other (3) 240,000 N/A 0 +Total 2,753,000 $12.71 255,100 +------------------ +1) Consists of the 1993 Incentive Stock Option Plan, the 1995 Stock Plan, +the 1996 Stock Plan and the 1999 Stock Plan, as amended. +2) In March 1995, the Company issued options to purchase 1,000,000 shares +of its Common Stock to a company wholly owned by Steven Madden, the +Company's former Chief Executive Officer. The options were +subsequently transferred to Steven Madden. The options, which are +fully exercisable, had an exercise price of $1.75 and an exercise +period of 10 years. As of the Record Date, all of these options have +been exercised. Unearned compensation was recorded in the amount of +$575,000 which represented the difference between the exercise price +and the fair value of the stock on the date of grant and was +classified as a component of stockholders equity. The unamortized +portion was charged to operations in 1997 in connection with Steven +Madden's then-existing amended employment agreement. +-8- +3) (a) In 2002 and 2003 the Company entered into agreements with eight +employees and one independent contractor which agreements provide +that, if such individuals continue to be employed by, or in the case +of the independent contractor, provide services to, the Company +through specified future dates (ranging from January 1, 2004 through +March 31, 2007), they each will be entitled to receive shares of the +Company's Common Stock in amounts ranging from 20,000 shares to 50,000 +shares. Such shares were registered by the Company on Form S-8 in +August 2004. +(b) In April 2002 the Company entered into an agreement with Robert +Schmertz which provides that, subject to shareholder approval, if Mr. +Schmertz is employed by the Company through June 30, 2005 he will be +entitled to receive 50,000 shares of the Company's Common Stock. See +Employment Agreements with Certain Executive Officers. +(c) In October 2002 the Company entered into an agreement with Harry +Chen which provides that, subject to shareholder approval, if Mr. Chen +is employed by the Company through June 30, 2005 he will be entitled +to receive 50,000 shares of the Company's Common Stock. See Employment +Agreements with Certain Executive Officers. +Certain Legal Proceedings +On September 12, 2001, the State of Florida, Department of Banking and +Finance, Division of Securities and Investor Protection (the "Department") +issued a Final Order adopting the Stipulation and Consent Agreement to Final +Order dated May 15, 2001 ("Stipulation and Consent Agreement") between John +Madden and the Department relating to the Department's investigation of alleged +sales of unregistered securities in 1997. Under the Stipulation and Consent +Agreement, Mr. Madden neither admitted nor denied the allegations against him; +however, Mr. Madden agreed to pay an administrative fine in the amount of $5,000 +and agreed to abide by certain limitations related to his employment in the +securities or investment advisory industry for a period of five years, including +Mr. Madden's agreement to not act in any principal, supervisory, or managerial +capacity in the securities industry and to not exercise discretionary authority +in any account of any person. +On April 26, 2004, the SEC sent the Company a letter requesting information +and documents relating to, among other things, Steven Madden's employment with +the Company. The Company has responded to this request. +-9- +Directors, Director Nominees and Executive Officers +Certain information concerning the directors, director nominees and +executive officers of the Company is set forth below: +Name Age Position(s) with the Company +------------------------ ------- ----------------------------------------------- +Jamieson A. Karson 47 Chief Executive Officer and Chairman of the +Board +Arvind Dharia 55 Chief Financial Officer +Richard Olicker 47 President and Chief Operating Officer +Gerald Mongeluzo 64 President of Adesso-Madden, Inc. +Robert Schmertz 41 President of Steve Madden Womens Wholesale +Division and Brand Manager +Joseph Masella 56 President of Licensed Footwear Division +Harry Chen 55 Chairman and Lead Designer of Madden Mens +Division +Andrew Shames 47 President of Madden Mens Division +Larry Paparo 37 President of Candie's Kids and Stevies, Inc. +Jay Litvack 54 President of Diva Acquisition Corporation +Amelia Newton Varela 33 Executive Vice President - Wholesale Sales +John L. Madden 58 Director and Independent Contractor +responsible for Foreign Sales +Peter Migliorini 56 Director +Marc Cooper 43 Director +Awadhesh Sinha 59 Director +Jeffrey Birnbaum 44 Director +Thomas H. Schwartz 57 Director +Harold Kahn 59 Director +Walter Yetnikoff 72 Director nominee +-------------------- +See "Biographical Summaries of Nominees for the Board of Directors" for +biographical summaries of Messrs. Jamieson A. Karson, Jeffrey Birnbaum, Marc +Cooper, Harold Kahn, John L. Madden, Peter Migliorini, Thomas H. Schwartz, +Awadhesh Sinha and Walter Yetnikoff. +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and was a director of the Company from December 1993 through May +2004. From December 1988 to September 1992, Mr. Dharia was Assistant Controller +of Millennium III Real Estate Corp. +Richard Olicker has been Chief Operating Officer of the Company since +January 3, 2001. In September 2001 Mr. Olicker was appointed President of the +Company. Prior to joining the Company, Mr. Olicker spent more than 12 years at +AeroGroup International, Inc., which markets Aerosoles and What's What shoes. As +cofounder of Aerosoles, Mr. Olicker served as President of the company's private +label division and was responsible for managing all aspects of sourcing, +production, pricing, sales, service, systems and finance. Mr. Olicker began his +career in footwear in 1982 as the General Counsel and Licensing Director at El +Greco Leather Products and later held an executive position with New Retail +Concepts, Inc., an apparel licensing firm. +Gerald Mongeluzo has been President of Adesso-Madden, Inc., a wholly owned +subsidiary of the Company, since September 1995. Mr. Mongeluzo served as a +director of the Company from July 2001 through May 2004. Previously, Mr. +Mongeluzo was the founder and President of Adesso Shoes, Inc., a buying agent of +private label shoes. From 1987 through 1991, Mr. Mongeluzo was the President of +the Prima Barabaro Division of Cells Enterprise, Inc. Mr. Mongeluzo founded +Prima Shoes, Inc., a buying agent of private label shoes, and served as its +President from 1974 to 1987. +Robert Schmertz has been the President of Steve Madden Womens Wholesale +Division and Brand Manager since September 2001, the President of Shoe Biz, +Inc., a wholly owned subsidiary of Steve Madden Retail Inc. since May 1998 and +the President of Diva Acquisition Corp. since January 2001. Before joining the +Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to +May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo +-10- +International from January 1993 through November 1995. From April 1990 to +December 1992, Mr. Schmertz served as a sales representative for Espirit de +Corp. based in San Francisco, California. +Joseph Masella has been the President of the Licensed Footwear Division +since March 2004. Previously, he was the Executive Chairman of the l.e.i. +Footwear Division and Stevies, Inc. since June 2002. Prior to that, he was +President of Stevies, Inc. since April 2000 and President of l.e.i. Footwear +Division since July 1998. Prior to that, he was Vice President-Sales of the +Company's Adesso-Madden subsidiary since October 1995. From 1992 to 1995, Mr. +Masella served as General Manager-Far East Division of US Shoe Co. +Harry Chen has been the Chairman and Lead Designer of the Madden Mens +Division since March 2004. Previously, he was the President of Union Bay Mens +Footwear, Inc. since January 2003 and the President of Madden Mens since +November 2001. Before joining the Company, Mr. Chen served as Chief Executive +Officer of XES Appeal, Inc. from 1997 to 2002. +Jay Litvack has been President of Diva Acquisition Corporation since May +2002. Before joining the Company, Mr. Litvack served as the President of Me Too +from 1996 to 2002. +Andrew Shames has been the President of Madden Mens since March 2004. +Before joining the Company, Mr. Shames was an executive at Harbor Footwear Group +Ltd. from 1997 to 2004. Mr. Shames began his career at J.P. Marks International, +one of the first importers of men's dress and casual products from Asia, and +occupied the role of Vice President of Sales. +Larry Paparo has been the President of Candie's Kids and Stevies, Inc. +since March 2004. Prior to that, Mr. Paparo served as the Vice President of +Sales for Candie's Division since November 2003. Before joining the Company, Mr. +Paparo held sales and management positions with both Nine West and Kenneth Cole. +Amelia Newton Varela has been the Executive Vice President of Steven +Madden, Ltd. Wholesale Sales since October 2004. In April 2000, she was named +Vice President of Sales for the Steve Madden Womens Division. Previously, she +was a Key Account Executive since 1997 and began her career with the Company as +a Customer Service Representative in 1996. +-11- +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +Summary Compensation Table +The following table sets forth for each of the last three fiscal years +ended December 31, 2004, December 31, 2003 and December 31, 2002 the +remuneration paid by the Company to its Chief Executive Officer and the four +most highly compensated executive officers (other than the Chief Executive +Officer): +Summary Compensation Table +Annual compensation Long-term compensation +----------------------------------- -------------------------------------------- +Restricted +Fiscal Awards Stock Awards All other +Name and principal position year Salary($) Bonus($) options(1) ($) compensation +--------------------------- ------ ---------- ---------- ----------- ---------- ------------ +Jamieson A. Karson, 2004 $467,500 -0- -0- N/A $146,226(2) +Chief Executive Officer 2003 $467,500 $108,056(3) -0- N/A $287,963(4) +2002 $400,000(5) $286,319(6) 45,000(7) N/A $ 32,268(8) +Robert Schmertz, 2004 $432,649 $ 50,000 -0- N/A $205,769(9) +President, Steve Madden 2003 $393,750 -0- -0- N/A $256,000(10) +Womens Wholesale Division 2002 $363,750 $150,000 100,000 $850,000(11) $ 5,769(12) +and Brand Manager +Harry Chen, 2004 $250,000 $313,018 -0- N/A $ 8,400(13) +Chairman and Lead Designer 2003 $250,000 $448,808 100,000 N/A $ 8,400(13) +of Madden Mens Division 2002 $150,000 $216,020 -0- $917,000(14) -0- +Andrew Shames, 2004(15) $634,621(16) -0- -0- N/A -0- +President, Madden Mens +Division +Joseph Masella, 2004 $606,886(17) -0- 25,000 N/A +President, Licensed Footwear 2003 $892,861(17) -0- -0- N/A $ 62,500(19) +Division +2002 $571,191(18) $103,067 -0- N/A $ 3,323(20) +--------------- +(1) Options to purchase shares of Common Stock. +(2) In 2004 the Company paid Mr. Karson $116,112 in lieu of granting him the +option to purchase 58,056 shares to purchase Common Stock that he was +entitled to under his employment agreement and paid $30,114 for expenses +paid on behalf of Mr. Karson pursuant to his employment agreement. +(3) Mr. Karson was paid cash bonuses totaling $108,056 for 2003. +(4) In 2003, the Company paid expenses in the amount of $37,963 on behalf of +Mr. Karson pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Karson $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(5) Mr. Karson's employment agreement was amended to provide for a base salary +of $425,000 as of July 1, 2002. See "Employment Agreements with Certain +Executives." +(6) In exchange for the increase in base salary described in note (5) above, +Mr. Karson agreed to waive his right to collect the portion of his cash +bonus for 2002 that is allocable to the payment by the Company of the loss +mitigation insurance premium that the Company purchased in the fourth +quarter of fiscal year 2001. The amount waived by Mr. Karson was +approximately $278,000. See "Employment Agreements with Certain +Executives." +(7) Although, under his employment agreement Mr. Karson was entitled to receive +an option to purchase 50,000 shares of Common Stock in 2002, on June 24, +2002, Mr. Karson agreed to accept an option to purchase only 45,000 shares +of Common Stock so that an option to purchase 5,000 shares of Common Stock +could be awarded to a key employee. +(8) Expenses paid on behalf of Mr. Karson pursuant to his employment agreement. +(9) In 2004, the Company paid expenses in the amount of $5,769 on behalf of Mr. +Schmertz pursuant to his employment agreement. In addition, in 2004 the +Company paid Mr. Schmertz $200,000 in lieu of granting him the option to +purchase 100,000 shares of Common Stock that he was entitled to under his +employment agreement. +-12- +(10) In 2003, the Company paid expenses in the amount of $6,000 on behalf of Mr. +Schmertz pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Schmertz $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(11) On April 2, 2002, the Company agreed to grant Mr. Schmertz 50,000 shares of +Common Stock on June 30, 2005 if Mr. Schmertz is employed by the Company on +such date. The grant of these shares is subject to approval of the +Company's shareholders. The closing price of the Company's Common Stock on +April 2, 2002 as reported by The Nasdaq National Market was $17.00. The +value of these restricted shares of Common Stock as of December 31, 2002 +was $903,500 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq National Market). These shares have not +been issued to Mr. Schmertz and Mr. Schmertz will not be entitled to any +rights with respect to the ownership of these shares (including voting +rights and dividends) until they are issued to Mr. Schmertz. +(12) Expenses paid on behalf of Mr. Schmertz pursuant to his employment +agreement. +(13) Expenses paid on behalf of Mr. Chen pursuant to his employment agreement. +(14) On October 7, 2002, the Company agreed to grant Mr. Chen 50,000 shares of +Common Stock on June 30, 2005 if Mr. Chen is employed by the Company on +such date. The grant of these shares is subject to approval of the +Company's shareholders. The closing price of the Company's Common Stock on +October 7, 2002 as reported by The Nasdaq National Market was $18.34. The +value of these restricted shares of Common Stock as of December 31, 2002 +was $903,500 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq National Market). These shares have not +been issued to Mr. Chen and Mr. Chen will not be entitled to any rights +with respect to the ownership of these shares (including voting rights and +dividends) until they are issued to Mr. Chen. +(15) Mr. Shames' employment with the Company commenced on March 8, 2004. +(16) In 2004, Mr. Shames directly received $121,153 in base salary pursuant to +his employment agreement. Pursuant to a commission agreement between the +Steven Madden Mens Wholesale Division of the Company and Hev Sales, Inc., a +corporation of which Mr. Shames serves as President, Hev Sales, Inc. +received payments in the amount of $513,468 in 2004. +(17) Under the terms of Mr. Masella's employment agreement, commissions on sales +by Mr. Masella are paid to T.J.M. Sales Corporation, a corporation of which +Mr. Masella serves as President. +(18) In 2002, Mr. Masella directly received $88,738 in salary and T.J.M. Sales +Corporation was paid $482,453. +(19) In 2003, the Company paid Mr. Masella $62,500 in lieu of granting him the +option to purchase 25,000 shares of Common Stock that he was entitled to +under his employment agreement. +(20) Expenses paid on behalf of Mr. Masella pursuant to his employment +agreement. +-13- +The following table sets forth certain information with respect to options +granted during the last fiscal year to the persons named in the Summary +Compensation Table above. +Option/SAR Grants In Last Fiscal Year +Number of Percent of Total Potential Realizable +Securities Options/SARS Exercise Value at Assumed Annual +Underlying Granted to or Base Rates of Stock Price +Options/SARS Employees in Price Appreciation for Option +Name Granted (#) Fiscal Year % ($/Sh) Expiration Date Term +--------------------- ------------- ------------- ---------- ---------------- ------------------------ +5% 10% +---------- ---------- +Jamieson A. Karson -0- N/A N/A N/A N/A N/A +Robert Schmertz -0- N/A N/A N/A N/A N/A +Harry Chen -0- N/A N/A N/A N/A N/A +Andrew Shames -0- N/A N/A N/A N/A N/A +Joseph Masella 25,000 6.6 19.97 6/30/2014 1,301,738 2,170,871 +The following table sets forth certain information with respect to options +exercised during the last fiscal year by the persons named in the Summary +Compensation Table, and with respect to unexercised options held by such persons +at the end of the last fiscal year. +Aggregate Option/SAR Exercises In Last Fiscal Year And +Fiscal Year-End Option/SAR Values +Shares Value Number of Securities Value of Unexercised in the +Acquired on Realized Underlying Unexercised Money Options/SARs at +Name Exercise (#) $ Options/SARS at FY-End (#) FY-End ($) (1) +---------------------- --------------- ----------- ----------------------------- ----------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Jamieson A. Karson -0- -0- 145,000 0 6,000 -0- +Robert Schmertz -0- -0- 100,000 -0- -0- -0- +Harry Chen -0- -0- 130,000 20,000 505,500 -0- +Andrew Shames -0- -0- -0- -0- -0- -0- +Joseph Masella -0- -0- 22,925 12,500 1,146 -0- +---------------------- +(1) Based upon a closing price on December 31, 2004 of $18.86 per share as +reported by The Nasdaq National Market. +-14- +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of Common Stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of Common Stock subject to the plan from 975,000 +to 1,600,000 shares. In May 2002, the Company's stockholders approved an +amendment to the 1999 Plan increasing the number of shares of Common Stock +subject to the plan from 1,600,000 to 2,280,000. In May 2003, the Company's +stockholders approved an amendment to the 1999 Plan (i) increasing the maximum +number of shares of the Company's common stock available for issuance under the +plan from 2,280,000 shares to 2,920,000 shares; (ii) providing that the exercise +price of an option granted under the plan shall be no less than the fair market +value of the Company's common stock on the date of grant (except to the extent +otherwise provided in agreements with the Company dated prior to the effective +date of the amendment) and (iii) prohibiting the Board from amending the terms +of any option granted pursuant to the plan to reduce the option price. In May +2004, the Company's stockholders approved an amendment to the 1999 Plan +increasing the maximum number of shares of the Company's common stock available +for issuance under the plan from 2,920,000 shares to 3,220,000 shares. As of the +Record Date, options to purchase 3,011,000 shares of Common Stock have been +granted pursuant to the 1999 Plan. The purpose of the 1999 Plan is to provide a +means whereby directors and selected employees, officers, agents, consultants, +and independent contractors of the Company, may be granted incentive stock +options and/or nonqualified stock options to purchase shares of common stock, in +order to attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. +Employment Agreements with Certain Executive Officers +In May 2001, the Company entered into an employment agreement with Jamieson +A. Karson pursuant to which Mr. Karson agreed to serve as the Company's Chief +Executive Officer and Vice Chairman of the Board. On July 22, 2004 at a +regularly scheduled meeting of the Board of Directors of the Company, Mr. Karson +was appointed Chairman of the Board of Directors. This agreement was amended in +February 2004. The term of Mr. Karson's employment under his employment +agreement (as amended) is five (5) years commencing on July 1, 2001 and ending +on June 30, 2006. The term will be automatically extended for successive one +year periods unless the Company timely notifies Mr. Karson of its intention not +to extend the term. In connection with the execution of his employment +agreement, Mr. Karson surrendered 5,000 options which had been granted to him +for his service as an outside director. The agreement (as amended) provides that +the Company pay Mr. Karson an annual salary of $467,500 which base salary is +subject to a 10% annual increase on each July 1st of the term if the Company's +net income for the four calendar quarters ending on the most recent June 30th is +greater than the net income for the four calendar quarters ending on the +preceding June 30th. In addition, the agreement provides that for each fiscal +year (beginning with 2002) that occurs during the term of employment, Mr. Karson +receive a cash bonus, in an amount determined by the Board, not less than four +percent (4%) of the increase in the Company's EBITDA (earnings before interest, +tax, depreciation and amortization) over the EBITDA of the prior fiscal year. On +or about July 10, 2001, Mr. Karson received options to purchase 100,000 shares +of the Company's Common Stock at an exercise price equal to the closing market +price on the date prior to the grant date as quoted on The Nasdaq National +Market. These options vested quarterly over the one year period following the +date of grant and are exercisable for a period of five (5) years from the date +-15- +of grant. On or about July 10, 2001, the Company issued to Mr. Karson 10,000 +shares of restricted common stock, 25% of which became unrestricted at the end +of each of the four quarters following the date of issuance. Subject to approval +by the Company's stockholders of the Amendment of the Company's 1999 Stock Plan +and subject to availability of shares under such plan or any other plan +designated by the Board of Directors and approved by the Company's stockholders, +on or about the date of the Company's annual meeting for each year of the term +of the agreement (beginning in 2002), Mr. Karson is entitled to receive, annual +options to purchase shares of the Company's Common Stock equal to the dollar +amount of the annual bonus received by Mr. Karson for the previous fiscal year; +provided, however, that no annual option shall be for greater than 100,000 +shares. The annual options shall vest quarterly over the one year period +following the date of grant and shall be exercisable after vesting for a period +of five (5) years from the date of grant at an exercise price equal to the +closing price of the Company's Common Stock on the applicable date of grant, as +quoted on The Nasdaq National Market (or such other market or exchange on which +the Company's Common Stock is listed or traded). In addition, in the event of +Mr. Karson's total disability or his death, the Company is obligated to continue +to pay Mr. Karson (or Mr. Karson's estate) his base salary for the twelve (12) +month period immediately subsequent to the date of such total disability or +death. In the event Mr. Karson's employment agreement is terminated (or not +extended) for any reason other than for cause (as defined in the agreement) or +due to his death or his total disability, the Company is obligated to pay Mr. +Karson an amount equal to the product of (i) Mr. Karson's base salary plus the +cash bonus which Mr. Karson was paid for the immediately preceding fiscal year +multiplied by (ii) the greater of (A) the number of years remaining on the term +of the agreement or (B) two. In the event that there is a "change of control" +transaction terminating Mr. Karson's employment, all unvested options to +purchase shares of the Company's Common Stock held by Mr. Karson will vest on +the date of termination and Mr. Karson will be entitled to receive a lump sum +cash payment equal to (a) the amount of compensation that is accrued and unpaid +through the date of termination and (b) three (3) times the total compensation +(base salary and cash bonus) received by Mr. Karson for the preceding 12 month +period ending December 31. Mr. Karson's employment agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. +In April 2002, the Company entered into an employment agreement with Robert +Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve +Madden Wholesale Womens Division and Brand Manager for Steven Madden, Ltd. The +agreement was extended in March 2005. The term of Mr. Schmertz's employment +under his employment agreement (as extended) commenced on April 1, 2002 and ends +on June 30, 2007. Mr. Schmertz received an initial signing bonus of $150,000 and +a signing bonus of $50,000 upon the execution of the extension. The Company +agreed to pay Mr. Schmertz an annual salary of $375,000, to be increased to +$412,500 on July 1, 2003, to be increased to $453,750 on July 1, 2004, to be +increased to $476,438.00 on July 1, 2005 and to be increased to $500,260.00 on +July 1, 2006. Pursuant to the agreement, on May 17, 2002 Mr. Schmertz received +100,000 options to purchase the Company's Common Stock at an exercise price +equal to the closing market price on such date. These options vested quarterly +beginning with the first 25,000 vesting on September 30, 2002 and the last on +June 30, 2003. In addition, on the date of the Company's annual meeting in each +of 2003 and 2004, Mr. Schmertz became entitled to receive an option to purchase +100,000 shares of the Company's Common Stock. These options had an exercise +price equal to the closing market price on the date of the grant and vest +quarterly beginning with the first 25,000 vesting on the September 30th +immediately following the grant. In the event of a change in control, all +unvested options will vest on the date of the change of control, priced as of +the closing market price on the date of transfer as quoted on The Nasdaq +National Market. Under the terms of the agreement as extended, the Company shall +pay Mr. Schmertz a discretionary bonus in an amount determined solely by the +Company's Board of Directors. In the event of a "change of control" Mr. Schmertz +shall be entitled to terminate the agreement and upon such termination will be +entitled to receive three times the compensation received in the prior year +(capped at the maximum allowed under Section 4999 of the Internal Revenue Code +of 1986). Subject to the approval of the Company's shareholders, if Mr. Schmertz +is employed by the Company through June 30, 2005, he will be entitled to receive +50,000 shares of Common Stock. +In October 2002, the Company entered into an employment agreement with +Harry Chen pursuant to which Mr. Chen agreed to serve as President of the Madden +Mens division. In March 2004, Mr. Chen's title was changed to Chairman and Lead +Designer of Madden Mens Division. The term of Mr. Chen's employment under the +agreement commenced on January 1, 2003 and ends on June 30, 2005. Mr. Chen +received a signing bonus of $100,000. The Company agreed to pay Mr. Chen an +annual base salary of $250,000 and additional compensation of 1% of the +quarterly reported net sales of the Madden Mens Wholesale Division to be paid +within 45 days following the end of each quarter. Pursuant to the agreement, in +May 2003 Mr. Chen received 100,000 options to purchase the Company's Common +Stock at an exercise price equal to the closing market price on such date. These +options vest quarterly over ten quarters beginning with 20,000 options vesting +on June 30, 2003 and 10,000 options vesting on the last day of each quarter +thereafter through June 30, 2005. In addition, in the event that the Madden Mens +division opens a new division with Mr. Chen's assistance, the Company agreed to +pay Mr. Chen 10% of the reported net income of such new division without any +further compensation related to net sales of that division. Subject to the +approval of the Company's shareholders, if Mr. Chen is employed by the Company +through June 30, 2005, he will be entitled to receive 50,000 shares of Common +Stock. Mr. Chen's employment agreement contains other customary provisions. +-16- +In March 2004, the Company entered into an employment agreement with Andrew +Shames, pursuant to which Mr. Shames agreed to serve as President of the +Company's mens footwear business. The term of Mr. Shames' employment commenced +on March 8, 2004 and ends on March 31, 2007. The Company agreed to pay Mr. +Shames an annual base salary of $150,000. The agreement provides that Mr. Shames +is to receive options to purchase 25,000 shares of the Company's Common Stock on +March 31 of each year with a grant price based on the fair market value on such +date, during the term of the agreement (commencing March 31, 2005). The options +are to vest quarterly over a period of one (1) year from the grant date. If Mr. +Shames is employed by the Company through March 31, 2007, he will be entitled to +receive $100,000 on such date. Mr. Shames' employment agreement contains other +customary provisions. In March 2004, the Company also entered into a commission +agreement between the Steven Madden Mens Wholesale Division and Hev Sales, Inc. +Mr. Shames is the President of Hev Sales Inc. The term of the commission +agreement commenced on March 8, 2004 and ends on March 31, 2007. Under the +commission agreement, Hev Sales serves as sales organization for the Steven +Madden Mens Wholesale Division and receives commissions on sales by Hev Sales, +Inc. in the amount of (i) 0.75% of the first $35 million net sales of Madden +Mens and 2% of net sales of $35 million or greater, (ii) 1.25% of the net sales +of Unionbay or other men's mid-tier brands and (iii) 1.25% of the net sales of +any private label direct from the factory. Hev Sales, Inc. receives a biweekly +draw in the amount of $17,308 against commissions earned with an annual +guaranteed commission of $450,000. Commissions earned on the first sales +generating commission of $150,000 are not deemed earned commissions to Hev +Sales, Inc. Under the terms of the commission agreement Hev Sales, Inc. also +received a one-time start-up fee from the Company in the amount of $150,000. +In May 2002, the Company entered into an employment agreement between the +Company, Adesso Madden, Inc., Joseph Massella and T.J.M. Sales Corporation. Mr. +Massella is the president of T.J.M. Sales Corporation. The agreement was +subsequently amended on September 22, 2003. Under the terms of the agreement as +amended, Mr. Massella agreed to serve as President of the Candie's Wholesale +Division and Executive Vice President of Adesso Madden, Inc. The term of Mr. +Massella's employment under the agreement commenced on June 1, 2002 and ended on +December 31, 2004. Under the agreement as amended, T.J.M. Sales Corporation +receives commissions based on annual sales by Joseph Massella for Adesso Madden +in the amount of 2% on the first $8 million in sales, 1% on sales between $8 +million and $10 million in the aggregate, 1/2% on sales between $10 million and +$23.5 million in the aggregate, 3% on sales between $23.5 million and 34 million +in the aggregate and 4% on sales exceeding $34 million in aggregate sales. +T.J.M. Sales Corporation receives a biweekly draw in the amount of $16,000 +against commissions earned on sales for Adesso Madden. In addition, T.J.M. Sales +Corporation receives commissions in the amount of 1% of net sales, and receives +1% of earnings before interest and taxes (EBIT), of the Candie's Womens +Division. T.J.M. Sales Corporation receives a biweekly draw with recourse, in +the amount of $4,000 against commissions earned by Mr. Massella on net sales of +the Candie's Women's Wholesale Division. The agreement provides that Mr. +Massella is to receive options to purchase 25,000 shares of the Company's Common +Stock on June 30 of each year with a grant price based on the fair market value +on such date, during the term of the agreement (commencing June 30, 2003). The +options are to vest quarterly over a period of one (1) year beginning on +September 30, 2003. As noted above, Mr. Masella's employment contract expired on +December 31, 2004. Mr. Masella's employment agreement contains other customary +provisions. Mr. Masella continues to be employed by the Company and receives the +same levels of compensation as he received during the term of his employment +agreement. +Agreement with Steven Madden +In May 2001, the Company entered into an agreement with Steven Madden, the +Company's founder, pursuant to which Mr. Madden agreed to serve as the Company's +Creative and Design Chief. The agreement amends and restates the prior agreement +dated July 29, 1997 (and amended February 28, 2000). The agreement was further +amended in connection with a settlement and release of a class action lawsuit +against Mr. Madden and the Company, which settlement and release was finalized +on May 25, 2004. The term of Mr. Madden's employment under the agreement, as +amended is eleven (11) years commencing on July 1, 2001 and ending on June 30, +2012. The Company has agreed to pay Mr. Madden an annual base salary of +$700,000, which the Board may increase, but not decrease, at any time. Mr. +Madden is entitled to receive base salary payments during periods that he is not +actively engaged in the duties of Creative and Design Chief. For each fiscal +year during the term of the agreement, Mr. Madden is entitled to receive a cash +bonus in an amount determined by the Board, but not less than 2% of the +Company's EBITDA (earnings before interest, tax, depreciation and amortization) +for such year; provided however, that the Company is not required to pay such +cash bonus for any fiscal year during which Mr. Madden is not actively engaged +-17- +in the duties of Creative and Design Chief for at least six months. Subject to +availability of shares under the Company's 1999 Stock Plan or any other plan +designated by the Board of Directors and approved by the Company's stockholders, +on or about the date of the Company's annual meeting for each year of the term +(beginning in 2004), Mr. Madden is eligible to receive, during the term of the +agreement, annual options to purchase shares of the Company's common stock in an +amount equal to not less than 100% of the largest aggregate amount of options +granted to any other continuing full time employee of the Company over the 12 +month period up to and including the applicable grant date (the "Base Amount"). +Both the approval of the Board of Directors and an opinion of a qualified +outside compensation consultant are required for Mr. Madden to receive annual +options to purchase between 100%-150% of the Base Amount. Approval by the +stockholders of the Corporation is required for Mr. Madden to receive annual +options in excess of 150% of the Base Amount. The annual options will vest +quarterly over the 1 year period following the date of grant and will be +exercisable after vesting for a period of 5 years from the grant date at an +exercise price equal to the closing price of the Company's Common Stock on the +grant date as quoted on The Nasdaq National Market (or such other market or +exchange on which the Company's Common Stock is listed or traded). The Company +is not required to grant an annual option if Mr. Madden is not actively engaged +in the duties of Creative and Design Chief for at least six months out of the +twelve months immediately preceding the grant date for such annual option. The +Company also agreed to provide Mr. Madden with an annual $200,000 +non-accountable expense allowance which amount is payable in equal monthly +installments; however, the Company is not required to pay the non-accountable +expense allowance for any month during which Mr. Madden is not actively engaged +in the duties of Creative and Design Chief. +In addition, in the event of Mr. Madden's total disability or death, the +Company is obligated to continue to pay Mr. Madden (or Mr. Madden's estate) Mr. +Madden's base salary for the twelve (12) month period immediately subsequent to +the date of such total disability or death. In the event Mr. Madden's agreement +is terminated for any reason other than "for cause" or due to his death or his +total disability, the Company is obligated to pay Mr. Madden the balance of his +base salary that would have been paid over the full term of the agreement if the +agreement had not been terminated, fifty percent (50%) upon termination and the +remaining fifty percent (50%) in equal annual installments until June 30, 2012. +In the event there is a "change of control" transaction and Mr. Madden's +employment is terminated, all unvested options to purchase shares of the +Company's Common Stock held by Mr. Madden will vest on the date of termination +and Mr. Madden will be entitled to receive a lump sum cash payment equal to (a) +the amount of compensation that is accrued and unpaid through the date of +termination and (b) at Mr. Madden's discretion either (i) the total compensation +(base salary, cash bonus and non-accountable expense allowance) for the full +term remaining hereunder (as though there had been no Change of Control event) +in a lump sum payment discounted back to present value at a rate of 5%; or (ii) +three (3) times the total compensation received by Mr. Madden (base salary, cash +bonus and non-accountable expense allowance) for the preceding 12-month period +ending December 31. +To the extent not previously assigned or consented to, except as provided +below, (i) Mr. Madden sold, assigned and transferred to the Company the +exclusive right and interest to his name and (ii) Mr. Madden consented to the +use of his name as trademarks, service marks, corporate names and/or internet +domain name addresses of the Company (the "Marks"). Mr. Madden also agreed to +never challenge the Company's ownership of his name or the validity of the +Company's ownership of the Marks or of any registration or application for +registration thereof. Mr. Madden may however use his name for all non-commercial +purposes and for use in connection with any business that is not in the design, +manufacture, sale, marketing or distribution of (i) branded or designer +footwear, apparel, accessories and other products in the categories of products +sold by, or under license from, the Company or any of its affiliates, (ii) +jewelry and other giftware, (iii) cosmetics, fragrances and other health and +beauty care items, (iv) housewares, furniture, home furnishings and related +products and (v) other products related to fashion, cosmetics or lifestyle (any +of such activities being a "competitive business"). Further, Mr. Madden agreed +to not directly or indirectly (i) engage in any competitive business in any +relationship or capacity, (ii) solicit any customers of the Company, or (iii) +solicit or employ any employee or agent to the Company, until the later of (a) +June 30, 2012 or (b) the date which is twelve (12) months after the date on +which Mr. Madden is no longer employed by the Company, or until twelve months +after the date of termination should Mr. Madden be terminated in connection with +a change of control. Mr. Madden's agreement contains other customary provisions. +In May 2001, Mr. Madden entered into a plea agreement with the U.S. +Attorney's Office, pursuant to which he pled guilty to four securities fraud and +money laundering charges that had been previously filed against him. In 2002, +Mr. Madden was sentenced to forty-one (41) months' imprisonment in connection +-18- +with the charges. Mr. Madden began serving his sentence in September of 2002. +While serving his sentence, Mr. Madden is not actively engaged in the duties of +Creative and Design Chief and is therefore only entitled to receive base salary +payments under the agreement. Mr. Madden was released on April 14, 2005 and +returned to being actively engaged in the duties of Creative and Design Chief. +On April 26, 2004, the SEC sent the Company a letter requesting information +and documents relating to, among other things, Steven Madden's employment with +the Company. The Company has responded to this request. +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. Under this agreement, the firm +provided financial advisory and investment banking services to the Company. This +agreement was amended in March 2004. Pursuant to this agreement, which expired +on March 31, 2005, the Company paid fees and expenses to Peter J. Solomon & +Company of $161,000, $33,000 and $150,000 for 2004, 2003 and 2002 respectively. +Under the amended agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $161,000 during 2004, and will pay fees in the amount of +$50,000 plus expenses incurred during 2005. +In July 2004, the Company entered into a consulting agreement with Charles +Koppelman, who served as a director of the Company from June 1998 through May +2004 and as Chairman of the Board from July 2001 through May 2004. Under this +agreement, Mr. Koppelman provided consulting services that included enhancing +and promoting the Company's brands and seeking licensing and acquisition +opportunities. Pursuant to this agreement, Mr. Koppelman received 100,000 stock +options and a fee of $105,000 in 2004. This agreement expires on June 30, 2005. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provided consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company. Pursuant to this +agreement, Mr. Birnbaum received a fee of $250,000 in 2004 besides for fees +received for service to the Company as a director. Mr. Birnbaum has been the +Product Development Manager of Dolphin Shoe Company since August 1982. Dolphin +Shoe Company is one of the Company's domestic suppliers. In addition, Jeffrey +Birnbaum's brother, Steven Birnbaum owns a trading company, Bulls Eye Trading +("Bullseye") that acts as a selling agent for the Company. Jeffrey Birnbaum does +not own an interest in Bullseye nor is he a director of Bullseye nor does +Bullseye pay him any compensation. +In January 2004, the Company entered into an agreement with John Madden and +JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors. Under this agreement, Mr. Madden provided consulting services with +respect to the development of international sales of the Company. Under the +agreement, in 2004, JLM Consultants received a monthly draw with recourse in the +amount of $16,000 against sales commissions earned by Mr. Madden. Mr. Madden +also received a $1,000 per month travel allowance and $1,700 per month toward +health insurance premiums. Pursuant to this agreement, JLM Consultants received +a total of $224,400 in 2004, besides for Mr. Madden's fees received for service +to the Company as a director. In March 2005, JLM Consultants' draw against +commissions with recourse was raised to $20,000 per month. JLM Consultants will +receive an estimated total of $272,400 in 2005. +The Madden Mens division of the Company purchases a significant amount of +shoes from La Tandem International, Inc. Mr. James Chen, the brother of Harry +Chen, is the President of La Tandem International, Inc., and La Tandem +International, Inc. is owned or controlled by members of the Chen family. Harry +Chen is the chairman and lead designer of the Madden Mens Division of the +Company. +In May 2002, the Company entered into an employment agreement between the +Company, Adesso Madden, Inc., Joseph Masella and T.J.M. Sales Corporation. The +agreement was subsequently amended on September 22, 2003. Mr. Masella is the +president of T.J.M. Sales Corporation. Under the agreement as amended, T.J.M. +Sales Corporation receives a biweekly draw in the amount of $16,000 against +commissions earned by Mr. Masella on sales of Adesso Madden, Inc., and a +biweekly draw with recourse, in the amount of $4,000 against commissions earned +by Mr. Masella on net sales of the Candie's Women's Wholesale Division and +Adesso Madden, Inc. T.J.M. Sales Corporation received commissions in the amount +of $606,886 in 2004. +-19- +In March 2004, the Company entered into a commission agreement between the +Steven Madden Mens Wholesale Division and Hev Sales, Inc. Mr. Andrew Shames is +the President of Hev Sales Inc. Under the agreement, Hev Sales serves as sales +organization for the Steven Madden Mens Wholesale Division and receives an +annual guaranteed commission of $450,000. Hev Sales, Inc. received commissions +in the amount of $513,468 in 2004. +The Company has an agreement with Steven Madden, a beneficial holder of +more than 10% of the Company's outstanding shares of common stock. See +"Agreement with Steven Madden." +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is responsible for reviewing and approving the +Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. During 2004, the Compensation Committee was comprised of directors +Peter Migliorini (chairman) and Thomas Schwartz. Each member of the Compensation +Committee was a non-employee director of the Company during 2004. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing stockholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +The objectives of the Company's executive compensation programs are to: (i) +attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interest with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, annual +incentive bonuses and long-term incentive awards (stock options). Each +compensation component is offered to executives in varying combinations, +structured in each case, to meet varying business objectives and to provide a +level of total compensation comparable to similarly situated public companies. +The total compensation of Jamieson A. Karson, the Company's Chief Executive +Officer, is determined pursuant to his employment agreement with the Company. +Mr. Karson was appointed Chief Executive Officer effective as of July 1, 2001. +In 2004, Mr. Karson's compensation consisted of $467,500 in base salary payments +and no bonus payment. In addition, in 2004 the Company paid Mr. Karson $116,112 +in lieu of granting him the option to purchase 58,056 shares of Common Stock +that he was entitled to under his employment agreement. In February 2004, the +Compensation Committee approved an amendment to Mr. Karson's employment +agreement which extended the term of the agreement to June 30, 2006. The +Compensation Committee believes that Mr. Karson's compensation should be based +upon the Company's overall performance. See "Employment Agreements with Certain +Executive Officers." +The Company has negotiated employment agreements with respect to base +salary, annual incentive awards and stock option awards for each of the +Company's named executive officers based upon the Company's performance and the +individual performance of such named executives. +-20- +The Internal Revenue Code of 1986 prohibits the Company from taking a tax +deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2004 any officer +compensation which will be subject to the $1 million deduction limitation. The +Compensation Committee will take into consideration the $1 million deduction +limitation when structuring future compensation packages for the Company's +executive officers and, if appropriate and in the best interests of the Company, +will conform such packages to permit the Company to take a deduction for the +full amount of all compensation. +COMPENSATION COMMITTEE +Peter Migliorini (chairman) +Thomas Schwartz +Compensation Committee Interlocks and Insider Participation +The Compensation Committee makes all compensation decisions. During 2004, +the following directors served on the Compensation Committee: Peter Migliorini +(chairman) and Thomas Schwartz. During the fiscal year 2004, no interlocking +relationship existed between the Company's Board of Directors or Compensation +Committee and the board of directors or compensation committee of any other +company. +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the cumulative +total stockholder return on the Common Stock during the period beginning on +December 31, 1999 and ending on December 31, 2004 with the cumulative total +return on the Russell 2000 Index and the S&P 500 Footwear Index. The comparison +assumes that $100 was invested on December 31, 1999 in the Company's Common +Stock and in the foregoing indices and assumes the reinvestment of dividends. +[GRAPHIC OMITTED] +------------------------------------------------------------------------------------------------------ +12/31/1999 12/29/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 +------------------------------------------------------------------------------------------------------ +Steven Madden, Ltd. $100.00 $ 39.98 $ 73.82 $94.81 $107.03 $ 98.95 +------------------------------------------------------------------------------------------------------ +Russell 2000 Index $100.00 $ 95.80 $ 96.78 $75.90 $110.33 $129.09 +------------------------------------------------------------------------------------------------------ +S&P 500 Footwear Index $100.00 $119.79 $120.19 $98.66 $149.30 $194.23 +------------------------------------------------------------------------------------------------------ +-21- +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the directors and the persons +named in the Summary Compensation Table; and (iii) the Company's executive +officers and directors as a group. A person is deemed to be a beneficial owner +of any securities of which that person has the right to acquire beneficial +ownership within sixty (60) days. See "Compensation of Directors and Executive +Officers." +Name and Address of Amount and Nature of Percentage (%) +Beneficial Owner(1) Beneficial Ownership(2) of Class(2) +---------------------------------------------- --------------------------------- ---------------- +Jamieson A. Karson 155,000 (3) 1.16 +Arvind Dharia 1,895,828 (4) 13.62 +Robert Schmertz 100,000 (5) * +Harry Chen 150,000 (6) 1.12 +Andrew Shames 0 * +Joseph Masella 29,202 (7) * +Marc Cooper 40,000 (8) * +John Madden 1,794,000 (9) 12.98 +Peter Migliorini 40,000 (10) * +Jeffrey Birnbaum 30,000 (11) * +Awadhesh Sinha 20,000 (12) * +Harold Kahn 3,500 * +Thomas Schwartz 20,600 (13) * +Walter Yetnikoff -0- * +Steven Madden (14) 1,754,000 (15) 12.73 +BOCAP Corp. 1,754,000 (16) 12.73 +T. Rowe Price Associates, Inc. (17) 1,183,200 8.94 +T. Rowe Price Small-Cap Value Fund, Inc. (18) 1,000,000 7.55 +Columbia Wanger Asset Management, L.P. (19) 1,289,000 (20) 9.73 +WAM Acquisition GP, Inc. (18) 1,289,000 (20) 9.73 +Columbia Acorn Trust (18) 862,000 (20) 6.51 +Wells Fargo & Company (21) 888,700 6.71 +Wells Capital Management Incorporated (22) 888,700 6.71 +Royce & Associates, LLC(23) 1,661,700 12.55 +FMR Corp. (24) 1,510,244 11.41 +Barington Group and related entities(25) 1,005,420 (26) 7.59 +Directors, Director Nominee and Executive +Officers as a Group (19 persons) 2,918,330 (27) 19.64 +------------------- +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined in +accordance with Item 403 of Regulation S-K of the Securities Act of 1933 +and Rule 13d-3 of the Securities Exchange Act, and based upon 13,241,617 +shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) Includes (i) 145,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 10,000 shares of Common Stock held by +Mr. Karson's wife. +-22- +(4) Includes 141,828 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia and 1,754,000 shares of Common Stock which Mr. +Dharia may beneficially own pursuant to a power of attorney dated as of +September 17, 2002, whereby Steven Madden appointed John Madden and Arvind +Dharia as his attorneys-in-fact. +(5) Includes 100,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schmertz. +(6) Includes 150,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Chen. +(7) Includes 29,202 shares of Common Stock issuable upon the exercise of +options held by Mr. Masella. +(8) Includes 40,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Cooper. +(9) Includes 40,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden and 1,754,000 shares of Common Stock which +Mr. J. Madden may beneficially own pursuant to a power of attorney dated as +of September 17, 2002, whereby Steven Madden appointed John Madden and +Arvind Dharia as his attorneys-in-fact. +(10) Includes 40,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Migliorini. +(11) Includes 10,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Birnbaum. +(12) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Sinha. +(13) Includes 10,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schwartz. +(14) Mr. Madden resigned as Chief Executive Officer of the Company effective as +of July 1, 2001. +(15) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 405,000 shares of Common Stock held by +Mr. S. Madden and (iii) 540,000 shares of Common Stock issuable upon the +exercise of options held by Mr. S. Madden. +(16) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 405,000 shares of Common Stock held by +Mr. S. Madden and (iii) 540,000 shares of Common Stock issuable upon the +exercise of options held by Mr. S. Madden. +(17) Based upon a Schedule 13G/A filed with the SEC on March 1, 2005. The +address for such stockholder is 100 E. Pratt Street, Baltimore, MD 21202. +(18) Based upon a Schedule 13G filed with the SEC on March 1, 2005. The address +for such stockholder is 100 E. Pratt Street, Baltimore, MD 21202. +(19) Based upon a Schedule 13G/A filed with the SEC on February 11, 2005. The +address for such stockholder is 227 West Monroe Street, Suite 3000, +Chicago, IL 60606. +(20) As disclosed in the Schedule 13G/A filed with the SEC on February 11, 2005, +the 1,289,000 shares beneficially owned by Columbia Wanger Asset +Management, L.P. include the 1,289,000 shares beneficially owned by its +general partner, WAM Acquisition GP, Inc. and the 862,000 shares owned by +its discretionary client, Columbia Acorn Trust. +(21) Based upon a Schedule 13G filed with the SEC on January 21, 2005. The +address for such stockholder is 420 Montgomery Street, San Francisco, CA +94104. As disclosed in the Schedule 13G, Wells Capital Management +Incorporated is a subsidiary of such stockholder. +(22) Based upon a Schedule 13G filed with the SEC on January 21, 2005. The +address for such stockholder is 525 Market Street, 10th Floor, San +Francisco, CA 94105. As disclosed in the Schedule 13G, such stockholder is +a subsidiary of Wells Fargo & Company. +(23) Based upon a Schedule 13G/A filed with SEC on January 31, 2005. The address +for such stockholder is 1414 Avenue of the Americas, New York, NY 10019. +(24) Based upon a Schedule 13G/A filed with the SEC on February 14, 2005. The +address for such stockholder is 82 Devonshire Street, Boston, MA 02109. As +disclosed in the Schedule 13G/A, Fidelity Management and Research Company, +a wholly-owned subsidiary of FMR Corp. is the beneficial owner of 1,472,344 +shares through its role as investment adviser. Fidelity Low Priced Stock +Fund owns 1,310,600 shares. Each of Edward C. Johnson 3rd and FMR Corp. +control the sole power to dispose of the 1,472,344 shares owned by the +funds. Fidelity Management Trust Company, a wholly-owned subsidiary of FMR +Corp. is the beneficial owner of 37,900 shares. Each of Edward C. Johnson +3rd and FMR Corp. control the sole power to dispose of and to direct the +voting of such 37,900 shares. +(25) As disclosed in the Schedule 13D/A, Amendment No. 6 filed with the SEC on +February 3, 2005. The Schedule 13D/A was jointly filed by and on behalf of +Barington Companies Equity Partners, L.P. ("Barington LP"), Barington +Companies Investors, LLC ("Barington Investors LLC"), James Mitarotonda, +Barington Companies Offshore Fund, Ltd. (BVI) ("Barington Offshore"), +Barington Companies Advisors, LLC ("Barington Advisors LLC"), Barington +Capital Group, L.P. ("Barington Capital LP"), LNA Capital Corp. ("LNA"), +Parche, LLC ("Parche"), Starboard Value & Opportunity Fund ("Starboard"), +-23- +Admiral Advisors, LLC ("Admiral"), Ramius Capital Group, LLC ("RCG"), C4S & +Co., LLC ("C4S"), Peter A. Cohen, Morgan B. Stark, Jeffrey M. Solomon, +Thomas W. Strauss, RJG Capital Partners, LP ("RJC LP"), RJG Capital +Management, LLC ("RJC LLC") and Ronald Gross. +The address for Barington LP, Barington Investors LLC, Mr. Mitarotonda, +Barington Advisors LLC, Barington Capital LP, and LNA is 888 Seventh +Avenue, 17th Floor, New York, New York 10019. The address for Barington +Offshore is c/o Bison Financial Services Ltd., Bison Court, Road Town, +Tortola, British Virgin Islands. The address for Parche, Starboard, +Admiral, RCG, C4S and Messrs. Cohen, Stark, Solomon and Strauss is 666 +Third Avenue, 26th Floor, New York, New York 10017. The address for RJC LP, +RJC LLC and Mr. Gross is 11517 West Hill Drive, North Bethesda, Maryland +20852. +(26) Based upon the Schedule 13D/A filed with the SEC on February 3, 2005 by the +entities listed in footnote 23. As disclosed therein, Barington LP +beneficially owns an aggregate of 288,937 shares. As the general partner of +Barington LP, Barington Investors LLC may be deemed to beneficially own the +288,937 shares owned by Barington LP. As the managing member of Barington +Investors LLC, which in turn is the general partner of Barington LP, Mr. +Mitarotonda may be deemed to beneficially own the 288,937 shares owned by +Barington LP. Barington Offshore beneficially owns 48,535 shares. As the +investment advisor to Barington Offshore, Barington Advisors LLC may be +deemed to beneficially own the 48,535 shares owned by Barington Offshore. +As the managing member of Barington Advisors LLC, Barington Capital LP may +be deemed to beneficially own the 48,535 shares owned by Barington +Offshore. As the majority member of Barington Investors LLC, Barington +Capital LP may also be deemed to beneficially own the 288,937 shares owned +by Barington LP, representing an aggregate of 337,472 shares. As the +general partner of Barington Capital LP, LNA may be deemed to beneficially +own the 288,937 shares owned by Barington LP and the 48,535 shares owned by +Barington Offshore, representing an aggregate of 337,472 shares. As the +sole stockholder and director of LNA, Mr. Mitarotonda may be deemed to +beneficially own the 288,937 shares owned by Barington LP and the 48,535 +shares owned by Barington Offshore, representing an aggregate of 337,472 +shares. Mr. Mitarotonda has sole voting and dispositive power with respect +to the 288,937 shares owned by Barington LP and the 48,535 shares owned by +Barington Offshore by virtue of his authority to vote and dispose of such +shares. Each of Parche and Starboard beneficially own 105,496 shares and +553,852 shares, respectively. As the managing member of each of Parche and +Starboard, Admiral may be deemed to beneficially own the 105,496 shares and +the 553,852 shares, respectively, owned by Parche and Starboard, +representing an aggregate of 659,348 shares. As the sole member of Admiral, +RCG may be deemed to beneficially own the 105,496 shares and the 553,852 +shares, owned respectively, by Parche and Starboard. As the managing member +of RCG, C4S may be deemed to beneficially own the 105,496 shares and the +553,852 shares, respectively, owned by Parche and Starboard, representing +an aggregate of 659,348 shares. As the managing members of C4S, each of +Peter A. Cohen, Morgan B. Stark, Jeffrey M. Solomon and Thomas W. Strauss +may be deemed to beneficially own the 105,496 shares and the 553,852 +shares, respectfully, owned by Parche and Starboard, representing an +aggregate of 659,348 shares. Each of Messrs. Cohen, Stark, Solomon and +Strauss share voting and dispositive power with respect to the 105,496 +shares and 553,852 shares, respectively, owned by Parche and Starboard by +virtue of their shared authority to vote and dispose of such shares. +Messrs. Cohen, Stark, Soloman & Strauss disclaim beneficial ownership of +such shares. RJG LP beneficially owns 8,600 shares. As the general partner +of RJG LP, RJG LLC may be deemed to beneficially own the 8,600 shares owned +by RJG LP. As the managing member of RJG LLC, which in turn is the general +partner of RJG LP, Mr. Gross may be deemed to beneficially own the 8,600 +shares owned by RJG LP. Mr. Gross has sole voting and dispositive power +with respect to the 8,600 shares owned by RJG LP by virtue of his authority +to vote and dispose of such shares. +Each of the above mentioned entities is deemed to have sole voting and +dispositive power over the shares reported as beneficially owned by virtue +of their respective positions as described above, with the exception of +Messrs. Cohen, Stark, Solomon and Strauss, who have shared authority to +vote and dispose of such shares. Messrs. Cohen, Stark, Solomon & Strauss +disclaim beneficial ownership of such shares. With the exception of Messrs. +Cohen, Stark, Solomon and Strauss, each of the other above mentioned +entities are deemed to have sole voting and dispositive power with respect +to the shares each beneficially owns, regardless of the fact that multiple +entities within the same chain of ownership are deemed to have sole voting +and dispositive power with respect to such shares. Each such entity reports +sole voting and dispositive power with respect to such shares based on its +relationship to the other entities within the same chain of ownership. +(27) Includes 1,619,030 shares issuable upon the exercise of options. +-24- +PROPOSAL TWO +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S INDEPENDENT +AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005 +The Audit Committee has appointed Eisner LLP as the Company's independent +auditors to conduct the audit of the Company's books and records for the fiscal +year ending December 31, 2005. Eisner LLP also served as the Company's +independent auditors for the previous fiscal year. Representatives of Eisner LLP +are expected to be present at the Annual Meeting to respond to questions and to +make a statement should they so desire. +The affirmative vote of a majority of the shares of Common Stock +represented at the meeting and entitled to vote is required for the ratification +of the appointment of Eisner LLP as the Company's independent auditors. The +Audit Committee is directly responsible for the appointment and retention of the +Company's independent auditors. Although ratification by stockholders is not +required by our organizational documents or other applicable law, the Audit +Committee has determined that requesting ratification by stockholders of its +appointment of Eisner LLP as the Company's independent auditors is a matter of +good corporate practice. If stockholders do not ratify the selection, the Audit +Committee will reconsider whether or not to retain Eisner LLP, but may still +retain them. Even if the selection is ratified, the Audit Committee, in its +discretion, may change the appointment at any time during the year if it +determines that such a change would be in the best interest of the Company and +its stockholders. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the ratification +of the appointment of Eisner LLP as the Company's independent auditors for the +fiscal year ending December 31, 2005. Unless marked to the contrary, proxies +received from stockholders will be voted in favor of the appointment of Eisner +LLP as the Company's independent auditors for the fiscal year ending December +31, 2005. +FEES PAID TO INDEPENDENT AUDITORS +Audit Fees +The aggregate fees billed by Eisner LLP for professional services rendered +for the audit of the Company's annual financial statements for the fiscal year +ended December 31, 2004, for the reviews of the financial statements included in +the Company's Quarterly Reports on Form 10-Q for that fiscal year, other +statutory and regulatory filings, consents related to registration statements +filed with the SEC and the audit of the Company's internal controls over +financial reporting for the 2004 fiscal year were $625,000. The comparative +amount for the fiscal year ended December 31, 2003 was $196,000. +Audit-Related Fees +In addition to Audit Fees, Eisner LLP has billed the Company $39,000, in +the aggregate, for Audit Related Fees related to assurance and related services +for the fiscal year ended December 31, 2004. These services include, among +others, the audit of the Company's employee benefit plans and other accounting +related consultations. The comparative amount for the fiscal year ended December +31, 2003 was $85,000. +Tax Fees +During the fiscal year ended December 31, 2004, Eisner LLP billed the +Company $116,000, in the aggregate, for services rendered to the Company for tax +compliance, tax advice and tax planning. Eisner LLP billed $98,000 for similar +services in the 2003 fiscal year. +-25- +All Other Fees +There were no fees billed by Eisner LLP for services rendered to the +Company, other than the services described above under Audit Fees, Audit Related +Fees and Tax Fees, for the fiscal years ended December 31, 2004 and 2003. +AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES +Consistent with SEC policies regarding auditor independence, the Audit +Committee has responsibility for appointing, setting compensation and overseeing +the work of the independent auditor. In recognition of this responsibility, the +Audit Committee has established a policy to review and pre-approve all audit and +permissible non-audit services provided by the independent auditor. These +services may include audit services, audit-related services, tax services and +other services. +Prior to engagement of the independent auditor for next year's audit, the +Audit Committee will pre-approve all auditing services and all permitted +non-audit services (including the fees and terms thereof), except those excluded +from requiring pre-approval based upon the de minimus exception set forth in +Section 10A(i)(1)(B) of the Exchange Act. +The Audit Committee's pre-approval policies and procedures are as follows: +(a) prior to each fiscal year, the Audit Committee pre-approves a schedule of +estimated fees for proposed non-prohibited audit and non-audit services and (b) +actual amounts paid are monitored by financial management of the Company and +reported to the Audit Committee. +All work performed by Eisner LLP as described above under the captions +Audit Fees, Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee's charter. The Audit Committee has considered and concluded that the +provision of non-audit services is compatible with maintaining the principal +accountant's independence. +PROPOSAL THREE +TO APPROVE THE ISSUANCE OF AN AGGREGATE OF 100,000 SHARES OF OUR COMMON STOCK +TO CERTAIN OF OUR EXECUTIVE OFFICERS PURSUANT TO THEIR EMPLOYMENT +AGREEMENTS +In April 2002, the Company entered into an employment agreement with Robert +Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve +Madden Wholesale Womens Division and Brand Manager for Steven Madden, Ltd. Under +the terms of Mr. Schmertz's employment agreement, which are set forth above +under "Employment Agreements with Certain Executive Officers" subject to Mr. +Schmertz's continuous employment by the Company from April 1, 2002 through June +30, 2005, Mr. Schmertz will be entitled to receive 50,000 shares of Common +Stock. Under the terms of his employment agreement, Mr. Schmertz's receipt of +such shares is subject to the receipt of stockholder approval. The Company has +set aside reserves totaling $785,000 against this contingent liability and +intends to pay Mr. Schmertz in cash in the event Proposal 3 is not approved. +In October 2002, the Company entered into an employment agreement with +Harry Chen pursuant to which Mr. Chen agreed to serve as President of the Madden +Mens Division commencing on January 1, 2003 and ending on June 30, 2005. Under +the terms of Mr. Chen's employment agreement, subject to Mr. Chen's continuous +employment by the Company from January 1, 2003 through June 30, 2005, Mr. Chen +will be entitled to receive 50,000 shares of Common Stock. Under the terms of +his employment agreement, Mr. Chen's receipt of such shares is subject to the +receipt of stockholder approval. The Company has set aside reserves totaling +$825,000 against this contingent liability and intends to pay Mr. Chen in cash +in the event Proposal 3 is not approved. +Although these stock grants will have the effect of diluting our other +shareholders, we believe that these stock grants are important to our ability to +retain these experienced executive officers and will provide them an incentive +and inducement to contribute to the success of the Company and to remain in the +-26- +continuous employ of the Company. The Company's proposed stock grants to Mr. +Schmertz and Mr. Chen will provide these executive officers with the opportunity +to profit from any rise in the market value of our Common Stock. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the approval of +the issuance of shares of Common Stock to each of Mr. Schmertz and Mr. Chen. +Unless marked to the contrary, proxies received from stockholders will be voted +in favor of the approval of the issuance of shares of Common Stock to each of +Mr. Schmertz and Mr. Chen. +-27- +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of any +business other than that described above that will be presented at the Annual +Meeting. If any other business should properly come before the Annual Meeting in +connection therewith, it is intended that the persons named in the enclosed +proxy will have discretionary authority to vote the shares which they represent. +STOCKHOLDER PROPOSALS AND SUBMISSIONS +FOR THE COMPANY'S 2006 ANNUAL MEETING +In accordance with rules promulgated by the SEC, any stockholder who wishes +to submit a proposal for inclusion in the proxy material to be distributed by +the Company in connection with the 2006 Annual Meeting must do so no later than +December 28, 2005. +In addition, in accordance with Article I, Section 7(f) of the Company's +Amended & Restated By-Laws, in order to be properly brought before the 2006 +Annual Meeting, a matter must be (i) specified in the notice of such meeting +given by or at the direction of the Board of Directors (or any duly authorized +committed thereof), (ii) otherwise properly brought before such meeting by or at +the direction of the Board of Directors (or any duly authorized committed +thereof) or (iii) specified in a written notice given by a stockholder of record +on the date of the giving of the notice and on the record date for such meeting, +which notice conforms to the requirements of Article I, Section 7(f) of the +Amended & Restated By-Laws and is delivered to, or mailed and received at, the +Company's principal executive offices not less than 120 days nor more than 150 +days prior to the first anniversary of the date of the Company's 2005 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to the foregoing clause (iii) in connection with the 2005 Annual +Meeting must be received no later than January 27, 2006 and no earlier than +December 28, 2005. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN +AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A +STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, +YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 27, 2005 By: /s/ JAMIESON A. KARSON +----------------------------- +Jamieson A. Karson +Chief Executive Officer +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] +[WITHHOLD AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE PROPOSALS +The undersigned stockholder of Steven Madden, Ltd. (the "Company") hereby +appoint(s) Jamieson A. Karson and Arvind Dharia, and each of them, as attorneys +and proxies, each with power of substitution and revocation, to represent the +undersigned at the Annual Meeting of Stockholders of the Company to be held at +the Company's showroom located at 1370 Avenue of the Americas, 14th Floor, New +York, New York at 10:00 a.m., local time, on May 27, 2005, and at any +adjournments or postponements thereof, with authority to vote all shares of +Common Stock of the Company held or owned by the undersigned on April 15, 2005, +in accordance with the directions indicated herein. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 and 3. +1) ELECTION OF DIRECTORS +--------------------- +VOTE +[ ] FOR ALL nominees listed below EXCEPT as marked to the contrary +below +[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below +(INSTRUCTION: To withhold authority to vote for any individual +nominee strike a line through the nominee's name below.) +Jamieson A. Karson, Jeffrey Birnbaum, Marc Cooper, Harold Kahn, John L. Madden, +Peter Migliorini, Thomas H. Schwartz, Awadhesh Sinha and Walter Yetnikoff. +2) RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +-------------------------------------------------------------- +INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005 +----------------------------------------------------------------- +[ ] FOR the ratification of the selection of Eisner LLP +[ ] AGAINST +[ ] ABSTAIN +3) APPROVAL OF THE ISSUANCE OF SHARES TO MR. SCHMERTZ AND MR. CHEN +--------------------------------------------------------------- +[ ] FOR the issuance of shares to Mr. Schmertz and Mr. Chen +[ ] AGAINST the issuance of shares to Mr. Schmertz and Mr. Chen +[ ] FOR the issuance of shares to Mr. Schmertz and AGAINST the +issuance of shares to Mr. Chen +[ ] FOR the issuance of shares to Mr. Chen and AGAINST the +issuance of shares to Mr. Schmertz +[ ] ABSTAIN +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED, +THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE NINE (9) NOMINEES NAMED IN +ITEM 1, (2) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE +COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 2005 IN ITEM 2, (3) FOR THE +ISSUANCE OF SHARES TO MR. SCHMERTZ AND MR. CHEN IN ITEM 3 AND (4) IN THE +DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE +MEETING. +In their discretion, the proxies are authorized to vote upon such other +business as may properly be presented at the meeting or any adjournments or +postponements thereof. +Please mark, sign, date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Dated: +--------------------------- +-------------------------------- +Signature +-------------------------------- +Signature if jointly owned: +-------------------------------- +Print name: +Please sign exactly as the name appears on your stock certificate. When +shares of capital stock are held by joint tenants, both should sign. When +signing as attorney, executor, administrator, trustee, guardian, or corporate +officer, please include full title as such. If the shares of capital stock are +owned by a corporation, sign in the full corporate name by an authorized +officer. If the shares of capital stock are owned by a partnership, sign in the +name of the partnership by an authorized officer. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-05-000455/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-05-000455/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a007111cf6df3d498411e260405781a8ca07f61f --- /dev/null +++ b/raw/proxies/0000913241/0001019056-05-000455/proxy_rpt.txt @@ -0,0 +1,68 @@ +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. Under this agreement, the firm +provided financial advisory and investment banking services to the Company. This +agreement was amended in March 2004. Pursuant to this agreement, which expired +on March 31, 2005, the Company paid fees and expenses to Peter J. Solomon & +Company of $161,000, $33,000 and $150,000 for 2004, 2003 and 2002 respectively. +Under the amended agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $161,000 during 2004, and will pay fees in the amount of +$50,000 plus expenses incurred during 2005. +In July 2004, the Company entered into a consulting agreement with Charles +Koppelman, who served as a director of the Company from June 1998 through May +2004 and as Chairman of the Board from July 2001 through May 2004. Under this +agreement, Mr. Koppelman provided consulting services that included enhancing +and promoting the Company's brands and seeking licensing and acquisition +opportunities. Pursuant to this agreement, Mr. Koppelman received 100,000 stock +options and a fee of $105,000 in 2004. This agreement expires on June 30, 2005. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provided consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company. Pursuant to this +agreement, Mr. Birnbaum received a fee of $250,000 in 2004 besides for fees +received for service to the Company as a director. Mr. Birnbaum has been the +Product Development Manager of Dolphin Shoe Company since August 1982. Dolphin +Shoe Company is one of the Company's domestic suppliers. In addition, Jeffrey +Birnbaum's brother, Steven Birnbaum owns a trading company, Bulls Eye Trading +("Bullseye") that acts as a selling agent for the Company. Jeffrey Birnbaum does +not own an interest in Bullseye nor is he a director of Bullseye nor does +Bullseye pay him any compensation. +In January 2004, the Company entered into an agreement with John Madden and +JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors. Under this agreement, Mr. Madden provided consulting services with +respect to the development of international sales of the Company. Under the +agreement, in 2004, JLM Consultants received a monthly draw with recourse in the +amount of $16,000 against sales commissions earned by Mr. Madden. Mr. Madden +also received a $1,000 per month travel allowance and $1,700 per month toward +health insurance premiums. Pursuant to this agreement, JLM Consultants received +a total of $224,400 in 2004, besides for Mr. Madden's fees received for service +to the Company as a director. In March 2005, JLM Consultants' draw against +commissions with recourse was raised to $20,000 per month. JLM Consultants will +receive an estimated total of $272,400 in 2005. +The Madden Mens division of the Company purchases a significant amount of +shoes from La Tandem International, Inc. Mr. James Chen, the brother of Harry +Chen, is the President of La Tandem International, Inc., and La Tandem +International, Inc. is owned or controlled by members of the Chen family. Harry +Chen is the chairman and lead designer of the Madden Mens Division of the +Company. +In May 2002, the Company entered into an employment agreement between the +Company, Adesso Madden, Inc., Joseph Masella and T.J.M. Sales Corporation. The +agreement was subsequently amended on September 22, 2003. Mr. Masella is the +president of T.J.M. Sales Corporation. Under the agreement as amended, T.J.M. +Sales Corporation receives a biweekly draw in the amount of $16,000 against +commissions earned by Mr. Masella on sales of Adesso Madden, Inc., and a +biweekly draw with recourse, in the amount of $4,000 against commissions earned +by Mr. Masella on net sales of the Candie's Women's Wholesale Division and +Adesso Madden, Inc. T.J.M. Sales Corporation received commissions in the amount +of $606,886 in 2004. +-19- +In March 2004, the Company entered into a commission agreement between the +Steven Madden Mens Wholesale Division and Hev Sales, Inc. Mr. Andrew Shames is +the President of Hev Sales Inc. Under the agreement, Hev Sales serves as sales +organization for the Steven Madden Mens Wholesale Division and receives an +annual guaranteed commission of $450,000. Hev Sales, Inc. received commissions +in the amount of $513,468 in 2004. +The Company has an agreement with Steven Madden, a beneficial holder of +more than 10% of the Company's outstanding shares of common stock. See +"Agreement with Steven Madden." \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-07-000409/proxy.txt b/raw/proxies/0000913241/0001019056-07-000409/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..69d155bf83dc10704d0572f42d48d1990c47bd3b --- /dev/null +++ b/raw/proxies/0000913241/0001019056-07-000409/proxy.txt @@ -0,0 +1,2362 @@ +DEF 14A +1 +smadden_def14a2007.txt +DEFINITIVE 14A +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +----------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +----------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined.): +----------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +----------------------------------------------------------------------- +5) Total fee paid: +----------------------------------------------------------------------- +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +----------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +----------------------------------------------------------------------- +3) Filing Party: +----------------------------------------------------------------------- +4) Date Filed: +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 25, 2007 +---------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the +"Annual Meeting") of the Company will be held on May 25, 2007, at the Company's +showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York +at 10:00 a.m., local time, and thereafter as it may from time to time be +adjourned, for the purposes stated below. +1. To elect nine directors to the Board of Directors of +the Company to serve until the next annual meeting of +the Company's stockholders or until their successors +are duly elected and qualified; +2. To approve an amendment to the Company's 2006 Stock +Incentive Plan to increase the maximum number of +shares of Common Stock available for issuance under +such plan from 1,200,000 shares to 1,550,000 shares; +3. To ratify the appointment of Eisner LLP as the +Company's independent registered public accounting +firm for the fiscal year ending December 31, 2007; +and +4. To transact such other business as may properly come +before the Annual Meeting or any adjournments +thereof. +All stockholders are cordially invited to attend the Annual Meeting. +Only those stockholders of record at the close of business on April 5, 2007 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Annual Meeting and for ten days prior to the meeting +for any purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 +p.m., local time, at the Company's principal executive offices at 52-16 Barnett +Avenue, Long Island City, NY 11104, by contacting the Secretary of the Company. +BY ORDER OF THE BOARD OF DIRECTORS +April 30, 2007 +/s/ JAMIESON A. KARSON +------------------------------------------------- +Jamieson A. Karson +Chairman of the Board and Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE +ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO AMERICAN +STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +--------------- +PROXY STATEMENT +--------------- +INTRODUCTION +This Proxy Statement and the accompanying Notice of Annual Meeting of +Stockholders and form of proxy are being furnished to the holders of common +stock of Steven Madden, Ltd., a Delaware corporation (the "Company"), in +connection with the solicitation of proxies by the Board of Directors of the +Company (the "Board of Directors" or the "Board") for use at the 2007 Annual +Meeting of Stockholders of the Company (the "Annual Meeting") to be held at the +Company's showroom located at 1370 Avenue of the Americas, 14th Floor, New York, +New York on Friday, May 25, 2007 at 10:00 a.m., local time, and at any +adjournments thereof. These proxy materials are being sent on or about May 3, +2007 to holders of record of common stock, $.000067 par value, of the Company +(the "Common Stock") at the close of business on April 5, 2007 (the "Record +Date"). The Company's Annual Report for the fiscal year ended December 31, 2006 +("2006 Fiscal Year"), including audited financial statements, is being sent to +stockholders together with these proxy materials. +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect nine directors to the Board of Directors of +the Company to serve until the next annual meeting of the Company's stockholders +or until their successors are duly elected and qualified, (ii) to approve an +amendment to the Company's 2006 Stock Incentive Plan to increase the maximum +number of shares of Common Stock available for issuance under such plan from +1,200,000 shares to 1,550,000 shares, (iii) to ratify the appointment of Eisner +LLP as the Company's independent registered public accounting firm for the +fiscal year ending December 31, 2007, and (iv) to transact such other business +as may properly come before the Annual Meeting or any adjournments thereof. The +Board of Directors knows of no other matters to be presented for action at the +Annual Meeting. However, if any other matters properly come before the Annual +Meeting, the persons named in the proxy will vote on such other matters and/or +for other nominees in accordance with their best judgment. The Company's Board +of Directors recommends that the stockholders vote in favor of each of the +proposals. Only holders of record of Common Stock of the Company at the close of +business on the Record Date will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 +Barnett Avenue, Long Island City, NY 11104 and its telephone number is (718) +446-1800. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 20,453,888 shares of +Common Stock (excluding treasury shares) held by approximately 126 holders of +record and 3,934 beneficial owners. Only holders of shares of Common Stock on +the Record Date will be entitled to vote at the Annual Meeting. The holders of +Common Stock are entitled to one vote on each matter presented at the meeting +for each share held of record. +1 +The presence, in person or by proxy, of the holders of a majority of +the shares eligible to vote is necessary to constitute a quorum in connection +with the transaction of business at the Annual Meeting. Abstentions and broker +non-votes (i.e., proxies from brokers or nominees indicating that such persons +have not received instructions from the beneficial owner or other persons +eligible to vote shares as to a matter with respect to which the brokers or +nominees do not have discretionary power to vote) are counted as present for +purposes of determining the presence or absence of a quorum for the transaction +of business. If a quorum should not be present, the Annual Meeting may be +adjourned until a quorum is obtained. +Abstentions and broker non-votes will have no effect on the election of +directors (Proposal 1), which is by plurality vote. +Abstentions will, in effect, be votes against the amendment to the +Company's 2006 Stock Incentive Plan (Proposal 2) and against the ratification of +the selection of the independent registered public accounting firm (Proposal 3), +as these items require the affirmative vote of a majority of the shares present +and eligible to vote on such items. Broker non-votes will not be considered +votes cast on Proposals 2 or 3 and the shares represented by broker non-votes +with respect to these proposals will be considered present but not eligible to +vote on these proposals. +Brokers who hold shares in street name may vote in their discretion on +behalf of beneficial owners from whom they have not received instruction with +respect to routine matters. Proposals 1 and 3 should be treated as routine +matters. Proposal 2 is not considered a routine matter and, consequently, +without voting instructions, brokers cannot vote in their discretion on behalf +of beneficial owners from whom they have not received instruction. +The expense of preparing, printing and mailing this Proxy Statement, +the exhibits hereto and the proxies solicited hereby will be borne by the +Company. In addition to the use of the mails, proxies may be solicited by +officers and directors and regular employees of the Company, without additional +remuneration, by personal interviews, telephone, telegraph or facsimile +transmission. The Company will also request brokerage firms, nominees, +custodians and fiduciaries to forward proxy materials to the beneficial owners +of shares of Common Stock held of record by them and will provide reimbursements +for the cost of forwarding the material in accordance with customary charges. +The Company has entered into an agreement with D.F. King & Co., Inc. to assist +in the solicitation of proxies and provide related advice and informational +support. The total expense of this engagement, including customary +disbursements, is not expected to exceed $10,000 in the aggregate. +Proxies given by stockholders of record for use at the Annual Meeting +may be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing, or, if the stockholder +is a corporation by an officer or attorney thereof duly authorized, and +deposited either at the principal executive offices of the Company at any time +up to and including the last business day preceding the day of the Annual +Meeting, or any adjournment thereof, at which the proxy is to be used, or with +the chairman of such Annual Meeting on the day of the Annual Meeting or +adjournment thereof and prior to the vote upon such matters, and upon either of +such deposits the proxy shall be revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES +SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO +CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to +any statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholders shares. +2 +MATTERS TO BE CONSIDERED AT ANNUAL MEETING +PROPOSAL ONE - ELECTION OF DIRECTORS +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), +the Board of Directors of the Company is required to be comprised of a minimum +of one director. Subject to the foregoing limitation, the number of directors +may be fixed from time to time by action of the directors. The Company's Board +of Directors presently consists of nine directors whose terms expire at the +Annual Meeting. +The Nominating/Corporate Governance Committee of the Board of Directors +and the Board of Directors have nominated and are recommending the election of +each of the nine nominees set forth below to serve as a director of the Company +until the next annual meeting of the Company's stockholders or until his +successor is duly elected and qualified. The names and biographical summaries of +the nine persons who have been nominated by the Nominating/Corporate Governance +Committee of the Board of Directors and the Board of Directors to stand for +election at the Annual Meeting have been provided below for your information. +BIOGRAPHICAL SUMMARIES OF NOMINEES FOR THE BOARD OF DIRECTORS +Jamieson A. Karson has been the Chief Executive Officer of the Company +since July 1, 2001 and Chairman of the Board of Directors since July 22, 2004. +Mr. Karson was the Vice Chairman of the Board of Directors of the Company from +July 1, 2001 until such time that he became the Chairman of the Board of +Directors. Mr. Karson has been a director of the Company since January 2, 2001. +Prior to joining the Company as Chief Executive Officer, Mr. Karson practiced +law for over 17 years. He was a partner in the New York City law firm of +Tannenbaum Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June +30, 2001, where he served on the firm's three person Finance Committee. He was a +partner at the law firm of Karson McCormick from February 1992 through December +31, 1996. Prior to that, Mr. Karson was an associate attorney at the law firm of +Shea & Gould. +Jeffrey Birnbaum has been a director of the Company since June 2003. +Mr. Birnbaum has been the Product Development Manager of Dolphin Footwear +Company since August 1982. Dolphin is one of the Company's domestic and foreign +suppliers. Mr. Birnbaum graduated from Tulane University in 1982. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Harold D. Kahn has been a director of the Company since December 2004. +Mr. Kahn currently heads HDK Associates, a consulting company that advises +financial and investment groups. Mr. Kahn served as the Chief Executive Officer +of Macy's East from January 1994 through March 2004. Currently, Mr. Kahn also +serves as a Director of The Wet Seal, Inc. and Ronco Corporation. +John L. Madden has been a director of the Company since the Company's +inception. From April 1998 through September 2003, Mr. Madden owned a branch +office of Tradeway Securities Group, Inc. in Florida. From May 1996 through +December 1996, Mr. Madden's consulting company, JLM Consultants, Inc., acted as +a branch office of Merit Capital, Inc. for several broker-dealers. From May 1994 +to May 1996, Mr. Madden served as Vice President of Investments for GKN +Securities, Inc. From August 1993 to April 1994, Mr. Madden was employed by +Biltmore Securities, Inc. as Managing Director and registered sales +representative. Mr. Madden is the brother of Steven Madden, the Company's +founder and Creative and Design Chief. +3 +Peter Migliorini has been a director of the Company since October 1996. +Mr. Migliorini has served as Sales Manager for Greschlers, Inc., a supply +company located in Brooklyn, New York, since 1994. From 1987 to 1994, Mr. +Migliorini served as Director of Operations for Mackroyce Group. Mr. Migliorini +has previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator, for several shoe companies, including Meldisco Shoes, +Perry Shoes and Fasco Shoes. +Richard P. Randall has been a director of the Company since April 2006. +Mr. Randall was the Executive Vice President and Chief Financial Officer of +Direct Holdings Worldwide, LLC, the parent company of Lillian Vernon Corp. and +TimeLife, from 2002 until his retirement in June 2005. Previously, Mr. Randall +served as Senior Vice President and Chief Financial Officer of Coach, Inc. and +the Chief Operating Officer and Chief Financial Officer of Lillian Vernon Corp. +from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves +as a Director of The Burke Rehabilitation Hospital. +Thomas H. Schwartz has been a director of the Company since May 2004. +Since March 2007, Mr. Schwartz has been the Chief Executive Officer and sole +owner of Summer and Forge Investors LLC, a company that invests in real estate +and manages properties in which it has ownership interests. Previously, Mr. +Schwartz was a Managing Director of Helmsley-Spear, Inc. from 1984 to March +2007. +Walter Yetnikoff has been a director of the Company since May 2005. Mr. +Yetnikoff has served as Chief Executive Officer of Commotion Records, a company +he co-founded, since 2003. From 2001 through 2003, Mr. Yetnikoff was +self-employed as a researcher and writer. Mr. Yetnikoff served as President of +CBS Records from 1975 to 1990 and served on the Board of Directors of CBS, Inc. +from 1975 through 1988. +REQUIRED VOTE +Proxies will be voted for the election of the nine nominees as +directors of the Company unless otherwise specified on the proxy. A plurality of +the votes cast by the holders of shares of Common Stock present in person or +represented by proxy at the Annual Meeting will be necessary to elect the +nominees as directors. If, for any reason, any of the nominees shall be unable +or unwilling to serve, the proxies will be voted for a substitute nominee who +will be designated by the Board of Directors at the Annual Meeting. Stockholders +may abstain from voting by marking the appropriate boxes on the enclosed proxy. +Abstentions shall be counted separately and shall be used for purposes of +calculating whether a quorum is present at the meeting. +RECOMMENDATION OF THE BOARD OF DIRECTORS +The Nominating/Corporate Governance Committee of the Board and the +Board unanimously recommend a vote FOR the election of Messrs. Jamieson A. +Karson, Jeffrey Birnbaum, Marc S. Cooper, Harold D. Kahn, John L. Madden, Peter +Migliorini, Richard P. Randall, Thomas H. Schwartz and Walter Yetnikoff. Unless +otherwise instructed or unless authority to vote is withheld, the enclosed proxy +will be voted FOR the election of the above listed nominees and AGAINST any +other nominees. +4 +DIRECTOR INDEPENDENCE +The Board of Directors is currently comprised of nine members. The +Board of Directors has determined that the following director nominees are +"independent" for purposes of the criteria of the Securities and Exchange +Commission ("SEC") and The Nasdaq Global Market listing standards: Messrs. Kahn, +Migliorini, Randall, Schwartz and Yetnikoff. If the nine nominees set forth +above are elected, the Board will be comprised of a majority of independent +directors. The Board of Directors has held regularly scheduled executive +sessions, with Peter Migliorini serving as Presiding Director of such executive +sessions. +DIRECTORS' ATTENDANCE AT ANNUAL MEETINGS +The Company encourages all of its directors to attend annual meetings +of the Company's stockholders. Three directors attended the Company's 2006 +annual meeting of stockholders. +COMMUNICATIONS WITH DIRECTORS +The Company has adopted a procedure by which stockholders may send +communications as defined within Item 7(h) of Schedule 14A under the Securities +Exchange Act of 1934, as amended (the "Exchange Act") to one or more members of +the Board of Directors by writing to such director(s) or to the whole Board of +Directors in care of the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett +Avenue, Long Island City, NY 11104. The Board has instructed the Corporate +Secretary to review all communications so received and to exercise his +discretion not to forward to the Board correspondence that is inappropriate such +as business solicitations, frivolous communications and advertising, routine +business matters (i.e. business inquiries, complaints, or suggestions) and +personal grievances. However, any director may at any time request the Corporate +Secretary to forward any and all communications received by the Corporate +Secretary but not forwarded to the directors. +MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS +The Board of Directors met four times during the 2006 Fiscal Year. In +2006, each director attended at least 75% of the aggregate of the number of +Board meetings and the number of meetings held by all committees on which he +then served. The Board of Directors has a standing Audit Committee, Compensation +Committee and Nominating/Corporate Governance Committee. +AUDIT COMMITTEE +The Audit Committee for the year ended 2006 consisted of directors +Richard P. Randall (Chairman), Peter Migliorini and Harold D. Kahn. The Audit +Committee is comprised of directors who are "independent" for purposes of The +Nasdaq Global Market listing standards and who meet the independence +requirements contained in Exchange Act Rule 10A-3(b)(1). The Board has +determined that Richard P. Randall meets the SEC criteria of an "audit committee +financial expert" and he is currently serving as such. The Audit Committee is +primarily responsible for reviewing the services performed by the Company's +independent registered public accountants, evaluating the Company's accounting +policies and its system of internal controls, and reviewing significant finance +transactions. During 2006, the Audit Committee met nine times. +The Audit Committee is responsible for reviewing and helping to ensure +the integrity of the Company's financial statements. Among other matters, the +Audit Committee, with management and independent and internal auditors, reviews +the adequacy of the Company's internal accounting controls that could +significantly affect the Company's financial statements. The Audit Committee is +also directly and solely responsible for the appointment, retention, +compensation, oversight and termination of the Company's independent registered +public accountants. In addition, the Audit Committee also functions as the +Company's Qualified Legal Compliance Committee (the "QLCC"). The purpose of the +QLCC is to receive, retain and investigate reports made directly, or otherwise +made known, of evidence of material violations of any United States federal or +state law, including any breach of fiduciary duty by the Company, its officers, +directors, employees or agents, and if the QLCC believes appropriate, to +recommend courses of action to the Company. +5 +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent registered public accountants and with appropriate Company financial +personnel. Meetings are held with the independent registered public accountants +who have unrestricted access to the Audit Committee. In addition, the Audit +Committee reviews the Company's financing plans and reports recommendations to +the full Board of Directors for approval and to authorize action. The Board has +adopted a written charter setting out the functions the Audit Committee is to +perform. A copy of the Audit Committee Charter is attached as Annex A to the +Company's 2004 Proxy Statement and is available on the Company's website at +www.stevemadden.com. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent registered public accountants audit the +annual financial statements prepared by management, express an opinion as to +whether those financial statements present fairly the financial position, +results of operations and cash flows of the Company in conformity with +accounting principles generally accepted in the United States of America and +discuss with the Audit Committee any issues they believe should be raised with +the Audit Committee. +AUDIT COMMITTEE REPORT +The Audit Committee reviewed the Company's audited financial statements +for the 2006 Fiscal Year and met with both management and Eisner LLP, the +Company's independent registered public accountants, to discuss such audited +financial statements. Management and the Company's independent registered public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61. Based on +these reviews and discussions, the Audit Committee recommended to the Board that +the Company's audited financial statements be included in the Company's Annual +Report on Form 10-K for the 2006 Fiscal Year. +Submitted by the Audit Committee of the Company's Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Harold D. Kahn +NOMINATING/CORPORATE GOVERNANCE COMMITTEE +The Nominating/Corporate Governance Committee of the Board of Directors +for the year ended December 31, 2006 consisted of Peter Migliorini and Walter +Yetnikoff. The Nominating/Corporate Governance Committee is comprised of +directors who are "independent" for purposes of The Nasdaq Global Market listing +standards. The Nominating/Corporate Governance Committee considers and makes +recommendations to the Board of Directors with respect to the size and +composition of the Board of +6 +Directors and identifies potential candidates to serve as directors. The +Nominating/Corporate Governance Committee identifies candidates to the Board of +Directors by introductions from management, members of the Board of Directors, +employees or other sources and stockholders that satisfy the Company's policy +regarding stockholder recommended candidates. The Nominating/Corporate +Governance Committee does not evaluate director candidates recommended by +stockholders differently than director candidates recommended by other sources. +A copy of the Nominating/Corporate Governance Committee Charter is attached as +Annex B to the Company's 2004 Proxy Statement and is available on the Company's +website at www.stevemadden.com. +Stockholders wishing to submit recommendations for the 2008 Annual +Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. Any such stockholder must (x) comply +with the director nomination provisions of the Company's By-Laws, (y) meet and +evidence the minimum eligibility requirements specified in Exchange Act Rule +14a-8 and (z) submit, within the same timeframe for submitting a stockholder +proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of +compliance with the stockholder eligibility requirements, (2) the written +consent of the candidate(s) for nomination as a director, (3) a resume or other +written statement of the qualifications of the candidate(s) for nomination as a +director, and (4) all information regarding the candidate(s) and the submitting +stockholder that would be required to be disclosed in a proxy statement filed +with the SEC if the candidate(s) were nominated for election to the Board of +Directors. +In considering Board of Directors candidates, the Nominating/Corporate +Governance Committee takes into consideration the Company's Board Candidate +Guidelines, attached as Annex C to the Company's 2004 Proxy Statement and +available on the Company's website at www.stevemadden.com, the Company's policy +regarding stockholder recommended director candidates, as set forth above, and +all other factors that they deem appropriate, including, but not limited to, the +individual's character, education, experience, knowledge and skills. In +addition, the Nominating/Corporate Governance Committee develops and recommends +corporate governance principles for the Company; makes recommendations to the +Board of Directors in support of such principles; takes a leadership role in the +shaping of the corporate governance of the Company; and oversees the evaluation +of the Board of Directors and management. +During 2006, the Nominating/Corporate Governance Committee met four +times. +COMPENSATION COMMITTEE +The Compensation Committee of the Board of Directors for the year ended +December 31, 2006 consisted of directors Peter Migliorini (Chairman) and Thomas +H. Schwartz. The Compensation Committee is comprised of directors who are +"independent" for purposes of The Nasdaq Global Market listing standards and +applicable tax and securities rules. The Compensation Committee is primarily +responsible for approving salaries, bonuses and other compensation for the +Company's Named Executive Officers, reviewing management recommendations +relating to new incentive compensation plans and changes to existing incentive +compensation plans, and administering the Company's stock plans, including +granting options and restricted stock and setting the terms thereof pursuant to +such plans (all subject to approval by the Board of Directors). During 2006, the +Compensation Committee met four times. The Company does not currently have a +Compensation Committee charter. +7 +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION OBJECTIVES AND STRATEGY +The Company's executive officer compensation program is designed to +attract and retain the caliber of officers needed to ensure the Company's +continued growth and profitability and to reward them for their performance, the +Company's performance and for creating longer term value for stockholders. The +primary objectives of the program are to: +o align rewards with performance that creates stockholder value; +o support the Company's strong team orientation; +o encourage high-potential team players to build a career at the +Company; and +o provide rewards that are cost-efficient, competitive with other +organizations and fair to employees and stockholders. +The Company's executive compensation programs are approved and +administered by the Compensation Committee of the Board of Directors. Working +with management and outside advisors, the Compensation Committee has developed a +compensation and benefits strategy that rewards performance and reinforces a +culture that the Compensation Committee believes will drive long-term success. +The compensation program rewards team accomplishments while promoting +individual accountability. The executive officer compensation program depends in +significant measure on Company results, but business unit results and individual +accomplishments are also very important factors in determining each executive's +compensation. The Company has a robust planning and goal-setting process that is +fully integrated into the compensation system, enhancing a strong relationship +between individual efforts, Company results, and financial rewards. +A major portion of total compensation is placed at risk through annual +and long-term incentives. As shown in the Summary Compensation Table, in 2006 +the sum of restricted stock awards, stock options and bonus represented between +60% and 84% of the Total Compensation for the Named Executive Officers (as +defined herein). The combination of incentives is designed to balance annual +operating objectives and Company earnings performance with longer-term +stockholder value creation. +The Company seeks to provide competitive compensation that is +commensurate with performance. The Company targets compensation at the median of +the market, and calibrate both annual and long-term incentive opportunities to +generate less-than-median awards when goals are not fully achieved and +greater-than-median awards when goals are exceeded. +The Company seeks to promote a long-term commitment to the Company by +its senior executives. The Company believes that there is great value to the +Company in having a team of long-tenure, seasoned managers. The Company's +team-focused culture and management processes are designed to foster this +commitment. In addition, the vesting schedules attached to restricted stock (4- +to 5-year vesting) reinforce this long-term orientation. +8 +ROLE OF THE COMPENSATION COMMITTEE +General +The Compensation Committee provides overall guidance for the Company's +executive compensation policies and determines the amounts and elements of +compensation for the Company's executive officers. The Compensation Committee +currently consists of two members of the Company's Board of Directors, Messrs. +Migliorini and Schwartz, each of whom is an independent director under Nasdaq's +Rule 4200, a "non-employee director" as defined under the SEC's rules and an +"outside director" as defined under Section 162(m) of the Internal Revenue Code +(the "Code"). +When considering decisions concerning the compensation of executives, +other than the Chief Executive Officer, the Compensation Committee asks for Mr. +Karson's recommendations, including his detailed evaluation of each executive's +performance. No executive has a role in recommending compensation for outside +directors. With respect to the application of the 2006 Plan to non-employee +directors, the Board of Directors functions as the Compensation Committee. +Use of Outside Advisors +In making its determinations with respect to executive compensation, +the Compensation Committee has historically engaged the services of an +independent compensation consulting firm. In 2006, the Compensation Committee +retained the services of James F. Reda & Associates, LLC to assist with its +review of the compensation package of the Chief Executive Officer and other +executive officers. In addition, James F. Reda & Associates, LLC was retained to +assist the Compensation Committee with several special projects, including +advice on director compensation, advice relating to the 2006 Stock Incentive +Plan including the use of restricted stock under the Company's long term +incentive program, and assistance with the preparation of Proposal 2 of this +Proxy Statement. +The Compensation Committee retains James F. Reda & Associates, LLC +directly, although in carrying out assignments, James F. Reda & Associates, LLC +also interacts with Company management when necessary and appropriate in order +to obtain compensation and performance data for the executives and the Company. +In addition, James F. Reda & Associates, LLC may, in its discretion, seek input +and feedback from management regarding its consulting work product prior to +presentation to the Compensation Committee in order to confirm alignment with +the Company's business strategy, identify data questions or other similar +issues, if any, prior to presentation to the Compensation Committee. +The Compensation Committee has the authority to retain, terminate and +set the terms of the Company's relationship with any outside advisors who assist +the Committee in carrying out its responsibilities. +COMPENSATION STRUCTURE +Pay Elements - Overview +The Company utilizes four main components of compensation: +o Base Salary +o Annual Performance-based Cash Bonuses +o Long-term Equity Incentives (consisting of stock options and +restricted stock) +o Benefits and Perquisites +9 +Pay Elements - Details +Base Salary. The Company pays base salaries to each of the Named +Executive Officers to provide them with fixed pay that takes into account the +Named Executive Officer's role and responsibilities, experience, expertise and +individual performance. As more fully described in "--Employment Arrangements," +the Company has employment agreements with each of the Named Executive Officers. +You should refer to that section of this Proxy Statement for a full description +of each Named Executive Officer's base salary. The Compensation Committee, as +constituted at the time the parties entered into the employment agreements, +reviewed and approved the salary established in each such agreement. The +Compensation Committee took into account each of the employee's historic salary, +value in the marketplace and performance (including at the Company and previous +employment). Under their respective employment agreements, the base salaries of +Messrs. Karson and Schmertz and Ms. Varela remain constant during the term of +their employment agreements. Under Mr. Dharia's employment agreement, his base +salary increased from $240,000 in 2005 to $425,000 in 2006 and is scheduled to +increase by 2.5% in 2007 and by 5% in each of 2008 and 2009. Under Mr. Sinha's +employment agreement, his base salary is subject to an annual 5% increase and if +the Company's earnings before interest and taxes ("EBIT") for a 12-month period +increases more than 5% over the Company's EBIT for the preceding 12-month +period, then he is entitled to a 10% increase of base salary in lieu of the +annual 5% increase. See "--Summary Compensation Table" and "--Employment +Arrangements." Salary increases for officers are generally consistent with those +of other management employees. +Annual Performance-based Cash Bonus. Each Named Executive Officer's +annual performance-based cash bonus is established in their respective +employment agreement. The Compensation Committee reviewed and approved the bonus +provisions set in each such employment agreement at the time the parties entered +into such agreements and generally provide for variable or discretionary bonuses +designed to reward attainment of business goals. The amount, if any, of the +annual performance-based cash bonuses of Messrs. Karson, Dharia and Schmertz is +entirely within the discretion of the Board of Directors or the Compensation +Committee. The Board of Directors and/or the Compensation Committee consider +various criteria. Mr. Sinha's and Ms. Varela's annual performance-based cash +bonuses are each tied to increases in the Company's EBIT from the preceding +year. Mr. Sinha is entitled to an annual performance-based cash bonus equal to +3% of the increase in the Company's EBIT for such fiscal year over the EBIT of +the immediately prior fiscal year. Ms. Varela is entitled to an annual +performance-based cash bonus for each fiscal year in an amount equal to 2% of +the increase in the Company's wholesale division's EBIT for such fiscal year +over the Company's wholesale division's EBIT for the prior fiscal year. Each of +Mr. Sinha's and Ms. Varela's annual performance-based cash bonus targets were +set to drive the business of their respective divisions. See "--Employment +Arrangements." +10 +Long-term Equity Incentives. Management and the Compensation Committee +believe that equity based awards are an important factor in aligning the +long-term financial interest of the officers and stockholders. The Compensation +Committee continually evaluates the use of equity-based awards and intends to +continue to use such awards in the future as part of designing and administering +the Company's compensation program. Beginning in 2006, the Compensation +Committee replaced its practice of granting equity incentives solely in the form +of stock options with restricted stock awards in order to grant awards that +contain both substantial incentive and retention characteristics. These awards +are designed to provide emphasis on preserving stockholder values generated in +recent years while providing significant incentives for continuing growth in +stockholder value. All grants are issued on the date they are approved by the +Compensation Committee. With respect to stock options, the exercise price is +always the grant date closing market price per share. The restricted stock uses +time-based vesting and vests in four or five equal annual installments beginning +on the first anniversary of the grant date, provided that, with the exception to +grants to Mr. Karson or as may otherwise be indicated in individual grants, no +termination of service has occurred by each applicable vesting date. All shares +of restricted stock granted to Mr. Karson will vest and cease to be restricted +stock if the Company does not renew Mr. Karson's employment agreement or if Mr. +Karson is terminated by the Company without "cause." Any dividends paid on the +restricted stock are held by the Company uninvested and without interest until +delivered to the holder at the end of the restricted period of the underlying +shares of restricted stock that relates to such dividends. +Other Benefits and Perquisites. The Company's executive compensation +program also includes other benefits and perquisites. These benefits include +annual matching contributions to executive officers' 401(k) plan accounts, +company-paid medical benefits, automobile allowances and life insurance +coverage. The Compensation Committee annually reviews these other benefits and +perquisites and makes adjustments as warranted based on competitive practices, +the Company's performance and the individual's responsibilities and performance. +In addition to the executive benefits and perquisites provided to other senior +executives, Mr. Karson is reimbursed for, or the Company directly pays certain +membership dues for social or professional organizations that Mr. Karson chooses +to join. The Compensation Committee has approved these other benefits and +perquisites as a reasonable component of the Company's executive officer +compensation program. (See the "All Other Compensation" column and corresponding +footnotes in the Summary Compensation Table.) +Pay Mix +The Company utilizes the particular elements of compensation described +above because the Company believes that it provides a well-proportioned mix of +secure compensation, retention value and at-risk compensation which produces +short-term and long-term performance incentives and rewards. By following this +approach, the Company provides the executive a measure of security in the +minimum expected level of compensation, while motivating the executive to focus +on business metrics and other variables within their particular sector which +will increase sales and margins and at the same time lower costs so as to +produce a high level of short term and long term performance for the Company and +long-term wealth creation for the executive, as well as reducing the risk of +recruitment of top executive talent by competitors. The mix of metrics used for +the annual performance bonuses and the Company's long-term incentive program +likewise provides an appropriate balance between short-term financial +performance and long-term financial and stock performance. +For Named Executive Officers, the mix of compensation is weighted +heavily toward at-risk pay (annual incentives and long-term incentives). +Maintaining this pay mix results fundamentally in a pay-for-performance +orientation for the Company's executives, which is aligned with the Company's +stated compensation philosophy of providing compensation commensurate with +performance. +11 +Pay Levels and Benchmarking +Pay levels for executives are determined based on a number of factors, +including the individual's roles and responsibilities within the Company, the +individual's experience and expertise, the pay levels for peers within the +Company, pay levels in the marketplace for similar positions and performance of +the individual and the Company as a whole. The Compensation Committee is +responsible for approving pay levels for the Named Executive Officers. In +determining the pay levels, the Compensation Committee considers all forms of +compensation and benefits. +The Compensation Committee assesses "competitive market" compensation +using a number of sources. The primary data source used in setting competitive +market levels for the Named Executive Officers is the information publicly +disclosed by a peer group of the Company, which will be reviewed annually and +may change from year to year. The peer group of companies is Nine West Group +Inc., Kenneth Cole Production, Inc., Guess?, Inc., bebe stores, inc., Brown Shoe +Company, Inc., Genesco Inc., The Stride Rite Corporation and SKECHERS USA, Inc. +After consideration of the data collected on external competitive +levels of compensation and internal needs, the Compensation Committee makes +decisions regarding the Named Executive Officer's target total compensation +opportunities based on the need to attract, motivate and retain an experienced +and effective management team. +Relative to the competitive market data, the Compensation Committee +generally intends that the base salary and target annual incentive compensation +for each Named Executive Officer will be at the median of the competitive +market. +As noted above, notwithstanding the Company's overall pay positioning +objectives, pay opportunities for specific individuals vary based on a number of +factors such as scope of duties, tenure, institutional knowledge and/or +difficulty in recruiting a new executive. Actual total compensation in a given +year will vary above or below the target compensation levels based primarily on +the attainment of operating goals and the creation of stockholder value. +Compensation Committee Discretion +The Compensation Committee retains the discretion to decrease all forms +of incentive payouts based on significant individual or Company performance +shortfalls, with the exception the bonuses paid to Mr. Sinha and Ms. Varela, +which are tied to the Company's EBIT for the preceding year pursuant to their +respective employment agreements. Likewise, the Compensation Committee retains +the discretion to increase payouts and/or consider special awards for +significant achievements, including but not limited to superior asset +management, investment or strategic accomplishments and/or consummation of +acquisitions, divestitures, capital improvements to existing properties, or +sales made by certain of the Company's divisions. +Conclusion +The level and mix of compensation that is finally decided upon is +considered within the context of both the objective data from the Company's +competitive assessment of compensation and performance, as well as discussion of +the subjective factors as outlined above. The Compensation Committee believes +that each of the compensation packages is within the competitive range of +practices when compared to the objective comparative data even where subjective +factors have influenced the compensation decisions. +12 +POST TERMINATION, CHANGE IN CONTROL AND NON-COMPETE/NON-SOLICITATION +The Company's employment agreements with each of the Named Executive +Officers contain provisions governing severance payments and payments made upon +a change-in-control of the Company. You should refer to the section of this +Proxy Statement titled "Employment Arrangements" for a summary description of +the agreements and such provisions. The Company's employment agreements with the +Named Executive Officers generally provide for severance payments to the +executive if the Company terminates the executive's employment without cause or +if the Company gives the executive good reason to terminate employment. These +benefits are described and quantified in the section entitled "Post Termination +and Change in Control Arrangements" under Executive and Director Compensation. +The Company believes that the severance payments and payments made upon +change-in-control provisions in the employment agreements provide appropriate +protection to the Company's executives, comparable to that available at peer +companies, and, with regard to the enhanced severance following a +change-in-control, protects the Company from losing key executives during a +period when a change-in-control may be threatened or pending. These benefits are +described and quantified in the section entitled "Post Termination and Change in +Control Arrangements" under Executive and Director Compensation. +Mr. Karson has agreed in his employment agreement not to compete with +the Company for two years following the termination of employment and not to +hire Company employees during that same period. Mr. Schmertz and Ms. Varela have +agreed to the same restriction for a one-year period. In addition, Mr. Sinha has +agreed to the same restriction for a six month period, unless he is terminated +other than "for cause," death or due to total disability, in which case his +non-compete and non-solicitation period shall last the lesser of six months or +the number of months he is entitled to payment following such termination. Mr. +Dharia does not have a non-compete or non-solicitation provision in his +employment agreement. +IMPACT OF TAX AND ACCOUNTING +As a general matter, the Compensation Committee considers the various +tax and accounting implications of compensation vehicles employed by the +Company. +While the Compensation Committee reviews and considers both the +accounting and tax effects of various components of compensation, these effects +are not a significant factor in the Compensation Committee's allocation of +compensation among the different components. In general, the Company believes +that compensation paid to executive officers should be deductible for U.S. tax +purposes. In certain instances, however, the Compensation Committee also +believes that it is in the Company's best interests, and that of its +shareholders, to have the flexibility to pay compensation that is not deductible +under the limitations of Section 162(m) of the Code in order to provide a +compensation package consistent with the Company's objectives. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +During the 2006 Fiscal Year, the following directors served on the +Compensation Committee: Peter Migliorini (chairman) and Thomas H. Schwartz. +During the 2006 Fiscal Year: +o none of the members of the Compensation Committee was an officer +(or former officer) or employee of the Company or any of its +subsidiaries; +o none of the members of the Compensation Committee had a direct or +indirect material interest in any transaction in which the Company +was a participant and the amount involved exceeded $120,000; +13 +o none of the Company's executive officers served on the +compensation committee (or another board committee with similar +functions or, if none, the entire board of directors) of another +entity where one of that entity's executive officers served on the +Company's Compensation Committee; +o none of the Company's executive officers was a director of another +entity where one of that entity's executive officers served on the +Company's Compensation Committee; and +o none of the Company's executive officers served on the +compensation committee (or another board committee with similar +functions or, if none, the entire board of directors) of another +entity where one of that entity's executive officers served as a +director on the Board of Directors. +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation +Discussion and Analysis with management and based on the review and discussions, +the Compensation Committee recommended to the Board of Directors that the +Compensation Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of the Company's Board of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +CODE OF BUSINESS CONDUCT AND ETHICS +All of the Company's employees, officers (including senior executive, +financial and accounting officers) and directors are held accountable for +adherence to the Company's Code of Business Conduct and Ethics (the "Conduct +Code"). The Conduct Code is intended to establish standards necessary to deter +wrongdoing and to promote compliance with applicable governmental laws, rules +and regulations and honest and ethical conduct. The Conduct Code covers all +areas of professional conduct, including conflicts of interest, fair dealing, +financial reporting and disclosure, protection of Company assets and +confidentiality. Employees have an obligation to promptly report any known or +suspected violation of the Conduct Code without fear of retaliation. Waiver of +any provision of the Conduct Code for executive officers and directors may only +be granted by the Board of Directors or one of its committees and any such +waiver or modification of the Conduct Code relating to such individuals will be +disclosed by the Company. A copy of the Conduct Code is attached as Annex D to +the Company's 2004 Proxy Statement, is available on the Company's website at +www.stevemadden.com and may also be obtained by any stockholder without charge +upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Exchange Act requires that the Company's directors +and executive officers, and persons who own more than 10% of a registered class +of the Company's equity securities, file with the Securities and Exchange +Commission reports of initial ownership of Common Stock and subsequent changes +in that ownership and furnish the Company with copies of all forms they file +pursuant to Section 16(a). Form 4s were not filed on a timely basis to report +(i) a grant of Common Stock on January 1, 2006 to Arvind Dharia; (ii) a grant of +Common Stock on May 26, 2006 to Harold D. Kahn; (iii) the exercise of stock +options and sale of Common Stock on June 2, 2006 by Peter Migliorini; and (iv) +grants of stock +14 +options to Awadhesh Sinha on May 23, 2003, May 21, 2004, May 27, 2005 and July +6, 2005. Each of these reports has now been filed. In making this disclosure, +the Company has relied solely on copies of the reports that they have filed with +the SEC and written representations received from the Company's directors and +executive officers that no annual Form 5 reports were required to by filed for +the 2006 Fiscal Year. +DIRECTORS AND EXECUTIVE OFFICERS +The directors, executive officers and certain significant employees of +the Company, and their ages and positions as of April 1, 2007, are: +NAME AGE POSITION +----------------------- --- -------------------------------------------------- +Jamieson A. Karson..... 49 Chief Executive Officer and Chairman of the Board +Arvind Dharia.......... 57 Chief Financial Officer +Awadhesh Sinha......... 61 Chief Operating Officer +Robert Schmertz........ 43 Brand Director +Amelia Newton Varela... 35 Executive Vice President-Wholesales Sales +Jeffrey Birnbaum....... 46 Director +Marc S. Cooper......... 45 Director +Harold D. Kahn......... 61 Director +John L. Madden......... 59 Director +Peter Migliorini....... 58 Director +Richard P. Randall..... 69 Director +Thomas H. Schwartz..... 59 Director +Walter Yetnikoff....... 73 Director +See "Proposal 1: Election of Directors - Biographical Summaries of +Nominees for the Board of Directors" for the biographies of the Company's +directors. +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and was a director of the Company from December 1993 through May +2004. From December 1988 to September 1992, Mr. Dharia was Assistant Controller +of Millennium III Real Estate Corp. +Awadhesh Sinha became the Chief Operating Officer of the Company in +July 2005. Mr. Sinha had been a director of the Company from October 2002 to +July 2005. Mr. Sinha was the Chief Operating Officer and Chief Financial Officer +of WEAR ME Apparel Inc., a company that designs, manufactures and markets +branded and non-branded children's clothing, from 2003 to July 2005. Prior to +that, Mr. Sinha worked for Salant Corporation, a company that designs, +manufactures and markets men's clothing, for 22 years, and held the position of +Chief Operating Officer and Chief Financial Officer of Salant Corporation from +1998 to 2003. +Robert Schmertz has been the Brand Director since January 2006. Mr. +Schmertz served as President of Steve Madden Womens Wholesale Division and Brand +Manager from September 2001 through January 2006. Additionally, Mr. Schmertz has +been the President of Shoe Biz, Inc., a wholly owned subsidiary of Steve Madden +Retail Inc. since May 1998 and the President of Diva Acquisition Corp. since +January 2001. Before joining the Company, Mr. Schmertz was President of Daniel +Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East +Coast Sales Manager for Impo International from January 1993 through November +1995. From April 1990 to December 1992, Mr. Schmertz served as a sales +representative for Espirit de Corp. based in San Francisco, California. +15 +Amelia Newton Varela has been Executive Vice President of Wholesale +Sales since November 2004. Previously, she was Vice President of Sales for the +Steve Madden women's division since January 2000. Prior to that, she was Account +Executive for the women's division since 1998. Before joining the Company, Ms. +Varela was the sales assistant to the Executive Vice President of Sales for +Merrin Financial. She graduated from the FIT in 1995. +SUMMARY COMPENSATION TABLE +The following table sets forth the compensation earned for all services +rendered to us in all capacities in the 2006 Fiscal Year by the Company's Chief +Executive Officer, Chief Financial Officer and the three most highly compensated +executive officers other than the CEO and CFO who were serving at the end of +2006. In this Proxy Statement, the Company refers to this group of five people +as the Company's "Named Executive Officers". +Following the table is a discussion of material factors related to the +information disclosed in the table. +NON-EQUITY +STOCK INCENTIVE PLAN ALL OTHER +SALARY BONUS AWARDS COMPENSATION COMPENSATION TOTAL +NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($)(1) ($) +------------------------------ ---- --------- --------- --------- -------------- ------------ ---------- +Jamieson A. Karson +Chief Executive Officer .... 2006 500,000 450,000 1,081,800 -- 29,585(2) 2,061,385 +Arvind Dharia +Chief Financial Officer .... 2006 425,000 350,000 432,720 -- 90,173(3) 1,297,893 +Awadhesh Sinha +Chief Operating Officer .... 2006 446,250 -- -- 1,401,840 13,458(4) 1,861,548 +Robert Schmertz +Brand Director ............. 2006 488,350 -- 1,056,600 -- 5,769(5) 1,550,719 +Amelia Newton Varela +Executive Vice +President-Wholesale +Sales ...................... 2006 300,000 -- 1,056,600 570,166 15,000(6) 1,941,766 +---------- +(1) The amounts in this column reflect the dollar amount recognized for +financial statement reporting purposes for the fiscal year ended December +31, 2006, in accordance with FAS 123(R). Assumptions used in the +calculation of these amounts are included in footnote 13 to the Company's +audited financial statements for the fiscal year ended December 31, 2006, +included in the Company's Annual Report on Form 10-K filed with the +Securities and Exchange Commission on March 9, 2007. +(2) Includes the following: $6,271 automobile allowance and reimbursement of +$23,314 for membership dues pursuant to Mr. Karson's employment agreement. +(3) Includes the following: $7,196 automobile allowance and $82,977 life +insurance premiums. +(4) Represents $13,458 automobile allowance. +(5) Represents $5,769 automobile allowance. +(6) Represents $15,000 automobile allowance. +16 +EMPLOYMENT ARRANGEMENTS +Jamieson A. Karson. In May 2001, the Company entered into an employment +agreement with Jamieson A. Karson pursuant to which Mr. Karson agreed to serve +as the Company's Chief Executive Officer and Vice Chairman of the Board. On July +22, 2004 at a regularly scheduled meeting of the Board of Directors of the +Company, Mr. Karson was appointed Chairman of the Board of Directors. Mr. +Karson's employment agreement was amended and restated in January 2006. The term +of Mr. Karson's employment under his amended and restated employment agreement +is three years commencing on January 1, 2006 and ending on December 31, 2008. +The term will be automatically extended for successive one-year periods unless +the Company timely notifies Mr. Karson of its intention not to extend the term. +The amended and restated agreement provides that the Company pay Mr. Karson an +annual salary of $500,000. In addition, the agreement provides that Mr. Karson +receive an annual bonus in such amount, if any, and at such time or times, as +the Board of Directors, or a committee thereof, may determine in its absolute +discretion. Subject to availability of shares under the 2006 Stock Incentive +Plan or any other plan designated by the Board of Directors and approved by the +Company's stockholders, Mr. Karson is entitled to awards under such plan as may +be determined by the Board of Directors, or a committee thereof, from time to +time in its absolute discretion. In addition, in the event of Mr. Karson's total +disability or his death, the Company is obligated to continue to pay Mr. Karson +(or Mr. Karson's estate) his base salary for the 12-month period immediately +subsequent to the date of such total disability or death. In the event Mr. +Karson's employment agreement is terminated (or not extended) for any reason +other than "for cause" (as defined in the agreement) or due to his death or his +total disability, the Company is obligated to pay Mr. Karson (i) the amount of +compensation that is accrued and unpaid through the date of termination; plus +(ii) an amount equal to the lesser of (A) the sum of three times Mr. Karson's +highest "total compensation" (as defined in the agreement) in any given fiscal +year of his employment with the Company and (B) $4,000,000. In the event that +there is a "change of control" (as defined in the agreement) transaction, all +unvested options to purchase shares of Common Stock or restricted stock awards +or other equity-related awards under the 1999 Stock Plan and/or the 2006 Stock +Incentive Plan held by Mr. Karson will vest on the date of the change of control +and Mr. Karson will be entitled to receive a lump sum cash payment equal to the +amount described above. Mr. Karson's employment agreement also contains +provisions regarding confidentiality, solicitation and competition. +Arvind Dharia. In January 1998, the Company entered into an employment +agreement with Arvind Dharia, which has been amended from time to time, pursuant +to which Mr. Dharia agreed to serve as the Company's Chief Financial Officer. +The term of Mr. Dharia's employment under his agreement as amended commenced on +January 1, 1998 and ends on December 31, 2009. The term will be automatically +extended for an additional one-year period unless either party timely notifies +the other of its intention not to extend the term. The amended agreement +provides that the Company pay Mr. Dharia an annual salary of $425,000 for the +2006 Fiscal Year, with the following increases thereafter: (i) on January 1, +2007, his base salary shall be increased by 2.5% of the then-current base +salary; (ii) on January 1, 2008, his base salary will be increased by 5% of the +then-current base salary; and (iii) on January 1, 2009, his base salary will be +increased by 5% of the then-current base salary. In addition, the agreement +provides that Mr. Dharia receive an annual bonus in such amount, if any, and at +such time or times, as the Board of Directors may determine in its absolute +discretion. Subject to availability of shares under the 2006 Stock Incentive +Plan or any other plan designated by the Board of Directors and approved by the +Company's stockholders, Mr. Dharia is entitled to awards under such plan as may +be determined by the Board of Directors, or a committee thereof, from time to +time in its absolute discretion. The agreement provides for, in the event of Mr. +Dharia's death, the payment to Mr. Dharia's estate of his base salary for the +12-month period immediately subsequent to the date of Mr. Dharia's death. In the +event Mr. Dharia's employment agreement is terminated due to Mr. Dharia's total +disability (as defined in the agreement) or "for cause" (as defined in the +agreement), the Company is obligated to pay Mr. Dharia the amount of +compensation that is accrued and unpaid through the date of termination. In the +event Mr. Dharia's employment agreement is terminated for any reason (other than +"for cause" or due to his death or total disability), the Company is obligated +to pay Mr. Dharia, in two installments, an amount equal the product of (x) his +base salary on the effective date of such termination plus the bonus paid or +payable, if any, for the fiscal year ended on the December 31st immediately +preceding the termination date, multiplied by (y) the number of years (and +fraction of years) +17 +remaining in the term. If the Company decides not to renew the agreement (other +than "for cause" or due to his total disability), then Mr. Dharia will be +entitled to receive severance compensation in cash in an amount equal to his +then-current base salary for the 90-day period commencing on the expiration of +the term. In the event that there is a "change of control" transaction and Mr. +Dharia's employment has been terminated by the Company other than "for cause" or +by Mr. Dharia "for good reason" (as such terms are defined in the agreement), +Mr. Dharia will receive an amount equal to the lesser of (i) three times the +total compensation he was entitled to receive under the agreement for the +preceding 12-month period ending on the last previous December 31, except that +in lieu of the actual base salary component received during such period, there +shall be substituted the annual base salary to which Mr. Dharia was entitled to +as of the date of termination or (ii) the maximum amount which is tax deductible +to the Company under Section 280G of the Code. +Awadhesh Sinha. In June 2005, the Company entered into an employment +agreement with Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as +the Company's Chief Operating Officer. The term of Mr. Sinha's employment under +his employment agreement is three years commencing on July 1, 2005 and ending on +June 30, 2008. The term will be automatically extended for successive one-year +periods unless either party timely notifies the other of its intention not to +extend the term. The agreement provides that the Company pay Mr. Sinha an annual +salary of $425,000, subject to a 5% annual increase or, if the Company's EBIT +for the 12-month period from July 1 to June 30 increases by at least 5% over the +preceding 12-month period, a 10% annual increase in lieu of the annual 5% +increase. Upon entering the agreement, Mr. Sinha received a signing bonus of +$100,000. In addition, Mr. Sinha is entitled to an annual bonus equal to the +greater of (i) $50,000 and (ii) 3% of the increase in the Company's EBIT for +such fiscal year over the EBIT of the immediately prior fiscal year. The +agreement provides for, in the event of Mr. Sinha's death, the payment to Mr. +Sinha's estate of his base salary for the 12-month period immediately subsequent +to the date of Mr. Sinha's death. In the event Mr. Sinha's employment agreement +is terminated due to Mr. Sinha's total disability (as defined in the agreement), +"for cause" (as defined in the agreement) or due to Mr. Sinha's resignation, the +Company is obligated to pay Mr. Sinha the amount of compensation that is accrued +and unpaid through the date of termination. Mr. Sinha shall be required to repay +to the Company the full amount of his signing bonus if he is discharged "for +cause" and a pro rata portion of the signing bonus for the portion of the term +that he did not fulfill if he resigns. In the event Mr. Sinha's employment +agreement is terminated for any reason (other than "for cause" or due to his +death or total disability), the Company is obligated to pay Mr. Sinha an amount +equal to the sum of (x) the base salary that would have been paid by the Company +pursuant to the agreement for the longer of the remainder of the then-current +term or 6 months and (y) the cash bonus payable to Mr. Sinha prorated from the +commencement of the then-current term through the termination date. In the event +that there is a "change of control" transaction, the Company or Mr. Sinha may +terminate the agreement and Mr. Sinha shall be entitled to an amount equal to +the lesser of (i) three times the total compensation received by Mr. Sinha under +the agreement for the preceding 12-month period ending on the last previous +December 31st, except that in lieu of the actual base salary component received +during such period, there shall be substituted the annual base salary to which +Mr. Sinha was entitled to as of the date of his termination or (ii) the maximum +amount which is tax deductible to the Company under Section 280G of the Code. +Robert Schmertz. In April 2002, the Company entered into an employment +agreement with Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as +President of Steve Madden Wholesale Womens Division and Brand Manager for Steven +Madden, Ltd. The agreement was extended in March 2005 and again in March 2007. +The term of Mr. Schmertz's employment under his employment agreement (as +extended) commenced on April 1, 2002 and ends on December 31, 2009. Mr. Schmertz +received a signing bonus of $500,000 upon the execution of the March 2007 +extension and 100,000 shares of restricted stock, which shall vest in equal +parts on each of the next five anniversaries of February 27, 2007, pursuant to +the 2006 Stock Incentive Plan. The Company agreed to pay Mr. Schmertz an annual +salary of $600,000. Under the terms of the agreement as extended, the Company +shall pay +18 +Mr. Schmertz a discretionary bonus in an amount determined solely by the +Company's Board of Directors. In the event of a "change of control" and the +termination of Mr. Schmertz thereafter other than "for cause" (as defined in the +agreement), Mr. Schmertz will be entitled to receive an amount equal to the +lesser of (i) the average amount of total compensation actually received by +Mr. Schmertz for the preceding three calendar years multiplied by 3 or (ii) the +maximum amount which is tax deductible to the Company under Section 280G of the +Code. +Amelia Newton Varela. In October 2004, the Company entered into an +employment agreement with Amelia Newton Varela, pursuant to which Ms. Varela +agreed to serve as Executive Vice President of Wholesale Sales. Ms. Varela's +employment under her employment agreement commenced in October 2004. The Company +agreed to pay Ms. Varela an annual salary of $300,000. Under the terms of the +agreement, the Company shall pay Ms. Varela an annual bonus for each fiscal year +in an amount equal to 2% of the increase in the Company's wholesale division's +EBIT for such fiscal year over the Company's wholesale division's EBIT for the +prior fiscal year. In addition, if Ms. Varela is still employed by the Company +on December 31, 2007, she is entitled to a cash payment in the amount of +$225,000. +GRANTS OF PLAN-BASED AWARDS IN THE 2006 FISCAL YEAR +The following table sets forth information concerning awards under the +Company's equity and non-equity incentive plans granted to each of the Named +Executive Officers in the 2006 Fiscal Year, including performance-based awards +and those using time-based vesting. +Following the table is a discussion of material factors related to the +information disclosed in the table. +ALL +OTHER +STOCK ALL OTHER +AWARDS: OPTION +ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS NUMBER AWARDS: EXERCISE +UNDER NON-EQUITY INCENTIVE UNDER EQUITY INCENTIVE OF NUMBER OF OR BASE GRANT DATE +PLAN AWARDS PLAN AWARDS SHARES SECURITIES PRICE OF FAIR VALUE +-------------------------- -------------------------- OF STOCK UNDERLYING OPTION OF STOCK +GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS AND OPTION +NAME DATE ($) ($) ($) (#) (#) (#) (#) (#) ($/SH) AWARDS +----------------- -------- --------- ------- ------- --------- ------ ------- -------- ---------- -------- ---------- +Jamieson A. +Karson........... 03/24/06 -- -- -- -- -- -- 30,000 -- -- 1,081,800 +Arvind Dharia.... 03/24/06 -- -- -- -- -- -- 12,000 -- -- 432,720 +Awadhesh Sinha... -- -- 1,401,840(1) -- -- -- -- -- -- -- -- +Robert Schmertz.. 03/20/06 -- -- -- -- -- -- 30,000 -- -- 1,056,600 +Amelia Newton +Varela........... 03/20/06 -- 570,166(2) -- -- -- -- 30,000 -- -- 1,056,600 +----------------- +(1) Represents non-equity incentive payment made pursuant to a bonus formula in +Mr. Sinha's employment agreement. See "-Employment Arrangements." There is +no threshold, target or maximum in such bonus formula, so the amount +contained in the table above is payable as a target for these purposes +only. +(2) Represents non-equity incentive payment made pursuant to a bonus formula in +Ms. Varela's employment agreement. See "-Employment Arrangements." There is +no threshold, target or maximum in such bonus formula, so the amount +contained in the table above is payable as a target for these purposes +only. +Plan-Based Awards +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. Since its adoption, the +1999 Plan has been amended, with stockholder approval, to (i) increase the +number of shares subject to the plan (ii) provide that the exercise price of an +option granted under the 1999 Plan shall be no less than the fair market value +of the Common Stock on the date of grant (except to the extent otherwise +provided in agreements with the Company dated prior to the effective date of the +amendment), and (iii) prohibit the Board from amending the terms of any option +granted pursuant to the 1999 Plan to +19 +reduce the option price. The purpose of the 1999 Plan is to provide a means +whereby directors and selected employees, officers, agents, consultants, and +independent contractors of the Company, may be granted incentive stock options +and/or nonqualified stock options to purchase shares of Common Stock, in order +to attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. As of April 25, +2007, options to purchase 1,395,985 shares of Common Stock were outstanding. No +additional options will be granted under the 1999 Plan. +2006 Stock Incentive Plan +As of March 10, 2006, the Board of Directors of the Company adopted the +2006 Stock Incentive Plan (the "2006 Plan"), and on May 26, 2006 the Company's +stockholders approved the adoption of the 2006 Plan. The purpose of the 2006 +Plan is to enhance the profitability and value of the Company for the benefit of +its stockholders by enabling us to offer eligible employees, consultants and +non-employee directors cash and stock-based incentives in the Company to +attract, retain and reward such individuals and strengthen the mutuality of +interests between such individuals and the Company's stockholders. Currently, +the maximum number of shares of Common Stock available for issuance under the +2006 Plan is 1,200,000 shares. The Company seeks to increase the maximum number +of shares available for issuance under the 2006 Plan to 1,550,000 shares, +subject to stockholder approval and to make certain other changes not subject to +stockholder approval (see "Proposal Two - Proposal for the Approval of Amendment +Number One to the Steven Madden, Ltd. 2006 Stock Incentive Plan"). As of April +25, 2007, 597,200 shares of Common Stock were outstanding and 602,800 shares of +Common Stock remained available for grant under the 2006 Plan. +OUTSTANDING EQUITY AWARDS AT END OF THE 2006 FISCAL YEAR +The following table sets forth information concerning unexercised stock +options, restricted stock that has not vested and stock awards outstanding for +each of the Named Executive Officers as of the end of the 2006 Fiscal Year. +OPTION AWARDS STOCK AWARDS +------------------------------------------------------------- --------------------------------------------- +EQUITY +EQUITY INCENTIVE +INCENTIVE PLAN +PLAN AWARDS: +AWARDS: MARKET +EQUITY NUMBER OR PAYOUT +INCENTIVE OF VALUE OF +PLAN NUMBER MARKET UNEARNED UNEARNED +AWARDS: OF VALUE OF SHARES, SHARES, +NUMBER OF NUMBER OF NUMBER OF SHARES SHARES UNITS OR UNITS OR +SECURITIES SECURITIES SECURITIES OR UNITS OR UNITS OTHER OTHER +UNDERLYING UNDERLYING UNDERLYING OF STOCK OF STOCK RIGHTS RIGHTS +UNEXERCISED UNEXERCISED UNEXERCISED OPTION THAT THAT THAT THAT +OPTIONS OPTIONS UNEARNED EXERCISE OPTION HAVE NOT HAVE NOT HAVE NOT HAVE NOT +(#) (#) OPTIONS PRICE EXPIRATION VESTED VESTED VESTED VESTED +NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE (#) ($) (#) ($) +----------------- ----------- ------------- ----------- -------- ---------- -------- --------- --------- --------- +Jamieson A. +Karson........... 56,200 -- -- 12.6533 05/17/07 30,000(1) 1,052,700 -- -- +Arvind Dharia.... 13,242 -- -- 6.3667 09/25/08 12,000(2) 421,080 -- -- +60,000 13.9000 09/09/10 +60,000 13.0533 07/06/11 +60,000 11.8400 05/27/15 +Awadhesh Sinha... -- -- -- -- -- -- -- -- -- +Robert Schmertz.. 50,000 -- -- 12.6533 05/17/12 30,000(3) 1,052,700 -- -- +Amelia Newton +Varela........... -- -- 30,000(4) 1,052,700 +20 +---------- +(1) Mr. Karson was awarded 30,000 shares of restricted stock on March 24, 2006. +One-fourth of such shares of restricted stock shall vest and cease to be +restricted stock on each of the next four anniversaries of March 24, 2006. +(2) Mr. Dharia was awarded 12,000 shares of restricted stock on March 24, 2006. +One-fourth of such shares of restricted stock shall vest and cease to be +restricted stock on each of the next four anniversaries of March 24, 2006. +(3) Mr. Schmertz was awarded 30,000 shares of restricted stock on March 20, +2006. One-fourth of such shares of restricted stock shall vest and cease to +be restricted stock on each of the next four anniversaries of March 20, +2006. +(4) Ms. Varela was awarded 30,000 shares of restricted stock on March 20, 2006. +One-fourth of such shares of restricted stock shall vest and cease to be +restricted stock on each of the next four anniversaries of March 20, 2006. +OPTION EXERCISES AND STOCK VESTED IN THE 2006 FISCAL YEAR +The following table sets forth information concerning stock options +exercised and restricted stock vested during the 2006 Fiscal Year by each of the +Named Executive Officers. The value realized from exercised options is deemed to +be the market value of the Common Stock on the date of exercise, less the +exercise price of the option, multiplied by the number of shares underlying the +option. The value realized from vested restricted stock is deemed to be the +market value of the Common Stock on the date of vesting multiplied by the number +of shares. +OPTION AWARDS STOCK AWARDS +----------------------------- ------------------------------ +NUMBER OF VALUE NUMBER OF VALUE +SHARES ACQUIRED REALIZED ON SHARES ACQUIRED REALIZED ON +ON EXERCISE EXERCISE ON VESTING VESTING +NAME (#) ($) (#) ($) +----------------------- --------------- ----------- --------------- ------------ +Jamieson A. Karson .... 11,300 271,501 -- -- +Arvind Dharia ......... 40,000 563,367 20,000 584,600 +Awadhesh Sinha ........ 41,250 910,325 -- -- +Robert Schmertz ....... 70,000 1,723,539 -- -- +Amelia Newton Varela... 34,500 924,140 -- -- +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The Company's employment agreements with the Named Executive Officers +provide for payments to such persons upon termination or a change in control of +the Company. See "--Employment Arrangements." +The amounts set forth in the table below shall be paid to the Named +Executive Officers if such Named Executive Officer's employment was terminated +by the Company under the various scenarios set forth below. +21 +CONTINUATION OF +MEDICAL/ WELFARE ACCELERATION AND +BENEFITS (PRESENT CONTINUATION OF TOTAL TERMINATION +CASH PAYMENT VALUE) EQUITY AWARDS BENEFITS +NAME AND PRINCIPAL POSITION ($) ($) ($) ($) +---------------------------------------- ------------ ------------------ ----------------- ------------------ +TERMINATION DUE TO DEATH: +Jamieson A. Karson 500,000 -- 500,000 +Arvind Dharia 425,000 10,000 435,000 +Awadhesh Sinha 467,500 10,000 477,500 +Robert Schmertz -- -- -- +Amelia Newton Varela(1) -- -- -- +TERMINATION DUE TO TOTAL DISABILITY: +Jamieson A. Karson 500,000 500,000 +Arvind Dharia 425,000 425,000 +Awadhesh Sinha 467,500 467,500 +Robert Schmertz -- -- +Amelia Newton Varela(1) -- -- +TERMINATION FOR CAUSE; RESIGNATION: +Jamieson A. Karson -- -- +Arvind Dharia -- -- +Awadhesh Sinha(2) -- -- +Robert Schmertz -- -- +Amelia Newton Varela(1) -- -- +TERMINATION OTHER THAN FOR CAUSE, +DEATH OR DUE TO TOTAL DISABILITY: +Jamieson A. Karson 4,000,000 -- 4,000,000 +Arvind Dharia 1,275,000(3) 270,000(4) 1,545,000 +Awadhesh Sinha 701,250(5) -- 701,250 +Robert Schmertz -- -- -- +Amelia Newton Varela(1) -- -- -- +TERMINATION UPON A CHANGE-OF-CONTROL: +Jamieson A. Karson 4,000,000(6) -- 302,750 4,302,750 +Arvind Dharia 2,036,742(7) 270,000(4) 2,306,742 +Awadhesh Sinha 1,764,881(8) 40,500(9) 1,805,381 +Robert Schmertz 2,531,941(10) -- 2,531,941 +Amelia Newton Varela(1) -- -- -- +---------- +(1) Upon any termination, Ms. Varela shall forfeit and surrender any unpaid +compensation without further liability to the Company. +(2) If Mr. Sinha is terminated for Cause, he will have to repay to the Company +the full amount of his signing bonus and if he resigns for any reason, Mr. +Sinha will be required to repay to the Company a pro rata portion of his +signing bonus. +(3) Consists of three times Mr. Dharia's 2006 base salary ($425,000). +(4) Consists of three times the sum of Mr. Dharia's life insurance payment +($80,000 per year) plus medical benefits ($10,000 per year). +22 +(5) Consists of 1.5x Mr. Sinha's salary at December 31, 2006 ($467,500). +(6) In the event of a termination upon a change of control, Mr. Karson's +employment agreement states that the Company and Mr. Karson will use their +respective best efforts to work together so that Mr. Karson and the Company +will not be subject to adverse tax consequences under Sections 280G and +4999 of the Code, as applicable. The figure in the table does not reflect +any cutback or gross-up of the termination upon a change of control payment +owed to Mr. Karson under his employment agreement. +(7) Consists of three times Mr. Dharia's 2006 salary ($425,000) plus 2005 bonus +($253,914). +(8) Per Mr. Sinha's employment agreement, the termination payment is equal to +the lesser of (A) the amount due based on the calculation described below +and (B) the maximum amount which is tax deductible to the Company under +Section 280G of the Code. The bonus calculation under Mr. Sinha's +employment agreement is three times the sum of Mr. Sinha's (i) salary at +December 31, 2006 ($467,500), (ii) signing bonus ($100,000) and (iii) 2005 +bonus ($377,673). This amount would equal $2,834,019, which exceeds the +maximum amount which is tax deductible to the Company under Section 280G of +the Code. The figure in the table reflects the amount that would be paid to +Mr. Sinha, as limited by Section 280G. This amount could be lower if there +is an actual change-in-control, because the estimate above does not reflect +a potential reduction associated with reasonable compensation for +restrictive covenants in Mr. Sinha's employment agreement. +(9) Consists of three times the sum of Mr. Sinha's life insurance payment +($3,500 per year) plus medical benefits ($10,000 per year). +(10) Per Mr. Schmertz's employment agreement, the termination payment is equal +to the lesser of (A) the amount due based on the calculation described +below and (B) the maximum amount which is tax deductible to the Company +under Section 280G of the Code. The bonus calculation under Mr. Schmertz's +employment agreement is three times Mr. Schmertz's 2005 compensation +($1,800,225). This amount would equal $5,400,675, which exceeds the maximum +amount which is tax deductible to the Company under Section 280G of the +Code. The figure in the table reflects the amount that would be paid to Mr. +Schmertz, as limited by Section 280G. This amount could be lower if there +is an actual change-in-control, because the estimate above does not reflect +a potential reduction associated with reasonable compensation for +restrictive covenants in Mr. Schmertz's employment agreement. +COMPENSATION OF DIRECTORS IN THE 2006 FISCAL YEAR +The following table sets forth information concerning the +compensation of the Company's non-employee directors in the 2006 Fiscal Year. +Following the table is a discussion of material factors +related to the information disclosed in the table. +CHANGE IN +PENSION VALUE +FEES AND +EARNED NON-EQUITY NONQUALIFIED +OR PAID STOCK OPTION INCENTIVE PLAN DEFERRED ALL OTHER +IN CASH AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL +NAME ($) ($) ($) ($) EARNINGS ($) ($) +-------------------- ---------- ---------- ---------- --------------- ------------- ------------ ---------- +Jeffrey Birnbaum ... 44,167 26,318 -- -- -- 200,000(1) 270,485 +Marc S. Cooper ..... 49,167 26,318 -- -- -- 615,000(2) 690,485 +Harold D. Kahn ..... 52,917 52,635 -- -- -- 105,552 +John L. Madden ..... 44,167 26,318 -- -- -- 904,876(3) 975,361 +Peter Migliorini ... 79,167 52,635 -- -- -- 671,050(4) 802,852 +Richard P +Randall ............ 36,667 52,635 -- -- -- -- 89,302 +Thomas H +Schwartz ........... 57,500 52,635 -- -- -- -- 110,135 +Walter Yetnikoff ... 54,167 52,635 -- -- -- -- 106,802 +23 +---------- +(1) Includes $200,000 of fees paid to Mr. Birnbaum for consulting services with +respect to the designing and manufacture of shoes and general consulting to +the Company. See "--Certain Relationships and Related Transactions." +(2) Includes (a) $412,000 in fees paid to Peter J. Solomon & Company, a +financial advisory firm of which Mr. Cooper is a Managing Director, in +connection with the Company's acquisition of all the capital stock of +Daniel M. Friedman and Associates, Inc. and DMF, International, Ltd. and +(b) $203,000 from the exercise of options and the sale of the shares +underlying such options. See "--Certain Relationships and Related +Transactions." +(3) Includes (a) $478,865 in fees, travel and insurance allowance paid to JLM +Consultants, a company wholly owned by Mr. Madden, in connection with +consulting services for the development of the Company's international +business, (b) $393,817 in income from the exercise of options and the sale +of the shares underlying such options and (c) $32,194 for the use of a +corporate apartment. See "--Certain Relationships and Related +Transactions." +(4) Represents income from the exercise of options and the sale of the shares +underlying such options. +Directors who are also employees of the Company are not paid any fees +or other remuneration for service on the Board or any of its committees. In +2006, each non-employee director received the following compensation: (i) a +grant of (A) 1,000 shares of Common Stock for independent directors or (B) 500 +shares for non-independent directors and (ii) $40,000. In 2006, members of the +Audit Committee, Nominating/Corporate Governance Committee and Compensation +Committee each received an additional $10,000 for service on such committees, +except that the audit committee financial expert received $15,000 and the +chairperson of the Compensation Committee received $15,000. The Company +reimburses directors for any out-of-pocket expenses incurred by them in +connection with services provided in such capacity. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc S. Cooper, +one of the Company's directors, is a managing director. Under this agreement, +the firm provides financial advisory and investment banking services to the +Company. This agreement was amended in March 2004. The amended agreement expired +on March 31, 2005, but pursuant to its terms has been automatically renewed +until such time that the Company terminates it. The Company terminated the +agreement on July 11, 2006. During 2006, the Company retained Peter J. Solomon & +Company as an advisor in connection with the Company's acquisition of all the +capital stock of each of Daniel M. Friedman & Associates, Inc. and DMF +International, Ltd. In February 2006, the Company paid Peter J. Solomon & +Company an advisory fee in the amount equal to $412,000 for services provided +and expenses incurred in connection with such acquisition. No other fees were +paid to Peter J. Solomon & Company in 2006. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provides consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company, pursuant to which, Mr. +Birnbaum received a fee of $200,000 in 2006. Mr. Birnbaum has been a partner and +the Product Development Manager of Dolphin Footwear Company since August 1982. +Dolphin Footwear Company is one of the Company's largest domestic and foreign +suppliers. In 2006, the Company paid Dolphin Footwear Company and Ming Well, +Dolphin's Hong Kong affiliate, approximately $77.7 million for the purchase of +goods. +24 +In January 2004, the Company entered into an agreement with John Madden +and JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +the Company. This agreement expired on December 31, 2005 but the parties have +continued the consulting arrangement under the terms of the expired agreement. +Under the agreement, JLM Consultants receives a commission equal to 4% on +International Sales (as defined in the Agreement) up to $6.0 million and 3% on +International Sales in excess of $6.0 million. The agreement provides for a +monthly draw in the amount of $20,000 with recourse against such commissions, as +well as a $1,000 per month travel allowance and $1,700 per month toward health +insurance premiums. Pursuant to this arrangement, JLM Consultants received a +total of $478,865 in 2006. +Effective as of July 1, 2005, the Company amended its employment +agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as +the Company's Creative and Design Chief. The term of Mr. Madden's employment +under his amended employment agreement commenced July 1, 2005 and ends on June +30, 2015. The agreement provides for an annual salary of $600,000, with a 7% +increase of base salary on a compound basis in each of the third, fifth, seventh +and ninth years of the agreement. The agreement also provides for an annual +bonus in an amount determined by the Board of Directors, which will be at least +2% of the Company's EBITDA (the "Annual Bonus"). Additionally, the Company shall +pay Mr. Madden an annual cash bonus in relation to "new business" (as defined in +the agreement) in an amount to be determined by the Board of Directors, which +will be at least (i) 2.5% of new business gross direct revenues and (ii) 10% of +all license or other fee income above $2,000,000.00 (the "New Business Bonus"). +In addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, a grant in +excess of 150% of the options grant to such other continuing full-time employee +shall require shareholder approval. The agreement provides for, in the event of +Mr. Madden's death, the payment to Mr. Madden's estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Madden's death. In +the event that Mr. Madden's employment agreement is terminated due to Mr. +Madden's total disability (as defined in the agreement), "for cause" (as defined +in the agreement) or due to Mr. Madden's resignation, the Company is obligated +to pay Mr. Madden the amount of compensation that is accrued and unpaid through +the date of termination. In the event Mr. Madden's employment agreement is +terminated for any reason (other than "for cause" or due to his death or total +disability or due to Mr. Madden's resignation), the Company is obligated to pay +Mr. Madden, in installments, the balance of his base salary that would have been +paid by the Company under the agreement for the full term of the agreement. In +the event that there is a "change of control" (as defined in the agreement) +transaction, all unvested options to purchase shares of Common Stock held by Mr. +Madden will vest on the date of termination and Mr. Madden will be entitled to +receive a lump sum cash payment equal to (1) the amount of compensation that is +accrued and unpaid through the date of termination, (2) an amount equal to the +product of (A) the number of years remaining in the term of the agreement (but +not less than 5) and (B) the sum of (w) the base salary for the 12-month period +ended on the preceding December 31 (or for the 12-month period ending on +December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid +or accrued or which should have been paid or accrued) for the 12-month period +ended on the preceding December 31 (or for the 12-month period ended on December +31, 2002, if greater), (y) the non-accountable expense allowance provided for +under the agreement for the 12-month period ended on the preceding December 31, +and (z) the amount of the New Business Bonus earned (paid or accrued or which +should have been paid or accrued) for the 12-month period ended on the preceding +December 31 (or for the 12-month period ending on December 31 during the +agreement in which Mr. Madden received the greatest New Business Bonus, if +greater). Mr. Madden's employment agreement contains other customary provisions, +including provisions regarding expenses reimbursement, confidentiality, +solicitation and competition. For the fiscal year ending December 31, 2006, Mr. +Madden +25 +earned (i) $600,000 in base salary, (ii) $200,000 in non-accountable expense +allowance, (iii) a bonus of $1,700,060 representing 2% of the Company's earnings +before interest, tax, depreciation and amortization (iv) a bonus of $2,526,868 +earned based on 2.5% of the Company's new business and (v) a bonus of $92,462 +based on 10% of Royalty/Licensing income over $2,000,000. In addition, Mr. +Madden was awarded 30,000 shares of restricted stock with a market value of +$1,081,800 on the date of the award which vests one fourth per year over a four +year period and 135,000 shares of restricted stock with a market value of +$3,800,250 on the date of the award which vests one-fifth per year over a five +year period. +REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS +The Company's Conduct Code and "Employee Handbook" prohibit all +conflicts of interest. Under the Conduct Code, conflicts of interest occur when +private or family interests interfere in any way, or even appear to interfere, +with the interests of the Company. The Company's prohibition on conflicts of +interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a +committee of the Board consisting solely of independent directors, who will +approve the transaction only if they determine that it is in the best interests +of the Company. In considering the transaction, the Board or committee will +consider all relevant factors, including as applicable (i) the Company's +business rationale for entering into the transaction; (ii) the alternatives to +entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties or, in the case of +employment relationships, to employees generally; (iv) the potential for the +transaction to lead to an actual or apparent conflict of interest and any +safeguards imposed to prevent such actual or apparent conflicts; and (v) the +overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of +interests, including related person transactions. Under the Conduct Code, all +employees are required to report any actual or apparent conflict of interest, or +potential conflict of interest, to management. The chief financial officer +quarterly distributes a questionnaire to the Company's executive officers and +management personnel and annually distributes a questionnaire to the members of +the Board of Directors requesting certain information regarding, among other +things, their immediate family members, employment and beneficial ownership +interests, which information is then reviewed for any conflicts of interest +under the Conduct Code. +The Audit Committee, Disclosure Committee and Board of Directors +discuss the related party transactions and they are reviewed as part of the +Forms 10-K and 10-Q review process, including related party transaction +disclosures. +If a director is involved in the transaction, he will be recused from +all discussions and decisions about the transaction. The transaction must be +approved in advance whenever practicable, and if not practicable, must be +ratified as promptly as practicable. +26 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information as of the Record +Date with respect to the beneficial ownership of Common Stock by (i) each person +known by the Company to beneficially own five percent or more of the outstanding +shares; (ii) the directors and the Named Executive Officers; and (iii) the +Company's executive officers and directors as a group. A person is deemed to be +a beneficial owner of any securities of which that person has the right to +acquire within 60 days. See "Compensation of Directors and Executive Officers." +SHARES BENEFICIAL OWNED +--------------------------------------------- +NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE +BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) OF CLASS(2) +------------------------------------------------------------ ------------------------- ------------- +Jamieson A. Karson ......................................... 121,200(3) * +Arvind Dharia .............................................. 225,243(4) 1.09 +Awadhesh Sinha ............................................. -- -- +Robert Schmertz ............................................ 180,000(5) * +Amelia Newton Varela ....................................... 30,000 * +Jeffrey Birnbaum ........................................... 45,750(6) * +Marc S. Cooper ............................................. 750 * +Harold D. Kahn ............................................. 9,000(7) * +John Madden ................................................ 40,750(8) * +Peter Migliorini ........................................... 16,500(9) * +Richard P. Randall ......................................... 1,500 * +Thomas H. Schwartz ......................................... 52,400(10) * +Walter Yetnikoff ........................................... 16,500(11) * +Steven Madden .............................................. 2,271,500(12) 10.72 +BOCAP Corp. ................................................ 1,214,000(13) 5.94 +Directors and Executive Officers as a Group (13 persons) ... 739,593(14) 3.54 +---------- +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined +in accordance with Item 403 of Regulation S-K of the Securities Act of +1933 and Rule 13d-3 of the Securities Exchange Act, and based upon +20,453,888 shares of Common Stock outstanding (excluding treasury shares) +as of the Record Date. +(3) Includes (i) 56,200 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 15,000 shares of Common Stock held by +Mr. Karson's wife. +(4) Includes 193,243 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +(5) Includes 50,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schmertz. +27 +(6) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Birnbaum. +(7) Includes 7,500 shares of Common Stock issuable upon the exercise of +options held by Mr. Kahn. +(8) Includes 40,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden. +(9) Includes 15,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Migliorini. +(10) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schwartz. +(11) Includes 15,000 shares of Common Stock issuable upon exercise of options +held by Mr. Yetnikoff. +(12) Includes (i) 1,214,000 shares of Common Stock held by BOCAP, a +corporation wholly-owned by Steven Madden, (ii) 322,500 shares of Common +Stock held by Steven Madden and (iii) 735,000 shares of Common Stock +issuable upon the exercise of options held by Steven Madden. +(13) BOCAP is wholly-owned by Steven Madden. +(14) Includes 436,943 shares issuable upon the exercise of options. +28 +PROPOSAL TWO +PROPOSAL FOR THE APPROVAL OF AMENDMENT NUMBER ONE TO THE +STEVEN MADDEN, LTD. 2006 STOCK INCENTIVE PLAN +The Company maintains the Steven Madden, Ltd. 2006 Stock Incentive +Plan, for the benefit of eligible employees, consultants and non-employee +directors of the Company. The proposed amendment number one to the 2006 Plan, +which was unanimously adopted by the Board of Directors of the Company by +written consent on April 25, 2007 subject to stockholder approval at the 2007 +Annual Meeting, would increase the aggregate number of shares of the Common +Stock issuable under the 2006 Plan by 350,000 shares to a total of 1,550,000 +shares, or approximately 7.6% of the currently outstanding shares of Common +Stock and to increase the number of aggregate shares that may be used for awards +that are not "appreciation awards" (including restricted stock, performance +shares or certain other stock-based awards) under this 1,550,000 share limit by +350,000 shares to 980,000 shares. The aggregate number of shares available under +the 2006 Plan reflects the 3-for-2 stock split that became effective May 25, +2006 (the "Stock Split"). The Board believes that it is desirable to increase +the total number of shares available under the 2006 Plan in order to attract, +motivate and retain employees and non-employee directors of, and consultants to, +the Company because the current share reserve under the 2006 Plan is expected to +be fully utilized in the near term. +Currently, the maximum number of shares of Common Stock that may be +issued under the 2006 Plan is 1,200,000 (adjusted to reflect the Stock Split) +shares of Common Stock of which a maximum of 630,000 (adjusted to reflect the +Stock Split) of such shares may be used for awards that are not "appreciation +awards" (including restricted stock, performance shares, stock-settled stock +appreciation rights or certain other stock-based awards). Generally, each award +of restricted stock vests 25% per year beginning on the first anniversary of the +date of grant subject to the participant's continued service with the Company, +provided that such awards are subject to accelerated vesting in the event of +certain terminations of employment or upon a change in control of the Company +(each as provided in the applicable award agreement). Except in these limited +circumstances, awards will not vest during the first year following the date of +grant. +As of April 25, 2007, no stock options had been granted under the 2006 +Plan. Pursuant to the Company's 1997 Stock Plan and the Company's 1999 Stock +Plan, as amended (together with the 1997 Stock Plan, the "Prior Plans"), +however, the Company previously granted stock options to certain of its then +directors and employees. +The following table sets forth certain information regarding the +options and shares available for grant and outstanding under the Prior Plans and +2006 Plan, respectively. +As of April 25, 2007 +-------------------- +Prior Plans: +Options available for grant ......... 0 +Options outstanding ................. 1,395,985 +Weighted average exercise price ..... $8.75 +Weighted average term ............... 4.06 years +2006 Plan: +Shares available for grant .......... 597,200 +Shares outstanding .................. 602,800 +Unvested ......................... 562,973 +Vested ........................... 39,827 +In addition, the proposed amendment number one to the 2006 Plan deletes +the net share counting provision of the 2006 Plan with respect to stock-settled +stock appreciation rights, which currently provides that only the number of +shares of Common Stock that are delivered to a participant count against the +share limitations set forth under the 2006 Plan. As a result of the amendment to +the 2006 Plan, the total number of shares subject to an award of stock +appreciation rights will count against share limitations (both aggregate and +individual) set forth under the 2006 Plan. This provision of the proposed +amendment number one does not require stockholder approval. +29 +The Board has also adopted certain other minor clarifying amendments to +the 2006 Plan, which do not require stockholder approval, to reflect +developments in applicable law and equity compensation practices. +In the event that the requisite stockholder approval of amendment +number one to the 2006 Plan is not obtained, the amendment to the 2006 Plan will +not take effect to the extent stockholder approval is required, but the Company +may continue to grant awards under the 2006 Plan in accordance with its terms +and the current share reserve under the 2006 Plan. +The following description of the 2006 Plan, which takes into account +the effect of the amendment, is a summary of its principal provisions and is +qualified in its entirety by reference to the 2006 Plan, a copy of which is +available as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with +the Securities and Exchange Commission on July 3, 2006. A copy of the proposed +amendment number one to the 2006 Plan is appended hereto as Exhibit A. +DESCRIPTION OF THE 2006 STOCK INCENTIVE PLAN +The Board previously approved the 2006 Plan in order to enhance the +profitability and value of the Company for the benefit of its stockholders by +enabling us to offer eligible employees, consultants and non-employee directors +cash and stock-based incentives in the Company to attract, retain and reward +such individuals and strengthen the mutuality of interests between such +individuals and the Company's stockholders. The Board's adoption of the +amendment to the 2006 Plan to increase the aggregate number of shares under the +2006 Plan is subject to the approval of the Company's stockholders. +The affirmative vote of the holders of at least a majority of the +outstanding shares of the Common Stock present or represented by proxy and +entitled to vote at the annual meeting is required to approve the amendment to +the 2006 Plan. The Board recommends that the stockholders vote "for" the +approval of the amendment to the 2006 Plan. +Administration. The 2006 Plan is administered by a committee, which is +intended to consist of two or more non-employee directors, each of whom will be, +to the extent required, a non-employee director as defined in Rule 16b-3 of the +Exchange Act, an outside director as defined under Section 162(m) of the Code +and an independent director as defined under NASD Rule 4200(a)(15) (the +"Committee"); provided that with respect to the application of the 2006 Plan to +non-employee directors, the 2006 Plan will be administered by the Board (and +references to the Committee include the Board for this purpose). Currently, the +compensation committee of the Board serves as the Committee under the 2006 Plan. +The Committee has full authority to administer and interpret the 2006 +Plan, to grant discretionary awards under the 2006 Plan, to determine the +persons to whom awards will be granted, to determine the types of awards to be +granted, to determine the terms and conditions of each award, to determine the +number of shares of Common Stock to be covered by each award and to make all +other determinations in connection with the 2006 Plan and the awards thereunder +as the Committee, in its sole discretion, deems necessary or desirable. The +Committee has delegated to the Chief Executive Officer of the Company the +authority to grant awards under the 2006 Plan to eligible employees and +consultants who are not subject to Section 16(b) of the Exchange Act or Section +162(m) of the Code; provided that in no event will the number of shares of +Common Stock that may be granted exceed 1,000 shares to any such individual +during any fiscal year. The terms and conditions of individual awards are set +forth in written agreements that are consistent with the terms of the 2006 Plan. +Awards under the 2006 Plan may not be made on or after March 20, 2016, except +that awards (other than stock options or stock appreciation rights) that are +intended to be "performance-based" under Section 162(m) of the Code will not be +made after the fifth anniversary of the 2006 Plan's initial approval by the +Company's stockholders (i.e., May 26, 2011). +30 +Eligibility and Types of Awards. All of the Company's employees, +consultants and non-employee directors are eligible to be granted nonqualified +stock options, stock appreciation rights, performance shares, restricted stock, +other stock-based awards and performance-based cash awards. In addition, the +Company's employees and employees of the Company's affiliates that qualify as +subsidiaries or parent corporations (as defined under Section 424 of the Code) +are eligible to be granted incentive stock options under the 2006 Plan. +Available Shares. The aggregate number of shares of Common Stock which +may be issued or used for reference purposes under the 2006 Plan, as amended, or +with respect to which awards may be granted may not exceed 1,550,000 shares, +which may be either authorized and unissued Common Stock or Common Stock held in +or acquired for the treasury of the Company; provided, however, that 980,000 +shares of this aggregate limit may be used for awards that are not "appreciation +awards" (including restricted stock, performance shares or certain other +stock-based awards). In general, if awards under the 2006 Plan are for any +reason cancelled, or expire or terminate unexercised, the shares covered by such +awards will again be available for the grant of awards under the 2006 Plan. +The maximum number of shares of Common Stock with respect to which any +stock option, stock appreciation right or shares of restricted stock that are +subject to the attainment of specified performance goals and intended to satisfy +Section 162(m) of the Code and may be granted under the 2006 Plan during any +fiscal year to any eligible employee or consultant will be 600,000 shares (per +type of award). The total number of shares of Common Stock with respect to all +awards that may be granted under the 2006 Plan during any fiscal year to any +eligible employee or consultant will be 750,000 shares. There are no annual +limits on the number of shares of Common Stock with respect to an award of +restricted stock that are not subject to the attainment of specified performance +goals to eligible employees or consultants. The maximum number of shares of +Common Stock with respect to any award of performance shares to an eligible +employee or consultant during any fiscal year is 300,000 shares. The maximum +number of shares of Common Stock with respect to which any stock option (other +than incentive stock options), stock appreciation right, performance share or +other stock-based award that may be granted under the 2006 Plan during any +fiscal year to any non-employee director will be 150,000 shares (per type of +award). The total number of shares of Common Stock with respect to all awards +that may be granted under the 2006 Plan during any fiscal year to any +non-employee director will be 300,000 shares. The individual share limits +specified above have been adjusted to reflect the Stock Split. The maximum +payment that may be made to an eligible employee or consultant under any +performance-based cash award during any fiscal year and subject to the +attainment of specified performance goals will be $10,000,000. +As amended, the 2006 Plan requires that the Committee appropriately +adjust the above individual maximum share limitations, the aggregate number of +shares of Common Stock available for the grant of awards and the exercise price +of an award to reflect any change in the Company's capital structure or business +by reason of certain corporate transactions or events. +The Company commits to limit its "burn rate" (i.e., the rate at which +it grants equity awards under the 2006 Plan) to a three year annual average burn +rate limit of 3.09%, which is within industry norms and is intended to be +calculated using Institutional Shareholder Services methodology. +31 +Awards Under the 2006 Plan. The following types of awards are available under +the 2006 Plan: +Stock Options. The Committee may grant nonqualified stock options and +incentive stock options (only to eligible employees) to purchase shares of +Common Stock. The Committee will determine the number of shares of Common Stock +subject to each option, the term of each option (which may not exceed seven +years (or five years in the case of an incentive stock option granted to a 10% +stockholder)), the exercise price, the vesting schedule (if any), and the other +material terms of each option. No incentive stock option or nonqualified stock +option may have an exercise price less than the fair market value of the Common +Stock at the time of grant (or, in the case of an incentive stock option granted +to a 10% stockholder, 110% of fair market value). +Options will be exercisable at such time or times and subject to such +terms and conditions as determined by the Committee at grant and the +exercisability of such options may be accelerated by the Committee in its sole +discretion. Upon the exercise of an option, the participant must make payment of +the full exercise price, either (i) in cash, check, bank draft or money order; +(ii) solely to the extent permitted by law, through the delivery of irrevocable +instructions to a broker reasonably acceptable to the Company to deliver +promptly to the Company an amount equal to the purchase price; or (iii) on such +other terms and condition as a may be acceptable to the Committee. +Stock Appreciation Rights. The Committee may grant stock appreciation +rights ("SARs") either with a stock option which may be exercised only at such +times and to the extent the related option is exercisable ("Tandem SAR") or +independent of a stock option ("Non-Tandem SARs"). A SAR is a right to receive a +payment in Common Stock or cash (as determined by the Committee) equal in value +to the excess of the fair market value of one share of Common Stock on the date +of exercise over the exercise price per share established in connection with the +grant of the SAR. The term of each SAR may not exceed seven years. The exercise +price per share covered by a SAR will be the exercise price per share of the +related option in the case of a Tandem SAR and will be the fair market value of +the Common Stock on the date of grant in the case of a Non-Tandem SAR. The +Committee may also grant "limited SARs," either as Tandem SARs or Non-Tandem +SARs, which may become exercisable only upon the occurrence of a change in +control (as defined in the 2006 Plan) or such other event as the Committee may, +in its sole discretion, designate at the time of grant or thereafter. +Restricted Stock. The Committee may award shares of restricted stock. +Except as otherwise provided by the Committee upon the award of restricted +stock, the recipient generally has the rights of a stockholder with respect to +the shares, including the right to receive dividends, the right to vote the +shares of restricted stock and, conditioned upon full vesting of shares of +restricted stock, the right to tender such shares, subject to the conditions and +restrictions generally applicable to restricted stock or specifically set forth +in the recipient's restricted stock agreement. The Committee may determine at +the time of award, that the payment of dividends, if any, will be deferred until +the expiration of the applicable restriction period. +Recipients of restricted stock are required to enter into a restricted +stock agreement with the Company which states the restrictions to which the +shares are subject, which may include satisfaction of pre-established +performance goals, and the criteria or date or dates on which such restrictions +will lapse. +If the grant of restricted stock or the lapse of the relevant +restrictions is based on the attainment of performance goals, the Committee will +establish for each recipient the applicable performance goals, formulae or +standards and the applicable vesting percentages with reference to the +attainment of such goals or satisfaction of such formulas or standards while the +outcome of the performance goals are substantially uncertain. Such performance +goals may incorporate provisions for disregarding (or adjusting for) changes in +accounting methods, corporate transactions (including, without limitation, +dispositions and acquisitions) and other similar events or circumstances. +Section 162(m) of the Code requires that performance awards be based upon +objective performance measures. The performance goals for performance-based +restricted stock will be based on one or more of the objective criteria set +forth on Exhibit A to the 2006 Plan and discussed in general below. +32 +Performance Shares. The Committee may award performance shares. A +performance share is the equivalent of one share of Common Stock. The recipient +of a grant of performance shares will specify one or more performance criteria +to meet within a specified period determined by the Committee at the time of +grant. The performance goals for performance shares will be based on one or more +of the objective criteria set forth on Exhibit A to the 2006 Plan and discussed +in general below. A minimum level of acceptable achievement will also be +established by the Committee. If, by the end of the performance period, the +recipient has achieved the specified performance goals, he or she will be deemed +to have fully earned the performance shares. To the extent earned, the +performance shares will be paid to the recipient at the time and in the manner +determined by the Committee in cash, shares of Common Stock or any combination +thereof. +Other Stock-Based Awards. The Committee may, subject to limitations +under applicable law, make a grant of such other stock-based awards (including, +without limitation, performance units, dividend equivalent units, stock +equivalent units, restricted stock units and deferred stock units) under the +2006 Plan that are payable in cash or denominated or payable in or valued by +shares of Common Stock or factors that influence the value of such shares. The +Committee shall determine the terms and conditions of any such other awards, +which may include the achievement of certain minimum performance goals for +purposes of compliance with Section 162(m) of the Code and/or a minimum vesting +period. The performance goals for performance-based other stock-based awards +will be based on one or more of the objective criteria set forth on Exhibit A to +the 2006 Plan and discussed in general below. +Performance-Based Cash Awards. The Committee may, subject to +limitations under applicable law, make a grant of individual target awards +either alone or in tandem with stock options, SARs or restricted stock under the +2006 Plan that are contingent upon the satisfaction of certain pre-established +performance goals that are reached within a specified performance period, each +of which, together with any other terms and conditions, shall be determined by +the Committee in its sole discretion at the time of grant. At the time the +performance goals are established, the Committee will prescribe a formula to +determine the percentages (which may be greater than 100%) of the individual +target award which may be payable based upon the degree of attainment of the +performance goals during the calendar year. The Committee may, in its sole +discretion, elect to pay a participant an amount that is less than the +participant's individual target award regardless of the degree of attainment of +the performance goals; provided that no such discretion to reduce a +performance-based cash award earned based on achievement of the applicable +performance goals will be permitted for a calendar year in which a change in +control occurs. The performance goals for performance-based cash awards will be +based on one or more of the objective criteria set forth on Exhibit A to the +2006 Plan and discussed in general below. +Performance Goals. The Committee may grant awards of restricted stock, +performance shares, performance-based cash awards and other stock-based awards +that are intended to qualify as "performance-based compensation" for purposes of +Section 162(m) of the Code. These awards may be granted, vest and be paid based +on attainment of specified performance goals established by the Committee. These +performance goals will be based on the attainment of a certain target level of, +or a specified increase or decrease in, one or more of the following criteria +selected by the Committee: +o earnings per share, earnings before interest and taxes or +earnings before interest, tax, depreciation and amortization; +o gross profit or gross profit return on investment; +o gross margin or gross margin return on investment; +o operating income, net income, cash flow or economic value added; +o revenue growth; +33 +o working capital; +o specified objectives with regard to limiting the level of +increase in all or a portion of, the Company's bank debt or +other long-term or short-term public or private debt or other +similar financial obligations of the Company, which may be +calculated net of cash balances and/or other offsets and +adjustments as may be established by the Committee; +o return on equity, assets or capital; +o total shareholder return; +o fair market value of the shares of the Common Stock; +o market share and/or market segment share; +o the growth in the value of an investment in the Common Stock +assuming the reinvestment of dividends; +o customer satisfaction, customer loyalty, brand recognition +and/or brand acceptance; +o style indexes; +o employee retention; +o number of new patents, new product innovation and/or +introduction; +o product release schedules and/or ship targets; or +o reduction in expenses and/or product cost reduction through +advanced technology. +To the extent permitted by law, the Committee may also exclude the +impact of an event or occurrence which the Committee determines should be +appropriately excluded, including: +o restructurings, discontinued operations, extraordinary items and +other unusual or non-recurring charges; +o an event either not directly related to the operations of the +Company or not within the reasonable control of the Company's +management; or +o a change in accounting standards required by generally accepted +accounting principles. +Performance goals may also be based on individual participant +performance goals, as determined by the Committee, in its sole discretion. +In addition, all performance goals may be based upon the attainment of +specified levels of Company (or subsidiary, division or other operational unit +of the Company) performance under one or more of the measures described above +relative to the performance of other corporations. The Committee may designate +additional business criteria on which the performance goals may be based or +adjust, modify or amend those criteria. +Change in Control. Unless otherwise determined by the Committee at the +time of grant or in a written employment agreement, awards subject to vesting +and/or restrictions will not accelerate and vest or cause the lapse of +restrictions upon a change in control (as defined in the 2006 Plan) of the +Company. Instead, such awards will be, in the discretion of the Committee, (i) +assumed and continued or substituted in accordance with applicable law, (ii) +purchased by the Company for an amount equal to the excess of the price of the +Common Stock paid in a change in control over the exercise price of the +award(s), or (iii) cancelled if the price of the Common Stock paid in a change +in control is less than the exercise price of the award. The Committee may also, +in its sole discretion, provide for accelerated vesting or lapse of restrictions +of an award at any time. +Amendment and Termination. Notwithstanding any other provision of the +2006 Plan, the Board may at any time amend any or all of the provisions of the +2006 Plan, or suspend or terminate it entirely, retroactively or otherwise; +provided, however, that, unless otherwise required by law or specifically +provided in the 2006 Plan, the rights of a participant with respect to awards +granted prior to such +34 +amendment, suspension or termination may not be adversely affected without the +consent of such participant and, provided further that the approval of the +Company's stockholders will be obtained to the extend required by Delaware law, +Sections 162(m) and 422 of the Code, The Nasdaq Global Market or the rules of +such other applicable stock exchange, as specified in the 2006 Plan. +Miscellaneous. Awards granted under the 2006 Plan are generally +nontransferable (other than by will or the laws of descent and distribution), +except that the Committee may provide for the transferability of nonqualified +stock options at the time of grant or thereafter to certain family members. +Certain U.S. Federal Income Tax Consequences. The rules concerning the +federal income tax consequences with respect to options granted and to be +granted pursuant to the 2006 Plan are quite technical. Moreover, the applicable +statutory provisions are subject to change, as are their interpretations and +applications which may vary in individual circumstances. Therefore, the +following is designed to provide a general understanding of the federal income +tax consequences. In addition, the following discussion does not set forth any +gift, estate, social security or state or local tax consequences that may be +applicable and is limited to the U.S. federal income tax consequences to +individuals who are citizens or residents of the U.S., other than those +individuals who are taxed on a residence basis in a foreign country. +Incentive Stock Options. In general, an employee will not realize +taxable income upon either the grant or the exercise of an incentive stock +option and the Company will not realize an income tax deduction at either such +time. In general, however, for purposes of the alternative minimum tax, the +excess of the fair market value of the shares of Common Stock acquired upon +exercise of an incentive stock option (determined at the time of exercise) over +the exercise price of the incentive stock option will be considered income. If +the recipient was continuously employed on the date of grant until the date +three months prior to the date of exercise and such recipient does not sell +Common Stock received pursuant to the exercise of the incentive stock option +within either (i) two years after the date of the grant of the incentive stock +option or (ii) one year after the date of exercise, a subsequent sale of Common +Stock will result in long-term capital gain or loss to the recipient and will +not result in a tax deduction to the Company. +If the recipient is not continuously employed on the date of grant +until the date three months prior to the date of exercise or such recipient +disposes of Common Stock acquired upon exercise of the incentive stock option +within either of the above mentioned time periods, the recipient will generally +realize as ordinary income an amount equal to the lesser of (i) the fair market +value of Common Stock on the date of exercise over the exercise price, or (ii) +the amount realized upon disposition over the exercise price. In such event, +subject to the limitations under Sections 162(m) and 280G of the Code (as +described below), the Company generally will be entitled to an income tax +deduction equal to the amount recognized as ordinary income. Any gain in excess +of such amount realized by the recipient as ordinary income would be taxed at +the rates applicable to short-term or long-term capital gains (depending on the +holding period). +Nonqualified Stock Options. A recipient will not realize any taxable +income upon the grant of a nonqualified stock option and the Company will not +receive a deduction at the time of such grant unless such option has a readily +ascertainable fair market value (as determined under applicable tax law) at the +time of grant. Upon exercise of a nonqualified stock option, the recipient +generally will realize ordinary income in an amount equal to the excess of the +fair market value of Common Stock on the date of exercise over the exercise +price. Upon a subsequent sale of Common Stock by the recipient, the recipient +will recognize short-term or long-term capital gain or loss depending upon his +or her holding period for Common Stock. Subject to the limitations under +Sections 162(m) and 280G of the Code (as described below), the Company will +generally be allowed a deduction equal to the amount recognized by the recipient +as ordinary income. +35 +All Options. With regard to both incentive stock options and +nonqualified stock options, the following also apply: (i) any of the Company's +officers and directors subject to Section 16(b) of the Exchange Act may be +subject to special tax rules regarding the income tax consequences concerning +their stock options, (ii) any entitlement to a tax deduction on the part of the +Company is subject to the applicable tax rules (including, without limitation, +Section 162(m) of the Code regarding the $1,000,000 limitation on deductible +compensation), and (iii) in the event that the exercisability or vesting of any +award is accelerated because of a change in control, payments relating to the +awards (or a portion thereof), either alone or together with certain other +payments, may constitute parachute payments under Section 280G of the Code, +which excess amounts may be subject to excise taxes and may be nondeductible by +the Company. +In general, Section 162(m) of the Code denies a publicly held +corporation a deduction for federal income tax purposes for compensation in +excess of $1,000,000 per year per person to its chief executive officer and four +other executive officers whose compensation is disclosed in its proxy statement, +subject to certain exceptions. Options will generally qualify under one of these +exceptions if they are granted under a plan that states the maximum number of +shares with respect to which options may be granted to any recipient during a +specified period of the plan under which the options are granted is approved by +stockholders and is administered by a committee comprised of outside directors. +The 2006 Plan is intended to satisfy these requirements with respect to options. +The 2006 Plan is not subject to any of the requirements of the Employee +Retirement Income Security Act of 1974, as amended. The 2006 Plan is not, nor is +it intended to be, qualified under Section 401(a) of the Code. +Future Plan Awards. Except as stated below under the section entitled +"New Plan Benefits with Respect to 2007," no new equity-based awards have been +approved at this time to any employee, officer, non-employee director or +consultant. The Company anticipates that other equity-based awards may be +granted to the named individuals as well as to other employees, officers, +non-employee directors and consultants under the 2006 Plan. However, the amount +of shares of Common Stock that may be granted to the named individuals will be +based upon various prospective factors, including, the nature of services to be +rendered by the Company's employees, officers, non-employee directors and +consultants, and their potential contributions to the Company's success. +Accordingly, actual awards cannot be determined at this time. +36 +NEW PLAN BENEFITS WITH RESPECT TO 2007. +The table below presents certain information with respect to new shares +of restricted stock granted under the 2006 Plan with respect to the 2007 +calendar year to certain of the Company's Named Executive Officers as follows: +NUMBER OF SHARES +SUBJECT TO +NAME AND POSITION DOLLAR VALUE RESTRICTION +---------------------------------------------- --------------- ---------------- +Jamieson A. Karson $ 723,800(1) 20,000 +Arvind Dharia $ 645,400(2) 20,000 +Awadhesh Sinha $ 1,460,700(3) 30,000 +Robert Schmertz $ 3,184,000(4) 100,000 +All Executive Officers as a Group $ 6,013,900 170,000 +Non-Employee Directors as a Group $ 0 0 +Non-Executive Officer Employees as a Group $ 1,574,510(5) 45,000 +Total for all Participants under the 2006 Plan $ 7,588,410 215,000 +---------- +(1) Calculated based upon the closing price of the Company's stock on March 27, +2007, the date of grant. +(2) Calculated based upon the closing price of the Company's stock on March 6, +2007, the date of grant. +(3) Calculated based upon the closing price of the Company's stock on April 25, +2007, the date of the grant. +(4) Calculated based upon the closing price of the Company's stock on March 9, +2007, the date of grant. +(5) Calculated based upon the closing price of the Company's stock on March 9, +2007 for 38,000 shares and the closing price of the Company's stock on +April 24, 2007 for 7,000 shares. +THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF +COMMON STOCK PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL +MEETING IS REQUIRED TO APPROVE THE AMENDMENT TO THE 2006 PLAN. THE BOARD OF +DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF AMENDMENT +NUMBER ONE TO THE 2006 PLAN. +37 +PROPOSAL THREE +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING +DECEMBER 31, 2007 +The Audit Committee has appointed Eisner LLP as the Company's +independent registered public accounting firm to conduct the audit of the +Company's books and records for the fiscal year ending December 31, 2007. Eisner +LLP also served as the Company's independent registered public accountants for +the previous fiscal year. +Although ratification by stockholders is not required by the Company's +organizational documents or other applicable law, the Audit Committee has +determined that requesting ratification by stockholders of its appointment of +Eisner LLP as the Company's independent registered public accountants is a +matter of good corporate practice. If stockholders do not ratify the selection, +the Audit Committee will reconsider whether or not to retain Eisner LLP, but may +still retain them. Even if the selection is ratified, the Audit Committee, in +its discretion, may change the appointment at any time during the year if it +determines that such a change would be in the best interest of the Company and +its stockholders. +Representatives of Eisner LLP are expected to be present at the Annual +Meeting to respond to questions and to make a statement should they so desire. +REQUIRED VOTE +The affirmative vote of the holders of a majority of the shares of +Common Stock present or represented by proxy and entitled to vote at the Annual +Meeting is required to ratify the Audit Committee's selection of Eisner LLP. +RECOMMENDATION OF THE BOARD OF DIRECTORS +The Board of Directors unanimously recommends a vote FOR the +ratification of the appointment of Eisner LLP as the Company's independent +registered public accountants for the fiscal year ending December 31, 2007. +Unless marked to the contrary, proxies received from stockholders will be voted +in favor of ratifying the appointment of Eisner LLP as the Company's independent +registered public accountants for the fiscal year ending December 31, 2007. +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AUDIT FEES +The aggregate fees billed by Eisner LLP for professional services +rendered for the audit of the Company's annual financial statements for the 2006 +Fiscal Year, for the reviews of the financial statements included in the +Company's Quarterly Reports on Form 10-Q for the 2006 Fiscal Year, other +statutory and regulatory filings, consents related to registration statements +filed with the SEC and the audit of the Company's internal controls over +financial reporting for the 2006 Fiscal Year were $436,000. The comparative +amount for the fiscal year ended December 31, 2005 (the "2005 Fiscal Year") was +$460,000. +AUDIT-RELATED FEES +In addition to Audit Fees, Eisner LLP has billed the Company $26,000, +in the aggregate, for Audit Related Fees related to assurance and related +services for the 2006 Fiscal Year. These services include, among others, the +audit of the Company's employee benefit plans and other accounting related +consultations. The comparative amount for the 2005 Fiscal Year was $93,000. +38 +TAX FEES +During the 2006 Fiscal Year, Eisner LLP billed the Company $138,000, in +the aggregate, for services rendered to the Company for tax compliance, tax +advice and tax planning. Eisner LLP billed $122,000 for similar services in the +2005 Fiscal Year. +ALL OTHER FEES +There were no fees billed by Eisner LLP for services rendered to the +Company, other than the services described above under Audit Fees, Audit Related +Fees and Tax Fees, for the 2006 Fiscal Year or the 2005 Fiscal Year. +AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES +Consistent with SEC policies regarding auditor independence, the Audit +Committee has responsibility for appointing, setting compensation and overseeing +the work of the independent registered public accountants. In recognition of +this responsibility, the Audit Committee has established a policy to review and +pre-approve all audit and permissible non-audit services provided by the +independent registered public accountants. These services may include audit +services, audit-related services, tax services and other services. +Prior to engagement of the independent auditor for next year's audit, +the Audit Committee will pre-approve all auditing services and all permitted +non-audit services (including the fees and terms thereof), except those excluded +from requiring pre-approval based upon the de minimus exception set forth in +Section 10A(i)(1)(B) of the Exchange Act. +The Audit Committee's pre-approval policies and procedures are as +follows: (a) prior to each fiscal year, the Audit Committee pre-approves a +schedule of estimated fees for proposed non-prohibited audit and non-audit +services and (b) actual amounts paid are monitored by financial management of +the Company and reported to the Audit Committee. +All work performed by Eisner LLP as described above under the captions +Audit Fees, Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee's charter. The Audit Committee has considered and concluded that the +provision of non-audit services is compatible with maintaining the independence +of Eisner LLP. +THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF +COMMON STOCK PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL +MEETING IS REQUIRED TO RATIFY THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. THE BOARD OF DIRECTORS RECOMMENDS +THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF EISNER +LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL +YEAR ENDING DECEMBER 31, 2007. +39 +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of +any business other than that described above that will be presented at the +Annual Meeting. If any other business should properly come before the Annual +Meeting in connection therewith, it is intended that the persons named in the +enclosed proxy will have discretionary authority to vote the shares which they +represent. +STOCKHOLDER PROPOSALS AND SUBMISSIONS FOR THE COMPANY'S 2008 ANNUAL MEETING +In accordance with rules promulgated by the SEC, any stockholder who +wishes to submit a proposal for inclusion in the proxy material to be +distributed by the Company in connection with the 2008 Annual Meeting must do so +no later than December 30, 2007. +In addition, in accordance with Article I, Section 7(f) of the +Company's By-Laws, in order to be properly brought before the 2008 Annual +Meeting, a matter must be (i) specified in the notice of such meeting given by +or at the direction of the Board of Directors (or any duly authorized committed +thereof), (ii) otherwise properly brought before such meeting by or at the +direction of the Board of Directors (or any duly authorized committed thereof) +or (iii) specified in a written notice given by a stockholder of record on the +date of the giving of the notice and on the record date for such meeting, which +notice conforms to the requirements of Article I, Section 7(f) of the By-Laws +and is delivered to, or mailed and received at, the Company's principal +executive offices not less than 120 days nor more than 150 days prior to the +first anniversary of the date of the Company's 2007 Annual Meeting. Accordingly, +any written notice given by or on behalf of a stockholder pursuant to the +foregoing clause (iii) in connection with the 2008 Annual Meeting must be +received no later than January 26, 2008 and no earlier than December 27, 2007. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, +PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF +YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE +IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 30, 2007 +By: /s/ JAMIESON A. KARSON +------------------------ +Jamieson A. Karson +Chief Executive Officer +40 +EXHIBIT A +AMENDMENT NUMBER ONE +TO THE +STEVEN MADDEN, LTD. 2006 STOCK INCENTIVE PLAN +Dated: April 30, 2007 +Capitalized terms used herein but not defined shall have the meanings +attributed to such terms under the Steven Madden, Ltd. 2006 Stock Incentive Plan +(the "Plan"). +WHEREAS, Steven Madden, Ltd. (the "Company") currently maintains the +Plan for the purpose of awarding cash and stock-based incentives to its Eligible +Employees, Consultants and Non-Employee Directors; +WHEREAS, pursuant to Section 14.1 of the Plan, the Board or the +Committee may amend the Plan at any time, subject to stockholder approval under +certain circumstances; and +WHEREAS, the Committee now wishes to amend the Plan, subject to the +approval of the Company's stockholders at the Company's 2007 Annual Meeting of +Stockholders, to increase the aggregate share reserve under the Plan and to make +certain other administrative modifications (which are not subject to stockholder +approval). +NOW, THEREFORE, the Plan is hereby amended effective as of April 30, +2007, subject to the approval of the Company's stockholders at the Company's +2007 Annual Meeting of Stockholders, except with respect to the FIRST, THIRD, +FOURTH and FIFTH Paragraphs hereof (which are not subject to stockholder +approval). Except as specifically modified herein, the Plan shall continue in +full force and effect in accordance with all of the terms and conditions +thereof. +1. The definition of "Appreciation Award" in Section 2.3 of the Plan +is hereby amended to delete the words "cash-settled," which +immediately precede "Stock Appreciation Right." +2. The first sentence of Section 4.1(a) of the Plan is hereby +deleted in its entirety and replaced with the following sentence +as follows: +"The aggregate number of shares of Common Stock that may be +issued or used for reference purposes or with respect to which +Awards may be granted under this Plan shall not exceed 1,550,000 +shares (subject to any increase or decrease pursuant to Section +4.2), which may be either authorized and unissued Common Stock or +Common Stock held in or acquired for the treasury of the Company +or both; provided, however, that only 980,000 shares of the +1,550,000 shares of Common Stock available hereunder may be +issued or used for Awards that are not Appreciation Awards." +3. The second sentence of Section 4.1(a) of the Plan, as follows, is +hereby deleted in its entirety. +"With respect to Stock Appreciation Rights settled in Common +Stock, only the number shares of Common Stock delivered to a +Participant (based on the difference between Fair Market Value of +the shares of Common Stock subject to such Stock Appreciation +Right on the date such Stock Appreciation Right is exercised and +the Fair Market Value of the shares of Common Stock subject to +such Stock Appreciation Right on the date such Stock Appreciation +Right was awarded) shall count against the aggregate and +individual share limitations set forth under Sections 4.1(a) and +(b)." +4. Section 4.2(b) of the Plan is hereby amended in its entirety to +read in full as follows: +"Subject to the provisions of Section 4.2(d), if there shall +occur any such change in the capital structure of the Company by +reason of any stock split, reverse stock split, stock dividend, +subdivision, combination or reclassification of shares that may +be issued under the Plan, any recapitalization, any merger, any +consolidation, any spin off, any reorganization or any partial or +complete liquidation, or any other corporate transaction or event +having an effect similar to any of the foregoing (a "Section 4.2 +Event"), then (i) the aggregate number and/or kind of shares that +thereafter may be issued under the Plan, (ii) the number and/or +kind of shares or other property (including cash) to be issued +upon exercise of an outstanding Award or under other Awards +granted under the Plan, (iii) the purchase price thereof, and/or +(iv) the individual Participant limitations set forth in Section +4.1(b) (other than those based on cash limitations) shall be +appropriately adjusted. In addition, subject to Section 4.2(d), +if there shall occur any change in the capital structure or the +business of the Company that is not a Section 4.2 Event (an +"Other Extraordinary Event"), including by reason of any +extraordinary dividend (whether cash or stock), any conversion, +any adjustment, any issuance of any class of securities +convertible or exercisable into, or exercisable for, any class of +stock, or any sale or transfer of all or substantially all the +Company's assets or business, then the Committee, in its sole +discretion, may adjust any Award and make such other adjustments +to the Plan. Any adjustment pursuant to this Section 4.2 shall be +consistent with the applicable Section 4.2 Event or the +applicable Other Extraordinary Event, as the case may be, and in +such manner as the Committee may, in its sole discretion, deem +appropriate and equitable to prevent substantial dilution or +enlargement of the rights granted to, or available for, +Participants under the Plan. Any such adjustment determined by +the Committee shall be final, binding and conclusive on the +Company and all Participants and their respective heirs, +executors, administrators, successors and permitted assigns. +Except as expressly provided in this Section 4.2 or in the +applicable Award agreement, a Participant shall have no rights by +reason of any Section 4.2 Event or any Other Extraordinary +Event." +2 +5. Section 7.4(b) of the Plan is hereby amended to reduce the +maximum term thereunder from ten (10) years to seven (7) years . +3 +IN WITNESS WHEREOF, the Company has caused this amendment to be +executed on the date first written above. +STEVEN MADDEN, LTD. +By: /s/ JAMIESON A. KARSON +------------------------------ +Jamieson A. Karson +Chief Executive Officer +4 +PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES +([FOR] [WITHHOLD AUTHORITY] [AGAINST] OR [ABSTAIN]) +NEXT TO EACH OF THE PROPOSALS +The undersigned stockholder of Steven Madden, Ltd. (the "Company") +hereby appoint(s) Jamieson A. Karson and Arvind Dharia, and each of them, as +attorneys and proxies, each with power of substitution and revocation, to +represent the undersigned at the Annual Meeting of Stockholders of the Company +to be held at the Company's showroom located at 1370 Avenue of the Americas, +14th Floor, New York, New York at 10:00 a.m., local time, on May 25, 2007, and +at any adjournments or postponements thereof, with authority to vote all shares +of Common Stock of the Company held or owned by the undersigned on April 5, +2007, in accordance with the directions indicated herein. +(Continued and to be signed on the reverse side.) +ANNUAL MEETING OF STOCKHOLDERS OF +STEVEN MADDEN, LTD. +MAY 25, 2007 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +Please detach along perforated line and mail in the envelope provided. +------------------------------------------------------------------------------------------------------------------------------------ +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 AND 3. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X] +------------------------------------------------------------------------------------------------------------------------------------ +FOR AGAINST ABSTAIN +1. ELECTION OF DIRECTORS 2. APPROVAL OF AN AMENDMENT TO THE 2006 STOCK [ ] [ ] [ ] +INCENTIVE PLAN TO INCREASE THE MAXIMUM NUMBER +NOMINEES: OF SHARES OF COMMON STOCK AVAILABLE FOR +[ ] FOR ALL NOMINEES ( ) Jamieson A. Karson ISSUANCE UNDER SUCH PLAN FROM 1,200,000 SHARES +( ) Jeffrey Birnbaum TO 1,550,000 SHARES. +( ) Marc S. Cooper +[ ] WITHHOLD AUTHORITY ( ) Harold D. Kahn +FOR ALL NOMINEES ( ) John L. Madden +( ) Peter Migliorini 3. RATIFICATION OF THE APPOINTMENT OF EISNER LLP [ ] [ ] [ ] +( ) Richard P. Randall AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE +[ ] FOR ALL EXCEPT ( ) Thomas H. Schwartz FISCAL YEAR ENDING DECEMBER 31, 2007 +(See instructions below) ( ) Richard P. Randall +( ) Walter Yetnikoff In their discretion, the proxies are authorized to vote upon such +other business as may properly be presented at the meeting or any +adjournments or postponements thereof. +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE +INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE NINE +INSTRUCTION: To withhold authority to vote for any (9) NOMINEES NAMED IN ITEM 1, (2) FOR THE APPROVAL OF AN AMENDMENT TO +individual nominee(s), mark "FOR ALL EXCEPT" THE 2006 STOCK INCENTIVE PLAN TO INCREASE THE MAXIMUM NUMBER OF SHARES +and fill in the circle next to each nominee OF COMMON STOCK AVAILABLE FOR ISSUANCE UNDER SUCH PLAN FROM 1,200,000 +you wish to withhold, as shown here: (.) SHARES TO 1,550,000 SHARES, (3) FOR THE RATIFICATION OF THE +------------------------------------------------------------- APPOINTMENT OF EISNER LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR +FISCAL YEAR 2007 IN ITEM 3, AND (4) IN THE DISCRETION OF THE PROXIES +ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Please mark, sign, date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON +------------------------------------------------------------- BEHALF OF THE BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +To change the address on your account, please check the +box at right and indicate your new address in the +address space above. Please note that changes to the +registered name(s) on the account may not be submitted +via this method. [ ] +------------------------------------------------------------- +Signature of Stockholder _______________________ Date: __________ Signature of Stockholder _______________________ Date: __________ +Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. +When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer +is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is +a partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-12-000476/proxy.txt b/raw/proxies/0000913241/0001019056-12-000476/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7c2290302cd3bc8e50fa145c600f9917daeabec --- /dev/null +++ b/raw/proxies/0000913241/0001019056-12-000476/proxy.txt @@ -0,0 +1,4495 @@ +DEF 14A +1 +smadden_def14a2012.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(RULE 14A-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE +SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __) +Filed by the Registrant S +Filed by a Party other than the Registrant £ +Check the appropriate box: +£ +Preliminary Proxy Statement +£ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +S +Definitive Proxy Statement +£ +Definitive Additional Materials +£ +Soliciting Material Pursuant to §240.14a-12 +Steven Madden, Ltd. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant +Payment of Filing Fee (Check the appropriate box): +S +No fee required. +£ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +£ Fee paid previously with preliminary +materials. +S Check box if any part of the fee is +offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of +its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +LETTER TO THE STOCKHOLDERS +DEAR STOCKHOLDERS, +2011 was an outstanding year for Steve Madden. Once again, we delivered +record financial results, increasing net sales by 52% to $969 million and net income by 29% to $97 million, or $2.25 per diluted +share. In addition, we executed on the strategic initiatives that we outlined at the beginning of the year. We sustained the momentum +in our core Steve Madden business, completed strategic acquisitions, developed our newer brands, strengthened our retail business, +expanded our business outside of footwear and increased our international penetration. Our exciting year was capped off when Footwear +News, a leading industry trade publication, named Steve Madden “Company of the Year” for a record fourth time . +Sustaining Momentum In Our Core Business +As always, our first priority in 2011 was to continue the momentum +in our core Steve Madden women’s wholesale business. We delivered strong growth in this business in 2011, including double-digit +percentage gains with key department store accounts like Nordstrom and Dillards. Once again, our proven formula – which combines +the creative talents of Steve and his design team with a unique test-and-react strategy and an industry-leading speed to market +capability – resulted in a trend-right merchandise assortment that resonated with consumers. +Completing Strategic Acquisitions +We completed two strategic acquisitions in 2011 that we believe +will have significant long-term benefits for the Company. First, on May 20, we acquired the Topline Corporation, which designs, +produces, and markets private label and branded footwear. Topline’s private label business is one of the best in the industry +and is highly complementary to our existing private label footwear business in customer base. Topline’s brands, including +Report, Report Signature and R2 by Report, represent strong additions to our brand portfolio. In addition, Topline has a premier +direct sourcing platform that we believe will provide significant benefits to our broader organization, enabling us to achieve +better pricing, improved quality and more consistent deliveries for our merchandise. +On May 25, we acquired Cejon, a designer and marketer of cold weather +and other fashion accessories. With this acquisition, we further strengthened and expanded our accessories platform, adding a market +leader in cold weather accessories and fashion scarves to our existing handbag and belt business. We are very pleased with Cejon’s +performance since we acquired it, and we believe there is ample opportunity to grow this business by capitalizing on our brand +portfolio and customer relationships to expand in Cejon’s product categories. +Growing Our New Brands +We also made significant progress in expanding our newer brands +like Olsenboye, Big Buddha, Madden, Betsey Johnson and Material Girl. Combined, net sales in these brands doubled in 2011 to over +$100 million, driven by expansion into new doors as well as increased penetration in existing doors. We also continued to add new +brands to the portfolio. In addition to the Report family of brands acquired in the Topline transaction, we signed a license to +become the North American distributor for Superga, a fashion sneaker brand out of Italy, and acquired the Wild Pair trademark from +Bakers Footwear Group. We launched Superga in high-end department stores and specialty stores for Spring 2012 and plan to begin +shipping Wild Pair footwear in Fall 2012. +Improving Profitability In Our Retail Segment +Another area where we made +significant progress in 2011 was improving the profitability of our retail division. After undertaking a series of +operational changes beginning in 2008, including upgrading our retail management team, closing under-performing locations and +implementing a new merchandising, planning and allocation system, we have seen a major turnaround in this business. In 2011, +we recorded our second consecutive year of double-digit comparable store sales growth. Our retail operating margin for the +year was 12%, up from less than 7% in 2010. In addition to the much-improved performance at our bricks-and-mortar stores, we +were particularly pleased with the growth in our e-commerce business. Net sales on stevemadden.com increased 25% in 2011, +with growth accelerating in the back half. We also had a successful test of a Steve Madden outlet store concept in 2011. We +opened five outlets in 2011, bringing our total to six locations. We have been very pleased with the consumer response to the +outlet concept, and both sales and profitability have exceeded our expectations. +Expanding +Outside Of Footwear +We made significant progress in 2011 in expanding our business outside +of footwear. In addition to growth from newly acquired Cejon, we recorded 15% organic growth in our wholesale accessories business, +driven by double-digit percentage gains in Big Buddha, Steve Madden and private label handbags. We also continued to expand our +licensing business. We had successful launches of Betsey Johnson watches and Betsey Johnson fragrance in the back half of 2011, +and overall licensing royalty income increased 66% for the year. +Increasing Our International Presence +We also continued to expand our business +internationally. In 2011, we delivered our second consecutive year of greater than 50% growth outside the United States. In +addition to experiencing strong growth with existing partners like GRI in Asia, we launched in a number of new territories, +including the United Arab Emirates, Benelux, India and South Africa. Our international partners currently operate 137 +freestanding retail stores and 109 concessions. +In February 2012, we acquired our Canadian licensee, SM Canada, +giving us direct ownership of our business in an international market for the first time. SM Canada’s sole business is operating +as our licensee in Canada for wholesale and retail distribution of footwear and accessories under our various brand names. Canada +is a strong market for Steve Madden, and we see significant opportunity for growth through enhancing our presence in major department +stores and specialty stores as well as expanding the portfolio of Steve Madden stores. +Looking Ahead +We believe the progress we made on our strategic initiatives in +2011 has set the stage for continued momentum in sales and earnings as we move forward. For 2012, our key priorities are: +• Continue to build on the momentum +in our core brands +• Grow our newer brands like Betsey +Johnson, Big Buddha, Superga and Wild Pair +• Expand our portfolio of retail stores +– both full price and outlet +• Further enhance our e-commerce business +• Continue to extend our reach in categories +outside of footwear +• Capitalize on Topline’s direct +sourcing platform +• Increase our penetration in international +markets and expand into new geographies +We are proud of our performance in 2011 and look forward to delivering +strong top and bottom line growth in 2012 and beyond. We owe our success to the hard work and commitment of all the associates +at Steve Madden, and therefore we would like to thank our employees for their dedication and excellent performance. We also thank +our customers for their loyalty and you, our stockholders, for your continued support. +Sincerely, +/s/ Edward Rosenfeld +Edward Rosenfeld +Chief Executive Officer +/s/ Awadhesh Sinha +Awadhesh Sinha +Chief Operating Officer +/s/ Arvind Dharia +Arvind Dharia +Chief Financial Officer +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 25, 2012 +TO THE STOCKHOLDERS OF STEVEN MADDEN, LTD.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual +Meeting”) of Steven Madden, Ltd. (the “Company”) will be held on May 25, 2012, at the Company’s showroom +located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, for the purposes stated below: +1. +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +2. +to approve an amendment of the Company’s 2006 Stock Incentive Plan, which, among other things, increases by 6,500,000 shares the number of shares available under the 2006 Stock Incentive Plan; +3. +to approve, on a non-binding advisory basis, the compensation of certain executive officers as disclosed in the accompanying proxy statement; +4. +to ratify the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012; and +5. +to transact such other business as may properly come before the Annual Meeting or any adjournments thereof. +Only those stockholders of record at the close of business on April 5, +2012 are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. A complete list of stockholders +entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for purposes germane to the Annual +Meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, at the Company’s principal executive offices at 52-16 +Barnett Avenue, Long Island City, New York 11104, by contacting the Secretary of the Company, and will be available +at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR +THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 25, 2012: THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, ANNUAL +REPORT, ELECTRONIC PROXY CARD AND ANY OTHER MATERIALS CONCERNING THE ANNUAL MEETING, TOGETHER WITH ANY AMENDMENTS TO ANY OF THESE +MATERIALS, ARE AVAILABLE ON THE INTERNET AT WWW.PROXYVOTE.COM. +BY ORDER OF THE BOARD OF DIRECTORS +April 10, 2012 +/s/ Arvind Dharia +Arvind Dharia +Secretary +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE +MARK, DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED TO: VOTE PROCESSING, C/O BROADRIDGE, +51 MERCEDES WAY, EDGEWOOD, NEW YORK 11717. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED +ON THE ACCOMPANYING PROXY CARD. +Table of Contents +TABLE OF CONTENTS +GENERAL INFORMATION +1 +Notice of Internet Availability of Proxy Materials +1 +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +2 +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2013 ANNUAL MEETING +4 +PROPOSAL ONE: ELECTION OF DIRECTORS +5 +Biographical Summaries of Nominees for the Board of Directors +5 +CORPORATE GOVERNANCE +8 +The Board of Directors +8 +Director Independence +8 +Director Attendance at Meetings +9 +Director Election (Majority Voting) Policy +9 +Committees of the Board +10 +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +12 +Code of Business Conduct and Ethics +13 +Certain Relationships and Related Party Transactions +14 +Review, Approval or Ratification of Transactions with Related Persons +16 +COMPENSATION OF DIRECTORS IN THE 2011 FISCAL YEAR +16 +STOCK OWNERSHIP +17 +Security Ownership of Certain Beneficial Owners +17 +Security Ownership of Directors and Executive Officers +18 +Section 16(a) Beneficial Ownership Reporting Compliance +19 +EXECUTIVE COMPENSATION +20 +Compensation Discussion and Analysis +20 +Compensation Committee Interlocks and Insider Participation +26 +Executive Officers +27 +SUMMARY COMPENSATION TABLE +28 +Employment Arrangements +29 +GRANTS OF PLAN-BASED AWARDS IN THE 2011 FISCAL YEAR +34 +OUTSTANDING EQUITY AWARDS AT END OF THE 2011 FISCAL YEAR +35 +OPTION EXERCISES AND STOCK VESTED IN THE 2011 FISCAL YEAR +36 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +37 +EQUITY COMPENSATION PLAN INFORMATION +37 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +38 +COMPENSATION COMMITTEE REPORT +40 +PROPOSAL TWO: APPROVAL OF THE AMENDMENT OF STEVEN MADDEN, LTD. 2006 STOCK INCENTIVE PLAN +40 +PROPOSAL THREE: NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +49 +AUDIT COMMITTEE REPORT +50 +PROPOSAL FOUR: RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2012 +51 +i +Table of Contents +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +PROXY STATEMENT +GENERAL INFORMATION +On behalf of the Board of Directors of Steven Madden, Ltd., a Delaware +corporation (the “Company”, “we” or “us”), we are requesting your proxy in connection with +the Annual Meeting of Stockholders (the “Annual Meeting”) scheduled to be held at the Company’s showroom located +at 1370 Avenue of the Americas, 14th Floor, New York, New York on Friday, May 25, 2012 at 10:00 a.m., local time. On +or about April 12, 2012, a notice containing instructions on how to access this Proxy Statement, the accompanying proxy card and +related materials online is being mailed to holders of record of common stock, $.0001 par value, of the Company (the “Common +Stock”) at the close of business on April 5, 2012 (the “Record Date”). The Company’s Annual +Report for the fiscal year ended December 31, 2011 (“2011 Fiscal Year”), including audited financial statements, is +included in the materials that are accessible online to our stockholders. This Proxy Statement contains information +about the Annual Meeting as well as information regarding the voting process, director elections, our corporate governance programs +and executive and director compensation, among other things. We recommend that you read all of the materials. This +Proxy Statement contains information about the Annual Meeting as well as information regarding the voting process, director elections, +our corporate governance programs and executive and director compensation, among other things. We recommend that you +read all of these materials. +The Annual Meeting has been called to consider and take action on the +following proposals: +• +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +• +to approve an amendment of the Company’s 2006 Stock Incentive Plan, which, among other things, increases by 6,500,000 the number of shares available under the 2006 Stock Incentive Plan; +• +to approve, on a non-binding advisory basis, the compensation of certain executive officers as disclosed in this Proxy Statement; +• +to ratify the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012; and +• +to transact such other business as may properly come before the Annual Meeting and any adjournments thereof. +The Board of Directors knows of no other matters to be presented for +action at the Annual Meeting. However, if any other matters properly come before the Annual Meeting, the persons named in the proxy +will vote on such other matters and/or for other nominees in accordance with their best judgment. The Company’s Board of +Directors recommends that the stockholders vote “FOR” each of the proposals. Only holders of record of Common Stock +of the Company at the close of business on the Record Date will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 Barnett +Avenue, Long Island City, New York 11104 and the telephone number of the Company is (718) 446-1800. +Notice of Internet Availability of Proxy Materials +We continue to take advantage of the Securities and Exchange Commission +(the “SEC”) “e-proxy” rules allowing us to furnish proxy materials through the Internet for the benefit +and convenience of our stockholders. By using the e-proxy rules, we can expedite the receipt by stockholders of this +Proxy Statement and our Annual Report while lowering the costs and reducing the environmental impact associated with our Annual +Meeting. On or about April 12, 2012, we will furnish a Notice of Internet Availability of Proxy Material (the “Availability +Notice”) to most of our stockholders containing instructions on how to access the proxy materials and to vote online. In +addition, our instructions on how to request a printed copy of these materials will be found on the Availability Notice. For +more information on voting your Common Stock, please see the “Questions and Answers” section below. If you +received an Availability Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials +by following the instructions contained in the Availability Notice. +1 +Table of Contents +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +Who may vote at the Annual Meeting? +Only stockholders of record are entitled to vote at the Annual Meeting. A +stockholder of record is a stockholder as of the close of business on the Record Date. On the Record Date, there were +44,320,487 shares of our Common Stock outstanding (excluding treasury shares) held by approximately 112 registered holders +of record and 31,173 beneficial owners. +What is considered a quorum to conduct the Annual Meeting? +The presence, in person or by proxy, of the holders of a majority of +the shares eligible to vote is necessary to constitute a quorum for the purpose of transacting business at the Annual Meeting. Under +Delaware law (under which the Company is incorporated), abstentions and broker non-votes (meaning proxies from brokers or nominees +indicating that such persons have not received instructions on how to vote from the beneficial owner or other persons eligible +to vote shares as to matters with respect to which the brokers or nominees do not have discretionary power to vote) are counted +as present for purposes of determining the presence or absence of a quorum for the transaction of business. If a quorum +is not present, the Annual Meeting may be adjourned until a quorum is obtained. +How many votes do I have? +For each share of Common Stock that you own on the Record Date you are +entitled to one vote on each matter presented at the Annual Meeting. +How many votes are required to approve each proposal and what is the +effect of abstentions and broker non-votes? +Proposal One (Election of Directors): Under Delaware +law, directors are elected by the affirmative vote of a plurality of the shares of Common Stock present in person or represented +by proxy at the Annual Meeting and entitled to vote. This means that the director nominees who receive the greatest +number of affirmative votes cast are elected as directors, subject to our director resignation policy discussed in Proposal One +below. +Proposal Two (Amendment to 2006 Stock Incentive Plan): The affirmative +vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to +vote is required to approve the amendment of the Company’s 2006 Management Incentive Plan. +Proposal Three (Non-Binding Advisory Vote On Executive Compensation): +The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting +and entitled to vote is required to approve, on a non-binding advisory basis, the compensation of the Company’s named executive +officers as described in this Proxy Statement. +Proposal Four (Ratification of Appointment of EisnerAmper LLP): The +affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and +entitled to vote is required to approve the ratification of the appointment of EisnerAmper LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2012. +2 +Table of Contents +Other Matters: If any other matters are presented at +the Annual Meeting, they must receive an affirmative vote of a majority of the shares of Common Stock present in person or represented +by proxy at the Annual Meeting and entitled to vote in order to be approved. +Abstentions will have no effect on the election of directors, but will +be treated as present and entitled to vote on the remaining proposals and, therefore, abstentions will have the effect of votes +“AGAINST” such proposals. +If you do not provide your broker or other nominee with instructions +on how to vote your shares held in “street name,” your broker or nominee will not be permitted to vote your shares +on non-routine matters, and your shares will not affect the outcome of proposals concerning non-routine matters. The +proposal to ratify the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for +2012 (Proposal Four) is considered a routine matter under applicable rules. The proposals concerning the election of directors +(Proposal One), the amendment of the Company’s 2006 Stock Incentive Plan (Proposal Two) and the advisory vote on executive +compensation (Proposal Three) are considered “non-routine” matters, which means that your broker or other nominee does +not have discretion to vote your shares in respect to these matters in the absence of specific instructions from you +as to how you would like your shares to be voted. If you hold your shares in “street name,” we strongly +encourage you to provide instructions regarding the voting of your shares as your broker or nominee cannot vote your shares with +respect to these proposals without voting instructions from you. +How can I vote my shares? +Your vote is important. Your shares can be voted at the Annual +Meeting only if you are present in person or represented by proxy. Even if you plan to attend the Annual Meeting, we +urge you to authorize your proxy in advance. You may vote your shares by authorizing a proxy over the Internet or by +telephone. In addition, if you received a paper copy of the proxy materials by mail, you can also submit a proxy by +mail by following the instructions on the proxy card. Voting your shares by authorizing a proxy over the Internet, by +telephone or by written proxy card will ensure your representation at the Annual Meeting regardless of whether you attend in person. +If you are the record holder of your shares, please authorize your proxy +electronically by going to the http://www.proxyvote.com website or by calling the toll-free number listed below and on the proxy +card. Please have your Proxy Statement or proxy card in hand when going online or calling. If you authorize +your proxy via the Internet or by phone you do not need to return your proxy card. If you choose to authorize your proxy +by mail, simply mark your proxy card and then date, sign and return it in the postage-paid envelope provided. +VOTE BY INTERNET +http://www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information. +VOTE BY PHONE +1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions. +VOTE BY MAIL +Vote Processing, c/o Broadridge +51 Mercedes Way +Edgewood, New York 11717 +If you receive paper proxy materials, mark, sign and date your proxy card and return it in the postage-paid +envelope we have provided or return it to the address shown above. +If you hold your shares beneficially in “street name” through +a broker or nominee you may be able to authorize your proxy by telephone or the Internet as well as by mail, but you will need +to obtain and follow instructions from your broker or nominee to vote these shares. +May I revoke my proxy for the Annual Meeting once I have given it? +You may revoke your proxy at any time before it is voted at the Annual +Meeting by: +• +properly executing and delivering a later dated proxy (including a telephone or Internet proxy authorization); +• +voting by ballot at the Annual Meeting; or +• +sending a written notice of revocation to the Corporate Secretary +of the Company at Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +3 +Table of Contents +How does the Board of Directors recommend that I vote my shares? +The Board of Directors of the Company recommends that you vote: +• +“FOR” the election of each of the six director nominees; +• +“FOR” the amendment of the Company’s 2006 Stock Incentive Plan; +• +“FOR” the approval, on a non-binding advisory basis, of the executive compensation of the Company’s named executive officers, as disclosed in this Proxy Statement; and +• +“FOR” the ratification of the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED +ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID +PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS THAT MAY +PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. AS NOTED ABOVE, IF +YOU HOLD YOUR SHARES BENEFICIALLY THROUGH A BROKER OR NOMINEE AND FAIL TO PROVIDE SPECIFIC VOTING INSTRUCTIONS TO THAT BROKER OR +NOMINEE, YOUR SHARES WILL NOT BE VOTED IN THE ELECTION OF DIRECTORS, THE APPROVAL OF AN AMENDMENT OF THE 2006 STOCK INCENTIVE PLAN +AND THE ADVISORY VOTE ON EXECUTIVE COMPENSATION. +Who will bear the expenses of this solicitation? +The expense of this solicitation, including preparing, printing and mailing +this Proxy Statement, the exhibits hereto and the proxies solicited hereby, will be borne by the Company. In addition to the use +of the mails, proxies may be solicited by officers and directors and employees of the Company, without additional remuneration, +by personal interviews, telephone, telegraph or facsimile transmission. The Company will also request brokerage firms, nominees, +custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of Common Stock held of record by them +and will provide reimbursements for the cost of forwarding the material in accordance with customary charges. The Company has entered +into an agreement with Phoenix Advisory Partners to assist in the solicitation of proxies and provide related advice and informational +support. The total expense of this engagement, which will be borne by the Company, including customary disbursements, is not expected +to exceed $20,000 in the aggregate. +How will the voting results be reported? +The preliminary results of the voting on the proposals will be reported +at the Annual Meeting. The final certified results will be reported in a Current Report on Form 8-K, which will be filed +with the SEC within four business days following the Annual Meeting. +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS +FOR THE COMPANY’S 2013 ANNUAL MEETING +In accordance with Article II, Section 5 of the Company’s By-Laws, +director nominations for the 2013 Annual Meeting of Stockholders of the Company (the “2013 Annual Meeting”) can only +be made by a stockholder of the Company who (A) is a stockholder of record on the date of the giving of the notice of such director +nominations and on the record date for the determination of stockholders entitled to vote at such meeting, and (B) complies with +the notice requirements and procedures set forth in Article II, Section 5 of the Company’s Amended and Restated By-Laws +(the “By-Laws”). A stockholder’s notice to the Corporate Secretary with respect to any such nominations +must be timely and in proper written form pursuant to Article II, Section 5 of the Company’s By-Laws, including containing +certain information concerning the nominating or proposing stockholder and certain information concerning the nominee, and must +be delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more than +150 days prior to the first anniversary of the date of the Company’s 2012 Annual Meeting. Accordingly, any written +notice given by or on behalf of a stockholder pursuant to Article II, Section 5 of the Company’s By-Laws in connection with +the 2013 Annual Meeting must be received no later than January 25, 2013 and no earlier than December 26, 2012. +4 +Table of Contents +In accordance with rules promulgated by the SEC, any stockholder who +wishes to submit a proposal for inclusion in the proxy material to be distributed by the Company in connection with the 2013 Annual +Meeting must do so no later than December 15, 2012. In addition, in accordance with Article I, Section 7(f) +of the Company’s By-Laws, in order to be properly brought before the 2013 Annual Meeting, a matter must be either (i) specified +in the notice of such meeting given by or at the direction of the Board of Directors (or any duly authorized committee thereof), +(ii) otherwise properly brought before such meeting by or at the direction of the Board of Directors (or any duly authorized committee +thereof) or (iii) specified in a notice in proper written form given by a stockholder of record on the date of the giving of the +notice and on the record date for such meeting, which notice conforms to the requirements of Article I, Section 7(f) of the By-Laws +and is delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more +than 150 days prior to the first anniversary of the date of the Company’s 2012 Annual Meeting. Accordingly, any written notice +given by or on behalf of a stockholder pursuant to the foregoing clause (iii) in connection with the 2013 Annual Meeting must be +received no later than January 25, 2013 and no earlier than December 26, 2012. In addition, for business to be properly +brought before the 2013 Annual Meeting by a stockholder pursuant to the foregoing clause (iii), such stockholder shall have complied +with any other applicable requirements, including, but not limited to, the requirements of Rule 14a-8 promulgated by the SEC. +PROPOSAL ONE: +ELECTION OF DIRECTORS +The Company’s By-Laws provide that the Board of Directors of the +Company shall be comprised of a minimum of one director and that, subject to this limitation, the number of directors may be fixed +from time to time by action of the directors. The Company’s Board of Directors has fixed the number of directors +to comprise the Board of Directors at six directors and the Board of Directors presently is comprised of six directors whose terms +expire at the Annual Meeting. Directors serve a one-year term. +Upon recommendation of the Nominating/Corporate Governance Committee +of the Board of Directors, the Board of Directors has nominated and is recommending to the stockholders the election of each of +the six nominees named below to serve as a director of the Company until the next annual meeting of the Company’s stockholders +and until his successor is duly elected and qualified or until his earlier death, resignation or removal from office. All +nominees have consented to being named in this Proxy Statement and to serving on the Board of Directors if elected. +Biographical Summaries of Nominees for the Board of Directors +The names and biographical summaries of the six persons who have been +recommended by the Nominating/ Corporate Governance Committee of the Board of Directors and nominated by the Board of Directors +to stand for election at the Annual Meeting are provided below for your information. +Our Board of Directors includes members who are well-qualified to serve +on the Board and its committees and to represent the best interests of our stockholders. The Board and the Nominating/Corporate +Governance Committee select nominees with a view to establishing a Board of Directors that is comprised of individuals who have +extensive business leadership experience, are independent, bring diverse perspectives to the Board, possess high ethical standards +and sound business judgment and acumen and a willingness to devote the time necessary for the Board to effectively fulfill its +responsibilities. We believe that all of the director nominees possess these qualifications and provide the Board with +a full complement of knowledge, business skills and expertise for the effective management of our Company. In addition +to these general qualifications, provided below for each nominee for director is a discussion of the experience, qualifications, +attributes and skills that led to the Board’s conclusion that the nominee should serve as a director. +5 +Table of Contents +Edward R. Rosenfeld - Chairman of the Board and Chief +Executive Officer +Edward R. Rosenfeld, 36, has served as a director of the Company since +February 2008 and has served on the Company’s Investment Committee since April 2008. Mr. Rosenfeld has been Chairman +of the Board and Chief Executive Officer since August 2008 after serving as interim Chief Executive Officer of the Company from +March 24, 2008 and prior to that, serving as the Executive Vice President of Strategic Planning and Finance of the Company. Mr. +Rosenfeld has been a member of the executive management team since joining the Company in May 2005. Prior to joining +the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment banking boutique, where he specialized +in mergers and acquisitions in the retail, apparel and footwear industries. Mr. Rosenfeld serves as a director of Summer +Search New York City, a non-profit corporation. +With more than 14 years of experience focused on the retail, apparel +and footwear industries, seven of which have been with the Company, Mr. Rosenfeld possesses particular knowledge of and experience +in the industry that strengthens the Board’s collective qualifications, skills and experience. Mr. Rosenfeld’s +background in finance and his analytical skills gained through his years in investment banking provide the Board and the Investment +Committee with insight and guidance with respect to, among other things, strategic business development matters. Mr. +Rosenfeld has strong leadership skills and an in-depth understanding of the Company and its goals from his positions as the Chairman +of the Board and Chief Executive Officer. +John L. Madden - Owner of JLM Consultants, Inc. +John L. Madden, 65, has served as a director of the Company since the +Company’s inception in 1990 and has served on the Company’s Investment Committee, as its Chair, since April 2008. Since +June 2004, Mr. Madden’s business consulting company, JLM Consultants, Inc., has provided consulting services to the Company +with respect to international sales. From April 1998 through September 2003, Mr. Madden owned a branch office of Tradeway +Securities Group, Inc., a brokerage firm, in Florida. From May 1996 through December 1996, Mr. Madden’s consulting +company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc., a brokerage firm. From May 1994 to +May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc.. a brokerage firm. From August +1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc., a brokerage firm, as Managing Director and registered +sales representative. Mr. Madden is the brother of Steven Madden, the Company’s founder and Creative and Design Chief. Please +see the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +As a result of Mr. Madden’s numerous years of experience in finance +and investing, he possesses a proficiency in financial analysis and investing that strengthens the Board’s collective qualifications, +skills and experience and provides the Board and the Investment Committee with greater insight and guidance. Mr. Madden’s +years in business consulting and his strong financial background have provided him with expertise in addressing operational and +management issues and providing overall direction for complex corporations like ours. Mr. Madden brings a wealth of +knowledge and a depth of experience that comes from over twenty years of service on the Company’s Board of Directors. His +knowledge of Company history and his understanding of the Company in the context of the Company’s long-term strategic plan +provides the Board with continuity of direction and focus. +Peter Migliorini - Sales Manager, Greschlers, Inc. +Peter Migliorini, 63, has served as a director of the Company since October +1996 and has served on the Company’s Audit Committee since October 1996, the Nominating/Corporate Governance Committee, as +its Chair, since July 2004 and the Compensation Committee, as its Chair, since July 2004. Mr. Migliorini is also Presiding +Director over all executive sessions of the independent directors. Mr. Migliorini has been Sales Manager for Greschlers, +Inc., a building supplies company, since 1994. From 1987 to 1994, Mr. Migliorini served as Director of Operations for Mackroyce +Group, a construction company. Prior to 1987, Mr. Migliorini held various positions of increasing responsibility from +Assistant Buyer to Chief Planner/Coordinator for several shoe companies, including Meldisco Shoes, Perry Shoes and Fasco Shoes. +6 +Table of Contents +Mr. Migliorini possesses extensive executive level financial, sales and +operations experience. His numerous years of business experience at various levels and in various industries provide +the Board with a measure of practical orientation regarding the Company’s operations and growth endeavors. Mr. +Migliorini’s early experience in the shoe industry also provides relevant knowledge and expertise in the Company’s +specific industry. +Richard P. Randall - Retired Executive Vice President +and Chief Financial Officer, +Direct Holdings Worldwide, LLC +Richard P. Randall, 74, has served as a director of the Company since +April 2006 and has served on the Company’s Audit Committee, as its Chair, since 2006, on the Nominating/Corporate Governance +Committee since September 2008 and on the Investment Committee since April 2008. Mr. Randall was the Executive Vice +President and Chief Financial Officer of Direct Holdings Worldwide, LLC, the parent company of Lillian Vernon Corp., a catalog +and online retailer of gifts and household goods, and Time-Life, a music and video marketing company, from 2002 until his retirement +in June 2005. Prior to 2002, Mr. Randall served as Senior Vice President and Chief Financial Officer of Coach, Inc., +a luxury leather goods company, and Chief Operating Officer and Chief Financial Officer of Lillian Vernon Corp. from 2000 to 2001 +and 1998 to 2000, respectively. Currently, Mr. Randall serves as a director, a member of the Nominating and Governance +Committee and chairs the Audit and Risk Committee of Aceto Corporation, a pharmaceutical, nutraceutical and chemical distribution +company. Mr. Randall also serves as a director and chairs the Audit Committee of The Burke Rehabilitation Hospital and +also serves as a member of the Executive, Finance, and Research Committees of the hospital. Mr. Randall served as a +director and chair of the Audit Committee of Universal Travel Group, a travel services provider in the People’s Republic +of China, and of Home Systems Group, a manufacturer and distributor of household appliances in the People’s Republic of China, +from 2007 until 2008 when he resigned from these boards. +With decades of business experience, including tenures as Chief Financial +Officer and Chief Operating Officer of both publicly traded and privately held companies in the retail industry, Mr. Randall possesses +extensive knowledge of accounting and finance, the retail industry and the issues impacting a publicly traded company. Mr. +Randall has extensive executive level experience establishing his capabilities in management of complex organizations and is a +certified public accountant. His expertise in finance qualify him to serve as the Audit Committee “audit committee +financial expert” and his service on the boards and committees of other companies has allowed him to gain broad-based experience +and sensitivity regarding best practices, which he shares with the Board. +Ravi Sachdev - Managing Director, J.P. Morgan. +Ravi Sachdev, 35, has served as a director of the Company since September +2008 and has served on the Company’s Audit Committee since September 2008. Mr. Sachdev joined J.P. Morgan, a global +investment bank, as a Managing Director in November 2010, and focuses on the healthcare services subsector. Previously, +Mr. Sachdev was a Managing Director at Deutsche Bank Securities, Inc. (“Deutsche Bank”) from January 2009 and prior +to that held the position of Director at Deutsche Bank from January 2007 until January 2009. Mr. Sachdev joined Deutsche +Bank in 2006 as a Vice President. Prior to joining Deutsche Bank, Mr. Sachdev was a Vice President at Peter J. Solomon +Company, an investment banking boutique, specializing in mergers and acquisitions in the healthcare sector, from 1998 to 2006. +Mr. Sachdev possesses knowledge of finance and the financial analytics +used to measure business performance. His 13 years of professional experience in investment banking brings to the Board +a thorough understanding of the financial issues affecting public companies and greater insights in business valuation together +with a practical orientation with respect to acquisitions and integrations which our Company has undertaken over the last few years. +7 +Table of Contents +Thomas H. Schwartz - Owner, Sumner and Forge Investors +LLC +Thomas H. Schwartz, 64, has served as a director of the Company since +May 2004 and has served on the Company’s Compensation Committee since July 2004. Since March 2007, Mr. Schwartz +has been the Chief Executive Officer and sole owner of Sumner and Forge Investors LLC, a company that invests in real estate and +manages properties in which it holds ownership interests. Previously, Mr. Schwartz was a Managing Director of Helmsley-Spear, +Inc., a real estate brokerage and management company, from 1984 to March 2007. +With more than twenty years of experience as a Managing Director of Helmsley-Spear, +Inc. and several years as the owner of his own real estate investment firm, Mr. Schwartz brings to the Board extensive executive +level experience in handling operations issues and practical expertise in management. +Required Vote +Proxies will be voted for the election of the six nominees as directors +of the Company unless otherwise specified in the proxy. A plurality of the votes cast by the holders of shares of Common +Stock present in person or represented by proxy at the Annual Meeting will be necessary to elect the nominees as directors. This +means that the director nominees who receive the greatest number of affirmative votes cast are elected as directors subject to +our Director Election (Majority Voting) Policy which is described under the caption “Corporate Governance-Director – +Election (Majority Voting) Policy” below. If, for any reason, any nominee is unable or unwilling to serve, the +proxies will be voted for a substitute nominee who will be designated by the Board of Directors at the Annual Meeting. Stockholders +may abstain from voting by marking the appropriate boxes on the accompanying proxy. Abstentions will be counted separately +and used for purposes of calculating whether a quorum is present at the Annual Meeting. +Director Election (Majority Voting) Policy +It is the policy of the Company that any nominee for director who receives +a greater number of “WITHHOLD” votes than “FOR” votes for his election must promptly submit a letter of +resignation to the Nominating/Corporate Governance Committee following the certification of the stockholder vote. In +such event, the Nominating/Corporate Governance Committee would then consider the offer of resignation and make a recommendation +to the Board of Directors as to whether or not the resignation should be accepted. This policy does not apply in contested +elections. For more information about this policy, see “Corporate Governance – Director Election (Majority +Voting) Policy” below. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the entire +Board of Directors unanimously recommend a vote “FOR” the election of Messrs. Edward R. Rosenfeld, John L. Madden, +Peter Migliorini, Richard P. Randall, Ravi Sachdev and Thomas H. Schwartz. +CORPORATE GOVERNANCE +The Board of Directors +Our business is managed under the direction and oversight of the Board +of Directors who are elected by the Company’s stockholders. Directors meet their responsibilities by +participating in meetings of the Board of Directors and the various committees of the Board on which they sit, as well as through +communicating with our Chairman and Chief Executive Officer, other officers and employees of the Company and by consulting with +our independent registered public accounting firm and other third parties. +Director Independence +The Board of Directors is currently comprised of six members. The Board +of Directors has determined that the following director nominees are “independent” for purposes of the criteria of +the SEC and The Nasdaq Global Select Market listing standards: Messrs. Migliorini, Randall, Sachdev and Schwartz. If +the six nominees set forth above are elected, the Board will be comprised of a majority of independent directors. The Board of +Directors has held regularly scheduled executive sessions for the independent directors, with Peter Migliorini serving as Presiding +Director of such executive sessions. +8 +Table of Contents +Director Attendance at Meetings +Attendance at Annual Meetings of Stockholders +The Company has no specific policy regarding director attendance at its +annual meetings of stockholders. The Company encourages all of its directors to attend annual meetings of the Company’s +stockholders and one director attended the Company’s 2011 annual meeting of stockholders. +Attendance at Meetings of the Board of Directors +The Board of Directors held four regularly scheduled meetings and two +special meetings during the 2011 Fiscal Year and acted by unanimous written consent on one occasion during the 2011 Fiscal Year. In +2011, each director attended at least 75% of the aggregate number of Board meetings, and each director attended at least 75% of +the aggregate number of meetings held by all committees on which he then served. +Director Election (Majority Voting) Policy +The Company has adopted a Director Election (Majority Voting) Policy. Pursuant +to this policy, in an uncontested election of directors (that is, an election where the number of nominees is equal to the number +of seats open) any nominee for director who receives a greater number of “WITHHOLD” votes than “FOR” votes +for his election must promptly submit an offer of resignation to the Nominating/Corporate Governance Committee following the certification +of the stockholder vote for consideration in accordance with the following procedures. +In such event, upon receipt of the resignation, the Nominating/Corporate +Governance Committee would promptly consider the appropriateness of the director’s continued service on the Board of Directors +and recommend to the Qualified Independent Directors (as defined below) the action to be taken with respect to the resignation, +which could include (1) accepting the resignation; (2) rejecting the resignation; (3) maintaining the director but addressing +what the Qualified Independent Directors believe to be the underlying cause of the “WITHHOLD” votes; or (4) determining +that the director will not be renominated by the Board of Directors in future elections. The Nominating/Corporate Governance +Committee would consider factors such as (a) the reasons expressed by the stockholders for withholding votes from such director; +(b) any possibilities for curing the underlying cause of the “WITHHOLD” votes; (c) the tenure and qualifications +of the director and his past and expected future contributions to the Company; (d) the overall composition of the +Board of Directors, including, without limitation, whether accepting the resignation would cause the Company to fail to meet any +applicable SEC or Nasdaq requirement; (e) the availability of other qualified candidates; and (f) the Company’s Board of +Director Candidate Guidelines and Director Election (Majority Voting) Policy. +The Qualified Independent Directors would then act on the Nominating/Corporate +Governance Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting at which +the director election occurred. In considering the Nominating/Corporate Governance Committee’s recommendation, the Qualified +Independent Directors would review the factors considered by the Nominating/Governance Committee and such additional information +and factors that they believe to be relevant. Following the Qualified Independent Directors’ decision, the Company would +promptly disclose the decision in a Current Report on Form 8-K. The Form 8-K would include a full explanation of the +process by which the decision of the Qualified Independent Directors was reached and, if applicable, the reasons why the offer +of resignation was rejected. +In the event that an offer of resignation were to be accepted, the Nominating/Corporate +Governance Committee would recommend to the Board of Directors whether to fill the vacancy or reduce the size of the Board of Directors +accordingly. Any director required to submit his resignation pursuant to this policy would not participate in the Nominating/Corporate +Governance Committee’s recommendation or the Qualified Independent Directors’ consideration of the resignation but, +prior to voting on the director’s resignation offer, the Qualified Independent Directors would provide to the director an +opportunity to submit any information or statement that he believes relevant to the Qualified Independent Directors’ consideration +of the resignation. +9 +Table of Contents +For purposes of this policy, “Qualified Independent Directors” +means all directors who (1) are “independent” for purposes of The Nasdaq Global Select Market listing standards and +(2) are not required to offer their resignation in accordance with this policy. If there are fewer than three independent +directors then serving on the Board of Directors who are not required to submit their resignations in accordance with this policy, +then the Qualified Independent Directors shall consist of all of the independent directors and each independent director who is +required to offer his resignation in accordance with this policy shall recuse himself from the deliberations and voting only with +respect to his individual offer to resign. +Committees of the Board +The Board of Directors, among other committees, has a standing Audit +Committee, Compensation Committee and Nominating/Corporate Governance Committee. +Audit Committee +The members of the Audit Committee are Messrs. Randall (Chairman), Migliorini +and Sachdev. The Audit Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global +Select Market listing standards and who meet the independence requirements contained in Exchange Act Rule 10A-3(b)(1). The +Board has determined that Mr. Randall meets the SEC criteria of an “audit committee financial expert” and he is currently +serving as such. The Audit Committee is primarily responsible for reviewing the services performed by the Company’s +independent registered public accountants, evaluating the Company’s accounting policies and its system of internal controls, +and reviewing significant financial transactions. During the 2011 Fiscal Year, the Audit Committee met eight times. +The Audit Committee is responsible for reviewing and striving to ensure +the integrity of the Company’s financial statements and oversight of our compliance with legal and regulatory requirements, +our internal audit function and an independent registered public accounting firm. Among other matters, the Audit Committee, with +management and independent and internal auditors, reviews the adequacy of the Company’s internal accounting controls that +could significantly affect the Company’s financial statements. The Audit Committee is also directly and solely +responsible for the appointment, retention, compensation, oversight and termination of the Company’s independent registered +public accountants. In addition, the Audit Committee also functions as the Company’s Qualified Legal Compliance Committee +(the “QLCC”). The purpose of the QLCC is to receive, retain and investigate reports made directly, or otherwise made +known, of evidence of material violations of any United States federal or state law, including any breach of fiduciary duty by +the Company, its officers, directors, employees or agents, and if the QLCC believes appropriate, to recommend courses of action +to the Company. +Management has primary responsibility for the Company’s financial +statements and the overall reporting process, including the Company’s system of internal controls. The independent +registered public accountants audit the annual financial statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of operations and cash flows of the Company in conformity with +accounting principles generally accepted in the United States and discuss with the Audit Committee any issues they believe should +be raised with the Audit Committee. +The Audit Committee is also responsible for the oversight of the Company’s +risk management process, which is discussed in the “Risk Oversight” section below. +10 +Table of Contents +In performing its functions, the Audit Committee meets with management +on at least a quarterly basis to review and discuss the annual audited financial statements, quarterly financial statements and +related reports and to consider the adequacy of the Company’s internal controls and the objectivity of its financial reporting. The +Audit Committee discusses these matters with the Company’s independent registered public accountants and with appropriate +Company financial personnel. Meetings are held with the independent registered public accountants, who have unrestricted access +to the Audit Committee. In addition, the Audit Committee reviews the Company’s financing plans and reports and +makes recommendations to the full Board of Directors for approval and to authorize action. The Board has adopted a written +charter setting out the functions the Audit Committee is to perform. A copy of the Audit Committee Charter is available on the +Company’s website at www.stevemadden.com. +Nominating/Corporate Governance Committee +The members of the Nominating/Corporate Governance Committee are Messrs. +Migliorini (Chairman) and Randall. The Nominating/Corporate Governance Committee is comprised of directors who are “independent” +for purposes of The Nasdaq Global Select Market listing standards. The Nominating/Corporate Governance Committee met +once during the 2011 Fiscal Year. +The Nominating/Corporate Governance Committee provides oversight with +respect to a wide range of issues relating to the composition and operation of the Board, including consideration of and recommendations +regarding the size and composition of the Board of Directors and identification of potential candidates to serve as directors. +The Nominating/ Corporate Governance Committee identifies candidates to the Board of Directors by introductions from management, +members of the Board of Directors, employees of the Company or other sources, including stockholders that satisfy the Company’s +policy regarding stockholder recommended candidates. The Nominating/Corporate Governance Committee does not evaluate +director candidates recommended by stockholders differently than director candidates recommended by other sources. +Stockholders wishing to submit recommendations for director nominations +for the 2012 Annual Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, +New York 11104. Any such stockholder must (x) comply with the director nomination provisions of the Company’s +By-Laws, (y) meet and evidence the minimum eligibility requirements specified in Exchange Act Rule 14a-8, and (z) submit, within +the same timeframe for submitting a stockholder proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of +compliance with the stockholder eligibility requirements, (2) the written consent of the candidate(s) for nomination as a director, +(3) a resume or other written statement of the qualifications of the candidate(s) for nomination as a director, and (4) all information +regarding the candidate(s) and the submitting stockholder that would be required to be disclosed in a proxy statement filed with +the SEC if the candidate(s) were nominated for election to the Board of Directors. +In considering candidates for the Board of Directors, the Nominating/Corporate +Governance Committee considers the Company’s Board of Director Candidate Guidelines and Director Election (Majority Voting) +Policy, available on the Company’s website at www.stevemadden.com, the Company’s policy regarding stockholder recommended +director candidates, as set forth above, and all other factors that are deemed appropriate including, but not limited to, the individual’s +character, education, experience, knowledge and skills. While the Nominating/Corporate Governance Committee’s +Board of Directors Candidate Guidelines does not expressly identify diversity as a factor for consideration regarding the evaluation +of director candidates, diversity is among the many factors the Nominating/Corporate Governance Committee considers in the candidate +evaluation process. To assess the effectiveness of the mandate set forth in the Nominating/Corporate Governance Committee’s +charter, the Nominating/Corporate Governance Committee reviews annually with the Board the composition of the Board as a whole +and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, +skills, expertise and diversity required for the Board as a whole. +In addition, the Nominating/Corporate Governance Committee develops and +recommends corporate governance principles for the Company; makes recommendations to the Board of Directors in support of such +principles; takes a leadership role in the shaping of the corporate governance of the Company; and oversees the evaluation of the +Board of Directors and management. Recently, the Nominating/Corporate Governance Committee recommended the adoption +of a Director Election on (Majority Voting) Policy, which has been adopted. The Nominating/Corporate Governance Committee +operates under a formal charter that governs the Committee’s composition, powers and responsibilities. A copy +of the Nominating/Corporate Governance Charter is available on the Company’s website at www.stevemadden.com. +11 +Table of Contents +Compensation Committee +The members of the Compensation Committee are Messrs. Migliorini (Chairman) +and Schwartz. The Compensation Committee is comprised of directors who are “independent” for purposes of The Nasdaq +Global Select Market listing standards and applicable tax and securities rules. The Compensation Committee met twice +during the 2011 Fiscal Year. +The Compensation Committee is responsible for establishing and overseeing +the Company’s compensation and incentive plans and programs; determining and approving compensation for the Company’s +executive officers, including salaries, bonuses, perquisites and equity awards; reviewing and approving compensation and awards +for the Company’s executive officers under the Company’s compensation and incentive plans and programs; administering +the Company’s equity compensation plans; reviewing and approving a compensation program for independent members of the Board; +and assisting the Board in discharging the Board’s responsibilities relating to management organization, performance, compensation +and succession. +The Compensation Committee operates under a formal charter adopted by +the Board of Directors that governs its composition, powers and responsibilities. A copy of the Compensation Committee +Charter is available on the Company’s website at www.stevemadden.com. +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee +Directors, and Communications Between Stockholders and the Board +Board Leadership Structure +As noted above, our Board is currently comprised of four independent +and two non-independent directors. Mr. Rosenfeld has served as Chairman of the Board and Chief Executive Officer since +August 2008, and has been a member of the Board since February 2008. The Board has designated one of the independent +directors as Presiding Director to preside over executive sessions. We believe that the number of independent, experienced +directors that comprise our Board, along with the independent oversight of our Presiding Director, benefits the Company and its +stockholders. +We recognize that different board leadership structures may be appropriate +for companies in different situations and believe that no one structure is suitable for all companies. We believe our +current Board leadership structure is optimal for the Company because it demonstrates to our employees, suppliers, customers, and +other stakeholders that the Company is under strong leadership, with a single person setting the tone and having primary responsibility +for managing our operations. Having a single leader for both the Company and the Board eliminates confusion and duplication +of efforts, and provides clear leadership for the Company. We believe the Company, like many U.S. companies, has been +well-served by this leadership structure. +Because the positions of Chairman of the Board and Chief Executive Officer +are held by the same person, the Board believes it is appropriate for the independent directors to elect one independent director +to serve as a Presiding Director. In addition to presiding at executive sessions of the independent directors, the Presiding +Director has various responsibilities including coordinating with the Chairman of the Board and Chief Executive Officer in establishing +agenda and discussion items for Board meetings; retaining independent advisors on behalf of the Board as the Board may determine +may be necessary or appropriate and performing such other functions as the independent directors may designate from time to time. Mr. +Migliorini is currently serving as the Presiding Director. +Our Board conducts an annual evaluation in order to determine whether +it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether +the current leadership structure continues to be optimal for the Company and its stockholders. +Risk Oversight +Our Board is responsible for overseeing the Company’s risk management +process. The Board focuses on the Company’s general risk management strategy, the most significant risks facing +the Company, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also +apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. +12 +Table of Contents +The Board has delegated to the Audit Committee oversight of the Company’s +risk management process. Among its duties, the Audit Committee reviews with management (a) the Company’s policies +with respect to risk assessment and management of risks that may be material to the Company, (b) the Company’s system of +disclosure controls and system of internal controls over financial reporting, and (c) the Company’s compliance with legal +and regulatory requirements. The Audit Committee is also responsible for reviewing major legislative and regulatory +developments that could materially impact the Company’s contingent liabilities and risks. Our other Board committees +also consider and address risks as they perform their respective committee responsibilities. All committees report to +the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk. +The Company’s management is responsible for day-to-day risk management. Our +risk management and internal audit areas serve as the primary monitoring and testing function for company-wide policies and procedures, +and manage the day-to-day oversight of the risk management strategy for the ongoing business of the Company. This oversight +includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, +and compliance and reporting levels. +We believe the division of risk management responsibilities described +above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this +approach. +Executive Sessions of Independent Directors +The Board holds executive sessions of its independent directors generally +at each regularly scheduled meeting. The Presiding Director serves as the chairperson for these executive sessions. +Communications between Stockholders and the Board +The Company has adopted a procedure by which stockholders may send communications +as defined within Item 7(d) of Schedule 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), +to one or more members of the Board of Directors by writing to such director(s) or to the entire Board of Directors in care of +the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. The +Board has instructed the Corporate Secretary to review all communications so received and to exercise his discretion not to forward +to the Board correspondence that is inappropriate, such as business solicitations, frivolous communications and advertising, routine +business matters (i.e. business inquiries, complaints, or suggestions) and personal grievances. However, any director may at any +time request the Corporate Secretary to forward to such director any and all communications received by the Corporate Secretary +but not forwarded to the directors. +Code of Business Conduct and Ethics +All of the Company’s employees, officers (including senior executive, +financial and accounting officers) and directors are held accountable for adherence to the Company’s Code of Business Conduct +and Ethics (the “Conduct Code”). The Conduct Code is intended to establish standards necessary to deter +wrongdoing and to promote compliance with applicable governmental laws, rules and regulations and honest and ethical conduct. The +Conduct Code covers all areas of professional conduct, including conflicts of interest, fair dealing, financial reporting and disclosure, +protection of Company assets and confidentiality. Employees have an obligation to promptly report any known or suspected +violation of the Conduct Code without fear of retaliation. Waiver of any provision of the Conduct Code for executive +officers and directors may only be granted by the Board of Directors or one of its committees and any such waiver or modification +of the Conduct Code relating to such individuals will be disclosed by the Company. A copy of the Conduct Code is available +on the Company’s website at www.stevemadden.com and may also be obtained by any stockholder without charge upon request by +writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +13 +Table of Contents +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, +one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, +which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international +sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide +consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required +under the expired consulting agreement. In accordance with the foregoing, for the 2011 Fiscal Year, JLM Consultants +received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in +the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $3,859.46 per month +toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM +Consultants received a total of $1,552,227.31 from the Company in the 2011 Fiscal Year. +Effective as of July 1, 2005, the Company amended and restated its employment +agreement with the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to +continue to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under +his employment agreement commenced on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, +2011, will end on December 31, 2023. Prior to this recent amendment, the agreement had provided for an annual salary +of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the +agreement. The agreement had also provided for an annual cash bonus in an amount equal to at least 2% of the Company’s +EBITDA (the “Annual Bonus”) and an annual cash bonus in relation to “new business” (as defined in the agreement) +in an amount equal to at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income +above $2,000,000 (the “New Business Bonus”). The agreement, as amended, increases Mr. Madden’s annual +base salary but eliminates the Annual Bonus and the New Business Bonus and provides that all cash bonuses subsequent to the 2011 +Fiscal Year will be at the sole discretion of the Company’s Board of Directors. Under the agreement, as amended, +Mr. Madden’s annual base salary is fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 +and $10,697,917 in 2016 and in each year thereafter through the end of the term of employment. In addition, the amended agreement +entitles Mr. Madden to an annual life insurance premium reimbursement of up to $200,000. The amendment also eliminates +an annual non-accountable expense allowance of $200,000 that had been previously provided to Mr. Madden under the agreement. +Pursuant to the amended agreement, as amended, on February 8, 2012, +Mr. Madden was granted 975,371 restricted shares of Common Stock, valued at approximately $40 million, pursuant to the Company’s +2006 Stock Incentive Plan, as amended (the “2006 Plan”). The restricted Common Stock will vest in equal +annual installments over seven years commencing on December 31, 2017 through December 31, 2023, subject to Mr. Madden’s continued +employment with the Company on each such vesting date. Further, under the agreement, as amended, Mr. Madden has the +right, exercisable on certain specified dates in fiscal year 2012 only, to elect to further amend the agreement to receive an additional +restricted stock award for a number of shares of Common Stock valued at $40,000,000 in consideration of a reduction in his annual +base salary in years subsequent to 2012 as follows: $4,000,000 in 2013, $6,125,000 in 2014, $8,250,000 in 2015 and $7,026,042 in +2016 and in each year thereafter through the end of the term of employment. In the event that Mr. Madden elects to receive +an additional restricted stock award, the additional restricted shares of Common Stock issued to Mr. Madden will vest in equal +annual installments over six years commencing on December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued +employment with the Company on each such vesting date. Mr. Madden’s right to receive an additional restricted +stock award is subject to the availability of shares under the 2006 Plan, or any other plan designated by the Board of Directors +and approved by the Company’s stockholders. +Mr. Madden is also eligible to receive annually, on or about the date +of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of +shares of Common Stock, with such number to be equal to the greater of (a) not less than 100% of the largest aggregate number of +shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of +the Company during the preceding twelve-month period and (b) 100,000 shares of Common Stock; provided, however, that a grant to +Mr. Madden in excess of 150% of the number of shares of Common Stock subject to options granted to such other continuing full-time +employee would require stockholder approval. Any Annual Option granted to Mr. Madden would vest quarterly over a one-year +period following the grant date and would be exercisable at a price equal to the closing price of the Company’s Common Stock +on the grant date for a period of five years following the grant date. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 500,000 shares of the Company’s +Common Stock (the number of option shares to be subject to adjustment in the event of a future change in capital structure of the +Company resulting from a stock split, reverse stock split or other transaction or event having similar effect) in the event that +the Company achieves earnings per share, on a fully-diluted basis, equal to $3.00 in any fiscal year ending December 31, 2015 or +after. If granted, the option would vest in equal annual installments of 20% over a five-year period and be exercisable +for a period of seven years at a price equal to the closing price of the Company’s Common Stock on the date immediately preceding +the grant date. +14 +Table of Contents +In the event of Mr. Madden’s death, his employment agreement provides +for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of his +death. Further, in the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total +disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, +the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. +In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to +his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base +salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the +period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and +ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company +other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), +or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested +options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden +will be entitled to receive a lump sum cash payment equal to the amount of compensation that is accrued and unpaid through the +date of termination plus $35 million. Mr. Madden’s employment agreement contains other customary provisions, including +provisions regarding expense reimbursement, confidentiality, solicitation and competition. +For 2011 Fiscal Year, Mr. Madden earned (i) $709,133 in base salary; +(ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $2,984,665, representing 2% of the Company’s earnings +before interest, tax, depreciation and amortization; (iv) a bonus of $7,252,094, earned based on 2.5% of the Company’s new +business; and (v) a bonus of $748,823, based on 10% of Royalty/Licensing income over $2,000,000. As an Annual Option, +on June 2, 2011, Mr. Madden was granted an option to purchase 150,000 shares of Common Stock, under the 2006 Plan having +an exercise price of $35.62 per share. The option vests in equal installments of 37,500 shares on each of August +27, 2011, November 27, 2011, February 27, 2012 and May 27, 2012. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative +and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a +personal tax obligation resulting from the exercise of a stock option which was due to expire and to hold the underlying shares +of Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 315,000 +shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to +the note, the most recent of which occurred on January 3, 2012, at which time the note was amended and restated to extend the maturity +date of the obligation to December 31, 2023 and eliminate accrual of interest after December 31, 2011; prior to the most recent +amendment, the note had been accruing interest at the rate of 6% per annum. In addition, the amended and restated note +provides that, commencing on December 31, 2014 and annually on each December 31 thereafter through the maturity date, one-tenth +of the principal amount thereof, together with accrued interest, will be cancelled by the Company provided that Mr. Madden continues +to be employed by the Company on each such December 31. Contemporaneously, the Company will release a number of pledged +shares of Common Stock from the pledge generally correlating to the amount of indebtedness cancelled on such date. As +of December 31, 2011, interest in the amount of $1,090,000 has accrued on the principal amount of the note. +Steven Madden is the brother of John L. Madden, who has been a director +of the Company since the Company’s inception in 1990. +15 +Table of Contents +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit +all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere +in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts +of interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a committee +of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in +the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant +factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives +to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third +parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to +an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the +overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, +including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent +conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire +to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the +members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate +family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest +under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, +which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular +review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +If a director is a party to or in some manner involved in a transaction +involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved +in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. +COMPENSATION OF DIRECTORS IN THE 2011 FISCAL YEAR +The following table sets forth information concerning the compensation +of the Company’s non-employee directors in the 2011 Fiscal Year. Following the table is a discussion of material +factors related to the information disclosed in the table. +Name +Fees Earned or Paid in Cash +($) +Stock Awards +($)(1) +All Other Compensation($) +Total +($) +John L. Madden +37,500 +(2) +1,615,333 +(3) +1,652,833 +Peter Migliorini +110,000 +80,145 +(4) +0 +190,145 +Richard P. Randall +110,000 +80,145 +(5) +0 +190,145 +Ravi Sachdev +85,000 +80,145 +(6) +0 +165,145 +Thomas H. Schwartz +85,000 +80,145 +(7) +0 +165,145 +(1) Reflects the grant date fair value of stock awards calculated in accordance +with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic +718. The amounts shown represent dollar amounts recognized in the 2011 Fiscal Year for financial statement reporting +purposes under ASC Topic 718. The number of shares of Common Stock was calculated based on the fair value of the Company’s +Common Stock on the grant date, June 2, 2011, by taking the closing sale price for a share of Common Stock on the Nasdaq for such +grant date. There are no other assumptions made in the valuation of the stock awards. +16 +Table of Contents +(2) At December 31, 2011, Mr. Madden owned no restricted stock awards +or option awards outstanding. +(3) Includes: (a) the use of a corporate apartment valued at $63,106 and +(b) $1,552,227 in fees, travel and health insurance premium allowance paid to JLM Consultants, Inc., a company wholly owned by +Mr. Madden, as consideration for consulting services provided by JLM Consultants, Inc. with respect to the development of the Company’s +international business. +(4) At December 31, 2011, the aggregate number of shares of restricted +Common Stock held was 2,250, and Mr. Migliorini had no options outstanding. +(5) At December 31, 2011, the aggregate number of shares of restricted +Common Stock held was 2,250, and Mr. Randall had no options outstanding. +(6) At December 31, 2011, the aggregate number of shares of restricted +Common Stock held was 2,250, and Mr. Sachdev had no options outstanding. +(7) At December 31, 2011, the aggregate number of shares of restricted +Common Stock held was 2,250, and Mr. Schwartz had no options outstanding. +Directors who are also employees of the Company are not paid any fees +or other remuneration for service on the Board of Directors or any of its committees. In the 2011 Fiscal Year, each +non-employee director, other than John L. Madden, received the following compensation: (i) a grant of 2,250 shares of +restricted Common Stock, vesting on the first anniversary of the Company’s 2011 annual meeting, May 27, 2012 and (ii) $75,000. John +L. Madden, who is a non-independent director as a result of his ownership of JLM Consultants, Inc., a provider of consulting services +to the Company with respect to international sales, received compensation of $37,500 for service as a director during the first +two quarters of 2011. Commencing July 1, 2011, the Company no longer pays John L. Madden a fee for his service on the +Board of Directors. In the 2011 Fiscal Year, members of the Audit Committee, Nominating/Corporate Governance Committee +and Compensation Committee each received an additional $10,000 for serving on such committees, except that the Audit Committee +financial expert and the Chairman of the Compensation Committee each received $35,000. The Company reimburses its directors +for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. +STOCK OWNERSHIP +Security Ownership of Certain Beneficial Owners +The following table sets forth information as of the Record Date (unless +otherwise indicated) with respect to the beneficial ownership of the Common Stock of the Company by each person known by the Company +to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock of the Company. A person is +deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. +Name and Address of Beneficial Owner +Amount and Nature of Beneficial Ownership (1) +Percentage of Class +Steven Madden +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +4,112,728 +9.19 +%(2) +BOCAP Corp. +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +2,005,375 +4.52 +%(3) +BlackRock Inc. +40 East 52 nd Street +New +York, NY 10022 +2,805,480 +6.33 +%(4) +17 +Table of Contents +(1) Beneficial ownership as reported in the table below has +been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 44,320,487 +shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(2) Mr. Madden’s beneficial ownership includes: (i) 2,005,375 +shares of Common Stock held by BOCAP Corp, a corporation wholly-owned by Mr. Madden; (ii) 442,500 shares of Common Stock that may +be acquired through options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (iii) 1,057,271 +shares of restricted Common Stock granted under the 2006 Plan (which restricted stock includes 81,900 shares which will vest on +January 11, 2013 and 975,371 shares which will vest in equal annual installments over seven years commencing on December 31, 2017 +through December 31, 2023, in each case subject to forfeiture pursuant to the terms of the 2006 Plan and of Mr. Madden’s +employment agreement); and (iv) 607,582 shares of Common Stock held by Mr. Madden directly. Mr. Madden has pledged to +the Company 315,000 shares of Common Stock beneficially owned by him to secure the repayment of a loan made by the Company to Mr. +Madden, which loan is discussed in the section of this Proxy Statement captioned “Certain Relationships and Related Party +Transactions.” Excluded are 731,196 shares of Common Stock beneficially owned by a grantor retained annuity trust, +the trustee of which is unrelated to Mr. Madden and as to which Mr. Madden does not, directly or indirectly, have or share voting +or investment power; Mr. Madden disclaims beneficial ownership of such shares. +(3) BOCAP Corp is a corporation wholly-owned by Steven Madden. +(4) Based solely on a Statement on Schedule 13G filed with the SEC on +February 13, 2012 by BlackRock, Inc. (“BlackRock”), BlackRock has sole voting and dispositive power with respect to +all such shares. +Security Ownership of Directors and Executive Officers +The following table sets forth information as of the Record Date (unless +otherwise indicated) with respect to the beneficial ownership of Common Stock held by (a) each current director and nominee; (b) +the Chief Executive Officer, the Chief Financial Officer and the three most highly compensated executive officers of the Company +other than the Chief Executive Officer and the Chief Financial Officer (the “Named Executive Officers”); and (c) all +current directors and executive officers as a group. A person is deemed to be a beneficial owner of any securities which +that person has the right to acquire within 60 days. Each director and executive officer has sole voting power and dispositive +power with respect to all shares beneficially owned by him or her. +Name of Beneficial Owner (1) +Amount and Nature of Beneficial Ownership (2) +Percentage of Class +Edward R. Rosenfeld +378,125 +* +% +(3) +Arvind Dharia +168,503 +* +% +(4) +Awadhesh Sinha +60,000 +* +% +(5) +Robert Schmertz +268,812 +* +% +(6) +Amelia Newton Varela +87,411 +* +% +(7) +John L. Madden +24,750 +* +% +(8) +Peter Migliorini +2,250 +* +% +(9) +Richard P. Randall +13,875 +* +% +(10) +Thomas H. Schwartz +12,150 +* +% +(11) +Ravi Sachdev +12,375 +* +% +(12) +All Directors and Executive Officers as a Group (10 persons named above) +1,028,251 +2.30 +% +(13) +* Indicates beneficial ownership of less than 1%. +(1) The address for each of the named individuals below is c/o Steven +Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +(2) Beneficial ownership as reported in the table above has been determined +in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 44,320,487 shares of Common Stock +outstanding (excluding treasury shares) as of the Record Date. +18 +Table of Contents +(3) Mr. Rosenfeld’s beneficial ownership includes: (i) 210,750 shares +of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within +60 days of, the Record Date; (ii) 110,000 shares of restricted Common Stock; and (iii) 57,375 shares of Common Stock held by Mr. +Rosenfeld. +(4) Mr. Dharia’s beneficial ownership includes: (i) 67,500 shares +of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable +within 60 days of, the Record Date; (ii) 37,050 shares of restricted Common Stock; and (iii) 63,953 shares of Common Stock held +by Mr. Dharia. +(5) Mr. Sinha’s beneficial ownership includes: (i) 42,500 shares +of restricted Common Stock; and (ii) 17,500 shares of Common Stock held by Mr. Sinha. +(6) Mr. Schmertz’s beneficial ownership includes: (i) 42,187 shares +of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within +60 days of, the Record Date; (ii) 8,438 shares of restricted Common Stock; and (iii) 218,187 shares of Common Stock held by Mr. +Schmertz. +(7) Ms. Varela’s beneficial ownership includes: (i) 75,938 shares +of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within +60 days of, the Record Date; and (ii) 11,473 shares of restricted Common Stock. +(8) Mr. Madden’s beneficial ownership consists of 24,750 shares +of Common Stock held by Mr. Madden. +(9) Mr. Migliorini’s beneficial ownership consists of 2,250 shares +of restricted Common Stock. +(10) Mr. Randall’s beneficial ownership includes: (i) +2,250 shares of restricted Common Stock; and (ii) 11,625 shares of Common Stock held by Mr. Randall, all of which shares have been +pledged by Mr. Randall as collateral security in a margin brokerage account. +(11) Mr. Schwartz’s beneficial ownership includes: (i) 2,250 shares +of restricted Common Stock; and (ii) 9,900 shares of Common Stock held by Mr. Schwartz. +(12) Mr. Sachdev’s beneficial ownership includes: (i) 2,250 shares +of restricted Common Stock; and (ii) 10,125 shares of Common Stock held by Mr. Sachdev. +(13) Includes, in aggregate, 396,375 shares of Common Stock that may be +acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; +(ii) 218,461 shares of restricted Common Stock; and (iii) 413,415 shares of Common Stock held by such beneficial owners. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that the Company’s directors +and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, file +with the SEC reports of initial ownership of Common Stock and subsequent changes in that ownership and furnish the Company with +copies of all forms they file with the SEC pursuant to Section 16(a) of the Exchange Act. A late report was filed on +September 14, 2011 to report that John L. Madden sold 3,000 shares of Common Stock on September 8, 2011. A late report +was filed on September 21, 2011 to report that Richard P. Randall sold 1,000 shares of Common Stock on August 31, 2011 and 1,000 +shares of Common Stock on September 1, 2011. To the Company’s knowledge, based solely on a review of the copies +of the reports furnished to the Company or written representations received from the Company’s directors, officers and greater +than 10% beneficial owners that no other reports were required, all Section 16(a) filing requirements applicable to its officers, +directors and greater than 10% beneficial owners were complied with during, or in respect of, the fiscal year ended December 31, +2011. +19 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Compensation Objectives and Strategy +The Company’s executive officer compensation program is designed +to attract and retain the caliber of officers needed to ensure the Company’s continued growth and profitability and to reward +them for their performance, the Company’s performance and for creating longer term value for our stockholders. The primary +objectives of the program are to: +• +align rewards with performance that creates stockholder value; +• +support the Company’s strong team orientation; +• +encourage high-potential team players to build a career at the Company; and +• +provide rewards that are cost-efficient, competitive with other organizations and fair to employees and stockholders. +The Company’s executive compensation programs are approved and +administered by the Compensation Committee of the Board of Directors. Working with management and outside advisors, +the Compensation Committee has developed a compensation and benefits strategy that rewards performance and reinforces a culture +that the Compensation Committee believes will drive long-term success. +The compensation program rewards team accomplishments while promoting +individual accountability. The executive officer compensation program depends in significant measure on Company results, +but business unit results and individual accomplishments are also very important factors in determining each executive’s +compensation. The Company has a robust planning and goal-setting process that is fully integrated into the compensation +system, enhancing a strong relationship between individual efforts, Company results, and financial rewards. +A major portion of total compensation is placed at risk through annual +and long-term incentives. As noted below, discretionary bonuses were paid to the Named Executive Officers. The +combination of incentives is designed to balance annual operating objectives and Company earnings performance with longer-term +stockholder value creation. +The Company seeks to provide competitive compensation that is commensurate +with performance. The Company targets compensation at the median of the market, and calibrates both annual and long-term +incentive opportunities to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when +goals are exceeded. +The Company seeks to promote a long-term commitment to the Company by +its senior executives. The Company believes that there is great value to the Company in having a team of long-tenured, +seasoned managers. The Company’s team-focused culture and management processes are designed to foster this commitment. In +addition, stock options and/or restricted Common Stock awards granted to Named Executive Officers in the 2011 Fiscal Year reinforce +this long-term orientation with annual vesting over a four-year period. +Role of the Compensation Committee +General. The Compensation Committee provides overall +guidance for the Company’s executive compensation policies and determines the amounts and elements of compensation for the +Company’s executive officers and outside directors. The Compensation Committee currently consists of two members of the Company’s +Board of Directors, Messrs. Migliorini and Schwartz, each of whom is an independent director under Rule 5605 of The Nasdaq Global +Select Market listing standards, a “non-employee director” as defined under the SEC’s rules and an “outside +director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). +When considering decisions concerning the compensation of executives, +other than the Chief Executive Officer, the Compensation Committee asks for the recommendations of the Chief Executive Officer, +including his detailed evaluation of each executive’s performance. No executive has a role in recommending compensation for +outside directors. With respect to the application of the 2006 Plan to non-employee directors, the Board of Directors functions +as the Compensation Committee. +20 +Table of Contents +Use of Outside Advisors. In making its determinations +with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation +consulting firm. The Compensation Committee has retained the services of James F. Reda & Associates, LLC (“Reda +& Associates”) since 2005 to assist with its review of the compensation packages and employment agreements of the Chief +Executive Officer and other executive officers. In 2011, Reda & Associates worked with the Compensation Committee +to assess the reasonableness of discretionary cash bonus payments, including equity grants, to Messrs. Rosenfeld, Dharia, Sinha +and Schmertz based on the Company’s performance in 2010 and the reasonableness of the terms of a new employment agreement +for Ms. Varela as compared with comparable positions in the peer group listed below. Executive compensation for the +other named executive officers was based on prior employment agreements with pay structures and levels guided by Reda & Associates’ +market studies just prior to the consummation of the agreements. Position-specific market studies were completed in +2009 and 2010 in support of the design of these agreements. Reda & Associates provides only executive compensation +consulting services and works with management only at the behest of the Compensation Committee. +The Compensation Committee retains Reda & Associates directly, although +in carrying out assignments, Reda & Associates also interacts with Company management, when necessary and appropriate, in order +to obtain compensation and performance data for the executives and the Company. In addition, Reda & Associates may, in its +discretion, seek input and feedback from management regarding its consulting work product prior to presentation to the Compensation +Committee in order to confirm alignment with the Company’s business strategy and identify data questions or other similar +issues, if any, prior to presentation to the Compensation Committee. +The Compensation Committee has the sole authority to retain, terminate +and set the terms of the Company’s relationship with any outside advisors who assist the Committee in carrying out its responsibilities. +Consideration of 2011 Stockholder Say on Pay +Vote. At our 2011 Annual Meeting of Stockholders, our stockholders overwhelmingly approved, on an advisory basis, +the compensation of our Named Executive Officers (99.4% of votes cast), and voted for approval of an annual frequency for future +advisory votes with respect to our Named Executive Officer compensation (71.4% of votes cast). The Compensation Committee +believes this level of stockholder support reflects a strong endorsement of our compensation policies and decisions. The +Compensation Committee has considered the results of this advisory vote on executive compensation in determining the Company’s +compensation policies and decisions for 2012, and has determined that these policies and decisions are appropriate and in the best +interests of the Company and its stockholders at this time. In addition, the Company’s Board of Directors has +considered the stockholder vote and management’s recommendation regarding the frequency of future stockholder advisory votes +on the compensation of the Company’s Named Executive Officers and, at a meeting of the Board of Directors on July 28, 2011, +adopted the stockholders’ recommendation of an annual advisory vote on the compensation of the Company’s Named Executive +Officers until the next required vote on this matter, which will occur no later than the Company’s Annual Meeting of Stockholders +in 2017, or until the Board of Directors otherwise determines that a different frequency for such advisory votes is in the best +interests of the stockholders of the Company. +Compensation Structure +Pay Elements - Overview +The Company utilizes four main components of compensation: +• +base salary; +• +annual performance-based cash bonuses; +• +long-term equity incentives (consisting of stock options and restricted stock); and +• +benefits and perquisites. +21 +Table of Contents +Pay Elements - Details +Base Salary . The Company paid base salaries to each +of the Named Executive Officers to provide them with fixed pay that considers the Named Executive Officer’s role and responsibilities, +experience, expertise and individual performance. As more fully described in the section of this Proxy Statement captioned +“Employment Arrangements,” as of December 31, 2011, the Company had employment agreements with each of the Named Executive +Officers. A full description of each Named Executive Officer’s base salary is contained in the section of this +Proxy Statement captioned “Employment Arrangements.” The Compensation Committee, as constituted at the time +the parties entered into the employment agreements or any amendments thereof, reviewed and approved the salary established in each +such agreement or amendment. The Compensation Committee considered each employee’s salary history, value in the +marketplace and performance (including at the Company and previous employment). +Under the employment agreement of our Chief Executive Officer, Mr. Rosenfeld, +annual base salary was fixed at $525,000 for the 2011 Fiscal Year and, on January 1, 2012, increased to and remains at $551,250 +until the agreement expires on December 31, 2012. The employment agreement of our Chief Operating Officer, Mr. Sinha, +provides for an annual base salary of $575,000 for the 2011 Fiscal Year and throughout the term of the agreement, which will expire +on December 31, 2013. Under the employment agreement, as amended, of our Chief Financial Officer, Mr. Dharia, annual +base salary for the 2011 Fiscal Year was fixed at $528,304 and increased to and remains at $554,719 until the agreement expires +on December 31, 2014. The employment agreement of our Brand Director, Mr. Schmertz, provides for an annual base salary +of $660,000 for the 2011 Fiscal Year and subsequent years, until the agreement expires on December 31, 2012. The annual +base salary of our Executive Vice President - Wholesale, Ms. Varela, was fixed at $450,000 for the 2011 Fiscal Year and for the +remainder of the term of an employment agreement, which will expire on December 31, 2013. Please see the section of +this Proxy Statement captioned “Summary Compensation Table” and “Employment Arrangements.” Salary increases +for Named Executive Officers are generally consistent with those of other management employees. +Annual Performance-based Cash Bonus - Based on Specific Performance +Metrics . Annual performance-based cash bonuses, if any, for Named Executive Officers are established in their respective +employment agreements. The Compensation Committee reviewed and approved the bonus provisions fixed in each such employment +agreement at the time the parties entered into such agreements and any amendments thereof. Such bonus provisions generally +provide for variable or discretionary bonuses designed to reward attainment of business goals. +Under Ms. Varela’s employment agreement, she is entitled to an +annual performance-based cash bonus for each fiscal year in an amount equal to 2% of the increase, if any, in Wholesale Division +EBIT for that year over Wholesale Division EBIT for the immediately prior year, excluding from such bonus calculation EBIT attributable +to any business acquired after January 31, 2011 until the acquired business has been owned by the Company for two full calendar +years. For the 2011 Fiscal Year, Ms. Varela’s annual performance-based cash bonus was $63,351, reflecting 2% of +$3,167,569, the increase in 2011 Wholesale Division EBIT (exclusive of EBIT attributable to businesses acquired in the 2011 Fiscal +Year) over that of 2010. +Annual Performance-based Cash Bonus - Not Based on Specific Performance +Metrics. The decision to pay cash bonuses to Messrs. Rosenfeld, Dharia, Sinha and Schmertz and Ms. Varela for the +2011 Fiscal Year and the amount of each such Named Executive Officer’s bonus was determined wholly at the discretion of the +Compensation Committee. The Compensation Committee evaluated a variety of indicators of the Company’s overall +financial performance, including revenue growth and profitability, and assessed and made subjective judgments as to each of these +executive’s individual contribution towards the Company’s performance in the 2011 Fiscal Year in determining whether +to pay cash bonuses to these executives and establishing the amount to be paid. With respect to the determination to +award bonuses to Messrs. Dharia, Sinha and Schmertz and Ms. Varela, the Compensation Committee also considered the recommendations +of the Chief Executive Officer, Mr. Rosenfeld. The Company paid cash bonuses of $200,000, $100,000, $150,000, $500,000 +and $186,649, respectively, to Messrs. Rosenfeld, Dharia, Sinha and Schmertz and Ms. Varela for the 2011 Fiscal Year. Reda +& Associates reviewed these bonus payments and total payments and awards for the 2011 Fiscal Year to ensure these bonus payments +were within market range for each executive. +22 +Table of Contents +Long-term Equity Incentives . Management and the Compensation +Committee believe that equity-based awards are an important factor in aligning the long-term financial interest of the executive +officers and stockholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue +to use such awards in the future as part of designing and administering the Company’s compensation program. Beginning in +2006, the Compensation Committee modified its prior practice of granting equity incentives solely in the form of stock options +with periodic awards of restricted stock in order to grant awards that contain both substantial incentive and retention characteristics. +These awards are designed to provide emphasis on preserving stockholder value generated in recent years while providing significant +incentives for continuing growth in stockholder value. +With respect to the 2011 Fiscal Year, Ms. Varela received a stock option +for 150,000 shares of Common Stock at an exercise price of $25.45 (the number of shares and exercise price indicated having been +adjusted for a May 31, 2011 three-for-two stock split effected as a stock dividend), which vests in four equal annual installments. Mr. +Rosenfeld received a restricted stock award of 30,000 shares of Common Stock (the number of shares indicated having been adjusted +for a May 31, 2011 three-for-two stock split effected as a stock dividend), which vests in four equal annual installments. Mr. +Dharia received a restricted stock award of 15,000 shares of Common Stock (the number of shares indicated having been adjusted +for a May 31, 2011 three-for-two stock split effected as a stock dividend), which vests in four equal annual installments. Mr. +Schmertz received a restricted stock award of 11,250 shares of Common Stock (the number of shares indicated having been adjusted +for a May 31, 2011 three-for-two stock split effected as a stock dividend), which vests in four equal annual installments. The +grants to Ms. Varela and Mr. Dharia were made under their employment agreements, the terms of which were approved by the Compensation +Committee. The grants to Mr. Rosenfeld and Mr. Schmertz were also approved by the Compensation Committee. Reda +& Associates reviewed the individual grant values relative to market practice. All of the equity awards in the 2011 +Fiscal Year were made under the 2006 Plan. The Committee intends to continue to review the equity mix to achieve the +ideal incentive for both performance and retention. With respect to stock options, the 2006 Plan provides that the exercise +price shall be the closing market price per share of the Company’s Common Stock on the business day immediately preceding +the grant date, which is fair market value for purposes of the 2006 Plan. +Other Benefits and Perquisites . The Company’s executive +compensation program also includes other benefits and perquisites. These benefits and perquisites include annual matching +contributions to executive officers’ 401(k) plan accounts, company-paid medical benefits, automobile allowances and leased +automobiles, and life insurance coverage. The Compensation Committee annually reviews these other benefits and perquisites +and makes adjustments as warranted based on competitive practices, the Company’s performance and the individual’s responsibilities +and performance. The Compensation Committee has approved these other benefits and perquisites as a reasonable component +of the Company’s executive officer compensation program. Please see the section of this Proxy Statement captioned +“Summary Compensation Table and, specifically, the column entitled “All Other Compensation” and the corresponding +footnotes. +Pay Mix +The Company utilizes the particular elements of compensation described +above because the Company believes that it provides a well-proportioned mix of secure compensation, retention value and at-risk +compensation, which produces short-term and long-term performance incentives and rewards. By following this approach, +the Company provides the executives a measure of security in the minimum expected level of compensation, while motivating the executives +to focus on business metrics and other variables within their particular sector which will increase sales and margins and at the +same time lower costs so as to produce a high level of short-term and long-term performance for the Company and long-term wealth +creation for the executives, as well as reducing the risk of recruitment of top executive talent by competitors. The +mix of metrics used for the annual performance bonuses and the Company’s long-term incentive program likewise provides an +appropriate balance between short-term financial performance and long-term stock performance. +For the Named Executive Officers, the mix of compensation is weighted +heavily toward at-risk pay (annual incentives and long-term incentives). Maintaining this pay mix results fundamentally +in a pay-for-performance orientation for the Company’s executives, which is aligned with the Company’s stated compensation +philosophy of providing compensation commensurate with performance. +23 +Table of Contents +Pay Levels and Benchmarking +Pay levels for executives are determined based on a number of factors, +including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, +the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual +and the Company as a whole. The Compensation Committee is responsible for approving pay levels for the Named Executive +Officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits. +The Compensation Committee assesses “competitive market” +compensation using a number of sources. The primary data source used in setting competitive market levels for the Named Executive +Officers is the information publicly disclosed by a peer group of the Company, which will be reviewed annually and may change from +year to year. For the past three years, including the 2011 Fiscal Year, executive compensation and compensation design +was reviewed in relation to the following peer companies: +American Apparel Inc. +Perry Ellis International, Inc. +Movado Group, Inc. +Bebe Stores, Inc. +G-III Apparel Group, Ltd. +Rocky Brands, Inc. +Brown Shoe Co. Inc. +Genesco, Inc. +Skechers U.S.A. Inc. +Kenneth Cole Productions Inc. +Guess, Inc. +Timberland Co. +Collective Brands, Inc. +Iconix Brand Group, Inc. +Under Armour, Inc. +Crocs, Inc. +The Jones Group Inc. +Volcom, Inc. +Deckers Outdoor Corp. +K-Swiss, Inc. +Weyco Group, Inc. +Delta Apparel, Inc. +Maidenform Brands, Inc. +Wolverine Worldwide +After consideration of the data collected on external competitive levels +of compensation and internal needs, the Compensation Committee makes decisions regarding the Named Executive Officer’s target +total compensation opportunities based on the need to attract, motivate and retain an experienced and effective management team. Relative +to the competitive market data, the Compensation Committee generally intends that the base salary and target annual incentive compensation +for each Named Executive Officer will be at the median of the competitive market. +As noted above, notwithstanding the Company’s overall pay positioning +objectives, pay opportunities for specific individuals vary based on a number of factors such as scope of duties, tenure, institutional +knowledge and/or difficulty in recruiting a new executive. Actual total compensation in a given year will vary above or below the +target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value. +Compensation Committee Discretion +The Compensation Committee retains the discretion to decrease all forms +of incentive payouts based on significant individual or Company performance shortfalls, with the exception of any such payouts +that are to be made pursuant to contractual commitments, such as the bonuses that may be paid to Ms. Varela, which are tied to +the Company’s EBIT for the preceding year pursuant to her employment agreement. Similarly, the Compensation Committee +retains the discretion to increase payouts and/or consider special awards for significant achievements, including, but not limited +to, superior asset management, investment or strategic accomplishments and/or consummation of acquisitions, divestitures, capital +improvements to existing properties, or sales made by certain of the Company’s divisions. +Risk Assessment +Bonus payments to executives are based either on the discretion of the +Compensation Committee or are tied to growth in EBIT. Long-term incentives have been granted in the form of stock options +and time-vested restricted stock that generally vest over four years. These programs have been in place for several +years and have proved effective in rewarding performance while not encouraging inappropriate risk-taking. +24 +Table of Contents +The Compensation Committee undertook to review and evaluate all of our +executive and company-wide compensation plans and programs to assess whether any aspect of these plans and programs would encourage +inappropriate risk-taking by the Company’s executives and non-executive employees that could have a material adverse effect +on the Company and to confirm that the Company has adequate risk management controls in place to ensure that executive and company-wide +compensation is reasonable and achieves its intended incentive without creating unacceptable risk. Based on such review +and evaluation, the Compensation Committee believes there is no material adverse risk to the Company that is related to our compensation +programs for executives and non-executives. +This review and evaluation of our compensation plans and programs risks +consisted of: +• +identifying those business risks that could be material to the Company and identifying our existing risk management system; +• +reviewing and analyzing our compensation plans and programs to identify plan and program features that could potentially encourage or introduce excessive or imprudent risk taking of a material nature; +• +identifying the business risks that our compensation plan and program features could potentially encourage or create; +• +balancing these business risks against our existing internal control systems designed to manage and mitigate these business risks; and +• +analyzing whether the unmitigated risks, as a whole, are reasonably likely to have a material adverse effect on the Company. +Various persons were consulted during the course of the assessment, including +our executive officers and senior members of our human resources department. The Compensation Committee engages Reda +& Associates to review our executive and company-wide compensation plans and programs and provide advice regarding appropriate +levels of incentive. +The Compensation Committee noted several features of our compensation +structure that mitigate risk, including, for example: +• +the Company utilizes a pay mix that is well balanced between short-term financial performance and long-term stock performance, comprised of secure compensation in the form of base salary, short-term incentives in the form of potential for cash bonuses, and long-term incentives in the form of stock options and time-vested restricted stock that generally vest over four years; +• +in most instances, management or the Compensation Committee retains the discretion to decrease all forms of incentive compensation based on significant individual or Company performance shortfalls; +• +we periodically benchmark our compensation plans and programs and target executive and non-executive compensation within the normal limits of the competitive market; and +• +the Compensation Committee provides oversight of the Company’s compensation plans and programs and compensation philosophy, makes recommendations to the Board with respect to improvements to our compensation plans and programs, and is responsible for reviewing and approving executive compensation and administering and awarding incentive, deferred and equity compensation to our senior executives. +In light of the assessment described above, it was concluded that the +risks associated with our compensation plans and programs (executive and company-wide) are not reasonably likely to have a material +adverse effect on the Company. +25 +Table of Contents +Implications of Tax and Accounting Matters +As a general matter, the Compensation Committee considers the various +tax and accounting implications of compensation vehicles employed by the Company. While the Compensation Committee reviews +and considers both the accounting and tax effects of various components of compensation, these effects are not a significant factor +in the Compensation Committee’s allocation of compensation among the different components. +In general, the Company believes that compensation paid to executive +officers should be deductible for U.S. tax purposes. In certain instances, however, the Compensation Committee also +believes that it is in the Company’s best interests, and that of its stockholders, to have the flexibility to pay compensation +that is not deductible under the limitations of Section 162(m) of the Code in order to provide a compensation package consistent +with the Company’s objectives. +As more fully described below under the heading “Termination, Change-in-Control +and Non-Competition/Non-Solicitation,” all of the executive officers of the Company whose names appear in the Summary Compensation +Table contained in this Proxy Statement are entitled to receive certain compensation in the event of a termination of employment +in connection with a change-in-control event for the Company, which payments may trigger the application of the “golden parachute” +provisions of Sections 280G and 4999 of the Code. Section 280G of the Code disallows a tax deduction with respect to +excess parachute payments to certain executives of companies which undergo a change-in-control. In addition, Section +4999 of the Code imposes a 20% excise tax on the individual receiving the excess parachute payment. Excess parachute +payments are golden parachute payments that exceed an amount determined under Section 280G based on the executive’s prior +compensation. In approving the compensation arrangements of our Named Executive Officers, our Compensation Committee +considers all elements of the cost to our Company of providing such compensation including the potential impact of Sections 280G +and 4999 which, under certain circumstances, may limit the deductibility to the Company of executive compensation. However, +our Compensation Committee may determine, in its judgment, to authorize compensation arrangements that could give rise to loss +of deductibility under Section 280G and the imposition of excise taxes under Section 4999 when it believes that such arrangements +are appropriate to attract and retain executive talent. +Conclusion +The level and mix of compensation that is finally decided upon is considered +within the context of both the objective data from the Company’s competitive assessment of compensation and performance, +as well as discussion of the subjective factors as outlined above. The Compensation Committee believes that each of +the compensation packages for the Named Executive Officers is within the competitive range of practices when compared to the objective +comparative data even where subjective factors have influenced the compensation decisions. +Compensation Committee Interlocks and Insider Participation +During the 2011 Fiscal Year, the following directors served on the Compensation +Committee: Peter Migliorini (Chairman) and Thomas H. Schwartz. During the 2011 Fiscal Year: +• +none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; +• +none of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company was a participant and the amount involved exceeded $120,000; +• +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; +• +none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and +• +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as a director on the Company’s Board of Directors. +26 +Table of Contents +Executive Officers +The following table identifies the executive officers of the Company, +and their ages and positions: +Name +Age +Position +Edward R. Rosenfeld +36 +Chairman of the Board and Chief Executive Officer +Arvind Dharia +62 +Chief Financial Officer and Secretary +Awadhesh Sinha +66 +Chief Operating Officer +Robert Schmertz +48 +Brand Director +Amelia Newton Varela +40 +Executive Vice President of Wholesale +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and was a director of the Company from December 1993 through May 2004. Mr. Dharia has been Secretary of +the Company since 1993. From December 1988 until joining the Company in September 1992, Mr. Dharia was Assistant Controller +of Millennium III Real Estate Corp., a real estate management company. +Awadhesh Sinha became the Chief Operating Officer of the Company in July +2005. Mr. Sinha was a director of the Company, from October 2002 to July 2005, before joining the Company as its Chief +Operating Officer. Mr. Sinha was the Chief Operating Officer and Chief Financial Officer of WEAR ME Apparel Inc., a +company that designs, manufactures and markets branded and non-branded children’s clothing, from 2003 to July 2005. Prior +to that, Mr. Sinha worked for Salant Corporation, a company that designs, manufactures and markets men’s clothing, for 22 +years, and held the position of Chief Operating Officer and Chief Financial Officer of Salant Corporation from 1998 to 2003. +Robert Schmertz has been the Brand Director since January 2006. Mr. Schmertz +served as President of Steve Madden Women’s Wholesale Division and Brand Manager from September 2001 through January 2006. Additionally, +Mr. Schmertz served as President of Shoe Biz, Inc., formerly a wholly owned subsidiary of Steven Madden Retail, Inc., from May +1998 through August 2001. Before joining the Company, Mr. Schmertz was President of Daniel Scott Inc. from November +1995 to May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo International from January 1993 +through November 1995. From April 1990 to December 1992, Mr. Schmertz served as a sales representative for Espirit de Corp. based +in San Francisco, California. +Amelia Newton Varela has been Executive Vice President of Wholesale since +April 2008. Ms. Varela was Executive Vice President of Wholesale Sales from November 2004 to April 2008. Previously, +she was Vice President of Sales for Steve Madden Women’s Wholesale Division from January 2000. Prior to that, +she was Account Executive for Steve Madden Women’s Wholesale Division from 1998. Before joining the Company, Ms. +Varela was the sales assistant to the Executive Vice President of Sales for Merrin Financial. She graduated from The +Fashion Institute of Technology in 1995. +Please see the section of this Proxy Statement captioned “Proposal +One: Election of Directors -- Biographical Summaries of Nominees for the Board of Directors” for information concerning the +Company’s Chairman of the Board and Chief Executive Officer, Edward R. Rosenfeld, and the Company’s other directors. +27 +Table of Contents +SUMMARY COMPENSATION TABLE +The following table sets forth the compensation earned for all services +rendered to the Company in all capacities in the 2011, 2010 and 2009 fiscal years, respectively, by the Company’s Chief Executive +Officer, Chief Financial Officer and the three most highly compensated executive officers other than the Chief Executive Officer +and Chief Financial Officer, who were serving at the end of 2011, 2010 and 2009, respectively. In this Proxy Statement, +the Company refers to this group of people as the Company’s “Named Executive Officers.” +Name and Principal Position +Fiscal Year +Salary ($) +Bonus +($) +Stock Awards +($) (1) +Option Awards +($)(1) +Non-Equity Incentive Plan Compensation +($) +All Other Compensation +($) +Total Compensation +($) +Edward R. Rosenfeld +2011 +525,000 +200,000 +886,600 +0 +0 +17,423 (2) +1,629,023 +Chief Executive Officer +2010 +500,000 +100,000 +0 +0 +0 +22,350 (3) +622,350 +2009 +400,000 +100,000 +1,977,000 +742,218 +0 +5,885 (4) +3,225,103 +Arvind Dharia +2011 +528,304 +100,000 +443,300 +0 +0 +105,713 (5) +1,177,317 +Chief Financial Officer +2010 +528,304 +50,000 +364,240 +0 +0 +94,415 (6) +1,036,959 +2009 +479,573 +50,000 +0 +296,887 +0 +97,782 (7) +924,242 +Awadhesh Sinha +2011 +575,000 +150,000 +0 +0 +0 +19,352 (9) +744,352 +Chief Operating Officer +2010 +539,963 +175,500 +1,621,550 +0 +1,000,000 (8) +17,584 (10) +3,354,597 +2009 +540,000 +0 +0 +0 +899,176 (8) +20,994 (11) +1,460,170 +Robert Schmertz +2011 +660,000 +500,000 +332,475 +0 +0 +22,350 (12) +1,514,825 +Brand Director +2010 +660,000 +350,000 +0 +0 +0 +22,350 (12) +1,032,350 +2009 +600,000 +400,000 +0 +1,337,514 +0 +22,750 (13) +2,360,264 +Amelia Newton Varela +2011 +450,000 +186,649 +0 +1,462,500 +63,351 (14) +22,350 (15) +2,184,850 +Executive Vice President +2010 +400,000 +200,000 +0 +500,159 +540,965 (14) +22,350 (15) +1,663,474 +Of Wholesale +2009 +400,000 +0 +0 +556,664 +421,224 (14) +22,750 (16) +1,400,638 +(1) The amounts in this column reflect the aggregate grant +date fair value of awards granted during the applicable year for the fiscal years ended December 31, 2011, December 31, 2010 and +December 31, 2009, respectively, calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts +are included in Notes I or G to the Company’s audited financial statements for the fiscal years ended December 31, 2011, +December 31, 2010 and December 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and +Exchange Commission on February 29, 2012, February 28, 2011 and March 12, 2010, respectively. +(2) Includes the following: $15,000 automobile allowance and +$2,423 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(3) Includes the following: $15,000 automobile allowance and +$7,350 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(4) Includes the following: $1,731 automobile allowance and $4,154 in +annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(5) Includes the following: $14,400 automobile allowance, $83,963 +life insurance premiums and $7,350 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(6) Includes the following: $6,738 automobile allowance, +$80,327 life insurance premiums and $7,350 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(7) Includes the following: $6,136 automobile allowance, $80,202 +life insurance premiums and $11,444 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(8) Represents a non-equity incentive payment made pursuant to a bonus +formula in Mr. Sinha’s employment agreement. See “Employment Arrangements.” +(9) Includes the following: $12,002 automobile allowance and +$7,350 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(10) Includes the following: $10,108 automobile allowance and +$7,476 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(11) Includes the following: $10,411 automobile allowance and $10,583 +in annual matching contributions to Mr. Sinha’s 401(k) plan account. +28 +Table of Contents +(12) Includes the following: $15,000 automobile +allowance and $7,350 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(13) Includes the following: $15,000 automobile allowance and +$7,750 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(14) Represents a non-equity incentive payment made pursuant +to a bonus formula in Ms. Varela’s employment agreement. See “Employment Arrangements. +(15) Includes the following: $15,000 automobile +allowance and $7,350 in annual matching contributions to Ms. Varela’s 401(k) plan account. +(16) Includes the following: $15,000 automobile +allowance and $7,750 in annual matching contributions to Ms. Varela’s 401(k) plan account. +Employment Arrangements +Edward R. Rosenfeld. In April 2008 (effective in March 2008), +the Company entered into an employment agreement with Edward R. Rosenfeld pursuant to which Mr. Rosenfeld agreed to serve as interim +Chief Executive Officer of the Company for a term expiring on December 31, 2009. Effective August 8, 2008, the Company appointed +Mr. Rosenfeld to serve as Chief Executive Officer and executive Chairman of the Board. The terms of Mr. Rosenfeld’s employment +agreement remained unchanged. Under the employment agreement, for the year ended December 31, 2009, the Company agreed to pay Mr. +Rosenfeld an annual base salary of $400,000 and such additional compensation and annual bonus as may be determined from time to +time by the Board of Directors in its sole discretion. In November 2009, the Company entered into a new employment agreement +with Mr. Rosenfeld to replace the prior employment agreement, which expired by its terms on December 31, 2009. Pursuant +to his existing employment agreement, Mr. Rosenfeld continues to serve as Chief Executive Officer of the Company for a term commencing +on November 6, 2009 and expiring on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. He +also continues to serve as the executive Chairman of the Board of Directors of the Company. Pursuant to the existing +agreement, the Company provided to Mr. Rosenfeld as base salary $500,000 and $525,000 during fiscal years 2010 and 2011, respectively. Commencing +January 1, 2012, Mr. Rosenfeld’s base salary increased to and will remain at $551,250 until the agreement expires on December +31, 2012. The employment agreement provides that Mr. Rosenfeld will receive a monthly automobile allowance of $1,250 +and additional compensation and bonuses, if any, will be paid to him at the absolute discretion of the Board of Directors. Pursuant +to his employment agreement, on November 10, 2009, Mr. Rosenfeld was granted 112,500 shares of the Company’s Common Stock, +subject to certain restrictions (the number of shares indicated having been adjusted for three-for-two stock splits effected as +a stock dividend, which occurred on April 30, 2010 and May 31, 2011). These restricted shares of Common Stock, which were issued +under the 2006 Plan, will vest in five equal annual installments of 22,500 shares commencing on the first anniversary of the date +of the award. +In the event of his death, Mr. Rosenfeld’s employment agreement +provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Rosenfeld’s +death. The agreement also provides that if Mr. Rosenfeld’s employment agreement is terminated due to his “total disability” +(as defined in the agreement), Mr. Rosenfeld will receive payment of his base salary for the 12-month period immediately subsequent +to the date he is determined to be totally disabled. Mr. Rosenfeld’s employment agreement allows the Company to +terminate his employment with “cause” (as defined in the employment agreement) or without cause. In the +event that Mr. Rosenfeld’s employment is terminated by the Company for cause, the Company will have no further obligations +to Mr. Rosenfeld, and Mr. Rosenfeld will be entitled to no further compensation from the Company, except for pro-rata amounts due +to him on the date of his termination. In the event that Mr. Rosenfeld’s employment is terminated by the Company +without cause or by Mr. Rosenfeld’s resignation for “good reason” (as defined in the employment agreement), Mr. +Rosenfeld will be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of +termination of employment through the longer of the remainder of the term of the agreement or six months. +In addition, if Mr. Rosenfeld’s employment is terminated by the +Company without cause or by the resignation of Mr. Rosenfeld for good reason during the period commencing 90 days prior to a “change +of control” (as defined in the employment agreement) transaction and ending 180 days following a change of control transaction, +Mr. Rosenfeld will receive an amount equal to three times the average amount of total W-2 compensation actually received by him +during the preceding three calendar years ending on the last previous December 31, except that in lieu of the actual base salary +component received during such period, there shall be substituted the annual base salary to which Mr. Rosenfeld was entitled as +of the date of termination or resignation (the “Change of Control Payment”). However, if the Change of Control +Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 +of the Code, Mr. Rosenfeld shall be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes +to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility +to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without +the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields +the greater after-tax benefit to the executive. +29 +Table of Contents +Arvind Dharia. In January 1998, the Company entered into an employment +agreement with Arvind Dharia, which has been amended from time to time, most recently on February 8, 2012. Pursuant +to Mr. Dharia’s amended agreement, Mr. Dharia agreed to continue to serve as the Company’s Chief Financial Officer. +The term of Mr. Dharia’s employment under his agreement, as amended, extends through December 31, 2014, and will be automatically +extended for an additional one-year period unless either party timely notifies the other of its intention not to extend the term. +Pursuant to the amended agreement, Mr. Dharia received a base salary of $479,573, $528,304 and $528,304 during fiscal years 2009, +2010 and 2011, respectively. Commencing January 1, 2012, Mr. Dharia’s annual base salary increased to and will +remain $554,719 for the remaining term of the agreement. Mr. Dharia received a monthly automobile allowance of $1,200 +prior to the most recent amendment of the agreement and beginning January 1, 2012, his monthly car allowance has increased to $1,400. The +agreement provides that the Company will pay life insurance premiums on Mr. Dharia’s behalf of approximately $80,000 per +year. Mr. Dharia’s employment agreement, as amended, provides for a grant of 10,000 shares of the Company’s +Common Stock, subject to certain restrictions. These restricted shares of Common Stock were issued to Mr. Dharia on +February 8, 2012 under the 2006 Plan and will vest in three substantially equal annual installments commencing on February 8, 2013. In +addition, the amended agreement provides that Mr. Dharia will receive an annual bonus in such amount, if any, and at such time +or times, as the Board of Directors may determine in its absolute discretion. Subject to availability of shares under the 2006 +Plan, or any other plan designated by the Board of Directors and approved by the Company’s stockholders, Mr. Dharia is entitled +to awards under such plan as may be determined by the Board of Directors, or a committee thereof, from time to time in its absolute +discretion. +The agreement provides, in the event of Mr. Dharia’s death, for +the payment to Mr. Dharia’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Dharia’s +death. The agreement also provides that if Mr. Dharia’s employment agreement is terminated due to his “total +disability” (as defined in the agreement), Mr. Dharia will receive payment of his base salary for the 12-month period immediately +subsequent to the date he is determined to be totally disabled. In the event that Mr. Dharia’s employment agreement +is terminated “for cause” (as defined in the agreement), the Company is obligated to pay Mr. Dharia the amount of compensation +that is accrued and unpaid through the date of termination. In the event that Mr. Dharia’s employment agreement is terminated +for any reason (other than “for cause” or due to his death or total disability), the Company is obligated to pay Mr. +Dharia, in two installments, (a) an amount equal to the product of (x) his base salary on the effective date of such termination +plus the bonus paid or payable, if any, for the fiscal year ended on the December 31st immediately preceding the termination date, +multiplied by (y) the number of years (and fraction of years) remaining in the term; and (b) the amount payable to him, or on his +account, for what would have been the balance of the term of his employment agreement with respect to certain benefits and plans +as set forth in his employment agreement. If the Company decides not to renew the agreement (other than “for cause” +or due to his total disability), then Mr. Dharia will be entitled to receive severance compensation, in cash, in an amount equal +to his then-current base salary for the 90-day period commencing on the expiration of the term. +In addition, in the event that there is a “change of control” +transaction and Mr. Dharia’s employment has been terminated by the Company other than “for cause” or if Mr. Dharia +resigns “for good reason” (as such terms are defined in the agreement), Mr. Dharia will receive an amount equal to +three times the total compensation he was entitled to receive under the agreement for the preceding 12-month period ending on the +last previous December 31, except that in lieu of the actual base salary component received during such period, there shall be +substituted the annual base salary to which Mr. Dharia was entitled to as of the date of termination or resignation (the “Change +of Control Payment”). However, if the Change of Control Payment (or a portion thereof) is determined to constitute +an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Dharia will be paid either (i) the Change +of Control Payment (which shall be subject to all applicable taxes to be paid by the executive including the excise tax payable +pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) a reduced amount, calculated in +accordance with Section 280G, that may be paid to the executive without the imposition of an excise tax under Section 4999 and +which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit to the executive. +30 +Table of Contents +Awadhesh Sinha. In June 2005, the Company entered into an employment +agreement with Awadhesh Sinha, which was amended in November 2007 and in October 2008, pursuant to which Mr. Sinha agreed to continue +to serve as the Company’s Chief Operating Officer. Pursuant to his amended employment, Mr. Sinha received a base +salary of $540,000 and $539,963 in fiscal year 2009 and fiscal year 2010, respectively. In respect of each of the Company’s +2009 and 2010 fiscal years, Mr. Sinha was eligible to receive a cash bonus under the Company’s 2006 Plan equal to 3% of the +increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year up to a maximum bonus +of $1,000,000 in any fiscal year. Mr. Sinha received a cash bonus of $1,000,000 and $899,176 for 2010 EBIT performance +and 2009 EBIT performance, respectively. In addition, Mr. Sinha’s employment agreement, as amended, provided for +certain deferred compensation with respect to 2008, 2009 and 2010. For the period commencing July 1, 2008 and ending +December 31, 2008, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount equal +to 25% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation provided +that Mr. Sinha remained in the employ of the Company on December 31, 2010. For the period commencing January 1, 2009 and ending +December 31, 2009, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount equal +to 12.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation +provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. For the period commencing January 1, 2010 and +ending December 31, 2010, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount +equal to 7.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation +provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. Mr. Sinha received a total of $175,500, +in cash, with respect to the deferred additional cash compensation for the 2008, 2009 and 2010 fiscal years subsequent to the end +of the 2010 fiscal year. +On December 1, 2010, the Company entered into a new employment agreement +with Mr. Sinha to replace the prior employment agreement, which was to expire by its terms on December 31, 2010. Pursuant +to the new employment agreement, Mr. Sinha continues to serve as Chief Operating Officer of the Company for a term commencing on +January 1, 2011 and expiring on December 31, 2013, unless sooner terminated in accordance with the terms of the agreement. Mr. +Sinha’s annual base salary is $575,000 for the 2011 Fiscal Year and for the remainder of the term of the agreement. Pursuant +to his employment agreement, Mr. Sinha receives a monthly automobile allowance of $1,750. The employment agreement also +provides that the Company will pay term life insurance premiums on his behalf of approximately $3,500 per year. In addition, +Mr. Sinha’s new employment agreement provides for a grant of 52,500 shares of the Company’s Common Stock, subject to +certain restrictions (the number of shares indicated having been adjusted for a May 31, 2011 three-for-two stock split effected +as a stock dividend). These restricted shares of Common Stock were issued to Mr. Sinha on December 1, 2010 under the 2006 Plan. The +restricted Common Stock will vest in three annual installments of 17,500 shares commencing on the first anniversary of the grant +date. Mr. Sinha’s new employment agreement provides that additional compensation and bonuses, if any, will be +paid to him at the absolute discretion of the Board of Directors. Bonuses and other incentive-based compensation paid +to Mr. Sinha are subject to recovery by the Company in the event of a determination that such compensation was based upon materially +inaccurate financial statements. +In the event of his death, Mr. Sinha’s employment agreement provides +for the payment to Mr. Sinha’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. +Sinha’s death. In the event Mr. Sinha’s employment agreement is terminated due to Mr. Sinha’s “total disability” +or “for cause” (as such terms are defined in the agreement), or due to Mr. Sinha’s resignation without “good +reason” (as such term is defined in the agreement), the Company is obligated to pay Mr. Sinha the amount of compensation +that is accrued and unpaid through the date of termination. In addition, in the event of Mr. Sinha’s total disability, the +Company is obligated to continue to pay Mr. Sinha’s base salary for the 12-month period immediately subsequent to the date +of determination of such total disability. In the event Mr. Sinha’s employment agreement is terminated by the +Company without cause or by the resignation of Mr. Sinha for good reason, Mr. Sinha would be entitled to receive payment of his +annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer of (i) +the remainder of the term or (ii) six months. +31 +Table of Contents +In addition, if Mr. Sinha’s employment is terminated by the Company +without cause or if Mr. Sinha resigns for good reason during the period commencing 120 days prior to a “change of control” +(as defined in the agreement) and ending 180 days after a change of control, Mr. Sinha would be entitled to receive an amount equal +to three times the total W-2 compensation actually received by him during the preceding twelve-month period ending on the last +previous December 31 st , except that, in lieu of the actual base salary compensation +received, the annual base salary to which Mr. Sinha was entitled as of the date of such termination or resignation of employment +shall be substituted (the “Change of Control Payment”). However, if the Change of Control Payment (or a +portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, +Mr. Sinha will be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the +executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) +or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition +of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax +benefit to the executive. +Robert Schmertz. In April 2002, the Company entered into an employment +agreement with Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve Madden Wholesale Women’s +Division and Brand Manager for the Company. The term of the agreement commenced on April 1, 2002 and was extended in +March 2005 and again in March 2007. Pursuant to the amended agreement, the Company agreed to pay Mr. Schmertz an annual +salary of $600,000. In October 2009, the Company entered into a new employment agreement with Mr. Schmertz to replace +the prior employment agreement, which was to expire by its terms on December 31, 2009. Pursuant to the new employment +agreement, Mr. Schmertz continues to serve as Brand Director of the Company for a term commencing on October 7, 2009 and expiring +on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. Mr. Schmertz’s annual +base salary during the period from October 7, 2009 through December 31, 2009 remained $600,000. His annual base salary +was increased to $660,000 commencing on January 1, 2010 for the duration of the term. Mr. Schmertz receives a monthly +automobile allowance of $1,250. Pursuant to the new employment agreement, Mr. Schmertz received a fiscal year 2009 performance +bonus of $300,000 (minus withholding taxes), $200,000 of which was paid to him in October 2009 and the remaining $100,000 of which +was paid to him in March 2010. The new employment agreement provides that Mr. Schmertz may receive additional bonuses, +if any, at the absolute discretion of the Board of Directors. In addition, pursuant to the new employment agreement, +on October 8, 2009, Mr. Schmertz received an option to purchase 112,500 shares of Common Stock, pursuant to the terms of the 2006 +Plan, at an exercise price of $16.49 per share (the number of shares and exercise price indicated having been adjusted for three-for-two +stock splits effected as a stock dividend, which occurred on April 30, 2010 and May 31, 2011). The option vests in equal +annual installments of 22,500 shares over a five-year period on each anniversary of the date of the grant commencing on October +8, 2010 and remains exercisable until October 8, 2016. +In the event of Mr. Schmertz’s death, the employment agreement +provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Schmertz’s +death. The agreement also provides that if Mr. Schmertz’s employment agreement is terminated due to his “total +disability” (as defined in the agreement), Mr. Schmertz will receive payment of his base salary for the 12-month period immediately +subsequent to the date he is determined to be totally disabled. The Company may terminate the employment agreement for +“cause” (as defined in the employment agreement), in which event Mr. Schmertz would be entitled to receive only his +accrued and unpaid base salary through the date of termination. In the event that Mr. Schmertz’s employment is +terminated by the Company without cause, he would be entitled to receive payment of his annual base salary, payable at regular +payroll intervals, from the date of termination through the remainder of the term. In addition, if Mr. Schmertz’s +employment is terminated by the Company without cause during the period commencing 30 days prior to a “change of control” +(as defined in the employment agreement) transaction and ending 180 days after a change of control transaction, he would be entitled +to receive an amount equal to the lesser of (i) the average amount of total compensation actually received by him during the preceding +three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the +Code, such amount to be in lieu of and not in addition to any other payments to which Mr. Schmertz would be entitled in the event +of the termination of his employment. +32 +Table of Contents +Amelia Newton Varela. In October 2004, the Company entered into +an employment agreement with Amelia Newton Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of +Wholesale Sales. In April 2008, the Company entered into a new employment agreement with Ms. Varela, pursuant to which Ms. Varela +agreed to serve as Executive Vice President of Wholesale and Retail for a term commencing on April 29, 2008 and ending on December +31, 2010. Pursuant to the employment agreement, Ms. Varela was granted an option to purchase 56,250 shares of Common +Stock of the Company at an exercise price of $8.35 per share on April 1, 2009 and an option to purchase 56,250 shares of Common +Stock of the Company at an exercise price of $21.76 per share on April 1, 2010 (the number of shares and exercise prices indicated +having been adjusted for three-for-two stock splits effected as a stock dividend, which occurred on April 30, 2010 and May 31, +2011). Such options shall vest 20% each year for five years, commencing on the first anniversary date of the grant of +the options, have a term of seven years and have an exercise price equal to the market price on the grant date. Under Ms. Varela’s +2008 employment agreement, her annual base salary was $400,000 for the 2009 and 2010 fiscal years. Under +the terms of the agreement, the Company agreed to pay Ms. Varela an annual bonus for each of 2009 and 2010 in an amount equal to +2% of the increase, if any, in Wholesale Footwear Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately +prior year, plus 1.5% of the increase, if any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately +prior year. Ms. Varela received a cash bonus of $540,965 and $421,224 for 2010 EBIT performance and 2009 EBIT performance, respectively. In +addition, under her employment agreement, Ms. Varela would be entitled to a cash bonus of $200,000 if still employed by the Company +on December 31, 2010, which bonus was paid to Ms. Varela subsequent to the end of the 2010 fiscal year. +On January 31, 2011, the Company entered into a new employment agreement +with Ms. Varela to replace the prior employment agreement which expired by its terms on December 31, 2010. Pursuant +to her new employment agreement, Ms. Varela will serve as the Executive Vice President - Wholesale for a term commencing January +1, 2011 and expiring on December 31, 2013, unless sooner terminated in accordance with the terms of the agreement. During +the term of her new employment agreement, Ms. Varela will receive an annual base salary of $450,000 and a monthly automobile allowance +of $1,250. In addition, pursuant to the new employment agreement, on February 1, 2011, Ms. Varela was granted an option +to purchase 150,000 shares of the Company’s Common Stock under the 2006 Plan, at an exercise price of $25.45 per share (the +number of shares and exercise price indicated having been adjusted for a May 31, 2011 three-for-two stock split effected as a stock +dividend), which option becomes exercisable in four equal annual installments of 37,500 on each anniversary of the date of grant, +commencing on February 1, 2012. In addition, Ms. Varela is entitled to an annual performance-based cash bonus for each +of the fiscal years ended December 31, 2011, 2012 and 2013 in an amount equal to 2% of the increase, if any, in the Wholesale Division +EBIT for each such year over the Wholesale Division EBIT for the immediately preceding year. Wholesale Division EBIT +attributable to any business acquired by the Company after January 31, 2011 will not be included for the purpose of determining +Ms. Varela’s bonus until the acquired business has been owned by the Company for two full calendar years. Ms. +Varela received a cash bonus of $63,351 for 2011 Wholesale Division EBIT performance. +In the event that Ms. Varela’s employment agreement is terminated +due to Ms. Varela’s “disability” (as defined in the agreement) or death, the Company is obligated to pay Ms. +Varela (or her estate) the amount of accrued and unpaid salary through the date of termination plus any performance-based cash +bonus that has accrued for the year prior to termination and is unpaid at the time Ms. Varela’s employment is terminated +due to her disability or death. The Company may terminate the agreement for “cause” (as defined +in the agreement) and, in such event, Ms. Varela will be entitled only to accrued and unpaid salary through the date of termination +of employment. In the event Ms. Varela’s employment is terminated by the Company without cause, she would be entitled +to receive payment of her annual base salary, payable at regular payroll intervals, from the date of termination of employment +through the remainder of the term plus any performance-based cash bonus that has accrued but not yet been paid. In the +event that Ms. Varela’s employment is terminated by the Company without cause during the period commencing 30 days prior +to a “change of control” (as defined in the agreement) transaction and ending 180 days following a change of control +transaction, she is entitled to receive an amount equal to the lesser of (i) the average amount of total compensation actually +received by her during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to +the Company under Section 280G of the Code. +33 +Table of Contents +GRANTS OF PLAN-BASED AWARDS IN THE 2011 FISCAL YEAR +The following table sets forth information concerning awards under the +Company’s equity and non-equity incentive plans granted to each of the Named Executive Officers in the 2011 Fiscal Year, +including performance-based awards and those using time-based vesting. Following the table is a discussion of material +factors related to the information disclosed in the table. +Estimated future payouts under non-equity incentive plan awards +All Other Stock Awards: Number of Shares of Stock +All Other Option Awards: Number of Securities Underlying +Exercise or Base Price of Option Grant Date Fair Value of Stock and Option +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +or Units +(#) +Options +(#) +Awards +($/Sh) Awards +($) +Edward R. Rosenfeld +03/16/11 +— +— +— +30,000 +— +— +886,600 +Arvind Dharia +03/16/11 +— +— +— +15,000 +— +— +443,300 +Awadhesh Sinha +n/a +— +— +— +— +— +— +— +Robert Schmertz +03/16/11 +— +— +— +11,250 +— +— +332,475 +Amelia Newton Varela +01/31/11 (1) +— +380,051 (2) +— +— +— +— +— +02/01/11 +— +— +— +— +150,000 +25.45 +1,462,500 +(1) Ms. Varela is a party to an employment agreement with the +Company entered into on the date indicated above. Such employment agreement provides that the executive officer will receive a +cash bonus under the Company’s 2006 Plan based on the Company’s performance in the immediately prior fiscal year, +as measured by specified metrics. The employment agreement provides for such bonuses over several years corresponding to the term +of such employment agreement. Since the performance metrics for each year’s awards are set forth in the employment agreement +of the executive officer, the date of such employment agreement is indicated as the grant date of the award. +(2) Under an employment agreement dated January 31, 2011 between the Company +and Ms. Varela, Ms. Varela is entitled to receive a cash bonus under the Company’s 2006 Plan on or about March 15, 2012 in +an amount equal to 2% of the increase, if any, in the Wholesale division EBIT for the 2011 fiscal year over the Wholesale division +EBIT for the 2010 fiscal year. Since it would not be possible to determine the amount of Ms. Varela’s cash bonus, +if any, until the completion of the Company’s 2011 fiscal year, the amount indicated as the target bonus payout is a representative +amount and based upon the actual increase in the EBIT performance of the Company’s Wholesale division for the 2010 fiscal +year over the EBIT performance of the Wholesale division for the 2009 fiscal year. See the discussion of this grant +to Ms. Varela appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific Performance Metrics” +section of “Compensation Structure” and above under “Employment Arrangements.” As disclosed +in the Summary Compensation Table above, Ms. Varela received a cash bonus of $63,351 for 2011 EBIT performance of the Company’s +Wholesale division. +Plan-Based Awards +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the “1999 Plan”), and on June 4, 1999 the Company’s stockholders approved the adoption of the +1999 Plan. Since its adoption, the 1999 Plan has been amended, with stockholder approval, to (i) increase the number +of shares subject to the 1999 Plan, (ii) provide that the exercise price of an option granted under the 1999 Plan shall be no less +than the fair market value of the Common Stock on the date of grant (except to the extent otherwise provided in agreements with +the Company dated prior to the effective date of the amendment), and (iii) prohibit the Board from amending the terms of any option +granted pursuant to the 1999 Plan to reduce the option price. The 1999 Plan was adopted to provide a means whereby directors +and selected employees, officers, agents, consultants, and independent contractors of the Company could be granted incentive stock +options and/or nonqualified stock options to purchase shares of Common Stock, in order to attract and retain the services or advice +of such directors, employees, officers, agents, consultants, and independent contractors and to provide additional incentive for +such persons to exert maximum efforts for the success of the Company by encouraging stock ownership in the Company. As of the Record +Date, options to purchase 22,502 shares of Common Stock were outstanding under the 1999 Plan. No additional options will be granted +under the 1999 Plan. +34 +Table of Contents +2006 Stock Incentive Plan +As of March 10, 2006, the Board of Directors of the Company adopted the +Company’s 2006 Stock Incentive Plan and, on May 26, 2006, the Company’s stockholders approved the adoption of the Company’s +2006 Stock Incentive Plan. The 2006 Stock Incentive Plan was amended in 2007 and 2008. On April 6, 2009, +the Board of Directors adopted an Amended and Restated 2006 Stock Incentive Plan and, on May 22, 2009, the Company’s stockholders +approved the Amended and Restated 2006 Stock Incentive Plan. The Company’s Amended and Restated 2006 Stock Incentive +Plan is referred to as the “2006 Plan” throughout this Proxy Statement. The purpose of the 2006 Plan is +to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible +employees, consultants and non-employee directors cash and stock-based incentives in the Company to attract, retain and reward +such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. +The maximum number of shares of Common Stock available for issuance under +the 2006 Plan is 9,144,000 shares (such number of shares is adjusted for three-for-two stock splits effected as a stock dividend, +which occurred on April 30, 2010 and May 31, 2011). As of the Record Date, there were outstanding 1,613,311 unvested +shares of restricted stock and options to purchase 2,537,802 shares of Common Stock; options had been exercised, or restricted +stock had vested, with respect to 8,376,856 shares of Common Stock; and 767,144 shares of Common Stock remained available for grant +under the 2006 Plan. As discussed in Proposal Two of this Proxy Statement, the Company’s stockholders are being +asked to approve an amendment of the 2006 Plan primarily to increase the number of shares of Common Stock available for issuance +under the 2006 Plan by 6,500,000 shares. +OUTSTANDING EQUITY AWARDS AT END OF THE 2011 FISCAL YEAR +The following table sets forth information concerning unexercised +stock options, restricted stock that has not vested and stock awards outstanding for each of the Named Executive Officers as of +the end of the 2011 Fiscal Year. All awards that occurred prior to the three-for-two split of the Company’s Common +Stock effectuated as a stock dividend on or about April 30, 2010 and the three-for-two split of the Company’s Common Stock +effectuated as a stock dividend on or about May 31, 2011 have been adjusted to account for each such stock split, as applicable. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options +(#) Exercisable +Number of securities Underlying Unexercised Options +(#) Unexercisable +Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options +(#) +Option Exercise Price +($) +Option Expiration Date +Number of Shares or Units of Stock That Have Not Vested +(#) +Market Value of Shares or Units of Stock That Have Not Vested +($) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested +($) +Edward R. Rosenfeld +24,000 +36,000 (1) +— +8.0733 +3/24/2015 +106,500 (2) +3,674,250 +— +— +112,500 +112,500 (1) +— +8.3467 +4/1/2016 +— +— +— +— +Arvind Dharia +19,002 +— +— +5.2600 +5/27/2015 +38,400 (3) +1,324,800 +— +— +45,000 +45,000 (4) +— +8.3467 +4/1/2016 +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +35,000 (5) +1,207,500 +— +— +Robert Schmertz +— +84,375 (6) +— +8.3467 +4/1/2016 +56,250 (7) +1,940,625 +— +— +22,500 +67,502 (6) +— +16.4866 +10/8/2016 +— +— +— +— +Amelia Newton Varela +— +45,002 (8) +— +8.5866 +4/29/2015 +— +— +— +— +— +84,375 (8) +— +8.3467 +4/1/2016 +— +— +— +— +— +45,001 (8) +— +21.6867 +4/1/2017 +— +— +— +— +— +150,000 (8) +— +25.4467 +2/1/2018 +— +— +— +— +(1) On March 24, 2008, Mr. Rosenfeld was granted an option to purchase 90,000 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first +anniversary of the date of grant. On April 1, 2009, Mr. Rosenfeld was granted an option to purchase 225,000 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first +anniversary of the date of grant. +35 +Table of Contents +(2) On March 6, 2007, Mr. Rosenfeld was awarded 45,000 shares of restricted Common Stock, which shares +vest in five equal annual installments commencing on the first anniversary of the date awarded. On November 10, 2009, Mr. Rosenfeld +was awarded 112,500 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first +anniversary of the date awarded. On March 16, 2011, Mr. Rosenfeld was awarded 30,000 shares of restricted Common Stock, which shares +vest in four equal annual installments commencing on the first anniversary of the date awarded. +(3) On March 6, 2007, Mr. Dharia was awarded 45,000 shares of restricted Common Stock, which shares vest +in five equal annual installments commencing on the first anniversary of the date awarded. On March 9, 2010, Mr. Dharia was awarded +18,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on April 1, 2011. On March +16, 2011, Mr. Dharia was awarded 15,000 shares of restricted Common Stock, which shares vest in four equal annual installments +commencing on the first anniversary of the date awarded. +(4) On April 1, 2009, Mr. Dharia was granted an option to purchase 90,000 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first +anniversary of the date of grant. +(5) On December 1, 2010, Mr. Sinha was awarded 52,500 shares of restricted Common Stock, which shares +vest in three equal annual installments commencing on the first anniversary of the date awarded. +(6) On April 1, 2009, Mr. Schmertz was granted an option to purchase 168,750 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first +anniversary of the date of grant. On October 8, 2009, Mr. Schmertz was granted an option to purchase 112,500 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first +anniversary of the date of grant. +(7) On March 9, 2007, Mr. Schmertz was awarded 225,000 shares of restricted Common Stock, which shares +vest in five equal annual installments commencing on the first anniversary of the date awarded. On March 16, 2011, Mr. Schmertz +was awarded 11,250 shares of restricted Common Stock, which shares vest in four equal annual installments commencing on the first +anniversary of the date awarded. +(8) On April 29, 2008, Ms. Varela was granted an option to purchase 112,500 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first +anniversary of the date of grant. On April 1, 2009, Ms. Varela was granted an option to purchase 168,750 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first +anniversary of the date of grant. On April 1, 2010, Ms. Varela was granted an option to purchase 56,250 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first +anniversary of the date of grant. On February 1, 2011, Ms. Varela was granted an option to purchase 150,000 shares of the Company’s +Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first +anniversary of the date of grant. +OPTION EXERCISES AND STOCK VESTED IN THE 2011 FISCAL YEAR +The following table sets forth information concerning stock options exercised +and restricted stock vested during the 2011 Fiscal Year for each of the Named Executive Officers. The value realized from exercised +options is deemed to be the market value of the Common Stock on the date of exercise, less the exercise price of the option, multiplied +by the number of shares of Common Stock underlying the option. The value realized from the vesting of restricted stock is deemed +to be the market value of the Common Stock on the date of vesting multiplied by the number of shares vesting. +Option Awards +Stock Awards +Name +Number of Shares Acquired on Exercise +(#) +Value Realized on Exercise +($) +Number of Shares Acquired on Vesting +(#) +Value Realized on Vesting +($) +Edward R. Rosenfeld +— +— +31,500 +1,039,455 +Arvind Dharia +45,003 +1,285,736 +12,600 +382,908 +Awadhesh Sinha +37,502 +950,419 +17,500 +614,775 +Robert Schmertz +42,188 +1,232,156 +45,000 +1,386,600 +Amelia Newton Varela +118,124 +3,212,276 +— +— +36 +Table of Contents +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The following table sets forth information as of December 31, 2011 with +respect to compensation plans (including individual compensation arrangements) under which shares of Common Stock are authorized +for issuance, aggregated as follows: +• +All compensation plans previously approved by security holders; and +• +All compensation plans not previously approved by security holders. +EQUITY COMPENSATION PLAN INFORMATION +Number of securities to be issued upon exercise of outstanding options, warrants and rights +(#) +Weighted average exercise price of outstanding options, warrants and rights +($) +Number of securities remaining available for future issuance under equity compensation plans (excluding +securities reflected in +column (a)) +(#) +Equity compensation plans approved by security holders +2,703,000 +17.79 +2,695,000 +Equity compensation plans not approved by security holders +— +— +— +Total +2,703,000 +17.79 +2,695,000 +Termination, Change in Control and Non-Competition/Non-Solicitation +The employment agreements for all the Named Executive Officers provide +for a severance payment upon a termination of employment in connection with a change-in-control of the Company. The employment +agreements of Messrs. Rosenfeld, Dharia and Sinha also provide for severance payment if the executive terminates his employment +for good reason in connection with a change-in-control event. The change-in-control severance payments may result in +the application of the “golden parachute” provisions of Section 280G of the Code and, to the extent Section 280G applies, +the Company may not deduct from its taxable income the severance payments made to the Named Executive Officer. Moreover, +Section 4999 of the Code would impose a 20% excise tax on the Named Executive Officer receiving the severance payment. In +the case of Mr. Schmertz and Ms. Varela, these severance payments in connection with a change-in-control, however, are reduced +if the severance payment, when added to any other benefits triggered by a change-of-control, is determined to constitute an “excess +parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is deductible to the Company under +Section 280G of the Code. In the case of Messrs. Rosenfeld, Dharia and Sinha, the executive’s change-in-control +severance payment will only be reduced to the maximum amount that is deductible to the Company under Section 280G of the Code if +the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive officer will +receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable for the 20% +excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction by the Company +of the portion of the severance payment constituting an excess parachute payment will be disallowed. +37 +Table of Contents +The Company’s employment agreements with each of the Named Executive +Officers also provide for severance payments to the executive if the Company terminates the executive’s employment without +cause, or, in the case of Mr. Rosenfeld and Mr. Sinha, if the Company gives him good reason to terminate employment. +Please see the section of this Proxy Statement captioned “Employment +Arrangements” for a summary description of the Named Executive Officers’ employment agreements and such severance and +change-in-control provisions. These benefits are described and quantified in the section of this Proxy Statement captioned “Potential +Payments Upon Termination or Change-In-Control” below. +The Company believes that the severance payments and payments made upon +change-in-control provisions in the employment agreements provide appropriate protection to the Company’s executives, comparable +to that available at peer companies, and, with regard to the enhanced severance following a change-in-control, protects the Company +from losing key executives during a period when a change-in-control may be threatened or pending. These benefits are described +and quantified in the section below captioned “Potential Payments Upon Termination or Change-In-Control.” +Ms. Varela has agreed to a non-compete and non-solicitation restriction +through the expiration date of her employment agreement, December 31, 2013, in the event of a voluntary termination or termination +for cause. Messrs. Rosenfeld and Sinha have each agreed to a non-compete and non-solicitation restriction during the period of +his employment and for a six-month period following the termination of his employment for cause or in the event of his resignation +without good reason. Mr. Schmertz has agreed to a non-compete and non-solicitation restriction through the term of his +employment agreement, which ends on December 31, 2012. Mr. Dharia does not have non-compete or non-solicitation provisions +in his employment agreement. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The Company’s employment agreements with the Named Executive +Officers provide for payments to such individuals upon termination of employment or a change-in-control of the Company. Please +see the section of this Proxy Statement captioned “Employment Arrangements.” The amounts set forth in the +table below shall be payable to the respective Named Executive Officer if such Named Executive Officer’s employment is terminated +under the various scenarios set forth below. +NAME AND PRINCIPAL POSITION +CASH PAYMENT +CONTINUATION OF MEDICAL / WELFARE BENEFITS (PRESENT VALUE) +ACCELERATION AND CONTINUATION OF EQUITY AWARD +REDUCTION OF BENEFITS UPON A CHANGE-IN- +CONTROL (1) +TOTAL TERMINATION BENEFITS +($) +($) +($) +($) +($) +TERMINATION DUE TO DEATH +Edward R. Rosenfeld +551,250 (2) +12,524 (3) +— +— +563,774 +Arvind Dharia +554,719 (4) +12,939 (3) +— +— +567,658 +Awadhesh Sinha +575,000 (5) +12,939 (3) +— +— +587,939 +Robert Schmertz +660,000 (6) +— +— +— +660,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION DUE TO TOTAL DISABILITY +Edward R. Rosenfeld +551,250 (2) +— +— +— +525,000 +Arvind Dharia +554,719 (4) +— +— +— +528,304 +Awadhesh Sinha +575,000 (5) +— +— +— +575,000 +Robert Schmertz +660,000 (6) +— +— +— +660,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON +Edward R. Rosenfeld +— +— +— +— +— +Arvind Dharia +— +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +Robert Schmertz +— +— +— +— +— +Amelia Newton Varela +— +— +— +— +— +TERMINATION OTHER THAN FOR CAUSE; RESIGNATION FOR GOOD REASON +Edward R. Rosenfeld +551,250 (7) +— +— +— +551,250 +Arvind Dharia +1,664,157 (8) +96,902 (9) +— +— +1,761,059 +Awadhesh Sinha +1,150,000 (10) +— +— +— +1,150,000 +Robert Schmertz +660,000 (11) +— +— +— +660,000 +Amelia Newton Varela +900,000 (12) +— +— +— +900,000 +TERMINATION UPON A CHANGE-IN-CONTROL +Edward R. Rosenfeld +3,220,514 (13) +— +7,567,841 (14) +(2,184,412 ) +10,788,355 (17) +Arvind Dharia +1,734,000 (15) +— +2,501,699 (14) +— +4,235,699 +Awadhesh Sinha +3,778,725 (16) +— +1,207,500 (14) +— +4,986,225 +Robert Schmertz +6,872,080 (18) +— +5,363,250 (14) +(1,151,379 ) +12,235,330 (17) +Amelia Newton Varela +3,655,321 (19) +— +5,307,411 (14) +(684,128 ) +8,962,732 (17) +38 +Table of Contents +(1) +The employment agreements of four of the Named Executive Officers provide that severance payments in connection with a change-in-control are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is deductible to the Company under Section 280G of the Code. The employment agreements of the remaining Named Executive Officers indicate that the executive’s +change-in-control severance payment will only be reduced to the maximum amount that is deductible to the Company under Section 280G of the Code if the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive officer will receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable for the 20% excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction by the Company of the portion of the severance payment constituting an excess parachute payment will be disallowed. +(2) +Consists of Mr. Rosenfeld’s 2012 base salary of $551,250, which would be paid at regular intervals. +(3) +Consists of medical benefits. +(4) +Consists of Mr. Dharia’s 2012 base salary of $554,719, which would be paid at regular intervals. +(5) +Consists of Mr. Sinha’s 2012 base salary of $575,000, which would be paid at regular intervals. +(6) +Consists of Mr. Schmertz’s 2012 base salary of $660,000, which would be paid at regular intervals. +(7) +Consists of the base salary ($551,250 for 2012) that would have been paid to Mr. Rosenfeld during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Rosenfeld would receive these payments at regular intervals. +(8) +Consists of Mr. Dharia’s 2012 base salary of $554,719 multiplied by the number of years (and fraction of years) remaining in the term of his employment agreement, which expires on December 31, 2014. Mr. Dharia would receive 50% of this payment immediately and the remaining 50% would be paid to him one year later (i.e., on December 31, 2012). +(9) +Consists of one times the sum of Mr. Dharia’s life insurance payment ($83,963 per year) plus medical benefits ($12,939 per year). +(10) +Consists of the base salary ($575,000 for the years ending December 31, 2012 and 2013) that would have been paid to Mr. Sinha during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2013. Mr. Sinha would receive these payments at regular intervals. +(11) +Consists of an annual base salary of $660,000 that would have been paid to Mr. Schmertz during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Schmertz would receive these payments at regular intervals. +(12) +Consists of the base salary of $450,000 that would have been paid to Ms. Varela during the remainder of the term of her employment until the expiration of her employment agreement on December 31, 2013. Ms. Varela would receive these payments at regular intervals. +(13) +Consists of three times the average total compensation Mr. Rosenfeld actually received for the preceding three calendar years, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions thereof) to Mr. Rosenfeld determined to constitute an “excess parachute payment” may be reduced to the maximum amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2011 change-in-control, this amount would have been reduced by $2,184,412 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Rosenfeld’s employment agreement under “Employment Arrangements.” +(14) +The amount disclosed represents the total value of the restricted stock and stock options which would have received accelerated vesting upon a hypothetical change in control on December 31, 2011. +(15) +Consists of three times the total compensation Mr. Dharia actually received for the preceding twelve calendar months, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Dharia was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions thereof) to Mr. Dharia determined to constitute an “excess parachute payment” may be subject to reduction to the maximum amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2011 change-in-control, no payments to Mr. Dharia would have been subject to reduction. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Dharia’s employment agreement under “Employment Arrangements.” +(16) +Consists of three times the sum of base compensation and certain benefits Mr. Sinha actually received for the preceding twelve calendar months, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Sinha was entitled as of the date of termination or resignation. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Sinha’s employment agreement under “Employment Arrangements.” +(17) +The total amount does not include the amount deducted pursuant to Section 280G of the Code. +(18) +Consists of three times the average total compensation Mr. Schmertz actually received for the preceding three calendar years. Upon a hypothetical December 31, 2011 change-in-control, this amount would have been reduced by $1,151,379 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Schmertz’s employment agreement under “Employment Arrangements.” +(19) +Consists of three times the average total compensation Ms. Varela actually received for the preceding three calendar years. Upon a hypothetical December 31, 2011 change-in-control, this amount would have been reduced by $684,128 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Ms. Varela’s employment agreement under “Employment Arrangements.” +39 +Table of Contents +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation +Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the +Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of the Company’s Board +of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +PROPOSAL TWO: +APPROVAL OF THE AMENDMENT OF +STEVEN MADDEN, LTD. 2006 STOCK INCENTIVE PLAN +We are asking our stockholders to approve an amendment to the Company’s +2006 Stock Incentive Plan, as previously amended (which we refer to in this Proposal as the “2006 Plan”), primarily +to increase the number of shares of Common Stock available for issuance under the 2006 Plan by 6,500,000. We are proposing +the increase in the number of shares available under the 2006 Plan to enable us to continue offering effective equity compensation +to our employees, non-employee directors and consultants and to take advantage of the significant motivation and retention benefits +provided by equity compensation. Our Board of Directors unanimously approved the proposed amendment (which we refer +to in this Proposal as the “Amendment”) of the 2006 Plan on April 5, 2012, subject to stockholder approval. If +approved by the stockholders, the Amendment will become effective as of the date of the Annual Meeting. +The Amendment will effectuate the following modifications to the 2006 +Plan: +• +increase by 6,500,000 shares of Common Stock the current share reserve of 9,144,000 shares of Common Stock (which reflects the 3-for-2 stock splits that became effective on April 30, 2010 and May 31, 2011), for a total share reserve under the 2006 Plan of 15,644,000 shares of Common Stock; +• +increase the current exchange ratio applicable to awards that are not appreciation awards (such as restricted stock awards, certain other stock-based awards and performance-based awards) from 1.78 shares for every share of Common Stock granted to 1.93 shares for every share of Common Stock granted; +• +increase the limitation on the number of shares of Common Stock with respect to which any stock option, stock appreciation right or shares of restricted stock that are subject to the attainment of specified performance goals that may be granted during any fiscal year from 1,350,000 shares per type of award to 1,800,000 shares per type of award; +• +increase the limitation on the number of shares of Common Stock with respect to all awards from 1,687,500 shares to 2,000,000 shares during any fiscal year; and +• +increase the limitation on the number of shares of Common Stock with respect to any award of performance shares during any fiscal year from 675,000 shares to 1,800,000 shares. +40 +Table of Contents +Purpose and Background of the Proposal to Amend the 2006 Plan +The purpose of the Amendment is to provide the Company with a sufficient +reserve of shares of Common Stock to offer appropriate incentives to our employees, non-employee directors and consultants. Since +the adoption and approval of the 2006 Plan, as amended and restated, in 2009, our business has grown organically and +through several business acquisitions since 2009, resulting in approximately 2,612 individuals currently employed by the Company, +a 57% increase in headcount since our stockholders last voted in favor of an increase in the number of shares originally reserved +under the 2006 Plan. We believe that the Company’s success has been primarily attributable to its strong management +team and creative design talent and we seek to retain our highly qualified employees and recruit others to ensure the Company’s +continued growth and profitability. We continue to believe that equity compensation is an essential component of our +overall compensation program effective to motivate key employees, to reduce the risk of recruitment of top executive and creative +design talent and to effectively align employee compensation with stockholder interests. +The 2006 Plan was originally adopted by the Board of Directors in March +2006 and approved by the stockholders in May 2006 as a successor plan to a prior stock option plan. The 2006 Plan was +subsequently amended in 2007 and 2008, and on April 6, 2009, an amendment and restatement of the 2006 Plan, which included an increase +in the number of shares available for issuance under the 2006 Plan, was adopted by the Board of Directors and later approved by +our stockholders. As no additional shares are available for grants under the Company’s prior incentive +plans, the 2006 Plan is the sole available plan for granting equity compensation to our employees, non-employee directors and consultants +at this time. +Each year, the Compensation Committee of our Board of Directors and our +management team review our compensation strategy and seek guidance from the Company’s compensation consultant to determine +the appropriate allocations of cash and equity compensation to foster the Company’s with philosophy of providing competitive +compensation that is commensurate with performance. Since it is not possible to predict with certainty the number of +shares that will be needed for effective incentive and compensatory purposes, we consider it prudent to maintain reserve of shares +to meet anticipated and unanticipated needs. Therefore, the Board has approved the Amendment, which we believe will +enhance the profitability and value of the Company for the benefit of its stockholders by enabling us the flexibility to continue +to offer stock-based incentives. The Board’s adoption of the Amendment is subject to the approval of the Company’s +stockholders. +As of April 5, 2012, 767,144 shares of Common Stock were available for +future grants under the 2006 Plan. If this Proposal is approved by our stockholders, an additional 6,500,000 shares +of Common Stock will be available for future grants under the 2006 Plan for a total of 15,644,000 shares of Common Stock reserved +for issuance under the 2006 Plan. If the Amendment is not approved, the Company may continue to grant awards separately +under the 2006 Plan in accordance with the current terms and the current share reserve under the 2006 Plan and, thereafter, we +will be unable to grant equity compensation and will need to consider other compensation alternatives, such as increasing cash +compensation. As discussed on page 14 of this Proxy Statement under the heading “Certain Relationships and Related +Party Transactions,” on February 8, 2012, the Company awarded its founder and Creative and Design Chief, Steven Madden, 975,371 +restricted shares of Common Stock under the 2006 Plan pursuant to an amended employment agreement with Mr. Madden intended to, +among other things, relieve the Company of certain cash bonus obligations to Mr. Madden. Also under this amended agreement, +Mr. Madden has the right, exercisable on certain specified dates in fiscal year 2012 only, to elect to receive an additional restricted +stock award for a number of shares of Common Stock valued at $40 million in consideration of a reduction in his annual base salary +in subsequent years. +41 +Table of Contents +The Board recommends that stockholders approve the Amendment. If +the requisite stockholder approval of the Amendment is not obtained, the Amendment will not take effect. The affirmative vote of +the holders of a majority of the outstanding shares of the Common Stock present or represented by proxy and entitled to vote at +the Annual Meeting is required to approve the 2006 Plan. +Historical Grant Information +Any future awards under the 2006 Plan will be granted at the discretion +of the Compensation Committee or the Board of Directors and are not yet determinable. Pursuant to SEC rules, the table below shows +the amount of options received under the 2006 Plan to date (or to be received under the 2006 Plan, if determinable) by the persons +and groups of persons identified in the table. The table does not include any information on future awards under the 2006 Plan. No +associate of a director, director nominee or an executive officer has been granted an option under the 2006 Plan unless such person +was an employee, executive officer or director of the Company at the time of such grant. No single person has received or is to +receive as much as five percent of the options, warrants or rights granted or that may be granted under the 2006 Plan. On +April 5, 2012, the closing sale price for our shares of Common Stock, as reported by The Nasdaq Global Select Market was $43.42 +per share. +Persons or groups of persons +Options granted under the 2006 Plan from May 26, 2006 to +April 5, 2012 (number of shares) +Edward R. Rosenfeld, Chairman of the Board and Chief Executive Officer, director nominee +315,000 +Arvind Dharia, Chief Financial Officer +90,000 +Awadhesh Sinha, Chief Operating Officer +112,502 +Robert Schmertz, Brand Director +281,252 +Amelia Newton Varela, Executive Vice President of Wholesale +487,502 +All current executive officers, as a group +1,286,256 +All current directors who are not executive officers, as a group +0 +Each nominee for election as a director: +Edward R. Rosenfeld +315,000 +John L. Madden +0 +Peter Migliorini +0 +Richard P. Randall +0 +Ravi Sachdev +0 +Thomas Schwartz +0 +All employees, including all current officers who are not executive officers, as a group +4,577,418 +Additional information about our equity plans and grant practices can +be found elsewhere in this Proxy Statement under the headings “Compensation Discussion and Analysis” and “Equity +Compensation Plan Information” and in Note I to the financial statements contained in our 2011 Annual Report on Form 10-K, +filed with the SEC on February 29, 2012. We refer you to the section captioned “Equity Compensation Plan Information” +on page 39 of this Proxy Statement where we provide information about shares of Common Stock that may be issued under our existing +equity compensation plans as of December 31, 2011. In addition, the complete text of the 2006 Plan (as amended +if this Proposal Two is approved), marked to show the changes implemented by the Amendment, is attached as Annex A to this +Proxy Statement. +42 +Table of Contents +Description of the 2006 Plan +The following is a brief description of certain important features of +the 2006 Plan, which takes into account the effect of the Amendment. This summary is qualified in its entirety by reference +to the full text of the 2006 Plan (as proposed to be amended by the Amendment), which is attached as Annex A. If +Proposal Two is approved, we intend to file a registration statement on Form S-8, pursuant to the Securities Act of 1933, as amended, +to register the additional shares of Common Stock authorized for grant under the 2006 Plan. +Administration. The 2006 Plan requires that it be administered +by a committee consisting of two or more non-employee directors, each of whom will be, to the extent required, a “non-employee +director” as defined in Rule 16b-3 of the Exchange Act, an “outside director” as defined under Section 162(m) +of the Code and an “independent director” as defined under NASDAQ Rule 5605(a)(2) (the “Committee”). The +Committee has full authority under the 2006 Plan to administer and interpret the 2006 Plan, to grant discretionary awards, to determine +the individuals to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions +of each award, to determine the number of shares of Common Stock to be covered by each award and to make all other determinations +in connection with the 2006 Plan and the awards thereunder. The terms and conditions of individual awards are to be +set forth in written agreements that are consistent with the terms of the 2006 Plan and awards may not be made on or after April +6, 2019, except that awards (other than stock options or stock appreciation rights) that are intended to be “performance-based” +under Section 162(m) of the Code will not be made on or after the first stockholders’ meeting that occurs in the fifth year +following the year of the 2006 Plan’s approval by the Company’s stockholders, that is, the date of the first stockholders’ +meeting in 2014. Currently, the Compensation Committee of the Board serves as the Committee under the 2006 Plan. +Eligibility and Types of Awards. As of April 9, 2012, the Company +had 2,612 employees, all of whom were eligible to participate under the 2006 Plan. Our non-employee directors, currently +four directors, as well as individuals providing consulting or advisory services to the Company or its affiliates pursuant to a +written agreement, are also eligible to receive awards under the 2006 Plan. The types of awards available under the +2006 Plan consist of nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based +awards and performance-based cash awards. In addition, the Company’s employees and employees of the Company’s affiliates +that qualify as subsidiaries or parent corporations (as defined under Section 424 of the Code) are eligible to be granted incentive +stock options under the 2006 Plan. +Available Shares. Assuming that the stockholders approve the Amendment, +a total of 15,644,000 shares will have been reserved for issuance under the 2006 Plan. This number includes our current +share reserve of 9,144,000 shares of Common Stock, which reflects the 3-for-2 stock splits that became effective on each of April +30, 2010 and May 31, 2011 (the “Stock Splits”), and 6,500,000 shares as an additional amount of new shares of Common +Stock included as part of the Amendment. +The maximum number of shares of Common Stock with respect to which any +stock option, stock appreciation right or shares of restricted stock that are subject to the attainment of specified performance +goals and intended to satisfy Section 162(m) of the Code that may be granted under the Plan during any fiscal year to any eligible +employee or consultant will be 1,500,000 shares (an increase of 150,000 shares over that presently allowable under the 2006 Plan) +per type of award, subject to a total limit on the number of shares of Common Stock with respect to all awards of 1,800,000 shares +(an increase of 112,500 shares over that presently allowable under the 2006 Plan) during any fiscal year. There are no annual limits +on the number of shares of Common Stock with respect to an award to eligible employees or consultants of restricted stock that +is not subject to the attainment of specified performance goals. The maximum number of shares of Common Stock with respect to any +award of performance shares to an eligible employee or consultant during any fiscal year is 1,500,000 shares (an increase of 825,000 +shares over that presently allowable under the 2006 Plan).In each instance, the number of shares indicated in this paragraph have +been adjusted for the Stock Splits. +The maximum number of shares of Common Stock with respect to which any +stock option (other than incentive stock options), stock appreciation right, performance share or other stock-based award that +may be granted under the Plan during any fiscal year to any non-employee director will be 337,500 shares per type of award, subject +to a total limit on the number of shares of Common Stock with respect to all awards of 450,000 shares during any fiscal year. The +Amendment does not contemplated an increase in this limit but it does reflect the Stock Splits. +43 +Table of Contents +The maximum payment that may be made to an eligible employee or consultant +under any performance-based cash award during any fiscal year and subject to the attainment of specified performance goals is $10,000,000. +Awards granted under the 2006 Plan to non-employee directors cannot exceed more than 10% of the total number of shares of Common +Stock reserved for awards under the 2006 Plan. +The 2006 Plan requires that the Committee appropriately adjust the above +individual maximum share limitations, the aggregate number of shares of Common Stock available for the grant of awards and the +exercise price of an award to reflect any change in the Company’s capital structure or business by reason of certain corporate +transactions or events, such as the Stock Splits. +Under the 2006 Plan, the number of shares of Common Stock available for +awards are reduced by (i) the total number of options or stock appreciation rights exercised, regardless of whether any of the +shares of Common Stock underlying such awards are actually issued to the participant as the result of a net settlement, (ii) any +shares of Common Stock used to pay any exercise price or tax withholding obligation with respect to any award and (iii) any shares +of Common Stock repurchased by the Company on the open market with the proceeds of a stock option exercise price. +Fungible Share Limit. The 2006 Plan includes a “fungible +share limit” to manage authorized shares in order to improve the flexibility of awards going forward. Under the 2006 Plan’s +fungible share design: +• +shares of Common Stock subject to awards that are not appreciation awards count against the 2006 Plan’s share reserve as 1.93 shares (an increase from 1.78 shares prior to the Amendment) for every share of Common Stock granted; +• +each share of Common Stock underlying an appreciation award granted that expires, terminates, is cancelled or is forfeited for any reason, is added back to the 2006 Plan’s aggregate maximum share limit and again, available for grant; and +• +each share of Common Stock underlying an award that is not an appreciation award that expires, terminates, is cancelled or is forfeited for any reason, is added back to the 2006 Plan’s share reserve as 1.93 shares (an increase from 1.78 shares prior to the Amendment) of Common Stock and is available for grant. +The 2006 Plan’s fungible share limit has the effect of reducing +the number of awards under the 2006 Plan that are not appreciation awards because awards under the 2006 Plan that are not appreciation +awards count against the 2006 Plan’s share reserve as 1.93 shares for every share of Common Stock granted rather than on +a one-for-one basis. +Awards Under the 2006 Plan. The following types of awards are +available under the 2006 Plan; the types of awards are not modified by the Amendment: +Stock Options. The Committee may grant nonqualified stock options +and incentive stock options (only to eligible employees) to purchase shares of Common Stock. The Committee will determine the number +of shares of Common Stock subject to each option, the term of each option, which may not exceed seven years (or five years in the +case of an incentive stock option granted to a 10% stockholder), the exercise price, the vesting schedule (if any), and the other +material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less than the +fair market value of the Common Stock at the time of grant (or, in the case of an incentive stock option granted to a 10% stockholder, +110% of fair market value). +Options will be exercisable at such time and subject to such terms and +conditions as determined by the Committee at grant and the exercisability of such options may be accelerated by the Committee in +its sole discretion, provided that no option is exercisable more than seven years after the date the option is granted and, in +the case of a ten percent Stockholder, five years from the date an incentive stock option is granted. Upon the exercise +of an option, the participant must make payment of the full exercise price, either (i) in cash, check, bank draft or money order; +(ii) solely to the extent permitted by law, through the delivery of irrevocable instructions to a broker reasonably acceptable +to the Company to deliver promptly to the Company an amount equal to the purchase price; or (iii) on such other terms and condition +as a may be acceptable to the Committee. +44 +Table of Contents +Stock Appreciation Rights. The Committee may grant stock appreciation +rights (“SARs”) either with a stock option which may be exercised only at such times and to the extent the related +option is exercisable (“Tandem SAR”) or independent of a stock option (“Non-Tandem SARs”). A SAR is a right +to receive a payment in Common Stock or cash (as determined by the Committee) equal in value to the excess of the fair market value +of one share of Common Stock on the date of exercise over the exercise price per share established in connection with the grant +of the SAR. The term of each SAR may not exceed seven years. The exercise price per share covered by a SAR will be the exercise +price per share of the related option in the case of a Tandem SAR and will be the fair market value of the Common Stock on the +date of grant in the case of a Non-Tandem SAR. The Committee may also grant “limited SARs,” either as Tandem SARs or +Non-Tandem SARs, which may become exercisable only upon the occurrence of a change in control (as defined in the 2006 Plan) or +such other event as the Committee may, in its sole discretion, designate at the time of grant or thereafter. +Restricted Stock. The Committee may award shares of restricted +stock. Except as otherwise provided by the Committee upon the award of restricted stock, the recipient generally has the rights +of a stockholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted +stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions +and restrictions generally applicable to restricted stock or specifically set forth in the recipient’s restricted stock agreement. +The Committee may determine at the time of award, that the payment of dividends, if any, will be deferred until the expiration +of the applicable restriction period. Recipients of restricted stock are required to enter into a restricted stock agreement +with the Company, which states the restrictions to which the shares are subject, which may include satisfaction of pre-established +performance goals, and the criteria or date or dates on which such restrictions will lapse. +If the grant of restricted stock or the lapse of the relevant restrictions +is based on the attainment of performance goals, the Committee will establish for each recipient the applicable performance goals, +formulae or standards and the applicable vesting percentages with reference to the attainment of such goals or satisfaction of +such formulas or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate +provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, +dispositions and acquisitions) and other similar events or circumstances. Section 162(m) of the Code requires that performance +awards be based upon objective performance measures. The performance goals for performance-based restricted stock are based on +one or more of the objective criteria set forth on Exhibit A to the 2006 Plan and discussed in general below. +Performance Shares. The Committee may award performance shares. +A performance share is the equivalent of one share of Common Stock. The performance goals for performance shares are based on one +or more of the objective criteria set forth on Exhibit A to the 2006 Plan and discussed in general below. A minimum level of acceptable +achievement will also be established by the Committee. If, by the end of the performance period, the recipient has achieved the +specified performance goals, he or she will be deemed to have fully earned the performance shares. To the extent earned, the performance +shares will be paid to the recipient at the time and in the manner determined by the Committee in cash, shares of Common Stock +or any combination thereof. +Other Stock-Based Awards. The Committee may, subject to limitations +under applicable law, make a grant of such other stock-based awards (including, without limitation, performance units, dividend +equivalent units, stock equivalent units, restricted stock units and deferred stock units) under the 2006 Plan that are payable +in cash or denominated or payable in or valued by shares of Common Stock or factors that influence the value of such shares. The +Committee will determine the terms and conditions of any such other awards, which may include the achievement of certain minimum +performance goals for purposes of compliance with Section 162(m) of the Code and/or a minimum vesting period. The performance goals +for performance-based other stock-based awards are based on one or more of the objective criteria set forth on Exhibit A to the +2006 Plan and discussed in general below. +45 +Table of Contents +Performance-Based Cash Awards. The Committee may, subject to limitations +under applicable law, make a grant of individual target awards either alone or in tandem with stock options, SARs or restricted +stock under the 2006 Plan that are contingent upon the satisfaction of certain pre-established performance goals that are reached +within a specified performance period, each of which, together with any other terms and conditions, shall be determined by the +Committee in its sole discretion at the time of grant. At the time the performance goals are established, the Committee will prescribe +a formula to determine the percentages (which may be greater than 100%) of the individual target award which may be payable based +upon the degree of attainment of the performance goals during the calendar year. The Committee may, in its sole discretion, elect +to pay a participant an amount that is less than the participant’s individual target award regardless of the degree of attainment +of the performance goals; provided that no such discretion to reduce a performance-based cash award earned based on achievement +of the applicable performance goals will be permitted for a calendar year in which a change in control occurs. The performance +goals for performance-based cash awards are based on one or more of the objective criteria set forth on Exhibit A to the 2006 Plan +and discussed in general below. +Limitation. Notwithstanding any other provisions in +the 2006 Plan or in any employment agreement, the restrictions or vesting conditions, as applicable, to restricted stock awards, +other stock-based awards and performance-based awards can be no less than (i) one year, if the lapsing of restrictions or vesting +schedule, as applicable, is based (in whole or in part) on the attainment of one or more performance goals, and (ii) three years, +if the lapsing of restrictions or the vesting schedule, as applicable, is based solely on the continued performance of services +by the 2006 Plan participant (with restrictions as to no more than 1/3 rd of shares +of common stock subject thereto lapsing on each of the first three anniversaries of the date of grant); provided that, the Committee +is authorized to provide for earlier lapsing of the restrictions or acceleration of vesting, as applicable, in the event of a change +in control of the Company or a participant’s retirement, death or disability. The preceding limitation does not apply with +respect to up to 10% (when combined with the 10% limitation for non-employee director award grants) of the total number of shares +of common stock reserved for awards under Plan. +Performance Goals . The Committee may grant awards of restricted +stock, performance shares, performance-based cash awards and other stock-based awards that are intended to qualify as “performance-based +compensation” for purposes of Section 162(m) of the Code. These awards may be granted, vest and be paid based on attainment +of specified performance goals established by the Committee. These performance goals are based on the attainment of a certain target +level of, or a specified increase or decrease in, one or more of the following criteria selected by the Committee: +• +earnings per share, earnings before interest and taxes or earnings before interest, tax, depreciation and amortization; +• +gross profit or gross profit return on investment; +• +gross margin or gross margin return on investment; +• +operating income, net income, cash flow or economic value added; +• +revenue growth; +• +working capital; +• +specified objectives with regard to limiting the level of increase in all or a portion of, the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee; +• +return on equity, assets or capital; +• +total shareholder return; +• +fair market value of the shares of the Common Stock; +• +market share and/or market segment share; +• +the growth in the value of an investment in the Common Stock assuming the reinvestment of dividends; +• +customer satisfaction, customer loyalty, brand recognition and/or brand acceptance; +• +style indexes; +• +employee retention; +• +number of new patents, new product innovation and/or introduction; +• +product release schedules and/or ship targets; or +• +reduction in expenses and/or product cost reduction through advanced technology. +46 +Table of Contents +To the extent permitted by law, the Committee may also exclude the impact +of an event or occurrence such as restructurings, discontinued operations, extraordinary items and other unusual or non-recurring +charges, an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s +management, or a change in accounting standards required by generally accepted accounting principles, which the Committee determines +should be appropriately excluded. Performance goals may also be based on individual participant performance goals, as determined +by the Committee, in its sole discretion or they may be based upon the attainment of specified levels of Company (or subsidiary, +division or other operational unit of the Company) performance under one or more of the measures described above relative to the +performance of other corporations. The Committee may designate additional business criteria on which the performance goals may +be based or adjust, modify or amend those criteria. +Change in Control . Unless otherwise determined by the Committee +at the time of grant or in a written employment agreement that is in effect on the date of the applicable grant and is applicable +to a specific award, awards subject to vesting and/or restrictions will not accelerate and vest or cause the lapse of restrictions +upon a change in control (as defined in the 2006 Plan) of the Company. Instead, such awards will be, in the discretion of the Committee, +(i) assumed and continued or substituted in accordance with applicable law, (ii) purchased by the Company for an amount equal to +the excess of the price of the Common Stock paid in a change in control over the exercise price of the award(s), or (iii) cancelled +if the price of the Common Stock paid in a change in control is less than the exercise price of the award. The Committee may also, +in its sole discretion, provide for accelerated vesting or lapse of restrictions of an award at any time. +Term, Amendment and Termination. The term of the 2006 +Plan extends for a period of ten years from March 10, 2006 and, accordingly, will remain in effect unless sooner terminated through +March 10, 2016. Notwithstanding any other provision of the 2006 Plan, the Board may at any time amend any or all of +the provisions of the 2006 Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless +otherwise required by law or specifically provided in the 2006 Plan, the rights of a participant with respect to awards granted +prior to such amendment, suspension or termination may not be adversely affected without the consent of such participant and, provided +further that the approval of the Company’s stockholders will be obtained to the extent required by Delaware law, Sections +162(m) and 422 of the Code, The Nasdaq Global Select Market or the rules of such other applicable stock exchange, as specified +in the 2006 Plan. +Repricing Options and Stock Appreciation Rights. The 2006 Plan +includes an additional express prohibition against repricing stock options and stock appreciation rights. The Company may not, +without stockholder approval, either (i) reduce the exercise price of an outstanding stock option or stock appreciation right, +or (ii) simultaneously cancel stock options or stock appreciation rights for which the exercise price exceeds the then current +fair market value of the underlying Common Stock and grant a new stock option or stock appreciation right with an exercise price +equal to the then current fair market value of the underlying Common Stock. +Miscellaneous. Awards granted under the 2006 Plan are generally +nontransferable (other than by will or the laws of descent and distribution), except that the Committee may provide for the transferability +of nonqualified stock options at the time of grant or thereafter to certain family members. +Certain U.S. Federal Income Tax Consequences +The rules concerning the federal income tax consequences with respect +to options granted and to be granted pursuant to the 2006 Plan are quite technical. Moreover, the applicable statutory provisions +are subject to change, as are their interpretations and applications, which may vary in individual circumstances. Therefore, the +following is designed to provide a general understanding of the federal income tax consequences. In addition, the following discussion +does not set forth any gift, estate, Social Security or state or local tax consequences that may be applicable and is limited to +the U.S. federal income tax consequences to individuals who are citizens or residents of the U.S., other than those individuals +who are taxed on a residence basis in a foreign country. +47 +Table of Contents +Incentive Stock Options. In general, an employee will not recognize +taxable income upon either the grant or the exercise of an incentive stock option and the Company will not receive an income tax +deduction at either such time. In general, however, for purposes of the alternative minimum tax, the excess of the fair market +value of the shares of Common Stock acquired upon exercise of an incentive stock option (determined at the time of exercise) over +the exercise price of the incentive stock option will be considered income. If the recipient is continuously employed on the date +of grant until the date three months prior to the date of exercise and such recipient does not sell Common Stock received pursuant +to the exercise of the incentive stock option within either (i) two years after the date of the grant of the incentive stock option +or (ii) one year after the date of exercise, a subsequent sale of Common Stock will result in long-term capital gain or loss to +the recipient and will not result in a tax deduction to the Company. +If the recipient is not continuously employed on the date of grant until +the date three months prior to the date of exercise or such recipient disposes of Common Stock acquired upon exercise of the incentive +stock option within either of the above-mentioned time periods, the recipient will generally recognize as ordinary income an amount +equal to the lesser of (i) the fair market value of Common Stock on the date of exercise over the exercise price, or (ii) the amount +realized upon disposition over the exercise price. In such event, subject to the limitations under Sections 162(m) and 280G of +the Code (as described below), the Company generally will be allowed an income tax deduction equal to the amount recognized as +ordinary income. Any gain in excess of such amount recognized by the recipient as ordinary income would be taxed at the rates applicable +to short-term or long-term capital gains (depending on the holding period). +To the extent that the aggregate fair market value (determined as of +the time of grant) of the Common Stock with respect to which incentive stock options are exercisable for the first time by a participant +during any calendar year under the 2006 Plan and/or any other stock option plan of the Company or affiliate exceeds $100,000, such +options are treated as non-qualified stock options. +Nonqualified Stock Options . A recipient will not recognize any +taxable income upon the grant of a nonqualified stock option and the Company will not receive a deduction at the time of such grant +unless such option has a readily ascertainable fair market value (as determined under applicable tax law) at the time of grant. +Upon exercise of a nonqualified stock option, the recipient generally will recognize ordinary income in an amount equal to the +excess of the fair market value of Common Stock on the date of exercise over the exercise price. Upon a subsequent sale of Common +Stock by the recipient, the recipient will recognize short-term or long-term capital gain or loss depending upon his or her holding +period for Common Stock. Subject to the limitations under Sections 162(m) and 280G of the Code (as described below), the Company +will generally be allowed an income tax deduction equal to the amount recognized by the recipient as ordinary income. +All Options. With regard to both incentive stock options and nonqualified +stock options, the following also apply: (i) any of the Company’s officers and directors subject to Section 16(b) of the +Exchange Act may be subject to special tax rules regarding the income tax consequences concerning their stock options, (ii) any +entitlement to a tax deduction on the part of the Company is subject to the applicable tax rules (including, without limitation, +Section 162(m) of the Code regarding the $1,000,000 limitation on deductible compensation), and (iii) in the event that the exercisability +or vesting of any award is accelerated because of a change in control, payments relating to the awards (or a portion thereof), +either alone or together with certain other payments, may constitute parachute payments under Section 280G of the Code, which excess +amounts may be subject to excise taxes and may be nondeductible by the Company. +In general, Section 162(m) of the Code denies a publicly held corporation +a deduction for federal income tax purposes for compensation in excess of $1,000,000 per year per person to its named executive +officers, other than its chief financial officer, as disclosed in its proxy statement. Options will generally qualify under an +exception if they are granted under a plan that states the maximum number of shares with respect to which options may be granted +to any recipient during a specified period, and if the plan under which the options are granted is approved by stockholders and +is administered by a committee comprised of outside directors. The 2006 Plan is intended to satisfy those requirements with respect +to options. +48 +Table of Contents +Section 409A of the Code provides that all amounts deferred under a nonqualified +deferred compensation plan are includible in a participant’s gross income to the extent such amounts are not subject to a +substantial risk of forfeiture, unless certain requirements are satisfied. If the requirements are not satisfied, in addition to +current income inclusion, interest at the underpayment rate plus 1% will be imposed on the participant’s underpayments that +would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred +or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture. The +amount required to be included in income is also subject to an additional 20% tax. While most awards under the 2006 Plan are anticipated +to be exempt from the requirements of Section 409A of the Code, awards not exempt from Section 409A of the Code are intended to +comply with Section 409A of the Code. +The 2006 Plan is not subject to any of the requirements of the Employee +Retirement Income Security Act of 1974, as amended. The 2006 Plan is not, nor is it intended to be, a “tax-qualified” +under Section 401(a) of the Code. +Required Vote +Approval of this resolution requires the affirmative vote of a majority +of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote “FOR” +the approval of the amendment of the Steven Madden, Ltd. 2006 Stock Incentive Plan. +PROPOSAL THREE: +NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +Section 14A of the Exchange Act, as created by Section 951 of the Dodd-Frank +Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the rules and regulations promulgated thereunder, +require a publicly traded company to include a resolution in its proxy statement at least once every three years seeking stockholder +approval, on an advisory or non-binding basis, of the compensation of the named executive officers as disclosed in such company’s +proxy statement pursuant to the compensation rules of the SEC. At our 2011 Annual Meeting of Stockholders, the Company’s +stockholders approved, on an advisory basis, the holding of an advisory vote to approve executive compensation (commonly known +as a “say-on-pay” proposal) on an annual basis. Based on these results, the Board of Directors determined +to hold its advisory vote to approve executive compensation annually until the next frequency vote, which is scheduled for the +Company’s 2017 Annual Meeting of Stockholders. Accordingly, we are providing stockholders with an advisory vote +on the compensation of our Named Executive Officers. +As described in more detail in the Compensation Discussion and Analysis +section, which begins on page 20 of this Proxy Statement, the overall objective of the Company’s executive compensation programs +and practices is to support delivery of sustained operating and financial performance results with the ultimate goal being to create +and maximize value for our stockholders on a long-term basis. We believe that our executive compensation programs and +practices serve the interests of our stockholders by enabling us to attract and retain an experienced and effective management +team whose combined knowledge of our business and the footwear and accessories industry has proved extremely valuable in delivering +results for our stockholders. The Compensation Committee and the Board of Directors believe that the Company’s +compensation programs and practices as articulated in the Compensation Discussion and Analysis section of this Proxy Statement +effectively implement our philosophy of aligning compensation to stockholder interests and that the compensation received by our +Named Executive Officers in the 2011 Fiscal Year reflects and supports such philosophy and goal and is commensurate with the performance +and strategic position of the Company. We will continue to review and modify our executive compensation programs to +address evolving best practices and changing regulatory requirements. +49 +Table of Contents +We encourage stockholders to read the Compensation Discussion and Analysis +section of this Proxy Statement, as well as the Summary Compensation Table and other related compensation tables and narrative +disclosure contained in this Proxy Statement, all of which describe and explain in detail the compensation of our Named Executive +Officers in the 2011 Fiscal Year. +The following resolution is submitted for stockholder approval: +“ RESOLVED , that the stockholders of Steven Madden, +Ltd. (the ‘Company’) approve, on a non-binding advisory basis, the compensation paid to the Named Executive Officers +of the Company as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including +the executive compensation as described in the section captioned ‘Compensation Discussion and Analysis,’ the Summary +Compensation Table and related tabular disclosure and narrative discussion regarding compensation of Named Executive Officers under +the caption ‘Executive Compensation’ contained in the Company’s Proxy Statement dated April 10, 2012.” +This vote is not intended to address any specific item of compensation, +but rather the overall compensation of our Named Executive Officers and the compensation programs and practices described in this +Proxy Statement. While this advisory vote on executive compensation, commonly referred to as a “say-on-pay” +advisory vote, is required by Section 14A of the Exchange Act, it is not binding on our Board of Directors and may not be construed +as overruling any decision by the Board of Directors or the Compensation Committee. However, we value the opinions of +our stockholders. To the extent there is a significant vote against the compensation of the Named Executive Officers +as disclosed in this Proxy Statement, the Board of Directors and the Compensation Committee will consider the outcome of the vote +when considering future compensation arrangements and evaluate whether any actions are necessary to address the stockholders’ +concerns. +Required Vote +Approval of this resolution requires the affirmative vote of a majority +of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote “FOR” +the resolution approving the overall compensation of the Named Executive Officers for the 2011 Fiscal Year. +Audit Committee Report +The Audit Committee reviewed the Company’s audited financial statements +for the 2011 Fiscal Year and met with both management and representatives of EisnerAmper LLP, the Company’s independent +registered public accountants, to discuss such audited financial statements. Management and the Company’s independent registered +public accountants have represented to the Audit Committee that the financial statements were prepared in accordance with accounting +principles generally accepted in the United States of America. The Audit Committee has received from and discussed with EisnerAmper +LLP the written disclosures and the letter regarding EisnerAmper LLP’s communications with the Audit Committee concerning +independence as required by applicable requirements of the Public Company Accounting Oversight Board, and discussed with EisnerAmper +LLP the independence of EisnerAmper LLP. The Audit Committee also discussed with EisnerAmper LLP any matters required to be discussed +by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +Based on these reviews and discussions, the Audit Committee recommended to the Board that the Company’s audited financial +statements be included in the Company’s Annual Report on Form 10-K for the 2011 Fiscal Year. +Submitted by the Audit Committee of the Company’s Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Ravi Sachdev +50 +Table of Contents +PROPOSAL FOUR: +RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2012 +The Audit Committee has appointed EisnerAmper LLP as the Company’s +independent registered public accounting firm to conduct the audit of the Company’s books and records for the fiscal year +ending December 31, 2012. EisnerAmper LLP also served as the Company’s independent registered public accountants +for the 2011 Fiscal Year. +Before making its determination on appointment, the Audit Committee carefully +considers the qualifications and competence of candidates for the independent registered public accountants. For EisnerAmper +LLP, this has included a review of its performance in prior years, its independence and processes for maintaining independence, +the results of the most recent internal quality control review or Public Company Accounting Oversight Board inspection, the key +members of the audit engagement team, the firm’s approach to resolving significant accounting and auditing matters including +consultation with the firm’s national office, as well as its reputation for integrity and competence in the fields of accounting +and auditing. Although ratification by stockholders is not required by the Company’s organizational documents +or other applicable law, the Audit Committee has determined that requesting ratification by stockholders of its appointment of +EisnerAmper LLP as the Company’s independent registered public accountants is a matter of good corporate practice. If stockholders +do not ratify the selection, the Audit Committee will reconsider whether or not to retain EisnerAmper LLP, but may still retain +the accounting firm. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment +at any time during the year if it determines that such a change would be in the best interest of the Company and its stockholders. +Representatives of EisnerAmper LLP are expected to be present at the +Annual Meeting to respond to appropriate questions and to make a statement should they so desire. +Required Vote +The affirmative vote of the holders of a majority of the outstanding +shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the Audit +Committee’s selection of EisnerAmper LLP. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote “FOR” +the ratification of the appointment of EisnerAmper LLP as the Company’s independent registered public accountants for the +fiscal year ending December 31, 2012. Unless marked to the contrary, proxies received from stockholders will be voted in favor +of ratifying the appointment of EisnerAmper LLP as the Company’s independent registered public accountants for the fiscal +year ending December 31, 2012. +51 +Table of Contents +Independent Registered Public Accounting Firm’s Fees and Services +The aggregate fees billed to the Company by EisnerAmper LLP for professional +services rendered for each of the past two years are set forth below: +Year Ended December 31, +2011 +2010 +Audit Fees (1) +$ +655,000 +$ +585,000 +Audit-Related Fees (2) +25,000 +25,000 +Tax Fees (3) +0 +187,000 +All Other Fees +(4) +339,000 +115,000 +Total +$ +1,019,000 +$ +912,000 +(1) Represents the aggregate fees and expenses +billed for (a) the audit of the Company’s annual financial statements, (b) the reviews of the financial statements included +in the Company’s Quarterly Reports on Form 10-Q, (c) other statutory and regulatory filings or engagements and (d) the audit +of the Company’s internal controls over financial reporting. +(2) Represents the aggregate fees billed for audit-related +fees related to assurance and related services. Includes, among others, the audit of the Company’s employee benefit plans +and other accounting related consultations. +(3) Represents the aggregate fees billed for tax +compliance, tax advice and tax planning services. These professional services include assistance in the preparation of the Company’s +various federal, state and local tax returns, tax consultation and various amendments. +(4) Represents the aggregate fees billed (a) with +respect to the 2011 Fiscal Year, for (i) due diligence services rendered in connection with three business acquisitions and (ii) +out-of-pocket expenses incurred by EisnerAmper LLP in connection with services rendered to the Company and (b) with respect to +the 2010 Fiscal Year, for (i) due diligence services rendered in connection with an asset acquisition and business acquisitions +and (ii) out-of-pocket expenses incurred by EisnerAmper LLP in connection with services rendered to the Company. +Audit Committee’s Pre-Approval Policies and Procedures +Consistent with SEC policies regarding auditor independence, the Audit +Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public +accountants. In recognition of this responsibility, the Audit Committee has established a policy to review and pre-approve all +audit and permissible non-audit services provided by the independent registered public accountants. These services may include +audit services, audit-related services, tax services and other services. +Prior to engagement of the independent auditor for next year’s +audit, the Audit Committee will pre-approve all auditing services and all permitted non-audit services (including the fees and +terms thereof), except those excluded from requiring pre-approval based upon the de minimus exception set forth in Section 10A(i)(1)(B) +of the Exchange Act. +The Audit Committee’s pre-approval policies and procedures are +as follows: (a) prior to each fiscal year, the Audit Committee pre-approves a schedule of estimated fees for proposed non-prohibited +audit and non-audit services, and (b) actual amounts paid are monitored by financial management of the Company and reported to +the Audit Committee. +All work performed by EisnerAmper LLP as described above under the captions +Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees has been approved or pre-approved by the Audit Committee pursuant to +the provisions of the Audit Committee’s charter. The Audit Committee has considered and concluded that the provision of non-audit +services is compatible with maintaining the independence of EisnerAmper LLP. +52 +Table of Contents +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of +any business other than that described above that will be presented at the Annual Meeting. If any other business should properly +come before the Annual Meeting in connection therewith, it is intended that the persons named in the accompanying proxy will have +discretionary authority to vote the shares which they represent. +A copy of the applicable provisions of the Company’s By-Laws may +be obtained by any stockholder, without charge, upon written request to the Secretary of the Company at the address set forth above. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE +MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE +OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD +AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 10, 2012 +By: +/s/ Arvind Dharia +Arvind Dharia +Secretary +53 +Table of Contents +ANNEX A +Steven Madden, Ltd. 2006 Stock Incentive Plan, Amended and Restated +Effective May 22, 2009 +(Amended by the Board on April 5, +2012, subject to stockholder approval) +TABLE OF CONTENTS +ARTICLE I PURPOSE +1 +ARTICLE II DEFINITIONS +1 +ARTICLE III ADMINISTRATION +6 +ARTICLE IV SHARE LIMITATION +9 +ARTICLE V ELIGIBILITY – GENERAL REQUIREMENTS FOR AWARDS +12 +ARTICLE VI STOCK OPTIONS +12 +ARTICLE VII STOCK APPRECIATION RIGHTS +15 +ARTICLE VIII RESTRICTED STOCK +17 +ARTICLE IX PERFORMANCE SHARES +19 +ARTICLE X OTHER STOCK-BASED AWARDS +21 +ARTICLE XI PERFORMANCE-BASED CASH AWARDS +23 +ARTICLE XII TERMINATION +25 +ARTICLE XIII CHANGE IN CONTROL PROVISIONS +26 +ARTICLE XIV TERMINATION OR AMENDMENT OF PLAN +27 +ARTICLE XV UNFUNDED PLAN +28 +ARTICLE XVI GENERAL PROVISIONS +29 +ARTICLE XVII EFFECTIVE DATE OF PLAN +31 +ARTICLE XVIII TERM OF PLAN +32 +ARTICLE XIX NAME OF PLAN +32 +EXHIBIT A PERFORMANCE GOALS +A +i +Table of Contents +ANNEX A +STEVEN MADDEN, LTD. +2006 STOCK INCENTIVE PLAN +(Amended and Restated Effective May 22, 2009) +(Amended by the Board on April 5, 2012, +Subject to Stockholder Approval) +ARTICLE I +PURPOSE +The purpose of this Plan is to enhance the profitability and value +of the Company for the benefit of its stockholders by enabling the Company to offer Eligible Employees, Consultants and Non-Employee +Directors cash and stock based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality +of interests between such individuals and the Company’s stockholders. +This Plan, in the form set forth +herein, is effective as of the Restatement Date (as defined in Article XVII) and is an amendment and restatement of the Steve +Madden, Ltd. 2006 Stock Incentive Plan, as amended (the “Initial Plan”), which was initially effective March 10, 2006. +This Plan, in the form set forth +herein, is effective as of the Amendment Date (as defined in Article XVII) and amends the Steven Madden, Ltd. 2006 Stock Incentive +Plan, as amended and restated effective May 22, 2009. +ARTICLE II +DEFINITIONS +For purposes of this Plan, the following terms shall have the following +meanings: +2.1 “ Acquisition +Event ” means a merger or consolidation in which the Company is not the surviving entity, any transaction that results +in the acquisition of all or substantially all of the Company’s outstanding Common Stock by a single person or entity or +by a group of persons and/or entities acting in concert, or the sale or transfer of all or substantially all of the Company’s +assets. +2.2 “ Affiliate ” +means each of the following: (a) any Subsidiary; (b) any Parent; (c) any corporation, trade or business (including, without +limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership +of stock, assets or an equivalent ownership interest or voting interest) by the Company; (d) any corporation, trade or business +(including, without limitation, a partnership or limited liability company) which directly or indirectly controls 50% or more (whether +by ownership of stock, assets or an equivalent ownership interest or voting interest) of the Company; and (e) any other entity +in which the Company or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” +by resolution of the Committee; provided that the Common Stock subject to any Award constitutes “service recipient stock” +for purposes of Section 409A of the Code or otherwise does not subject the Award to Section 409A of the Code. +1 +Table of Contents +2.3 “ Appreciation +Award ” means any Award under this Plan of any Stock Option, Stock Appreciation Right or Other Stock-Based Award, +provided that such Other Stock-Based Award is based on the appreciation in value of a share of Common Stock in excess of an amount +equal to at least the Fair Market Value of the Common Stock on the date such Other Stock-Based Award is granted. +2.4 “ Award ” +means any award under this Plan of any Stock Option, Stock Appreciation Right, Restricted Stock, Performance Share, Other Stock-Based +Award or Performance-Based Cash Awards. All Awards shall be granted by, confirmed by, and subject to the terms of, a written agreement +executed by the Company and the Participant. +2.5 “ Board ” +means the Board of Directors of the Company. +2.6 “ Cause ” +means with respect to a Participant’s Termination of Employment or Termination of Consultancy from and after the date hereof, +the following: (a) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar +agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award (or where there +is such an agreement but it does not define “cause” (or words of like import)), termination due to: (i) a Participant’s +conviction of, or plea of guilty or nolo contendere to, a felony; (ii) perpetration by a Participant of an illegal act, or fraud +which could cause significant economic injury to the Company; (iii) continuing willful and deliberate failure by the Participant +to perform the Participant’s duties in any material respect, provided that the Participant is given notice and an opportunity +to effectuate a cure as determined by the Committee; or (iv) a Participant’s willful misconduct with regard to the Company +that could have a material adverse effect on the Company; or (b) in the case where there is an employment agreement, consulting +agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at +the time of the grant of the Award that defines “cause” (or words of like import), “cause” as defined under +such agreement; provided, however, that with regard to any agreement under which the definition of “cause” only applies +on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually +takes place and then only with regard to a termination thereafter. With respect to a Participant’s Termination of Directorship, +“cause” means an act or failure to act that constitutes cause for removal of a director under applicable Delaware law. +2.7 “ Change +in Control ” has the meaning set forth in Section 13.2. +2.8 “ Change +in Control Price ” has the meaning set forth in Section 13.1. +2.9 “ Code ” +means the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any +successor provision and any Treasury Regulation promulgated thereunder. +2.10 “ Committee ” +means a committee or subcommittee of the Board appointed from time to time by the Board, which committee or subcommittee shall +consist of two or more non-employee directors, each of whom shall be (i) a “non-employee director” as defined in Rule +16b-3; (ii) to the extent required by Section 162(m) of the Code, an “outside director” as defined under Section 162(m) +of the Code; and (iii) an “independent director” as defined under NASD Rule 4200(a)(15) or such other applicable stock +exchange rule. To the extent that no Committee exists that has the authority to administer this Plan, the functions of the Committee +shall be exercised by the Board. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section +162(m) of the Code, such noncompliance shall not affect the validity of Awards, grants, interpretations or other actions of the +Committee. +2 +Table of Contents +2.11 “ Common +Stock ” means the Common Stock, $0.0001 par value per share, of the Company. +2.12 “ Company ” +means Steven Madden, Ltd., a Delaware corporation, and its successors by operation of law. +2.13 “ Consultant ” +means any natural person who provides bona fide consulting or advisory services to the Company or its Affiliates pursuant to a +written agreement, which are not in connection with the offer and sale of securities in a capital-raising transaction. +2.14 “ Disability ” +means with respect to a Participant’s Termination, a permanent and total disability as defined in Section 22(e)(3) of the +Code. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. Notwithstanding +the foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under +Section 409A(a)(2)(C)(i) or (ii) of the Code. +2.15 “ Effective +Date ” means the effective date of this Plan as defined in Article XVII. +2.16 “ Eligible +Employees ” means each employee of the Company or an Affiliate. +2.17 “ Exchange +Act ” means the Securities Exchange Act of 1934, as amended. Any references to any section of the Exchange Act shall +also be a reference to any successor provision. +2.18 “ Fair +Market Value ” means, unless otherwise required by any applicable provision of the Code or any regulations issued +thereunder, as of any date and except as provided below, the closing price reported for the Common Stock on the applicable date: +(a) as reported on the principal national securities exchange in the United States on which it is then traded or The Nasdaq Stock +Market; or (b) if not traded on any such national securities exchange or The Nasdaq Stock Market, as quoted on an automated quotation +system sponsored by the National Association of Securities Dealers, Inc. or if the Common Stock shall not have been reported or +quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. If the Common Stock is not +traded, listed or otherwise reported or quoted, then Fair Market Value means the fair market value of the Common Stock as determined +by the Committee in good faith in whatever manner it considers appropriate taking into account the requirements of Section 422 +of the Code or Section 409A of the Code, as applicable. For purposes of the grant of any Award, the applicable date shall be the +trading day immediately prior to the date on which the Award is granted. For purposes of the exercise of any Award, the applicable +date shall be the date a notice of exercise is received by the Committee or, if not a day on which the applicable market is open, +the next day that it is open. +2.19 “ Family +Member ” means “family member” as defined in Section A.1.(5) of the general instructions of Form S-8, +as may be amended from time to time. +2.20 “ GAAP ” +has the meaning set forth in Section 11.2(c)(ii). +2.21 “ Incentive +Stock Option ” means any Stock Option awarded to an Eligible Employee of the Company, its Subsidiaries and its Parent +(if any) under this Plan intended to be and designated as an “Incentive Stock Option” within the meaning of Section +422 of the Code. +2.22 “ Non-Employee +Director ” means a director of the Company who is not an active employee of the Company or an Affiliate. +3 +Table of Contents +2.23 “ Non-Qualified +Stock Option ” means any Stock Option awarded under this Plan that is not an Incentive Stock Option. +2.24 “ Other +Stock-Based Award ” means an Award under Article X of this Plan that is valued in whole or in part by reference to, +or is payable in or otherwise based on, Common Stock, including, without limitation, a restricted stock unit or an Award valued +by reference to an Affiliate. +2.25 “ Parent ” +means any parent corporation of the Company within the meaning of Section 424(e) of the Code. +2.26 “ Participant ” +means an Eligible Employee, Non-Employee Director or Consultant to whom an Award has been granted pursuant to this Plan. +2.27 “ Performance-Based +Cash Award ” means a cash Award under Article XI of this Plan that is payable or otherwise based on the attainment +of certain pre-established performance goals during a Performance Period. +2.28 “ Performance +Period ” means the duration of the period during which receipt of an Award is subject to the satisfaction of performance +criteria, such period as determined by the Committee in its sole discretion. +2.29 “ Performance +Share ” means an Award made pursuant to Article IX of this Plan of the right to receive Common Stock or cash of an +equivalent value at the end of a specified Performance Period. +2.30 “ Person ” +means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, +trust, incorporated organization, governmental or regulatory or other entity. +2.31 “ Plan ” +means this Steven Madden, Ltd. 2006 Stock Incentive Plan, as amended from time to time. +2.32 “ Reference +Stock Option ” has the meaning set forth in Section 7.1. +2.33 “ Restricted +Stock ” means an Award of shares of Common Stock under this Plan that is subject to restrictions under Article VIII. +2.34 “ Restriction +Period ” has the meaning set forth in Subsection 8.3(a). +2.35 “ Retirement ” +means a voluntary Termination of Employment at or after age 65 or such earlier date after age 50 as may be approved by the Committee, +in its sole discretion at the time of grant or thereafter provided that the exercise of such discretion does not make the applicable +Award subject to Section 409A of the Code, except that Retirement shall not include any Termination with or without Cause. With +respect to a Participant’s Termination of Directorship, Retirement means the failure to stand for reelection or the failure +to be reelected on or after a Participant has attained age 65 or, with the consent of the Board, provided that the exercise of +such discretion does not make the applicable Award subject to Section 409A of the Code, before age 65 but after age 50. +2.36 “ Rule +16b-3 ” means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provision. +4 +Table of Contents +2.37 “ Section +162(m) of the Code ” means the exception for performance-based compensation under Section 162(m) of the Code and any +applicable Treasury regulations thereunder. +2.38 “ Section +409A of the Code ” means the nonqualified deferred compensation rules under Section 409A of the Code and any applicable +Treasury regulations thereunder. +2.39 “ Securities +Act ” means the Securities Act of 1933, as amended and all rules and regulations promulgated thereunder. Any reference +to any section of the Securities Act shall also be a reference to any successor provision. +2.40 “ Stock +Appreciation Right ” means the right pursuant to an Award granted under Article VII. A Tandem Stock Appreciation Right +shall mean the right to surrender to the Company all (or a portion) of a Stock Option in exchange for cash or a number of shares +of Common Stock (as determined by the Committee, in its sole discretion, on the date of grant) equal to the difference between +(a) the Fair Market Value on the date such Stock Option (or such portion thereof) is surrendered, of the Common Stock covered +by such Stock Option (or such portion thereof), and (b) the aggregate exercise price of such Stock Option (or such portion +thereof). A Non-Tandem Stock Appreciation Right shall mean the right to receive cash or a number of shares of Common Stock (as +determined by the Committee, in its sole discretion, on the date of grant) equal to the difference between (i) the Fair Market +Value of a share of Common Stock on the date such right is exercised, and (ii) the aggregate exercise price of such right, +otherwise than on surrender of a Stock Option. +2.41 “ Stock +Option ” or “ Option ” means any option to purchase shares of Common Stock granted to Eligible +Employees, Non-Employee Directors or Consultants granted pursuant to Article VI. +2.42 “ Subsidiary ” +means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code. +2.43 “ Ten +Percent Stockholder ” means a person owning stock possessing more than 10% of the total combined voting power of all +classes of stock of the Company, its Subsidiaries or its Parent. +2.44 “ Termination ” +means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable. +2.45 “ Termination +of Consultancy ” means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; +or (b) when an entity which is retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise +is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In +the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the termination of his or her consultancy, +unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until +such time as such Consultant is no longer a Consultant, an Eligible Employee or a Non-Employee Director. Notwithstanding the foregoing, +the Committee may, in its sole discretion, otherwise define Termination of Consultancy in the Award agreement or, if no rights +of a Participant are reduced, may otherwise define Termination of Consultancy thereafter. +2.46 “ Termination +of Directorship ” means that the Non-Employee Director has ceased to be a director of the Company; except that if +a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of his or her directorship, his or her +ceasing to be a director of the Company shall not be treated as a Termination of Directorship unless and until the Participant +has a Termination of Employment or Termination of Consultancy, as the case may be. +5 +Table of Contents +2.47 “ Termination +of Employment ” means: (a) a termination of employment (for reasons other than a military or personal leave of +absence granted by the Company) of a Participant from the Company and its Affiliates; or (b) when an entity which is employing +a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or +another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Eligible Employee becomes a Consultant +or a Non-Employee Director upon the termination of his or her employment, unless otherwise determined by the Committee, in its +sole discretion, no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer an +Eligible Employee, a Consultant or a Non-Employee Director. Notwithstanding the foregoing, the Committee may, in its sole discretion, +otherwise define Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may otherwise +define Termination of Employment thereafter. +2.48 “ Transfer ” +means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other +disposition (including the issuance of equity in a Person), whether for value or no value and whether voluntary or involuntary +(including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, +charge, hypothecate or otherwise dispose of (including the issuance of equity in a Person) whether for value or for no value and +whether voluntarily or involuntarily (including by operation of law). “Transferred” and “Transferrable” +shall have a correlative meaning. +ARTICLE III +ADMINISTRATION +3.1 The +Committee . This Plan shall be administered and interpreted by the Committee. +3.2 Grants +of Awards . The Committee shall have full authority to grant, pursuant to the terms of this Plan, to Eligible Employees, +Consultants and Non-Employee Directors: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, +(iv) Performance Shares; (v) Other Stock-Based Awards, and (vi) Performance-Based Cash Awards. In particular, the Committee +shall have the authority: +(a) +to select the Eligible Employees, Consultants and Non-Employee Directors to whom Awards may from time to time be granted hereunder; +(b) +to determine whether and to what extent Awards, or any combination thereof, are to be granted hereunder to one or more Eligible Employees, Consultants or Non-Employee Directors; +(c) +to determine the number of shares of Common Stock to be covered by each Award granted hereunder; +(d) +to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion); +(e) +to determine whether, to what extent and under what circumstances grants of Options and other Awards under this Plan are to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company outside of this Plan; +6 +Table of Contents +(f) +to determine whether and under what circumstances a Stock Option may be settled in cash, Common Stock and/or Restricted Stock under Section 6.3(d); +(g) +to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award under this Plan shall be deferred either automatically or at the election of the Participant in any case, in a manner intended to comply with, Section 409A of the Code; +(h) +to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option; +(i) +to determine whether to require a Participant, as a condition of the granting of any Award, to not sell or otherwise dispose of shares acquired pursuant to the exercise of an Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Award; and +(j) +to set the performance criteria and the Performance Period with respect to any Award for which the grant, +vesting or payment of such Award is conditioned upon the attainment of specified performance criteria and to certify the attainment +of any such performance criteria; provided , that with regard to any Award that is intended to comply with Section 162(m) +of the Code, the applicable performance criteria shall be based on one or more of the performance goals set forth in Exhibit A +hereto (“Performance Goals”). +3.3 Guidelines . +Subject to Article XIV hereof, the Committee shall, in its sole discretion, have the authority to adopt, alter and repeal such +administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its responsibilities +(to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; +to construe and interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating +thereto); and to otherwise supervise the administration of this Plan. The Committee may, in its sole discretion, correct any defect, +supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent +it shall deem necessary to effectuate the purpose and intent of this Plan; provided , that with regard to any provision of +this Plan or any agreement relating thereto that is intended to comply with Section 162(m) of the Code, any such action by the +Committee shall be permitted only to the extent such action would be permitted under Section 162(m) of the Code. The Committee +may, in its sole discretion, adopt special guidelines and provisions for persons who are residing in or employed in, or subject +to, the taxes of, any domestic or foreign jurisdictions to comply with applicable tax and securities laws of such domestic or foreign +jurisdictions. This Plan is intended to comply with the applicable requirements of Rule 16b-3 and with respect to Awards intended +to be “performance-based,” the applicable provisions of Section 162(m) of the Code, and this Plan shall be limited, +construed and interpreted in a manner so as to comply therewith. +3.4 Decisions +Final . Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, +the Board or the Committee (or any of its members) arising out of or in connection with this Plan shall be within the absolute +discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees +and Participants and their respective heirs, executors, administrators, successors and assigns. +7 +Table of Contents +3.5 Procedures . +If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall +hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable, including, without limitation, +by telephone conference or by written consent to the extent permitted by applicable law. A majority of the Committee members shall +constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination +reduced to writing and signed by all the Committee members in accordance with the By-Laws of the Company shall be fully effective +as if it had been made by a vote at a meeting duly called and held. The Committee shall keep minutes of its meetings and shall +make such rules and regulations for the conduct of its business as it shall deem advisable. +3.6 Designation +of Consultants/Liability . +(a) +The Committee may, in its sole discretion, designate employees of the Company and professional advisors to assist the Committee in the administration of this Plan and (to the extent permitted by applicable law and applicable exchange rules) may grant authority to officers to grant Awards and/or execute agreements or other documents on behalf of the Committee. +(b) +The Committee may, in its sole discretion, employ such legal counsel, consultants and agents as it may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to sub-section (a) above shall not be liable for any action or determination made in good faith with respect to this Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Award granted under it. +3.7 Indemnification . +To the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of the Company and to the extent +not covered by insurance directly insuring such person, each officer or employee of the Company or any Affiliate and member or +former member of the Committee or the Board shall be indemnified and held harmless by the Company against any cost or expense (including +reasonable fees of counsel reasonably acceptable to the Committee) or liability (including any sum paid in settlement of a claim +with the approval of the Committee), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest +extent permitted, arising out of any act or omission to act in connection with the administration of this Plan, except to the extent +arising out of such officer’s, employee’s, member’s or former member’s fraud. Such indemnification shall +be in addition to any rights of indemnification the officers, employees, directors or members or former officers, directors or +members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or any Affiliate. Notwithstanding +anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to +Awards granted to him or her under this Plan. +8 +Table of Contents +ARTICLE IV +SHARE LIMITATION +4.1 Shares . +(a) +General Limitations . The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which Awards may be granted under this Plan shall not exceed 4,064,000 15,644,000 shares (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both. Any shares of Common Stock that are subject to Awards that are not Appreciation Awards shall be counted against this limit as 1.78 1.93 shares for every share granted. If any Appreciation Award granted under this Plan expires, terminates, is cancelled or is forfeited for any reason, the number of shares of Common Stock underlying any such Award shall again be available for the purpose of Awards under this Plan and added back to the aggregate maximum limit. If any Awards that are not Appreciation Awards granted under this Plan to a Participant expire, terminate, are cancelled or are forfeited for any reason, 1.78 1.93 shares of Common Stock shall again be available for the purposes of Awards under this Plan and added back to the aggregate maximum limit. If a Tandem Stock Appreciation Right or a Limited Stock Appreciation Right is granted in tandem with an Option, such grant shall only apply once against the maximum number of shares of Common Stock which may be issued under this Plan. The number of shares of Common Stock available for the purpose of Awards under this Plan shall be reduced by (i) the total number of Stock Options or Stock Appreciation Rights exercised, regardless of whether any of the shares of Common Stock underlying such Awards are not actually issued to the Participant as the result of a net settlement, (ii) any shares of Common Stock used to pay any exercise price or tax withholding obligation with respect to any Award and (iii) any shares of Common Stock repurchased by the Company on the open market with the proceeds of an Stock Option exercise price. +(b) +Individual Participant Limitations. +(i) The maximum number of shares of Common Stock subject to any Award of Stock Options, Stock Appreciation Rights or shares of Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is subject to the attainment of Performance Goals in accordance with Section 8.3(a)(ii) herein which may be granted under this Plan during any fiscal year of the Company to each Eligible Employee or Consultant shall be 600,000 1,800,000 shares per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the maximum number of shares of Common Stock for all types of Awards does not exceed 750,000 2,000,000 (which shall be subject to any further increase or decrease pursuant to Section 4.2) with respect to any fiscal year of the Company. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Eligible Employee’s or Consultant’s individual share limitations for both Stock Appreciation Rights and Stock Options. +9 +Table of Contents +(ii) The +maximum number of shares of Common Stock subject to any Award of Stock Options (other than Incentive Stock Options), Stock +Appreciation Rights, Performance Shares or Other Stock-Based Awards which may be granted under this Plan during any fiscal +year of the Company to each Non-Employee Director shall be 150,000 337,500 1 shares +per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the +maximum number of shares of Common Stock for all types of Awards does not exceed 200,000 450,000 1 (which +shall be subject to any further increase or decrease pursuant to Section 4.2) with respect to any fiscal year of the Company, +provided further, that, effective on the date of the Company’s 2009 annual stockholders’ meeting, in no event +shall the aggregate grant of Awards to Non-Employee Directors granted on and after such date exceed 10% (when combined with +the 10% limitation set forth in Sections 8.3(a)(iii), 9.2(f), and 10.2(d) of this Plan) of the total number of shares of Common +Stock reserved for Awards under this Plan. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation +Right is granted in tandem with a Stock Option, it shall apply against the Non-Employee Director’s individual share +limitations for both Stock Appreciation Rights and Stock Options. +(iii) There are no annual individual Eligible Employee or Consultant share limitations on Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is not subject to attainment of Performance Goals in accordance with Section 8.3(a)(ii) hereof. +(iv) The maximum number of shares of Common Stock subject to any Award of Performance Shares which may be granted under this Plan during any fiscal year of the Company to each Eligible Employee or Consultant shall be 300,000 1,800,000 (which shall be subject to any further increase or decrease pursuant to Section 4.2) with respect to any fiscal year of the Company. Each Performance Share shall be referenced to one share of Common Stock and shall be charged against the available shares under this Plan at the time the unit value measurement is converted to a referenced number of shares of Common Stock in accordance with Section 9.1. +(v) The maximum payment under any Performance-Based Cash Award payable with respect to any fiscal year of the Company and for which the grant of such Award is subject to the attainment of Performance Goals in accordance with Section 11.2(c) herein which may be granted under this Plan with respect to any fiscal year of the Company to each Eligible Employee or Consultant shall be $10,000,000. +(vi) The individual Participant limitations set forth in this Section 4.1(b) shall be cumulative; that is, to the extent that shares of Common Stock for which Awards are permitted to be granted to an Eligible Employee or a Consultant during a fiscal year are not covered by an Award to such Eligible Employee or Consultant in a fiscal year, the number of shares of Common Stock available for Awards to such Eligible Employee or Consultant shall automatically increase in the subsequent fiscal years during the term of the Plan until used. +1 The number of shares is revised solely to reflect the 3-for-2 +stock splits in 2010 and 2011. +10 +Table of Contents +4.2 Changes . +(a) +The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger or consolidation of the Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of the Company or any Affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any Affiliate or (vi) any other corporate act or proceeding. +(b) +Subject to the provisions of Section 4.2(d), if there shall occur any such change in the capital structure of the Company by reason of any stock split, reverse stock split, stock dividend, subdivision, combination or reclassification of shares that may be issued under the Plan, any recapitalization, any merger, any consolidation, any spin off, any reorganization or any partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing (a “ Section 4.2 Event ”), then (i) the aggregate number and/or kind of shares that thereafter may be issued under the Plan, (ii) the number and/or kind of shares or other property (including cash) to be issued upon exercise of an outstanding Award or under other Awards granted under the Plan, (iii) the purchase price thereof, and/or (iv) the individual Participant limitations set forth in Section 4.1(b) (other than those based on cash limitations) shall be appropriately adjusted. In addition, subject to Section 4.2(d), if there shall occur any change in the capital structure or the business of the Company that is not a Section 4.2 Event (an “ Other Extraordinary Event ”), including by reason of any extraordinary dividend (whether cash or stock), any conversion, any adjustment, any issuance of any class of securities convertible or exercisable into, or exercisable for, any class of stock, or any sale or transfer of all or substantially all the Company’s assets or business, then the Committee, in its sole discretion, may adjust any Award and make such other adjustments to the Plan. Any adjustment pursuant to this Section 4.2 shall be consistent with the applicable Section 4.2 Event or the applicable Other Extraordinary Event, as the case may be, and in such manner as the Committee may, in its sole discretion, deem appropriate and equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan. Any such adjustment determined by the Committee shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and permitted assigns. Except as expressly provided in this Section 4.2 or in the applicable Award agreement, a Participant shall have no rights by reason of any Section 4.2 Event or any Other Extraordinary Event. +(c) +Fractional shares of Common Stock resulting from any adjustment in Awards pursuant to Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan. +11 +Table of Contents +(d) +In the event of an Acquisition Event, the Committee may, in its sole discretion, terminate all outstanding and unexercised Stock Options or Stock Appreciation Rights or any Other Stock Based Award that provides for a Participant elected exercise effective as of the date of the Acquisition Event, by delivering notice of termination to each Participant at least 20 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her Stock Options or Stock Appreciation Rights that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Award agreements), but any such exercise shall be contingent on the occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void. +If an Acquisition Event occurs but the Committee does not terminate the outstanding Awards pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) and Article XIII shall apply. +4.3 Minimum +Purchase Price . Notwithstanding any provision of this Plan to the contrary, if authorized but previously unissued shares +of Common Stock are issued under this Plan, such shares shall not be issued for a consideration that is less than as permitted +under applicable law. +ARTICLE V +ELIGIBILITY – GENERAL REQUIREMENTS FOR AWARDS +5.1 General +Eligibility . All Eligible Employees, Consultants, Non-Employee Directors and prospective employees and consultants are +eligible to be granted Awards, subject to the terms and conditions of this Plan. Eligibility for the grant of Awards and actual +participation in this Plan shall be determined by the Committee in its sole discretion. +5.2 Incentive +Stock Options . Notwithstanding anything herein to the contrary, only Eligible Employees of the Company, its Subsidiaries +and its Parent (if any) are eligible to be granted Incentive Stock Options under this Plan. Eligibility for the grant of an Incentive +Stock Option and actual participation in this Plan shall be determined by the Committee in its sole discretion. +5.3 General +Requirement . The vesting and exercise of Awards granted to a prospective employee or consultant are conditioned upon such +individual actually becoming an Eligible Employee or Consultant. +ARTICLE VI +STOCK OPTIONS +6.1 Options . +Stock Options may be granted alone or in addition to other Awards granted under this Plan. Each Stock Option granted under this +Plan shall be of one of two types: (a) an Incentive Stock Option or (b) a Non-Qualified Stock Option. +6.2 Grants . +The Committee shall, in its sole discretion, have the authority to grant to any Eligible Employee (subject to Section 5.2) Incentive +Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The Committee shall, in its sole discretion, have the +authority to grant Non-Qualified Stock Options to any Consultant or Non-Employee Director. To the extent that any Stock Option +does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), +such Stock Option or the portion thereof which does not qualify shall constitute a separate Non-Qualified Stock Option. +12 +Table of Contents +6.3 Terms +of Options . Options granted under this Plan shall be subject to the following terms and conditions and shall be in such +form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee, in its sole +discretion, shall deem desirable: +(a) +Exercise Price . The exercise price per share of Common +Stock subject to a Stock Option shall be determined by the Committee at the time of grant, provided that the per share exercise +price of a Stock Option shall not be less than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent +Stockholder, 110%) of the Fair Market Value of the Common Stock at the time of grant. +(b) +Stock Option Term . The term of each Stock Option shall be fixed by +the Committee, provided that no Stock Option shall be exercisable more than seven (7) years after the date the Option is granted; +and provided further that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed five +(5) years. +(c) +Exercisability . Stock Options shall be exercisable at such time or +times and subject to such terms and conditions or as shall be determined by the Committee at grant. If the Committee provides, +in its discretion, that any Stock Option is exercisable subject to certain limitations (including, without limitation, that +such Stock Option is exercisable only in installments or within certain time periods), the Committee may waive such limitations +on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment +exercise provisions or acceleration of the time at which such Stock Option may be exercised), based on such factors, if any, +as the Committee shall determine, in its sole discretion. In the event that a written employment agreement between the Company +and a Participant provides for a vesting schedule that is more favorable than the vesting schedule provided in the form of +Award Agreement, the vesting schedule in such employment agreement shall govern, provided that such agreement is in effect +on the date of grant and applicable to the specific Award. +(d) +Method of Exercise . Subject to whatever installment exercise +and waiting period provisions apply under subsection (c) above, to the extent vested, Stock Options may be exercised in whole +or in part at any time during the Option term, by giving written notice of exercise to the Company specifying the number of +shares of Common Stock to be purchased. Such notice shall be in a form acceptable to the Company and shall be accompanied +by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order +of the Company; (ii) solely to the extent permitted by applicable law, if the Common Stock is traded on a national securities +exchange, the Nasdaq Stock Market or quoted on a national quotation system sponsored by the National Association of Securities +Dealers, and the Committee authorizes, through a procedure whereby the Participant delivers irrevocable instructions to a +broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the purchase price; or +(iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, the relinquishment +of Stock Options or by payment in full or in part in the form of Common Stock owned by the Participant based on the Fair Market +Value of the Common Stock on the payment date as determined by the Committee, in its sole discretion). No shares of Common +Stock shall be issued until payment therefor, as provided herein, has been made or provided for. +13 +Table of Contents +(e) +Non-Transferability of Options . No Stock Option shall +be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Stock Options +shall be exercisable, during the Participant’s lifetime, only by the Participant. Notwithstanding the foregoing, the +Committee may determine, in its sole discretion, at the time of grant or thereafter that a Non-Qualified Stock Option that +is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such +circumstances, and under such conditions, as determined by the Committee, in its sole discretion. A Non-Qualified Stock Option +that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently Transferred otherwise +than by will or by the laws of descent and distribution and (ii) remains subject to the terms of this Plan and the applicable +Award agreement. Any shares of Common Stock acquired upon the exercise of a Non-Qualified Stock Option by a permissible transferee +of a Non-Qualified Stock Option or a permissible transferee pursuant to a Transfer after the exercise of the Non-Qualified +Stock Option shall be subject to the terms of this Plan and the applicable Award agreement. +(f) +Incentive Stock Option Limitations . To the extent that the aggregate +Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are +exercisable for the first time by an Eligible Employee during any calendar year under this Plan and/or any other stock option +plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. +Should any provision of this Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or +should any additional provisions be required, the Committee may, in its sole discretion, amend this Plan accordingly, without +the necessity of obtaining the approval of the stockholders of the Company. +(g) +Form, Modification, Extension and Renewal of Stock Options . +Subject to the terms and conditions and within the limitations of this Plan, Stock Options shall be evidenced by such form +of agreement or grant as is approved by the Committee, and the Committee may, in its sole discretion (i) modify, extend or +renew outstanding Stock Options granted under this Plan (provided that the rights of a Participant are not reduced without +his or her consent and provided further that such action does not subject the Stock Options to Section 409A of the Code), +and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the +granting of new Stock Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, +an outstanding Option may not be modified to reduce the exercise price thereof nor may a new Option at a lower price be substituted +for a surrendered Option (other than adjustments or substitutions in accordance with Section 4.2), unless such action is approved +by the stockholders of the Company. +(h) +Early Exercise . The Committee may provide that a Stock Option include +a provision whereby the Participant may elect at any time before the Participant’s Termination to exercise the Stock +Option as to any part or all of the shares of Common Stock subject to the Stock Option prior to the full vesting of the Stock +Option and such shares shall be subject to the provisions of Article VIII and treated as Restricted Stock. Any unvested shares +of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the +Committee determines to be appropriate. +(i) +Other Terms and Conditions . Stock Options may contain such other +provisions, which shall not be inconsistent with any of the terms of this Plan, as the Committee shall, in its sole discretion, +deem appropriate. +14 +Table of Contents +ARTICLE VII +STOCK APPRECIATION RIGHTS +7.1 Tandem +Stock Appreciation Rights . Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option +(a “Reference Stock Option”) granted under this Plan (“Tandem Stock Appreciation Rights”). In the case +of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option. +In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option. +7.2 Terms +and Conditions of Tandem Stock Appreciation Rights . Tandem Stock Appreciation Rights granted hereunder shall be subject +to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the +Committee in its sole discretion, and the following: +(a) +Exercise Price . The exercise price per share of Common Stock subject +to a Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share +exercise price of a Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Common Stock +at the time of grant. +(b) +Term . A Tandem Stock Appreciation Right or applicable +portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination +or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, +at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered +by the Reference Stock Option shall not be reduced until and then only to the extent the exercise or termination of the Reference +Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining +available and unexercised under the Reference Stock Option. +(c) +Exercisability . Tandem Stock Appreciation Rights shall be exercisable +only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in +accordance with the provisions of Article VI, and shall be subject to the provisions of Section 6.3(c). +(d) +Method of Exercise . A Tandem Stock Appreciation Right may be exercised +by the Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, +the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Stock Options +which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Tandem Stock +Appreciation Rights have been exercised. +(e) +Payment . Upon the exercise of a Tandem Stock Appreciation Right, +a Participant shall be entitled to receive up to, but no more than, an amount in cash or a number of shares of Common Stock +(as determined by the Committee, in its sole discretion, on the date of grant) equal in value to the excess of the Fair Market +Value of one share of Common Stock over the Option exercise price per share specified in the Reference Stock Option agreement, +multiplied by the number of shares in respect of which the Tandem Stock Appreciation Right shall have been exercised. +15 +Table of Contents +(f) +Deemed Exercise of Reference Stock Option . Upon the exercise of a +Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related +shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of the Plan on the number +of shares of Common Stock to be issued under the Plan. +(g) +Non-Transferability . Tandem Stock Appreciation Rights shall be Transferable only when +and to the extent that the underlying Stock Option would be Transferable under Section 6.3(e) of the Plan. +7.3 Non-Tandem +Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights may also be granted without reference to any Stock Options +granted under this Plan. +7.4 Terms +and Conditions of Non-Tandem Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights granted hereunder shall be +subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time +by the Committee in its sole discretion, and the following: +(a) +Exercise Price . The exercise price per share of Common Stock subject +to a Non-Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per +share exercise price of a Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the +Common Stock at the time of grant. +(b) +Term . The term of each Non-Tandem Stock Appreciation Right shall +be fixed by the Committee, but shall not be greater than 7 years after the date the right is granted. +(c) +Exercisability . Non-Tandem Stock Appreciation Rights shall be exercisable +at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant. If the Committee +provides, in its discretion, that any such right is exercisable subject to certain limitations (including, without limitation, +that it is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the +exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment +exercise provisions or acceleration of the time at which such right may be exercised), based on such factors, if any, as the +Committee shall determine, in its sole discretion. In the event that a written employment agreement between the Company and +a Participant provides for a vesting schedule that is more favorable than the vesting schedule provided in the form of Award +Agreement, the vesting schedule in such employment agreement shall govern, provided that such agreement is in effect on the +date of grant and applicable to the specific Award. +(d) +Method of Exercise . Subject to whatever installment exercise and +waiting period provisions apply under subsection (c) above, Non-Tandem Stock Appreciation Rights may be exercised in whole +or in part at any time in accordance with the applicable Award agreement, by giving written notice of exercise to the Company +specifying the number of Non-Tandem Stock Appreciation Rights to be exercised. +16 +Table of Contents +(e) +Payment . Upon the exercise of a Non-Tandem Stock Appreciation Right +a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash or a number +of shares of Common Stock (as determined by the Committee, in its sole discretion, on the date of grant) equal in value to +the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised over the Fair Market Value +of one share of Common Stock on the date the right was awarded to the Participant. +(f) +Non-Transferability . No Non-Tandem Stock Appreciation Rights shall +be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all such rights +shall be exercisable, during the Participant’s lifetime, only by the Participant. +7.5 Limited +Stock Appreciation Rights . The Committee may, in its sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights +either as a general Stock Appreciation Right or as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be +exercised only upon the occurrence of a Change in Control or such other event as the Committee may, in its sole discretion, designate +at the time of grant or thereafter. Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an +Award agreement, the Participant shall receive in cash or Common Stock, as determined by the Committee, an amount equal to the +amount (a) set forth in Section 7.2(e) with respect to Tandem Stock Appreciation Rights, or (b) set forth in Section +7.4(e) with respect to Non-Tandem Stock Appreciation Rights, as applicable. +ARTICLE VIII +RESTRICTED STOCK +8.1 Awards +of Restricted Stock . Shares of Restricted Stock may be issued either alone or in addition to other Awards granted under +the Plan. The Committee shall, in its sole discretion, determine the Eligible Employees, Consultants and Non-Employee Directors, +to whom, and the time or times at which, grants of Restricted Stock shall be made, the number of shares to be awarded, the price +(if any) to be paid by the Participant (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, +the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards. The Committee may condition +the grant or vesting of Restricted Stock upon the attainment of specified performance targets (including, the Performance Goals +specified in Exhibit A attached hereto) or such other factors as the Committee may determine, in its sole discretion, including +to comply with the requirements of Section 162(m) of the Code. +8.2 Awards +and Certificates . Eligible Employees, Consultants and Non-Employee Directors selected to receive Restricted Stock shall +not have any rights with respect to such Award, unless and until such Participant has delivered a fully executed copy of the agreement +evidencing the Award to the Company and has otherwise complied with the applicable terms and conditions of such Award. Further, +such Award shall be subject to the following conditions: +(a) +Purchase Price . The purchase price of Restricted Stock shall be fixed +by the Committee. Subject to Section 4.3, the purchase price for shares of Restricted Stock may be zero to the extent permitted +by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value. +(b) +Acceptance . Awards of Restricted Stock must be accepted within a +period of 60 days (or such other period as the Committee may specify) after the grant date, by executing a Restricted Stock +agreement and by paying whatever price (if any) the Committee has designated thereunder. +17 +Table of Contents +(c) +Legend . Each Participant receiving Restricted Stock +shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another +system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock. Such certificate +shall be registered in the name of such Participant, and shall, in addition to such legends required by applicable securities +laws, bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially +in the following form: +“The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Steven Madden, Ltd. (the “Company”) 2009 Stock Incentive Plan (the “Plan”) and an agreement entered into between the registered owner and the Company dated __________. Copies of such Plan and agreement are on file at the principal office of the Company.” +(d) +Custody . If stock certificates are issued in respect of shares of Restricted Stock, the +Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions +thereon shall have lapsed, and that, as a condition of any grant of Restricted Stock, the Participant shall have delivered +a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award. +8.3 Restrictions +and Conditions . The shares of Restricted Stock awarded pursuant to this Plan shall be subject to the following restrictions +and conditions: +(a) +Restriction Period . (i) The Participant shall not be permitted to +Transfer shares of Restricted Stock awarded under this Plan during the period or periods set by the Committee (the “Restriction +Period”) commencing on the date of such Award, as set forth in a Restricted Stock Award agreement and such agreement +shall set forth a vesting schedule and any events which would accelerate vesting of the shares of Restricted Stock. Within +these limits, based on service, attainment of Performance Goals pursuant to Section 8.3(a)(ii) below and/or such other factors +or criteria as the Committee may determine in its sole discretion, the Committee may condition the grant or provide for the +lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Restricted +Stock Award and/or waive the deferral limitations for all or any part of any Restricted Stock Award. Subject to Section 8.3(a)(iii) +of this Plan, in the event that a written employment agreement between the Company and a Participant provides for a vesting +schedule that is more favorable than the vesting schedule provided in the form of Award Agreement, the vesting schedule in +such employment agreement shall govern, provided that such agreement is in effect on the date of grant and applicable to the +specific Award. +18 +Table of Contents +(ii) Objective Performance Goals, Formulae or Standards . If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of Performance Goals, the Committee shall establish the Performance Goals and the applicable vesting percentage of the Restricted Stock Award applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as otherwise determined by the Committee and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. With regard to a Restricted Stock Award that is intended to comply with Section 162(m) of the Code, to the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto. +(iii) Limitations . Notwithstanding any other provision of this Plan to the contrary, effective on the date of the Company’s 2009 annual stockholders’ meeting, the Restriction Period with respect to any Restricted Stock Award granted on or after such date shall be no less than (A) one year, if the lapsing of restrictions is based (in whole or in part) on the attainment of one or more Performance Goals, and (B) three years, if the lapsing of restrictions is based solely on the continued performance of services by the Participant (with restrictions as to no more than 1/3 rd of the shares of Common Stock subject thereto lapsing on each of the first three anniversaries of the date of grant); provided , that, subject to the terms of this Plan, the Committee shall be authorized (at the time of grant or thereafter) to provide for the earlier lapsing of restrictions in the event of a Change in Control or a Participant’s retirement, death or Disability; and provided further , that, subject to the limitations set forth in Section 4.1(b), Restricted Stock Awards may be granted on or after the date of the Company’s 2009 annual stockholders’ meeting without the foregoing limitations with respect to up to 10% (when combined with the 10% limitation set forth in Sections 4.1(b)(ii), 9.2(f) and 10.2(d) of this Plan) of the total number of shares of Common Stock reserved for Awards under this Plan. +(b) +Rights as a Stockholder . Except as provided in this +subsection (b) and subsection (a) above and as otherwise determined by the Committee, the Participant shall have, with respect +to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without +limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full +vesting of shares of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, determine +at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable +Restriction Period. +(c) +Lapse of Restrictions . If and when the Restriction Period expires +without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be delivered to the Participant. +All legends shall be removed from said certificates at the time of delivery to the Participant, except as otherwise required +by applicable law or other limitations imposed by the Committee. +ARTICLE IX +PERFORMANCE SHARES +9.1 Award +of Performance Shares . Performance Shares may be awarded either alone or in addition to other Awards granted under this +Plan. The Committee shall, in its sole discretion, determine the Eligible Employees, Consultants and Non-Employee Directors, to +whom, and the time or times at which, Performance Shares shall be awarded, the number of Performance Shares to be awarded to any +person, the Performance Period during which, and the conditions under which, receipt of the Shares will be deferred, and the other +terms and conditions of the Award in addition to those set forth in Section 9.2. +19 +Table of Contents +Except as otherwise provided herein, the Committee shall condition +the right to payment of any Performance Share upon the attainment of specified objective performance goals (including, the Performance +Goals specified in Exhibit A attached hereto) established pursuant to Section 9.2(c) below and such other factors as the Committee +may determine, in its sole discretion, including to comply with the requirements of Section 162(m) of the Code. +9.2 Terms +and Conditions . Performance Shares awarded pursuant to this Article IX shall be subject to the following terms and conditions: +(a) +Earning of Performance Share Award . At the expiration of the applicable +Performance Period, the Committee shall determine the extent to which the Performance Goals established pursuant to Section +9.2(c) are achieved and the percentage of each Performance Share Award that has been earned. +(b) +Non-Transferability . Subject to the applicable provisions of the +Award agreement and this Plan, Performance Shares may not be Transferred during the Performance Period. +(c) +Objective Performance Goals, Formulae or Standards . +The Committee shall establish the objective Performance Goals for the earning of Performance Shares based on a Performance +Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance +Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals +are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) +of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, +without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent any such +provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the +Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the +performance criteria set forth in Exhibit A hereto. +(d) +Dividends . Unless otherwise determined by the Committee at the time +of grant, amounts equal to any dividends declared during the Performance Period with respect to the number of shares of Common +Stock covered by a Performance Share will not be paid to the Participant. +(e) +Payment . Following the Committee’s determination in accordance +with subsection (a) above, shares of Common Stock or, as determined by the Committee in its sole discretion, the cash equivalent +of such shares shall be delivered to the Eligible Employee, Consultant or Non-Employee Director, or his legal representative, +in an amount equal to such individual’s earned Performance Share. Notwithstanding the foregoing, the Committee may, +in its sole discretion, award an amount less than the earned Performance Share and/or subject the payment of all or part of +any Performance Share to additional vesting, forfeiture and deferral conditions as it deems appropriate. +20 +Table of Contents +(f) +Accelerated Vesting . Based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, in its sole discretion, at or after grant, accelerate the vesting of all or any part of any Performance Share Award and/or waive the preceding sentence and any other provision of this Plan to the contrary. Notwithstanding the preceding sentence or any other provision of this Plan, effective on the date of the Company’s 2009 annual stockholders’ meeting, the vesting schedule with respect to any Performance Share Award on or after such date shall be no less than (A) one year, if the vesting period is based (in whole or in part) on the attainment of one or more Performance Goals, and (B) three years, if the vesting period is based solely on the continued performance of services by the Participant (with restrictions as to no more than 1/3 rd of the shares of Common Stock subject thereto lapsing on each of the first three anniversaries of the date of grant); provided , that, subject to the terms of this Plan, the Committee shall be authorized (at the time of grant or thereafter) to provide for the acceleration of vesting in the event of a Change in Control or a Participant’s retirement, death or Disability; and provided further , that, subject to the limitations set forth in Section 4.1(b), Performance Share Awards may be granted on or after the date of the Company’s 2009 annual stockholders’ meeting without the foregoing limitations with respect to up to 10% (when combined with the 10% limitation set forth in Sections 4.1(b)(ii), 8.3(a)(iii) and 10.2(d) of this Plan) of the total number of shares of Common Stock reserved for Awards under this Plan. +ARTICLE X +OTHER STOCK-BASED AWARDS +10.1 Other +Awards. The Committee, in its sole discretion, is authorized to grant to Eligible Employees, Consultants and Non-Employee Directors +Other Stock-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares +of Common Stock, including, but not limited to, shares of Common Stock awarded purely as a bonus and not subject to any restrictions +or conditions, shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored or maintained +by the Company or an Affiliate, performance units, dividend equivalent units, stock equivalent units, restricted stock units and +deferred stock units. To the extent permitted by law, the Committee may, in its sole discretion, permit Eligible Employees and/or +Non-Employee Directors to defer all or a portion of their cash compensation in the form of Other Stock-Based Awards granted under +this Plan, subject to the terms and conditions of any deferred compensation arrangement established by the Company, which shall +be intended to comply with Section 409A of the Code. Other Stock-Based Awards may be granted either alone or in addition to or +in tandem with other Awards granted under the Plan. +Subject to the provisions of this Plan, the Committee shall, in its +sole discretion, have authority to determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time +or times at which, such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all +other conditions of the Awards. The Committee may also provide for the grant of Common Stock under such Awards upon the completion +of a specified Performance Period. +21 +Table of Contents +The Committee may condition the grant or vesting of Other Stock-Based +Awards upon the attainment of specified Performance Goals set forth on Exhibit A as the Committee may determine, in its sole discretion; +provided that to the extent that such Other Stock-Based Awards are intended to comply with Section 162(m) of the Code, the Committee +shall establish the objective Performance Goals for the vesting of such Other Stock-Based Awards based on a performance period +applicable to each Participant or class of Participants in writing prior to the beginning of the applicable performance period +or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially +uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions +for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions +and acquisitions) and other similar type events or circumstances. To the extent any such provision would create impermissible discretion +under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. +The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto. +10.2 Terms +and Conditions . Other Stock-Based Awards made pursuant to this Article X shall be subject to the following terms and conditions: +(a) +Non-Transferability . Subject to the applicable provisions of the +Award agreement and this Plan, shares of Common Stock subject to Awards made under this Article X may not be Transferred prior +to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral +period lapses. +(b) +Dividends . Unless otherwise determined by the Committee at the time +of Award, subject to the provisions of the Award agreement and this Plan, the recipient of an Award under this Article X shall +not be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number +of shares of Common Stock covered by the Award. +(c) +Vesting . Any Award under this Article X and any Common Stock covered +by any such Award shall vest or be forfeited to the extent so provided in the Award agreement, as determined by the Committee, +in its sole discretion, in accordance with the terms of this Plan. Subject to Section 10.2(d) of this Plan, in the event that +a written employment agreement between the Company and a Participant provides for a vesting schedule that is more favorable +than the vesting schedule provided in the form of Award Agreement, the vesting schedule in such employment agreement shall +govern, provided that such agreement is in effect on the date of grant and applicable to the specific Award. +(d) +Limitation . Notwithstanding Section 10.2(c) of this Plan and any other provision of this Plan to the contrary, effective on the date of the Company’s 2009 annual stockholders’ meeting, the vesting schedule with respect to any Other Stock-Based Award on or after such date shall be no less than (A) one year, if the vesting period is based (in whole or in part) on the attainment of one or more Performance Goals, and (B) three years, if the vesting period is based solely on the continued performance of services by the Participant (with restrictions as to no more than 1/3 rd of the shares of Common Stock subject thereto lapsing on each of the first three anniversaries of the date of grant); provided , that, subject to the terms of this Plan, the Committee shall be authorized (at the time of grant or thereafter) to provide for the acceleration of vesting in the event of a Change in Control or a Participant’s retirement, death or Disability; and provided further , that, subject to the limitations set forth in Section 4.1(b), Other Stock-Based Awards may be granted on or after the date of the Company’s 2009 annual stockholders’ meeting without the foregoing limitations with respect to up to 10% (when combined with the 10% limitation set forth in Sections 4.1(b)(ii), 8.3(a)(iii) and 9.2(f) of this Plan) of the total number of shares of Common Stock reserved for Awards under this Plan. +22 +Table of Contents +(e) +Price . Common Stock issued on a bonus basis under this Article X +may be issued for no cash consideration; Common Stock purchased pursuant to a purchase right awarded under this Article X +shall be priced, as determined by the Committee in its sole discretion. +(f) +Payment. Form of payment for the Other Stock-Based Award shall be specified in the Award agreement. +ARTICLE XI +PERFORMANCE-BASED CASH AWARDS +11.1 Performance-Based +Cash Awards . Performance-Based Cash Awards may be granted either alone or in addition to or in tandem with Stock Options, +Stock Appreciation Rights, or Restricted Stock. Subject to the provisions of this Plan, the Committee shall, in its sole discretion, +have authority to determine the Eligible Employees, Consultants and Non-Employee Directors to whom, and the time or times at which, +such Awards shall be made, the dollar amount to be awarded pursuant to such Awards, and all other conditions of the Awards. The +Committee may also provide for the payment of dollar amount under such Awards upon the completion of a specified Performance Period. +For each Participant, the Committee may specify a targeted performance +award. The individual target award may be expressed, at the Committee’s discretion, as a fixed dollar amount, a percentage +of base pay or total pay (excluding payments made under the Plan), or an amount determined pursuant to an objective formula or +standard. Establishment of an individual target award for a Participant for a calendar year shall not imply or require that the +same level individual target award (if any such award is established by the Committee for the relevant Participant) be set for +any subsequent calendar year. At the time the Performance Goals are established, the Committee shall prescribe a formula to determine +the percentages (which may be greater than 100%) of the individual target award which may be payable based upon the degree of attainment +of the Performance Goals during the calendar year. Notwithstanding anything else herein, the Committee may, in its sole discretion, +elect to pay a Participant an amount that is less than the Participant’s individual target award (or attained percentage +thereof) regardless of the degree of attainment of the Performance Goals; provided that no such discretion to reduce an Award earned +based on achievement of the applicable Performance Goals shall be permitted for the calendar year in which a Change in Control +of the Company occurs, or during such calendar year with regard to the prior calendar year if the Awards for the prior calendar +year have not been made by the time of the Change in Control of the Company, with regard to individuals who were Participants at +the time of the Change in Control of the Company. +11.2 Terms +and Conditions . Performance-Based Awards made pursuant to this Article XI shall be subject to the following terms and conditions: +(a) +Vesting of Performance-Based Cash Award . At the expiration +of the applicable Performance Period, the Committee shall determine and certify in writing the extent to which the Performance +Goals established pursuant to Section 11.2(c) are achieved and the percentage of the Participant’s individual target +award has been vested and earned. +(b) +Waiver of Limitation . In the event of the Participant’s Retirement +(other than with respect to Performance-Based Cash Awards that are intended to comply with Section 162(m) of the Code), Disability +or death, or in cases of special circumstances (to the extent permitted under Section 162(m) of the Code with regard to a +Performance-Based Cash Award that is intended to comply with Section 162(m) of the Code), the Committee may, in its sole discretion, +waive in whole or in part any or all of the limitations imposed hereunder (if any) with respect to any or all of an Award +under this Article XI. +23 +Table of Contents +(c) +Objective Performance Goals, Formulae or Standards. +(i) The Committee shall establish the objective Performance Goals and the individual target award (if any) applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent any Performance-Based Award is intended to comply with the provisions of Section 162(m) of the Code, if any provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto. +(ii) The measurements used in Performance Goals set under the Plan shall be determined in accordance with Generally Accepted Accounting Principles (“GAAP”), except, to the extent that any objective Performance Goals are used, if any measurements require deviation from GAAP, such deviation shall be at the discretion of the Committee at the time the Performance Goals are set or at such later time to the extent permitted under Section 162(m) of the Code. +(d) +Payment . Following the Committee’s determination +and certification in accordance with subsection (a) above, the Performance-Based Cash Award amount shall be delivered to the +Eligible Employee, Consultant or Non-Employee Director, or his legal representative, in accordance with the terms and conditions +of the Award agreement. If the Award Agreement does not provide when such amount will be paid, except as provided in the next +sentence, such amount shall be paid by no later than the later of: (i) March 15 of the year following the year in which the +applicable Performance Period ends; or (ii) two and one-half (2½) months after the expiration of the fiscal year of the +Company in which the applicable Performance Period ends. Notwithstanding the foregoing, the Committee may place such conditions +on the payment of the payment of all or any portion of any Performance-Based Cash Award as the Committee may determine and +prior to the beginning of a Performance Period the Committee may (x) provide that the payment of all or any portion of any +Performance-Based Cash Award shall be deferred and (y) permit a Participant to elect to defer receipt of all or a portion +of any Performance-Based Cash Award. Any Performance-Based Cash Award deferred by a Participant in accordance with the terms +and conditions established by the Committee shall not increase (between the date on which the Performance-Based Cash Award +is credited to any deferred compensation program applicable to such Participant and the payment date) by an amount that would +result in such deferral being deemed as an “increase in the amount of compensation” under Code Section 162(m). +To the extent applicable, any deferral under this Section 11.2(d) shall be made in a manner intended to comply with the applicable +requirements of Section 409A of the Code. +24 +Table of Contents +ARTICLE XII +TERMINATION +12.1 Termination . +The following rules apply with regard to the Termination of a Participant. +(a) +Rules Applicable to Stock Option and Stock Appreciation Rights. Unless otherwise determined by the Committee at grant (or, if no rights of the Participant are reduced, thereafter): +(i) Termination by Reason of Death, Disability or Retirement. If a Participant’s Termination is by reason of death, Disability or the Participant’s Retirement, all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a one-year period from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights; provided, however, if the Participant dies within such exercise period, all unexercised Stock Options or Stock Appreciation Rights held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights. +(ii) Involuntary Termination Without Cause. If a Participant’s Termination is by involuntary termination without Cause, all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights. +(iii) Voluntary Termination. If a Participant’s Termination is voluntary (other than a voluntary termination described in Section 12.2(a)(iv)(2) below), all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 30 days from the date of such Termination, but in no event beyond the expiration of the stated terms of such Stock Options or Stock Appreciation Rights. +(iv) Termination for Cause. If a Participant’s Termination: (1) is for Cause or (2) is a voluntary Termination (as provided in sub-section (iii) above) after the occurrence of an event that would be grounds for a Termination for Cause, all Stock Options or Stock Appreciation Rights, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of such Termination. +25 +Table of Contents +(v) Unvested Stock Options and Stock Appreciation Rights. Stock Options or Stock Appreciation Rights that are not vested as of the date of a Participant’s Termination for any reason shall terminate and expire as of the date of such Termination. +(b) +Rules Applicable to Restricted Stock, Performance Shares, Other Stock-Based Awards and Performance-Based Cash Awards. Unless otherwise determined by the Committee at grant or thereafter, upon a Participant’s Termination for any reason: (i) during the relevant Restriction Period, all Restricted Stock still subject to restriction shall be forfeited; and (ii) any unvested Performance Shares, Other Stock-Based Awards or Performance-Based Cash Awards shall be forfeited +ARTICLE XIII +CHANGE IN CONTROL PROVISIONS +13.1 Benefits . +In the event of a Change in Control of the Company, and except as otherwise provided by the Committee in an Award agreement or +in a written employment agreement between the Company and a Participant, a Participant’s unvested Award shall not vest and +a Participant’s Award shall be treated in accordance with one of the following methods as determined by the Committee in +its sole discretion: +(a) +Awards, whether or not then vested, shall be continued, assumed, have new rights substituted therefor or be treated in accordance with Section 4.2(d) hereof, as determined by the Committee in its sole discretion, and restrictions to which any shares of Restricted Stock or any other Award granted prior to the Change in Control are subject shall not lapse upon a Change in Control and the Restricted Stock or other Award shall, where appropriate in the sole discretion of the Committee, receive the same distribution as other Common Stock on such terms as determined by the Committee; provided that, the Committee may, in its sole discretion, decide to award additional Restricted Stock or other Award in lieu of any cash distribution. Notwithstanding anything to the contrary herein, for purposes of Incentive Stock Options, any assumed or substituted Stock Option shall comply with the requirements of Treasury Regulation § 1.424-1 (and any amendments thereto) and for purposes of any Non-Qualified Stock Options and Stock Appreciations Rights, any assumed or substituted Non-Qualified Stock Option or Stock Appreciation Right shall comply with the requirements of Section 409A of the Code and the regulations and guidance issued thereunder. +(b) +The Committee, in its sole discretion, may provide for the purchase of any Awards by the Company or an Affiliate for an amount of cash equal to the excess of the Change in Control Price (as defined below) of the shares of Common Stock covered by such Awards, over the aggregate exercise price of such Awards. For purposes of this Section 13.1, “Change in Control Price” shall mean the highest price per share of Common Stock paid in any transaction related to a Change in Control of the Company. +(c) +The Committee may, in its sole discretion, provide for the cancellation of any Awards without payment, if the Change in Control Price is less than the Fair Market Value of such Award on the date of grant. +(d) +Notwithstanding anything else herein, the Committee may, in its sole discretion, provide for accelerated vesting or lapse of restrictions, of an Award at the time of grant or at any time thereafter. +26 +Table of Contents +13.2 Change +in Control . Unless otherwise determined by the Committee in the applicable Award agreement (or other written agreement +approved by the Committee including, without limitation, an employment agreement), a “Change in Control” shall be deemed +to occur following any transaction if: (a) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange +Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, +or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their +ownership of Common Stock of the Company), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange +Act), directly or indirectly, of 50% or more of the combined voting power of the then outstanding securities of the Company (or +its successor corporation); provided, however, that a merger or consolidation effected solely to implement a recapitalization of +the Company shall not constitute a Change in Control of the Company; or (b) the stockholders of the Company approve a plan of complete +liquidation of the Company; provided , that this subsection (b) shall not constitute a Change in Control with respect to +the amount of any payment pursuant to an Award under this Plan, or any portion thereof, that is triggered upon a Change in Control +and that is intended to constitute “non-qualified deferred compensation” pursuant to Section 409A of the Code; or (c) +the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets other than +(i) the sale or disposition of all or substantially all of the assets of the Company to a person or persons who beneficially own, +directly or indirectly, at least 50% or more of the combined voting power of the outstanding voting securities of the Company at +the time of the sale or (ii) pursuant to a spinoff type transaction, directly or indirectly, of such assets to the stockholders +of the Company. +ARTICLE XIV +TERMINATION OR AMENDMENT OF PLAN +14.1 Termination +or Amendment . Notwithstanding any other provision of this Plan, the Board or the Committee may at any time, and from time +to time, amend, in whole or in part, any or all of the provisions of this Plan (including any amendment deemed necessary to ensure +that the Company may comply with any regulatory requirement referred to in Article XVI), or suspend or terminate it entirely, retroactively +or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant +with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such +Participant and, provided further, without the approval of the stockholders of the Company in accordance with the laws of the State +of Delaware, to the extent required by the applicable provisions of Rule 16b-3 or Section 162(m) of the Code, pursuant to the requirements +of NASD Rule 4350(i)(1)(A) or such other applicable stock exchange rule, or, to the extent applicable to Incentive Stock Options, +Section 422 of the Code, no amendment may be made which would: +(a) +increase the aggregate number of shares of Common Stock that may be issued under this Plan pursuant to Section 4.1 (except by operation of Section 4.2); +(b) +increase the maximum individual Participant limitations for a fiscal year under Section 4.1(b) (except by operation of Section 4.2); +(c) +change the classification of Eligible Employees or Consultants eligible to receive Awards under this Plan; +(d) +decrease the minimum option price of any Stock Option or Stock Appreciation Right; +27 +Table of Contents +(e) +extend the maximum option period under Section 6.3; +(f) +alter the Performance Goals for the Award of Restricted Stock, Performance Shares or Other Stock-Based Awards subject to satisfaction of Performance Goals as set forth in Exhibit A; +(g) +other than adjustments or substitutions in accordance with Section 4.2 , amend the terms of outstanding Awards to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or to cancel outstanding Stock Options or Stock Appreciation Rights in exchange for cash, other Awards or Stock Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Stock Options or Stock Appreciation Rights; +(h) +award any Stock Option or Stock Appreciation Right in replacement of a canceled Stock Option or Stock Appreciation Right with a higher exercise price, except in accordance with Section 6.3(g); or +(i) +require stockholder approval in order for this Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code. In no event may this Plan be amended without the approval of the stockholders of the Company in accordance with the applicable laws of the State of Delaware to increase the aggregate number of shares of Common Stock that may be issued under this Plan, decrease the minimum exercise price of any Stock Option or Stock Appreciation Right, or to make any other amendment that would require stockholder approval under NASD Rule 4350(i)(1)(A) or other such rules of any exchange or system on which the Company’s securities are listed or traded at the request of the Company. +The Committee may amend the terms of any Award theretofore granted, +prospectively or retroactively, but, subject to Article IV above or as otherwise specifically provided herein, no such amendment +or other action by the Committee shall impair the rights of any holder without the holder’s consent. +ARTICLE XV +UNFUNDED PLAN +15.1 Unfunded +Status of Plan . This Plan is an “unfunded” plan for incentive and deferred compensation. With respect to any +payments as to which a Participant has a fixed and vested interest but that are not yet made to a Participant by the Company, nothing +contained herein shall give any such Participant any rights that are greater than those of a general unsecured creditor of the +Company. +28 +Table of Contents +ARTICLE XVI +GENERAL PROVISIONS +16.1 Legend . +The Committee may require each person receiving shares of Common Stock pursuant to a Stock Option or other Award under the Plan +to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution +thereof. In addition to any legend required by this Plan, the certificates for such shares may include any legend that the Committee, +in its sole discretion, deems appropriate to reflect any restrictions on Transfer. +All certificates for shares of Common Stock delivered under the Plan +shall be subject to such stop transfer orders and other restrictions as the Committee may, in its sole discretion, deem advisable +under the rules, regulations and other requirements of the Securities and Exchange Commission, The Nasdaq Stock Market or any national +securities exchange system upon whose system the Common Stock is then quoted, any applicable Federal or state securities law, and +any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate +reference to such restrictions. +16.2 Other +Plans . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, +subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable +only in specific cases. +16.3 No +Right to Employment/Directorship/Consultancy . Neither this Plan nor the grant of any Option or other Award hereunder shall +give any Participant or other employee, Consultant or Non-Employee Director any right with respect to continuance of employment, +consultancy or directorship by the Company or any Affiliate, nor shall they be a limitation in any way on the right of the Company +or any Affiliate by which an employee is employed or a Consultant or Non-Employee Director is retained to terminate his or her +employment, consultancy or directorship at any time. +16.4 Withholding +of Taxes . The Company shall have the right to deduct from any payment to be made pursuant to this Plan, or to otherwise +require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Participant +of, any Federal, state or local taxes required by law to be withheld. Upon the vesting of Restricted Stock (or other Award that +is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding +to the Company. Any statutorily required withholding obligation with regard to any Participant may be satisfied, subject to the +advance consent of the Committee, by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares +of Common Stock already owned. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded +and the amount due shall be paid instead in cash by the Participant. +16.5 No +Assignment of Benefits . No Award or other benefit payable under this Plan shall, except as otherwise specifically provided +by law or permitted by the Committee, be Transferable in any manner, and any attempt to Transfer any such benefit shall be void, +and any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts +of any person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such +person. +29 +Table of Contents +16.6 Listing +and Other Conditions. +(a) +Unless otherwise determined by the Committee, as long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issue of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected. +(b) +If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Option or other Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to shares of Common Stock or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company. +(c) +Upon termination of any period of suspension under this Section 16.6, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award. +(d) +A Participant shall be required to supply the Company with any certificates, representations and information +that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, +consent or approval the Company deems necessary or appropriate. +16.7 Governing +Law . This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of +the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws). +16.8 Construction . +Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine +gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed +as though they were also used in the plural form in all cases where they would so apply. +16.9 Other +Benefits . No Award granted or paid out under this Plan shall be deemed compensation for purposes of computing benefits +under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or subsequently +in effect under which the availability or amount of benefits is related to the level of compensation. +16.10 Costs . +The Company shall bear all expenses associated with administering this Plan, including expenses of issuing Common Stock pursuant +to any Awards hereunder. +30 +Table of Contents +16.11 No +Right to Same Benefits . The provisions of Awards need not be the same with respect to each Participant, and such Awards +to individual Participants need not be the same in subsequent years. +16.12 Death/Disability . +The Committee may in its sole discretion require the transferee of a Participant to supply it with written notice of the Participant’s +death or Disability and to supply it with a copy of the will (in the case of the Participant’s death) or such other evidence +as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may, in its discretion, also +require the agreement of the transferee to be bound by all of the terms and conditions of the Plan. +16.13 Section +16(b) of the Exchange Act . All elections and transactions under this Plan by persons subject to Section 16 of the Exchange +Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3. The +Committee may, in its sole discretion, establish and adopt written administrative guidelines, designed to facilitate compliance +with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of this Plan and +the transaction of business thereunder. +16.14 Section +409A of the Code . Although the Company does not guarantee the particular tax treatment of an Award granted under this Plan, +Awards made under this Plan are intended to comply with, or be exempt from, the applicable requirements of Section 409A of the +Code and this Plan and any Award agreement hereunder shall be limited, construed and interpreted in accordance with such intent. +In no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest or penalties that +may be imposed on a Participant by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code. +16.15 Successor +and Assigns . The Plan shall be binding on all successors and permitted assigns of a Participant, including, without limitation, +the estate of such Participant and the executor, administrator or trustee of such estate. +16.16 Severability +of Provisions . If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability +shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. +16.17 Payments +to Minors, Etc . Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of +receipt thereof shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing +to provide for the care of such person, and such payment shall fully discharge the Committee, the Board, the Company, its Affiliates +and their employees, agents and representatives with respect thereto. +16.18 Headings +and Captions . The headings and captions herein are provided for reference and convenience only, shall not be considered +part of the Plan, and shall not be employed in the construction of the Plan. +ARTICLE XVII +EFFECTIVE DATE OF PLAN +The Initial Plan was originally +adopted by the Board in its resolution adopting the Initial Plan on March 10, 2006 and was thereafter approved by the stockholders +of the Company in 2006. The Board subsequently approved this amendment and restatement of the Initial Plan in the form set forth +herein (the “Amended and Restated Plan”) subject to, and to be effective upon, the approval of the stockholders of +the Company in accordance with the requirements of the laws of the State of Delaware at the Company’s 2009 annual stockholders’ +meeting to be held on May 22, 2009 (the “Restatement Date”). If the Amended and Restated Plan is not so approved by +the stockholders, all provisions of the Initial Plan shall remain effective. +31 +Table of Contents +The Plan was originally adopted by +the Board on March 10, 2006 and approved by the stockholders of the Company on May 26, 2006. An amendment and restatement +of the Plan (the “Amended and Restated Plan”) was adopted by the Board on April 6, 2009 and approved by the stockholders +of the Company on May 22, 2009. The Board subsequently approved an amendment of the Amended and Restated Plan in the +form set forth herein (the “Amended Plan”) subject to, and to be effective upon, the approval of the stockholders +of the Company in accordance with the requirements of the laws of the State of Delaware at the Company’s 2012 annual stockholders’ +meeting to be held on May 25, 2012 (the “Amendment Date”). If the Amended Plan is not so approved by the stockholders, +all provisions of the Amended and Restated Plan shall remain effective. +ARTICLE XVIII +TERM OF PLAN +No Award shall be granted pursuant to this Plan on or after the tenth +anniversary of the earlier of the date the Plan is adopted by the Board and the Effective Date, but Awards granted prior to such +tenth anniversary may extend beyond that date; provided that no Award (other than a Stock Option or Stock Appreciation Right) that +is intended to be “performance-based” under Section 162(m) of the Code shall be granted on or after the fifth +anniversary of the stockholder approval of the Plan unless the Performance Goals set forth on Exhibit A are reapproved (or other +designated performance goals are approved) by the stockholders no later than the first stockholder meeting that occurs in the fifth +year following the year in which stockholders approve the Performance Goals set forth on Exhibit A. +ARTICLE XIX +NAME OF PLAN +This Plan shall be known as “The Steven Madden, Ltd. 2006 Stock +Incentive Plan.” +32 +Table of Contents +EXHIBIT A +PERFORMANCE GOALS +1. +Performance goals established for purposes of the grant or vesting of Awards of Restricted Stock, Other Stock-Based Awards, Performance Shares and/or Performance-Based Cash Awards, each intended to be “performance-based” under Section 162(m) of the Code, shall be based on the attainment of certain target levels of, or a specified increase or decrease (as applicable) in one or more of the following performance goals (“Performance Goals”): +(a) +earnings per share; +(b) +operating income; +(c) +net income; +(d) +cash flow; +(e) +gross profit; +(f) +gross profit return on investment; +(g) +gross margin return on investment; +(h) +gross margin; +(i) +working capital; +(j) +earnings before interest and taxes; +(k) +earnings before interest, tax, depreciation and amortization; +(l) +return on equity; +(m) +return on assets; +(n) +return on capital; +(o) +revenue growth; +(p) +total shareholder return; +(q) +economic value added; +(r) +specified objectives with regard to limiting the level of increase in all or a portion of the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee in its sole discretion; +A +Table of Contents +(s) +the fair market value of the shares of the Company’s Common Stock; +(t) +the growth in the value of an investment in the Company’s Common Stock assuming the reinvestment of dividends; +(u) +reduction in expenses; +(v) +customer satisfaction; +(w) +customer loyalty; +(x) +style indexes; +(y) +number of new patents; +(z) +employee retention; +(aa) +market share; +(bb) +market segment share; +(cc) +product release schedules; +(dd) +new product innovation; +(ee) +new product introduction; +(ff) +product cost reduction through advanced technology; +(gg) +brand recognition and/or acceptance; or +(hh) +ship targets. +2. +To the extent permitted under Section 162(m) of the Code, the Committee may, in its sole discretion, also exclude, or adjust to reflect, the impact of an event or occurrence which the Committee determines should be appropriately excluded or adjusted, including: +(a) +restructurings, discontinued operations, extraordinary items or events, and other unusual or non-recurring charges as described in Accounting Principles Board Opinion No. 30 and/or management’s discussion and analysis of financial condition and results of operations appearing or incorporated by reference in the Company’s Form 10-K for the applicable year; +(b) +an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management; or +(c) +a change in tax law or accounting standards required by generally accepted accounting principles. +B +Table of Contents +3. Performance goals may also be based upon individual Participant performance goals, +as determined by the Committee, in its sole discretion. +4. In addition, such Performance Goals may be based upon +the attainment of specified levels of Company (or subsidiary, division, other operational unit or administrative department of +the Company) performance under one or more of the measures described above relative to the performance of other corporations. +To the extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section 162(m) of the +Code (including, without limitation, compliance with any requirements for stockholder approval), the Committee may: +(a) designate additional business criteria on which the performance goals may be based; +or +(b) adjust, modify or amend the aforementioned business criteria. +A \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-12-000476/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-12-000476/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7322f4ce7e5a08be6c9b0d851f9e30beb386cc0f --- /dev/null +++ b/raw/proxies/0000913241/0001019056-12-000476/proxy_rpt.txt @@ -0,0 +1,125 @@ +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, +one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, +which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international +sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide +consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required +under the expired consulting agreement. In accordance with the foregoing, for the 2011 Fiscal Year, JLM Consultants +received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in +the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $3,859.46 per month +toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM +Consultants received a total of $1,552,227.31 from the Company in the 2011 Fiscal Year. +Effective as of July 1, 2005, the Company amended and restated its employment +agreement with the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to +continue to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under +his employment agreement commenced on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, +2011, will end on December 31, 2023. Prior to this recent amendment, the agreement had provided for an annual salary +of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the +agreement. The agreement had also provided for an annual cash bonus in an amount equal to at least 2% of the Company’s +EBITDA (the “Annual Bonus”) and an annual cash bonus in relation to “new business” (as defined in the agreement) +in an amount equal to at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income +above $2,000,000 (the “New Business Bonus”). The agreement, as amended, increases Mr. Madden’s annual +base salary but eliminates the Annual Bonus and the New Business Bonus and provides that all cash bonuses subsequent to the 2011 +Fiscal Year will be at the sole discretion of the Company’s Board of Directors. Under the agreement, as amended, +Mr. Madden’s annual base salary is fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 +and $10,697,917 in 2016 and in each year thereafter through the end of the term of employment. In addition, the amended agreement +entitles Mr. Madden to an annual life insurance premium reimbursement of up to $200,000. The amendment also eliminates +an annual non-accountable expense allowance of $200,000 that had been previously provided to Mr. Madden under the agreement. +Pursuant to the amended agreement, as amended, on February 8, 2012, +Mr. Madden was granted 975,371 restricted shares of Common Stock, valued at approximately $40 million, pursuant to the Company’s +2006 Stock Incentive Plan, as amended (the “2006 Plan”). The restricted Common Stock will vest in equal +annual installments over seven years commencing on December 31, 2017 through December 31, 2023, subject to Mr. Madden’s continued +employment with the Company on each such vesting date. Further, under the agreement, as amended, Mr. Madden has the +right, exercisable on certain specified dates in fiscal year 2012 only, to elect to further amend the agreement to receive an additional +restricted stock award for a number of shares of Common Stock valued at $40,000,000 in consideration of a reduction in his annual +base salary in years subsequent to 2012 as follows: $4,000,000 in 2013, $6,125,000 in 2014, $8,250,000 in 2015 and $7,026,042 in +2016 and in each year thereafter through the end of the term of employment. In the event that Mr. Madden elects to receive +an additional restricted stock award, the additional restricted shares of Common Stock issued to Mr. Madden will vest in equal +annual installments over six years commencing on December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued +employment with the Company on each such vesting date. Mr. Madden’s right to receive an additional restricted +stock award is subject to the availability of shares under the 2006 Plan, or any other plan designated by the Board of Directors +and approved by the Company’s stockholders. +Mr. Madden is also eligible to receive annually, on or about the date +of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of +shares of Common Stock, with such number to be equal to the greater of (a) not less than 100% of the largest aggregate number of +shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of +the Company during the preceding twelve-month period and (b) 100,000 shares of Common Stock; provided, however, that a grant to +Mr. Madden in excess of 150% of the number of shares of Common Stock subject to options granted to such other continuing full-time +employee would require stockholder approval. Any Annual Option granted to Mr. Madden would vest quarterly over a one-year +period following the grant date and would be exercisable at a price equal to the closing price of the Company’s Common Stock +on the grant date for a period of five years following the grant date. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 500,000 shares of the Company’s +Common Stock (the number of option shares to be subject to adjustment in the event of a future change in capital structure of the +Company resulting from a stock split, reverse stock split or other transaction or event having similar effect) in the event that +the Company achieves earnings per share, on a fully-diluted basis, equal to $3.00 in any fiscal year ending December 31, 2015 or +after. If granted, the option would vest in equal annual installments of 20% over a five-year period and be exercisable +for a period of seven years at a price equal to the closing price of the Company’s Common Stock on the date immediately preceding +the grant date. +14 +Table of Contents +In the event of Mr. Madden’s death, his employment agreement provides +for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of his +death. Further, in the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total +disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, +the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. +In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to +his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base +salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the +period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and +ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company +other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), +or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested +options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden +will be entitled to receive a lump sum cash payment equal to the amount of compensation that is accrued and unpaid through the +date of termination plus $35 million. Mr. Madden’s employment agreement contains other customary provisions, including +provisions regarding expense reimbursement, confidentiality, solicitation and competition. +For 2011 Fiscal Year, Mr. Madden earned (i) $709,133 in base salary; +(ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $2,984,665, representing 2% of the Company’s earnings +before interest, tax, depreciation and amortization; (iv) a bonus of $7,252,094, earned based on 2.5% of the Company’s new +business; and (v) a bonus of $748,823, based on 10% of Royalty/Licensing income over $2,000,000. As an Annual Option, +on June 2, 2011, Mr. Madden was granted an option to purchase 150,000 shares of Common Stock, under the 2006 Plan having +an exercise price of $35.62 per share. The option vests in equal installments of 37,500 shares on each of August +27, 2011, November 27, 2011, February 27, 2012 and May 27, 2012. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative +and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a +personal tax obligation resulting from the exercise of a stock option which was due to expire and to hold the underlying shares +of Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 315,000 +shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to +the note, the most recent of which occurred on January 3, 2012, at which time the note was amended and restated to extend the maturity +date of the obligation to December 31, 2023 and eliminate accrual of interest after December 31, 2011; prior to the most recent +amendment, the note had been accruing interest at the rate of 6% per annum. In addition, the amended and restated note +provides that, commencing on December 31, 2014 and annually on each December 31 thereafter through the maturity date, one-tenth +of the principal amount thereof, together with accrued interest, will be cancelled by the Company provided that Mr. Madden continues +to be employed by the Company on each such December 31. Contemporaneously, the Company will release a number of pledged +shares of Common Stock from the pledge generally correlating to the amount of indebtedness cancelled on such date. As +of December 31, 2011, interest in the amount of $1,090,000 has accrued on the principal amount of the note. +Steven Madden is the brother of John L. Madden, who has been a director +of the Company since the Company’s inception in 1990. +15 +Table of Contents +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit +all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere +in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts +of interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a committee +of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in +the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant +factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives +to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third +parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to +an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the +overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, +including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent +conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire +to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the +members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate +family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest +under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, +which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular +review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +If a director is a party to or in some manner involved in a transaction +involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved +in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-13-000485/proxy.txt b/raw/proxies/0000913241/0001019056-13-000485/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6ea4fe189950ebf4862da92392254eaed2a7aeee --- /dev/null +++ b/raw/proxies/0000913241/0001019056-13-000485/proxy.txt @@ -0,0 +1,4148 @@ +DEF 14A +1 +smadden_def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(RULE 14A-101) +INFORMATION +REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +PROXY +STATEMENT PURSUANT TO SECTION 14(A) OF THE +SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Steven +Madden, Ltd. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, +if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +LETTER TO THE +DEAR +STOCKHOLDERS, +2012 was another outstanding year for our Company. We gained share in our core Steve Madden footwear business, recorded explosive +growth in our Steve Madden handbag business and expanded our retail and wholesale footprint both domestically and abroad. For +the year, we increased net sales by 27% to $1.2 billion and net income by 23% to $120 million, or $2.71 per diluted share. +Gaining +Share In Our Core Business +What sets Steve Madden apart is our ability to consistently create trend-right products and deliver them to the market at the +right time. Nowhere is this more important than in our core Steve Madden Women’s wholesale footwear business. Once again, +our proven formula – combining the unique creative talents of Steve and his design team with a test and react strategy and +industry-leading speed to market capability – drove outstanding performance in this core business. Our on-trend merchandise +assortment resulted in strong market share gains in key department store accounts like Nordstrom, Dillard’s and Lord & +Taylor, which in turn led to a 15% net sales increase for the year in our Steve Madden Women’s wholesale footwear division. +Growing +Our Accessories Business +Our fastest growing business in 2012 was our handbag business. Steve Madden handbags led the way, with sales more +than +doubling versus the prior year. Our other handbag businesses also exhibited strong growth, as we recorded double-digit percentage +sales gains in Betsey Johnson, Big Buddha and private label handbags. Overall, our wholesale accessories net sales increased 36.5% +to $241 million, or 20% of the Company’s net sales. +Expanding +Our Direct-To-Consumer Business +We had our biggest year ever in terms of retail expansion in 2012, opening 20 new bricks-and-mortar doors, including 15 full price +stores and five outlet locations. We also acquired seven stores in our purchase of SM Canada and launched two new e-commerce sites +during the year: superga-usa.com in the Spring and betseyjohnson.com in the Fall. We ended the year with 109 Company-operated +stores, including 11 outlets and three e-commerce stores. +Most importantly, our stores performed very well. Comparable +store sales increased 7.9% for the year, and our retail operating margin improved to 13.8%, a new record for the Company. +Developing +New Brands +In Spring 2012, we launched the Superga +brand in North America under license from the Italian company BasicNet. In addition to distributing Superga product to retailers +such as Nordstrom, Bloomingdale’s and J. Crew, we opened a Superga store in SoHo, New York and launched the Superga e-commerce +store. Initial response +from both retailers +and consumers was outstanding, and we expect strong growth from this brand in 2013. +In December, we launched Mad Love, a surf-inspired +brand of which we have 50% ownership, as an exclusive brand at Target. Mad Love footwear and accessories can now be found in all +Target stores and online, and initial sell-throughs at retail have been excellent. +Expanding +Our International Business +In 2012, we delivered our third consecutive year of greater than 50% growth in our international +business. We saw robust gains in existing territories including Latin America, the Middle East and Benelux, and we had a successful +launch in the United Kingdom with our new partner, Dune. +We also took direct control of our business in an international +market for the first time with our acquisition of SM Canada in February 2012. We are very pleased with the acquisition thus far, +and have already begun to expand the Steve Madden footprint in Canada, opening five new stores during the year to bring us to a +total of 12. +Looking +Ahead +As we look ahead, we are optimistic that the strength of our brands and our business model will allow us to continue to generate +solid sales and profitability increases. We are entering 2013 poised for +growth across multiple product categories, distribution channels and geographical markets. We remain firm in our belief that continuing our laser focus on developing outstanding products and delivering them to the market in a timely fashion will enable us to capitalize on the many opportunities in our business in 2013 and beyond. +Our success is the direct result of the efforts of our exceptional +team. We thank them for their hard work and dedication, and we thank you, our stockholders, for your continued support. +Sincerely, +EDWARD ROSENFELD +CHIEF EXECUTIVE OFFICER +AWADHESH SINHA +CHIEF OPERATING OFFICER +ARVIND DHARIA +CHIEF FINANCIAL OFFICER +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 24, 2013 +TO THE STOCKHOLDERS OF STEVEN MADDEN, LTD.: +NOTICE IS HEREBY GIVEN that the Annual +Meeting of Stockholders (the “Annual Meeting”) of Steven Madden, Ltd. (the “Company”) will be held on +May 24, 2013, at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 +a.m., local time, for the purposes stated below: +1. to elect six directors to the Board of Directors of +the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected +and qualified or until their earlier death, resignation or removal from office; +2. to approve an amendment to the Company’s Certificate +of Incorporation to increase the total number of authorized shares of the Company’s common stock, $0.0001 par value, from +60,000,000 shares to 135,000,000 shares; +3. to ratify the appointment of EisnerAmper LLP as the +Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013; +4. to approve, on a non-binding advisory basis, the compensation +of certain executive officers as disclosed in the accompanying proxy statement; and +5. to transact such other business as may properly come +before the Annual Meeting or any adjournments thereof. +Only those stockholders of record at the +close of business on April 3, 2013 are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. A +complete list of stockholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting +for purposes germane to the Annual Meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, at the Company’s principal +executive offices at 52-16 Barnett Avenue, Long Island City, New York 11104, by contacting the Secretary of the Company, and will +be available at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS +FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24, 2013: THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, ANNUAL REPORT, +ELECTRONIC PROXY CARD AND ANY OTHER MATERIALS CONCERNING THE ANNUAL MEETING, TOGETHER WITH ANY AMENDMENTS TO ANY OF THESE MATERIALS, +ARE AVAILABLE ON THE INTERNET AT WWW.PROXYVOTE.COM. +BY ORDER OF THE BOARD OF DIRECTORS +April 9, 2013 +Long Island City, New York +Arvind Dharia +Secretary +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, +PLEASE MARK, DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED TO: VOTE PROCESSING, C/O +BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, NEW YORK 11717. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET +AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. +TABLE OF CONTENTS +GENERAL INFORMATION +1 +Notice of Internet Availability of Proxy Materials +1 +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +2 +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2014 ANNUAL MEETING +5 +PROPOSAL ONE: ELECTION OF DIRECTORS +6 +Biographical Summaries of Nominees for the Board of Directors +6 +CORPORATE GOVERNANCE +9 +The Board of Directors +9 +Director Independence +9 +Director Attendance at Meetings +9 +Director Election (Majority Voting) Policy +9 +Committees of the Board +10 +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +12 +Code of Business Conduct and Ethics +14 +Certain Relationships and Related Party Transactions +14 +Review, Approval or Ratification of Transactions with Related Persons +16 +COMPENSATION OF DIRECTORS IN THE 2012 FISCAL YEAR +17 +STOCK OWNERSHIP +18 +Security Ownership of Certain Beneficial Owners +18 +Security Ownership of Directors and Executive Officers +19 +Section 16(a) Beneficial Ownership Reporting Compliance +20 +EXECUTIVE COMPENSATION +21 +Compensation Discussion and Analysis +21 +Compensation Committee Interlocks and Insider Participation +28 +Executive Officers +28 +SUMMARY COMPENSATION TABLE +29 +Employment Arrangements +30 +GRANTS OF PLAN-BASED AWARDS IN THE 2012 FISCAL YEAR +35 +OUTSTANDING EQUITY AWARDS AT END OF THE 2012 FISCAL YEAR +37 +OPTION EXERCISES AND STOCK VESTED IN THE 2012 FISCAL YEAR +38 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +39 +EQUITY COMPENSATION PLAN INFORMATION +39 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +40 +COMPENSATION COMMITTEE REPORT +42 +PROPOSAL TWO: APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF STEVEN MADDEN, LTD. +42 +PROPOSAL THREE: RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013 +45 +AUDIT COMMITTEE REPORT +47 +PROPOSAL FOUR: NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +47 +i +STEVEN +MADDEN, LTD. +52-16 +Barnett Avenue +Long +Island City, New York 11104 +PROXY +STATEMENT +GENERAL INFORMATION +On +behalf of the Board of Directors of Steven Madden, Ltd., a Delaware corporation (the “Company”, “we” or +“us”), we are requesting your proxy in connection with the Annual Meeting of Stockholders (the “Annual Meeting”) +scheduled to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York on +Friday, May 24, 2013 at 10:00 a.m., local time. On or about April 10, 2013, a notice containing instructions on how to +access this Proxy Statement, the accompanying proxy card and related materials online is being mailed to holders of record of +common stock, $.0001 par value, of the Company (the “Common Stock”) at the close of business on April 3, 2013 (the +“Record Date”). The Company’s Annual Report for the fiscal year ended December 31, 2012 (“2012 Fiscal +Year”), including audited financial statements, is included in the materials that are accessible online to our stockholders. +This Proxy Statement contains information about the Annual Meeting as well as information regarding the voting process, director +elections, our corporate governance programs and executive and director compensation, among other things. We recommend that you +read all of these materials. +The +Annual Meeting has been called to consider and take action on the following proposals: +● to +elect +six +directors +to +the +Board +of +Directors +of +the +Company +to +serve +until +the +next +annual +meeting +of +the +Company’s +stockholders +and +until +their +successors +are +duly +elected +and +qualified +or +until +their +earlier +death, +resignation +or +removal +from +office; +● to +amend +the +Company’s +Certificate +of +Incorporation +to +increase +the +total +number +of +shares +of +Common +Stock +that +the +Company +is +authorized +to +issue +from +60,000,000 +shares +to +135,000,000 +shares; +● to +ratify +the +appointment +of +EisnerAmper +LLP +as +the +Company’s +independent +registered +public +accounting +firm +for +the +fiscal +year +ending +December +31, +2013; +● to +approve, +on +a +non-binding +advisory +basis, +the +compensation +of +certain +executive +officers +as +disclosed +in +this +Proxy +Statement; +and +● to +transact +such +other +business +as +may +properly +come +before +the +Annual +Meeting +and +any +adjournments +thereof. +The +Board of Directors knows of no other matters to be presented for action at the Annual Meeting. However, if any other matters properly +come before the Annual Meeting, the persons named in the proxy will vote on such other matters and/or for other nominees in accordance +with their best judgment. The Company’s Board of Directors recommends that the stockholders vote “FOR” each +of the proposals. Only holders of record of Common Stock of the Company at the close of business on the Record Date will be entitled +to vote at the Annual Meeting. +The +principal executive offices of the Company are located at 52-16 Barnett Avenue, Long Island City, New York 11104 and the telephone +number of the Company is (718) 446-1800. +Notice of Internet Availability of Proxy Materials +We +continue to take advantage of the Securities and Exchange Commission (the “SEC”) “e-proxy” rules allowing +us to furnish proxy materials through the Internet for the benefit and convenience of our stockholders. By using the e-proxy rules, +we can expedite the receipt by stockholders of this Proxy Statement and our Annual Report while lowering the costs and reducing +the environmental impact associated with our Annual Meeting. On or about April 10, 2013, we will furnish a Notice of Internet +Availability of Proxy Material (the “Availability Notice”) to most of our stockholders containing instructions on +how to access the proxy materials and to vote online. In addition, our instructions on how to request a printed copy of these +materials will be found on the Availability Notice. For more information on voting your Common Stock, please see the “Questions +and Answers” section below. If you received an Availability Notice by mail, you will not receive a paper copy of the proxy +materials unless you request such materials by following the instructions contained in the Availability Notice. +1 +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +Who +may vote at the Annual Meeting? +Only +stockholders of record are entitled to vote at the Annual Meeting. A stockholder of record is a stockholder as of the close of +business on the Record Date. On the Record Date, there were 46,231,961 shares of our Common Stock outstanding +(excluding treasury shares) held by approximately 116 registered holders of record and 33,581 beneficial owners. +What +is considered a quorum to conduct the Annual Meeting? +The +presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum +for the purpose of transacting business at the Annual Meeting. Under Delaware law (under which the Company is incorporated), abstentions +and broker non-votes (meaning proxies from brokers or nominees indicating that such persons have not received instructions on +how to vote from the beneficial owner or other persons eligible to vote shares as to matters with respect to which the brokers +or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence +of a quorum for the transaction of business. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is +obtained. +What +is a “broker non-vote”? +If +your shares are held in “street name” by a broker, bank or nominee, your broker, bank or nominee is the record holder; +however, the broker, bank or nominee is required to vote the shares in accordance with your instructions. If you do not give instructions +to your broker, bank or nominee, as the case may be, the broker, bank or nominee may, if permitted by the organizations of which +it is a member, exercise discretionary voting power to vote your shares. A “broker non-vote” occurs when a broker, +bank or nominee of record holding shares for a beneficial owner has not received voting instructions from the beneficial owner +and either chooses not to vote the shares on a particular proposal as to which the holder has discretionary voting power or does +not vote on a particular proposal because that holder does not have discretionary voting power for that particular item. Broker +non-votes are considered present in determining whether a quorum is present. If you hold your shares in “street name,” +we strongly encourage you to provide instructions regarding the voting of your shares as your broker or nominee cannot vote your +shares with respect to certain of the proposals being presented at the Annual Meeting without voting instructions from you. +How +many votes do I have? +For +each share of Common Stock that you own on the Record Date you are entitled to one vote on each matter presented at the Annual +Meeting. +How +many votes are required to approve each proposal and what is the effect of abstentions and broker non-votes? +Proposal +One (Election of Directors): Under Delaware law, directors are elected by the affirmative vote of a plurality of the shares +of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote. This means that the director +nominees who receive the greatest number of affirmative votes cast are elected as directors, subject to our director resignation +policy discussed in Proposal One below. +Proposal +Two (Amendment of Certificate of Incorporation to Increase Authorized Shares): The affirmative vote of a majority of the +shares of Common Stock outstanding and entitled to vote at the Annual Meeting is required to approve the proposal to amend the +Company’s Certificate of Incorporation to increase the total number of shares of Common Stock that the Company is authorized +to issue. +2 +Proposal +Three (Ratification of Appointment of EisnerAmper LLP): The affirmative vote of a majority of the shares of Common Stock +present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the ratification of +the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2013. +Proposal +Four (Non-Binding Advisory Vote On Executive Compensation): The affirmative vote of a majority of the shares of Common Stock +present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve, on a non-binding +advisory basis, the compensation of the Company’s named executive officers as described in this Proxy Statement. +Other +Matters: If any other matters are presented at the Annual Meeting, they must receive an affirmative vote of a majority of +the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote in order to be +approved. +Abstentions +will have no effect on the election of directors, but will be treated as present and entitled to vote on the remaining proposals +and, therefore, abstentions will have the effect of votes “AGAINST” such proposals. +Proposal +One (Election of Directors) will be decided by a plurality of the votes of the shares represented in person or by proxy. The approval +of Proposal Two (Amendment of Certificate of Incorporation) requires a favorable vote of a majority of the outstanding shares. +The approval of each of Proposals Three (Ratification of EisnerAmper LLP) and Four (Advisory Vote on Executive Compensation) requires +a favorable vote of a majority of the shares present and entitled to vote on the applicable matter. As noted above, an abstention +will have no effect on the election of directors but will have the same effect as a vote “AGAINST” each other proposal. +Broker non-votes with respect to Proposals One, Three and Four will have no effect on the outcome of the vote with respect to +that proposal; however, broker non-votes with respect to Proposal Two will have the effect of a vote “AGAINST” the +proposal. +How +can I vote my shares? +Your +vote is important. Your shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even +if you plan to attend the Annual Meeting, we urge you to authorize your proxy in advance. You may vote your shares by authorizing +a proxy over the Internet or by telephone. In addition, if you received a paper copy of the proxy materials by mail, you can also +submit a proxy by mail by following the instructions on the proxy card. Voting your shares by authorizing a proxy over the Internet, +by telephone or by written proxy card will ensure your representation at the Annual Meeting regardless of whether you attend in +person. +If +you are the record holder of your shares, please authorize your proxy electronically by going to the http://www.proxyvote.com +website or by calling the toll-free number listed below and on the proxy card. Please have your Proxy Statement or proxy card +in hand when going online or calling. If you authorize your proxy via the Internet or by phone you do not need to return your +proxy card. If you choose to authorize your proxy by mail, simply mark your proxy card and then date, sign and return it in the +postage-paid envelope provided. +VOTE +BY INTERNET +http://www.proxyvote.com +Use +the Internet to transmit your voting instructions and for electronic delivery of information. +VOTE +BY +PHONE +1-800-690-6903 +Use +any touch-tone telephone to transmit your voting instructions. +VOTE +BY +MAIL +Vote +Processing, c/o Broadridge +51 Mercedes Way +Edgewood, New York 11717 +If +you receive paper proxy materials, mark, sign and date your proxy card and return it in the postage-paid envelope we have +provided or return it to the address shown above. +3 +If +you hold your shares beneficially in “street name” through a broker or nominee you may be able to authorize your proxy +by telephone or the Internet as well as by mail, but you will need to obtain and follow instructions from your broker or nominee +to vote these shares. +May +I revoke my proxy for the Annual Meeting once I have given it? +You +may revoke your proxy at any time before it is voted at the Annual Meeting by: +● properly +executing +and +delivering +a +later +dated +proxy +(including +a +telephone +or +Internet +proxy +authorization); +● voting +by +ballot +at +the +Annual +Meeting; +or +● sending +a +written +notice +of +revocation +to +the +Corporate +Secretary +of +the +Company +at +Steven +Madden, +Ltd., +52-16 +Barnett +Avenue, +Long +Island +City, +New +York +11104. +How +does the Board of Directors recommend that I vote my shares? +The +Board of Directors of the Company recommends that you vote: +● “FOR” +the +election +of +each +of +the +six +director +nominees; +● “FOR” +the +approval +of +an +amendment +to +the +Company’s +Certificate +of +Incorporation +that +increases +the +total +number +of +shares +of +Common +Stock +authorized +for +issuance; +● “FOR” the ratification of the appointment of EisnerAmper LLP as the Company’s +independent registered public accounting firm for the fiscal year ending December 31, 2013; and +● “FOR” the approval, on a non-binding advisory basis, of the executive compensation of the Company’s +named executive officers, as disclosed in this Proxy Statement. +ALL +PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL +IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE PERSONS NAMED IN THE PROXY +WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. +AS NOTED ABOVE, IF YOU HOLD YOUR SHARES BENEFICIALLY THROUGH A BROKER OR NOMINEE AND FAIL TO PROVIDE SPECIFIC VOTING INSTRUCTIONS +TO THAT BROKER OR NOMINEE, YOUR SHARES WILL NOT BE VOTED IN THE ELECTION OF DIRECTORS AND THE ADVISORY +VOTE ON EXECUTIVE COMPENSATION . +Who +will bear the expenses of this solicitation? +The +expense of this solicitation, including preparing, printing and mailing this Proxy Statement, the exhibits hereto and the proxies +solicited hereby, will be borne by the Company. In addition to the use of the mails, proxies may be solicited by officers and +directors and employees of the Company, without additional remuneration, by personal interviews, telephone, telegraph or facsimile +transmission. The Company will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to +the beneficial owners of shares of Common Stock held of record by them and will provide reimbursements for the cost of forwarding +the material in accordance with customary charges. The Company has entered into an agreement with Phoenix Advisory Partners to +assist in the solicitation of proxies and provide related advice and informational support. The total expense of this engagement, +which will be borne by the Company, including customary disbursements, is not expected to exceed $20,000 in the aggregate. +How +will the voting results be reported? +The +preliminary results of the voting on the proposals will be reported at the Annual Meeting. The final certified results will be +reported in a Current Report on Form 8-K, which will be filed with the SEC within four business days following the Annual Meeting. +4 +STOCKHOLDER +NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2014 ANNUAL MEETING +In +accordance with Article II, Section 5 of the Company’s By-Laws, director nominations for the 2014 Annual Meeting of +Stockholders of the Company (the “2014 Annual Meeting”) can only be made by a stockholder of the Company who (A) +is a stockholder of record on the date of the giving of the notice of such director nominations and on the record date for +the determination of stockholders entitled to vote at such meeting, and (B) complies with the notice requirements and +procedures set forth in Article II, Section 5 of the Company’s Amended and Restated By-Laws (the +“By-Laws”). A stockholder’s notice to the Corporate Secretary with respect to any such nominations must be +timely and in proper written form pursuant to Article II, Section 5 of the Company’s By-Laws, including containing +certain information concerning the nominating or proposing stockholder and certain information concerning the nominee, and +must be delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor +more than 150 days prior to the first anniversary of the date of the Company’s 2013 Annual Meeting. Accordingly, any +written notice given by or on behalf of a stockholder pursuant to Article II, Section 5 of the Company’s By-Laws in +connection with the 2014 Annual Meeting must be received no later than January 24, 2014 and no earlier than December 25, +2013. +In +accordance with rules promulgated by the SEC, any stockholder who wishes to submit a proposal for inclusion in the proxy material +to be distributed by the Company in connection with the 2014 Annual Meeting must do so no later than December 10, 2013. In addition, +in accordance with Article I, Section 7(f) of the Company’s By-Laws, in order to be properly brought before the 2014 Annual +Meeting, a matter must be either (i) specified in the notice of such meeting given by or at the direction of the Board of Directors +(or any duly authorized committee thereof), (ii) otherwise properly brought before such meeting by or at the direction of the +Board of Directors (or any duly authorized committee thereof) or (iii) specified in a notice in proper written form given by a +stockholder of record on the date of the giving of the notice and on the record date for such meeting, which notice conforms to +the requirements of Article I, Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the Company’s +principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s +2013 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to the foregoing clause (iii) +in connection with the 2014 Annual Meeting must be received no later than January 24, 2014 and no earlier than December 25, 2013. +In addition, for business to be properly brought before the 2014 Annual Meeting by a stockholder pursuant to the foregoing clause +(iii), such stockholder shall have complied with any other applicable requirements, including, but not limited to, the requirements +of Rule 14a-8 promulgated by the SEC. +5 +PROPOSAL +ONE: +ELECTION OF DIRECTORS +The +Company’s By-Laws provide that the Board of Directors of the Company shall be comprised of a minimum of one director and +that, subject to this limitation, the number of directors may be fixed from time to time by action of the directors. The Company’s +Board of Directors has fixed the number of directors to comprise the Board of Directors at six directors and the Board of Directors +presently is comprised of six directors whose terms expire at the Annual Meeting. Directors serve a one-year term. +Upon +recommendation of the Nominating/Corporate Governance Committee of the Board of Directors, the Board of Directors has nominated +and is recommending to the stockholders the election of each of the six nominees named below to serve as a director of the Company +until the next annual meeting of the Company’s stockholders and until his successor is duly elected and qualified or until +his earlier death, resignation or removal from office. All nominees have consented to being named in this Proxy Statement and +to serving on the Board of Directors if elected. +Biographical +Summaries of Nominees for the Board of Directors +The +names and biographical summaries of the six persons who have been recommended by the Nominating/ Corporate Governance Committee +of the Board of Directors and nominated by the Board of Directors to stand for election at the Annual Meeting are provided below +for your information. +Our +Board of Directors includes members who are well-qualified to serve on the Board and its committees and to represent the best +interests of our stockholders. The Board and the Nominating/Corporate Governance Committee select nominees with a view to establishing +a Board of Directors that is comprised of individuals who have extensive business leadership experience, are independent, bring +diverse perspectives to the Board, possess high ethical standards and sound business judgment and acumen and a willingness to +devote the time necessary for the Board to effectively fulfill its responsibilities. We believe that all of the director nominees +possess these qualifications and provide the Board with a full complement of knowledge, business skills and expertise for the +effective management of our Company. In addition to these general qualifications, provided below for each nominee for director +is a discussion of the experience, qualifications, attributes and skills that led to the Board’s conclusion that the nominee +should serve as a director. +Edward +R. Rosenfeld - Chairman of the Board and Chief Executive Officer +Edward +R. Rosenfeld, 37, has served as a director of the Company since February 2008 and has served on the Company’s Investment +Committee since April 2008. Mr. Rosenfeld has been Chairman of the Board and Chief Executive Officer since August 2008 after serving +as interim Chief Executive Officer of the Company from March 24, 2008 and prior to that, serving as the Executive Vice President +of Strategic Planning and Finance of the Company. Mr. Rosenfeld has been a member of the executive management team since joining +the Company in May 2005. Prior to joining the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment +banking boutique, where he specialized in mergers and acquisitions in the retail, apparel and footwear industries. Mr. Rosenfeld +serves as a director of Summer Search New York City, a non-profit corporation. +With +more than 15 years of experience focused on the retail, apparel and footwear industries, eight of which have been with the Company, +Mr. Rosenfeld possesses particular knowledge of and experience in the industry that strengthens the Board’s collective qualifications, +skills and experience. Mr. Rosenfeld’s background in finance and his analytical skills gained through his years in investment +banking provide the Board and the Investment Committee with insight and guidance with respect to, among other things, strategic +business development matters. Mr. Rosenfeld has strong leadership skills and an in-depth understanding of the Company and its +goals from his positions as the Chairman of the Board and Chief Executive Officer. +6 +John +L. Madden - Owner of JLM Consultants, Inc. +John +L. Madden, 66, has served as a director of the Company since 1993 and has served on the Company’s +Investment Committee, as its Chair, since April 2008. Since June 2004, Mr. Madden’s business consulting company, JLM Consultants, +Inc., has provided consulting services to the Company with respect to international sales. From April 1998 through September 2003, +Mr. Madden owned a branch office of Tradeway Securities Group, Inc., a brokerage firm, in Florida. From May 1996 through December +1996, Mr. Madden’s consulting company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc., a brokerage +firm. From May 1994 to May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc.. a brokerage firm. +From August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc., a brokerage firm, as Managing Director and +registered sales representative. Mr. Madden is the brother of Steven Madden, the Company’s founder and Creative and Design +Chief. Please see the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +As +a result of Mr. Madden’s numerous years of experience in finance and investing, he possesses a proficiency in financial +analysis and investing that strengthens the Board’s collective qualifications, skills and experience and provides the Board +and the Investment Committee with greater insight and guidance. Mr. Madden’s years in business consulting and his strong +financial background have provided him with expertise in addressing operational and management issues and providing overall direction +for complex corporations like ours. Mr. Madden brings a wealth of knowledge and a depth of experience that comes from over twenty +years of service on the Company’s Board of Directors. His knowledge of Company history and his understanding of the Company +in the context of the Company’s long-term strategic plan provides the Board with continuity of direction and focus. +Peter +Migliorini - Sales Manager, Greschlers, Inc. +Peter +Migliorini, 64, has served as a director of the Company since October 1996 and has served on the Company’s Audit Committee +since October 1996, the Nominating/Corporate Governance Committee, as its Chair, since July 2004 and the Compensation Committee, +as its Chair, since July 2004. Mr. Migliorini is also Presiding Director over all executive sessions of the independent directors. +Mr. Migliorini has been Sales Manager for Greschlers, Inc., a building supplies company, since 1994. From 1987 to 1994, Mr. Migliorini +served as Director of Operations for Mackroyce Group, a construction company. Prior to 1987, Mr. Migliorini held various positions +of increasing responsibility from Assistant Buyer to Chief Planner/Coordinator for several shoe companies, including Meldisco +Shoes, Perry Shoes and Fasco Shoes. +Mr. +Migliorini possesses extensive executive level financial, sales and operations experience. His numerous years of business experience +at various levels and in various industries provide the Board with a measure of practical orientation regarding the Company’s +operations and growth endeavors. Mr. Migliorini’s early experience in the shoe industry also provides relevant knowledge +and expertise in the Company’s specific industry. +Richard +P. Randall - Retired Executive Vice President and Chief Financial Officer, Direct Holdings Worldwide, +LLC +Richard +P. Randall, 75, has served as a director of the Company since April 2006 and has served on the Company’s Audit Committee, +as its Chair, since 2006, on the Nominating/Corporate Governance Committee since September 2008 and on the Investment Committee +since April 2008. Mr. Randall was the Executive Vice President and Chief Financial Officer of Direct Holdings Worldwide, LLC, +the parent company of Lillian Vernon Corp., a catalog and online retailer of gifts and household goods, and Time-Life, a music +and video marketing company, from 2002 until his retirement in June 2005. Prior to 2002, Mr. Randall served as Senior Vice President +and Chief Financial Officer of Coach, Inc., a luxury leather goods company, and Chief Operating Officer and Chief Financial Officer +of Lillian Vernon Corp. from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a director and chairs +the Audit and Risk Committee of Aceto Corporation, a generic pharmaceutical, nutraceutical and chemical distribution company. +Mr. Randall also serves on the board of directors and is a member of the Audit Committee of P&F Industries, Inc., a manufacturer +and importer of tools sold principally to the industrial, retail and automotive markets, as well as residential hardware. Mr. +Randall is also a director of The Burke Rehabilitation Hospital and also serves as a member of the Executive, Finance, Audit and +Research Committees of the hospital. Mr. Randall served as a director and chair of the Audit Committee of Universal Travel Group, +a travel services provider in the People’s Republic of China, and of Home Systems Group, a manufacturer and distributor +of household appliances in the People’s Republic of China, from 2007 until 2008 when he resigned from these boards. +7 +With +decades of business experience, including tenures as Chief Financial Officer and Chief Operating Officer of both publicly traded +and privately held companies in the retail industry, Mr. Randall possesses extensive knowledge of accounting and finance, the +retail industry and the issues impacting a publicly traded company. Mr. Randall has extensive executive level experience establishing +his capabilities in management of complex organizations and is a certified public accountant. His expertise in finance qualifies +him to serve as the Audit Committee “audit committee financial expert” and his service on the boards and committees +of other companies has allowed him to gain broad-based experience and sensitivity regarding best practices, which he shares with +the Board. +Ravi +Sachdev - Managing Director, J.P. Morgan. +Ravi +Sachdev, 36, has served as a director of the Company since September 2008 and has served on the Company’s Audit Committee +since September 2008. Mr. Sachdev joined J.P. Morgan, a global investment bank, as a Managing Director in November 2010, and focuses +on the healthcare services subsector. Previously, Mr. Sachdev was a Managing Director at Deutsche Bank Securities, Inc. (“Deutsche +Bank”) from January 2009 and prior to that held the position of Director at Deutsche Bank from January 2007 until January +2009. Mr. Sachdev joined Deutsche Bank in 2006 as a Vice President. Prior to joining Deutsche Bank, Mr. Sachdev was a Vice President +at Peter J. Solomon Company, an investment banking boutique, specializing in mergers and acquisitions in the healthcare sector, +from 1998 to 2006. +Mr. +Sachdev possesses knowledge of finance and the financial analytics used to measure business performance. His 14 years of professional +experience in investment banking brings to the Board a thorough understanding of the financial issues affecting public companies +and greater insights in business valuation together with a practical orientation with respect to acquisitions and integrations +which our Company has undertaken over the last few years. +Thomas +H. Schwartz - Owner, Sumner and Forge Investors LLC +Thomas +H. Schwartz, 65, has served as a director of the Company since May 2004 and has served on the Company’s Compensation Committee +since July 2004. Since March 2007, Mr. Schwartz has been the Chief Executive Officer and sole owner of Sumner and Forge Investors +LLC, a company that invests in real estate and manages properties in which it holds ownership interests. Previously, Mr. Schwartz +was a Managing Director of Helmsley-Spear, Inc., a real estate brokerage and management company, from 1984 to March 2007. +With +more than twenty years of experience as a Managing Director of Helmsley-Spear, Inc. and six years as the owner of his own real +estate investment firm, Mr. Schwartz brings to the Board extensive executive level experience in handling operations issues and +practical expertise in management. +Required +Vote +Proxies +will be voted for the election of the six nominees as directors of the Company unless otherwise specified in the proxy. A plurality +of the votes cast by the holders of shares of Common Stock present in person or represented by proxy at the Annual Meeting will +be necessary to elect the nominees as directors. This means that the director nominees who receive the greatest number of affirmative +votes cast are elected as directors subject to our Director Election (Majority Voting) Policy which is described under the caption +“Corporate Governance-Director – Election (Majority Voting) Policy” below. If, for any reason, any nominee is +unable or unwilling to serve, the proxies will be voted for a substitute nominee who will be designated by the Board of Directors +at the Annual Meeting. Stockholders may abstain from voting by marking the appropriate boxes on the accompanying proxy. Abstentions +will be counted separately and used for purposes of calculating whether a quorum is present at the Annual Meeting. +8 +Director +Election (Majority Voting) Policy +It +is the policy of the Company that any nominee for director who receives a greater number of “WITHHOLD” votes than +“FOR” votes for his election must promptly submit a letter of resignation to the Nominating/Corporate Governance Committee +following the certification of the stockholder vote. In such event, the Nominating/Corporate Governance Committee would then consider +the offer of resignation and make a recommendation to the Board of Directors as to whether or not the resignation should be accepted. +This policy does not apply in contested elections. For more information about this policy, see “Corporate Governance – +Director Election (Majority Voting) Policy” below. +Recommendation +of the Board of Directors +The +Nominating/Corporate Governance Committee of the Board and the entire Board of Directors unanimously recommend a vote “FOR” +the election of Messrs. Edward R. Rosenfeld, John L. Madden, Peter Migliorini, Richard P. Randall, Ravi Sachdev and Thomas H. +Schwartz. +CORPORATE GOVERNANCE +The +Board of Directors +Our +business is managed under the direction and oversight of the Board of Directors who are elected by the Company’s stockholders. +Directors meet their responsibilities by participating in meetings of the Board of Directors and the various committees of the +Board on which they sit, as well as through communicating with our Chairman and Chief Executive Officer, other officers and employees +of the Company and by consulting with our independent registered public accounting firm and other third parties. +Director Independence +The +Board of Directors is currently comprised of six members. The Board of Directors has determined that the following director nominees +are “independent” for purposes of the criteria of the SEC and The Nasdaq Global Select Market listing standards: Messrs. +Migliorini, Randall, Sachdev and Schwartz. If the six nominees set forth above are elected, the Board will be comprised of a majority +of independent directors. The Board of Directors has held regularly scheduled executive sessions for the independent directors, +with Peter Migliorini serving as Presiding Director of such executive sessions. +Director Attendance at Meetings +Attendance +at Annual Meetings of Stockholders +The +Company has no specific policy regarding director attendance at its annual meetings of stockholders. The Company encourages all +of its directors to attend annual meetings of the Company’s stockholders and two directors attended the Company’s +2012 annual meeting of stockholders. +Attendance +at Meetings of the Board of Directors +The +Board of Directors held four regularly scheduled meetings during the 2012 Fiscal Year, two of which were not attended by Mr. Schwartz, +and acted by unanimous written consent on two occasions during the 2012 Fiscal Year. In Fiscal Year 2012, each director attended +at least 75% of the aggregate number of meetings held by all committees on which he then served. +Director Election (Majority Voting) Policy +The +Company has adopted a Director Election (Majority Voting) Policy. Pursuant to this policy, in an uncontested election of directors +(that is, an election where the number of nominees is equal to the number of seats open) any nominee for director who receives +a greater number of “WITHHOLD” votes than “FOR” votes for his election must promptly submit an offer of +resignation to the Nominating/Corporate Governance Committee following the certification of the stockholder vote for consideration +in accordance with the following procedures. +9 +In +such event, upon receipt of the resignation, the Nominating/Corporate Governance Committee would promptly consider the appropriateness +of the director’s continued service on the Board of Directors and recommend to the Qualified Independent Directors (as defined +below) the action to be taken with respect to the resignation, which could include (1) accepting the resignation; (2) rejecting +the resignation; (3) maintaining the director but addressing what the Qualified Independent Directors believe to be the underlying +cause of the “WITHHOLD” votes; or (4) determining that the director will not be renominated by the Board of Directors +in future elections. The Nominating/Corporate Governance Committee would consider factors such as (a) the reasons expressed +by the stockholders for withholding votes from such director; (b) any possibilities for curing the underlying cause of the +“WITHHOLD” votes; (c) the tenure and qualifications of the director and his past and expected future contributions +to the Company; (d) the overall composition of the Board of Directors, including, without limitation, whether accepting the +resignation would cause the Company to fail to meet any applicable SEC or Nasdaq requirement; (e) the availability of other qualified +candidates; and (f) the Company’s Board of Director Candidate Guidelines and Director Election (Majority Voting) Policy. +The +Qualified Independent Directors would then act on the Nominating/Corporate Governance Committee’s recommendation no later +than 90 days following the date of the stockholders’ meeting at which the director election occurred. In considering the +Nominating/Corporate Governance Committee’s recommendation, the Qualified Independent Directors would review the factors +considered by the Nominating/Governance Committee and such additional information and factors that they believe to be relevant. +Following the Qualified Independent Directors’ decision, the Company would promptly disclose the decision in a Current Report +on Form 8-K. The Form 8-K would include a full explanation of the process by which the decision of the Qualified Independent Directors +was reached and, if applicable, the reasons why the offer of resignation was rejected. +In +the event that an offer of resignation were to be accepted, the Nominating/Corporate Governance Committee would recommend to the +Board of Directors whether to fill the vacancy or reduce the size of the Board of Directors accordingly. Any director required +to submit his resignation pursuant to this policy would not participate in the Nominating/Corporate Governance Committee’s +recommendation or the Qualified Independent Directors’ consideration of the resignation but, prior to voting on the director’s +resignation offer, the Qualified Independent Directors would provide to the director an opportunity to submit any information +or statement that he believes relevant to the Qualified Independent Directors’ consideration of the resignation. +For +purposes of this policy, “Qualified Independent Directors” means all directors who (1) are “independent” +for purposes of The Nasdaq Global Select Market listing standards and (2) are not required to offer their resignation in accordance +with this policy. If there are fewer than three independent directors then serving on the Board of Directors who are not required +to submit their resignations in accordance with this policy, then the Qualified Independent Directors shall consist of all of +the independent directors and each independent director who is required to offer his resignation in accordance with this policy +shall recuse himself from the deliberations and voting only with respect to his individual offer to resign. +Committees of the Board +The +Board of Directors, among other committees, has a standing Audit Committee, Compensation Committee and Nominating/Corporate Governance +Committee. +Audit +Committee +The +members of the Audit Committee are Messrs. Randall (Chairman), Migliorini and Sachdev. The Audit Committee is comprised of directors +who are “independent” for purposes of The Nasdaq Global Select Market listing standards and who meet the independence +requirements contained in Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 10A-3(b)(1). The Board +has determined that Mr. Randall meets the SEC criteria of an “audit committee financial expert” and he is currently +serving as such. The Audit Committee is primarily responsible for reviewing the services performed by the Company’s independent +registered public accountants, evaluating the Company’s accounting policies and its system of internal controls, and reviewing +significant financial transactions. During the 2012 Fiscal Year, the Audit Committee met five times. +10 +The +Audit Committee is responsible for reviewing and striving to ensure the integrity of the Company’s financial statements +and oversight of our compliance with legal and regulatory requirements, our internal audit function and an independent registered +public accounting firm. Among other matters, the Audit Committee, with management and independent and internal auditors, reviews +the adequacy of the Company’s internal accounting controls that could significantly affect the Company’s financial +statements. The Audit Committee is also directly and solely responsible for the appointment, retention, compensation, oversight +and termination of the Company’s independent registered public accountants. In addition, the Audit Committee also functions +as the Company’s Qualified Legal Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, retain +and investigate reports made directly, or otherwise made known, of evidence of material violations of any United States federal +or state law, including any breach of fiduciary duty by the Company, its officers, directors, employees or agents, and if the +QLCC believes appropriate, to recommend courses of action to the Company. +Management +has primary responsibility for the Company’s financial statements and the overall reporting process, including the Company’s +system of internal controls. The independent registered public accountants audit the annual financial statements prepared by management, +express an opinion as to whether those financial statements present fairly the financial position, results of operations and cash +flows of the Company in conformity with accounting principles generally accepted in the United States and discuss with the Audit +Committee any issues they believe should be raised with the Audit Committee. +The +Audit Committee is also responsible for the oversight of the Company’s risk management process, which is discussed in the +“Risk Oversight” section below. +In +performing its functions, the Audit Committee meets with management on at least a quarterly basis to review and discuss the annual +audited financial statements, quarterly financial statements and related reports and to consider the adequacy of the Company’s +internal controls and the objectivity of its financial reporting. The Audit Committee discusses these matters with the Company’s +independent registered public accountants and with appropriate Company financial personnel. Meetings are held with the independent +registered public accountants, who have unrestricted access to the Audit Committee. In addition, the Audit Committee reviews the +Company’s financing plans and reports and makes recommendations to the full Board of Directors for approval and to authorize +action. The Board has adopted a written charter setting out the functions the Audit Committee is to perform. A copy of the Audit +Committee Charter is available on the Company’s website at www.stevemadden.com . +Nominating/Corporate +Governance Committee +The +members of the Nominating/Corporate Governance Committee are Messrs. Migliorini (Chairman) and Randall. The Nominating/Corporate +Governance Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market +listing standards. The Nominating/Corporate Governance Committee acted by unanimous written consent on one occasion during the +2012 Fiscal Year. +The +Nominating/Corporate Governance Committee provides oversight with respect to a wide range of issues relating to the composition +and operation of the Board, including consideration of and recommendations regarding the size and composition of the Board of +Directors and identification of potential candidates to serve as directors. The Nominating/ Corporate Governance Committee identifies +candidates to the Board of Directors by introductions from management, members of the Board of Directors, employees of the Company +or other sources, including stockholders that satisfy the Company’s policy regarding stockholder recommended candidates. +The Nominating/Corporate Governance Committee does not evaluate director candidates recommended by stockholders differently than +director candidates recommended by other sources. +Stockholders +wishing to submit recommendations for director nominations for the 2014 Annual Meeting should write to the Corporate Secretary, +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. Any such stockholder must (x) comply with the director +nomination provisions of the Company’s By-Laws, (y) meet and evidence the minimum eligibility requirements specified in +Exchange Act Rule 14a-8, and (z) submit, within the same timeframe for submitting a stockholder proposal required by Rule 14a-8: +(1) evidence in accordance with Rule 14a-8 of compliance with the stockholder eligibility requirements, (2) the written consent +of the candidate(s) for nomination as a director, (3) a resume or other written statement of the qualifications of the candidate(s) +for nomination as a director, and (4) all information regarding the candidate(s) and the submitting stockholder that would be +required to be disclosed in a proxy statement filed with the SEC if the candidate(s) were nominated for election to the Board +of Directors. +11 +In +considering candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers the Company’s +Board of Director Candidate Guidelines and Director Election (Majority Voting) Policy, available on the Company’s website +at www.stevemadden.com , the Company’s policy regarding stockholder recommended director candidates, as set forth +above, and all other factors that are deemed appropriate including, but not limited to, the individual’s character, education, +experience, knowledge and skills. While the Nominating/Corporate Governance Committee’s Board of Directors Candidate Guidelines +does not expressly identify diversity as a factor for consideration regarding the evaluation of director candidates, diversity +is among the many factors the Nominating/Corporate Governance Committee considers in the candidate evaluation process. To assess +the effectiveness of the mandate set forth in the Nominating/Corporate Governance Committee’s charter, the Nominating/Corporate +Governance Committee reviews annually with the Board the composition of the Board as a whole and recommends, if necessary, measures +to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required +for the Board as a whole. +In +addition, the Nominating/Corporate Governance Committee develops and recommends corporate governance principles for the Company; +makes recommendations to the Board of Directors in support of such principles; takes a leadership role in the shaping of the corporate +governance of the Company; and oversees the evaluation of the Board of Directors and management. The Nominating/Corporate Governance +Committee operates under a formal charter that governs the Committee’s composition, powers and responsibilities. A copy +of the Nominating/Corporate Governance Charter is available on the Company’s website at www.stevemadden.com . +Compensation +Committee +The +members of the Compensation Committee are Messrs. Migliorini (Chairman) and Schwartz. The Compensation Committee is comprised +of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and applicable +tax and securities rules. The Compensation Committee met once during the 2012 Fiscal Year and acted by unanimous written consent +on three occasions during the 2012 Fiscal Year. +The +Compensation Committee is responsible for establishing and overseeing the Company’s compensation and incentive plans and +programs; determining and approving compensation for the Company’s executive officers, including salaries, bonuses, perquisites +and equity awards; reviewing and approving compensation and awards for the Company’s executive officers under the Company’s +compensation and incentive plans and programs; administering the Company’s equity compensation plans; reviewing and approving +a compensation program for independent members of the Board; and assisting the Board in discharging the Board’s responsibilities +relating to management organization, performance, compensation and succession. The Compensation Committee operates under a formal +charter adopted by the Board of Directors that governs its composition, powers and responsibilities. A copy of the Compensation +Committee Charter is available on the Company’s website at www.stevemadden.com . +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications +Between Stockholders and the Board +Board +Leadership Structure +As +noted above, our Board is currently comprised of four independent and two non-independent directors. Mr. Rosenfeld has served +as Chairman of the Board and Chief Executive Officer since August 2008, and has been a member of the Board since February 2008. +The Board has designated one of the independent directors as Presiding Director to preside over executive sessions. We believe +that the number of independent, experienced directors that comprise our Board, along with the independent oversight of our Presiding +Director, benefits the Company and its stockholders. +12 +We +recognize that different board leadership structures may be appropriate for companies in different situations and believe that +no one structure is suitable for all companies. We believe our current Board leadership structure is optimal for the Company because +it demonstrates to our employees, suppliers, customers, and other stakeholders that the Company is under strong leadership, with +a single person setting the tone and having primary responsibility for managing our operations and leading the Board in setting +long-term strategy. Having a single leader for both the Company and the Board eliminates confusion and duplication of efforts, +and provides clear leadership for the Company. We believe the Company, like many U.S. companies, has been well-served by this +leadership structure. +Because +the positions of Chairman of the Board and Chief Executive Officer are held by the same person, the Board believes it is appropriate +for the independent directors to elect one independent director to serve as a Presiding Director. In addition to presiding at +executive sessions of the independent directors, the Presiding Director has various responsibilities including coordinating with +the Chairman of the Board and Chief Executive Officer in establishing agenda and discussion items for Board meetings; retaining +independent advisors on behalf of the Board as the Board may determine to be necessary or appropriate and performing such other +functions as the independent directors may designate from time to time. Mr. Migliorini is currently serving as the Presiding Director. +Our +Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of +this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company +and its stockholders. +Risk +Oversight +Our +Board is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s general +risk management strategy, the most significant risks facing the Company, and ensures that appropriate risk mitigation strategies +are implemented by management. The Board is also apprised of particular risk management matters in connection with its general +oversight and approval of corporate matters. +The +Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit +Committee reviews with management (a) the Company’s policies with respect to risk assessment and management of risks that +may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial +reporting, and (c) the Company’s compliance with legal and regulatory requirements. The Audit Committee is also responsible +for reviewing major legislative and regulatory developments that could materially impact the Company’s contingent liabilities +and risks. Our other Board committees also consider and address risks as they perform their respective committee responsibilities. +All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise +level risk. +The +Company’s management is responsible for day-to-day risk management. Our risk management and internal audit areas serve as +the primary monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the +risk management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing +potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels. +We +believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing +the Company and that our Board leadership structure supports this approach. +Executive +Sessions of Independent Directors +The +Board holds executive sessions of its independent directors generally at each regularly scheduled meeting. The Presiding Director +serves as the chairperson for these executive sessions. +13 +Communications +between Stockholders and the Board +The +Company has adopted a procedure by which stockholders may send communications to one or more members of the Board of Directors +by writing to such director(s) or to the entire Board of Directors in care of the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, New York 11104. The Board has instructed the Corporate Secretary to review all communications +so received and to exercise his discretion not to forward to the Board correspondence that is inappropriate, such as business +solicitations, frivolous communications and advertising, routine business matters (i.e. business inquiries, complaints, or suggestions) +and personal grievances. However, any director may at any time request the Corporate Secretary to forward to such director any +and all communications received by the Corporate Secretary but not forwarded to the directors. +Code of Business Conduct and Ethics +All +of the Company’s employees, officers (including senior executive, financial and accounting officers) and directors are held +accountable for adherence to the Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct +Code is intended to establish standards necessary to deter wrongdoing and to promote compliance with applicable governmental laws, +rules and regulations and honest and ethical conduct. The Conduct Code covers all areas of professional conduct, including conflicts +of interest, fair dealing, financial reporting and disclosure, protection of Company assets and confidentiality. Employees have +an obligation to promptly report any known or suspected violation of the Conduct Code without fear of retaliation. Waiver of any +provision of the Conduct Code for executive officers and directors may only be granted by the Board of Directors or one of its +committees and any such waiver or modification of the Conduct Code relating to such individuals will be disclosed by the Company. +A copy of the Conduct Code is available on the Company’s website at www.stevemadden.com and may also be obtained +by any stockholder without charge upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, +Long Island City, New York 11104. +Certain Relationships and Related Party Transactions +JLM +Consultants, Inc., a company wholly-owned by John L. Madden. Since 2004, the Company has engaged JLM Consultants, Inc., +a company wholly-owned by John L. Madden, a member of the Board and the brother of Steven Madden, the Company’s founder +and Creative and Design Chief, to provide consulting services to the Company with respect to the development of international +sales of the Company. On February 23, 2012, the Company entered into a consulting agreement (the “JLM Consulting Agreement”) +with JLM Consultants, Inc., which replaced a prior consulting agreement, and continues in effect until December 31, 2014. In accordance +with the terms of the JLM Consulting Agreement, for the 2012 Fiscal Year, JLM Consultants, Inc. received the following compensation +from the Company for services rendered: (a) a commission equal to 1.5% of international sales and 10% of retail royalty income, +(b) a monthly draw in the amount of $25,000, which amount was offset against commissions earned, (c) a $1,000 per month travel +allowance and (d) $4,599.80 per month reimbursement for health insurance premiums for John L. Madden. Pursuant to this arrangement, +JLM Consultants, Inc. received a total of $1,447,270 from the Company in the 2012 Fiscal Year. +Pursuant +to the JLM Consulting Agreement, on January 2, 2013, the Company issued 48,008 restricted shares of the Company’s Common +Stock to JLM Consultants, Inc. under the Steven Madden, Ltd. 2006 +Stock Incentive Plan, as amended (the “2006 Plan”), which shares will vest in twelve substantially equal quarterly +installments over a three-year period commencing on April 1, 2013 and continuing to vest quarterly thereafter until the final +installment vests on January 1, 2016. +Steven +Madden Employment Agreement. Effective as of July 1, 2005, the Company amended and restated its employment agreement +with the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to continue +to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement +commenced on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, 2011, will end on December +31, 2023. Prior to this recent amendment, the agreement had provided for an annual salary of $600,000, with a 7% increase of base +salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. The agreement had also provided +for an annual cash bonus in an amount equal to at least 2% of the Company’s EBITDA (the “Annual Bonus”) and +an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount equal to at least (i) +2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business +Bonus”). The agreement, as amended, increases Mr. Madden’s annual base salary but eliminates the Annual +Bonus and the New Business Bonus and provides that all cash bonuses subsequent to the fiscal year ended December 31, 2011 will +be at the sole discretion of the Company’s Board of Directors. Under the agreement, as amended, Mr. Madden’s annual +base salary was fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 and $10,697,917 in 2016 +and in each year thereafter through the end of the term of employment. In addition, the amended agreement entitles Mr. Madden +to an annual life insurance premium reimbursement of up to $200,000. The amendment also eliminates an annual non-accountable expense +allowance of $200,000 that had been previously provided to Mr. Madden under the agreement. Pursuant to the amended agreement, +on February 8, 2012, Mr. Madden was granted 975,371 restricted shares of Common Stock, valued at approximately $40 million, under +the 2006 Plan. The restricted Common Stock will vest in equal annual installments over seven +years commencing on December 31, 2017 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company +on each such vesting date. +14 +On +June 30, 2012, pursuant to an election right granted to him under the agreement, as amended, Mr. Madden notified the Company of +his election to receive an additional restricted stock award valued at $40 million in consideration of a reduction in his annual +base salary in years subsequent to the 2012 Fiscal Year. Accordingly, on July 3, 2012, Mr. Madden was issued 1,262,228 restricted +shares of Common Stock under the 2006 Plan. The restricted Common Stock will vest in equal annual installments over six years +commencing on December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company +on each such vesting date. As a result of his election to receive an additional restricted stock award, Mr. Madden’s annual +base salary for years subsequent to the 2012 Fiscal Year has been reduced as follows: $4,000,000 in 2013, $6,125,000 in 2014, +$8,250,000 in 2015 and $7,026,042 in 2016 and in each year thereafter through the end of the term of employment. +Mr. +Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders (but not +later than June 30 th ), an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, +with such number to be equal to the greater of (a) 100% of the largest aggregate number of shares of Common Stock available upon +the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month +period and (b) 100,000 shares of Common Stock; provided, however, that a grant to Mr. Madden in excess of 150% of the number of +shares of Common Stock subject to options granted to such other continuing full-time employee would require stockholder approval. +Any Annual Option granted to Mr. Madden would vest quarterly over a one-year period following the grant date and would be exercisable +at a price equal to the closing price of the Company’s Common Stock on the grant date for a period of five years following +the grant date. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 500,000 shares of the Company’s +Common Stock (the number of option shares to be subject to adjustment in the event of a future change +in capital structure of the Company resulting from a stock split, reverse stock split or other transaction or event having similar +effect) in the event that the Company achieves earnings per share, on a fully-diluted basis, equal to $3.00 in any fiscal +year ending December 31, 2015 or after. If granted, the option would vest in equal annual installments of 20% over a five-year +period and be exercisable for a period of seven years at a price equal to the closing price of the Company’s Common Stock +on the date immediately preceding the grant date. +In +the event of Mr. Madden’s death, his employment agreement provides for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of his death. Further, in the event that Mr. Madden’s +employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” +(as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount +of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement +is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company +is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under +the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” +(as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. +Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good +reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within +30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden +will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to +the amount of compensation that is accrued and unpaid through the date of termination plus $35 million. Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation +and competition. +15 +For +the 2012 Fiscal Year, Mr. Madden earned $5,416,667 in base salary and received $200,000 for the payment of an annual life insurance +premium. As an Annual Option, on June 4, 2012, Mr. Madden was granted an option to purchase 100,000 restricted shares of Common +Stock, under the 2006 Plan having an exercise price of $38.99 per share. The option vests in equal installments of 25,000 shares +on each of August 25, 2012, November 25, 2012, February 25, 2013 and May 25, 2013. +Loan +to Steven Madden. On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal +stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a personal tax obligation resulting +from the exercise of a stock option which was due to expire and to hold the underlying shares of Common Stock. Mr. Madden executed +a promissory note in favor of the Company, which is secured by a pledge of 315,000 shares of the Company’s Common Stock +beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on January +3, 2012, at which time the note was amended and restated to extend the maturity date of the obligation to December 31, 2023 and +eliminate the accrual of interest after December 31, 2011. Prior to the most recent amendment, the note had been accruing interest +at the rate of 6% per annum. In addition, the amended and restated +note provides that, commencing on December 31, 2014 and annually on each December 31 thereafter through the maturity date, one-tenth +of the principal amount thereof, together with accrued interest, will be cancelled by the Company provided that Mr. Madden continues +to be employed by the Company on each such December 31. Contemporaneously, the Company will release +a number of pledged shares of Common Stock from the pledge generally correlating to the amount of indebtedness cancelled on such +date. As of December 31, 2011, interest in the amount of $1,090,000 had accrued on the principal amount of the note and, as noted +above, interest was eliminated after December 31, 2011. +Steven +Madden is the brother of John L. Madden, who has been a director of the Company since 1993. +Review, Approval or Ratification of Transactions with Related Persons +The +Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts +of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the +Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +Related +person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, +who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, +the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale +for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction +is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; +(iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent +such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The +Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct +Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to +management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel +on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain +information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct Code. +16 +The +Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the +related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s +periodic filings, including related party transaction disclosures. +If +a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions +and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, +must be ratified as promptly as practicable. +COMPENSATION OF DIRECTORS IN THE 2012 FISCAL YEAR +The +following table sets forth information concerning the compensation of the Company’s non-employee directors in the 2012 Fiscal +Year. Following the table is a discussion of material factors related to the information disclosed in the table. +Name +Fees +Earned or +Paid in +Cash +($) +Stock +Awards +($)(1) +All Other +Compensation +($) +Total +($) +John L. Madden +0 +0 +1,511,126 +(2) +1,511,126 +Peter Migliorini +110,000 +87,395 +(3) +0 +197,395 +Richard P. Randall +110,000 +87,395 +(4) +0 +197,395 +Ravi Sachdev +85,000 +87,395 +(5) +0 +172,395 +Thomas H. Schwartz +85,000 +87,395 +(6) +0 +172,395 +(1) +Reflects the grant date fair value of stock awards calculated in accordance with the Financial Accounting Standards Board (“FASB”) +Accounting Standards Codification (“ASC”) Topic 718. The amounts shown represent dollar amounts recognized in the +2012 Fiscal Year for financial statement reporting purposes under ASC Topic 718. The number of shares of Common Stock was calculated +based on the fair value of the Company’s Common Stock on the grant date, June 6, 2012, by taking the closing sale price +for a share of Common Stock on the Nasdaq for such grant date. There are no other assumptions made in the valuation of the stock +awards. +(2) +Includes: (a) the use of a corporate apartment valued at $63,856 and (b) $1,447,270 in fees, travel and health insurance premium +allowance paid to JLM Consultants, Inc., a company wholly-owned by Mr. John Madden, as consideration for consulting services provided +by JLM Consultants, Inc. with respect to the development of the Company’s international business. +(3) +At December 31, 2012, the aggregate number of shares of restricted Common Stock held was 2,250, and Mr. Migliorini had no options +outstanding. +(4) +At December 31, 2012, the aggregate number of shares of restricted Common Stock held was 2,250, and Mr. Randall had no options +outstanding. +(5) +At December 31, 2012, the aggregate number of shares of restricted Common Stock held was 2,250, and Mr. Sachdev had no options +outstanding. +(6) +At December 31, 2012, the aggregate number of shares of restricted Common Stock held was 2,250, and Mr. Schwartz had no options +outstanding. +Directors +who are also employees of the Company are not paid any fees or other remuneration for service on the Board of Directors or any +of its committees. In the 2012 Fiscal Year, each non-employee director, other than John L. Madden, received the following compensation: +(i) a grant of 2,250 shares of restricted Common Stock, vesting on the first anniversary of the grant date, June 6, 2013 and (ii) +$75,000. John L. Madden, who is a non-independent director as a result of his ownership of JLM Consultants, Inc., a provider of +consulting services to the Company with respect to international sales, is not paid a fee for his service on the Board of Directors. +In +the 2012 Fiscal Year, members of the Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee each +received an additional $10,000 for serving on such committees, except that the Audit Committee financial expert and the Chairman +of the Compensation Committee each received $35,000. The Company reimburses its directors for any out-of-pocket expenses incurred +by them in connection with services provided in such capacity. +17 +STOCK OWNERSHIP +Security Ownership of Certain Beneficial Owners +The +following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership +of the Common Stock of the Company by each person known by the Company to be the beneficial owner of more than 5% of the outstanding +shares of the Common Stock of the Company. A person is deemed to be a beneficial owner of any securities which that person has +the right to acquire within 60 days. +Name +and Address of Beneficial Owner +Amount +and Nature +of Beneficial +Ownership (1) +Percentage +of Class +Steven +Madden +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +5,161,527 +11.02 +% +(2) +BOCAP +Corp. +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +1,705,375 +3.69 +% +(3) +FMR LLC +82 Devonshire Street +Boston, Massachusetts 02109 +4,582,091 +9.91 +% +(4) +BlackRock +Inc. +40 East 52 nd Street +New York, NY 10022 +2,975,754 +6.44 +% +(5) +The Vanguard +Group +100 Vanguard Boulevard +Malvern, Pennsylvania 19355 +2,453,179 +5.31 +% +(6) +(1) +Beneficial ownership as reported in the table below has been determined in accordance with Item 403 of Regulation S-K and Rule +13d-3 of the Exchange Act and based upon 46,231,961 shares of Common Stock outstanding (excluding treasury shares) as +of the Record Date. +(2) +Mr. Madden’s beneficial ownership includes: (i) 1,705,375 shares of Common Stock held by BOCAP Corp, a corporation wholly-owned +by Mr. Madden; (ii) 587,502 shares of Common Stock that may be acquired through options that are exercisable as of, or will become +exercisable within 60 days of, the Record Date; (iii) 2,237,599 shares of restricted Common Stock granted +under the 2006 Plan (which restricted stock includes 975,371 shares which will vest in equal annual installments over seven years +commencing on December 31, 2017 through December 31, 2023 and 1,262,228 shares which will vest in equal annual installments over +six years commencing on December 31, 2018 through December 31, 2023, in each case subject to forfeiture pursuant to the terms +of the 2006 Plan and of Mr. Madden’s employment agreement); and (iv) 631,051 shares of Common +Stock held by Mr. Madden directly. Mr. Madden has pledged to the Company 315,000 shares of Common Stock beneficially owned by +him to secure the repayment of a loan made by the Company to Mr. Madden, which loan is discussed in the section of this Proxy +Statement captioned “Certain Relationships and Related Party Transactions.” Excluded are (i) 562,150 shares of Common +Stock beneficially owned by the Steven H. Madden July 2010 Grantor Retained Annuity Trust, a grantor retained annuity trust, the +trustee of which is unrelated to Mr. Madden and as to which Mr. Madden does not, directly or indirectly, have or share voting +or investment power and (ii) 227,477 shares of Common Stock beneficially owned by the Steven H. Madden 2012 Trust, an irrevocable +trust established by Mr. Madden for the benefit of his descendants, the trustee of which is unrelated to Mr. Madden and as to +which Mr. Madden does not, directly or indirectly, have or share voting or investment power; Mr. Madden disclaims beneficial ownership +of the shares of Common Stock beneficially owned by these trusts. +18 +(3) +BOCAP Corp is a corporation wholly-owned by Steven Madden. +(4) +Based solely on a Statement on Schedule 13G filed with the SEC on February 14, 2013 by FMR LLC (“FMR”), +FMR has shared voting power with respect to all but 569,439 of such shares and sole dispositive power with respect to all such +shares. +(5) +Based solely on a Statement on Schedule 13G filed with the SEC on February 5, 2013 by BlackRock, Inc. +(“BlackRock”), BlackRock has sole voting and dispositive power with respect to all such shares. +(6) +Based solely on a Statement on Schedule 13G filed with the SEC on February 11, 2013 by The Vanguard +Group (“Vanguard”), Vanguard has sole voting power with respect to 56,165 of such shares, sole dispositive power with +respect to 2,399,014 of such shares and shared dispositive power with respect to 54,165 of such shares. +Security Ownership of Directors and Executive Officers +The +following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership +of Common Stock held by (a) each current director and nominee; (b) the Chief Executive Officer, the Chief Financial Officer and +the three most highly compensated executive officers of the Company other than the Chief Executive Officer and the Chief Financial +Officer (the “Named Executive Officers”); and (c) all current directors and executive officers as a group. A person +is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. Each director +and executive officer has sole voting power and sole dispositive power with respect to all shares beneficially owned by him or +her. +Name +of Beneficial Owner (1) +Amount +and Nature +of Beneficial +Ownership (2) +Percentage +of Class +Edward +R. Rosenfeld +551,375 +1.19 +% +(3) +Arvind +Dharia +118,403 +* +% +(4) +Awadhesh +Sinha +42,500 +* +% +(5) +Robert +Schmertz +278,522 +* +% +(6) +Amelia +Newton Varela +168,664 +* +% +(7) +John +L. Madden +50,945 +* +% +(8) +Peter +Migliorini +2,250 +* +% +(9) +Richard +P. Randall +16,125 +* +% +(10) +Thomas +H. Schwartz +14,400 +* +% +(11) +Ravi +Sachdev +14,625 +* +% +(12) +All +Directors and Executive Officers as a Group +(10 persons named above) +1,257,809 +2.69 +% +(13) +* +Indicates beneficial ownership of less than 1%. +(1) +The address for each of the named individuals below is c/o Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) +Beneficial ownership as reported in the table above has been determined in accordance with Item 403 of Regulation S-K and Rule +13d-3 of the Exchange Act and based upon 46,231,961 shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) +Mr. Rosenfeld’s beneficial ownership includes: (i) 285,000 shares of Common Stock that may be acquired through the exercise +of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 196,000 shares of restricted +Common Stock; and (iii) 70,375 shares of Common Stock held by Mr. Rosenfeld. +(4) +Mr. Dharia’s beneficial ownership includes: (i) 40,000 shares of Common Stock that may be acquired through the exercise +of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 25,367 shares of restricted +Common Stock; and (iii) 53,036 shares of Common Stock held by Mr. Dharia. +(5) +Mr. Sinha’s beneficial ownership includes: (i) 23,500 shares of restricted Common Stock; and (ii) 19,000 shares of Common +Stock held by Mr. Sinha. +19 +(6) +Mr. Schmertz’s beneficial ownership includes: (i) 42,187 shares of Common Stock that may be acquired through the exercise +of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 33,336 shares of restricted +Common Stock; and (iii) 202,999 shares of Common Stock held by Mr. Schmertz. +(7) +Ms. Varela’s beneficial ownership includes: (i) 147,191 shares of Common Stock that may be acquired through the exercise +of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 19,179 shares of restricted +Common Stock; and (iii) 2,294 shares of Common Stock held by Ms. Varela. +(8) +Mr. Madden’s beneficial ownership includes: (1) 44,007 shares of restricted Common stock held by JLM Consultants, Inc., +a corporation wholly-owned by Mr. Madden; (ii) 4,001 shares of Common Stock held by JLM Consultants, Inc.; and (iii) 2,937 shares +of Common Stock held by Mr. Madden. +(9) +Mr. Migliorini’s beneficial ownership consists of 2,250 shares of restricted Common Stock. +(10) +Mr. Randall’s beneficial ownership includes: (i) 2,250 shares of restricted Common Stock; and (ii) 13,875 shares of Common +Stock held by Mr. Randall, all of which shares have been pledged by Mr. Randall as collateral security in a margin brokerage account. +(11) +Mr. Schwartz’s beneficial ownership includes: (i) 2,250 shares of restricted Common Stock; and (ii) 12,150 shares of Common +Stock held by Mr. Schwartz. +(12) +Mr. Sachdev’s beneficial ownership includes: (i) 2,250 shares of restricted Common Stock; and (ii) 12,375 shares of Common +Stock held by Mr. Sachdev. +(13) Includes, +in the aggregate, 514,378 shares of Common Stock that may be acquired through the exercise of options that are exercisable as +of, or will become exercisable within 60 days of, the Record Date; (ii) 350,389 shares of restricted Common Stock; and (iii) 393,042 +shares of Common Stock held by such beneficial owners. +Section 16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Exchange Act requires that the Company’s directors and officers, and persons who beneficially own more than +10% of a registered class of the Company’s equity securities, file with the SEC reports of initial ownership of Common Stock +and subsequent changes in that ownership and furnish the Company with copies of all forms they file with the SEC pursuant to Section +16(a) of the Exchange Act. Late reports were filed on March 28, 2012 to report the March 14, 2012 grants of 20,000, 7,500 and +11,473 restricted shares of Common Stock, respectively, to Edward R. Rosenfeld, Awadhesh Sinha and Amelia Newton Varela. A late +report was filed on April 6, 2012 to report an April 2, 2012 grant of 5,000 restricted shares of Common Stock to Arvind Dharia. +A late report was filed on March 7, 2013 to report a May 22, 2009 grant of 1,687 (initially 750 shares, adjusted for three-for-two +stock splits (effected as a stock dividend) that occurred on April 30, 2010 and May 31, 2011) restricted +shares of Common Stock to John L. Madden. A late report was filed on March 13, 2013 to report a December 19, 2012 gift of 227,477 +shares of Common Stock by Steven Madden to the Steven H. Madden 2012 Trust. To the Company’s knowledge, based solely on +a review of the copies of the reports furnished to the Company or written representations received from the Company’s directors, +officers and greater than 10% beneficial owners that no other reports were required, all Section 16(a) filing requirements applicable +to its officers, directors and greater than 10% beneficial owners were complied with during, or in respect of, the 2012 Fiscal +Year. +20 +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Compensation +Objectives and Strategy +The +Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure +the Company’s continued growth and profitability and to reward them for their performance, for the Company’s performance +and for creating longer-term value for our stockholders. The primary objectives of the program are to: +● align +rewards +with +performance +that +creates +stockholder +value; +● support +the +Company’s +strong +team +orientation; +● encourage +high-potential +team +players +to +build +a +career +at +the +Company; +and +● provide +rewards +that +are +cost-efficient, +competitive +with +other +similarly-positioned +organizations +and +fair +to +employees +and +stockholders. +The +Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. +Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that +rewards performance and reinforces a culture that the Compensation Committee believes will drive long-term success. +The +compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation +program depends in significant measure on Company results, but business unit results and individual accomplishments are also very +important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process +that is fully integrated into the compensation system, enhancing a strong relationship among individual efforts, Company results +and financial rewards. +A +major portion of total compensation is placed at risk through annual and long-term incentives. As noted below, discretionary bonuses +were paid to the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and +Company earnings performance with longer-term stockholder value creation. +To +implement its primary objectives, the Company seeks to provide competitive compensation that is commensurate with performance. +The Company targets compensation at the median of the market and calibrates both annual and long-term incentive opportunities +to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when goals are exceeded. +The +Company believes that there is great value to the Company in having a team of long-tenured, seasoned managers and seeks to promote +a long-term commitment from its senior executives. The Company’s team-focused culture and management processes are designed +to foster this commitment. In addition, restricted Common Stock awards granted to Named Executive Officers in the 2012 Fiscal +Year reinforce this long-term orientation with annual vesting over a five-year period. +Role +of the Compensation Committee +General. +The Compensation Committee provides overall guidance for the Company’s executive compensation policies and determines +the amounts and elements of compensation for the Company’s executive officers and outside directors. The Compensation Committee +currently consists of two members of the Company’s Board of Directors, Messrs. Peter Migliorini and Thomas Schwartz, each +of whom is an independent director under Rule 5605 of The Nasdaq Global Select Market listing standards, a “non-employee +director” as defined under the SEC’s rules and an “outside director” as defined under Section 162(m) of +the Internal Revenue Code of 1986, as amended (the “Code”). +When +considering decisions concerning the compensation of executives, other than the Chief Executive Officer, the Compensation Committee +asks for the recommendations of the Chief Executive Officer, including his detailed evaluation of each executive’s performance. +No executive has a role in recommending compensation for outside directors. With respect to the application of the 2006 Plan to +non-employee directors, the Board of Directors functions as the Compensation Committee. +21 +Use +of Outside Advisors. In making its determinations with respect to executive compensation, the Compensation Committee has historically +engaged the services of an independent compensation consulting firm. The Compensation Committee has retained the services of James +F. Reda & Associates, LLC (“Reda & Associates”) since 2005 to assist with its review of the compensation packages +and employment agreements of the Chief Executive Officer and other executive officers. In 2012, Reda & Associates worked with +the Compensation Committee to assess the reasonableness of discretionary cash bonus payments and equity grants to Messrs. Rosenfeld, +Dharia, Sinha and Schmertz and Ms. Varela based on the Company’s and the individual’s performance in the 2011 Fiscal +Year and the reasonableness of the terms of new employment agreements for Messrs. Rosenfeld and Schmertz and an amendment of Mr. +Dharia’s employment agreement as compared with comparable positions in the peer group listed below. Executive compensation +for the other Named Executive Officers was based on prior employment agreements with pay structures and levels guided by Reda +& Associates’ market studies just prior to the consummation of the agreements. Position-specific market studies were +completed at the time of the employment agreement extension in support of the design of these agreements. The Compensation Committee +also consulted Reda & Associates with respect to the establishment of a performance-based cash bonus pool based on a percentage +of the Company’s net income in the 2012 Fiscal Year. Reda & Associates provides only executive compensation consulting +services and works with management only at the behest of the Compensation Committee. +The +Compensation Committee retains Reda & Associates directly, although in carrying out assignments, Reda & Associates also +interacts with Company management, when necessary and appropriate, in order to obtain compensation and performance data for the +executives and the Company. In addition, Reda & Associates may, in its discretion, seek input and feedback from management +regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the +Company’s business strategy and identify data questions or other similar issues, if any, prior to presentation to the Compensation +Committee. +The +Compensation Committee has the sole authority to retain, terminate and set the terms of the Company’s relationship with +any outside advisors who assist the Committee in carrying out its responsibilities. +Consideration +of 2012 Stockholder Say on Pay Vote. At our 2012 +Annual Meeting of Stockholders, our stockholders overwhelmingly approved, on an advisory basis, the compensation of our Named +Executive Officers (96% of votes cast). The Compensation Committee believes this level of stockholder support reflects a very +strong endorsement of our compensation policies and decisions. The Compensation Committee has considered the results of this advisory +vote on executive compensation in determining the Company’s compensation policies and decisions for 2013, and has determined +that these policies and decisions are appropriate and in the best interests of the Company and its stockholders at this time. +Compensation +Structure +Pay +Elements - Overview +The +Company utilizes four main components of compensation: +● +base +salary; +● +annual +performance-based cash bonuses; +● +long-term +equity incentives (consisting of stock options and/or restricted stock); and +● +benefits +and perquisites. +Pay +Elements - Details +Base +Salary . The Company paid base salaries to each of the Named Executive Officers to provide them with fixed pay commensurate +with the Named Executive Officer’s role and responsibilities, experience, expertise and individual performance. As more +fully described in the section of this Proxy Statement captioned “Employment Arrangements,” as of December 31, 2012, +the Company had employment agreements with each of the Named Executive Officers. The Compensation Committee, as constituted at +the time the parties entered into the employment agreements or any amendments thereof, reviewed and approved the salary established +in each such agreement or amendment. The Compensation Committee considered each employee’s salary history, value in the +marketplace and performance (including at the Company and previous employment). +22 +The +annual base salary of our Chief Executive Officer, Mr. Rosenfeld, was fixed at $551,250 for the 2012 Fiscal Year under an employment +agreement that expired on December 31, 2012. The expired employment agreement was replaced with a new agreement dated December +31, 2012, which remains in effect until December 31, 2015 and provides for an annual base salary of $578,813, $607,754 and $638,142 +for the fiscal years ending December 31, 2013, 2014 and 2015, respectively. The employment agreement of our Chief Operating Officer, +Mr. Sinha, provides for an annual base salary of $575,000 for the 2012 Fiscal Year and throughout the term of the agreement, which +will expire on December 31, 2013. Under the employment agreement, as amended, of our Chief Financial Officer, Mr. Dharia’s +annual base salary for the 2012 Fiscal Year was and will remain at $554,719 until the agreement expires on December 31, 2014. +The annual base salary of our Brand Director, Mr. Schmertz, was fixed at $660,000 for the 2012 Fiscal Year under an employment +agreement that expired on December 31, 2012. The expired agreement was replaced with a new agreement dated January 2, 2013 under +which Mr. Schmertz will be paid an annual base salary of $725,000 in 2013 and 2014 until the employment agreement expires on December +31, 2014. The annual base salary of our Executive Vice President - Wholesale, Ms. Varela, was fixed at $450,000 for the 2012 Fiscal +Year and for the remainder of the term of an employment agreement, which will expire on December 31, 2013. Please see the section +of this Proxy Statement captioned “Summary Compensation Table” and “Employment Arrangements” for a more +detailed description of their employment agreement and compensation. Salary increases for Named Executive Officers are generally +consistent with those of other management employees. +Annual +Performance-based Cash Bonus - Based on Specific Performance Metrics . Annual performance-based cash bonuses, if any, for Named +Executive Officers are established in their respective employment agreements. The Compensation Committee reviewed and approved +the bonus provisions fixed in each such employment agreement at the time the parties entered into such agreements and any amendments +thereof. Such bonus provisions generally provide for variable or discretionary bonuses designed to reward attainment of business +goals. +Under +Ms. Varela’s employment agreement, she is entitled to an annual performance-based cash bonus for each fiscal year in an +amount equal to 2% of the increase, if any, in Wholesale Division EBIT for that year over Wholesale Division EBIT for the immediately +prior year, excluding from such bonus calculation EBIT attributable to any business acquired after January 31, 2011 until the +acquired business has been owned by the Company for two full calendar years. For the 2012 Fiscal Year, Ms. Varela’s annual +performance-based cash bonus was $216,999, reflecting 2% of $10,849,955, the increase in 2012 Wholesale Division EBIT (exclusive +of EBIT attributable to businesses acquired in the period beginning on February 1, 2011 and ending on December 31, 2012) over +that of 2011. +As +provided in the 2006 Plan, the maximum payment that may be made to an individual under any performance-based cash award during +any fiscal year and subject to the attainment of specified performance goals is $10,000,000. The Compensation Committee may, in +it sole discretion, elect to pay an individual an amount that is less than the individual’s target award regardless of the +degree of attainment of the performance goals. +Beginning +in 2012, the Compensation Committee established a bonus pool for Named Executive Officers and other key executives of the Company +based on 6% of net income of the Company achieved in the 2012 Fiscal Year intended to comply with the provisions of Section 162(m) +of the Code. Net income was selected because it is highly correlated with stock price performance. The Compensation Committee +also fixed for each executive his or her maximum share of the 2012 bonus pool, which was 30% for Mr. Rosenfeld and 14% for each +of the other Named Executive Officers. In the 2012 Fiscal Year, the Company achieved net income of $119,626,000, which resulted +in a bonus pool of $7,176,560. The Compensation Committee determined to pay to the Named Executive Officers bonuses that were +significantly below their individual target awards for the 2012 Fiscal Year and to pay the bonuses in a combination of cash and +restricted shares of Common Stock. Accordingly, on March 15, 2013, the Company paid performance-based cash bonuses of $250,000 +to each of Messrs. Rosenfeld, Dharia, and Sinha and $100,000 to Mr. Schmertz and, on March 15, 2013, granted 20,000, 11,043 and +10,000 restricted shares of Common Stock to Mr. Rosenfeld, Mr. Schmertz and Ms. Varela, respectively, for performance in the 2012 +Fiscal Year each of which restricted stock awards vests in five equal annual installments. Ms. Varela did not receive a cash bonus +based on the net income of the Company in the 2012 Fiscal Year. In accordance with applicable SEC rules, the Summary Compensation +Table included in this Proxy Statement contains these cash bonuses but does not report the grant date fair value of these restricted +stock awards because, while earned in 2012, the grants were not made until after the close of the 2012 Fiscal Year. The 2013 Summary +Compensation Table to be included in our proxy statement for our 2014 Annual Meeting of Stockholders will contain the grant date +fair value of these restricted stock awards to Mr. Rosenfeld, Mr. Schmertz and Ms. Varela provided these individuals are named +executive officers in that proxy statement. +23 +The +decision to pay cash bonuses to Messrs. Rosenfeld, Dharia, Sinha and Schmertz and to award restricted shares of Common Stock to +Mr. Rosenfeld, Mr. Schmertz and Ms. Varela for the 2012 Fiscal Year and the amount of each such Named Executive Officer’s +bonus was determined at the discretion of the Compensation Committee but within the parameters of the bonus pool for Named Executive +Officers. The Compensation Committee evaluated a variety of indicators of the Company’s overall financial performance, +including revenue growth and profitability, and assessed and made subjective judgments as to each of these executive’s individual +contribution towards the Company’s performance in the 2012 Fiscal Year in determining whether to pay bonuses to these executives +and establishing the amounts to be paid. With respect to the determination to award bonuses to Messrs. Dharia, Sinha and Schmertz +and Ms. Varela, the Compensation Committee also considered the recommendations of the Chief Executive Officer, Mr. Rosenfeld. +The +Compensation Committee consulted Reda & Associates regarding the establishment of the bonus pool and the individual target +awards for the 2012 Fiscal Year to ensure the bonus pool and the individual target awards were within market range for each executive. +Long-term +Equity Incentives . Management and the Compensation Committee believe that equity-based awards are an important factor in aligning +the long-term financial interest of the executive officers and stockholders. The Compensation Committee continually evaluates +the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering +the Company’s compensation program. Beginning in 2006, the Compensation Committee modified its prior practice of granting +equity incentives solely in the form of stock options with periodic awards of restricted stock in order to grant awards that contain +both substantial incentive and retention characteristics. These awards are designed to provide emphasis on preserving stockholder +value generated in recent years while providing significant incentives for continuing growth in stockholder value. +In +March and April 2012, the Company made grants of 20,000, 7,500, 11,473 and 5,000 restricted shares of Common Stock to Mr. Rosenfeld, +Mr. Sinha, Ms. Varela and Mr. Dharia, respectively, for performance in the 2011 Fiscal Year, each of which restricted stock awards +vests in five equal annual installments. Mr. Dharia also received a restricted stock award of 10,000 shares of Common Stock, which +vests in three substantially equal annual installments, in connection with the extension and amendment of his employment agreement, +the terms of which were approved by the Compensation Committee. Reda & Associates reviewed the individual grant values relative +to market practice. All of the equity awards in the 2012 Fiscal Year were made under the 2006 Plan. +The +Committee intends to continue to review the equity mix to achieve the ideal incentive for both performance and retention. With +respect to stock options, the 2006 Plan provides that the exercise price shall be the closing market price per share of the Company’s +Common Stock on the business day immediately preceding the grant date, which is fair market value for purposes of the 2006 Plan. +Other +Benefits and Perquisites . The Company’s executive compensation program also includes other benefits and perquisites. +These benefits and perquisites include annual matching contributions to executive officers’ 401(k) plan accounts, company-paid +medical benefits, automobile allowances and leased automobiles, and life insurance coverage. The Compensation Committee annually +reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices, the Company’s +performance and the individual’s responsibilities and performance. The Compensation Committee has approved these other benefits +and perquisites as a reasonable component of the Company’s executive officer compensation program. Please see the section +of this Proxy Statement captioned “Summary Compensation Table and, specifically, the column entitled “All Other Compensation” +and the corresponding footnotes. +24 +Pay +Mix +The +Company utilizes the particular elements of compensation described above because the Company believes that it provides a well-proportioned +mix of secure compensation, retention value and at-risk compensation, which produces short-term and long-term performance incentives +and rewards. By following this approach, the Company provides the executives a measure of security in the minimum expected level +of compensation, while motivating the executives to focus on business metrics and other variables within their particular sector +which will increase sales and margins and at the same time lower costs so as to produce a high level of short-term and long-term +performance for the Company and long-term wealth creation for the executives, as well as reducing the risk of recruitment of top +executive talent by competitors. The mix of metrics used for the annual performance bonuses and the Company’s long-term +incentive program likewise provides an appropriate balance between short-term financial performance and long-term stock performance. +For +the Named Executive Officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term +incentives). Maintaining this pay mix results fundamentally in a pay-for-performance orientation for the Company’s executives, +which is aligned with the Company’s stated compensation philosophy of providing compensation commensurate with performance. +Pay +Levels and Benchmarking +Pay +levels for executives are determined based on a number of factors, including the individual’s roles and responsibilities +within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in +the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee +is responsible for approving pay levels for the Named Executive Officers. In determining the pay levels, the Compensation Committee +considers all forms of compensation and benefits. +The +Compensation Committee assesses “competitive market” compensation using a number of sources. The primary data source +used in setting competitive market levels for the Named Executive Officers is the information publicly disclosed by a peer group +of the Company, which will be reviewed annually and may change from year to year. For +the past three years, including the 2012 Fiscal Year, executive compensation and compensation design was reviewed in relation +to the following peer companies: +American +Apparel Inc. +Perry +Ellis International, Inc. +Movado +Group, Inc. +Bebe +Stores, Inc. +G-III +Apparel Group, Ltd. +Rocky +Brands, Inc. +Brown +Shoe Co. Inc. +Genesco, +Inc. +Skechers +U.S.A. Inc. +Kenneth +Cole Productions Inc. +Guess, +Inc. +Timberland +Co. +Collective +Brands, Inc. +Iconix +Brand Group, Inc. +Under +Armour, Inc. +Crocs, +Inc. +The +Jones Group Inc. +Volcom, +Inc. +Deckers Outdoor +Corp. +K-Swiss, +Inc. +Weyco +Group, Inc. +Delta +Apparel, Inc. +Maidenform +Brands, Inc. +Wolverine +Worldwide +After +consideration of the data collected on external competitive levels of compensation and internal needs, the Compensation Committee +makes decisions regarding the Named Executive Officer’s target total compensation opportunities based on the need to attract, +motivate and retain an experienced and effective management team. Relative to the competitive market data, the Compensation Committee +generally intends that the base salary and target annual incentive compensation for each Named Executive Officer will be at the +median of the competitive market. +As +noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals +vary based on a number of factors such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new +executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on +the attainment of operating goals and the creation of stockholder value. +25 +Compensation +Committee Discretion +The +Compensation Committee retains the discretion to decrease all forms of incentive payouts based on significant individual or Company +performance shortfalls, with the exception of any such payouts that are to be made pursuant to contractual commitments, such as +the bonuses that may be paid to Ms. Varela, which are tied to the Company’s EBIT for the preceding year pursuant to her +employment agreement. Similarly, the Compensation Committee retains the discretion to increase payouts and/or consider special +awards for significant achievements, including, but not limited to, superior asset management, investment or strategic accomplishments +and/or consummation of acquisitions, divestitures, capital improvements to existing properties, or sales made by certain of the +Company’s divisions. +Risk +Assessment +Bonus +payments to executives are based either on the discretion of the Compensation Committee or are tied to growth in EBIT. Long-term +incentives have been granted in the form of stock options and time-vested restricted stock that generally vest over four or five +years. These programs have been in place for several years and have proved effective in rewarding performance while not encouraging +inappropriate risk-taking. +The +Compensation Committee undertook to review and evaluate all of our executive and company-wide compensation plans and programs +to assess whether any aspect of these plans and programs would encourage inappropriate risk-taking by the Company’s executives +and non-executive employees that could have a material adverse effect on the Company and to confirm that the Company has adequate +risk management controls in place to ensure that executive and company-wide compensation is reasonable and achieves its intended +incentive without creating unacceptable risk. Based on such review and evaluation, the Compensation +Committee believes there is no material adverse risk to the Company that is related to our compensation programs for executives +and non-executives. +This +review and evaluation of our compensation plans and programs risks consisted of: +● identifying +those +business +risks +that +could +be +material +to +the +Company +and +identifying +our +existing +risk +management +system; +● reviewing +and +analyzing +our +compensation +plans +and +programs +to +identify +plan +and +program +features +that +could +potentially +encourage +or +introduce +excessive +or +imprudent +risk +taking +of +a +material +nature; +● identifying +the +business +risks +that +our +compensation +plan +and +program +features +could +potentially +encourage +or +create; +● balancing +these +business +risks +against +our +existing +internal +control +systems +designed +to +manage +and +mitigate +these +business +risks; +and +● analyzing +whether +the +unmitigated +risks, +as +a +whole, +are +reasonably +likely +to +have +a +material +adverse +effect +on +the +Company. +Various +persons were consulted during the course of the assessment, including our executive officers and senior members of our human resources +department. The Compensation Committee engages Reda & Associates to review our executive and company-wide compensation plans +and programs and provide advice regarding appropriate levels of incentive. +26 +The +Compensation Committee noted several features of our compensation structure that mitigate risk, including, for example: +● the +Company +utilizes +a +pay +mix +that +is +well +balanced +between +short-term +financial +performance +and +long-term +stock +performance, +comprised +of +secure +compensation +in +the +form +of +base +salary, +short-term +incentives +in +the +form +of +potential +for +cash +bonuses, +and +long-term +incentives +in +the +form +of +stock +options +and +time-vested +restricted +stock +that +generally +vest +over +four +or +five +years; +● in +most +instances, +management +or +the +Compensation +Committee +retains +the +discretion +to +decrease +all +forms +of +incentive +compensation +based +on +significant +individual +or +Company +performance +shortfalls; +● we +periodically +benchmark +our +compensation +plans +and +programs +and +target +executive +and +non-executive +compensation +within +the +normal +limits +of +the +competitive +market; +and +● the +Compensation +Committee +provides +oversight +of +the +Company’s +compensation +plans +and +programs +and +compensation +philosophy, +makes +recommendations +to +the +Board +with +respect +to +improvements +to +our +compensation +plans +and +programs, +and +is +responsible +for +reviewing +and +approving +executive +compensation +and +administering +and +awarding +incentive, +deferred +and +equity +compensation +to +our +senior +executives. +In +light of the assessment described above, it was concluded that the risks associated with our compensation plans and programs (executive +and company-wide) are not reasonably likely to have a material adverse effect on the Company. +Implications +of Tax and Accounting Matters +As +a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed +by the Company. While the Compensation Committee reviews and considers +both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation +Committee’s allocation of compensation among the different components. +In +general, the Company believes that compensation paid to executive officers should be deductible for U.S. tax purposes. In certain +instances, however, the Compensation Committee also believes that it is in the Company’s best interests, and that of its +stockholders, to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the +Code in order to provide a compensation package consistent with the Company’s objectives. +As +more fully described below under the heading “Termination, Change-in-Control and Non-Competition/Non-Solicitation,” +all of the executive officers of the Company whose names appear in the Summary Compensation Table contained in this Proxy Statement +are entitled to receive certain compensation in the event of a termination of employment in connection with a change-in-control +event for the Company, which payments may trigger the application of the “golden parachute” provisions of Sections +280G and 4999 of the Code. Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain +executives of companies which undergo a change-in-control. In addition, Section 4999 of the Code imposes a 20% excise tax on the +individual receiving the excess parachute payment. Excess parachute payments are golden parachute payments that exceed an amount +determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements of +our Named Executive Officers, our Compensation Committee considers all elements of the cost to our Company of providing such compensation +including the potential impact of Sections 280G and 4999 which, under certain circumstances, may limit the deductibility to the +Company of executive compensation. However, our Compensation Committee may determine, in its judgment, to authorize compensation +arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section +4999 when it believes that such arrangements are appropriate to attract and retain executive talent. +Conclusion +The +level and mix of compensation that is finally decided upon is considered within the context of both the objective data from the +Company’s competitive assessment of compensation and performance, as well as discussion of the subjective factors as outlined +above. The Compensation Committee believes that each of the compensation packages for the Named Executive Officers is within the +competitive range of practices when compared to the objective comparative data even where subjective factors have influenced the +compensation decisions. +27 +Compensation Committee Interlocks and Insider Participation +During +the 2012 Fiscal Year, the following directors served on the Compensation Committee: Peter Migliorini (Chairman) and Thomas H. +Schwartz. During the 2012 Fiscal Year: +● +none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; +● +none of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company was a participant and the amount involved exceeded $120,000; +● +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; +● +none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and +● +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as a director on the Company’s Board of Directors. +Executive Officers +The +following table identifies the executive officers of the Company, and their ages and positions: +Name +Age +Position +Edward R. Rosenfeld +37 +Chairman of the Board and +Chief Executive Officer +Arvind Dharia +63 +Chief Financial Officer and +Secretary +Awadhesh Sinha +67 +Chief Operating Officer +Robert Schmertz +49 +Brand Director +Amelia Newton Varela +41 +Executive Vice President +of Wholesale +Arvind +Dharia has been the Chief Financial Officer of the Company since October 1992 and was a director of the Company from December +1993 through May 2004. Mr. Dharia has been Secretary of the Company since 1993. From December 1988 until joining the Company in +September 1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp., a real estate management company. +Awadhesh +Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha was a director of the Company, from October 2002 +to July 2005, before joining the Company as its Chief Operating Officer. Mr. Sinha was the Chief Operating Officer and Chief Financial +Officer of WEAR ME Apparel Inc., a company that designs, manufactures and markets branded and non-branded children’s clothing, +from 2003 to July 2005. Prior to that, Mr. Sinha worked for Salant Corporation, a company that designs, manufactures and markets +men’s clothing, for 22 years, and held the position of Chief Operating Officer and Chief Financial Officer of Salant Corporation +from 1998 to 2003. +28 +Robert +Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as President of Steve Madden Women’s Wholesale +Division and Brand Manager from September 2001 through January 2006. Additionally, Mr. Schmertz served as President of Shoe Biz, +Inc., formerly a wholly owned subsidiary of Steven Madden Retail, Inc., from May 1998 through August 2001. Before joining the +Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East +Coast Sales Manager for Impo International from January 1993 through November 1995. From April 1990 to December 1992, Mr. Schmertz +served as a sales representative for Espirit de Corp. based in San Francisco, California. +Amelia +Newton Varela has been Executive Vice President of Wholesale since April 2008. Ms. Varela was Executive Vice President of Wholesale +Sales from November 2004 to April 2008. Previously, she was Vice President of Sales for Steve Madden Women’s Wholesale Division +from January 2000. Prior to that, she was Account Executive for Steve Madden Women’s Wholesale Division from 1998. Before +joining the Company, Ms. Varela was the sales assistant to the Executive Vice President of Sales for Merrin Financial. She graduated +from The Fashion Institute of Technology in 1995. +Please +see the section of this Proxy Statement captioned “Proposal One: Election of Directors -- Biographical Summaries of Nominees +for the Board of Directors” for information concerning the Company’s Chairman of the Board and Chief Executive Officer, +Edward R. Rosenfeld, and the Company’s other directors. +SUMMARY COMPENSATION TABLE +The +following table sets forth the compensation information for the Company’s Chief Executive Officer, Chief Financial Officer +and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer relating +to Fiscal Years 2012, 2011 and 2010, respectively. In this Proxy Statement, the Company refers to this group of people as the +Company’s “Named Executive Officers.” +In +accordance with applicable SEC rules, the Summary Compensation Table includes, for a particular fiscal year, only those stock +awards made during that fiscal year and not any awards made after year-end even if awarded for services rendered in that year. +SEC rules require that such awards be reflected in the year of grant and, as such, awards made after the year-end of fiscal year +2012 will appear in the Summary Compensation Table to be included in our proxy statement for our 2014 Annual Meeting of Stockholders. +Name +and Principal +Position +Fiscal +Year +Salary +($) +Bonus +($) +Stock +Awards +($) (1) +Option +Awards +($)(1) +Non-Equity +Incentive +Plan Compensation +($) +All Other +Compensation +($) +Total +Compensation +($) +Edward R. Rosenfeld +2012 +551,250 +0 +883,400 +0 +250,000 +15,000 +(2) +1,699,650 +Chief Executive Officer +2011 +525,000 +200,000 +886,600 +0 +0 +17,423 +(3) +1,629,023 +2010 +500,000 +100,000 +0 +0 +0 +22,350 +(4) +622,350 +Arvind Dharia +2012 +554,719 +0 +623,050 +0 +250,000 +101,685 +(5) +1,529,454 +Chief Financial Officer +2011 +528,304 +100,000 +443,300 +0 +0 +105,713 +(6) +1,177,317 +2010 +528,304 +50,000 +364,240 +0 +0 +94,415 +(7) +1,036,959 +Awadhesh Sinha +2012 +575,000 +0 +331,275 +0 +250,000 +21,317 +(8) +1,177,592 +Chief Operating Officer +2011 +575,000 +150,000 +0 +0 +0 +19,352 +(9) +744,352 +2010 +539,963 +175,500 +1,621,550 +0 +1,000,000 +(10) +17,584 +(11) +3,354,597 +Robert Schmertz +2012 +660,000 +0 +0 +0 +100,000 +22,500 +(12) +782,500 +Brand Director +2011 +660,000 +500,000 +332,475 +0 +0 +22,350 +(13) +1,514,825 +2010 +660,000 +350,000 +0 +0 +0 +22,350 +(13) +1,032,350 +Amelia Newton Varela +2012 +450,000 +0 +506,762 +0 +216,999 +(14) +22,500 +(15) +1,196,261 +Executive Vice President +2011 +450,000 +186,649 +0 +1,462,500 +63,351 +(14) +22,350 +(16) +2,184,850 +Of Wholesale +2010 +400,000 +200,000 +0 +500,159 +540,965 +(14) +22,350 +(16) +1,663,474 +29 +(1) +The amounts in this column reflect the aggregate grant date fair value of awards granted during the applicable year for the fiscal +years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively, calculated in accordance with ASC Topic +718. Assumptions used in the calculation of these amounts are included in Note I to the Company’s audited financial statements +for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010 included in the Company’s Annual Report +on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013, February 29, 2012 and February 28, 2011, respectively. +(2) +Consists of a $15,000 automobile allowance. +(3) +Includes the following: $15,000 automobile allowance and $2,423 in annual matching contributions to Mr. Rosenfeld’s 401(k) +plan account. +(4) +Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Mr. Rosenfeld’s 401(k) +plan account. +(5) +Includes the following: $11,381 automobile allowance, $82,804 life insurance premiums and $7,500 in annual matching contributions +to Mr. Dharia’s 401(k) plan account. +(6) +Includes the following: $14,400 automobile allowance, $83,963 life insurance premiums and $7,350 in annual matching contributions +to Mr. Dharia’s 401(k) plan account. +(7) +Includes the following: $6,738 automobile allowance, $80,327 life insurance premiums and $7,350 in annual matching contributions +to Mr. Dharia’s 401(k) plan account. +(8) +Includes the following: $13,817 automobile allowance and $7,500 in annual matching contributions to Mr. Sinha’s 401(k) plan +account. +(9) +Includes the following: $12,002 automobile allowance and $7,350 in annual matching contributions to Mr. Sinha’s 401(k) plan +account. +(10) +Represents a non-equity incentive payment made pursuant to a bonus formula in Mr. Sinha’s employment agreement. See “Employment +Arrangements.” +(11) +Includes the following: $10,108 automobile allowance and $7,476 in annual matching contributions to Mr. Sinha’s 401(k) plan +account. +(12) +Includes the following: $15,000 automobile allowance and $7,500 in annual matching contributions to Mr. Schmertz’s 401(k) +plan account. +(13) +Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Mr. Schmertz’s 401(k) +plan account. +(14) +Represents a non-equity incentive payment made pursuant to a bonus formula in Ms. Varela’s employment agreement. See “Employment +Arrangements. +(15) +Includes the following: $15,000 automobile allowance and $7,500 in annual matching contributions to Ms. Varela’s 401(k) +plan account. +(16) +Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Ms. Varela’s 401(k) +plan account. +Employment Arrangements +Edward +R. Rosenfeld. In April 2008 (effective in March 2008), the Company entered into an employment agreement with Edward +R. Rosenfeld pursuant to which Mr. Rosenfeld agreed to serve as interim Chief Executive Officer of the Company for a term expiring +on December 31, 2009. Effective August 8, 2008, the Company appointed Mr. Rosenfeld to serve as Chief Executive Officer and executive +Chairman of the Board of Directors of the Company. The terms of Mr. Rosenfeld’s employment agreement remained unchanged +and the employment agreement expired by its terms on December 31, 2009. In November 2009, the Company entered into an employment +agreement with Mr. Rosenfeld to replace the prior, expiring employment agreement. Pursuant to the new agreement Mr. Rosenfeld +would continue to serve as Chief Executive Officer and executive Chairman of the Board of Directors of the Company and receive +a base salary of $500,000 and $525,000 during fiscal years 2010 +and 2011, respectively, and a base salary of $551,250 commencing January 1, 2012 until the employment +agreement’s expiration on December 31, 2012. The November 2009 employment agreement provided that Mr. Rosenfeld would +receive a monthly automobile allowance of $1,250 and additional compensation and bonuses, if any, at the absolute discretion of +the Board of Directors. +On +December 31, 2012, the Company entered into a new employment agreement with Mr. Rosenfeld pursuant to which Mr. Rosenfeld will +continue to serve as Chief Executive Officer and executive Chairman of the Board of Directors of the Company until the agreement +expires on December 31, 2015 or is sooner terminated in accordance with its terms. Mr. Rosenfeld’s current agreement provides +for an annual base salary of $578,813, $607,754 and $638,142 for the fiscal years 2013, 2014 and 2015, respectively, and a monthly +automobile allowance of $1,500. The current agreement provides that Mr. Rosenfeld will receive +additional compensation and bonuses, if any, at the absolute discretion of the Board of Directors. Pursuant to the current agreement, +on January 2, 2013, Mr. Rosenfeld was granted 100,000 shares of the Company’s Common Stock, subject to certain restrictions. +These restricted shares of Common Stock, which were issued under the 2006 Plan, will vest in five equal annual installments of +20,000 shares commencing on December 1, 2013. +30 +In +the event of his death, Mr. Rosenfeld’s employment agreement provides for the payment to his +estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Rosenfeld’s death. The agreement +also provides that if Mr. Rosenfeld’s employment agreement is terminated due to his “total disability” (as defined +in the agreement), Mr. Rosenfeld will receive payment of his base salary for the 12-month period immediately subsequent to the +date he is determined to be totally disabled. Mr. Rosenfeld’s employment agreement allows the Company to terminate +his employment with “cause” (as defined in the employment agreement) or without cause. In the event that Mr. Rosenfeld’s +employment is terminated by the Company for cause, the Company will have no further obligations to Mr. Rosenfeld, and Mr. Rosenfeld +will be entitled to no further compensation from the Company, except for pro-rata amounts due to him on the date of his termination. +In the event that Mr. Rosenfeld’s employment is terminated by the Company without cause or by Mr. Rosenfeld’s resignation +for “good reason” (as defined in the employment agreement), Mr. Rosenfeld will be entitled to receive payment of his +annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer of the +remainder of the term of the agreement or six months. +In +addition, if Mr. Rosenfeld’s employment is terminated by the Company without cause or by the resignation of Mr. Rosenfeld +for good reason during the period commencing 90 days prior to a “change of control” (as defined in the employment +agreement) transaction and ending 180 days following a change of control transaction, Mr. Rosenfeld will +receive an amount equal to three times the average amount of total W-2 compensation actually received by him during the preceding +three calendar years ending on the last previous December 31, except that in lieu of the actual base salary component received +during such period, there shall be substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination +or resignation (the “Change of Control Payment”). However, if the Change of Control Payment (or a portion thereof) +is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Rosenfeld +shall be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive +including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) +a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise +tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit +to the executive. +Arvind +Dharia. In January 1998, the Company entered into an employment agreement with Arvind Dharia, which has been amended from +time to time, most recently on February 8, 2012. Pursuant to Mr. Dharia’s amended agreement, Mr. Dharia agreed to continue +to serve as the Company’s Chief Financial Officer. The term of Mr. Dharia’s employment under his agreement, as amended, +extends through December 31, 2014, and will be automatically extended for an additional one-year period unless either party timely +notifies the other of its intention not to extend the term. Pursuant to the amended agreement, Mr. Dharia received an annual base +salary of $528,304 during fiscal years 2010 and 2011. Commencing January 1, 2012, Mr. Dharia’s annual base salary increased +to and will remain $554,719 for the remaining term of the agreement. Mr. +Dharia received a monthly automobile allowance of $1,200 prior to the most recent amendment of the agreement and beginning January +1, 2012, his monthly car allowance increased to $1,400. The agreement provides that the Company will pay life insurance premiums +on Mr. Dharia’s behalf of approximately $80,000 per year. Mr. Dharia’s employment agreement, as amended, provides +for a grant of 10,000 shares of the Company’s Common Stock, subject to certain restrictions. These restricted shares of +Common Stock were issued to Mr. Dharia on February 8, 2012 under the 2006 Plan and will vest in three substantially equal annual +installments commencing on February 8, 2013. In addition, the amended agreement provides that Mr. Dharia +will receive an annual bonus in such amount, if any, and at such time or times, as the Board of Directors may determine in its +absolute discretion. Subject to availability of shares under the 2006 Plan, or any other plan designated by the Board of Directors +and approved by the Company’s stockholders, Mr. Dharia is entitled to awards under such plan as may be determined by the +Board of Directors, or a committee thereof, from time to time in its absolute discretion. +31 +The +agreement provides, in the event of Mr. Dharia’s death, for the payment to Mr. Dharia’s estate of his base salary +for the 12-month period immediately subsequent to the date of Mr. Dharia’s death. The agreement also provides that if Mr. +Dharia’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. +Dharia will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to +be totally disabled. In the event that Mr. Dharia’s employment agreement is terminated “for cause” (as defined +in the agreement), the Company is obligated to pay Mr. Dharia the amount of compensation that is accrued and unpaid through the +date of termination. In the event that Mr. Dharia’s employment agreement is terminated for any reason (other than “for +cause” or due to his death or total disability), the Company is obligated to pay Mr. Dharia, in two installments, (a) an +amount equal to the product of (x) his base salary on the effective date of such termination plus the bonus paid or payable, if +any, for the fiscal year ended on the December 31st immediately preceding the termination date, multiplied by (y) the number of +years (and fraction of years) remaining in the term; and (b) the amount payable to him, or on his account, for what would have +been the balance of the term of his employment agreement with respect to certain benefits and plans as set forth in his employment +agreement. If the Company decides not to renew the agreement (other than “for cause” or due to his total disability), +then Mr. Dharia will be entitled to receive severance compensation, in cash, in an amount equal to his then-current base salary +for the 90-day period commencing on the expiration of the term. +In +addition, in the event that there is a “change of control” transaction and Mr. Dharia’s employment has been +terminated by the Company other than “for cause” or if Mr. Dharia resigns “for good reason” (as such terms +are defined in the agreement), Mr. Dharia will receive an amount equal to three times the total compensation he was entitled to +receive under the agreement for the preceding 12-month period ending on the last previous December 31, except that in lieu of +the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Dharia +was entitled to as of the date of termination or resignation (the “Change of Control Payment”). However, if the Change +of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections +280G and 4999 of the Code, Mr. Dharia will be paid either (i) the Change of Control Payment (which shall be subject to all applicable +taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility +to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without +the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields +the greater after-tax benefit to the executive. +Awadhesh +Sinha. In June 2005, the Company entered into an employment agreement with Awadhesh Sinha, which was amended in November 2007 +and in October 2008, pursuant to which Mr. Sinha agreed to continue to serve as the Company’s Chief Operating Officer. Pursuant +to his amended employment, Mr. Sinha received a base salary of $539,963 in fiscal year 2010. In respect of the 2010 fiscal year, +Mr. Sinha was eligible to receive a cash bonus under the Company’s 2006 Plan equal to 3% of the increase in the Company’s +EBIT for such fiscal year over the EBIT of the immediately prior fiscal year up to a maximum bonus of $1,000,000 in any fiscal +year. Mr. Sinha received a cash bonus of $1,000,000 for 2010 EBIT performance. In addition, Mr. Sinha’s employment agreement, +as amended, provided for certain deferred compensation with respect to 2008, 2009 and 2010. For the period commencing July 1, +2008 and ending December 31, 2008, the agreement, as amended, provided for a mandatory deferral of additional cash compensation +in an amount equal to 25% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional +cash compensation provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. For the period commencing +January 1, 2009 and ending December 31, 2009, the agreement, as amended, provided for a mandatory deferral of additional cash +compensation in an amount equal to 12.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such +additional cash compensation provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. For the period +commencing January 1, 2010 and ending December 31, 2010, the agreement, as amended, provided for a mandatory deferral of additional +cash compensation in an amount equal to 7.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha +such additional cash compensation provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. Mr. Sinha +received a total of $175,500, in cash, with respect to the deferred additional cash compensation for the 2008, 2009 and 2010 fiscal +years subsequent to the end of the 2010 fiscal year. +32 +On +December 1, 2010, the Company entered into a new employment agreement with Mr. Sinha to replace the prior employment agreement, +which was to expire by its terms on December 31, 2010. Pursuant to the new employment agreement, Mr. Sinha continues to +serve as Chief Operating Officer of the Company for a term commencing on January 1, 2011 and expiring on December 31, 2013, unless +sooner terminated in accordance with the terms of the agreement. Commencing January 1, 2011, Mr. Sinha’s +annual base salary increased to and will remain $575,000 for the remaining term of the agreement. Pursuant to his employment +agreement, Mr. Sinha receives a monthly automobile allowance of $1,750. The employment agreement also provides that the Company +will pay term life insurance premiums on his behalf of approximately $3,500 per year. In addition, Mr. Sinha’s new employment +agreement provides for a grant of 52,500 shares of the Company’s Common Stock, subject to certain restrictions (the number +of shares indicated having been adjusted for a May 31, 2011 three-for-two stock split effected as a stock dividend). These restricted +shares of Common Stock were issued to Mr. Sinha on December 1, 2010 under the 2006 Plan. The restricted Common Stock will vest +in three annual installments of 17,500 shares commencing on the first anniversary of the grant date. Mr. Sinha’s new employment +agreement provides that additional compensation and bonuses, if any, will be paid to him at the absolute discretion of the Board +of Directors. Bonuses and other incentive-based compensation paid to Mr. Sinha are subject to recovery by the Company in the event +of a determination that such compensation was based upon materially inaccurate financial statements. +In +the event of his death, Mr. Sinha’s employment agreement provides for the payment to Mr. Sinha’s estate of his base +salary for the 12-month period immediately subsequent to the date of Mr. Sinha’s death. In addition, in the event of Mr. +Sinha’s “total disability” (as such term is defined in the agreement), the Company is obligated to continue +to pay Mr. Sinha’s base salary for the 12-month period immediately subsequent to the date of determination of such total +disability. In the event Mr. Sinha’s employment agreement is terminated “for cause” (as such terms are defined +in the agreement), or due to Mr. Sinha’s resignation without “good reason” (as such term is defined in the agreement), +the Company is obligated to pay Mr. Sinha the amount of compensation that is accrued and unpaid through the date of termination. +In the event Mr. Sinha’s employment agreement is terminated by the Company without cause or by the resignation of Mr. Sinha +for good reason, Mr. Sinha would be entitled to receive payment +of his annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer +of (i) the remainder of the term or (ii) six months. +In +addition, if Mr. Sinha’s employment is terminated by the Company without cause or if Mr. Sinha resigns for good reason during +the period commencing 120 days prior to a “change of control” (as defined in the agreement) and ending 180 days after +a change of control, Mr. Sinha would be entitled to receive an amount equal to three times the total W-2 compensation actually +received by him during the preceding twelve-month period ending on the last previous December 31 st , except that, in +lieu of the actual base salary compensation received, the annual base salary to which Mr. Sinha was entitled as of the date of +such termination or resignation of employment shall be substituted (the “Change of Control Payment”). However, +if the Change of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” +under Sections 280G and 4999 of the Code, Mr. Sinha will be paid either (i) the Change of Control Payment (which shall be subject +to all applicable taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall +be limited as to deductibility to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may +be paid to the executive without the imposition of an excise tax under Section 4999 and which shall be fully deductible to the +Company, whichever payment yields the greater after-tax benefit to the executive. +Robert +Schmertz. In April 2002, the Company entered into an employment agreement with Robert Schmertz pursuant to which Mr. Schmertz +agreed to serve as President of Steve Madden Wholesale Women’s Division and Brand Manager for the Company. The term of the +agreement commenced on April 1, 2002 and was extended in March 2005 and again in March 2007. Pursuant to the amended agreement, +Mr. Schmertz received an annual salary of $600,000. In October 2009, the Company entered into a new employment agreement with +Mr. Schmertz to replace the prior employment agreement, which was to expire by its terms on December 31, 2009. Pursuant +to the October 2009 agreement, Mr. Schmertz would continue to serve as Brand Director of the Company for a term that commenced +on October 7, 2009 and expired on December 31, 2012. Mr. Schmertz’s annual base salary during the period from October 7, +2009 through December 31, 2009 remained $600,000. His annual base salary was increased to $660,000 commencing on January 1, 2010 +for the duration of the term. The October 2009 employment agreement provided that Mr. Schmertz +would receive a monthly automobile allowance of $1,250 and additional compensation and bonuses, if any, at the absolute discretion +of the Board of Directors. +33 +On +January 2, 2013, the Company entered into a new employment agreement with Mr. Schmertz to replace the prior agreement that expired +on December 31, 2012. Pursuant to the new agreement, Mr. Schmertz will continue to serve as the Company’s Brand Director +for a term commencing on January 1, 2013 and expiring on December 31, 2014 unless sooner terminated in accordance with the agreement’s +terms. Mr. Schmertz’s current agreement provides for an annual base salary of $725,000 and a monthly automobile allowance +of $1,500 during the term of the agreement. He will receive additional compensation and bonuses, if any, at the absolute discretion +of the Board of Directors. Pursuant to the current agreement, on January 4, 2013, Mr. Schmertz was granted 16,667 shares of the +Company’s Common Stock, subject to certain restrictions. These restricted shares of Common Stock, which were issued under +the 2006 Plan, will vest in five substantially equal annual installments commencing on the first anniversary of the grant date, +January 4, 2014. +In +the event of Mr. Schmertz’s death, the employment agreement provides for the payment to his estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Schmertz’s death. The agreement also provides that if Mr. +Schmertz’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. +Schmertz will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to +be totally disabled. The Company may terminate the employment agreement +for “cause” (as defined in the employment agreement), in which event Mr. Schmertz would be entitled to receive only +his accrued and unpaid base salary through the date of termination. In the event that Mr. Schmertz’s employment is terminated +by the Company without cause, he would be entitled to receive payment of his annual base salary, payable at regular payroll intervals, +from the date of termination through the remainder of the term. In addition, if Mr. Schmertz’s employment is terminated +by the Company without cause during the period commencing 30 days prior to a “change of control” (as defined in the +employment agreement) transaction and ending 180 days after a change of control transaction, he would be entitled to receive an +amount equal to the lesser of (i) the average amount of total compensation actually received by him during the preceding three +calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code, +such amount to be in lieu of and not in addition to any other payments to which Mr. Schmertz would be entitled in the event of +the termination of his employment. +Amelia +Newton Varela. In October 2004, the Company entered into an employment agreement with Amelia Newton Varela, pursuant to which +Ms. Varela agreed to serve as Executive Vice President of Wholesale Sales. In April 2008, the Company entered into a new employment +agreement with Ms. Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of Wholesale and Retail for +a term commencing on April 29, 2008 and ending on December 31, 2010. Pursuant to the 2008 employment agreement, Ms. Varela was +granted an option to purchase 56,250 shares of Common Stock of the Company at an exercise price of $21.76 per share on April 1, +2010 (the number of shares and exercise prices indicated having been adjusted +for three-for-two stock splits effected as a stock dividend, which occurred on April 30, 2010 and May 31, 2011) . +The option shall vest 20% each year for five years, commencing on the first anniversary date of the grant of the option, has a +term of seven years and has an exercise price equal to the market price on the grant date. Under Ms. Varela’s 2008 employment +agreement, her annual base salary was $400,000 for the 2010 fiscal year. Under the terms of the agreement, the Company agreed +to pay Ms. Varela an annual bonus for fiscal year 2010 in an amount equal to 2% of the increase, if any, in Wholesale Footwear +Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately prior year, plus 1.5% of the increase, if +any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately prior year. Ms. Varela received a cash +bonus of $540,965 for 2010 EBIT performance. In addition, under the 2008 employment agreement, Ms. Varela would be entitled to +a cash bonus of $200,000 if still employed by the Company on December 31, 2010, which bonus was paid to Ms. Varela subsequent +to the end of the 2010 fiscal year. +On +January 31, 2011, the Company entered into a new employment agreement with Ms. Varela to replace the prior employment agreement +which expired by its terms on December 31, 2010. Pursuant to her new employment agreement, Ms. Varela will serve as the Executive +Vice President - Wholesale for a term commencing January 1, 2011 and expiring on December 31, 2013, unless sooner terminated in +accordance with the terms of the agreement. During the term of her new employment agreement, Ms. Varela will receive an annual +base salary of $450,000 and a monthly automobile allowance of $1,250. In addition, pursuant to the new employment agreement, on +February 1, 2011, Ms. Varela was granted an option to purchase 150,000 shares of the Company’s Common Stock under the 2006 +Plan, at an exercise price of $25.45 per share (the number of shares and exercise price indicated having been adjusted +for a May 31, 2011 three-for-two stock split effected as a stock dividend) , which option becomes exercisable +in four equal annual installments of 37,500 on each anniversary of the date of grant, commencing on February 1, 2012. In +addition, Ms. Varela is entitled to an annual performance-based cash bonus for each of the fiscal years ended December 31, 2011, +2012 and 2013 in an amount equal to 2% of the increase, if any, in the Wholesale Division EBIT for +each such year over the Wholesale Division EBIT for the immediately preceding year . Wholesale Division EBIT attributable +to any business acquired by the Company after January 31, 2011 will not be included for the purpose of determining Ms. Varela’s +bonus until the acquired business has been owned by the Company for two full calendar years. Ms. Varela +received a cash bonus of $216,999 and $63,351 for 2012 Wholesale Division EBIT performance and 2011 Wholesale Division EBIT performance, +respectively. +34 +In +the event that Ms. Varela’s employment agreement is terminated due to Ms. Varela’s “disability” (as defined +in the agreement) or death, the Company is obligated to pay Ms. Varela (or her estate) the amount of accrued and unpaid salary +through the date of termination plus any performance-based cash bonus that has accrued for the year prior to termination and is +unpaid at the time Ms. Varela’s employment is terminated due to her disability or death. The Company may terminate the agreement +for “cause” (as defined in the agreement) and, in such event, Ms. Varela will be entitled only to accrued and unpaid +salary through the date of termination of employment. In the event Ms. Varela’s employment is terminated by the Company +without cause, she would be entitled to receive payment of her annual base salary, payable at regular payroll intervals, from +the date of termination of employment through the remainder of the term plus any performance-based cash bonus that has accrued +but not yet been paid. In the event that Ms. Varela’s employment is terminated by the Company +without cause during the period commencing 30 days prior to a “change of control” (as defined in the agreement) transaction +and ending 180 days following a change of control transaction, she is entitled to receive an amount equal to the lesser of (i) +the average amount of total compensation actually received by her during the preceding three calendar years multiplied +by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code. +GRANTS OF PLAN-BASED AWARDS IN THE 2012 FISCAL YEAR +The +following table sets forth information concerning awards under the Company’s equity and non-equity incentive plans granted +to each of the Named Executive Officers in the 2012 Fiscal Year, including performance-based awards and those using time-based +vesting. Following the table is a discussion of material factors related to the information disclosed in the table. +Estimated future payouts +under non-equity +incentive plan awards +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Exercise or +Base Price +of Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock and +Option +Awards +($) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Edward R. Rosenfeld +03/14/12 +— +1,751,742 (1) +— +20,000 +— +— +883,400 +Arvind Dharia +02/08/12 +— +817,480 (1) +— +10,000 +— +— +409,300 +04/02/12 +— +— +— +5,000 +— +— +213,750 +Awadhesh Sinha +03/14/12 +— +817,480 (1) +— +7,500 +— +— +331,275 +Robert Schmertz +n/a +— +817,480 (1) +— +— +— +— +— +Amelia Newton Varela +03/14/12 +— +63,351 (2) +— +11,473 +— +— +506,762 +n/a +— +817,480 (1) +— +— +— +— +— +(1) In +the 2012 Fiscal Year, the Compensation Committee established a bonus pool for Named Executive Officers and other key +executives of the Company based on 6% of net income of the Company achieved in the 2012 Fiscal Year and also fixed each +executive’s maximum share of the 2012 bonus pool, which was 30% for Mr. Rosenfeld and 14% for each of the other Named +Executive Officers. Since the bonus pool was established as a percentage of the Company’s 2012 Fiscal Year net income, +it would not be possible to determine the amount of these potential cash bonuses until the completion of the Company’s +2012 Fiscal Year. Accordingly, the amount indicated is a representative payout amount and equals the maximum bonus the Named +Executive Officer would have been eligible to receive from a cash bonus pool of $5,839,140, which equals 6% of the +$97,319,000 in net income of the Company achieved in the fiscal year ended December 31, 2011. See the discussion of the 2012 +cash bonus pool and the individual target awards of each of the Named Executive Officers appearing above in the “Annual +Performance-Based Cash Bonus - Based on Specific Performance Metrics” section of “Compensation Structure.” +As disclosed therein, the Company paid these performance bonuses in cash and restricted shares of Common Stock on March 15, +2013. Accordingly, Messrs. Rosenfeld, Dharia, Sinha and Schmertz received performance-based cash bonuses of $250,000, +$250,000, $250,000 and $100,000, respectively, and Mr. Rosenfeld, Mr. Schmertz and Ms. Varela received grants of 20,000, +11,043 and 10,000 restricted shares of Common Stock, respectively. Ms. Varela did not receive a cash bonus from the 2012 cash +bonus pool. In accordance with applicable SEC rules, the Summary Compensation Table included in this Proxy Statement reflects +these cash bonuses, while the restricted stock awards will appear in the Summary Compensation Table to be included in our +proxy statement for our 2014 Annual Meeting of Stockholders provided the restricted stock award recipient is a named +executive officer in that proxy statement. +(2) Under +an employment agreement dated January 31, 2011 between the Company and Ms. Varela, Ms. Varela is entitled to receive a cash +bonus under the Company’s 2006 Plan on or about March 15, 2013 in an amount equal to 2% of the increase, if any, in +the Wholesale division EBIT for the 2012 fiscal year over the Wholesale division EBIT for the 2011 fiscal year. Since it would +not be possible to determine the amount of Ms. Varela’s cash bonus, if any, until the completion of the +Company’s 2012 fiscal year, the amount indicated as the target bonus payout is a representative amount and based +upon the actual increase in the EBIT performance of the Company’s Wholesale division for the 2011 fiscal year over +the EBIT performance of the Wholesale division for the 2010 fiscal year. See the discussion of this grant to Ms. Varela +appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific Performance Metrics” +section of “Compensation Structure” and above under “Employment Arrangements.” As +disclosed in the Summary Compensation Table above, Ms. Varela received a cash bonus of $216,999 for 2012 EBIT performance of +the Company’s Wholesale division. +35 +Plan-Based +Awards +1999 +Stock Plan +As +of March 15, 1999, the Board of Directors of the Company adopted the 1999 Stock Plan (the “1999 Plan”), and on June +4, 1999 the Company’s stockholders approved the adoption of the 1999 Plan. Since its adoption, the 1999 Plan has been amended, +with stockholder approval, to (i) increase the number of shares subject to the 1999 Plan, (ii) provide that the exercise price +of an option granted under the 1999 Plan shall be no less than the fair market value of the Common Stock on the date of grant +(except to the extent otherwise provided in agreements with the Company dated prior to the effective date of the amendment), and +(iii) prohibit the Board from amending the terms of any option granted pursuant to the 1999 Plan to reduce the option price. The +1999 Plan was adopted to provide a means whereby directors and selected employees, officers, agents, consultants, and independent +contractors of the Company could be granted incentive stock options and/or nonqualified stock options to purchase shares of Common +Stock, in order to attract and retain the services or advice of such directors, employees, officers, agents, consultants, and +independent contractors and to provide additional incentive for such persons to exert maximum efforts for the success of the Company +by encouraging stock ownership in the Company. As of the Record Date, options to purchase 22,502 shares of Common Stock were +outstanding under the 1999 Plan. No additional options will be granted under the 1999 Plan. +2006 +Stock Incentive Plan +As +of March 10, 2006, the Board of Directors of the Company adopted the Company’s 2006 Stock Incentive Plan and, on May 26, +2006, the Company’s stockholders approved the adoption of the Company’s 2006 Stock Incentive Plan. The 2006 Stock +Incentive Plan was amended in 2007 and 2008. On April 6, 2009, the Board of Directors adopted an Amended and Restated 2006 Stock +Incentive Plan and, on May 22, 2009, the Company’s stockholders approved the Amended and Restated 2006 Stock Incentive Plan. +On April 5, 2012, the Board of Directors approved an amendment of the Amended and Restated 2006 Stock Incentive Plan primarily +to increase the number of shares of Common Stock available for issuance thereunder by 6,500,000 shares, subject to stockholder +approval of such amendment. The amendment to the Amended and Restated 2006 Stock Incentive Plan was approved by the Company’s +stockholders at the 2012 Annual Meeting of Stockholders on May 25, 2012. +The +Company’s Amended and Restated 2006 Stock Incentive Plan is referred to as the “2006 Plan” throughout this Proxy +Statement. The purpose of the 2006 Plan is to enhance the profitability and value of the Company for the benefit of its stockholders +by enabling the Company to offer eligible employees, consultants and non-employee directors cash and stock-based incentives in +the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals +and the Company’s stockholders. +36 +The +maximum number of shares of Common Stock available for issuance under the 2006 Plan is 15,644,000 shares . As +of the Record Date, there were outstanding 3,031,795 unvested shares of restricted stock and options to purchase 2,453,727 +shares of Common Stock; options had been exercised, or restricted stock had vested, with respect to 6,284,860 shares of +Common Stock; and 3,873,618 shares of Common Stock remained available for grant under the 2006 Plan. +OUTSTANDING EQUITY AWARDS AT END OF THE 2012 FISCAL YEAR +The +following table sets forth information concerning unexercised stock options, restricted stock that has not vested and stock awards +outstanding for each of the Named Executive Officers as of the end of the 2012 Fiscal Year. All awards that occurred prior to +the three-for-two split of the Company’s Common Stock effectuated as a stock dividend on or about April 30, 2010 and the +three-for-two split of the Company’s Common Stock effectuated as a stock dividend on or about May 31, 2011 have been adjusted +to account for each such stock split, as applicable. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +securities +Underlying +Unexercised +Options +(#) +Unexercisable +Equity +Incentive Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number +of +Shares or +Units of Stock +That Have +Not Vested +(#) +Market +Value +of Shares or +Units of Stock +That Have Not +Vested +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, Units +or Other +Rights that +Have Not +Vested +(#) +Equity +Incentive Plan +Awards: +Market or +Payout Value of +Unearned +Shares, Units or +Other Rights +That Have Not +Vested +($) +Edward R. Rosenfeld +42,000 +18,000 +(1) +— +8.0733 +3/24/2015 +87,500 +(2) +3,698,625 +— +— +168,750 +56,250 +(1) +— +8.3467 +4/1/2016 +— +— +— +— +Arvind Dharia +17,500 +22,500 +(3) +— +8.3467 +4/1/2016 +37,050 +(4) +1,566,104 +— +— +Awadhesh Sinha +— +— +— +— +— +25,000 +(5) +1,056,750 +— +— +Robert Schmertz +— +42,187 +(6) +— +8.3467 +4/1/2016 +8,438 +(7) +356,674 +— +— +— +45,002 +(6) +— +16.4866 +10/8/2016 +— +— +— +— +Amelia Newton Varela +22,501 +22,501 +(8) +— +8.5866 +4/29/2015 +11,473 +(9) +484,964 +— +— +— +42,189 +(8) +— +8.3467 +4/1/2016 +— +— +— +— +11,250 +33,751 +(8) +— +21.6867 +4/1/2017 +— +— +— +— +— +112,500 +(8) +— +25.4467 +2/1/2018 +— +— +— +— +(1) On March 24, 2008, Mr. Rosenfeld was granted an option +to purchase 90,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal +annual installments commencing on the first anniversary of the date of grant. On April 1, 2009, Mr. Rosenfeld was granted an option +to purchase 225,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four +equal annual installments commencing on the first anniversary of the date of grant. +(2) On November 10, 2009, Mr. Rosenfeld was awarded 112,500 +shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the +date awarded. On March 16, 2011, Mr. Rosenfeld was awarded 30,000 shares of restricted Common Stock, which shares vest in four +equal annual installments commencing on the first anniversary of the date awarded. On March 14, 2012, Mr. Rosenfeld was awarded +20,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary +of the date awarded. +37 +(3) On April 1, 2009, Mr. Dharia was granted an option +to purchase 90,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four +equal annual installments commencing on the first anniversary of the date of grant. +(4) On March 9, 2010, Mr. Dharia was awarded 18,000 +shares of restricted Common Stock, which shares vest in five equal annual installments commencing on April 1, 2011. On March 16, +2011, Mr. Dharia was awarded 15,000 shares of restricted Common Stock, which shares vest in four equal annual installments commencing +on the first anniversary of the date awarded. On February 8, 2012, Mr. Dharia was awarded 10,000 shares of restricted Common Stock, +which shares vest in three substantially equal annual installments commencing on the first anniversary of the date awarded. On +April 2, 2012, Mr. Dharia was awarded 5,000 shares of restricted Common Stock, which shares vest in five equal annual installments +commencing on the first anniversary of the date awarded. +(5) On December 1, 2010, Mr. Sinha was awarded 52,500 shares of restricted +Common Stock, which shares vest in three equal annual installments commencing on the first anniversary of the date awarded. On +March 14, 2012, Mr. Sinha was awarded 7,500 shares of restricted Common Stock, which shares vest in five equal annual installments +commencing on the first anniversary of the date awarded. +(6) On April 1, 2009, Mr. Schmertz was granted an option to +purchase 168,750 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal +annual installments commencing on the first anniversary of the date of grant. On October 8, 2009, Mr. Schmertz was granted an option +to purchase 112,500 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five +equal annual installments commencing on the first anniversary of the date of grant. +(7) On March 16, 2011, Mr. Schmertz was awarded 11,250 shares +of restricted Common Stock, which shares vest in four equal annual installments commencing on the first anniversary of the date +awarded. +(8) On April 29, 2008, Ms. Varela was granted an option to +purchase 112,500 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal +annual installments commencing on the first anniversary of the date of grant. On April 1, 2009, Ms. Varela was granted an option +to purchase 168,750 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four +equal annual installments commencing on the first anniversary of the date of grant. On April 1, 2010, Ms. Varela was granted an +option to purchase 56,250 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in +five equal annual installments commencing on the first anniversary of the date of grant. On February 1, 2011, Ms. Varela was granted +an option to purchase 150,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests +in four equal annual installments commencing on the first anniversary of the date of grant. +(9) On March 14, 2012, Ms. Varela was awarded +11,473 shares of restricted Common Stock, which shares vest in five substantially equal annual installments commencing on the +first anniversary of the date awarded. +OPTION EXERCISES AND STOCK VESTED IN THE 2012 FISCAL YEAR +The +following table sets forth information concerning stock options exercised and restricted stock vested during the 2012 Fiscal Year +for each of the Named Executive Officers. The value realized from exercised options is deemed to be the market value of the Common +Stock on the date of exercise, less the exercise price of the option, multiplied by the number of shares of Common Stock underlying +the option. The value realized from the vesting of restricted stock is deemed to be the market value of the Common Stock on the +date of vesting multiplied by the number of shares vesting. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on Vesting +($) +Edward R. Rosenfeld +— +— +39,000 +1,658,700 +Arvind Dharia +69,002 +2,393,789 +16,350 +696,825 +Awadhesh Sinha +— +— +17,500 +778,925 +Robert Schmertz +87,188 +2,356,277 +47,812 +2,082,747 +Amelia Newton Varela +79,686 +2,183,010 +— +— +38 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The +following table sets forth information as of December 31, 2012 with respect to compensation plans (including individual compensation +arrangements) under which shares of Common Stock are authorized for issuance, aggregated as follows: +● +All compensation plans previously +approved by security holders; and +● +All compensation plans not +previously approved by security holders. +EQUITY COMPENSATION PLAN INFORMATION +Number +of +securities to be +issued upon +exercise of +outstanding options, +warrants and rights +(#) +Weighted +average +exercise price of +outstanding options, +warrants and rights +($) +Number +of securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in +column (a)) +(#) +(a) +(b) +(c) +Equity compensation plans approved by security holders +2,269,000 +20.57 +4,512,000 +Equity compensation plans not approved by security holders +— +— +— +Total +2,269,000 +20.57 +4,512,000 +Termination, +Change in Control and Non-Competition/Non-Solicitation +The +employment agreements for each of the Named Executive Officers provide for a severance payment upon a termination of employment +in connection with a change-in-control of the Company. The employment agreements of Messrs. Rosenfeld, Dharia and Sinha also provide +for severance payment if the executive terminates his employment for good reason in connection with a change-in-control event. +The change-in-control severance payments may result in the application of the “golden parachute” provisions of Section +280G of the Code and, to the extent Section 280G applies, the Company may not deduct from its taxable income the severance payments +made to the Named Executive Officer. Moreover, Section 4999 of the Code would impose a 20% excise tax on the Named Executive Officer +receiving the severance payment. In the case of Mr. Schmertz and Ms. Varela, these severance payments in connection with a change-in-control, +however, are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, is determined +to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is +deductible to the Company under Section 280G of the Code. In the case of Messrs. Rosenfeld, Dharia and Sinha, the executive’s +change-in-control severance payment will only be reduced to the maximum amount that is deductible to the Company under Section +280G of the Code if the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive +officer will receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable +for the 20% excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction +by the Company of the portion of the severance payment constituting an excess parachute payment will be disallowed. +39 +The +Company’s employment agreements with each of the Named Executive Officers also provide for severance payments to the executive +if the Company terminates the executive’s employment without cause, or, in the case of Mr. Rosenfeld and Mr. Sinha, if the +Company gives him good reason to terminate employment. +Please +see the section of this Proxy Statement captioned “Employment Arrangements” for a summary description of the Named +Executive Officers’ employment agreements and such severance and change-in-control provisions. These benefits are described +and quantified in the section of this Proxy Statement captioned “Potential Payments Upon Termination or Change-In-Control” +below. +The +Company believes that the severance payments and payments made upon change-in-control provisions in the employment agreements +provide appropriate protection to the Company’s executives, comparable to that available at peer companies, and, with regard +to the enhanced severance following a change-in-control, protects the Company from losing key executives during a period when +a change-in-control may be threatened or pending. These benefits are described and quantified in the section below captioned “Potential +Payments Upon Termination or Change-In-Control.” +Ms. +Varela has agreed to a non-compete and non-solicitation restriction through the expiration date of her employment agreement, December +31, 2013, in the event of a voluntary termination or termination for cause. Messrs. Rosenfeld and Sinha have each agreed to a +non-compete and non-solicitation restriction during the period of his employment and for a six-month period following the termination +of his employment for cause or in the event of his resignation without good reason. Mr. Schmertz has agreed to a non-compete and +non-solicitation restriction through December 31, 2015. Mr. Dharia does not have non-compete or non-solicitation provisions in +his employment agreement. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +Company’s employment agreements with the Named Executive Officers provide for payments to such individuals upon termination +of employment or a change-in-control of the Company. Please see the section of this Proxy Statement captioned “Employment +Arrangements.” The amounts set forth in the table below shall be payable to the respective Named Executive Officer if such +Named Executive Officer’s employment is terminated under the various scenarios set forth below. +NAME +AND +PRINCIPAL +POSITION +CASH +PAYMENT +CONTINUATION +OF MEDICAL / +WELFARE BENEFITS (PRESENT +VALUE) +ACCELERATION +AND +CONTINUATION OF +EQUITY AWARD +REDUCTION +OF +BENEFITS UPON A +CHANGE-IN-CONTROL (1) +TOTAL +TERMINATION +BENEFITS +($) +($) +($) +($) +($) +TERMINATION DUE TO DEATH +Edward R. Rosenfeld +578,813 +(2) +6.409 +(3) +— +— +585,222 +Arvind Dharia +554,719 +(4) +10,870 +(3) +— +— +565,589 +Awadhesh Sinha +575,000 +(5) +10,870 +(3) +— +— +585,870 +Robert Schmertz +725,000 +(6) +— +— +— +725,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION DUE TO TOTAL DISABILITY +Edward R. Rosenfeld +578,813 +(2) +— +— +— +578,813 +Arvind Dharia +554,719 +(4) +— +— +— +554,719 +Awadhesh Sinha +575,000 +(5) +— +— +— +575,000 +Robert Schmertz +725,000 +(6) +— +— +— +725,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON +Edward R. Rosenfeld +— +— +— +— +— +Arvind Dharia +— +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +Robert Schmertz +— +— +— +— +— +Amelia Newton Varela +— +— +— +— +— +TERMINATION OTHER THAN FOR CAUSE; RESIGNATION FOR GOOD REASON +Edward R. Rosenfeld +1,824,709 +(7) +— +— +— +1,824,709 +Arvind Dharia +1,109,438 +(8) +94,833 +(9) +— +— +1,204,271 +Awadhesh Sinha +575,000 +(10) +— +— +— +575,000 +Robert Schmertz +1,450,000 +(11) +— +— +— +1,450,000 +Amelia Newton Varela +450,000 +(12) +— +— +— +450,000 +TERMINATION UPON A CHANGE-IN-CONTROL +Edward R. Rosenfeld +4,324,250 +(13) +— +6,222,334 +(14) +(1,390,505 +) +10,546,584 +(17) +Arvind Dharia +1,814,157 +(15) +— +2,329,378 +(14) +— +4,143,535 +Awadhesh Sinha +4,576,256 +(16) +— +1,056,750 +(14) +— +5,633,006 +Robert Schmertz +9,247,945 +(18) +— +2,948,109 +(14) +(2,470,391 +) +12,196,054 +(17) +Amelia Newton Varela +7,339,094 +(19) +— +5,261,323 +(14) +(2,466,637 +) +12,600,417 +(17) +40 +(1) The +employment agreements of two of the Named Executive Officers provide that severance payments in connection +with a change-in-control are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, +is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum +amount that is deductible to the Company under Section 280G of the Code. The employment agreements of the remaining Named Executive +Officers indicate that the executive’s change-in-control severance payment will only be reduced to the maximum amount that +is deductible to the Company under Section 280G of the Code if the reduction provides the Named Executive Officer with the best +after-tax result; otherwise, the Named Executive officer will receive the full amount of the severance payment and other benefits +triggered by the change-in-control and be liable for the 20% excise tax on the excess parachute payment in addition to all other +applicable taxes and, in such case, the deduction by the Company of the portion of the severance payment constituting an excess +parachute payment will be disallowed. +(2) Consists +of Mr. Rosenfeld’s base salary of $578,813, $607,754 and $638,142 for the years ending December 31, 2013, 2014 and 2015, +respectively, which would be paid at regular intervals. +(3) Consists +of medical benefits. +(4) Consists +of Mr. Dharia’s 2013 base salary of $554,719, which would be paid at regular intervals. +(5) Consists +of Mr. +Sinha’s +2013 +base +salary +of $575,000, +which +would +be paid +at regular +intervals. +(6) Consists +of Mr. Schmertz’s 2013 base salary of $725,000, which would be paid at regular intervals. +(7) Consists +of the base salary ($578,813 for 2013) that would have been paid to Mr. Rosenfeld during the remainder of the term of his employment +until the expiration of his employment agreement on December 31, 2015. Mr. Rosenfeld would receive these payments at regular intervals. +(8) Consists +of Mr. Dharia’s 2012 base salary of $554,719 multiplied by the number of years (and fraction of years) remaining in the +term of his employment agreement, which expires on December 31, 2014. Mr. Dharia would receive 50% of this payment immediately +and the remaining 50% would be paid to him one year later (i.e., on December 31, 2013). +(9) Consists +of one times the sum of Mr. Dharia’s life insurance payment ($83,963) per year) plus medical benefits ($10,870 per year). +(10) Consists +of +the +base +salary +($575,000) +for +the +year +ending +December +31, +2013 +that +would +have +been +paid +to +Mr. +Sinha +during +the +remainder +of +the +term +of +his +employment +until +the +expiration +of +his +employment +agreement +on +December +31, +2013. +Mr. +Sinha +would +receive +these +payments +at +regular +intervals. +(11) Consists +of an annual base salary of $725,000 that would have been paid to Mr. Schmertz during the remainder of the term of his employment +until the expiration of his employment agreement on December 31, 2014. Mr. Schmertz would receive these payments at regular intervals. +(12) Consists +of the base salary of $450,000 that would have been paid to Ms. Varela during the remainder of the term of her employment until +the expiration of her employment agreement on December 31, 2013. Ms. Varela would receive these payments at regular intervals. +(13) Consists +of three times the average total compensation Mr. Rosenfeld actually received for the preceding three calendar years, except that +in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to +which Mr. Rosenfeld was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions +thereof) to Mr. Rosenfeld determined to constitute an “excess parachute payment” may be reduced to the maximum amount +that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2012 change-in-control, +this amount would have been reduced by $1,390,505 to reflect the maximum amount that would be tax deductible by the Company pursuant +to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section +of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code +to change-in-control payments generally. See also the summary of Mr. Rosenfeld’s employment agreement under “Employment +Arrangements.” +(14) The +amount disclosed represents the total value of the restricted stock and stock options which would have received accelerated vesting +upon a hypothetical change in control on December 31, 2012. +(15) Consists +of three times the total compensation Mr. Dharia actually received for the preceding twelve calendar months, except that in lieu +of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. +Dharia was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions thereof) to +Mr. Dharia determined to constitute an “excess parachute payment” may be subject to reduction to the maximum amount +that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2012 change-in-control, +no payments to Mr. Dharia would have been subject to reduction. See the “Implications of Tax +and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability +of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Dharia’s employment +agreement under “Employment Arrangements.” +(16) Consists +of three times the sum of base compensation and certain benefits Mr. Sinha actually received for the preceding twelve calendar +months, except that in lieu of the actual base salary component received during such period, there has been substituted the annual +base salary to which Mr. Sinha was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or +portions thereof) to Mr. Sinha determined to constitute an “excess parachute payment” may be subject to reduction +to the maximum amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December +31, 2012 change-in-control, no payments to Mr. Sinha would have been subject to reduction. See the +“Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion +of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. +Sinha’s employment agreement under “Employment Arrangements.” +(17) The +total amount does not include the amount deducted pursuant to Section 280G of the Code. +(18) Consists +of three times the average total compensation Mr. Schmertz actually received for the preceding three calendar years. Upon a hypothetical +December 31, 2012 change-in-control, this amount would have been reduced by $2,470,391 to reflect the maximum amount that would +be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications +of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability +of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Schmertz’s employment +agreement under “Employment Arrangements.” +(19) Consists +of three times the average total compensation Ms. Varela actually received for the preceding three calendar years. Upon a hypothetical +December 31, 2012 change-in-control, this amount would have been reduced by $2,466,583 to reflect the maximum amount that would +be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications +of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability +of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Ms. Varela’s employment +agreement under “Employment Arrangements.” +41 +Compensation +Committee Report +The +Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review +and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis +be included in this Proxy Statement. +Submitted +by the Compensation Committee of the Company’s Board of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +PROPOSAL +TWO: +APPROVAL OF AN AMENDMENT TO +THE CERTIFICATE OF INCORPORATION OF STEVEN MADDEN, LTD. +Under +the Company’s Certificate of Incorporation, we are authorized to issue 65,000,000 shares of stock, 60,000,000 of which shares +have been designated as shares of Common Stock and 5,000,000 of which shares have been designated as shares of preferred stock. +Our Board of Directors has determined that it is in the best interests of the Company and our stockholders to amend our Certificate +of Incorporation to increase the total number of shares of Common Stock that the Company is authorized to issue by 75,000,000 +shares from 60,000,000 shares to 135,000,000 shares. The Board of Directors has unanimously approved the proposed amendment to +the Certificate of Incorporation subject to approval of our stockholders and recommends that the stockholders approve and adopt +such amendment. The following resolution is submitted for stockholder approval: +“RESOLVED , +that the Certificate of Incorporation of Steven Madden, Ltd. (the ‘Company’) be, and it hereby is, amended by deleting +the first paragraph of Article FOURTH thereof and substituting in lieu thereof a new first paragraph to read as follows: +FOURTH: +The total number of shares of all classes of stock which the corporation shall have authority to issue is one hundred forty million +(140,000,000) shares, consisting of one hundred thirty-five million (135,000,000) shares of common stock, $0.0001 par value per +share, and five million (5,000,000) shares of preferred stock, $0.0001 par value per share. +; and +that such amendment is hereby authorized, approved and adopted as and for the action of the stockholders of the +Company.” +42 +If +the amendment to the Certificate of Incorporation is approved by our stockholders, the amendment will become effective upon the +filing of a certificate of amendment with the Secretary of State of the State of Delaware, which filing is expect to occur promptly +after the Annual Meeting. +Purpose +of the Amendment +The +purpose of the amendment to the Company’s Certificate of Incorporation is to increase the total number of shares of Common +Stock that the Company is authorized to issue from 60,000,000 shares to 135,000,000 shares. Of our Company’s 60,000,000 +authorized shares of Common Stock, 46,231,961 shares were outstanding as of the Record Date, and, after taking into account +shares underlying outstanding stock options, shares reserved for issuance under our equity-based compensation plans and shares +held in Treasury, approximately 7,271,694 of the 60,000,000 shares of Common Stock authorized under our Certificate of Incorporation +remain available for issuance. +The +Board of Directors believes that the amendment is advisable and in the best interests of our Company and our stockholders in order +to maintain our flexibility in considering and planning for future corporate needs in today’s competitive and fast-changing +environment. The Board believes that the authorized Common Stock should be increased to provide sufficient shares for general +corporate purposes as may be determined by the Board of Directors in the exercise of its discretion such as for stock splits like +those effected by the Company in 2011 and 2010. These purposes may include future stock splits, the issuance of Common Stock to +facilitate potential acquisitions of or mergers with other companies, acquisitions of businesses or product lines, attracting +and retaining employees by the issuance of additional securities under our various equity compensation plans and other transactions +and such other corporate purposes that the Board of Directors deems are in our Company’s best interests. The Board of Directors +believes that additional authorized shares of Common Stock would enable us to take timely advantage of market conditions and favorable +opportunities that may arise for these types of transactions, in most cases without the delay and expense associated with convening +a special meeting of stockholders before such issuances. Other than issuances pursuant to employee benefit plans, as of the date +of this Proxy Statement we have no current plans, commitments, agreements, arrangements or understandings regarding the issuance +of additional shares of Common Stock that would be authorized pursuant to this proposal. However, we review and evaluate potential +transactions and other corporate actions on an ongoing basis to determine if such actions would be in the best interests of our +Company and our stockholders. +Possible +Effects of the Amendment to the Company’s Certificate of Incorporation +Upon +issuance, the additional shares of authorized Common Stock would have rights identical to the currently outstanding shares of +Common Stock. Adoption of the amendment would not have immediate dilutive effect on the proportionate voting power or other rights +of existing stockholders. However, as is true for shares presently authorized but unissued, the future issuance of Common Stock +authorized by the amendment may, among other things, dilute the earnings per share of the Common Stock, decrease existing stockholders’ +percentage equity ownership and, depending on the price at which they are issued, could be dilutive to the voting rights of existing +stockholders and have a negative effect on the market price of the Common Stock. Current stockholders have no preemptive or similar +rights, which means that current stockholders do not have a prior right to purchase any new issue of Common Stock in order to +maintain their proportionate ownership thereof. +We +have not proposed the increase in the number of authorized shares of Common Stock with the intention of using the additional authorized +shares for anti-takeover purposes but our Company would be able to use the additional shares to oppose a hostile takeover attempt +or delay or prevent changes in control or management of our Company. For example, without further stockholder approval, the Board +of Directors could sell shares of Common Stock in a private transaction to purchasers who would oppose a takeover or favor our +current Board of Directors. Such a sale could have the effect of discouraging an attempt by another person or entity, through +the acquisition of a substantial number of shares of our Common Stock, to acquire our Company since the issuance could be used +to dilute the stock ownership of the acquirer. Although this proposal to increase the number of shares of authorized Common Stock +has been prompted by business and financial considerations and not by any threat of any known or threatened hostile takeover attempt, +stockholders should be aware that approval of this proposal could facilitate future attempts by our Company to oppose changes +in control of our Company and perpetuate our management, including transactions in which the stockholders might otherwise receive +a premium for their shares over then current market prices. +43 +We +could also use the additional shares of common stock for potential strategic transactions, including, among other things, acquisitions, +strategic partnerships, joint ventures, restructurings, business combinations and investments although we have no immediate plans +to do so. We cannot provide assurances that any such transactions will be consummated on favorable terms or at all, that they +will enhance stockholder value or that they will not adversely affect our business or the trading price of the common stock. Any +such transactions may require our Company to incur non-recurring or other charges and may pose significant integration challenges +and/or management and business disruptions, any of which could materially and adversely affect our business and financial results. +Our +Board of Directors is also authorized, subject to certain limitations prescribed by law, without further stockholder approval, +to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix or alter +the designations, preferences, rights and any qualifications, limitation or restrictions of shares of each such series thereof, +including the dividend rights, dividend rates, conversion rights, voting rights and terms of redemption of shares constituting +any series or designations of such series. The rights of the holders of Common Stock will be subject to and may be adversely affected +by, the rights of holders of preferred stock that may be issued in the future. Issuance of preferred stock could have the effect +of making it more difficult for a third party to acquire or of discouraging a third party from acquiring a majority of the outstanding +voting stock of the Company. +Required +Vote +Approval +of this resolution requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. +Recommendation +of the Board of Directors +The +Board of Directors unanimously recommends a vote “FOR” the approval of the amendment to the Certificate of Incorporation +of Steven Madden, Ltd. +44 +PROPOSAL +THREE: +RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013 +The +Audit Committee has appointed EisnerAmper LLP as the Company’s independent registered public accounting firm to conduct +the audit of the Company’s books and records for the fiscal year ending December 31, 2013. EisnerAmper LLP also served as +the Company’s independent registered public accountants for the 2012 Fiscal Year. +Before +making its determination on appointment, the Audit Committee carefully considers the qualifications and competence of candidates +for the independent registered public accountants. For EisnerAmper LLP, this has included a review of its performance in prior +years, its independence and processes for maintaining independence, the results of the most recent internal quality control review +or Public Company Accounting Oversight Board inspection, the key members of the audit engagement team, the firm’s approach +to resolving significant accounting and auditing matters including consultation with the firm’s national office, as well +as its reputation for integrity and competence in the fields of accounting and auditing. Although ratification by stockholders +is not required by the Company’s organizational documents or other applicable law, the Audit Committee has determined that +requesting ratification by stockholders of its appointment of EisnerAmper LLP as the Company’s independent registered public +accountants is a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider +whether or not to retain EisnerAmper LLP, but may still retain the accounting firm. Even if the selection is ratified, the Audit +Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would +be in the best interest of the Company and its stockholders. +Representatives +of EisnerAmper LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement +should they so desire. +Required +Vote +The +affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or represented by proxy and entitled +to vote at the Annual Meeting is required to ratify the Audit Committee’s selection of EisnerAmper LLP. +Recommendation +of the Board of Directors +The +Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of EisnerAmper LLP as the +Company’s independent registered public accountants for the fiscal year ending December 31, 2013. Unless marked to the contrary, +proxies received from stockholders will be voted in favor of ratifying the appointment of EisnerAmper LLP as the Company’s +independent registered public accountants for the fiscal year ending December 31, 2013. +45 +Independent +Registered Public Accounting Firm’s Fees and Services +The +aggregate fees billed to the Company by EisnerAmper LLP for professional services rendered for each of the past two years are +set forth below: +Year Ended December 31, +2012 +2011 +Audit Fees (1) +$ 700,000 +$ 655,000 +Audit-Related Fees (2) +25,000 +25,000 +Tax Fees (3) +46,850 +0 +All Other Fees (4) +148,465 +339,000 +Total +$ 920,315 +$ 1,019,000 +(1) +Represents the aggregate fees and expenses billed for (a) the audit of the Company’s annual financial statements, +(b) the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, (c) other statutory +and regulatory filings or engagements and (d) the audit of the Company’s internal controls over financial reporting. +(2) +Represents the aggregate fees billed for audit-related fees related to assurance and related services. Includes, among others, +the audit of the Company’s employee benefit plans and other accounting related consultations. +(3) +Represents the aggregate fees billed for tax compliance, tax advice and tax planning services. These professional services +include assistance in the preparation of the Company’s various federal, state and local tax returns, tax consultation and +various amendments. +(4) +Represents the aggregate fees billed (a) with respect to the 2012 Fiscal Year, for (i) due diligence services rendered in +connection with two business acquisitions and (ii) out-of-pocket expenses incurred by EisnerAmper LLP in connection with services +rendered to the Company and (b) with respect to the fiscal year ended December 31, 2011, for (ii) due diligence services rendered +in connection with three business acquisitions and (ii) out-of-pocket expenses incurred by EisnerAmper LLP in connection with +services rendered to the Company. +Audit +Committee’s Pre-Approval Policies and Procedures +Consistent +with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation +and overseeing the work of the independent registered public accountants. In recognition of this responsibility, the Audit Committee +has established a policy to review and pre-approve all audit and permissible non-audit services provided by the independent registered +public accountants. These services may include audit services, audit-related services, tax services and other services. +Prior +to engagement of the independent auditor for next year’s audit, the Audit Committee will pre-approve all auditing services +and all permitted non-audit services (including the fees and terms thereof), except those excluded from requiring pre-approval +based upon the de minimus exception set forth in Section 10A(i)(1)(B) of the Exchange Act. +The +Audit Committee’s pre-approval policies and procedures are as follows: (a) prior to each fiscal year, the Audit Committee +pre-approves a schedule of estimated fees for proposed non-prohibited audit and non-audit services, and (b) actual amounts paid +are monitored by financial management of the Company and reported to the Audit Committee. +All +work performed by EisnerAmper LLP as described above under the captions Audit Fees, Audit-Related Fees, Tax Fees and All Other +Fees has been approved or pre-approved by the Audit Committee pursuant to the provisions of the Audit Committee’s charter. +The Audit Committee has considered and concluded that the provision of non-audit services is compatible with maintaining the independence +of EisnerAmper LLP. +46 +AUDIT COMMITTEE REPORT +The +Audit Committee reviewed the Company’s audited financial statements for the 2012 Fiscal Year and met with both +management and representatives of EisnerAmper LLP, the Company’s independent registered public accountants, to discuss +such audited financial statements. Management and the Company’s independent registered public accountants have +represented to the Audit Committee that the financial statements were prepared in accordance with accounting principles +generally accepted in the United States of America. The Audit Committee has received from and discussed with EisnerAmper LLP +the written disclosures and the letter regarding EisnerAmper LLP’s communications with the Audit Committee concerning +independence as required by applicable requirements of the Public Company Accounting Oversight Board, and discussed with +EisnerAmper LLP the independence of EisnerAmper LLP. The Audit Committee also discussed with EisnerAmper LLP any matters +required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting +Oversight Board in Rule 3200T. Based on these reviews and discussions, the Audit Committee recommended to the Board that the +Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the 2012 +Fiscal Year. +Submitted +by the Audit Committee of the Company’s Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Ravi Sachdev +PROPOSAL +FOUR: +NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +Section +14A of the Exchange Act, as created by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank +Act”), and the rules and regulations promulgated thereunder, require a publicly traded company to include a resolution in +its proxy statement at least once every three years seeking stockholder approval, on an advisory or non-binding basis, of the +compensation of the named executive officers as disclosed in such company’s proxy statement pursuant to the compensation +rules of the SEC. At our 2011 Annual Meeting of Stockholders, the Company’s stockholders approved, on an advisory basis, +the holding of an advisory vote to approve executive compensation (commonly known as a “say-on-pay” proposal) on an +annual basis. Based on these results, the Board of Directors determined to hold its advisory vote to approve executive compensation +annually until the next frequency vote, which is scheduled for the Company’s 2017 Annual Meeting of Stockholders. Accordingly, +we are providing stockholders with a non-binding advisory vote on the compensation of our Named Executive Officers. +As +described in more detail in the Compensation Discussion and Analysis section, which begins on page 21 of this Proxy Statement, +the overall objective of the Company’s executive compensation programs and practices is to support delivery of sustained +operating and financial performance results with the ultimate goal being to create and maximize value for our stockholders on +a long-term basis. We believe that our executive compensation programs and practices serve the interests of our stockholders by +enabling us to attract and retain an experienced and effective management team whose combined knowledge +of our business and the footwear and accessories industry has proved extremely valuable in delivering results for our stockholders. +The Compensation Committee and the Board of Directors believe that the Company’s compensation programs and practices as +articulated in the Compensation Discussion and Analysis section of this Proxy Statement effectively implement our philosophy +of aligning compensation to stockholder interests and that the compensation received by our Named Executive Officers in the 2012 +Fiscal Year reflects and supports such philosophy and goal and is commensurate with the performance and strategic position of +the Company. We will continue to review and modify our executive compensation programs to address evolving +best practices and changing regulatory require-ments. +We +encourage stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, as well as the Summary +Compensation Table and other related compensation tables and narrative disclosure contained in this Proxy Statement, all of which +describe and explain in detail the compensation of our Named Executive Officers in the 2012 Fiscal Year. +47 +The +following resolution is submitted for stockholder approval: +“ RESOLVED , +that the stockholders of Steven Madden, Ltd. (the ‘Company’) approve, on a non-binding advisory basis, the compensation +paid to the Named Executive Officers of the Company as disclosed pursuant to the compensation disclosure rules of the Securities +and Exchange Commission, including the executive compensation as described in the section captioned ‘Compensation Discussion +and Analysis,’ the Summary Compensation Table and related tabular disclosure and narrative discussion regarding compensation +of Named Executive Officers under the caption ‘Executive Compensation’ contained in the Company’s Proxy Statement +dated April 9, 2013.” +This +vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive +Officers and the compensation programs and practices described in this Proxy Statement. While this advisory vote on executive +compensation, commonly referred to as a “say-on-pay” advisory vote, is required by Section 14A of the Exchange Act, +it is not binding on our Board of Directors and may not be construed as overruling any decision by the Board of Directors or the +Compensation Committee. However, we value the opinions of our stockholders. To the extent there is a significant vote +against the compensation of the Named Executive Officers as disclosed in this Proxy Statement, the Board of Directors and the +Compensation Committee will consider the outcome of the vote when considering future compensation arrangements and evaluate whether +any actions are necessary to address the stockholders’ concerns. +Required +Vote +Approval +of this resolution requires the affirmative vote of a majority of the shares of Common Stock present or represented by proxy and +entitled to vote at the Annual Meeting. +Recommendation +of the Board of Directors +The +Board of Directors unanimously recommends a vote “FOR” the resolution approving the overall compensation of the Named +Executive Officers for the 2012 Fiscal Year. +OTHER +MATTERS +At +the date of this Proxy Statement, the Company has no knowledge of any business other than that described above that will be presented +at the Annual Meeting. If any other business should properly come before the Annual Meeting in connection therewith, it is intended +that the persons named in the accompanying proxy will have discretionary authority to vote the shares which they represent. +A +copy of the applicable provisions of the Company’s By-Laws may be obtained by any stockholder, without charge, upon written +request to the Secretary of the Company at the address set forth above. +WHETHER +OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY. +ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR +VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW +YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN +MADDEN, LTD. +April +9, 2013 +By: +Arvind +Dharia +Secretary +48 +STEVEN MADDEN, LTD. +ATTN: ARVIND DHARIA +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +VOTE BY +INTERNET - www.proxyvote.com +Use the Internet to +transmit your voting instructions and for electronic delivery of information +up until 11:59 P.M. Eastern Time the day before the meeting date. Have your +proxy card in hand when you access the web site and follow the instructions +to obtain your records and to create an electronic voting instruction form. +ELECTRONIC +DELIVERY OF FUTURE PROXY MATERIALS +If you would like to +reduce the costs incurred by our company in mailing proxy materials, you can +consent to receiving all future proxy statements, proxy cards and annual +reports electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to vote using the Internet +and, when prompted, indicate that you agree to receive or access proxy +materials electronically in future years. +VOTE BY +PHONE - 1-800-690-6903 +Use any touch-tone +telephone to transmit your voting instructions up until 11:59 P.M. Eastern +Time the day before the meeting date. Have your proxy card in hand when you +call and then follow the instructions. +VOTE BY +MAIL +Mark, sign and date +your proxy card and return it in the postage-paid envelope we have provided +or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, +NY 11717. +TO +VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP +THIS PORTION FOR YOUR RECORDS +DETACH +AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to +vote for any individual nominee(s), mark “For All Except” and write the +number(s) of the nominee(s) on the line below. +The Board +of Directors recommends you vote +FOR the +following: +o +o +o +1. +Election of Directors +Nominees +01 +Edward R Rosenfeld 02 John +L Madden 03 Peter Migliorini 04 Richard P Randall 05 Ravi Sachdev +06 +Thomas H Schwartz +The Board +of Directors recommends you vote FOR proposals 2, 3 and 4. +For +Against +Abstain +2 +TO APPROVE AN AMENDMENT TO +THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF +AUTHORIZED SHARES OF THE COMPANY’S COMMON STOCK, $0.0001 PAR VALUE, FROM +60,000,000 SHARES TO 135,000,000 SHARES. +o +o +o +3 +TO RATIFY THE APPOINTMENT OF +EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013. +o +o +o +4 +TO APPROVE, BY NON-BINDING +ADVISORY VOTE, THE EXECUTIVE COMPENSATION DESCRIBED IN THE STEVEN MADDEN, LTD +PROXY STATEMENT. +o +o +o +NOTE: In their +discretion, the proxies are authorized to vote upon such other business as +may properly be presented at the meeting or any adjournments or postponements +thereof. +Yes +No +Please indicate if you plan +to attend this meeting +o +o +Please sign exactly as your +name(s) appear(s) hereon. When signing as attorney, executor, administrator, +or other fiduciary, please give full title as such. Joint owners should each +sign personally. All holders must sign. If a corporation or partnership, +please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN +WITHIN BOX] +Date +Signature (Joint Owners) +Date +0000168327_1 R1.0.0.51160 +Important +Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual +Report with 10-K is/are available at www.proxyvote.com . +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF +THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE +BOXES NEXT TO EACH OF THE PROPOSALS +The undersigned +stockholder(s) of Steven Madden, Ltd. (the “Company”) hereby appoint(s) +Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys and +proxies, each with power of substitution and revocation, to represent the +undersigned at the Annual Meeting of Stockholders of the Company to be held +at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, +New York, New York at 10:00 a.m., local time, on May 24, 2013 and at any +adjournments or postponements thereof, with authority to vote all shares of +Common Stock of the Company held or owned by the undersigned on April 3, +2013, in accordance with the directions indicated herein. +THIS +PROXY WILL BE VOTED AS SPECIFIED HEREIN; UNLESS OTHERWISE INDICATED, THIS +PROXY WILL BE VOTED (1) FOR +THE ELECTION OF THE SIX (6) NOMINEES NAMED IN ITEM 1, (2) FOR THE APPROVAL OF AN AMENDMENT OF THE COMPANY’S +CERTIFICATE OF INCORPORATION, (3) FOR THE RATIFICATION OF THE +APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR THE FISCAL YEAR 2013, (4) FOR THE APPROVAL OF THE +EXECUTIVE COMPENSATION DESCRIBED IN THE COMPANY’S PROXY STATEMENT, AND (5) IN +THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME +BEFORE THE MEETING. +Continued and to be signed on reverse side +0000168327_2 R1.0.0.51160 \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-13-000485/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-13-000485/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..434c05dded49e6687511779a9aa34607da6fcce6 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-13-000485/proxy_rpt.txt @@ -0,0 +1,135 @@ +Certain Relationships and Related Party Transactions +JLM +Consultants, Inc., a company wholly-owned by John L. Madden. Since 2004, the Company has engaged JLM Consultants, Inc., +a company wholly-owned by John L. Madden, a member of the Board and the brother of Steven Madden, the Company’s founder +and Creative and Design Chief, to provide consulting services to the Company with respect to the development of international +sales of the Company. On February 23, 2012, the Company entered into a consulting agreement (the “JLM Consulting Agreement”) +with JLM Consultants, Inc., which replaced a prior consulting agreement, and continues in effect until December 31, 2014. In accordance +with the terms of the JLM Consulting Agreement, for the 2012 Fiscal Year, JLM Consultants, Inc. received the following compensation +from the Company for services rendered: (a) a commission equal to 1.5% of international sales and 10% of retail royalty income, +(b) a monthly draw in the amount of $25,000, which amount was offset against commissions earned, (c) a $1,000 per month travel +allowance and (d) $4,599.80 per month reimbursement for health insurance premiums for John L. Madden. Pursuant to this arrangement, +JLM Consultants, Inc. received a total of $1,447,270 from the Company in the 2012 Fiscal Year. +Pursuant +to the JLM Consulting Agreement, on January 2, 2013, the Company issued 48,008 restricted shares of the Company’s Common +Stock to JLM Consultants, Inc. under the Steven Madden, Ltd. 2006 +Stock Incentive Plan, as amended (the “2006 Plan”), which shares will vest in twelve substantially equal quarterly +installments over a three-year period commencing on April 1, 2013 and continuing to vest quarterly thereafter until the final +installment vests on January 1, 2016. +Steven +Madden Employment Agreement. Effective as of July 1, 2005, the Company amended and restated its employment agreement +with the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to continue +to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement +commenced on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, 2011, will end on December +31, 2023. Prior to this recent amendment, the agreement had provided for an annual salary of $600,000, with a 7% increase of base +salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. The agreement had also provided +for an annual cash bonus in an amount equal to at least 2% of the Company’s EBITDA (the “Annual Bonus”) and +an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount equal to at least (i) +2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business +Bonus”). The agreement, as amended, increases Mr. Madden’s annual base salary but eliminates the Annual +Bonus and the New Business Bonus and provides that all cash bonuses subsequent to the fiscal year ended December 31, 2011 will +be at the sole discretion of the Company’s Board of Directors. Under the agreement, as amended, Mr. Madden’s annual +base salary was fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 and $10,697,917 in 2016 +and in each year thereafter through the end of the term of employment. In addition, the amended agreement entitles Mr. Madden +to an annual life insurance premium reimbursement of up to $200,000. The amendment also eliminates an annual non-accountable expense +allowance of $200,000 that had been previously provided to Mr. Madden under the agreement. Pursuant to the amended agreement, +on February 8, 2012, Mr. Madden was granted 975,371 restricted shares of Common Stock, valued at approximately $40 million, under +the 2006 Plan. The restricted Common Stock will vest in equal annual installments over seven +years commencing on December 31, 2017 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company +on each such vesting date. +14 +On +June 30, 2012, pursuant to an election right granted to him under the agreement, as amended, Mr. Madden notified the Company of +his election to receive an additional restricted stock award valued at $40 million in consideration of a reduction in his annual +base salary in years subsequent to the 2012 Fiscal Year. Accordingly, on July 3, 2012, Mr. Madden was issued 1,262,228 restricted +shares of Common Stock under the 2006 Plan. The restricted Common Stock will vest in equal annual installments over six years +commencing on December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company +on each such vesting date. As a result of his election to receive an additional restricted stock award, Mr. Madden’s annual +base salary for years subsequent to the 2012 Fiscal Year has been reduced as follows: $4,000,000 in 2013, $6,125,000 in 2014, +$8,250,000 in 2015 and $7,026,042 in 2016 and in each year thereafter through the end of the term of employment. +Mr. +Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders (but not +later than June 30 th ), an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, +with such number to be equal to the greater of (a) 100% of the largest aggregate number of shares of Common Stock available upon +the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month +period and (b) 100,000 shares of Common Stock; provided, however, that a grant to Mr. Madden in excess of 150% of the number of +shares of Common Stock subject to options granted to such other continuing full-time employee would require stockholder approval. +Any Annual Option granted to Mr. Madden would vest quarterly over a one-year period following the grant date and would be exercisable +at a price equal to the closing price of the Company’s Common Stock on the grant date for a period of five years following +the grant date. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 500,000 shares of the Company’s +Common Stock (the number of option shares to be subject to adjustment in the event of a future change +in capital structure of the Company resulting from a stock split, reverse stock split or other transaction or event having similar +effect) in the event that the Company achieves earnings per share, on a fully-diluted basis, equal to $3.00 in any fiscal +year ending December 31, 2015 or after. If granted, the option would vest in equal annual installments of 20% over a five-year +period and be exercisable for a period of seven years at a price equal to the closing price of the Company’s Common Stock +on the date immediately preceding the grant date. +In +the event of Mr. Madden’s death, his employment agreement provides for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of his death. Further, in the event that Mr. Madden’s +employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” +(as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount +of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement +is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company +is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under +the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” +(as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. +Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good +reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within +30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden +will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to +the amount of compensation that is accrued and unpaid through the date of termination plus $35 million. Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation +and competition. +15 +For +the 2012 Fiscal Year, Mr. Madden earned $5,416,667 in base salary and received $200,000 for the payment of an annual life insurance +premium. As an Annual Option, on June 4, 2012, Mr. Madden was granted an option to purchase 100,000 restricted shares of Common +Stock, under the 2006 Plan having an exercise price of $38.99 per share. The option vests in equal installments of 25,000 shares +on each of August 25, 2012, November 25, 2012, February 25, 2013 and May 25, 2013. +Loan +to Steven Madden. On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal +stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a personal tax obligation resulting +from the exercise of a stock option which was due to expire and to hold the underlying shares of Common Stock. Mr. Madden executed +a promissory note in favor of the Company, which is secured by a pledge of 315,000 shares of the Company’s Common Stock +beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on January +3, 2012, at which time the note was amended and restated to extend the maturity date of the obligation to December 31, 2023 and +eliminate the accrual of interest after December 31, 2011. Prior to the most recent amendment, the note had been accruing interest +at the rate of 6% per annum. In addition, the amended and restated +note provides that, commencing on December 31, 2014 and annually on each December 31 thereafter through the maturity date, one-tenth +of the principal amount thereof, together with accrued interest, will be cancelled by the Company provided that Mr. Madden continues +to be employed by the Company on each such December 31. Contemporaneously, the Company will release +a number of pledged shares of Common Stock from the pledge generally correlating to the amount of indebtedness cancelled on such +date. As of December 31, 2011, interest in the amount of $1,090,000 had accrued on the principal amount of the note and, as noted +above, interest was eliminated after December 31, 2011. +Steven +Madden is the brother of John L. Madden, who has been a director of the Company since 1993. +Review, Approval or Ratification of Transactions with Related Persons +The +Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts +of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the +Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +Related +person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, +who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, +the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale +for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction +is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; +(iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent +such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The +Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct +Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to +management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel +on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain +information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct Code. +16 +The +Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the +related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s +periodic filings, including related party transaction disclosures. +If +a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions +and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, +must be ratified as promptly as practicable. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000928022-11-000031/proxy.txt b/raw/proxies/0000928022/0000928022-11-000031/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5785a0467bc2a63fd87c651abd66ab678ee1961e --- /dev/null +++ b/raw/proxies/0000928022/0000928022-11-000031/proxy.txt @@ -0,0 +1,2694 @@ +DEF 14A +1 +def14a.htm +CALLON PETROLEUM COMPANY 2010 PROXY STATEMENT +def14a.htm +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2011 ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 12, 2011 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the 2011 Annual Meeting of Shareholders of Callon Petroleum Company (“Callon” or the “Company”) which will be held in Natchez, Mississippi, on Thursday, May 12, 2011, at 9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, for the following purposes: +1. +To elect two Class II directors to hold office until the 2014 Annual Meeting of Shareholders; +2. +To approve, in an advisory (non-binding) vote, the Company’s executive compensation as disclosed in the accompanying proxy statement; +3. +To approve an advisory (non-binding) proposal to determine whether the shareholder vote to approve executive compensation (Item 2 above) should occur every 1, 2 or 3 years; +4. +To approve and ratify the Callon Petroleum Company 2011 Omnibus Incentive Plan; +5. +To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011; and +6. +To transact such other business as may properly come before the 2011 Annual Meeting or any adjournment or adjournments thereof. +Specific details of the matters proposed before the 2011 Annual Meeting are included in the proxy statement accompanying and forming part of this notice. Only shareholders of record at the close of business on March 16, 2011 will be entitled to notice of, and to vote at, the 2011 Annual Meeting, or any adjournment or postponements thereof. Each common share is entitled to one vote per share. Whether or not you plan to attend the 2011 Annual Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed envelope enclosed. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Natchez, Mississippi Robert A. Mayfield +March 21, 2011 Corporate Secretary +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. SHAREHOLDERS WHO ATTEND THE 2011 ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON. +Important Notice Regarding the Availability of Proxy Materials for the Shareholders’ Meeting: +Our proxy material relating to our 2011 Annual Meeting (notice, proxy statement, proxy and 2010 Annual Report to Shareholders) is available on our website at www.callon.com. This information is also available by calling 1-800-451-1294 or by email at terryt@callon.com. For the date, time and location of the 2011 Annual Meeting and an identification of the matters to be voted upon at the 2011 Annual Meeting, please see the “Notice of 2011 Annual Meeting of Shareholders.” For information on how to obtain directions to be able to attend the meeting and vote in person, please contact Terry Trovato, Investor Relations, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi, 39120. +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2011 ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 12, 2011 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation (“Callon” or the “Company”), from shareholders of the Company for use at the 2011 Annual Meeting of Shareholders of the Company to be held on Thursday, May 12, 2011, at 9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The purpose of the meeting is to consider and vote upon the matters described in the accompanying Notice of the 2011 Annual Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, will be voted in accordance with the directions specified on the proxy, and otherwise in accordance with the judgment of the persons designated therein as proxies. Any proxy which does not withhold authority to vote or on which no other instructions are given will be voted for the election of the nominee named herein to the Board of Directors and in favor of the all other proposals set forth in the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the 2011 Annual Meeting. Proxies submitted by mail must be received on or before 8:00 a.m. on Thursday, May 12, 2011. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the 2011 Annual Meeting. +If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of the Director nominees (Proposal 1 of this proxy statement), the Company’s executive compensation (Proposal 2 of this proxy statement), the frequency of vote for the executive compensation (Proposal 3 of this proxy statement), approval of the 2011 Omnibus Incentive Plan (Proposal 4 of this proxy statement), and ratification of the Company’s independent registered public accounting firm (Proposal 5 of this proxy statement). Prior to January 1, 2010, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your bank or broker was allowed to vote those shares on your behalf as they felt appropriate. Recent changes in regulations eliminated the ability of your bank or broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote, no votes will be cast on your behalf except that your bank or broker will continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company's independent registered public accounting firm (Proposal 5 of this proxy statement). If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the 2011 Annual Meeting. +This proxy statement and the accompanying notice and form of proxy are being mailed to shareholders on or about March 21, 2011. The Annual Report for the Company’s fiscal year ended December 31, 2010 is also being mailed to shareholders contemporaneously with this proxy statement, although the Annual Report does not form a part of the material for the solicitation of proxies. The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit proxies in person or by telephone. Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our common stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of Eagle Rock Proxy Advisors, LLC to assist us in our solicitation efforts at an estimated cost of $5,000 plus reasonable and customary out-of-pocket expenses. +Financial and other information concerning the Company is contained in the Annual Report for the year ended December 31, 2010. Pursuant to rules promulgated by the Securities and Exchange Commission (SEC), we have elected to provide access to the Company's proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of the proxy material on the Internet. This proxy statement, the accompanying proxy card and the Company's 2010 Annual Report are available at the Company's website at www.callon.com. In accordance with SEC rules, you may access the proxy statement at www.callon.com, which does not have "cookies" that identify visitors to the site. +1 +Other Matters to be Considered at the 2011 Annual Meeting of Shareholders +The Board of Directors is not presently aware of any other proposals that may be brought before the 2011 Annual Meeting. In the event other proposals are brought before the 2011 Annual Meeting, the persons named in the enclosed proxy will vote in accordance with what they consider to be in the best interests of the Company and our shareholders. +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 16, 2011 as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2011 Annual Meeting. A complete list of all shareholders entitled to vote at the 2011 Annual Meeting will be open for examination by any shareholder during normal business hours for a period of ten days prior to the 2011 Annual Meeting at the offices of the Company, located at 200 North Canal Street, Natchez, Mississippi 39120. Such list will also be available at the 2011 Annual Meeting and may be inspected by any valid shareholder who is present. +On the record date, our outstanding voting securities consisted of 39,105,130 shares of common stock. Holders of common stock will be entitled to one vote per share held of record on the record date for each proposal presented at the 2011 Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on the record date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the 2011 Annual Meeting. For purposes of determining whether a quorum is present under Delaware law, broker non-votes and abstentions do count towards the establishment of a quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares of common stock present and voting, in person or by proxy, at the 2011 Annual Meeting. Abstentions and broker non-votes have no effect on determinations of plurality except to the extent that they affect the total votes received by any particular candidate. +Each of the other proposals will be approved if it receives a majority of the votes of the shares present in person at the 2011 Annual Meeting and those represented by proxy and entitled to vote. Although the advisory votes on Proposals 2 and 3 are non-binding, as provided by law, our Board will review the results of the votes and will take them into account in making a determination concerning executive compensation and the frequency of holding such advisory votes. If the appointment of the Company’s independent registered public accounting firm is not ratified by holders of our voting securities, the Audit Committee and the Board may reconsider its appointment and endorsement, respectively. Even if the selection is ratified, the Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. +Abstaining shares will be considered present at the 2011 Annual Meeting so that the effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the shares will not be considered present at the 2011 Annual Meeting with respect to a non-discretionary item so that broker non-votes will have the practical effect of reducing the number of affirmative votes required to achieve a majority vote by reducing the total number of shares from which the majority is calculated. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and the broker has not received voting instructions from the beneficial owner. The New York Stock Exchange (“NYSE”) permits brokers to vote their customers’ shares on routine matters when the brokers have not received voting instructions from customers. The ratification of the independent registered accounting firm is a routine matter on which brokers may vote in this way. Brokers may not vote their customers’ shares on non-routine matters such as the election of directors, the proposals related to executive compensation or the 2011 Omnibus Incentive Plan unless they have received voting instructions from their customers. +Votes cast at the meeting will be counted by the inspector of election. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of Directors is divided into three classes of equal size, designated as Class I (currently with two directors), Class II (currently with two directors) and Class III (currently with two directors). One class of directors is elected at each Annual Meeting of shareholders to serve for a three-year term. +The term of the two Class II directors, Mr. B. F. Weatherly and Mr. Richard O. Wilson, will expire on the date of the 2011 Annual Meeting. The nominees of the Board for Class II directors of the Company to serve until the 2014 Annual Meeting, or until their successors have been duly elected and qualified, are Mr. Weatherly and Mr. Anthony J. Nocchiero. Both were nominated by the Board of Directors upon the recommendation of the Nominating and Corporate Governance Committee. Each of the nominees has consented to serve as a director if elected. Mr. Weatherly has served continuously as a director of the Company since the date of his first election or appointment to the Board. Mr. Nocchiero is replacing Mr. Wilson, who has determined not to stand for re-election to the Board for personal reasons. Mr. Wilson’s decision was not in connection with any disagreement with the Company. +All shares of common stock represented by the proxies will be voted “FOR” the election of the director nominees, except where authority to vote in the election of directors has been withheld. Should the nominees become unable or unwilling to serve as a director at the time of the 2011 Annual Meeting, the person or persons exercising the proxies will vote for the election of substitute nominees designated by the Board of Directors, or the Board of Directors may choose to reduce the number of members of the Board of Directors to be elected at the 2011 Annual Meeting in order to eliminate the vacancy. The Board of Directors has no reason to believe that the nominees will be unable or unwilling to serve if elected. Only the nominees or a substitute nominee designated by the Board of Directors will be eligible to stand for election as a director at the 2011 Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of the nominees . +3 +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors whose terms will continue after the 2011 Annual Meeting, and the present executive officers of the Company. Each executive officer has been elected to serve until his or her successor is duly appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Name +Age +as of Record Date +Company +Position Since +Present Company Position +Class I Directors: +( Term Expires in 2013 ) +Larry D. McVay +63 +2007 +Director +John C. Wallace +72 +1994 +Director +Class II Directors: +( Term Expires in 2011 ) +B. F. Weatherly +66 +1994 +Director, Executive Vice President +and Chief Financial Officer, Nominee +Anthony J. Nocchiero +59 +- +Director, Nominee +Class III Directors: +( Term Expires in 2012 ) +Fred L. Callon +61 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer +L. Richard Flury +63 +2004 +Director +Other Executive Officers : +Mitzi P. Conn +42 +2007 +Corporate Controller +Steven B. Hinchman +52 +2009 +Former Executive Vice President, and Chief Operating Officer (1) +Gary A. Newberry +56 +2010 +Senior Vice President, Operations (2) +Robert A. Mayfield +60 +2000 +Corporate Secretary +H. Clark Smith +58 +2001 +Chief Information Officer +Rodger W. Smith +61 +1999 +Vice President and Treasurer +Stephen F. Woodcock +59 +1997 +Vice President, Exploration +(1) +Mr. Hinchman’s initial employment date was June 1, 2009. He resigned from his position in October 2010. +(2) +Mr. Newberry was hired in April 2010 as Vice President, Production and Development and promoted to his current position in September 2010. +The following is a brief description of the background and principal occupation of each director and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, positions he had held with the Company or its predecessors since 1984. He has been employed by the Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is son of the late Sim C. Callon, one of the Company’s co-founders and the nephew of the late John S. Callon, the other co-founder. +Mr. Callon has been involved in the oil and gas industry virtually all his life and has developed a wide network of personal and business relationships within the oil and gas industry. His strong financial background combined with his many years of operational experience throughout changing conditions in the market and industry provide him with the ability to successfully lead the Company. +Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in May 2007, she had served as assistant controller since May 2004. Mrs. Conn has held various other positions in finance and accounting since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She received her B.S. degree in accounting from Southeastern Louisiana University in 1990 and is a member of the American Institute of Certified Public Accountants and the Mississippi Society of Certified Public Accountants. +4 +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco's merger with BP in 1998, he served in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, he is a member of the Board of Directors of QEP Resources, a publicly traded oil and gas company, and the Chairman of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company. +Mr. Flury has many years of prior experience with a major oil and gas company. Mr. Flury continues his involvement in the industry through his other directorship positions. His executive-level perspective and decision making abilities continue to prove beneficial to the success of the Company. +Steven B. Hinchman was the Executive Vice President and the Chief Operating Officer for the Company and Callon Petroleum Operating Company until he resigned in October 2010. Prior to joining the Company in June 2009, Mr. Hinchman was Executive Vice President of Technology and Services for Marathon Oil Corporation, a position he held since April 2008, and served as a member of Marathon's Executive Committee, a position he held since October 2000. Mr. Hinchman originally joined Marathon in 1980 as a field engineer and subsequently held a number of technical, staff and managerial positions of increasing responsibility in their domestic and international exploration and production organizations. Mr. Hinchman received a bachelor's degree in petroleum engineering from Pennsylvania State University in 1980, and a master's degree in the same field of study from the Colorado School of Mines in 1987. Mr. Hinchman is a member of the board of directors of the American Petroleum Institute, a Visiting Committee Member of the Petroleum Engineering Department of the Colorado School of Mines, a member of the board of directors of the Sam Houston Council of the Boy Scouts of America, and a member of the Industrial and Professional Advisory Council of the Department of Energy and Geo-Environmental Engineering at Pennsylvania State University. In 2005, he received the distinguished Penn State Alumni Fellow Award. +Robert A. Mayfield is the Corporate Secretary and also oversees tax services for the Company and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in 1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. Since 2007, Mr. McVay has been a Managing Director of Edgewater Energy, LLC, an oil and gas consulting and investment company. From 2000 to 2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In January 2008 he became a member of the board of directors of Praxair, Inc., the largest industrial gases company in North and South America. In May 2008 Mr. McVay also became a member of the board of directors of Chicago Bridge and Iron, N.V., a publicly-traded engineering, procurement, and construction company. +Mr. McVay has been directly involved in almost all aspects of the oil and gas industry, including drilling, production, finance, environmental risk, and safety. Outside of his involvement with Callon, Mr. McVay is active in other industry consulting assignments which keep him fully abreast of trends and current activity in the operational areas in which Callon is pursuing development. +Gary A. Newberry joined the Company in April 2010 as Vice President – Production and Development. In September 2010, Mr. Newberry was promoted to Senior Vice President – Operations. Mr. Newberry graduated from Marietta College in 1977 with a B.S. degree in Petroleum Engineering. After graduation he joined Marathon Oil Company as a Production and Drilling Engineer working in Alaska, the Gulf of Mexico, and the Rockies. He held various supervisory and management roles of increasing responsibility over production and drilling operations in the mid-continent, Alaska and the Permian Basin. As a Business Unit Leader, Mr. Newberry was responsible for all upstream business activity in Oklahoma, Alaska, and the Rockies and served as Marathon’s Worldwide Operations Manager. Mr. Newberry retired from Marathon Oil Company after 33 years of service. +5 +Anthony J. Nocchiero was nominated to the Board of Directors in March 2011. From April 2007 until September 2010, Mr. Nocchiero held the position of senior vice president and chief financial officer for CF Industries, Inc. From July 2005 until March 2007, he was the vice president and chief financial officer for Merisant Worldwide, Inc. From January 2002 to July 2005, Mr. Nocchiero was self-employed as an advisor and private consultant. From January 1999 until December 2001, Mr. Nocchiero served as vice president and chief financial officer of BP Chemicals, the global petrochemical business of BP p.l.c. Prior to that, he spent twenty-four years with Amoco Corporation in various financial and management positions, including service as Amoco’s vice president and controller from April 1998 to January 1999. Mr. Nocchiero holds a B.S. degree in chemical engineering from Washington University in St. Louis and an M.B.A. degree from the Kellogg Graduate School of Management at Northwestern University. +Mr. Nocchiero has previous experience serving as a member of the Board of Directors of various public and private companies including Terra Nitrogen LP, Keytrade AG, Vysis Corporation and the Chicago Chamber of Commerce. He brings to the company broad technical knowledge in finance, oil and gas, and extensive experience with finance and M&A related transactions. +H. Clark Smith is the Chief Information Officer for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in March 2001, he had served as Manager – Information Technology since January 1990 and in other computer related positions with the Company and its predecessors since 1983. At Mississippi State University, he majored in Industrial Technology. During his tenure with the Company, he has received extensive technical and management training from the University of Southern Mississippi, International Business Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi Computing Consultants. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and served as Corporate Controller from 2004 to May 2007. Prior to being appointed Treasurer, he served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed by the Company and its predecessors since 1983. Prior to his employment with the Company, he was employed by International Paper Company as a plant controller. He received his B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. Prior to his retirement in December 2010, he served for over twenty-five years as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. In November 2004 he successfully completed the International Uniform Certified Public Accountant Qualification Examination and has received a CPA Certificate from the State of Illinois. Mr. Wallace also retired from the board of directors of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy. +Mr. Wallace has extensive financial and accounting experience in not only the oil and gas industry but in a number of other related industries as a result of his association with Fred. Olsen, Ltd. and various associated or related companies. He held senior management positions and was a member of Fred. Olsen’s board of directors for many years. The Company feels that Mr. Wallace has a unique perspective of the risks and rewards in the oil and gas industry. +B. F. Weatherly is an Executive Vice President and also serves as the Chief Financial Officer for the Company and Callon Petroleum Operating Company. Prior to joining the Company in November 2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was also a general partner of CapSource Fund, L.P., a Jackson, Mississippi investment fund, and held that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc. Mr. Weatherly has many years of executive management and financial management positions in energy related companies with emphasis on structuring and completion of many types of financial transactions. Additionally, serving as managing director of two investment funds provides insight into seeking financing alternatives for Callon. +6 +Richard O. Wilson retired in 2004 after working for over 50 years in offshore drilling and construction which included two years with Zapata Offshore and 21 years with Brown & Root, Inc. working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group Vice President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Mr. Wilson has over 50 years of experience directly related to the domestic and world-wide oil and gas exploration and production efforts. His managerial and executive-level experience provides a strong base to help guide the Company in its analysis of current and future operational aspects. +Stephen F. Woodcock is the Vice President of Exploration for the Company and Callon Petroleum Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics since his initial employment by the Company and Callon Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s degree in geophysics from Oregon State University in 1975. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +The Board of Directors and Governance Matters +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, our business and affairs are managed under the direction of the Board of Directors. The Board of Directors generally meets on a quarterly basis to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board of Directors may also hold special meetings, execute unanimous written consents, and participate in telephone conference calls when an important matter requires Board action. +During 2010, the Board of Directors of the Company met formally six times and executed six unanimous written consents. All of the Company’s directors attended all of the board meetings. In addition, to promote open discussion, the non-management directors meet in executive (private) sessions without management following each quarterly board meeting. The chairperson of such executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, at the first executive session held in each fiscal year, the independent directors select a different independent director to serve as the chairperson for all executive sessions held during that fiscal year. L. Richard Flury, chairman of the Compensation Committee, presided over all executive sessions during 2010. +In order to facilitate the various functions of the Board of Directors, the Board of Directors has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Strategic Planning Committee. These committees are more fully described in the following pages. +Director Independence. It is the policy of the Board of Directors that a majority of the members of the Board be independent of the Company’s management. The Company’s Corporate Governance Principles contain the following guidelines to assist the Board in determining director independence in accordance with the applicable NYSE and SEC rules: +· +No director who is an employee or former employee of the Company, or whose immediate family member is an executive officer or former executive officer of the Company, shall be considered “independent” until three years after such employment has ended; +· +No director who is receiving, or in the last three years has received, or whose immediate family member is receiving, or in the last three years has received, more than $120,000 per year in direct compensation from the Company, other than fees received in such director’s capacity as a member of the Board or any Board committee and pension payments or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) shall be considered “independent.” Compensation received by an immediate family member for service as a non-executive employee of the Company need not be considered in determining independence; +7 +· +No director who is, or in the past three years has been, affiliated with or employed by, or whose immediate family member is, or in the past three years has been, affiliated with or employed in a professional capacity by, a present or former internal auditor or independent auditing firm of the Company shall be considered “independent”; +· +No director who is, or in the past three years has been, employed as, or whose immediate family member is, or in the past three years has been, employed as, an executive officer by any company for which any executive officer of the Company serves as a member of its compensation committee (or, in the absence of a compensation committee, the board committee performing equivalent functions, or, in the absence of such committee, the Board of Directors) shall be considered “independent”; +· +No director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s consolidated gross revenue shall be considered “independent” until three years after such payments fall below such threshold; and +· +An "immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home. When applying the three-year look-back provisions, it does not include individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and Wilson do not have any material relationships with the Company that may interfere with the exercise of their independence from management and the Company and are independent directors under applicable NYSE rules, SEC rules and in accordance with our Corporate Governance Principles. The Board of Directors has also determined that Mr. Nocchiero is independent under applicable NYSE rules, SEC rules and in accordance with our Corporate Governance Principles. +Corporate Governance Principles . The Company believes that good corporate governance is important to ensure that Callon is managed for the short- and long-term benefit of its shareholders. Available on the Company website, www.callon.com, under the section “Governance,” are copies of the Company’s: +· +Corporate Governance Principles; +· +Code of Business Conduct and Ethics; +· +Audit Committee Charter; +· +Compensation Committee Charter; +· +Nominating and Corporate Governance Committee Charter; +· +Strategic Planning Committee Charter; and +· +Members serving on each of the Board of Directors’ Committees. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s website. Copies of these documents are available in print, free of charge, to any shareholder upon request to the Company’s Corporate Secretary. +Company Leadership Structure +Fred L. Callon currently serves as President and Chief Executive Officer of the Company and also serves as Chairman of the Board of Directors. Mr. Callon is the son of one of the founders of the Company and has been involved in the oil and gas industry virtually all his professional career. In his capacity as Chairman, Mr. Callon has the following responsibilities: +· +Calls meetings of the Board; +· +Chairs meetings of the Board and the Annual Shareholders’ Meeting; +· +Establishes Board meeting schedules and agendas; +· +Ensures that information provided to the Board is timely, complete, and accurate; +· +Communicates with all directors on key issues and concerns outside of Board meetings; and +· +Represents the Company to and interacts with external shareholders and employees. +8 +The Board of Directors believes that having Mr. Callon serve as both the Chief Executive Officer and the Chairman of the Board of Directors is a benefit to the overall success and growth of the Company. Since he manages the day-to-day operations, he has a unique perspective on the Company’s technical and financial strengths and is best positioned to chair Board meetings where key business issues and corporate strategies are discussed on a routine basis. The Board does not have an independent lead director. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and expectations. The Code, which applies to every director, officer and employee, addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Code meets the NYSE’s requirements for a code of business conduct and ethics as well as the SEC’s definition of a code of ethics applicable to the Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted a waiver of the Code. +Communication with the Board of Directors. In order to provide the Company's shareholders and other interested parties with a direct and open line of communication to the Board of Directors, the Board of Directors has adopted procedures for communications to directors. Callon shareholders and other interested persons may communicate with the Chairman of the Company's Audit Committee, or with the non-management directors of the Company as a group, by written communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by senior management of the Company. Senior management will relay all such communications to the appropriate director or directors unless it is determined that the communication: +· +does not relate to the business or affairs of the Company or the functioning or constitution of the Board of Directors or any of its committees; +· +relates to routine or insignificant matters that do not warrant the attention of the Board of Directors; +· +is an advertisement or other commercial solicitation or communication; +· +is frivolous or offensive; or +· +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate. Any such response will be made only in accordance with applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these procedures for a period of at least one year. The Board of Directors will review the effectiveness of these procedures from time to time and, if appropriate, recommend changes. As of the record date, no such communications have been received. +Attendance at 2011 Annual Meeting of Shareholders. It is the policy of the Board that, to the extent possible, all directors attend the 2011 Annual Meeting of Shareholders. All then current directors attended the 2010 Annual Meeting of Shareholders. +Oversight of Risk Management +The Company is exposed to a number of risks and undertakes enterprise risk management reviews to identify and evaluate these risks and to develop plans to manage them effectively. The Company’s executive officers are directly responsible for the Company’s enterprise risk management function and report to the Board of Directors. Although not inclusive, a list of items considered generally includes: +· +accurate and complete financial reporting; +· +rules and regulations of the NYSE; +· +environmental and safety issues; +· +safeguarding of Company assets; +· +adequacy of insurance protection; +· +compliance with all credit facility covenants; and +· +employee relations issues. +9 +The Board of Directors plays a key role in the oversight of the Company’s enterprise risk management function. Using their collective skills and experience, they consider information provided by management and provide feedback and make recommendations, if needed, to try to help minimize risk to the Company’s current and future value. +In addition, our Audit Committee considers our practices regarding risk assessment and risk management, reviews our contingent liabilities, reviews our oil and natural gas reserve estimation practices, as well as major legislative and regulatory developments that could affect us. Our Audit Committee also oversees our Code of Business Conduct and Ethics, and responses to any alleged violations of our policies made by whistleblowers. Our Compensation Committee reviews and attempts to mitigate risks which may result from our compensation policies, including working directly with senior management to determine whether such programs improperly encourage management to take risks relating to the business and/or whether risks arising from our compensation programs are likely to have a material adverse effect on the Company. Our Strategic Planning Committee organizes and oversees the Board’s participation in the risk assessment and management process as it relates to the Company’s strategic plan. +The Board also believes that the Board’s role of oversight of risk management is facilitated by the Company’s leadership structure. By combining the positions of Chairman of the Board and Chief Executive Officer, the Board gains a valuable perspective that combines the operational expertise of a member of management with the oversight focus of a member of the Board. Our Board of Directors believes that this division of risk management related roles among the Company’s independent directors fosters an atmosphere of significant involvement in the oversight of risk and that this shared oversight is appropriate for the Company. +Committees of the Board of Directors +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas of financial reporting and accounting integrity. The Audit Committee reviews the accounting and auditing procedures and financial reporting practices of the Company and is responsible for the engagement of and overseeing all audit work conducted by the Company’s independent registered public accounting firm. The Audit Committee is governed by a charter that has been approved by the Board of Directors. The Audit Committee meets periodically with the Company’s management, internal auditor and its independent registered public accounting firm to review the Company’s financial information and systems of internal controls and ensures such parties are properly discharging their responsibilities. The independent registered public accounting firm reports directly to the Audit Committee and annually meets with the Audit Committee without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom satisfy the independence requirements for audit committee members under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are “independent” and “financially literate” as defined by NYSE rules. Members of the Audit Committee may not simultaneously serve on the audit committee of more than two other public companies. The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and Wilson. Mr. Wilson will not stand for re-election at the Annual Meeting. Accordingly, the Nominating and Corporate Governance Committee has nominated Mr. Nocchiero for election to the Board, and we expect that if elected, Mr. Nocchiero will serve on our Audit Committee. Additionally, the Board of Directors has determined that Mr. Wallace has the accounting or financial management expertise to be considered a “financial expert” as defined and required by the NYSE rules and by the Exchange Act. +The Audit Committee held five meetings and did not execute any unanimous written consents during 2010. All members of the Audit Committee attended all the meetings. The Audit Committee’s report on its activities during 2010 appears later in this proxy statement under the caption “Audit Committee Report.” +10 +Relationship with Independent Registered Public Accounting Firm. Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public accounting firm, served as the Company’s independent registered public accounting firm during 2009 and 2010 and was appointed by the Audit Committee to serve in that capacity for 2011. +Audit Fees. Fees billed for professional services rendered by Ernst & Young LLP for the annual audit and quarterly reviews and for registration statements and other regulatory filings (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $538,397 and $447,000, including out-of-pocket expenses, for the years ended December 31, 2009 and 2010, respectively. The 2009 audit fees have been restated to include an additional $144,500 which was billed subsequent to the filing of the Company’s 2009 Proxy Statement. +Audit-related Fees . There were no audit-related fees paid in 2009 or 2010. +Tax Fees. Fees billed for professional services rendered by Ernest & Young LLP for the review of the federal tax return, tax advice and tax planning for 2009 and 2010 totaled $18,600 and $14,200, respectively. +All Other Fees. There were no other fees paid to the Company’s independent registered public accounting firm in 2009 or 2010. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee pre-approves all audit services and non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of any such member to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s audited financial statements at, and for the year ended, December 31, 2010 with management and the Company’s independent registered public accounting firm and recommended to the Company’s Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. This recommendation was based on: +· +the Audit Committee’s review of the audited financial statements; +· +discussion of the financial statements with management; +· +discussion with the Company’s independent registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by SAS 61; +· +receipt from Ernst &Young LLP of the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); +· +discussions with Ernst & Young LLP regarding its independence from the Company and its management; +· +Ernst & Young LLP’s confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries and the results of their operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America; and +· +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Richard O. Wilson +11 +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation program designed to optimize the opportunity for the Company to achieve its operating objectives and performance goals while properly blending it with the short- and long-term interests of the Company’s shareholders. The Committee annually reviews market and industry data to assess the Company’s competitive position with respect to each element of total compensation and to ensure the attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In addition to the determination of annual base salaries, the Committee is responsible for determining and recommending variable annual cash bonuses and equity awards payable in the form of cash and/or common stock. The Committee maintains authority over the Company’s stock incentive plans from which either stock options, restricted stock, restricted stock units, or performance shares can be awarded as part of the total annual compensation package. Currently the variable portion of the annual compensation package is based on certain performance related criteria of the Company for which the Committee is responsible for establishing and approving. In addition to the above, the Committee has the following duties and responsibilities: +· +review, recommend, and discuss with management the compensation discussion and analysis section included in the Company’s annual proxy statement; and +· +prepare an annual report on executive compensation for inclusion in the Company’s proxy statement for each Annual Meeting of Shareholders. +Consistent with the listing requirements of the NYSE, the Compensation Committee is composed entirely of independent members of our Board of Directors. Each member meets the independence requirements set by the New York Stock Exchange and applicable federal securities laws. Current members are Messrs. Flury (chairman), McVay, Wallace and Wilson. Mr. Wilson will not stand for re-election at the Annual Meeting. Accordingly, the Nominating and Corporate Governance Committee has nominated Mr. Nocchiero for election to the Board, and we expect that if elected, Mr. Nocchiero will serve on our Compensation Committee. +The Compensation Committee held four meetings and executed three unanimous written consents during 2010. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. The members of the Company’s Compensation Committee are Messrs. Flury (Chairman), McVay, Wallace and Wilson, none of whom are or have been officers or employees of the Company or any of its subsidiaries. No executive officer of the Company served as a member of the Board of Directors or compensation committee (or other Board committee performing similar functions or, in the absence of any such committee, the entire Board of Directors) of another corporation, one of whose executive officers served on our Compensation Committee or as our director. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +· +identify and recommend to the Board individuals qualified to be nominated for election to the Board; +· +recommend to the Board the members and chairperson for each Board committee; +· +periodically review and assess the Company’s Corporate Governance Principles and the Company’s Code of Business Conduct and Ethics and make recommendations for changes thereto to the Board; +· +oversee the annual self-evaluation of the performance of the Board and the annual evaluation of the Company’s management; and +· +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws. Current members are Messrs. Wilson (Chairman), Flury, McVay, and Wallace. The Nominating and Corporate Governance Committee held one meeting and executed one unanimous written consent during 2010. Prior to the formation of this Committee, the entire Board of Directors performed these functions. +Mr. Wilson will not stand for re-election. The Nominating and Corporate Governance Committee has nominated Mr. Nocchiero for election to the Board, and we expect that if elected, Mr. Nocchiero will serve on our Nominating and Corporate Governance Committee and that Mr. Nocchiero will serve as Chairman. +Director Identification and Selection. The Nominating and Corporate Governance Committee has established certain criteria it considers as guidelines in considering nominations to the Company’s Board of Directors. The criteria include: +· +personal characteristics, including such matters as integrity, age, education, diversity of background and experience, absence of potential conflicts of interest with the Company or its operations, and the availability and willingness to devote sufficient time to the duties of a director of the Company; +· +experience in corporate management, such as serving as an officer or former officer of a publicly held company; +· +experience in the Company’s industry and with relevant social policy concerns; +· +experience as a board member of another publicly held company; +· +academic expertise in an area of the Company’s operations; and +· +practical and mature business judgment. +12 +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the Board of Directors may consider other qualifications and attributes which they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board of Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of Directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. In order to ensure that the Board consists of members with a variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set any minimum qualifications and also considers candidates with appropriate non-business backgrounds. Other than ensuring that at least one member of the Board is a financial expert and a majority of the Board members meet all applicable independence requirements, the Committee does not have any specific skills that it believes are necessary for any individual director to possess. Instead, the Committee evaluates potential nominees based on the contribution such nominee’s background and skills could have upon the overall functioning of the Board. The Committee takes into account diversity in professional experience, skills and background, and diversity in race and gender, in considering individual director candidates. +In accordance with the Company’s by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery of written notice to the Company of such nomination, stating the name and address of the nominee and describing his qualifications. Such notice shall be sent by certified mail or delivered to the principal office of the Company to the attention of the Board of Directors, with a copy to the President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is best equipped to select nominees that will result in a well-qualified and well-rounded Board of Directors. In making its nominations, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue their service. Current members with qualifications and skills that are consistent with the Committee’s criteria for Board service are re-nominated. As to new candidates, the committee will generally poll the Board members and members of management for recommendations. The committee may also review the composition and qualification of the boards of directors of the Company’s competitors, and may seek input from industry experts or analysts. The committee reviews the qualifications, experience and background of the candidates. Final candidates are interviewed by the independent directors and executive management. In making its determinations, the committee evaluates each individual in the context of the Board as whole, with the objective of assembling a group that can best represent shareholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the committee makes its recommendation to the Board of Directors. The committee may in the future choose to engage third-party search firms in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate. Any search firm retained to assist the Committee in seeking candidates for the Board will affirmatively be instructed to seek to include diverse candidates from traditional and nontraditional candidate groups. +Strategic Planning Committee Functions and Responsibilities +The Strategic Planning Committee was created to oversee the responsibilities of the Board relating to planning and finance, including: to organize and oversee the Board’s participation in the development of a strategic plan and the risk assessment and management process; to follow the progress in the implementation of the strategic plan and to advise the Board if additional Board action appears to be needed to assure successful implementation of the plan or if a need exists to revise the plan in the face of changing conditions or other factors; and to assure that management is addressing the personnel requirements for the successful implementation of the strategic plan. The committee will consist of no fewer than three members of the Board. The Chair and a majority of the committee members shall meet the independence requirements of the NYSE and such other rules and regulations as may be applicable. Current members of the Strategic Planning Committee are Larry D. McVay (chairman), L. Richard Flury, John C. Wallace, and Richard O. Wilson. We expect that if elected, Mr. Nocchiero will replace Mr. Wilson, who is not standing for election, on our Strategic Planning Committee subsequent to the 2011Annual Meeting. +13 +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the March 16, 2011, certain information with respect to the ownership of shares of common stock held by (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the nominees for director, (iv) each of the executive officers named in the Summary Compensation Table, and (v) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of common stock has been obtained from filings made by the named beneficial owners with the SEC as of the record date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +207,829(b) +* +L. Richard Flury +96,250(c) +* +Larry D. McVay +72,500(d) +* +John C. Wallace +-- (e) +* +B. F. Weatherly +111,343(f) +* +Richard O. Wilson +211,020(g) +* +Named Executive Officers: +* +Steven B. Hinchman +-- (h) +* +Gary A. Newberry +40,465(i) +* +Rodger W. Smith. +42,509(j) +* +Stephen F. Woodcock +63,489(k) +* +Nominee: +Anthony J. Nocchiero +-- (l) +* +Directors and Executive Officers: +As a Group (12 persons) +1,011,140(m) +2.57% +Certain Beneficial Owners: +Franklin Resources, Inc. +5,436,818 (n) +13.90% +One Franklin Parkway +San Mateo, CA 94403 +* Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power unless such award will vest within sixty days of March 16, 2011. Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of common stock beneficially owned by such holder or class of holders plus the total number of shares of common stock underlying options exercisable or stock awards vesting within sixty days of March 16, 2011, by (ii) the total number of shares of common stock outstanding plus the total number of shares of common stock underlying options exercisable and stock awards vesting within sixty days of March16, 2011, but not common stock underlying such securities held by any other person. +b) +Of the 207,829 shares beneficially owned by Fred L. Callon, 68,248 shares are owned directly by him; 92,170 shares are held by him as custodian for certain minor Callon family members; 16,036 shares are owned within the Company’s Employee Savings and Protection Plan; and 31,375 shares are subject to options under the 1996 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of common stock owned by his wife over whom he disclaims beneficial ownership and 23,000 shares of unvested restricted stock and 387,500 restricted stock units, of which 206,250 units are payable in stock and 181,250 units are payable in cash. +c) +Of the 96,250 shares beneficially owned by L. Richard Flury, 56,250 shares are owned directly by him; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days; and 30,000 shares of unvested restricted stock which will vest within sixty days of March 16, 2011. +14 +d) +Of the 72,500 shares beneficially owned by Larry D. McVay, 42,500 shares are owned directly by him and 30,000 shares of unvested restricted stock which will vest within sixty days of March 16, 2011. +e) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +f) +Of the 111,343 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; 32,529 shares are owned within the Company’s Employee Savings and Protection Plan; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Weatherly do not include 15,000 shares of unvested restricted stock and 202,500 restricted stock units, of which 129,625 units are payable in stock and 72,875 units are payable in cash. +g) +Of the 211,020 shares beneficially owned by Richard O. Wilson, 144,201 shares are held in a family limited partnership; 6,819 shares are held in a Trust account; 5,000 shares are subject to options under the 1994 Plan, exercisable within 60 days; 15,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; 10,000 shares are subject to options under the 2002 Plan, exercisable within 60 days; and 30,000 shares of unvested restricted stock which will vest within sixty days of March 16, 2011. +h) +Steven B. Hinchman retired from the Company in October 2010 and is no longer required to report his beneficial ownership to the Company. +i) +Of the 40,465 shares beneficially owned by Gary A. Newberry, 36,027 shares are owned directly by him and 4,438 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Newberry do not include 100,000 shares of unvested restricted stock units, of which 85,000 units are payable in stock and 15,000 units are payable in cash. +j) +Of the 42,509 shares beneficially owned by Rodger W. Smith, 20,218 shares are owned directly by him; and 22,291 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Smith do not include 6,000 shares of unvested restricted stock and 111,000 restricted stock units, of which 68,850 units are payable in stock and 42,150 units are payable in cash. +k) +Of the 63,489 shares beneficially owned by Stephen F. Woodcock, 29,543 shares are owned directly by him; 12,196 shares are owned within the Company’s Employee Savings and Protection Plan; and 21,750 shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Woodcock do not include 8,000 shares of unvested restricted stock and 140,500 restricted stock units, of which 87,550 units are payable in stock and 52,950 units are payable in cash. +l) +As of the record date, Mr. Nocchiero is not required to report his beneficial ownership in the Company. +m) +Includes 5,000 shares subject to options under the 1994 Plan, exercisable within 60 days; 56,375 shares subject to options under the 1996 Plan, exercisable within 60 days; 55,800 shares subject to options under the 2002 Plan, exercisable within 60 days; 90,000 shares of unvested restricted stock which will vest within sixty days of March 16, 2011; and 176,081 shares are owned within the Company’s Employee Savings and Protection Plan. +n) +Information is based upon a Schedule 13G filed with the SEC on February 8, 2011 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G, Franklin represents that it has sole voting power with respect to 5,328,065 shares of common stock and sole dispositive power with respect to 5,436,818 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control” as defined in the applicable plan. +15 +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by the SEC’s regulations to furnish the Company and the NYSE copies of all Section 16(a) forms they file with the SEC. +Based solely on review of the copies of such reports furnished to the Company during, or with respect to, the fiscal year ended December 31, 2010, and written representations from all of the Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, directors and greater than ten percent shareholders have complied with all Section 16(a) filing requirements for the year ended December 31, 2010. +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +Compensation Discussion and Analysis +of Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee of our Board of Directors oversees our compensation programs. The primary function of the Committee is to assist our Board of Directors in the discharge of its fiduciary responsibilities relating to compensation of our Chief Executive Officer and other executives. From time to time the Committee has retained a compensation consultant to assess the effectiveness of the Company’s compensation programs. +For the period January 2010 through September 2010, the Compensation Committee retained the services of a consultant employed by Hewitt Associates LLC. In October 2010, the consultant joined Meridian Compensation Partners LLC and continued to evaluate and make recommendations concerning Callon’s compensation practices and procedures. This included both the form and amount of compensation paid to the executive officers. The Compensation Committee considered the advice of the consultant as only one factor among the other items discussed in this compensation discussion and analysis. +While the consultant interacts with the Company’s executive officers in order to complete its assignments and prepare its reports, the consultant reports directly to the Compensation Committee. Neither Hewitt nor Meridian has provided any services to us other than advice and recommendations with respect to the determination of the amount and form of executive and director compensation at the request of the Committee. +The Compensation Committee has established procedures that it considers adequate to ensure that the compensation consultant’s advice to the committee remains objective and is not influenced by our management. With the consent of the Compensation Committee chair, the independent compensation consultant may, from time to time, contact our executive officers for information necessary to complete its assignments and may make reports and presentations to and on behalf of the committee that the executive officers may also receive. +Compensation Risks +The Compensation Committee, with assistance of its independent compensation consultant, extensively reviewed the elements of executive compensation during 2010 to determine whether any portion of executive compensation encouraged excessive risk taking. Management of the Company conducted a similar risk assessment with respect to other employees. Management and the Compensation Committee do not believe that risks arising from our compensation policies and practices for our executive officers and other employees present risks that are reasonably likely to have a material adverse effect on the Company. In addition, we believe that the mix and design of the elements of compensation do not encourage management to assume excessive risks. +16 +Compensation Program Philosophy and Objectives +Our business strategy is to increase shareholder value by increasing reserves and production levels, increasing reserve life and predictability of production, diversifying risk and strengthening our balance sheet. Our compensation program is designed to attract, retain, and motivate employees in order to effectively implement our strategy. Our compensation program has four objectives: +· +To attract, retain and motivate qualified executives whose performance is key to the successful execution of our business strategy and the achievement of our short- and long-term corporate goals; +· +To create a “pay for performance” oriented environment that rewards significant contributions to our short- and long-term strategic goals; +· +To provide an executive compensation structure that is internally equitable based upon the level of responsibility of our executives; and +· +To align the interests of our executive officers with those of our shareholders. +Use of Market Data +In order to assist in the determination of compensation, the consultant provides the Compensation Committee with market data from a group of peer companies in the industry that are similar in size and operations to Callon. The peer group is adjusted each year based on changes in the industry and changes in Callon’s operations. The Committee looks at Callon’s size from an asset standpoint relative to the peer companies to help frame appropriate levels of compensation as a reference point for decision-making. Our management and Compensation Committee use the information regarding peer companies to confirm their compensation decisions for reasonableness. We do not target a specific percentile of our peer group, and the market data is one of several factors considered by the Committee in determining compensation. +The table below indicates the Peer Companies (“Peer Companies”) which were used for compensation decisions during 2010. +Peer Companies +ATP Oil and Gas Corp. +Brigham Exploration Company +Carrizo Oil & Gas, Inc. +Goodrich Petroleum Corporation +Mariner Energy Inc. +McMoran Exploration Company +Parallel Petroleum Corporation +Petroquest Energy Inc. +Stone Energy Co. +Swift Energy Company +Elements of Compensation +The Committee believes that the compensation environment for qualified executives in the domestic oil and gas industry is highly competitive. In order to compete in this environment, our executive officers’ compensation has the following components: +Component +Purpose +Philosophy Statement +Base Salary +· Pay for expertise and experience +· Attract and retain +· Provide stable compensation level +· In the aggregate, targeted at an appropriate level against the peers given relative size +· Reflective of individual experience and expertise +Annual Cash Reward and Incentive Compensation +· Motivate superior operational and financial performance +· Provide annual recognition of performance +· In the aggregate, bonus opportunities targeted at an appropriate level against the peers given relative size +· Reflective of internal equity considerations +· Goals aligned with annual strategic objectives of the Company +· Modest or no payout for performance below expectations and potential for significantly increased payout for exceptional performance +· Provide balance in compensation programs and avoid encouraging undue risk-taking +Long-Term Equity Incentives +· Directly align employees with shareholders +· Create significant retention hook +· Match competitive practices to attract and retain employees +· Ultimate value delivered influenced by the Company’s return to shareholders as compared against peer companies +· Appropriate opportunities based on a review of multiple reference points: +¾ Industry peer grant values +¾ Historical grant practices +¾ Internal relative positioning +¾ Provide balance in compensation programs and avoid encouraging undue risk-taking +Retirement and Health/Welfare Benefits +· Provide financial security +· Help ensure a financial safety net +· Match competitive practices +· Programs generally consistent, regardless of level, across the organization +· Benefit levels competitive with peer companies +Severance Protection +· Match competitive practices to attract and retain employees +· For change in control protection, help ensure executives consider all possible transactions to increase shareholder value +· Benefit levels based on peer group practices with consideration to shareholder value +How We Determine Each Element of Compensation. +Base Salaries . At a regularly scheduled meeting, generally in March of each year, the Committee uses the market data supplied by the consultant to compare the current annual base salaries of the executive officers to current base salaries for similar executive positions at peer companies. In addition to the market data, the Committee also considers various factors such as each executive’s motivation level, leadership ability, overall knowledge and experience in his particular segment of our business, the competitive compensation environment for such individual, the financial strength of the Company, that person’s unique skills and his or her expected future contribution to the success of our Company. The Committee feels that if these qualities are rewarded, the executives will be motivated to achieve our corporate goals and successfully implement our business strategies. Upon review of these various factors, the Committee made no changes to existing executive officer salaries during 2010 except as noted below. +The Committee authorized the hiring of Gary A. Newberry in April 2010 as the Vice President of Production and Development. In accordance with the terms of his employment, Mr. Newberry’s initial base salary was $320,000 per year. Mr. Newberry was promoted to the position of Senior Vice President, Operations in late September 2010. Upon his promotion, he received an increase in annual base salary to $350,000 per year. +17 +Annual Cash Reward and Incentive Compensation . Executive officers, senior management and other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a cash bonus. As with base salary, the Committee looks at Callon’s size from a revenue standpoint relative to the peer companies as a reference point for determining the reasonableness of targeted bonus opportunities. For 2010, the Committee set the initial bonus targets for the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and Senior Vice President – Operations at 100%, 90%, 75%, and 75% of base salary, respectively. The other named executive officers were eligible for a bonus targeted at 50% to 60% of base salary. Mr. Hinchman’s bonus target was set at his time of hire based on an analysis of market data and as part of the negotiation process to bring Mr. Hinchman aboard. Mr. Hinchman resigned from the Company effective October 1, 2010 and therefore, the Compensation Committee determined that he did not make a significant contribution to the overall bonus goals set for the year. He was not considered for a current-year cash bonus. +Each year, following the Board of Directors’ approval of the annual operating budget and financial forecast for the next year, the Compensation Committee also sets performance related cash bonus guidelines for the next year. These guidelines are used as a reference point and no specific formula or weighting is considered. The Compensation Committee desired to set reasonable bonus guidelines for 2010 which would encourage management, promote growth of the Company and foster added shareholder value. These goals centered around the following: +· +successful execution of the Company’s budgeted development drilling plan in the Wolfberry and Haynesville acreage; +· +increasing the Company’s overall net acreage position and identifying additional drilling opportunities; and +· +improving certain financial related results. +After the end of the performance period, the Committee meets to evaluate the extent to which the guidelines were met. In addition, the Committee may also consider how unexpected events affecting the Company may impact the bonus attainment percentage. Also, our Committee encourages our executives to pursue long-term goals, even if these long-term goals may result in a reduction in our near-term performance. Accordingly, after determining the overall bonus attainment percentage, the Committee reserves the right to adjust an individual’s bonus amount based on individual achievements and contributions to the Company. +At the March 2011 Compensation Committee meeting, the Committee subjectively evaluated the Company’s overall performance against the guidelines set for 2010 and determined that each named goal was reached or exceeded. The Company drilled more wells in the Wolfberry than originally budgeted; additional acreage was acquired which resulted in additions to the drilling inventory; and the Company gained financial stability by improving the Company’s common stock price, increased cash flow and reduced debt. In addition, the Committee noted that the Company had significant growth in reserves and considered the foundation provided in 2010 for a potential equity offering in 2011. +The Committee concluded that in the aggregate, overall Company performance for the year met or exceeded its expectations and wanted to also recognize significant effort on behalf of certain members of the management team during the year to achieve this performance. The Committee awarded cash bonuses to the named executive officers and, using its discretion, the Committee awarded higher than target bonus awards for a limited number of management employees including the Chief Executive Officer. +Fred Callon was specifically recognized for his leadership ability to transition the Company from a mainly offshore company to a more balanced company with both offshore and onshore production. He was also instrumental in the restructuring of the Company’s senior notes and laying the foundation for an equity offering in 2011, in addition to the general success of the Company in 2010. The other named executive officers were awarded cash bonuses for their efforts in 2010 based on their contributions in the following areas: +· +successful execution of the Company’s budgeted development drilling plan in the Wolfberry and Haynesville acreage; +· +improving the financial strength of the Company by negotiating and implementing a new credit facility; +· +preparations made in 2010 for a potential common stock offering, which was completed in 2011; and +· +the operational success of the Company, including acreage acquisitions which resulted in increased drilling locations. +18 +Long-term Equity Incentives . The Compensation Committee administers our long-term incentive plans and performs functions that include selecting award recipients, determining the timing of grants and assigning the number of shares awarded, fixing the time and manner in which awards are exercisable, setting option exercise prices and vesting and expiration dates, and from time to time adopting rules and regulations for our plans. For the grant of equity compensation to executive officers, our Compensation Committee will typically consider information provided by the consultant and our Chief Executive Officer, related to the overall competitive environment associated with long-term compensation. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. However, our Committee does follow a policy of not granting equity incentives when material non-public information exists that may affect the short-term price of our stock. +The Committee considered information provided by the consultant, the long-term incentive practices of the peer group, and the Company’s financial situation and share availability and determined in May 2010 to grant long-term incentives to the executive officers. The grants consisted of restricted stock units and phantom shares as detailed below: +Officer +Restricted Stock Units (Time-based vesting) +Phantom Shares (Time-based Vesting) +Target Phantom Shares (Performance-based Vesting) +F. Callon +106,250 +18,750 +62,500 +B. Weatherly +85,000 +15,000 +50,000 +S. Hinchman +85,000 +15,000 +50,000 +G. Newberry +-- +-- +-- +S. Woodcock +63,750 +11,250 +37,500 +R. Smith +51,000 +9,000 +30,000 +The time-based awards generally vest at the end of three years. The performance-based phantom shares vest at the end of three years and are subject to an adjustment based on the Company’s shareholder return performance measured against a group of peer companies as follows: +Callon’s Shareholder Return Rank +Phantom Shares Vesting as a Percentage of Target +1 or 2 +150% +3 or 4 +125% +5 or 6 +100% +7 or 8 +50% +9, 10, or 11 +0% +At the end of the vesting period, the earned awards will be provided to the participant without any additional holding period. +Mr. Newberry was promoted to the position of Senior Vice President, Operations in late September 2010. Upon his promotion, he was granted 100,000 restricted stock units to cliff vest on May 7, 2013. +On September 22, 2010, Mr. Hinchman submitted his resignation to the Company effective October 1, 2010. Upon his resignation, one-third of his outstanding stock options vested and he exercised his right to purchase stock. The remaining 333,333 unvested stock options and the 200,000 restricted stock units he held were deemed forfeited. +Information concerning all unvested performance shares and outstanding options held by our named executive officers is contained in the "Outstanding Equity Awards at December 31, 2010" table. +19 +Retirement and Health/Welfare Benefits . We provide certain benefits that we believe are standard in the industry to all of our employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents, group life insurance for employees and their spouses, accidental death and dismemberment coverage for employees, long-term disability, a Company sponsored cafeteria plan and a 401(k) employee savings and protection plan. The costs of these benefits are paid entirely by the Company. Employee life insurance amounts surpassing the Internal Revenue Service maximum are treated as additional compensation to all employees. The Company’s 401(k) contribution to each qualified participant, including the named executive officers, is calculated based on 5% of the employee’s eligible salary, excluding overtime pay and annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, including amounts deferred by named executive officers, up to a maximum of 5% of eligible compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not otherwise available to all of our employees. We provide our Chief Executive Officer, Chief Financial Officer and other executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service’s annual lease value method for personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s payment of a term life insurance policy for which Mr. Callon is the sole beneficiary and which the Company has no economic interest in the proceeds. The costs associated with these benefits for the named executive officers are reported as “Other Compensation” in the Summary Compensation Table. The Committee feels these perquisites are common to the oil and gas industry and the value of such benefits is considered in determining total compensation of our executives. +Severance Protection. Callon has not entered into any employment agreements with our executive officers. To align with market practices and in order to ensure all named executive officers are motivated to consider any transaction that would increase shareholder value, each of our named executive officers (with the exception of Gary A. Newberry) has a change-in-control severance compensation agreement. These agreements match competitive practices and are all similar in structure except that Mr. Callon’s benefit levels are higher to reflect his position as the CEO of the Company. Additionally, these agreements also include non-competition, non-solicitation and nondisclosure provisions, in addition to “claw back” provisions that apply in the event of any of these provisions are violated by the executive in order to protect the Company in the event the benefits are triggered. Effective January 2011, the Company eliminated the excise tax gross-up provisions attributable to excess parachute payments in each of these contracts to align with evolving governance practices, and replaced such gross-up provisions with a “net best” provision. Despite competitive market practices to the contrary, the Committee chose not to provide guaranteed severance benefits outside of a change-in-control. In the event of a termination of employment outside of a change-in-control, the Committee will consider the circumstances of each case separately. +Internal Revenue Service Limitations . When establishing our compensation programs, we consider all relevant tax laws. Our programs are designed to comply with Section 409A of the tax code, which applies to nonqualified deferred compensation, in order to prevent negative tax consequences for our executives. Under Section 162(m) of the Internal Revenue Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. However, the Committee reserves the right to use its judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate and in the best interest of the shareholders, after taking into consideration changing business conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities. During 2009, the Company did not have any employees who exceeded the non-performance based compensation limit established by Internal Revenue Code Section 162(m). During 2010, the non-performance based compensation attributable to Fred L. Callon exceeded the limit established by Internal Revenue Code Section 162(m) in the amount of $197,199. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and members of our Board of Directors are prevented from buying or selling Company stock during periodic “trading blackout” periods. A trading blackout period is placed in effect by senior management when material non-public information about the Company may exist and may have an influence on the marketplace. +Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors adopted a stock ownership policy which applies to the Chief Executive Officer and the other named executive officers. The provisions of the policy provide for the investment position, computed on December 31 of each year, of the Chief Executive Officer to be no less than three times his or her base salary. For other named executive officers, the investment position shall be no less than two times base salary. Investment position is defined as calculated value of shares owned, shares owned indirectly, equivalent shares invested in the officer’s 401(k) plan, and unvested portion of time-based vesting of performance or restricted shares. Value attributable to shares represented by both vested and unvested stock options and the value of unvested performance-based vesting of performance or restricted shares are excluded. Each officer has a period of five years from the date of adoption to attain the required investment position. If a named officer becomes subject to a greater investment position due to a promotion or an increase in salary, he or she will be expected to attain the increased investment position within three years of the change. During 2010, the requirement for the Chief Executive Officer was increased to six times his or her base salary to better reflect evolving governance standards. +The Compensation Committee reserves the right to approve an alternate stock ownership guideline for named officers who can demonstrate a severe hardship in meeting the general guidelines. +20 +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides that the Company shall not enter into a related party transaction unless such transaction is approved by the Audit Committee after a review of the transaction by the Audit Committee for potential conflicts of interest. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of interest with the Company may only be waived if the Nominating and Governance Committee approves the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging their duties. As of December 31, 2010, we are not aware of any related party transactions with our executive officers that may cause a conflict of interest with the Company. +Compensation Committee Report +We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions included in this proxy statement. Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in this proxy statement. +L. Richard Flury (Chairman) +Larry D. McVay +John C. Wallace +Richard O. Wilson +21 +The following table sets forth certain information with respect to the Chief Executive Officer and Chief Financial Officer of the Company and the three most highly compensated executive officers of the Company serving in such positions as of December 31, 2010. Pursuant to SEC rules, we have also included Steven B. Hinchman in the table even though he was no longer employed with us at year end. We sometimes refer to the officers listed below as the “named executive officers.” +Summary Compensation Table +All Other +Annual +Cash +Stock +Compen- +Salary +Bonus +Awards +sation +Total +Name and Principal Position +Year +($) +($) +($) +($)(11) +($) +Fred L. Callon +Chairman and Chief Executive Officer +2010 +464,520 +575,000 +(3) +944,063 +(5) +64,719 +2,048,302 +2009 +464,520 +696,780 +325,000 +(6) +61,213 +1,547,513 +2008 +464,520 +116,125 +937,020 +(7) +52,572 +1,570,237 +B. F. Weatherly +Executive Vice President and Chief Financial Officer +2010 +364,000 +420,000 +(3) +755,250 +(5) +47,524 +1,586,774 +2009 +364,000 +546,000 +85,313 +(6) +55,804 +1,051,117 +2008 +364,000 +68,250 +611,100 +(7) +43,520 +1,086,870 +Steven B. Hinchman +former Executive Vice President and Chief Operating Officer +2010 +322,500 +(1) +-- +755,250 +(5) +69,330 +1,147,080 +2009 +256,346 +387,000 +551,000 +(8) +22,110 +1,216,456 +Gary A. Newberry +Senior Vice President - Operations +2010 +250,077 +(2) +100,000 +(4) +273,000 +(9) +44,143 +1,117,220 +300,000 +(3) +375,000 +(10) +Stephen F. Woodcock +Vice President +2010 +286,000 +171,600 +(3) +566,438 +(5) +55,571 +1,079,609 +2009 +286,000 +171,600 +45,500 +(6) +45,376 +548,476 +2008 +286,000 +35,750 +325,920 +(7) +43,513 +691,183 +Rodger W. Smith +Vice President and Treasurer +2010 +218,400 +130,000 +(3) +453,150 +(5) +45,432 +846,982 +2009 +218,400 +196,560 +34,125 +(6) +48,372 +497,457 +2008 +218,400 +27,300 +244,440 +(7) +46,872 +537,012 +(1) +Mr. Hinchman joined the Company as Executive Vice President and Chief Operating Officer effective June 1, 2009 with an annual salary of $430,000 per year. Mr. Hinchman resigned from the Company effective October 1, 2010. +(2) +Mr. Newberry’s initial annual salary was $320,000. Upon his promotion in September 2010, his annual salary was increased to $350,000. +(3) +Cash bonus declared in March 2011 attributable for services performed during 2010. +(4) +Represents a sign-on bonus paid in April 2010 as an additional incentive for employment. +(5) +Represents the grant date fair value of the restricted stock units and phantom units granted to the named executive officers on May 7, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(6) +Represents the grant date fair value of the restricted stock units granted to the named executive officers on August 14, 2009 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnote 4 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 12, 2010. +(7) +Represents the grant date fair value of the time-based restricted stock and performance shares granted to the named executive officers on April 18, 2008 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnote 3 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 19, 2009. +(8) +Represents the grant date fair value of the time-based restricted stock and Performance shares granted to the named executive officer on June 1, 2009 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnote 4 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 12, 2010. +(9) +Represents the grant date fair value of the restricted stock units granted to the named executive officer on April 1, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(10) +Represents the grant date fair value of the restricted stock units granted to the named executive officer on September 22, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(11) +See table and related footnotes below. +22 +Table of All Other Compensation +Name +Year +Company +Contributed Cash to +401(k) +($) +Company +Contributed Common Stock to 401(k) +($)(1) +Company Provided Group Life Insurance +($) +Company Provided Auto +($)(2) +Company +Paid +Other +($) +Total +($) +Fred L. Callon +2010 +18,375 +6,125 +3,643 +21,887 +14,689 +(3) +64,719 +2009 +18,375 +6,126 +2,374 +22,838 +11,500 +(3) +61,213 +2008 +17,250 +6,286 +2,465 +15,071 +11,500 +(3) +52,572 +B. F. Weatherly +2010 +18,375 +6,125 +7,010 +16,014 +-- +47,524 +2009 +18,375 +6,124 +7,010 +15,047 +9,248 +(4) +55,804 +2008 +17,250 +5,906 +3,784 +16,580 +-- +43,520 +Steven B. Hinchman +2010 +18,375 +6,125 +982 +13,459 +30,389 +69,330 +2009 +6,125 +6,125 +786 +9,074 +-- +22,110 +Gary A. Newberry +2010 +18,375 +6,125 +1,846 +17,797 +-- +44,143 +Stephen F. Woodcock +2010 +18,375 +6,125 +2,374 +19,118 +9,579 +(4) +55,571 +2009 +18,375 +6,125 +2,374 +18,502 +-- +45,376 +2008 +17,250 +5,616 +2,465 +18,182 +-- +43,513 +Rodger W. Smith +2010 +16,380 +5,460 +3,643 +19,949 +-- +45,432 +2009 +16,380 +5,461 +3,643 +22,888 +-- +48,372 +2008 +16,920 +5,463 +2,465 +22,024 +-- +46,872 +(1) +Company contributions to each person’s 401(k) account consist of a basic contribution equal to five percent (5%) of eligible annual base salary (funded one-half in cash and one-half in equivalent-valued common stock) plus a matching amount (limited to five percent (5%) of eligible annual base salary if such employee individually contributed at least eight percent (8%) of their eligible annual base salary). The number of shares contributed is determined on a monthly basis by dividing one-half of the total basic cash contribution by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life plus insurance, fuel, maintenance and repairs. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which Mr. Callon is the sole beneficiary. +(4) +Represents taxable income associated with the purchase of a Company automobile at below estimated fair market value. +23 +Grant of Plan-Based Awards During 2010 +The following table presents grants of equity awards during the fiscal year ending December 31, 2010: +All Other +Grant +Estimated Future Payouts Under Equity Incentive Plan Awards (2) +Stock Awards: Number of +Date +Fair +Grant +Threshold +Target +Maximum +Shares of +Value +Name +Date +(#) +(#) +(#) +Stock or Units +($)(6) +Fred L. Callon +05/07/2010 +106,250(3) +534,969 +05/07/2010 +18,750(4) +94,406 +05/07/2010 +-- +62,500 +93,750 +314,688 +B. F. Weatherly +05/07/2010 +85,000(3) +427,975 +05/07/2010 +15,000(4) +75,525 +05/07/2010 +-- +50,000 +75,000 +251,750 +Steven B. Hinchman (1) +05/07/2010 +85,000(3) +427,975 +05/07/2010 +15,000(4) +75,525 +05/07/2010 +-- +50,000 +75,000 +251,750 +Gary A. Newberry +04/01/2010 +50,000(5) +273,000 +09/22/2010 +85,000(3) +318,750 +09/22/2010 +-- +15,000 +22,500 +56,250 +Stephen F. Woodcock +05/07/2010 +63,750(3) +320.981 +05/07/2010 +11,250(4) +56,644 +05/07/2010 +-- +37,500 +56,250 +188,813 +Rodger W. Smith +05/07/2010 +51,000(3) +256,785 +05/07/2010 +9,000(4) +45,315 +05/07/2010 +-- +30,000 +45,000 +151,050 +(1) +All shares awarded during 2010 were forfeited upon his resignation effective October 1, 2011. +(2) +Amount represents performance-based phantom stock units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on certain performance metrics when compared to Company identified peer companies. The adjusted performance-based shares will vest on December 31, 2012. +(3) +Amount represents restricted stock units vesting on May 7, 2013 and is payable in Company common stock on the vesting date. +(4) +Amount represents restricted stock units vesting on May 7, 2013 and is payable in cash based on the average of the opening and closing NYSE market price of the Common Stock on the date of payment. +(5) +Amount represents restricted stock units awarded as an inducement for employment. These units vested 100% on January 1, 2011. +(6) +This column shows the grant date fair value of the awards granted to the named executive officers on the date indicated computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +Stock-Based Incentive Compensation Plans +The Company currently maintains five common stock-based incentive plans for its officers, directors and employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, the 2006 Plan, and the 2009 Plan (collectively, the “Prior Plans”). If the 2011 Omnibus Incentive Plan is approved by the shareholders at the 2011 Annual Meeting, these Prior Plans will continue until all remaining awards are satisfied or expire. Any shares not reserved for future awards under the Prior Plans will be transferred to and available under the 2011 Omnibus Incentive Plan. Any and all shares that may become available for awards under the Prior Plans after the approval date will also be transferred to and available under the 2011 Omnibus Incentive Plan. Assuming shareholder approval of the 2011 Omnibus Incentive Plan, no future grants will be made under the Prior Plans. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan terminated effective July 14, 2004; therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the 1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, the shareholders of the Company approved an increase in the available number of shares of common stock reserved for issuance under the 1996 Plan to 2,200,000 shares. During 2010, the Company awarded 120,000 performance shares to non-employee members of the Board of Directors of the Company, 279,500 vested options expired, and 4,300 restricted shares were forfeited. As of March 16, 2011, there were 329,548 shares of common stock available for future grant under the 1996 Plan. +24 +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan under the provisions of the SEC rules and regulations at the time it was adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly based plan, the aggregate number of shares underlying awards granted to officers and directors cannot exceed 50% of the total number of shares underlying the awards granted to all employees during any three-year period. During 2010, the Company awarded 10,000 restricted stock units. Subsequent to December 31, 2010, 9,999 restricted stock units vested and 6,667 restricted stock units were forfeited due to an employee termination. As of March 16, 2011, there were 34,133 shares of common stock available for future grant under the 2002 Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the 2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders on May 4, 2006. Pursuant to the 2006 Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. During 2010, the Company did not grant any new awards, and 5,500 restricted stock units were forfeited. Subsequent to December 31, 2010, 64,000 restricted stock units were forfeited as a result of failing to meet specified performance criteria. As of March 16, 2011, there were 110,498 shares of common stock available for future grant under the 2006 Plan. +2009 Plan. The 2009 Plan was approved by the shareholders on April 30, 2009. Pursuant to the 2009 Plan, 1,250,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, restricted stock units, or performance shares or units. During 2010, the Company awarded 855,000 restricted stock units, and 90,000 vested options were forfeited. As of March 16, 2011, there were 313,175 shares of common stock available for future grant under the 2009 Plan. +The following information represents information concerning our equity compensation plans as of December 31, 2010: +Plan +Number of securities to be issued upon exercise of outstanding options +(#) (a) +Weighted Average exercise price of outstanding options +($) (b) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in columns (a) +1994 Plan (1) +10,000 +12.40 +-- +1996 Plan (1) +101,375 +11.05 +329,548 +2002 Plan (2) +74,149 +6.44 +27,466 +2006 Plan (1) +12,000 +14.17 +14,498 +2009 Plan (1) +-- +-- +313,175 +(1) Plan approved by the Company’s shareholders. +(2) Plan was adopted as a “broadly based” plan which did not require shareholder approval. See “Stock-Based Incentive Compensation Plans – 2002 Plan” for a description of the material terms of the Plan. +Long-Term Incentive Plan Awards +The Company does not have a long-term incentive plan for its employees other than the stock-based incentive compensation plans mentioned above and in the Compensation Discussion and Analysis. +25 +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards at December 31, 2010 for the named executive officers: +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options (#) Exercisable +Option Exercise +Price +($) +Option +Expiration +Date +Number of Shares of Units of Stock that Have Not Vested +(#) +Market Value of Shares or Units of Stock that Have Not Vested +($) (11) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested +($)(11) +Fred L. Callon +18,750 (1) +4.5 +07/12/2012 +-- +-- +-- +-- +12,625 (2) +3.7 +08/12/2012 +-- +-- +-- +-- +-- +-- +-- +46,000(5) +272,320 +-- +-- +-- +-- +-- +100,000(6) +592,000 +100,000(7) +592,000 +-- +-- +-- +106,250(8) +629,000 +18,750(9) +111,000 +62,500(11) +370,000 +B. F. Weatherly +5,000(3) +6.05 +05/08/2012 +-- +-- +-- +-- +5,000(4) +5.12 +05/02/2013 +-- +-- +-- +-- +-- +-- +-- +30,000(5) +177,600 +-- +-- +-- +-- +-- +44,625(6) +264,180 +7,875(6) +46,620 +-- +-- +-- +85,000(8) +503,200 +15,000(8) +88,800 +50,000(10) +296,000 +Gary A. Newberry +-- +-- +-- +50,000(7) +296,000 +-- +-- +-- +85,000(9) +503,200 +15,000(9) +88,800 +Stephen F. Woodcock +-- +-- +-- +-- +13,250 (1) +4.5 +07/12/2012 +8,500 (2) +3.7 +08/23/2012 +-- +-- +-- +-- +-- +-- +-- +16,000(5) +94,720 +-- +-- +-- +-- +-- +23,800(6) +140,896 +4,200(6) +24,864 +-- +-- +-- +63,750(8) +377,400 +11,250(8) +66,600 +37,500(10) +222,000 +Rodger W. Smith +-- +-- +-- +12,000(5) +71,040 +-- +-- +-- +-- +-- +17,850(6) +105,672 +3,150(6) +18,648 +-- +-- +-- +51,000(8) +301,920 +9,000(8) +53,280 +30,000(10) +177,600 +(1) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(2) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(3) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(4) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(5) +Represents shares awarded April 18, 2008. Time-vested restricted stock is reported under the first and second columns under “Stock Awards” and performance based shares for which the performance period has not run is reported under the third and fourth columns under “Stock Awards.” +(6) +Represents restricted stock units awarded August 14, 2009. Restricted stock units payable in stock are reported under the first and second columns under “Stock Awards” and restricted stock units payable in cash are reported under the third and fourth columns under “Stock Awards.” Restricted stock units shares will vest on August 14, 2012. +(7) +Amount represents restricted stock units awarded on April 1, 2010 as an inducement for employment. These units will vest 100% on January 1, 2011 and are payable in shares. +(8) +Represents restricted stock units awarded May 7, 2010. Restricted stock units payable in stock are reported under the first and second columns under “Stock Awards” and restricted stock units payable in cash are reported under the third and fourth columns under “Stock Awards.” Restricted stock units shares will vest on August 14, 2012. +(9) +Represents restricted stock units awarded September 21, 2010. Restricted stock units payable in stock are reported under the first and second columns under “Stock Awards” and restricted stock units payable in cash are reported under the third and fourth columns under “Stock Awards.” Restricted stock units shares will vest on August 14, 2012. +(10) +Amount represents performance-based phantom stock units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on certain performance metrics when compared to Company identified peer companies. The adjusted performance-based shares will vest on December 31, 2012. +(11) +Amounts calculated based on the December 31, 2010 closing price on the NYSE of $5.92 per share. +26 +Option Exercises and Stock Vested +The following table indicates option exercises and stock vesting during 2010 for the named executive officers: +Option Awards +Stock Awards +Name of Executive Officer +Number of Shares Acquired on Exercise +(#) +Value Realized on Exercise +($) +Number of Shares Acquired on Exercise +(#) +Value Realized on Vesting +($) +Fred L. Callon +-- +-- +10,000(3) +38,999(5) +B. F. Weatherly +-- +-- +11,250(4) +65,954(6) +Steven B. Hinchman +166,666(1) +172,499(2) +-- +-- +Gary A. Newberry +-- +-- +-- +-- +Stephen F. Woodcock +-- +-- +8,000(3) +31,200(5) +Rodger W. Smith +-- +-- +4,400(3) +17,161(5) +(1) +Represents exercise of one-third of the stock options awarded June 1, 2009. +(2) +Computed based on the difference in the fair market value of the common stock on the date of exercise equal to $3.79 per share and the option exercise price of $2.755 per share. +(3) +Represents a 20% vesting of restricted shares awarded August 21, 2006. +(4) +Represents a 25% vesting of restricted shares awarded November 16, 2006. +(5) +Computed based on the fair market value of the common stock on the date of vesting equal to $4.61 per share and fair market value of the common stock on the date of payment equal to $3.89. +(6) +Computed based on the fair market value of the common stock on the date of vesting equal to $5.51 per share and fair market value of the common stock on the date of payment equal to $5.87. +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable upon termination following a change in control or upon death, disability or retirement. No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2010. In presenting this disclosure, we describe amounts earned through December 31, 2010 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company, our estimates are of the amounts which would be paid out to the executives upon their termination. +Name and +Reason for Termination +Base +Salary +($)(3) +Cash +Bonus +($)(3) +Accelerated +Stock Award +Vesting +($)(4) +Continued +Employee +Benefits +($)(5)(6) +Excise Tax +($)(7) +Total +($) +Fred L. Callon +Change in Control (1) +1,393,560 +1,496,224 +2,566,320 +124,478 +1,625,133 +7,205,715 +Death, Disability, or Retirement (2) +-- +-- +2,566,320 +-- +-- +2,566,320 +B. F. Weatherly +Change in Control (1) +728,000 +678,250 +1,376,400 +53,645 +881,458 +3,717,753 +Death, Disability, or Retirement (2) +-- +-- +1,376,400 +-- +-- +1,376,400 +Stephen F. Woodcock +Change in Control (1) +572,000 +354,900 +926,480 +53,607 +-- +1,906,987 +Death, Disability, or Retirement (2) +-- +-- +926,480 +-- +-- +926,480 +Rodger W. Smith +Change in Control (1) +436,800 +262,573 +728,160 +53,736 +-- +1,481,269 +Death, Disability, or Retirement (2) +-- +-- +728,160 +-- +-- +728,160 +(1) +The Company entered into a Severance Compensation Agreement dated April 18, 2008 with each of the four named executive officers listed in the table above. The agreements were amended effective on December 31, 2008 to comply with the final Treasury Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended. The agreements were subsequently amended effective January 1, 2011. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(2) +“Disability” is generally defined as the employee’s inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six (6) continuous months together with the reasonable likelihood, as determined by the Board of Directors after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee’s attainment of an age which the Board of Directors determines to be consistent with normal retirement age. +(3) +In accordance with Mr. Callon’s Severance Compensation Agreement, the computation uses a three-year multiple with respect to the severance amount relating to salary and target bonus while a two-year multiple is used for the other named executive officers. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(4) +The amounts are computed based on unvested stock awards at December 31, 2010 using the closing price of the Company’s common stock on the NYSE on such date, the last trading day for 2010, at $5.92 per share. +(5) +Benefits consist of thirty-six (36) months of employer provided family medical and dental insurance, life insurance, dependent life insurance, accidental death coverage and disability coverage for Mr. Callon and twenty-four months for the other named executive officers in the table. +(6) +Mr. Callon’s amount includes an additional $14,689 for each of the three years representing premiums on a life insurance policy for which the Company does not have any beneficial interest. +(7) +This calculation is an estimate for the proxy statement disclosure only. Payments on an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, and changes in compensation. In computing the excise tax gross-up, we valued all payments and benefits in accordance with Code Section 280G. Key assumptions in the gross-up calculation included that the highest marginal federal, state and Medicare tax rates applied. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Employment Agreements. The Company does have any employment agreements with any executive officer. +Severance Compensation Agreements. On April 18, 2008, the Company entered into Severance Compensation Agreements with each of the named executive officers (with the exception of Gary A. Newberry) and was subsequently amended effective on December 31, 2008 to comply with the final Treasury Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (the “Agreements”). The Agreements will terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the earliest of (1) December 31, 2011, provided, however, that, on each anniversary date thereafter (each such date, an “Anniversary Date”), the expiration date shall automatically be extended for one additional year unless, immediately prior to such Anniversary Date, either party shall have given written notice that it does not wish to extend this Agreement, but in no event shall the expiration date be earlier than the second anniversary of the effective date of a Change of Control; (2) the termination of the Executive’s employment with Callon based on death, Disability (as defined in Section 3.1 of the Agreement), or Cause (as defined in Section 3.2 of the Agreement; and (3) the voluntary resignation of the Executive for any reason other than Good Reason (as defined in Section 3.3 of the Agreement). +27 +Pursuant to the Agreement, if the executive incurs a “separation from service” from the Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and other authoritative guidance issued thereunder) without cause by the Company or for good reason by him within two years following a Change of Control of the Company (or in certain cases, prior to a change of control), then the executive is entitled to a single lump-sum cash payment (payable on the date that is six months following the triggering event) in an amount equal to three times the sum (with respect to Mr. Callon) of (a) the annual base salary in effect immediately prior to the Change of Control or, if higher, in effect immediately prior to the separation from service, and (b) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the Change of Control occurs, based on a forecast that has been approved by the Board of the results for the fiscal year in which the Change of Control occurs. For the remaining named executive officers except, the salary and bonus multiple is two times. In addition, the Company must maintain at its expense until thirty-six (36) months after a separation from service all life, disability, medical, dental, accident, and health insurance coverage for Mr. Callon. For the remaining named executive officers, the continued benefit period is twenty-four (24) months. If the executive’s employment is terminated as a result of his death or Disability, the Company is only required to make such payments if the termination occurred within six months after a Change of Control. “Good reason” is generally defined in the Agreement as a change in compensation, benefits, position, responsibilities, or location. A Change of Control is generally defined in the Agreement as (i) any person or group of persons acting in concert shall have become the beneficial owner of more than 50% of the outstanding common stock of the Company; (ii) the shareholders of the Company shall cause a change in the majority of the members of the Board of Directors within a twelve-month period; or (iii) the Company or its shareholders shall enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company. +The Agreements also provide that, upon a Change of Control, all stock options shall automatically become fully exercisable and all performance shares, restricted stock, stock appreciation rights and other similar rights held by the executive shall become fully vested, provided however, that such acceleration of vesting shall not occur if it would be an impermissible acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the total value of the outstanding and unvested stock rights as of the date of separation from service. +The Agreements incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the “net-best” provision included in the Agreement is appropriate. If any payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. +The Company did not have a Severance Compensation Agreement with Mr. Hinchman but the terms of his employment include certain provisions and payments upon involuntary termination by the Company and in the event of a Change of Control. In the event of an involuntary termination by the Company without Cause, Mr. Hinchman would have received a lump sum cash payment equal to his annual base salary, the time-vested restricted shares would have vested on a prorated basis from the grant date; performance shares would have vested on a prorated basis based on actual performance to the termination date; and unvested stock options would have been forfeited. In the event of a Change of Control of the Company, Mr. Hinchman would have received, subject to involuntary termination by the Company without Cause or voluntary termination for Good Reason, a lump sum cash payment of two times the sum of his base salary and target bonus; and vesting of all equity awards based on performance at the time of termination. +28 +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per year to the chairman of the Compensation Committee, the chairman of the Nominating and Corporate Governance Committee, and the chairman of the Strategic Planning Committee. Each non-management director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In addition to cash compensation the Compensation Committee may, from time to time, grant performance shares. During 2010, the Compensation Committee awarded 30,000 shares of stock each to Messrs. Flury, McVay, Wallace, and Wilson. The performance shares shall vest on the earlier of: (a) the first anniversary of the Grant Date, provided that Grantee continues to be a member of the Board (or is otherwise providing services to the Company as an employee) through such date; or (b) the date Grantee ceases to provide any services to the Company as an employee or director, other than for Cause, after reaching age sixty (60). The Compensation Committee may determine in its sole discretion that the Performance Shares shall vest on a “qualified separation from service.” For purposes hereof, a “qualified separation from service” is defined as a Separation from Service, other than for Cause, following a minimum of five (5) years of tenure on the Board and occurring within five (5) years prior to Grantee attaining the age sixty (60). The table below indicates the total compensation earned and paid during 2010 for each non-management director: +Non-Management Director Compensation for 2010 +Name +Fees +Earned +or Paid +in Cash +($)(1) +Stock +Awards +($)(6) +Option +Awards +($) +All Other +Compensation +($) +Total +($) +L. Richard Flury +50,000 +(2) +34,200 +-- +-- +84,200 +Larry D. McVay +50,000 +(3) +34,200 +-- +-- +84,200 +John C. Wallace +60,000 +(4) +34,200 +-- +-- +94,200 +Richard O. Wilson +50,000 +(5) +34,200 +-- +-- +84,200 +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Compensation Committee. +(3) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Strategic Planning Committee. +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Nominating and Corporate Governance Committee. +(6) +Amounts calculated utilizing the provisions of FASB ASC Topic 718. See notes 9 and 10 of the consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2010 regarding assumptions underlying valuation of equity awards. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any additional compensation for his services in this capacity and therefore has been omitted from the table above. Mr. Weatherly also serves as a member of the Board of Directors and does not receive any additional compensation associated with those services. +The Company has established ownership requirements for its outside directors. Each director is required to achieve the a minimum value of common stock equal to at least 5 times the annual retainer within the next five years. +29 +PROPOSAL 2 +AN ADVISORY VOTE APPROVING OUR EXECUTIVE COMPENSATION +Callon is required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated under Section 14A of the Exchange Act, to seek a non-binding advisory vote from its shareholders to approve the compensation paid to its named executive officers as disclosed in this proxy statement. We encourage shareholders to read the “Compensation Discussion and Analysis” and “Executive Compensation and Other Related Information” sections of this proxy statement for a more detailed discussion of our compensation programs and policies, the compensation and governance-related actions taken in 2010 and the compensation awarded to our named executive officers. +Callon actively reviews and assesses its executive compensation program in light of the industry in which it operates, the marketplace for executive talent in which it competes, and the evolving compensation governance and best practices. Callon is focused on compensating its executive officers fairly and in a manner that promotes our compensation philosophy as described under Compensation Discussion and Analysis. +Our Board of Directors believes that Callon’s executive compensation program satisfies these objectives, properly aligns the interests of our executive officers with those of our shareholders, and is worthy of shareholder support. In determining whether to approve this proposal, we believe that shareholders should consider the following: +• Independent Compensation Committee. Executive compensation is reviewed and established by a Compensation Committee of the Board consisting solely of independent directors. The Compensation Committee meets in executive session, without executive officers present, in determining annual compensation. The Compensation Committee receives data, analysis and input from an independent compensation consultant that is not permitted to perform any additional services for Callon management. +• Performance-Based Incentive Compensation. Elements of performance-based, incentive compensation are largely aligned with financial and operational objectives established in the Board-approved annual operating plan. +• Elimination of Tax Gross-ups. Starting in 2011, executive officers will not be eligible for a tax related gross-up on any element of current and future compensation. +• “Double Trigger” Severance Agreements with Fixed Term . Callon’s change in control severance agreements with executive officers require an actual or constructive termination of employment before benefits are paid following any change in control. +• Equity Plans. Our equity plans generally include three-year minimum vesting periods for time-based awards, prohibit repricing or exchange of outstanding option awards, and require options be granted with exercise prices at fair market value on the date of grant. +• Stock Ownership Guidelines. Our executive officers are subject to stock ownership guidelines described in “Compensation Discussion and Analysis.” +For these reasons, the Board recommends that shareholders vote in favor of the following resolution: +“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of Callon’s named executive officers, as disclosed in Callon’s 2011 proxy statement (including the Compensation Discussion and Analysis, the compensation tables and related footnotes and narrative disclosures under the heading “Executive Compensation and Other Related Information”).” +Although this vote is advisory and is not binding on the Board, the Compensation Committee of the Board values the input and views of Callon shareholders. The Board and the Compensation Committee will review the results of the vote and take them into consideration when considering future executive compensation policies and decisions. +The Board of Directors recommends a vote “FOR” the advisory vote on executive compensation. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such approval at the 2011 Annual Meeting. +30 +PROPOSAL 3 +AN ADVISORY VOTE APPROVING THE FREQUENCY +OF SHAREHOLDERS’ ADVISORY VOTE ON OUR EXECUTIVE COMPENSATION +As required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated under Section 14A of the Exchange Act, Callon is seeking a non-binding, advisory vote on the frequency with which it will seek the non-binding shareholders’ advisory vote on executive compensation (commonly referred to as “say-on-pay”), similar to Proposal 2 in this proxy statement. Callon is required to hold the say-on-pay vote at least once every three years. Accordingly, shareholders may vote that this advisory vote on executive compensation be held in the future as follows: +• every year; +• every two years; or +• every three years. +Shareholders may also abstain from voting on this proposal. In considering your vote, you may wish to review the information presented in connection with Proposal 2 in this proxy statement, as well as the “Compensation Discussion and Analysis” and “Executive Compensation and Other Related Information” sections of this proxy statement, which provide a more detailed discussion of our executive compensation programs and policies. +Our Board of Directors has determined that holding a “say-on-pay” vote every three years is most appropriate for Callon and recommends that you vote to hold such advisory vote in the future every third year, for the following reasons. +First, the Board believes that holding an advisory vote every three years offers the closest alignment with Callon’s approach to executive compensation and the underlying philosophy of our Compensation Committee. Specifically, our executive compensation programs are designed to enhance the long-term growth of Callon and reward performance over a multi-year period. For example, the stock awards granted to our executive team generally have three-year vesting periods, and the performance stock awards granted to our executives in 2010 included a performance period over multiple years. The Board believes that there is some risk that an annual advisory vote on executive compensation could lead to a short-term shareholder perspective regarding executive compensation that does not align well with the longer-term approach used by our Compensation Committee. We believe a three-year cycle for the shareholder advisory vote will provide investors the most meaningful timing alternative by which to evaluate the effectiveness of our executive compensation strategies and their alignment with Callon’s performance, financial results and business. +Second, the Board believes that a triennial “say on pay” vote would not foreclose shareholder engagement on executive compensation during interim periods. Specifically, Callon provides shareholders with other meaningful means by which to share their views about our executive compensation practices. Shareholders can currently provide input to the Board by communicating directly with the Board, its committees or individual directors as indicated in “Corporate Governance and the Board of Directors — Communicating with the Board of Directors” above. Thus, we view the advisory vote on executive compensation as an additional, but not exclusive, opportunity for our shareholders to communicate their views on Callon’s executive compensation programs. +The Board weighed these reasons against the arguments in support of conducting the advisory vote annually. In particular, the Board considered the value of the opportunity for shareholder input at each annual meeting, as well as the belief that annual votes would promote greater accountability on executive compensation. Although the Board believes that these and other positions put forth in favor of an annual “say on pay” vote are not without merit, on balance, the Board believes that a triennial approach is most appropriate for Callon and recommends that voting alternative to shareholders. The Nominating and Corporate Governance Committee of the Board of Directors intends to periodically reassess that view and, if it determines appropriate, may provide for an advisory vote on executive compensation on a more frequent basis. +Because this proposal is advisory, it will not be binding and the Board and its Nominating and Corporate Governance Committee may determine to hold a “say-on-pay” vote more or less frequently than the option selected by our shareholders. However, the Board values shareholders’ opinions and the Board will consider the outcome of the vote when considering the frequency of future advisory votes on executive compensation. +The Board of Directors recommends a vote “FOR” holding the say on pay vote EVERY THIRD YEAR. Unless otherwise indicated, all properly executed proxies received by the Company will be voted 3 YEARS at the 2011 Annual Meeting. +31 +PROPOSAL 4 +APPROVAL OF THE CALLON PETROLEUM COMPANY +2011 OMNIUBUS INCENTIVE PLAN +General +At a meeting held on March 10, 2011, the Board of Directors of the Company adopted the Callon Petroleum Company 2011 Omnibus Incentive Plan (the “2011 Omnibus Plan”), subject to the approval of the shareholders of the Company. At the 2011 Annual Meeting, shareholders will be asked to approve and ratify the adoption of the 2011 Omnibus Plan. The Board of Directors believes that the approval of the 2011 Omnibus Plan is in the best interests of the Company and its shareholders. The 2011 Omnibus Plan will authorize the Board of Directors to award grants at any time following the effective date of the 2011 Omnibus Plan. Accordingly, shareholder approval of the 2011 Omnibus Plan will constitute approval of all awards made under the 2011 Omnibus Plan without further approval from the shareholders, except as may be required by the 2011 Omnibus Plan. +The 2011 Omnibus Plan provides for a total of 2,300,000 shares, plus (a) all shares that are available for awards under the Company’s prior stock incentive plans (collectively, the “Prior Plans”) as of the effective date of the 2011 Omnibus Plan (the “Effective Date”) that are not reserved for outstanding awards that were granted under the Prior Plans before the Effective Date, which represents 787,354 remaining shares, and (b) all shares that may become available for awards under the Prior Plans on or after the Effective Date which were reserved for outstanding awards that were granted under the Prior Plans before the Effective Date that are forfeited, expire unexercised or otherwise do not result in the use of such shares under the Prior Plans. The term “Prior Plan” means each of the Company’s 1994 Stock Incentive Plan, 1996 Stock Incentive Plan, 2002 Stock Incentive Plan, 2006 Stock Incentive Plan, and 2009 Stock Incentive Plan. Any of the authorized shares may be used for any type of award under the 2011 Omnibus Plan, and any or all of the available shares may be allocated to incentive stock options. On and after the Effective Date, no new awards will be granted under any Prior Plan. All shares under a Prior Plan that are not reserved for outstanding award grants under a Prior Plan that were made prior to the Effective Date will be available for awards under the 2011 Omnibus Plan. However, outstanding awards as of the Effective Date that were granted under a Prior Plan, including their related award agreements, will not be affected by the adoption of the 2011 Omnibus Plan. See “Executive Compensation – Stock-Based Incentive Compensation Plans.” +The purpose of the 2011 Omnibus Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by employees as well as non-employee directors, and (c) enabling the Company to attract and retain qualified and competent persons to serve as members of the management team and the Board of Directors of the Company upon whose judgment, interest, and performance are required for the successful and sustained operations of the Company. To accomplish these goals, the 2011 Omnibus Plan permits the granting of nonqualified stock options, incentive stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance shares, performance units, other stock-based and cash-based awards, some of which may require the satisfaction of performance-based criteria in order to be payable to participants. Awards under the 2011 Omnibus Plan, other than incentive stock options, may also be made to “third-party service providers”, which means any consultant, agent, advisor or independent contractor who is not an employee or a director of the Company or an affiliate and who renders services to the Company or an affiliate that (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction, and (b) do not directly or indirectly promote or maintain a market for the Company’s securities. If approved, the 2011 Omnibus Plan will be an important component of the total compensation package offered to employees, directors, and third-party service providers and thus reflect the importance that the Company places on motivating and rewarding superior results with long-term, performance-based incentives. +Description of the 2011 Omnibus Plan +The following is a summary of the principal features of the 2011 Omnibus Plan and its operation. For additional details regarding the 2011 Omnibus Plan, you should refer to the full text of the 2011 Omnibus Plan, a copy of which is attached to this proxy statement as Exhibit A. +Administration. The 2011 Omnibus Plan is administered by the Compensation Committee (“Committee”) appointed by the Board of Directors. Subject to the terms of the 2011 Omnibus Plan, the Committee has the power to select the persons eligible to receive awards, the type and amount of incentive awards to be awarded, and the terms and conditions of such awards. To the extent permitted by applicable law, the Committee may delegate its authority under the 2011 Omnibus Plan to officers or other employees of the Company. The Committee also has the authority to interpret the 2011 Omnibus Plan and establish, amend or waive rules necessary or appropriate for the administration of the 2011 Omnibus Plan. +Eligibility. Any employee, nonemployee director, or third-party service provider of the Company who, in the opinion of the Committee, is in a position to contribute to the growth, development or financial success of the Company is eligible to participate in the 2011 Omnibus Plan. In any calendar year, no covered employee described in Section 162(m) of the Internal Revenue Code or applicable Treasury Regulations may be granted (in the case of stock options and stock appreciation rights), or have vested (in the case of restricted stock or other stock-based awards), awards relating to more than 1,000,000 shares. The maximum aggregate amount that may be paid under an award that is performance-based compensation payable in cash will be $10 million, as determined as of the date of payout. These limitations will be construed and administered so as to comply with the performance-based exception to Section 162(m). +32 +Shares Subject to the 2011 Omnibus Plan. Any shares subject to an award under the 2011 Omnibus Plan that (a) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the shares, (b) are settled in cash in lieu of shares, or (c) are exchanged with the Committee’s permission, prior to the issuance of shares, for awards not involving shares, will again be available immediately for grants under the 2011 Omnibus Plan. Any shares (i) withheld, surrendered or tendered in payment of the option price of an award, (ii) tendered or withheld in order to satisfy tax withholding obligations associated with the exercise of an option or settlement of an award, or (iii) that were subject to a share-settled SAR and were not issued upon the exercise of such SAR, will again become available for grants under the 2011 Omnibus Plan. Any shares related to an award granted under any Prior Plan that, after the effective date, (1) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the shares, are settled in cash in lieu of shares, or (2) are exchanged with the Committee’s permission, prior to the issuance of shares, for awards not involving shares, will again be available for grants under this 2011 Omnibus Plan. Any shares (i) withheld, surrendered or tendered in payment of the option price of an award granted under the Prior Plan, (ii) tendered or withheld in order to satisfy tax withholding obligations associated with the exercise of an option or settlement of an award granted under the Prior Plan, or (iii) that were subject to a share-settled SAR granted under the Prior Plan and were not issued upon the exercise of such SAR, will again become available for grants under the 2011 Omnibus Plan. A maximum of 2.3 million common shares may be issued upon exercise of incentive stock options. The maximum number of shares deliverable pursuant to awards granted under the 2011 Omnibus Plan is subject to adjustment by the Committee in the event of certain dilutive changes in the number of outstanding shares. Under the 2011 Omnibus Plan, the Company may issue authorized but unissued shares, treasury shares, or shares purchased by the Company on the open market or otherwise. The number of common shares available for future awards is reduced by the net number of shares issued pursuant to an award. +Transferability. Rights under any award may not be transferred except by will or the laws of descent and distribution or a qualified domestic relations order. However, the Committee may, in its sole discretion, authorize in the applicable award agreement the transfer, without consideration, of all or a portion of a non-statutory stock option by a participant to family members, and entities owned by or for the benefit of family members. +Amendment of the 2011 Omnibus Plan. The Board of Directors has the power and authority to terminate or amend the 2011 Omnibus Plan at any time; provided, however, the Board of Directors may not, without the approval of shareholders: +• +other than as a result of a dilutive event, increase the maximum number of shares which may be issued under the 2011 Omnibus Plan; +• +amend the requirements as to the class of employees eligible to purchase common shares under the 2011 Omnibus Plan; +• +extend the term of the 2011 Omnibus Plan; or +• +increase the maximum limits on awards to covered employees as set for compliance with Section 162(m) of the Internal Revenue Code or applicable Treasury Regulations. +In addition, to the extent that the Committee determines that the listing requirements of any national securities exchange or quotation system on which the Company’s common shares are then listed or quoted, or the Internal Revenue Code or regulations promulgated thereunder, require shareholder approval in order to maintain compliance with such listing requirements or to maintain any favorable tax advantages or qualifications, then the 2011 Omnibus Plan will not be amended without approval of the Company’s shareholders. No amendment to the 2011 Omnibus Plan may adversely affect any rights of a holder of an outstanding award under the 2011 Omnibus Plan without such holder’s consent. +Change in Control. Unless provided otherwise in the applicable award agreement, in the event of a change in control, all outstanding awards will become 100% vested, free of all restrictions, immediately and fully exercisable, and deemed earned in full and payable as of the day immediately preceding the change in control. A “change in control” generally means the occurrence of any one or more of the following events: +• +The acquisition by any individual, entity or group of beneficial ownership of 30% or more of the Company’s common shares or combined voting power; +• +Individuals who constitute the Board of Directors of the Company as of the Effective Date of the 2011 Omnibus Plan, or successors to such members approved by the Board of Directors, cease for any reason to constitute at least a majority of the Board of Directors; or +• +the consolidation, merger or the sale or other disposition of at least 40% of the assets of the Company. +Award Agreements and Term. All awards under the 2011 Omnibus Plan will be authorized by the Committee and evidenced by an award agreement setting forth the type of incentive being granted, the vesting schedule, and other terms and conditions of exercisability. No incentive stock options may be exercisable for more than ten (10) years from the date of grant, or, in the case of an incentive stock option granted to an employee who owns or is deemed to own more than ten percent (10%) of the Company’s common shares, five (5) years from the date of grant. In no event, however, may an incentive stock option be granted after the expiration of ten (10) years from the Effective Date of the 2011 Omnibus Plan. +Stock Options. A grant of a stock option entitles a participant to purchase from the Company a specified number of common shares at a specified price per share. In the discretion of the Committee, stock options may be granted as non-statutory stock options or incentive stock options, but incentive stock options may only be granted to employees of the Company. The aggregate fair market value of the common shares with respect to which incentive stock options become first exercisable by any participant during any calendar year cannot exceed $100,000. +The purchase price per common share, which may be purchased under a non-statutory stock option or an incentive stock option, must be at least equal to the fair market value of the Company’s common shares on the date of grant, or, in the case of an employee who owns or is deemed to own more than ten percent (10%) of the Company’s common shares, one hundred ten percent (110%) of the fair market value of the Company’s common shares on the grant date. The total exercise price for common shares acquired on exercise of a stock option may be paid in cash, or, if approved by the Committee, the withholding of shares that would otherwise be issuable upon exercise, and equal in value to the exercise price of the stock option. Each non-statutory stock option will vest over a three-year service period or such longer period as determined by the Committee in its discretion and as set forth in the applicable award agreement. +Stock Appreciation Rights (SARs). The grant of a SAR provides the holder with the right to receive a payment in common shares equal to the excess of the fair market value of a specified number of common shares on the date the SAR is exercised over a SAR price specified in the applicable award agreement. The SAR price specified in an award agreement must be equal to the fair market value of the Company’s common shares on the date of the grant of the SAR. Each SAR will vest over a three-year service period or such longer period as determined by the Committee in its discretion and as set forth in the applicable award agreement. +Restricted Stock. A grant of restricted stock is an award of common shares subject to restrictions or limitations set forth in the 2011 Omnibus Plan and in the related award agreement. The award agreement for restricted stock will specify the time or times within which such award may be subject to forfeiture and any performance goals which must be met in order to remove any restrictions on such award. Except for the right to vote the shares (unless otherwise provided in the applicable award agreement) and limitations on transfer or limitation set forth in the applicable award agreement, holders of restricted stock will have all of the rights of a shareholder of the Company, including, if provided in the applicable award agreement, the right to receive any dividends thereon. Each grant of restricted stock will vest over a three-year service period or such longer period as determined by the Committee in its discretion and as set forth in the applicable award agreement. +Restricted Stock Units. Restricted stock units may be granted to participants in such number, and upon such terms, and at any time and from time to time as will be determined by the Committee, in its discretion. A grant of restricted stock units will not represent the grant of shares but will represent a promise to deliver a corresponding number of shares based upon the completion of service, performance conditions, or such other terms and conditions as specified in the applicable award agreement over the restriction period. A participant will have no voting rights with respect to any restricted stock units or to the shares corresponding to any such restricted stock units. A grant of restricted stock units may vest at any rate over a three-year service period or such longer period as determined by the Committee in its discretion. +Performance Shares. Performance shares may be granted to participants in such number, and upon such terms and at any time and from time to time, as will be determined by the Committee in its discretion. Each performance share will have an initial value equal to the fair market value of a share on the grant date. The Committee will set performance measures, in its discretion, which, depending on the extent to which they are met over the specified performance period, will determine the number of performance shares that will be paid to a participant. Each performance share will be subject to a one-year service period, or such longer period as determined by the Committee in its discretion, and as set forth in the award agreement, in addition to the performance measures that are applicable to the performance share. +33 +Performance Units. Performance units may be granted to a participant in such number, and upon such terms and at any time and from time to time as will be determined by the Committee in its discretion. Each performance unit will have an initial notional value equal to a dollar amount determined by the Committee, in its discretion. The Committee will set performance measures in its discretion that, depending on the extent to which they are met over the specified performance period, will determine the number of performance units that will be settled and paid to the participant. Each performance unit will be subject to a one-year service period or such longer period as determined by the Committee, in its discretion, and as set forth in the award agreement, in addition to the performance measures applicable to the performance unit. +Other Stock-Based Awards and Cash-Based Awards. The Committee may grant other stock-based awards not otherwise described by the terms of the 2011 Omnibus Plan, including the grant or offer for sale of unrestricted shares, in such amounts and subject to such terms and conditions, as the Committee will determine in its discretion. Such awards may involve the transfer of actual shares to participants, or payment in cash or otherwise of amounts based on the value of shares. The Committee, at any time and from time to time, may grant cash-based awards to a participant in such amounts and upon such terms as the Committee will determine in its discretion. Payment, if any, with respect to cash-based awards and other stock-based award will be made in accordance with the terms of the applicable award agreement, in cash, shares or a combination of both, as determined by the Committee in its discretion. +Nonemployee Director Awards . The Board will determine and approve all awards to Nonemployee Directors. The Board may permit a Nonemployee Director with an opportunity to receive an award in lieu of payment of all or a portion of future Director fees (including but not limited to cash retainer fees and meeting fees) or other types of Awards pursuant to such terms and conditions as the Board or Committee may prescribe and set forth in an applicable sub-plan or award agreement. +Termination of Employment, Death, Disability and Retirement. Unless otherwise provided in an award agreement, upon the termination of a participant’s employment, the non-vested portions of all outstanding awards will terminate immediately. Subject to different provisions in an award agreement, the period during which vested awards may be exercised following a termination of employment are described below: +(a) If a participant’s employment is terminated for any reason other than as a result of death, disability, retirement or for cause, the vested portion of such award is exercisable until the earlier of (1) the expiration date set forth in the applicable award agreement or (2) three months after the date of termination of employment. +(b) In the event of the termination of participant’s employment for cause, all vested awards immediately expire. +(c) Upon a participant’s retirement, any vested award will expire on the earlier of (1) the expiration date set forth in the award agreement for such award or (2) one (1) year after the date of retirement (three (3) months in the case of incentive stock options). +(d) Upon the death or disability of a participant, any vested award will expire on the earlier of (1) the expiration date set forth in the award agreement or (2) the one (1) year anniversary date of the participant’s death or disability. +Similar provisions apply to awards granted to Nonemployee Directors or to third-party service providers upon their separation from service with the Company and its affiliates. +Federal Income Tax Consequences +The following is a general summary as of the date of this proxy statement of the United States federal income tax consequences associated with the grant of awards under the 2011 Omnibus Plan. This summary does not purport to address all aspects of federal income taxation and does not describe state, local, or foreign tax consequences. This summary is based upon provisions of the Internal Revenue Code and the treasury regulations issued thereunder (the “Treasury Regulations”), and judicial and administrative interpretations under the Internal +34 +Revenue Code and Treasury Regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a retroactive basis). The federal, state and local tax consequences for any participant will depend upon his or her individual circumstances. Also, this information may not be applicable to employees of foreign subsidiaries or to participants who are not residents of the United States. Participants have been and are encouraged to seek the advice of a qualified tax advisor regarding the tax consequences of participation in the 2011 Omnibus Plan. +Non-statutory Stock Options. A participant receiving a non-statutory stock option that has been issued with an exercise price not less than the fair market value of the Company’s common shares on the grant date will not recognize income and the Company will not be allowed a deduction at the time such an option is granted. When a participant exercises a non-statutory stock option, the difference between the option price and any higher market value of the stock on the date of exercise will be ordinary income to the participant and will be claimed as a deduction for federal income tax purposes by the Company. When a participant disposes of shares acquired by the exercise of the option, any amount received in excess of the fair market value of the shares on the date of exercise will be treated as short-term or long-term capital gain, depending upon whether the participant held the shares for more than one year following the exercise of the option. If the amount received upon subsequent disposition of the shares is less than the fair market value of the shares on the date of exercise, the loss will be treated as short-term or long-term capital loss, depending upon whether the participant held the shares for more than one year following the exercise of the option. +Incentive Stock Options. Incentive stock options granted under the 2011 Omnibus Plan are intended to meet the definitional requirements of Section 422 of the Internal Revenue Code for “incentive stock options.” A participant receiving a grant of incentive stock options will not recognize income and the Company will not be allowed a deduction at the time such an option is granted. When a participant exercises an incentive stock option while employed by the Company or its subsidiary, or within the three-month (one year for disability) period after termination of employment, no ordinary income will be recognized by the participant at that time (and no deduction will be allowed to the Company) but the excess of the fair market value of the shares acquired by such exercise over the option price will be taken into account in determining the participant’s alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to individuals. If the shares acquired upon exercise are not disposed of before (i) two years after the date of grant and (ii) one year after the date of transfer of the shares to the participant (statutory holding periods), the excess of the sale proceeds over the aggregate option price of such shares will be long-term capital gain, and the Company will not be entitled to any federal income tax deduction. Except in the event of death, if the shares are disposed of prior to the expiration of the statutory holding periods (a “Disqualifying Disposition”), the excess of the fair market value of such shares at the time of exercise over the aggregate option price (but not more than the gain on the disposition if the disposition is a transaction on which a loss, if sustained, would be recognized) will be ordinary income at the time of such Disqualifying Disposition (and the Company or its subsidiary will be entitled to a federal tax deduction in a like amount), and the balance of the gain, if any, will be capital gain (short-term or long-term depending upon whether the participant held the shares for more than one (1) year following the exercise of the option). To the extent that the aggregate fair market value of stock (determined on the date of grant) with respect to which incentive options become exercisable for the first time during any calendar year exceeds $100,000, such excess options will be treated as non-statutory options. +Payment Using Shares. If a participant pays the exercise price of a non-statutory or incentive stock option with previously-owned common shares of the Company and the transaction is not a Disqualifying Disposition, the shares received equal to the number of shares surrendered are treated as having been received in a tax-free exchange. The shares received in excess of the number surrendered will not be taxable if an incentive stock option is being exercised, but will be taxable as ordinary income to the extent of their fair market value if a non-statutory stock option is being exercised. The participant does not recognize income and the Company receives no deduction as a result of the tax-free portion of the exchange transaction. If the use of previously acquired incentive stock option shares to pay the exercise price of another incentive stock option constitutes a Disqualifying Disposition, the tax results described in the preceding paragraph will apply. The income treatment will apply to the shares disposed of, but will not affect the favorable tax treatment of the shares received. +Stock Appreciation Rights and Restricted Stock. A participant receiving a grant of SARs or restricted stock under the 2011 Omnibus Plan will not recognize income, and the Company will not be allowed a deduction at the time such award is granted, unless the participant makes the election described below with respect to restricted stock. While an award remains unvested or otherwise subject to a substantial risk of forfeiture, a participant will recognize compensation income equal to the amount of any dividends received and the Company will be allowed a deduction in a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of forfeiture, the excess of the fair market value of the award on the date of vesting or the cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant for the award will be ordinary income to the participant and will be claimed as a deduction for federal income tax purposes by the Company. Upon disposition of the shares received, the gain or loss recognized by the participant will be treated as capital gain or loss, and the capital gain or loss will be short-term or long-term depending upon whether the participant held the shares for more than one year following the vesting or cessation of the substantial risk of forfeiture. However, by filing a Section 83(b) election with the Internal Revenue Service within thirty (30) days after the date of grant of restricted stock, a participant’s ordinary income and commencement of holding period and the deduction will be determined as of the date of grant. In such a case, the amount of ordinary income recognized by such a participant and deductible by the Company will be equal to the excess of the fair market value of the award as of the date of grant over the amount paid, if any, by the participant for the award. If such election is made and a participant thereafter forfeits his or her award, no refund or deduction will be allowed for the amount previously included in such participant’s income. +Requirements Regarding “Deferred Compensation.” Certain of the benefits under the 2011 Omnibus Plan may constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code, which governs the taxation of “nonqualified deferred compensation plans.” Failure to comply with the requirements of the provisions of Section 409A regarding participant elections and the timing of payment distributions could result in the affected participants being required to recognize ordinary income for federal tax purposes earlier than expected, and to be subject to substantial penalties. +ERISA. The Company believes that the 2011 Omnibus Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The 2011 Omnibus Plan is not a qualified plan under Section 401(a) of the Internal Revenue Code. +(i) Federal Tax Withholding +Any ordinary income realized by a participant upon the exercise of an award under the 2011 Omnibus Plan is subject to withholding of federal, state and local income tax and to withholding of the participant's share of tax under the Federal Insurance Contribution Act (“FICA”) and the Federal Unemployment Tax Act (“FUTA”). +To satisfy federal income tax withholding requirements, the Company has the right to require that, as a condition to delivery of any certificate for common shares, the participant remit to the Company an amount sufficient to satisfy the withholding requirements. Alternatively, we may withhold a portion of the common shares (valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding tax obligations. +Withholding does not represent an increase in the participant's total income tax obligation, since it is fully credited toward his or her tax liability for the year. Additionally, withholding does not affect the participant's tax basis in the common shares. Compensation income realized and tax withheld will be reflected on Forms W-2 supplied by the Company to employees, and Forms 1099-MISC supplied to non-employees, by January 31 of the succeeding year. Deferred compensation that is subject to Section 409A of the Internal Revenue Code will be subject to certain federal income tax withholding and reporting requirements. +35 +(ii) Million Dollar Deduction Limit and Other Tax Matters +The Company may not deduct compensation of more than $1,000,000 that is paid to an individual who, on the last day of the taxable year, is either the Company’s chief executive officer or is among one of the three other most highly-compensated officers for that taxable year as reported in the Company’s proxy statement, other than the Company’s chief financial officer. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. The Company intends that benefits in the form of stock options and restricted stock will be exempt from the $1,000,000 limitation on deductible compensation either as performance-based compensation or otherwise. +If a individual’s rights under the plan are accelerated as a result of a change in control and the individual is a “disqualified individual” under Section 280G of the Internal Revenue Code, the value of any such accelerated rights received by such individual may be included in determining whether or not such individual has received an “excess parachute payment” under Section 280G of the Internal Revenue Code, which could result in (i) the imposition of a 20% Federal excise tax (in addition to Federal income tax) payable by the individual on the value of such accelerated rights, (ii) the loss by the Company of a compensation deduction on the value of such accelerated rights, and (iii) the loss by the Company of a compensation deduction. +Securities Authorized for Issuance under Current Equity Compensation Plans +As of the record date, the Company had the following outstanding stock option award agreements, weighted-average option exercise price, unvested performance share awards, and remaining shares reserved for future issuance under the Company’s existing Stock Incentive Plans: +Plan (a) +Stock Option +Awards Outstanding (b) +Weighted Average Exercise Price (c) +Unvested +Performance +Share Awards +Outstanding (d) +Remaining Shares Reserved for Future Issuance (e) +1994 Plan +10,000 +$ +12.40 +-- +-- +1996 Plan +101,375 +11.05 +120,000 +329,548 +2002 Plan +74,149 +6.44 +30,000 +27,466 +2006 Plan +12,000 +14.17 +284,550 +110,498 +2009 Plan +-- +-- +936,825 +313,175 +All Plans +197,524 +9.57 +1,371,375 +780,687 +(a) +All Plans were approved by the Board of Directors and received shareholder approval except the 2002 Plan. The 2002 Plan qualified as a “broadly based” plan under the provisions of the New York Stock Exchange rules and regulations at the time it was adopted and therefore did not require shareholder approval. +(b) +Represents the gross number of common shares to be issued upon exercise of outstanding option award agreements. +(c) +Represents the weighted-average exercise price of outstanding stock options. +(d) +Represents unvested performance shares awarded in prior years. +(e) +Represents the number of remaining shares available for future issuance (excluding shares reflected in the first and third columns.) +Shareholder Approval +At the Meeting, shareholders will be asked to approve and ratify the adoption of the 2011 Omnibus Plan. Such action requires the affirmative vote of a majority of the votes cast on the matter, excluding broker non-votes. +The Board of Directors recommends that the shareholders approve and ratify the adoption of the 2011 Omnibus Plan. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such approval at the 2011 Annual Meeting. +PROPOSAL 5 +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable NYSE rules to be directly responsible for the appointment, compensation and retention of the Company’s independent registered public accountants. The Audit Committee has appointed Ernst & Young LLP, independent registered public accounting firm, for the examination of the accounts and audit of the financial statements of the Company for the year ending December 31, 2011. While shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of Directors will present a proposal to the shareholders to approve and ratify as part of good corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. A representative of Ernst & Young LLP will be present at the 2011 Annual Meeting and will have the opportunity to make a statement, if he desires, and to respond to appropriate questions. +The Board of Directors recommends that the shareholders approve and ratify the appointment of Ernst & Young LLP as its independent registered public accounting firm of the Company for the fiscal year ending December 31, 2011. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such ratification at the 2011 Annual Meeting. +36 +SHAREHOLDERS’ PROPOSALS +FOR 2012 ANNUAL MEETING +Shareholders who desire to present proposals at the 2012 Annual Meeting of Shareholders and to have proposals included in the Company’s proxy materials must submit their proposals to the Company at its principal executive offices not later than November 22, 2011. If the date of the 2012 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2011 Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2012 Annual Meeting of Shareholders. +The person named in the Company’s form of proxy for the 2012 Annual Meeting will have discretionary authority to vote any proxies they hold at such meeting on any matter for which the Company does not receive notice by February 5, 2012, unless the Company changes the date of its 2012 Annual Meeting of Shareholders by more than 30 days from the date of the 2011 Annual Meeting of Shareholders, in which case such persons will be able to exercise discretionary authority if notice of the matter has not been received in a reasonable time before the Company mails its proxy materials for the 2012 Annual Meeting of Shareholders. +If the date of the 2012 Annual Meeting of Shareholders is advanced or delayed by more than 30 calendar days from the date of the 2011 Annual Meeting of Shareholders, the Company shall, in a timely manner, inform shareholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company’s proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, it is suggested that shareholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2010 Annual Report to Shareholders and the Company’s Report on Form 10-K for the fiscal year ended December 31, 2010. Printed copies of the Company’s Annual Report, the Company’s Annual Report on Form 10-K, Corporate Governance Principles, Code of Business Conduct and Ethics and Charters of Board Committees are available to shareholders upon written request to the Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. You may also view the documents on the Company’s website at www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the 2011 Annual Meeting other than those described above. If other business comes before the 2011 Annual Meeting, the persons named on the proxy will vote the proxy in accordance with what they consider to be in the best interests of the Company and its shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All shareholders are urged, regardless of the number of shares owned, to participate in the 2011 Annual Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +Natchez, Mississippi Chairman, President and +March 21, 201 1 +Chief Executive Officer +37 +Exhibit A +Callon Petroleum Company +2011 Omnibus Incentive Plan +(Effective as of May 12, 2011) +CONTENTS +ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION +1 +1.1 +Establishment +1 +1.2 +Purpose of this Plan +1 +1.3 +Duration of this Plan +1 +ARTICLE 2. DEFINITIONS +1 +2.1 +Affiliate +1 +2.2 +Annual Award Limit +2 +2.3 +Authorized Officer +2 +2.4 +Award +2 +2.5 +Award Agreement +2 +2.6 +Beneficial Owner or "Beneficial Ownership" +3 +2.7 +Board or "Board of Directors" +3 +2.8 +Cash-Based Award +3 +2.9 +Cause +3 +2.10 +CEO +4 +2.11 +Change in Control +4 +2.12 +Code +5 +2.13 +Commission +5 +2.14 +Committee +5 +2.15 +Common Stock +6 +2.16 +Company +6 +2.17 +Covered Employee +6 +2.18 +Date of Termination +6 +2.19 +Director +6 +2.20 +Disability +6 +2.21 +Dividend Equivalent +6 +2.22 +Effective Date +7 +2.23 +Employee +7 +2.24 +Employment +7 +2.25 +Exchange Act +7 +2.26 +Extraordinary Items +8 +2.27 +Fair Market Value or "FMV" +8 +2.28 +Grant Date +8 +2.29 +Grant Price +8 +2.30 +Immediate Family +8 +2.31 +Incentive Stock Option or "ISO" +8 +2.32 +Insider +8 +2.33 +Nonemployee Director +8 +2.34 +Nonqualified Stock Option or "NQSO" +8 +2.35 +Option +8 +2.36 +Option Price +9 +2.37 +Other Stock-Based Award +9 +2.38 +Parent +9 +2.39 +Participant +9 +2.40 +Performance-Based Compensation +9 +2.41 +Performance-Based Exception +9 +2.42 +Performance Measures +9 +2.43 +Performance Period +9 +2.44 +Performance Share +9 +2.45 +Performance Unit +9 +2.46 +Period of Restriction +9 +2.47 +Person +9 +2.48 +Plan +10 +2.49 +Prior Plan +10 +2.50 +Publicly Held Corporation +10 +2.51 +Restricted Stock +10 +2.52 +Restricted Stock Unit +10 +2.53 +Restriction Period +10 +2.54 +Share +10 +2.55 +Share Pool +10 +2.56 +Stock Appreciation Right" or "SAR" +10 +2.57 +Subsidiary +10 +2.58 +Third-Party Service Provider +10 +ARTICLE 3. ADMINISTRATION +11 +3.1 +General +11 +3.2 +Authority of the Committee +11 +3.3 +Delegation +12 +3.4 +Meetings +12 +3.5 +Decisions Binding +13 +3.6 +Modification of Outstanding Awards +13 +3.7 +Expenses of Committee +13 +3.8 +Surrender of Previous Awards +13 +ARTICLE 4. SHARES SUBJECT TO THIS PLAN AND MAXIMUM AWARDS +14 +4.1 +Number of Shares Authorized and Available for Awards +14 +4.2 +Calculation of Share Usage for Share Pool +14 +4.3 +Common Stock Available +15 +4.4 +Annual Award Limits +15 +4.5 +Adjustments in Authorized Shares +15 +ARTICLE 5. ELIGIBILITY AND PARTICIPATION. +16 +5.1 +Eligibility to Receive Awards +16 +5.2 +Participation in the Plan +16 +ARTICLE 6. STOCK OPTIONS +16 +6.1 +Grant of Options +16 +6.2 +Option Price +16 +6.3 +Minimum Vesting Period +16 +6.4 +Term of Option +16 +6.5 +Exercise of Option +17 +6.6 +Payment of Option Price +17 +6.7 +Special Rules Regarding ISOs +17 +ARTICLE 7. STOCK APPRECIATION RIGHTS +19 +7.1 +Grant of SARs +19 +7.2 +Grant Price +19 +7.3 +Term of SAR +19 +7.4 +Minimum Vesting Period +19 +7.5 +Exercise of SAR +19 +7.6 +Notice of Exercise +19 +7.7 +Settlement of SARs +20 +Article 8. Restricted Stock +20 +8.1 +Grant of Restricted Stock +20 +8.2 +Nature of Restrictions +20 +8.3 +Minimum Vesting Period +20 +8.4 +Issuance of Shares +21 +8.5 +Certificate Legend +21 +8.6 +Voting Rights +21 +ARTICLE 9. RESTRICTED STOCK UNITS +21 +9.1 +Grant of Restricted Stock Units +21 +9.2 +Nature of Restrictions +21 +9.3 +Minimum Vesting Period +22 +9.4 +Voting Rights +22 +9.5 +Settlement and Payment Restricted Stock Units +22 +ARTICLE 10. PERFORMANCE SHARES +22 +10.1 +Grant of Performance Shares +22 +10.2 +Value of Performance Shares +22 +10.3 +Earning of Performance Shares +22 +10.4 +Minimum Service Period +22 +10.5 +Form and Timing of Payment of Performance Shares +22 +ARTICLE 11. PERFORMANCE UNITS +23 +11.1 +Grant of Performance Units +23 +11.2 +Value of Performance Units +23 +11.3 +Earning of Performance Units +23 +11.4 +Minimum Service Period +23 +11.5 +Form and Timing of Payment of Performance Units +23 +ARTICLE 12. OTHER STOCK-BASED AWARDS AND CASH-BASED AWARDS +23 +12.1 +Grant of Other Stock-Based Awards and Cash-Based Awards. +23 +12.2 +Value of Other Stock-Based Awards and Cash-Based Awards. +24 +12.3 +Payment of Other Stock-Based Awards and Cash-Based Awards +24 +ARTICLE 13. TRANSFERABILITY OF AWARDS AND SHARES +24 +13.1 +Transferability of Awards +24 +13.2 +Transferability of NQSOs +24 +13.3 +Committee Action +25 +13.4 +Restrictions on Share Transferability +25 +ARTICLE 14. PERFORMANCE-BASED COMPENSATION AND COMPLIANCE WITH CODE SECTION 162(M) +25 +14.1 +Compliance with Code Section 162(m) +25 +14.2 +Performance Measures +26 +14.3 +Evaluation of Performance +29 +14.4 +Adjustment of Performance-Based Compensation +29 +14.5 +Committee Discretion +29 +ARTICLE 15. TERMINATION OF EMPLOYMENT +29 +ARTICLE 16. NONEMPLOYEE DIRECTOR AWARDS +30 +16.1 +Awards to Nonemployee Directors +30 +16.2 +Awards in Lieu of Fees +30 +ARTICLE 17. EFFECT OF A CHANGE IN CONTROL +30 +ARTICLE 18. DIVIDEND EQUIVALENTS +30 +ARTICLE 19. Beneficiary Designation +31 +ARTICLE 20. RIGHTS OF PARTICIPANTS +31 +20.1 +Employment +31 +20.2 +Receive Awards +31 +20.3 +Rights as a Shareholder +31 +ARTICLE 21. AMENDMENT AND TERMINATION +31 +21.1 +Amendment and Termination of the Plan and Awards. +31 +21.2 +Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events +32 +21.3 +Amendment to Conform to Law +32 +ARTICLE 22. TAX WITHHOLDING +32 +22.1 +Minimum Tax Withholding +32 +22.2 +Share Withholding +33 +ARTICLE 23. GENERAL PROVISIONS +33 +23.1 +Forfeiture Events. +33 +23.2 +Legend +34 +23.3 +Gender and Number +34 +23.4 +Severability +34 +23.5 +Requirements of Law +34 +23.6 +Delivery of Title +34 +23.7 +Inability to Obtain Authority +34 +23.8 +Investment Representations +34 +23.9 +Employees Based Outside of the United States +34 +23.10 +Uncertificated Shares +35 +23.11 +Unfunded Plan +35 +23.12 +No Fractional Shares +35 +23.13 +Retirement and Welfare Plans +35 +23.14 +Deferred Compensation +36 +23.15 +Nonexclusivity of this Plan +37 +23.16 +No Constraint on Corporate Action +37 +23.17 +Governing Law +37 +23.18 +Delivery and Execution of Electronic Documents +37 +23.19 +No Representations or Warranties Regarding Tax Effect +37 +23.20 +Indemnification +38 +23.21 +Securities Requirements +38 +23.22 +Rule 16b-3 Securities Law Compliance for Insiders +38 +23.23 +Pre-Clearance Agreement with Brokers +38 +23.24 +Successors to Company +38 +Callon Petroleum Company +2011 Omnibus Incentive Plan +Article 1. Establishment, Purpose and Duration +1.1 Establishment +. Callon Petroleum Company, a Delaware corporation, establishes an incentive compensation plan to be known as Callon Petroleum Company 2011 Omnibus Incentive Plan (hereinafter referred to as the “ Plan ”), as set forth in this document. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards. This Plan shall become effective upon shareholder approval (the “ Effective Date ”) and shall remain in effect as provided in Section 1.3 . +The Plan provides for payment of various forms of compensation. It is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”). The Plan will be interpreted, construed and administered consistent with its status as a plan that is not subject to ERISA. +1.2 Purpose of this Plan +. The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees as well as Non-Employee Directors, and (c) enabling the Company to attract and retain qualified and competent persons to serve as members of the management team and the Board of Directors of the Company upon whose judgment, interest, and performance are required for the successful and sustained operations of the Company. +1.3 Duration of this Plan +. The Plan will remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Article 21 , until all Shares subject to the Plan have been purchased or acquired according to its provisions. However, in no event may an Incentive Stock Option be granted under the Plan after the expiration of ten (10) years from the earlier of (a) the adoption of this Plan by the Board or (b) the Effective Date, to the extent required by Code Section 422(b)(2). +After this Plan is terminated, no Awards may be granted but any Award previously granted shall remain outstanding in accordance with the applicable terms and conditions of the Plan and the Award Agreement. +Article 2. Definitions +Whenever used in this Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized. +2.1 “Affiliate” +has the meaning ascribed to such term in Rule 12b-2 of the General rules and Regulations of the Exchange Act; provided, however, that for all purposes under the Plan the term Affiliate shall solely refer to an Affiliate that has adopted this Plan with the written approval of the Committee. +Exhibit A - Page 1 +2.2 “Annual Award Limit” +has the meaning set forth in Section 4.4 . +2.3 “Authorized Officer” +means the Chairman of the Board, the CEO or any other senior officer of the Company to whom the Committee has delegated the authority to execute any Award Agreement for and on behalf of the Company. No officer or director shall be an Authorized Officer with respect to any Award Agreement for himself. +2.4 “Award” +means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards or Other Stock-Based Awards, in each case subject to the terms of this Plan. +2.5 “Award Agreement” +means either (i) a written or electronic agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under this Plan, including any amendment or modification thereof, or (ii) a written or electronic statement issued by the Company to a Participant describing the terms and provisions of such Award, including any amendment or modification thereof. The Committee may provide for the use of electronic, Internet or other non-paper Award Agreements, and the use of electronic, Internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant. The Committee shall have the exclusive authority to determine the terms of an Award Agreement evidencing an Award granted under this Plan. The terms of an Award Agreement need not be uniform among all Participants or among similar types of Awards. +Each Participant to whom an Award is granted shall be required to enter into an Award Agreement with the Company, in such a form as is provided by the Committee. The Award shall contain specific terms as determined by the Committee, in its discretion, with respect to the Participant’s particular Award. Such terms need not be uniform among all Participants or any similarly situated Participants. The Award Agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular Participant’s Award, as well as, for example, provisions to the effect that the Participant (a) shall not disclose any confidential information acquired during Employment with the Company, (b) shall abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee, (c) shall not interfere with the employment or other service of any employee, (d) shall not compete with the Company or become involved in a conflict of interest with the interests of the Company, (e) shall forfeit an Award if terminated for Cause, (f) shall not be permitted to make an election under Code Section 83(b) when applicable, and (g) shall be subject to any other agreement between the Participant and the Company regarding Shares that may be acquired under an Award including, without limitation, an agreement restricting the transferability of Shares by Participant. An Award Agreement shall include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to the individual Participant. +Exhibit A - Page 2 +2.6 “Beneficial Owner” or “Beneficial Ownership” +shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. +2.7 “Board” or “Board of Directors” +means the then-current Board of Directors of the Company. +2.8 “Cash-Based Award” +means an Award, denominated in cash, granted to a Participant as described in Article 12 . +2.9 “Cause” +means, unless otherwise specified in an Award Agreement or in an applicable employment agreement between the Company and a Participant, any one of the following: +(a) the conviction of the Participant by a court of competent jurisdiction as to which no further appeal can be taken of a crime involving moral turpitude or a felony or entering the plea of nolo contendere to such crime by the Participant; +(b) the commission by the Participant of a material act of fraud upon the Company, any Subsidiary or Affiliate; +(c) the material misappropriation by the Participant of any funds or other property of the Company, any Subsidiary or Affiliate; +(d) the knowing engagement by the Participant without the written approval of the Board, in any material activity which directly competes with the business of the Company, any Subsidiary or Affiliate, or which would directly result in a material injury to the business or reputation of the Company or any Subsidiary or Affiliate; or +(e) with respect to any Participant who is an Employee (1) a material breach by Employee during his Employment of any of the restrictive covenants set out in his employment agreement with the Company or any Subsidiary or Affiliate, if applicable, or (2) the willful, material and repeated nonperformance of Employee’s duties to the Company or any Subsidiary or Affiliate (other than by reason of Employee’s illness or incapacity), but Cause shall not exist under clause (e)(1) or (e)(2), as applicable, until after written notice from the Board has been given to Employee of such material breach or nonperformance (which notice specifically identifies the manner and sets forth specific facts, circumstances and examples in which the Board believes that Employee has breached the agreement or not substantially performed his duties) and Employee has failed to cure such alleged breach or nonperformance within the time period set by the Board, but in no event less than thirty (30) business days after his receipt of such notice; and, for purposes of this clause (e), no act or failure to act on Employee’s part shall be deemed “willful” unless it is done or omitted by Employee not in good faith and without his reasonable belief that such action or omission was in the best interest of the Company +Exhibit A - Page 3 +(assuming disclosure of the pertinent facts, any action or omission by Employee after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Company shall be deemed to have been taken in good faith and to not be willful for purposes of this definition of “Cause”). +2.10 “CEO” +means the then-current Chief Executive Officer of the Company. +2.11 “Change in Control” +means the occurrence of an event that constitutes a change in the Company’s ownership, its effective control, or the ownership of a substantial portion of its assets, as follows: +(a) Change in Ownership. A change in ownership of the Company occurs on the date that any Person, other than (1) the Company or any of its Subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding stock pursuant to an offering of such stock, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of the Company’s stock, acquires ownership of the Company’s stock that, together with stock held by such Person, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the Company’s stock. However, if any Person is considered to own already more than fifty percent (50%) of the total fair market value or total voting power of the Company’s stock, the acquisition of additional stock by the same Person is not considered to be a Change of Control. In addition, if any Person has effective control of the Company through ownership of thirty percent (30%) or more of the total voting power of the Company’s stock, as discussed in paragraph (b) below, the acquisition of additional control of the Company by the same Person is not considered to cause a Change in Control pursuant to this paragraph (a); or +(b) Change in Effective Control. Even though the Company may not have undergone a change in ownership under paragraph (a) above, a change in the effective control of the Company occurs on either of the following dates: +(1) the date that any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) ownership of the Company’s stock possessing thirty percent (30%) or more of the total voting power of the Company’s stock. However, if any Person owns thirty percent (30%) or more of the total voting power of the Company’s stock, the acquisition of additional control of the Company by the same Person is not considered to cause a Change in Control pursuant to this subparagraph (b)(1); or +(2) the date during any 12-month period when a majority of members of the Board is replaced by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election; provided, however, that any such director shall not be considered to be endorsed by the Board if his or her initial assumption of office occurs as a result +Exhibit A - Page 4 +of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or +(c) Change in Ownership of Substantial Portion of Assets. A change in the ownership of a substantial portion of the Company’s assets occurs on the date that a Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) assets of the Company that have a total gross fair market value equal to at least forty percent (40%) of the total gross fair market value of all of the Company’s assets immediately before such acquisition or acquisitions. However, there is no Change in Control when there is such a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer, through a transfer to (1) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock; (2) an entity, at least fifty percent (50%) of the total value or voting power of the stock of which is owned, directly or indirectly, by the Company; (3) a Person that owns directly or indirectly, at least fifty percent (50%) of the total value or voting power of the Company’s outstanding stock; or (4) an entity, at least fifty percent (50%) of the total value or voting power of the stock of which is owned by a Person that owns, directly or indirectly, at least fifty percent (50%) of the total value or voting power of the Company’s outstanding stock. +2.12 “Code” +means the U.S. Internal Revenue Code of 1986, as amended from time to time. For purposes of this Plan, references to sections of the Code shall be deemed to include references to any applicable regulations thereunder and any successor or similar provision. +2.13 “Commission” +means the Securities and Exchange Commission. +2.14 “Committee” +means the Compensation Committee of the Board (or a subcommittee thereof) or any other committee designated by the Board to administer this Plan. The members of the Committee shall be appointed from time to time by and shall serve at the discretion of the Board. If the Committee does not exist or cannot function for any reason, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. The Committee shall be constituted to comply with the requirements of Rule 16b-3 promulgated by the Commission under the Exchange Act, or such rule or any successor rule thereto which is in effect from time to time, Code Section 162(m) and any applicable listing or governance requirements of any securities exchange on which the Shares are listed. +While the Company is a Publicly Held Corporation, the Plan shall be administered by the Committee consisting of not less than two directors who fulfill the “nonemployee director” requirements of Rule 16b-3 under the Exchange Act and the “outside director” requirements of Code Section 162(m). The Board, in its sole discretion, may bifurcate the powers and duties of the Committee among one or more separate committees, or retain all powers and duties of the Committee in a single Committee. +Notwithstanding the preceding paragraph of this Section 2.14 , the term “Committee” as used in the Plan with respect to any Award for a Nonemployee Director shall refer to the entire Board. In the case of an Award for a Nonemployee Director, the Board shall have all the powers and responsibilities of the Committee hereunder as to such Award, and any actions as to such Award may be acted upon only by the Board (unless it otherwise designates in its discretion). When the Board exercises its authority to act in the capacity as the Committee hereunder with respect to an Award for a Nonemployee Director, it shall so designate with respect to any action that it undertakes in its capacity as the Committee. +Exhibit A - Page 5 +2.15 “Common Stock” +means the common stock of the Company, $0.01 par value per share, and any class of common stock into which such common shares may hereafter be converted, reclassified or recapitalized. +2.16 “Company” +means Callon Petroleum Company, and any successor thereto as provided in the Plan. +2.17 “Covered Employee” +means a named executive officer who is one of the group of covered employees, as defined in Code Section 162(m) and Treasury Regulation Section 1.162-27(c) (or its successor), during any period that the Company is a Publicly Held Corporation. Any Employee who is or may become a “Covered Employee,” as defined in Code Section 162(m), and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of (a) 90 days after the beginning of the Performance Period, or (b) 25% of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period. +2.18 “Date of Termination” +means the first day occurring on or after the Grant Date on which the Participant is no longer an Employee of the Company or any Affiliate or Subsidiary, or a Nonemployee Director, regardless of the reason for termination of Employment. +2.19 “Director” +means any individual who is a member of the Board of Directors of the Company. +2.20 “Disability” +means that the Participant, because of ill health, physical or mental disability or any other reason beyond his control, is unable to perform his Employment duties for a period of six (6) continuous months, as determined in good faith by the Committee. With respect to any Incentive Stock Option, however, “Disability” means permanent and total disability as defined in Code Section 22(e)(3). A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Participant shall submit to any reasonable examination(s) required by such physician upon request. Notwithstanding the foregoing provisions of this paragraph, in the event any Award is considered to be “deferred compensation” that is subject to Code Section 409A, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Code Section 409A, the definition of “Disability” for purposes of such Award shall be the definition of “disability” provided for under Code Section 409A and the regulations or other guidance issued thereunder. +2.21 “Dividend Equivalent” +means a credit, made at the discretion of the Committee or as provided for under an Award Agreement, to the account of a Participant in an amount equal to the dividends paid on one Share for each Share represented by an Award held by such Participant. +Exhibit A - Page 6 +2.22 “Effective Date” +has the meaning set forth in Section 1.1 . +2.23 “Employee” +means any individual performing services for the Company, an Affiliate or a Subsidiary and designated as an employee of the Company, the Affiliate or the Subsidiary, as applicable, on its payroll records. An Employee shall not include any individual during any period he or she is classified or treated by the Company, Affiliate or Subsidiary as an independent contractor, a consultant or an employee of an employment, consulting or temporary agency or any other entity other than the Company, Affiliate or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified, as a common-law employee of the Company, Affiliate or Subsidiary during such period. An individual shall not cease to be an Employee in the case of (a) any leave of absence approved by the Company or (b) transfers between locations of the Company or between the Company, any Affiliates or any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the 91st day of such leave, any Incentive Stock Option held by a Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonqualified Stock Option. Neither service as a Director nor payment of a Director’s fee by the Company shall be sufficient for a Nonemployee Director to be an Employee. +2.24 “Employment” +means that the individual is employed as an Employee, or engaged as a Nonemployee Director or as an individual who is a Third-Party Service Provider, by the Company or any Parent or Subsidiary. In this regard, neither the transfer of a Participant from Employment by the Company to Employment by any Parent or Subsidiary, nor the transfer of a Participant from Employment by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a termination of Employment of the Participant. Moreover, the Employment of a Participant shall not be deemed to have been terminated because of an approved leave of absence from active Employment on account of temporary illness, authorized vacation or granted for reasons of professional advancement, education, or health, or during any period required to be treated as a leave of absence by virtue of any applicable statute, Company personnel policy or written agreement. The term “Employment” for purposes of the Plan shall also include (a) current membership on the Board by a Nonemployee Director or (b) a currently effective agreement for services with an individual who is a Third-Party Service Provider. +All determinations hereunder regarding Employment, and termination of Employment, shall be made by the Committee in its discretion. +2.25 “Exchange Act” +means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. +2.26 “Extraordinary Items” +means (a) extraordinary, unusual and/or nonrecurring items of gain or loss; (b) gains or losses on the disposition of a business; (c) changes in tax or accounting regulations or laws; or (d) the effect of a merger or acquisition, all of which must be identified in the audited financial statements, including footnotes, or the Management Discussion and Analysis section of the Company’s annual report. +Exhibit A - Page 7 +2.27 “Fair Market Value” or “FMV” +unless otherwise specified in an Award Agreement, Fair Market Value means the closing price of a Share on the New York Stock Exchange or other principal securities exchange on the date as of which Fair Market Value is to be determined. If the securities markets are closed and no such sales were made on such date, the closing price of a Share on the immediately preceding business day shall apply. With respect to any Awards subject to Code Section 409A, such Fair Market Value shall be determined by the Committee consistent with the requirements of Section 409A in order to satisfy the exception under Section 409A for stock rights +If the Company is not a Publicly Held Corporation at the time a determination of the Fair Market Value of the Common Stock is required to be made hereunder, the determination of Fair Market Value for purposes of the Plan shall be made by the Committee in its discretion. In this respect, the Committee may rely on such financial data, appraisals, valuations, experts, and other sources as, in its sole and absolute discretion, it deems advisable under the circumstances. With respect to any Awards subject to Code Section 409A, such Fair Market Value shall be determined by the Committee consistent with the requirements of Section 409A in order to satisfy the exception under Section 409A for stock rights. +2.28 “Grant Date” +means the date an Award is granted to a Participant pursuant to the Plan. +2.29 “Grant Price” +means the price established at the time of grant of an SAR. +2.30 “Immediate Family” +means with respect to a Participant, the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships. +2.31 “Incentive Stock Option” or “ISO” +means an Award that is designated as an Incentive Stock Option and is intended to meet the requirements of Code Section 422 or any successor provision. +2.32 “Insider” +means an individual who is, on the relevant date, an officer (as defined in Rule 16a-1(f) (or any successor provision) promulgated by the Commission under the Exchange Act) or a Director of the Company, or a more than 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Committee in accordance with Section 16 of the Exchange Act. +2.33 “Nonemployee Director” +means a Director who is not an Employee. +2.34 “Nonqualified Stock Option” or “NQSO” +means an Award granted pursuant to Article 6 that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements. +2.35 “Option” +means an Award granted to a Participant which is either an Incentive Stock Option or a Nonqualified Stock Option. +Exhibit A - Page 8 +2.36 “Option Price” +means the price at which a Share may be purchased by a Participant pursuant to an Option. +2.37 “Other Stock-Based Award” +means an equity-based or equity-related Award not otherwise described by the terms of this Plan that is granted pursuant to Article 12 . +2.38 “Parent” +means any corporation (whether now or hereafter existing) which constitutes a “parent” of the Company, as defined in Code Section 424(e). +2.39 “Participant” +means any eligible individual who is an Employee, Nonemployee Director or Third Party Service Provider to whom an Award is granted. +2.40 “Performance-Based Compensation” +means compensation under an Award that is intended to satisfy the requirements of the Performance-Based Exception for certain performance-based compensation paid to Covered Employees. Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Award that does not satisfy the requirements for the Performance-Based Exception does not constitute performance-based compensation for other purposes, including Code Section 409A. +2.41 “Performance-Based Exception” +means the performance-based exception from the tax deductibility limitations of Code Section 162(m) that apply to Covered Employees, as prescribed in Code Section 162(m) and Treasury Regulation Section 1.162-27(e) (or its successor), which is applicable during such period that the Company is a Publicly Held Corporation. +2.42 “Performance Measures” +means the business criteria that are specified by the Committee pursuant to Section 14.2 for an Award that is intended to qualify for the Performance-Based Exception; the satisfaction of such business criteria during the Performance Period being required for the grant and/or vesting of the Award to occur, as specified in the applicable Award Agreement. +2.43 “Performance Period” +means the period of time during which pre-established Performance Measures must be met in order to determine the degree of payout and/or vesting with respect to any Award that is intended to qualify for the Performance-Based Exception. +2.44 “Performance Share” +means an Award granted pursuant to Article 10 . +2.45 “Performance Unit” +means an Award granted pursuant to Article 11 . +2.46 “Period of Restriction” +means the time period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), and specified in the Award Agreement. +2.47 “Person” +shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof. +Exhibit A - Page 9 +2.48 “Plan” +means Callon Petroleum Company 2011 Omnibus Incentive Plan, as the same may be amended from time to time. +2.49 “Prior Plan” +means each of the Callon Petroleum Company 1994 Stock Incentive Plan, the Callon Petroleum Company 1996 Stock Incentive Plan, the Callon Petroleum Company 2002 Stock Incentive Plan, the Callon Petroleum Company 2006 Stock Incentive Plan, and the Callon Petroleum Company 2009 Stock Incentive Plan. On and after the Effective Date, no new awards shall be granted under any Prior Plan. All Shares under a Prior Plan that are not reserved for outstanding award grants under a Prior Plan that were made prior to the Effective Date shall be available for Awards under this Plan, subject to further adjustment under Article 4 . However, outstanding awards that were granted under a Prior Plan before the Effective Date, including any related award agreements, shall not be affected by the adoption of this Plan. +2.50 “Publicly Held Corporation” +means a corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act. +2.51 “Restricted Stock” +means an Award granted pursuant to Article 8 . +2.52 “Restricted Stock Unit” +means an Award granted pursuant to Article 9 . +2.53 “Restriction Period” +means the period of time determined by the Committee and set forth in the Award Agreement during which the transfer of Restricted Stock by the Participant is restricted. +2.54 “Share” +means a share of Common Stock of the Company. +2.55 “Share Pool +means the number of Shares authorized for issuance under Section 4.1 , as adjusted for (a) Awards and payouts under Section 4.2 and (b) changes and adjustments as described in Section 4.5 . +2.56 “Stock Appreciation Right” or “SAR” +means an Award granted pursuant to Article 7 . +2.57 “Subsidiary” +means any corporation, partnership or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, an interest of more than fifty percent (50%) by reason of stock ownership or otherwise, except that, with respect to the issuance of Incentive Stock Options, the term “Subsidiary” shall have the same meaning as the term “subsidiary corporation” as defined in Code Section 424(f) to the extent required by Code Section 422. +2.58 “Third-Party Service Provider” +means any consultant, agent, advisor or independent contractor who renders services to the Company, a Subsidiary or an Affiliate that (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction, (b) do not directly or indirectly promote or maintain a market for the Company’s securities, and (c) is not an Employee or a Nonemployee Director. +Exhibit A - Page 10 +Article 3. Administration +3.1 General +. The Committee shall be responsible for administering this Plan, subject to this Article 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents and other individuals, any of whom may be an Employee, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participants, the Company, any Affiliate or Subsidiary, and all other interested individuals. +3.2 Authority of the Committee +. Subject to any express limitations set forth in the Plan, the Committee shall have full and exclusive discretionary power and authority to take such actions as it deems necessary and advisable with respect to the administration of the Plan including, but not limited to, the following: +(a) To determine from time to time which of the persons eligible under the Plan shall be granted Awards, when and how each Award shall be granted, what type or combination of types of Awards shall be granted, the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Shares pursuant to an Award and the number of Shares subject to an Award; +(b) To construe and interpret the Plan and Awards granted under it, and to establish, amend, and revoke rules and regulations for its administration. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in an Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective; +(c) To approve forms of Award Agreements for use under the Plan; +(d) To determine Fair Market Value of a Share; +(e) To amend the Plan or any Award Agreement as provided in the Plan; +(f) To adopt sub-plans and/or special provisions applicable to stock awards regulated by the laws of a jurisdiction other than, and outside of, the United States. Such sub-plans and/or special provisions may take precedence over other provisions of the Plan, but unless otherwise superseded by the terms of such sub-plans and/or special provisions, the provisions of the Plan shall govern; +(g) To authorize any Authorized Officer to execute on behalf of the Company any Award Agreement or other instrument that is required to effectuate the grant of an Award; +(h) To determine whether Awards will be settled in Shares, cash or in any combination thereof; +Exhibit A - Page 11 +(i) To determine whether Awards will provide for Dividend Equivalents; +(j) To establish a program whereby Participants designated by the Committee may reduce compensation otherwise payable in cash in exchange for Awards under the Plan; +(k) To authorize a program permitting eligible Participants to surrender outstanding Awards in exchange for newly granted Awards, subject to any applicable shareholder approval requirements; +(l) To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by a Participant of any Shares, including, without limitation, (i) restrictions under an insider trading policy and (ii) restrictions as to the use of a specified brokerage firm for such resales or other transfers; and +(m) To provide, either at the time an Award is granted or by subsequent action, that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash or a combination thereof, the amount of which is determined by reference to the Fair Market Value of Shares. +3.3 Delegation +. The Committee may delegate to (a) one or more of its members, (b) to one or more officers of the Company or any Subsidiary or Affiliate or (c) one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan. To the extent permitted by applicable law, the Committee may, by resolution, authorize one or more officers of the Company to do one or both of the following on the same basis as can the Committee: (a) designate Employees to be recipients of Awards, and (b) determine the size of any such Awards; provided, however, (i) the Committee shall not delegate such responsibilities to any such officer for Awards granted to an Employee who is considered an Insider; (ii) the resolution providing such authorization sets forth the total number of Awards such officer(s) may grant; and (iii) the officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated. +While the Company is a Publicly Held Corporation, the Committee may not delegate to any person the authority to take any action that would contravene the requirements of Rule 16b-3 under the Exchange Act, the Performance-Based Exception under Code Section 162(m), or the Sarbanes-Oxley Act of 2002. +3.4 Meetings +. The Committee shall designate a chairman from among its members who shall preside at its meetings, and shall designate a secretary, without regard to whether that person is a member of the Committee, who shall keep the minutes of the proceedings and all records, documents, and data pertaining to its administration of the Plan. Meetings shall be held at such times and places as shall be determined by the Committee and the Committee may hold telephonic meetings. The Committee may take any action otherwise proper under the Plan by the affirmative vote, taken with or without a meeting, of a majority of its members. The Committee may authorize any one or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee. +Exhibit A - Page 12 +3.5 Decisions Binding +. All determinations and decisions of the Committee shall be made in its discretion pursuant to the provisions of the Plan, and shall be final, conclusive and binding on all persons including the Company, its shareholders, Employees, Participants, and their estates and beneficiaries. The Committee’s decisions and determinations with respect to any Award need not be uniform and may be made selectively among Awards and Participants, whether or not such Awards are similar or such Participants are similarly situated. +3.6 Modification of Outstanding Awards +. Subject to any shareholder approval requirements if applicable, the Committee may, in its discretion, provide for the extension of the exercisability of an Award, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provisions of an Award, or otherwise amend or modify an Award in any manner that (a) is not adverse to the Participant to whom such Award was granted, (b) is consented to by such Participant, (c) does not cause the Award to provide for the deferral of compensation in a manner that does not comply with Code Section 409A or is not exempt under Section 409A (unless otherwise determined by the Committee), or (d) does not contravene the requirements of the Performance-Based Exception under Code Section 162(m). With respect to an Award that is an ISO, no adjustment thereto shall be made to the extent constituting a “modification” within the meaning of Code Section 424(h)(3) unless otherwise agreed to by the Participant in writing. Notwithstanding the foregoing provisions of this Section, no amendment or modification of an Award shall be made to the extent such modification results in any Stock Option with an exercise price less than 100% of the Fair Market Value per Share on the date of grant (110% for Participants holding ISOs who are 10% or greater shareholders as required under Code Section 422). +3.7 Expenses of Committee +. The Committee may employ legal counsel, including, without limitation, independent legal counsel and counsel regularly employed by the Company, and other agents as the Committee may deem appropriate for the administration of the Plan. The Committee may rely upon any opinion or computation received from any such counsel or agent. All expenses incurred by the Committee in interpreting and administering the Plan, including, without limitation, meeting expenses and professional fees, shall be paid by the Company. +3.8 Surrender of Previous Awards +. The Committee may, in its discretion, grant Awards to Participants on the condition that such Participants surrender to the Committee for cancellation such other Awards (including, without limitation, Awards with higher exercise prices) as the Committee directs. Awards granted on the condition precedent of surrender of outstanding Awards shall not count against the Share Pool limit set forth in Article 4 until such time as such previous Awards are surrendered and cancelled. No surrender of Awards shall be made under this Section 3.8 if such surrender causes any Award to provide for the deferral of compensation in a manner that is subject to taxation under Code Section 409A unless otherwise determined by the Committee in its discretion. +Exhibit A - Page 13 +Article 4. Shares Subject to this Plan and Maximum Awards +4.1 Number of Shares Authorized and Available for Awards +. Subject to adjustment as provided under the Plan, the total number of Shares constituting the Share Pool which is available for Awards under the Plan shall be equal to the sum of (a) Two Million Three Hundred Thousand (2,300,000) Shares, (b) any and all Shares that are available for awards under the Prior Plans as of the Effective Date that are not reserved for outstanding awards that were granted under the Prior Plans before the Effective Date, and (c) any and all Shares that may become available for awards under the Prior Plans on or after the Effective Date that were reserved for outstanding awards that were granted under the Prior Plans before the Effective Date, as provided in Section 4.2(b) . +Any of the authorized Shares may be used for any type of Award under the Plan, and any or all of the available Shares may be allocated to Incentive Stock Options. +For purposes of counting Shares against the ISO maximum number of reserved Shares, the net number of Shares issued pursuant to the exercise of an ISO shall be counted. The Committee may from time to time adopt and observe such procedures concerning the counting of Shares against the Share Pool limit as it deems appropriate. +4.2 Calculation of Share Usage for Share Pool +. The Committee shall determine the number of Shares constituting the Share Pool that is available for grants of Awards under the Plan, subject to the following: +(a) Any Shares related to an Award granted under the Plan that (1) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the Shares, (2) are settled in cash in lieu of Shares, or (3) are exchanged with the Committee’s permission, prior to the issuance of Shares, for Awards not involving Shares, shall again be available immediately for grants under this Plan. Any Shares (i) withheld, surrendered or tendered in payment of the Option Price of an Award, (ii) tendered or withheld in order to satisfy tax withholding obligations associated with the exercise of an Option or settlement of an Award, or (iii) that were subject to a Share-settled SAR and were not issued upon the exercise of such SAR, shall again become available for grants under this Plan. +(b) Any Shares related to an Award previously granted under any Prior Plan prior to the Effective Date that, on or after the Effective Date, (1) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the Shares, are settled in cash in lieu of Shares, or (2) are exchanged with the Committee’s permission, prior to the issuance of Shares, for Awards not involving Shares, shall again be available for grants under this Plan. Any Shares (i) withheld, surrendered or tendered in payment of the Option Price of an Award granted under any Prior Plan, (ii) tendered or withheld in order to satisfy tax withholding obligations associated with the exercise of an Option or settlement of an Award granted under any Prior Plan, or (iii) that were subject to a Share-settled SAR granted under any Prior Plan and were not issued upon the exercise of such SAR, shall become available for grants under this Plan and not under the Prior Plan. +(c) The Shares usage rules above shall be construed and administered so as to comply with the Performance-Based Exception. +Exhibit A - Page 14 +4.3 Common Stock Available +. The Common Stock in the Share Pool that is available for issuance or transfer under the Plan shall be made available from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but unissued shares, or (c) Shares to be purchased or acquired by the Company. Shares issued under the Plan shall be in whole shares; no fractional shares shall be issued under the Plan. In the event of a fractional Share of .50 or higher, the fraction will be rounded up to the next nearest whole Share and, in the case of a fraction less than .50, the fraction will be rounded down to the next nearest whole Share. +4.4 Annual Award Limits +. Subject to Sections 4.5 , the maximum number of Shares for which Options or SARs may be granted to any Participant in any calendar year shall be One Million (1,000,000) Shares, and the maximum number of Shares that may be paid to any Participant in any calendar year in the form of Restricted Stock, Restricted Stock Units, Performance Shares or Other Stock Based Awards, in each case that are Performance-Based Compensation, shall be One Million (1,000,000) Shares, as determined as of the date of payout. The maximum aggregate amount that may be paid under an Award of Performance Units, Cash-Based Awards or any other Award that is payable in cash, in each case that are Performance-Based Compensation, shall be $10 million, as determined as of the date of payout. These limitations shall be construed and administered so as to comply with the Performance-Based Exception. +4.5 Adjustments in Authorized Shares +. Adjustment in authorized Shares available for issuance under the Plan or under an outstanding Award, and adjustments in Annual Award Limits, shall be subject to the following provisions: +(a) In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company), such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin-off or other distribution of stock or property of the Company, combination of Shares, exchange of Shares, dividend in kind or other like change in capital structure, number of outstanding Shares or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction (“ Corporate Transactions ”), the Committee, in order to prevent dilution or enlargement of Participants’ rights under this Plan, shall substitute or adjust, as applicable, (1) the number and kind of Shares that may be issued under this Plan or under particular forms of Awards, (2) the number and kind of Shares subject to outstanding Awards, (3) the Option Price or Grant Price applicable to outstanding Awards, and (4) the Annual Award Limits and other value determinations applicable to outstanding Awards. The Committee, in its discretion, shall determine the methodology or manner of making such substitution or adjustment. +(b) The Committee, in its discretion, may also make appropriate adjustments in the terms of any Awards under this Plan to reflect or related to such Corporate +Transactions and to modify any other terms of outstanding Awards, including modifications of Performance Measures and changes in the length of Performance Periods to the extent necessary and permitted to comply with the requirements of the Performance-Based Exception, if applicable. +(c) The determinations of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. +Exhibit A - Page 15 +Article 5. Eligibility and Participation. +5.1 Eligibility to Receive Awards +. Individuals eligible to participate in this Plan include all Employees, Directors, and Third-Party Service Providers. +5.2 Participation in the Plan +. Subject to the provisions of this Plan, the Committee may, from time to time, select from all individuals eligible to participate in the Plan, those individuals to whom Awards shall be granted and shall determine, in its discretion, the nature of any and all terms permissible by law and the amount of each Award. All Awards hereunder shall be evidenced by an Award Agreement. +Article 6. Stock Options +6.1 Grant of Options +. Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its discretion. Each grant of an Option shall be evidenced by an Award Agreement which shall specify whether the Option is in the form of a Nonqualified Stock Option or an Incentive Stock Option. +6.2 Option Price +. The Option Price for each grant of an Option shall be determined by the Committee in its sole discretion and shall be specified in the Award Agreement evidencing such Option; provided, however, the Option Price must be at least equal to 100% of the FMV of a Share as of the Option’s Grant Date, subject to adjustment as provided for under Section 4.5 . +6.3 Minimum Vesting Period +. Each Option shall vest over a three-year service period or such longer period as determined by the Committee in its discretion and as set forth in the applicable Award Agreement. An Option may vest at any rate over the minimum three-year service period including, but not limited to, ratably and cliff ( i.e. , no vesting until the completion of three-years of service) as determined by the Committee in its sole discretion. +6.4 Term of Option +. The term of an Option granted to a Participant shall be determined by the Committee, in its sole discretion; provided, however, no Option shall be exercisable later than the tenth (10 th ) anniversary date of its grant. Notwithstanding the foregoing, for Nonqualified Stock Options granted to Participants outside the United States, the Committee has the authority to grant Nonqualified Stock Options that have a term greater than ten (10) years. +Exhibit A - Page 16 +6.5 Exercise of Option +. An Option shall be exercisable at such times, and be subject to such restrictions and conditions, as the Committee shall set forth in the Award Agreement. +6.6 Payment of Option Price +. An Option shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures that may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. A condition of the issuance of the Shares as to which an Option shall be exercised shall be the payment of the Option Price. The Option Price of any exercised Option shall be payable to the Company in accordance with one of the following methods as determined by the Committee, in its discretion: +(a) In cash or its equivalent; +(b) By tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Option Price; +(c) By a cashless broker-assisted exercise; +(d) By any combination of (a), (b) and (c); or +(e) Any other method approved or accepted by the Committee in its discretion. +Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars or Shares, as applicable. +6.7 Special Rules Regarding ISOs +. Notwithstanding any provision of the Plan to the contrary, an Option granted in the form of an ISO can only be granted to a Participant who is an Eligible Employee. All ISOs shall be subject to the following rules: +(a) Special ISO definitions: +(i) “Parent Corporation” shall mean as of any applicable date a corporation in respect of the Company that is a parent corporation within the meaning of Code Section 424(e). +(ii) “ISO Subsidiary” shall mean as of any applicable date any corporation in respect of the Company that is a subsidiary corporation within the meaning of Code Section 424(f). +(iii) A “10% Owner” is an individual who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its Parent Corporation or any ISO Subsidiary. +Exhibit A - Page 17 +(b) Eligible Employees . An ISO may be granted solely to eligible Employees of the Company, Parent Corporation, or ISO Subsidiary. +(c) Specified as an ISO . An Award Agreement evidencing the grant of an ISO shall specify that such grant is intended to be an ISO. +(d) Option price . The Option Price of an ISO granted shall be determined by the Committee, in its discretion, and shall be specified in the Award Agreement; provided, however, the Option Price must be at least equal 100% of the Fair Market Value of a Share as of the ISO’s Grant Date (in the case of 10% owners, the Option Price may not be not less than 110% of such Fair Market Value), subject to adjustment provided for under Section 4.5 . +(e) Right to exercise . Any ISO granted to a Participant shall be exercisable during his or her lifetime solely by such Participant. +(f) Exercise period . The period during which a Participant may exercise an ISO shall not exceed ten years (five years in the case of a Participant who is a 10% owner) from the date on which the ISO was granted. +(g) Termination of employment . In the event a Participant terminates Employment due to death or Disability, the Participant (or, in the case of death, the person(s) to whom the Option is transferred by will or the laws of descent and distribution) shall have the right to exercise the Participant’s ISO Award during the period specified in the applicable Award Agreement solely to the extent the Participant had the right to exercise the ISO on the date of his death or Disability; as applicable, provided, however, that such period may not exceed one year from the date of such termination of Employment or if shorter, the remaining term of the ISO. In the event a Participant terminates Employment for reasons other than death or Disability, the Participant shall have the right to exercise the Participant’s ISO during the period specified in the applicable Award Agreement solely to the extent the Participant had the right to exercise the ISO on the date of such termination of Employment; provided, however, that such period may not exceed three months from the date of such termination of Employment or if shorter, the remaining term of the ISO. +(h) Dollar limitation . To the extent that the aggregate Fair Market Value of (a) the Shares with respect to which Options designated as Incentive Stock Options plus (b) the shares of stock of the Company, Parent Corporation and any ISO Subsidiary with respect to which other Incentive Stock Options are exercisable for the first time by a holder of an ISO during any calendar year under all plans of the Company and any Affiliate and Subsidiary exceeds $100,000, such Options shall be treated as Nonqualified Stock Options. For purposes of the preceding sentence, (a) Options shall be taken into account in the order in which they were granted, and (b) the Fair Market Value of the Shares shall be determined as of the time the Option is granted. +Exhibit A - Page 18 +(i) Duration of ISO Grants . No ISO may be granted more than ten (10) years after the earlier of (a) the adoption of this Plan by the Board and (b) the Effective Date. +(j) Notification of disqualifying disposition . If any Participant shall make any disposition of Shares issued pursuant to the exercise of an ISO, such Participant shall notify the Company of such disposition within 30 days thereof. The Company shall use such information to determine whether a “disqualifying disposition”, as described in Code Section 421(b), has occurred. +(k) Transferability . No ISO may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided, however, that at the discretion of the Committee, an ISO may be transferred to a grantor trust under which Participant making the transfer is the sole beneficiary. +Article 7. Stock Appreciation Rights +7.1 Grant of SARs +. SARs may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of an SAR shall be evidenced by an Award Agreement. +7.2 Grant Price +. The Grant Price for each grant of an SAR shall be determined by the Committee and shall be specified in the Award Agreement evidencing the SAR; provided, however, the Grant Price must be at least equal to 100% of the FMV of a Share as of the Grant Date, subject to adjustment as provided for under Section 4.5 . +7.3 Term of SAR +. The term of an SAR granted to a Participant shall be determined by the Committee, in its sole discretion; provided, however, no SAR shall be exercisable later than the tenth (10 th ) anniversary date of its grant. Notwithstanding the foregoing, for SARs granted to Participants outside the United States, the Committee has the authority to grant SARs that have a term greater than ten (10) years. +7.4 Minimum Vesting Period +. Each SAR shall vest over a three-year service period or such longer period as determined by the Committee, in its discretion, and as set forth in the applicable Award Agreement. An SAR may vest at any rate over the minimum three-year service period including, but not limited to, ratably and cliff ( i.e. , no vesting until the completion of three years of service), as determined by the Committee in its discretion. +7.5 Exercise of SAR +. An SAR shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall approve. +7.6 Notice of Exercise +. An SAR shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures that may be authorized by the Committee, setting forth the number of Shares with respect to which the SAR is to be exercised. +Exhibit A - Page 19 +7.7 Settlement of SARs +. Upon the exercise of an SAR, pursuant to a notice of exercise properly completed and submitted to the Company in accordance with Section 7.6 , a Participant shall be entitled to receive payment from the Company in an amount equal to the product of (a) and (b), below: +(a) The excess of the Fair Market Value of a Share on the date of exercise over the Grant Price. +(b) The number of Shares with respect to which the SAR is exercised. +Payment shall be made in cash, Shares, or a combination thereof, as provided for under the applicable Award Agreement. +Article 8. Restricted Stock +8.1 Grant of Restricted Stock +. Restricted Stock may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its discretion. Each grant of Restricted Stock shall be evidenced by an Award Agreement. +8.2 Nature of Restrictions +. Each grant of Restricted Stock shall subject to a Restriction Period that shall lapse upon the satisfaction of such conditions and restrictions as are determined by the Committee, in its discretion, and set forth in an applicable Award Agreement. Such conditions or restrictions may include, without limitation, one or more of the following: +(a) A requirement that a Participant pay a stipulated purchase price for each Share of Restricted Stock; +(b) Restrictions based upon the achievement of specific performance goals; +(c) Time-based restrictions on vesting following the attainment of the performance goals; +(d) Time-based restrictions; or +(e) Restrictions under applicable laws and restrictions under the requirements of any stock exchange or market on which such Shares are listed or traded. +8.3 Minimum Vesting Period +. Each grant of Restricted Stock shall vest over a three-year service period or such longer period as determined by the Committee in its discretion and as set forth in the applicable Award Agreement. A grant of Restricted Stock may vest at any rate over the minimum three-year service period including, but not limited to, ratably and cliff ( i.e. , no vesting until the completion of three years of service), as determined by the Committee in its discretion. +Exhibit A - Page 20 +8.4 Issuance of Shares +. To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions or restrictions applicable to such Shares have been satisfied or lapse. Shares of Restricted Stock covered by each Restricted Stock grant shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapsed (including satisfaction of any applicable tax withholding obligations). +8.5 Certificate Legend +. In addition to any legends placed on certificates pursuant to Section 8.2 , each certificate representing Shares of Restricted Stock may bear a legend such as the following or as otherwise determined by the Committee in its discretion: The sale or transfer of Shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer as set forth in the Callon Petroleum Company 2011 Omnibus Incentive Plan, and in the associated Award Agreement. A copy of this Plan and such Award Agreement may be obtained from Callon Petroleum Company. +8.6 Voting Rights +. Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by law, as determined by the Committee, a Participant holding Shares of Restricted Stock may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. +Article 9. Restricted Stock Units +9.1 Grant of Restricted Stock Units +. Restricted Stock Units may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its discretion. A grant of a Restricted Stock Unit or Restricted Stock Units shall not represent the grant of Shares but shall represent a promise to deliver a corresponding number of Shares based upon the completion of service, performance conditions, or such other terms and conditions as specified in the applicable Award Agreement over the Restriction Period. Each grant of Restricted Stock Units shall be evidenced by an Award Agreement. +9.2 Nature of Restrictions +. Each grant of Restricted Stock Units shall be subject to a Restriction Period that shall lapse upon the satisfaction of such conditions and restrictions as are determined by the Committee, in its discretion, and set forth in an applicable Award Agreement. Such conditions or restrictions may include, without limitation, one or more of the following: +(a) A requirement that a Participant pay a stipulated purchase price for each Restricted Stock Unit; +(b) Restrictions based upon the achievement of specific performance goals; +(c) Time-based restrictions on vesting following the attainment of the performance goals; +(d) Time-based restrictions; and/or +(e) Restrictions under applicable laws or under the requirements of any stock exchange on which Shares are listed or traded. +Exhibit A - Page 21 +9.3 Minimum Vesting Period +. Each grant of Restricted Stock Units shall vest over a three-year service period or such longer period, as determined by the Committee in its discretion, and as set forth in the applicable Award Agreement. A grant of Restricted Stock Units may vest at any rate over the minimum three-year service period including, but not limited to, ratably and cliff ( i.e. , no vesting until the completion of three years of service), as determined by the Committee in its discretion. +9.4 Voting Rights +. A Participant shall have no voting rights with respect to any Restricted Stock Units or to the Shares corresponding to any such Restricted Stock Units. +9.5 Settlement and Payment Restricted Stock Units +. Unless otherwise elected by the Participant or otherwise provided for in the Award Agreement, Restricted Stock Units shall be settled upon the date that such Restricted Stock Units become vested. Such settlement may be made in Shares, cash or a combination thereof, as specified in the Award Agreement. +Article 10. Performance Shares +10.1 Grant of Performance Shares +. Performance Shares may be granted to Participants in such number, and upon such terms and at any time and from time to time, as shall be determined by the Committee in its discretion. Each grant of Performance Shares shall be evidenced by an Award Agreement. +10.2 Value of Performance Shares +. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. The Committee shall set Performance Measures, in its discretion, which, depending on the extent to which they are met over the specified Performance Period, shall determine the number of Performance Shares that shall be paid to a Participant. +10.3 Earning of Performance Shares +. After the applicable Performance Period has ended, the number of Performance Shares earned by the Participant over the Performance Period shall be determined as a function of the extent to which the applicable corresponding Performance Measures have been achieved. This certification shall be made solely by the Committee. +10.4 Minimum Service Period +. Each Performance Share shall be subject to a one-year service period, or such longer period as determined by the Committee in its discretion, and as set forth in the Award Agreement, in addition to the Performance Measures applicable to the Performance Share. +10.5 Form and Timing of Payment of Performance Shares +. The Committee shall pay at the close of the applicable Performance Period, or within one hundred-twenty (120) days thereafter, any earned Performance Shares in the form of cash or in Shares, or in a combination thereof, as specified in the Participant’s Award Agreement. +Exhibit A - Page 22 +Article 11. Performance Units +11.1 Grant of Performance Units +. Subject to the terms and provisions of this Plan, Performance Units may be granted to a Participant in such number, and upon such terms and at any time and from time to time as shall be determined by the Committee in its discretion. Each grant of Performance Units shall be evidenced by an Award Agreement. +11.2 Value of Performance Units +. Each Performance Unit shall have an initial notional value equal to a dollar amount determined by the Committee, in its discretion. The Committee shall set Performance Measures in its discretion that, depending on the extent to which they are met over the specified Performance Period, will determine the number of Performance Units that shall be settled and paid to the Participant. +11.3 Earning of Performance Units +. After the applicable Performance Period has ended, the number of Performance Units earned by the Participant over the Performance Period shall be determined as a function of the extent to which the applicable corresponding Performance Measures have been achieved. This certification shall be made solely by the Committee. +11.4 Minimum Service Period +. Each Performance Unit shall be subject to a one-year service period or such longer period as determined by the Committee, in its discretion, and as set forth in the Award Agreement, in addition to the Performance Measures applicable to the Performance Unit. +11.5 Form and Timing of Payment of Performance Units +. The Committee shall pay at the close of the applicable Performance Period, or within one hundred twenty (120) days thereafter, any earned Performance Units in the form of cash or in Shares, or in a combination thereof, as specified in a Participant’s Award Agreement. +Article 12. Other Stock-Based Awards and Cash-Based Awards +12.1 Grant of Other Stock-Based Awards and Cash-Based Awards. +(a) The Committee may grant Other Stock-Based Awards not otherwise described by the terms of this Plan, including the grant or offer for sale of unrestricted Shares, in such amounts and subject to such terms and conditions, as the Committee shall determine in its discretion. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. +(b) The Committee, at any time and from time to time, may grant Cash-Based Awards to a Participant in such amounts and upon such terms as the Committee shall determine in its discretion. +(c) Each grant of Other Stock-Based Awards and Cash-Based Awards shall be evidenced by an Award Agreement. +Exhibit A - Page 23 +12.2 Value of Other Stock-Based Awards and Cash-Based Awards. +(a) Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Committee in its discretion. +(b) Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee, in its discretion. If the Committee exercises its discretion to establish Performance Measures, the value of Cash-Based Awards that shall be paid to the Participant will depend on the extent to which such Performance Measures are met during the Performance Period. +12.3 Payment of Other Stock-Based Awards and Cash-Based Awards +. Payment, if any, with respect to Cash-Based Awards and Other Stock-Based Award shall be made in accordance with the terms of the applicable Award Agreement, in cash, Shares or a combination of both, as determined by the Committee in its discretion. +Article 13. Transferability of Awards and Shares +13.1 Transferability of Awards +. Except as provided in Sections 13.2 and 13.3 , during a Participant’s lifetime, Options shall be exercisable only by the Participant. Awards shall not be transferable other than by will or the laws of descent and distribution or, subject to the consent of the Committee, pursuant to a domestic relations order entered into by a court of competent jurisdiction; no Awards shall be subject, in whole or in part, to attachment, execution or levy of any kind; and any purported transfer in violation of this Section 13.1 shall be null and void. The Committee may establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable or Shares deliverable in the event of, or following, the Participant’s death may be provided. +13.2 Transferability of NQSOs +. Awards granted under the Plan shall not be transferable or assignable other than: (a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic relations order (as defined under Code Section 414(p)); provided, however, only with respect to Awards consisting of Nonqualified Stock Options, the Committee may, in its discretion, authorize all or a portion of the Nonqualified Stock Options to be granted on terms which permit transfer by the Participant to (i) the members of the Participant’s Immediate Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family members, (iii) a partnership in which such Immediate Family members are the only partners, or (iv) any other entity owned solely by Immediate Family members; provided that (A) there may be no consideration for any such transfer, (B) the Award Agreement pursuant to which such Nonqualified Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 13.2 , (C) subsequent transfers of transferred Nonqualified Stock Options shall be prohibited except in accordance with clauses (a) and (b) (above) of this sentence, and (D) there may be no transfer of any Award in a listed transaction as described in IRS Notice 2003-47. Following any permitted transfer, the Nonqualified Stock Option shall continue to be subject to the same terms and +Exhibit A - Page 24 +conditions as were applicable immediately prior to transfer, provided that the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment, as set out in the Plan and the Award Agreement, shall continue to be applied with respect to the original Participant, and the Award shall be exercisable by the transferee only to the extent, and for the periods, specified in the Award Agreement. +Except as may otherwise be permitted under the Code, in the event of a permitted transfer of a Nonqualified Stock Option hereunder, the original Participant shall remain subject to withholding taxes upon exercise. In addition, the Company and the Committee shall have no obligation to provide any notices to any Participant or transferee thereof, including, for example, notice of the expiration of an Award following the original Participant’s termination of Employment. +The designation by a Participant of a beneficiary of an Award shall not constitute transfer of the Award. No transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Committee has been furnished with a copy of the deceased Participant’s enforceable will or such other evidence as the Committee deems necessary to establish the validity of the transfer. Any attempted transfer in violation of this Section 13.2 shall be void and ineffective. All determinations under this Section 13.2 shall be made by the Committee in its discretion. +13.3 Committee Action +. Except as provided in Section 6.7(k) for ISOs or if prohibited by applicable law or regulation, the Committee may, in its discretion, determine that notwithstanding Section 13.1 , any or all Awards shall be transferable, without compensation to the transferor, to and exercisable by such transferees, and subject to such terms and conditions, as the Committee may deem appropriate; provided, however, no Award may be transferred for value without shareholder approval. +13.4 Restrictions on Share Transferability +. The Committee may impose such restrictions on any Shares acquired by a Participant under the Plan as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under (a) applicable federal securities laws, (b) the requirements of any stock exchange or market upon which such Shares are then listed or traded, or (c) any blue sky or state securities laws applicable to such Shares. +Article 14. Performance-Based Compensation and Compliance with Code Section 162(m) +14.1 Compliance with Code Section 162(m) +. The provisions of the Plan are intended to ensure that all Options and SARs granted hereunder to any Participant who is or may be a Covered Employee at the time of exercise of such Option or SAR grant qualify for the Performance-Based Exception, and that such Options and SARs shall therefore be considered Performance-Based Compensation and this Plan shall be interpreted and operated consistent with that intention. The Committee may designate any Award (other than an Option or SAR) as Performance-Based Compensation upon grant, in each case based upon a determination that (a) the Participant is or may be a Covered Employee with respect to such Award, and (b) the Committee intends that such Award qualify for the Performance-Based Exception. The Committee shall have the sole authority to specify which Awards are to be granted in compliance +Exhibit A - Page 25 +with the Performance-Based Exception and treated as Performance-Based Compensation. If any provision of the Plan or an Award Agreement would disqualify the Plan or would not otherwise permit the Plan or Award to comply with the Performance-Based Exception as so intended, such provision shall be construed or deemed to be amended to conform to the requirements of the Performance-Based Exception to the extent permitted by applicable law and deemed advisable by the Committee; provided, however, no such construction or amendment shall have an adverse effect on the prior grant of an Award or the economic value to a Participant of any outstanding Award. +14.2 Performance Measures +. As determined by the Committee at the time of grant, Performance-Based Awards may be granted subject to Performance Measures relating to one or more of the following objectives in order to qualify for the Performance-Based Exception. The performance goals upon which the payment or vesting of an Award to a Covered Employee, which is intended to qualify as Performance-Based Compensation, shall be limited to the following Performance Measures: +(a) Operating income; +(b) Book value; +(c) Profit; +(d) Profitability ratios, such as combined ratio, loss ratio, and expense ratio; +(e) Earnings (either in aggregate or on a per-share basis) (including but not limited to, total shareholder return, earnings per share or earnings before or after taxes); +(f) Net income; +(g) Cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment); +(h) Shareholder returns including return on assets, investment, invested capital, and equity (including income applicable to common shareholders or other class of shareholders); +(i) Return measures (including but not limited to return on assets, equity, or invested capital); +(j) Earnings before or after either, or any combination of, interest, taxes, depreciation, or amortization (EBITDA); +(k) Gross revenues; +(l) Share price (including growth measures and total shareholder return or attainment by the shares of a specified value for a specified period of time); +Exhibit A - Page 26 +(m) Reduction in expense levels in each case, where applicable, determined either on a Company-wide basis or in respect of any one or more subsidiaries or business units thereof; +(n) Economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital); +(o) Market share; +(p) Annual net income to a Share; +(q) Earnings per Share; +(r) Annual cash flow provided by operations; +(s) Changes in annual revenue; +(t) Strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market penetration or business expansion goals, objectively identified project milestones, volume levels, cost targets, and goals relating to acquisitions or divestitures; +(u) Operational performance measures; +(v) Working capital targets; +(w) Gross, operating, or net-profit margins; +(x) Profit measures (including, but not limited to, profit growth, net operating profit or economic profit); +(y) Profit-related return ratios; +(z) Net sales growth; +(aa) Productivity ratios; +(bb) Turnover of assets, capital, or inventory; +(cc) Expense targets; +(dd) Margins; +(ee) Measures of health, safety or environment; +(ff) Operating efficiency; +(gg) Customer service or satisfaction; +Exhibit A - Page 27 +(hh) Credit quality; and +(ii) Debt ratios ( e.g. , debt to equity and debt to total capital). +Any Performance Measure may be used to measure the performance of the Company, any Subsidiary or Affiliate as a whole or any business unit of the Company, any Subsidiary or Affiliate, or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or a published or special index that the Committee, in its discretion, deems appropriate. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 14 . +Performance Measures may be stated in absolute terms or relative to comparison companies or indices to be achieved during a Performance Period. In the Award Agreement, the Committee shall establish one or more Performance Measures for each Award that is intended to qualify for the Performance-Based Exception on its Grant Date. +In establishing the Performance Measures for each applicable Award, the Committee may provide that the effect of specified extraordinary or unusual events will be included or excluded (including, but not limited to, items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence, or related to the disposal of a segment of business or a change in accounting principle, each as determined in accordance with the standards under Opinion No. 30 of the Accounting Principles Board (APB Opinion 30) or any successor or other authoritative financial accounting standards, as determined by the Committee). The terms of the stated Performance Measures for each applicable Award, whether for a Performance Period of one (1) year or multiple years, must preclude the Committee’s discretion to increase the amount payable to any Participant that would otherwise be due upon attainment of the Performance Measures, but may permit the Committee to reduce the amount otherwise payable to the Participant in the Committee’s discretion. +The Performance Measures specified in any Award Agreement need not be applicable to all Awards, and may be particular to an individual Participant’s function or business unit. The Committee may establish the Performance Measures of the Company (or any Affiliate), as determined and designated by the Committee, in its discretion, in the Award Agreement. +Performance-Based Awards will be granted in the discretion of the Committee and be (a) sufficiently objective so that an independent person or entity having knowledge of the relevant facts could determine the amount payable to Participant, if applicable, and whether the pre-determined Performance Measures have been achieved with respect to the Award, (b) established at a time when the performance outcome is substantially uncertain, (c) established in writing no later than ninety (90) days after the commencement of the Performance Period to which they apply (or no later than the date that 25% of the Performance Period has elapsed in the case of a Performance Period of less than a year), and (d) based on such Performance Measures as provided in this Article 14 and referenced in the Award Agreement. +Exhibit A - Page 28 +14.3 Evaluation of Performance +. The Committee may provide in any Award intended to qualify as Performance-Based Compensation that any evaluation of Performance Measures may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported financial results, (d) any reorganization and restructuring programs, (e) Extraordinary Items, (f) acquisitions or divestitures, and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of the Performance-Based Exception. +14.4 Adjustment of Performance-Based Compensation +. Awards that are intended to qualify as Performance-Based Compensation may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward, either on a formula or discretionary basis or any combination, as the Committee determines, in its discretion. +14.5 Committee Discretion +. In the event that applicable tax or securities laws change which permits discretion to the Committee to alter the governing Performance Measures or permit flexibility with respect to the terms of any Award to be treated as Performance-Based Compensation without obtaining shareholder approval of such change, the Committee shall have discretion to make such changes without obtaining shareholder approval to the extent permitted by the Performance-Based Exception. In addition, in the event that the Committee determines that it is advisable to grant Awards that do not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of the Performance-Based Exception and may thus base vesting on Performance Measures other than those set forth in Section 14.2 . +Article 15. Termination of Employment +Each Award Agreement evidencing the grant of an Award shall provide for the following: +(a) The extent to which a Participant shall vest in or forfeit such Award following the Participant’s Date of Termination. +(b) With respect to an Award in the form of an Option or SAR, the extent to which a Participant shall have the right to exercise the Option or SAR following the Participant’s Date of Termination. +The foregoing provisions shall be determined in the discretion of the Committee, shall be included in the Award Agreement entered into with the Participant, need not be uniform among all Award Agreements, and may reflect distinctions based on the reasons for termination. +Exhibit A - Page 29 +Article 16. Nonemployee Director Awards +16.1 Awards to Nonemployee Directors +. The Board shall determine and approve all Awards to Nonemployee Directors. The terms and conditions of any grant of any Award to a Nonemployee Director shall be set forth in an Award Agreement. +16.2 Awards in Lieu of Fees +. The Board may permit a Nonemployee Director with an opportunity to receive an Award in lieu of payment of all or a portion of future Director fees (including but not limited to cash retainer fees and meeting fees) or other types of Awards pursuant to such terms and conditions as the Board or Committee may prescribe and set forth in an applicable sub-plan or Award Agreement. +Article 17. Effect of a Change in Control +Notwithstanding any other provision of this Plan to the contrary, the provisions of this Article 17 shall apply in the event of a Change in Control, unless otherwise expressly provided in the Participant’s applicable Award Agreement: +(a) Outstanding Options and SARs . Upon a Change in Control, a Participant’s then-outstanding Options and SARs shall immediately become fully vested (and, to the extent applicable, all performance conditions shall be deemed satisfied) and exercisable over the exercise period set forth in the applicable Award Agreement. +(b) Awards, other than Options and SARs, Subject to a Service Condition . Upon a Change in Control, a Participant’s then-outstanding Awards, other than Options and SARs, that are not vested and as to which vesting depends solely on the satisfaction of a service obligation by a Participant to the Company, or any Subsidiary or Affiliate shall become fully vested and shall be settled in cash, Shares or a combination as provided for under the applicable Award Agreement upon the occurrence of such Change in Control. +(c) Awards, other than Options and SARs, Subject to a Performance Condition . Upon a Change of Control, a Participant’s then-outstanding Awards, other than Options and SARs, that are subject to one or more performance conditions shall immediately vest, and all performance conditions shall be deemed satisfied as if target performance was achieved, effective upon the occurrence of the Change in Control. Such Awards shall be settled in cash, Shares or a combination as provided for under the applicable Award Agreement within ninety (90) days from the date of the Change in Control, notwithstanding that the applicable Performance Period, retention period or other restrictions and conditions have not been completed or satisfied. +Article 18. Dividend Equivalents +The Committee, in its discretion, may grant Dividend Equivalents to a Participant based on the dividends declared on Shares that are subject to any Award granted to the Participant, with such Dividend Equivalents credited to the Participant as of the applicable dividend payment dates that occur during a period determined by the Committee. Such Dividend Equivalents shall be converted to and paid in cash or additional Shares or Awards by such formula, and at such time and subject to such limitations, as may be determined by the Committee. Notwithstanding any provision to the contrary, the Committee shall not grant Dividend Equivalents to a Participant based on dividends declared on Shares that are subject to any Options or SARs granted to the Participant. +Exhibit A - Page 30 +Article 19. Beneficiary Designation +Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such beneficiary designation, benefits remaining unpaid or rights remaining unexercised at the Participant’s death shall be paid to or exercised by the Participant’s executor, administrator or legal representative. +Article 20. Rights of Participants +20.1 Employment +. Nothing in this Plan or an Award Agreement shall (a) interfere with or limit in any way the right of the Company, any Subsidiary or Affiliate, to terminate any Participant’s Employment with the Company, any Subsidiary or Affiliate at any time or for any reason not prohibited by law or (b) confer upon any Participant any right to continue his Employment or service as an Employee, Director or Third-Party Service Provider, as applicable, for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company or any Subsidiary or Affiliate and, accordingly, subject to applicable provisions of this Plan, the Plan and the benefits hereunder may be terminated at any time, in the discretion of the Committee or Board, without giving rise to any liability on the part of the Company, any Subsidiary or Affiliate. +20.2 Receive Awards +. No individual shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. +20.3 Rights as a Shareholder +. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares. +Article 21. Amendment and Termination +21.1 Amendment and Termination of the Plan and Awards. +(a) Subject to subparagraphs (b) and (c) of this Section 21.1 and Section 21.3 , the Board may at any time amend or terminate the Plan or amend or terminate any outstanding Award. +(b) Except as provided in Section 4.5, the terms of an outstanding Award may not be amended, without prior shareholder approval, to: +Exhibit A - Page 31 +(i) reduce the Option Price of an outstanding Option or to reduce the Grant Price of an outstanding SAR; +(ii) cancel an outstanding Option or SAR in exchange for other Options or SARs with an Option Price or Grant Price, as applicable, that is less than the Option Price of the cancelled Option or the Grant Price of the cancelled SAR, as applicable; or +(iii) cancel an outstanding Option that has an Option Price that is less the Fair Market Value of a Share on the date of cancellation or an outstanding SAR that has a Grant Price that is less than the Fair Market Value of a Share on the date of cancellation in exchange for cash or other Awards. +(c) Notwithstanding the foregoing, no amendment of this Plan shall be made without shareholder approval if shareholder approval is required pursuant to rules promulgated by any stock exchange or quotation system on which the Shares are listed or quoted or by applicable (1) U.S. state corporate laws or regulations, (2) U.S. federal laws or regulations (including, without limitation, the Code and the Exchange Act), and (3) the laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan. +21.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events +. Subject to Section 14.4 for Performance-Based Compensation and Section 21.1 , the Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.5 ) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee, in its discretion, determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. By accepting an Award under this Plan, a Participant agrees to any adjustment to the Award made pursuant to this Section 21.2 without further consideration or action. +21.3 Amendment to Conform to Law +. Notwithstanding any other provision of this Plan to the contrary, the Committee may amend the Plan or an Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or an Award Agreement to any law relating to plans or awards of a similar nature, and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any such amendment made pursuant to this Section 21.3 to the Plan and any Award Agreement without further consideration or approval. +Article 22. Tax Withholding +22.1 Minimum Tax Withholding +. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy applicable federal, state and local tax withholding requirements, domestic or foreign, with respect to any taxable event arising as a result of this Plan or an Award. +Exhibit A - Page 32 +22.2 Share Withholding +. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, upon the settlement of Restricted Stock Units, or upon the achievement of performance goals related to Performance Shares, or any other taxable event arising as a result of an Award granted hereunder (individually and collectively referred to as a “ Share Payment ”), a Participant may elect, subject to the approval of the Committee, to satisfy the minimum statutory withholding requirement, in whole or in part, by having the Company withhold from a Share Payment the number of Shares having a Fair Market Value on the date the withholding is to be determined equal to the minimum statutory withholding requirement. All such elections shall be irrevocable, made in writing, and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its discretion, deems to be appropriate. +Article 23. General Provisions +23.1 Forfeiture Events. +(a) General . In addition to the forfeiture events specified in subsection 23.1(b) below, the Committee may specify in an Award Agreement that the Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting of an Award. Such events may include, but shall not be limited to, termination of Employment for Cause, termination of the Participant’s provision of services to the Company, Affiliate or Subsidiary, violation of material Company, Affiliate or Subsidiary policy, breach of noncompetition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company, any Affiliate or Subsidiary. +(b) For Cause. A Participant’s termination of Employment for Cause shall result in the forfeiture of the Participant’s outstanding Awards in accordance with the following: +(i) Any outstanding and nonvested Options, SARs, Restricted Stock, RSUs, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards granted to the Participant shall be forfeited as of the date immediately preceding the Participant’s Date of Termination; and +(ii) Any vested and unexercised Options and SARs, vested but not settled RSUs, earned but not settled Performance Shares or Performance Units, and earned and/or vested Cash-Based Awards and Other Stock-Based Awards granted to the Participant shall be forfeited as of the date immediately preceding the Participant’s Date of Termination. +Exhibit A - Page 33 +23.2 Legend +. The certificates for Shares may include any legend that the Committee deems to be appropriate to reflect any restrictions on the transfer of such Shares. +23.3 Gender and Number +. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. +23.4 Severability +. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included. +23.5 Requirements of Law +. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. +23.6 Delivery of Title +. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan prior to: +(a) Obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and +(b) Completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. +23.7 Inability to Obtain Authority +. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. +23.8 Investment Representations +. The Committee may require any individual receiving Shares pursuant to an Award under this Plan to represent and warrant, in writing, that the individual is acquiring the Shares for investment and without any present intention to sell or distribute such Shares. +23.9 Employees Based Outside of the United States +. Notwithstanding any provision of this Plan to the contrary, in order to comply with the laws in other countries in which the Company, its Affiliates and/or its Subsidiaries operate or maintains Employees, Directors or Third-Party Service Providers, the Committee, in its discretion, shall have the power and authority to: +(a) Determine which Affiliates and Subsidiaries shall be covered by this Plan; +(b) Determine which Employees, Directors or Third-Party Service Providers outside the United States are eligible to participate in this Plan; +Exhibit A - Page 34 +(c) Modify the terms and conditions of any Award granted to Employees, Directors or Third-Party Service Providers outside the United States to comply with applicable foreign laws; +(d) Establish sub-plans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any sub-plans and modifications to Plan terms and procedures established under this Section 23.9 by the Committee shall be attached to this Plan document as appendices; and +(e) Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals. +Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate applicable law. +23.10 Uncertificated Shares +. To the extent that this Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange. +23.11 Unfunded Plan +. Participants shall have no right, title or interest whatsoever in or to any investments that the Company, its Subsidiaries or its Affiliates may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other individual. To the extent that any individual acquires a right to receive payments from the Company or any Affiliate or Subsidiary under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company or the Subsidiary or Affiliate, as the case may be. All payments to be made hereunder shall be paid from the general funds of the Company, or the Subsidiary or Affiliate, as the case may be, and no special or separate fund shall be established, and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in this Plan. +23.12 No Fractional Shares +. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award. Shares issued under the Plan shall be in whole shares; no fractional shares shall be issued under the Plan. In the event of a fractional Share of .50 or higher, the fraction will be rounded up to the next nearest whole Share and, in the case of a fraction less than .50, the fraction will be rounded down to the next nearest whole Share. The Committee shall determine whether cash, Awards or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated. +23.13 Retirement and Welfare Plans +. Neither Awards made under this Plan, nor Shares or cash paid pursuant to such Awards, may be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any Subsidiary’s or +Exhibit A - Page 35 +Affiliate’s retirement plans (both qualified and nonqualified) or welfare benefit plans, unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit. +23.14 Deferred Compensation +. Unless otherwise indicated in the applicable Award Agreement, it is not intended that any Award under this Plan, in form and/or operation, will constitute “deferred compensation” within the meaning of Code Section 409A and, therefore, it is intended that each Award will either be (a) not subject to the requirements applicable to deferred compensation under Code Section 409A or (b) satisfy the requirements for an exception or exemption under Code Section 409A. +(a) Awards that are not intended to constitute deferred compensation . With respect to an Award that is not intended to constitute deferred compensation within the meaning of Code Section 409A, (i) to the extent permitted under Code Section 409A, the Company is authorized to amend this Plan or the applicable Award Agreement, or to substitute such Award with another Award of comparable economic value, so that the Award as modified or substituted and/or the Plan as modified, remains exempt from the requirements applicable to deferred compensation under Code Section 409A, (ii) the Committee shall take no action otherwise permitted under the Plan or under an Award Agreement to the extent such action shall cause such Award to be treated as deferred compensation that is subject to taxation under Code Section 409A. The Committee, in its discretion, shall determine to what extent if any, this Plan or applicable Award Agreement shall be required to be so modified or substituted. Notwithstanding any provision to the contrary, such modification or substitution shall be made without prior notice to, or the consent of, the affected Participants. +(b) Awards that constitute deferred compensation . With respect to an Award that constitutes deferred compensation within the meaning of Code Section 409A by form or operation (including, but not limited to, an Award referenced under paragraph (a) above that the Committee determines is a form of deferred compensation subject to Section 409A), (i) to the extent necessary the Company is authorized to amend this Plan or applicable Award Agreement, or to substitute such Award with another Award of comparable economic value, so that the Award, as modified or substituted and/or the Plan as modified, complies with the requirements applicable to deferred compensation under Code Section 409A, and (ii) the Committee shall take no action otherwise permitted under the Plan or under an Award Agreement to the extent such action would cause such Award to no longer comply with the requirements applicable to deferred compensation under Code Section 409A. The Committee, in its discretion, shall determine to what extent if any, this Plan or applicable Award Agreement shall be required to be so modified or substituted. Notwithstanding any provision to the contrary, such modification or substitution shall be made without prior notice to, or the consent of, the affected Participants. +(c) Treatment of specified employees . If a Participant is a “specified employee” (as defined under Code Section 409A) and the Participant’s Award is to be settled on account of the Participant’s separation from service (for reasons other than +Exhibit A - Page 36 +death) and such Award constitutes “deferred compensation” as defined under Code Section 409A, then any portion of the Participant’s Award that would otherwise be settled during the six-month period commencing on the Participant’s separation from service shall be settled as soon as practicable following the conclusion of the six-month period (or following the Participant’s death if it occurs during such six-month period) to the extent required to preclude taxation under Code Section 409A. +(d) Compliance with Code Section 409A . It is intended that Awards granted under the Plan shall be exempt from, or if not exempt, in compliance with, the applicable requirements to preclude taxation under Code Section 409A, unless otherwise determined by the Committee at the time of grant. In that respect, the Company, by action of its Board, reserves the right to amend the Plan, and the Committee reserves the right to amend any outstanding Award Agreement, to the extent deemed necessary or appropriate, in its discretion, either to exempt such Award from taxation under Section 409A or to comply with the requirements of Section 409A to preclude taxation thereunder. +23.15 Nonexclusivity of this Plan +. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant. +23.16 No Constraint on Corporate Action +. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or a Subsidiary’s or Affiliate’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or a Subsidiary or Affiliate to take any action that such entity deems to be necessary or appropriate. +23.17 Governing Law +. The Plan and each Award Agreement shall be governed by the laws of the State of Delaware excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. +23.18 Delivery and Execution of Electronic Documents +. To the extent permitted by applicable law, the Company may (a) deliver by email or other electronic means (including posting on a website maintained by the Company or by a third party under contract with the Company) all documents relating to the Plan or any Award thereunder (including without limitation, prospectuses required by the Commission) and all other documents that the Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements) and (b) permit Participant’s to electronically execute applicable Plan documents (including, but not limited to, Award Agreements) in a manner prescribed to the Committee. +23.19 No Representations or Warranties Regarding Tax Effect +. Notwithstanding any provision of the Plan to the contrary, the Company, Affiliates, Subsidiaries, the Board and the Committee do not represent nor warrant any particular tax treatment under any federal, state, +Exhibit A - Page 37 +local or foreign laws and regulations thereunder (individually and collectively referred to as the “ Tax Laws ”) of any Award granted or any amounts paid to any Participant under the Plan, including, but not limited to, when and to what extent such Awards or amounts may be subject to tax, penalties and interest under the Tax Laws. +23.20 Indemnification +. Subject to requirements of Delaware law, each individual who is or was a member of the Board or the Committee, or an officer of the Company to whom authority was delegated in accordance with Article 3 , shall be fully indemnified and held harmless by the Company and its Affiliates against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with, or resulting from, any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under this Plan, as well as against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf, unless such loss, cost, liability or expense is a direct result of his own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s or Affiliate’s Articles of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company or Affiliate may have to indemnify them or hold them harmless. +23.21 Securities Requirements +. The Company shall be under no obligation to effect the registration of any Shares to be issued hereunder pursuant to the Securities Act of 1933 or to effect similar compliance under any state securities laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities, and the requirements of any securities exchange on which Shares are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable. +23.22 Rule 16b-3 Securities Law Compliance for Insiders +. While the Company is a Publicly Held Corporation, transactions under the Plan with respect to Insiders are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act to the extent Section 16 of the Exchange Act is applicable to the Company. Any ambiguities or inconsistencies in the construction of an Award or the Plan shall be interpreted to give effect to such intention, and to the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee in its discretion. +23.23 Pre-Clearance Agreement with Brokers +. Notwithstanding anything in the Plan to the contrary, no Shares issued pursuant to the Plan will be delivered to a broker or dealer that receives such Shares for the account of an Insider unless and until the broker or dealer enters into a written agreement with the Company whereby such broker or dealer agrees to report immediately to the Secretary of the Company (or other designated person) a change in the Beneficial Ownership of such Shares. +23.24 Successors to Company +. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. +[Signature page follows.] +Exhibit A - Page 38 +IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed in its name and on its behalf by its duly authorized officer, on this 12 th day of May, 2011, to be effective as of the Effective Date. +CALLON PETROLEUM COMPANY +By: +Name: Fred L. Callon +Title: President and Chief Executive Officer \ No newline at end of file diff --git a/raw/proxies/0000928022/0000928022-11-000031/proxy_rpt.txt b/raw/proxies/0000928022/0000928022-11-000031/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000928022-12-000032/proxy.txt b/raw/proxies/0000928022/0000928022-12-000032/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..68c2f7a026ef176527dac900ee921ad7d98fc022 --- /dev/null +++ b/raw/proxies/0000928022/0000928022-12-000032/proxy.txt @@ -0,0 +1,1605 @@ +DEF 14A +1 +proxy2011.htm +Proxy 2011 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2012 ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 10, 2012 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the 2012 Annual Meeting of Shareholders of Callon Petroleum Company (“Callon” or the “Company”) which will be held in Natchez, Mississippi, on Thursday, May 10, 2012, at 9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, for the following purposes: +1. +To elect two Class III directors to hold office until the 2015 Annual Meeting of Shareholders; +2. +To approve, in an advisory (non-binding) vote, the Company's executive compensation as disclosed in the accompanying proxy statement; +3. +To ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2012; and +4. +To transact such other business as may properly come before the 2012 Annual Meeting or any adjournment or adjournments thereof. +Specific details of the matters proposed before the 2012 Annual Meeting are included in the proxy statement accompanying and forming part of this notice. Only shareholders of record at the close of business on March 16, 2012 will be entitled to notice of, and to vote at, the 2012 Annual Meeting, or any adjournment or postponements thereof. Each common share is entitled to one vote per share. Whether or not you plan to attend the 2012 Annual Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed envelope enclosed. +By Order of the Board of Directors +Natchez, Mississippi +Robert A. Mayfield +April 2, 2012 +Corporate Secretary +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. SHAREHOLDERS WHO ATTEND THE 2012 ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON. +Important Notice Regarding the Availability of Proxy Materials for the Shareholders' Meeting: +Our proxy material relating to our 2012 Annual Meeting (notice, proxy statement, proxy and 2011 Annual Report to Shareholders) is available on our website at www.callon.com. This information is also available by calling 1-800-451-1294 or by email at terryt@callon.com. For the date, time and location of the 2012 Annual Meeting and an identification of the matters to be voted upon at the 2012 Annual Meeting, please see the “Notice of 2012 Annual Meeting of Shareholders.” For information on how to obtain directions to be able to attend the meeting and vote in person, please contact Terry Trovato, Investor Relations, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi, 39120. +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2012 ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 10, 2012 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation (“Callon” or the “Company”), from shareholders of the Company for use at the 2012 Annual Meeting of Shareholders of the Company to be held on Thursday, May 10, 2012, at 9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The purpose of the meeting is to consider and vote upon the matters described in the accompanying Notice of the 2012 Annual Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, will be voted in accordance with the directions specified on the proxy, and otherwise in accordance with the judgment of the persons designated therein as proxies. Any proxy which does not withhold authority to vote or on which no other instructions are given will be voted for the election of the nominee named herein to the Board of Directors and in favor of the all other proposals set forth in the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the 2012 Annual Meeting. Proxies submitted by mail must be received on or before 8:00 a.m. on Thursday, May 10, 2012. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the 2012 Annual Meeting. +If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of the Director nominees (Proposal 1 of this proxy statement), and ratification of the Company's independent registered public accounting firm (Proposal 3 of this proxy statement). Prior to January 1, 2010, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your bank or broker was allowed to vote those shares on your behalf as they felt appropriate. Changes in regulations eliminated the ability of your bank or broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote, no votes will be cast on your behalf except that your bank or broker will continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company's independent registered public accounting firm (Proposal 3 of this proxy statement). If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any other items of business at the 2012 Annual Meeting. +This proxy statement and the accompanying notice and form of proxy are being mailed to shareholders on or about April 2, 2012. The Annual Report for the Company's fiscal year ended December 31, 2011 is also being mailed to shareholders contemporaneously with this proxy statement, although the Annual Report does not form a part of the material for the solicitation of proxies. The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit proxies in person or by telephone. Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our common stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of Eagle Rock Proxy Advisors, LLC to assist us in our solicitation efforts at an estimated cost of $5,000 plus reasonable and customary out-of-pocket expenses. +Financial and other information concerning the Company is contained in the Annual Report for the year ended December 31, 2011. Pursuant to rules promulgated by the Securities and Exchange Commission (SEC), we have elected to provide access to the Company's proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of the proxy material on the Internet. This proxy statement, the accompanying proxy card and the Company's 2011 Annual Report are available at the Company's website at www.callon.com. In accordance with SEC rules, you may access the proxy statement at www.callon.com, which does not have "cookies" that identify visitors to the site. +1 +Other Matters to be Considered at the 2012 Annual Meeting of Shareholders +The Board of Directors is not presently aware of any other proposals that may be brought before the 2012 Annual Meeting. In the event other proposals are brought before the 2012 Annual Meeting, the person(s) named in the enclosed proxy will vote in accordance with what they consider to be in the best interests of the Company and our shareholders. +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 16, 2012 as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2012 Annual Meeting. A complete list of all shareholders entitled to vote at the 2012 Annual Meeting will be open for examination by any shareholder during normal business hours for a period of ten days prior to the 2012 Annual Meeting at the offices of the Company, located at 200 North Canal Street, Natchez, Mississippi 39120. Such list will also be available at the 2012 Annual Meeting and may be inspected by any valid shareholder who is present. +On the record date, our issued and outstanding voting securities consisted of 39,412,238 shares of common stock. Holders of common stock will be entitled to one vote per share held of record on the record date for each proposal presented at the 2012 Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on the record date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the 2012 Annual Meeting. For purposes of determining whether a quorum is present under Delaware law, broker non-votes and abstentions do count towards the establishment of a quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares of common stock present and voting, in person or by proxy, at the 2012 Annual Meeting. Abstentions and broker non-votes have no effect on determinations of plurality except to the extent that they affect the total votes received by any particular candidate. +Each of the other proposals will be approved if it receives a majority of the votes of the shares present in person at the 2012 Annual Meeting and those represented by proxy and entitled to vote. If the appointment of the Company's independent registered public accounting firm is not ratified by holders of our voting securities, the Audit Committee and the Board may reconsider its appointment and endorsement, respectively. Even if the selection is ratified, the Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. +Abstaining shares will be considered present at the 2012 Annual Meeting so that the effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the shares will not be considered present at the 2012 Annual Meeting with respect to a non-discretionary item so that broker non-votes will have the practical effect of reducing the number of affirmative votes required to achieve a majority vote by reducing the total number of shares from which the majority is calculated. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and the broker has not received voting instructions from the beneficial owner. The New York Stock Exchange (“NYSE”) permits brokers to vote their customers' shares on routine matters when the brokers have not received voting instructions from customers. The ratification of the independent registered accounting firm is a routine matter on which brokers may vote in this way. +Votes cast at the meeting will be counted by the inspector of election. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of Directors is divided into three classes of equal size, designated as Class I (currently with two directors), Class II (currently with two directors) and Class III (currently with two directors). One class of directors is elected at each Annual Meeting of shareholders to serve for a three-year term. +The term of the two Class III directors, Mr. Fred L. Callon and Mr. L. Richard Flury will expire on the date of the 2012 Annual Meeting. The nominees of the Board for Class III directors of the Company to serve until the 2015 Annual Meeting, or until their successors have been duly elected and qualified, are Mr. Fred L. Callon and Mr. L. Richard Flury. Both were nominated by the Board of Directors upon the recommendation of the Nominating and Corporate Governance Committee. Each of the nominees has consented to serve as a director if elected. Mr. Callon and Mr. Flury have served continuously as a director of the Company since the date of his first election or appointment to the Board. +All shares of common stock represented by the proxies will be voted “FOR” the election of the director nominees, except where authority to vote in the election of directors has been withheld. Should the nominees become unable or unwilling to serve as a director at the time of the 2012 Annual Meeting, the person or persons exercising the proxies will vote for the election of substitute nominees designated by the Board of Directors, or the Board of Directors may choose to reduce the number of members of the Board of Directors to be elected at the 2012 Annual Meeting in order to eliminate the vacancy. The Board of Directors has no reason to believe that the nominees will be unable or unwilling to serve if elected. Only the nominees or a substitute nominee designated by the Board of Directors will be eligible to stand for election as a director at the 2012 Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of the director nominees . +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors whose terms will continue after the 2012 Annual Meeting, and the present executive officers of the Company. Each executive officer has been elected to serve until his or her successor is duly appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Name +Age as of Record Date +Company +Position Since +Present Company Position +Class I Directors: +( Term Expires in 2013 ) +Larry D. McVay +64 +2007 +Director +John C. Wallace +73 +1994 +Director +Class II Directors: +( Term Expires in 2014 ) +B. F. Weatherly +67 +1994 +Director, Executive Vice President and Chief Financial Officer +Anthony J. Nocchiero +60 +2011 +Director +Class III Directors: +( Term Expires in 2012 ) +Fred L. Callon +62 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer, Nominee +L. Richard Flury +64 +2004 +Director, Nominee +Other Executive Officers : +Gary A. Newberry +57 +2010 +Senior Vice President, Operations (1) +Stephen F. Woodcock +60 +1997 +Vice President, Exploration +Rodger W. Smith +62 +1999 +Vice President and Treasurer +Vince Borrello +60 +2011 +Vice-President/General Manager, Permian Basin(2) +Robert A. Mayfield +61 +2000 +Corporate Secretary +H. Clark Smith +59 +2001 +Chief Information Officer +Mitzi P. Conn +43 +2007 +Corporate Controller +(1) +Mr. Newberry was hired in April 2010 as Vice President, Production and Development and promoted to his current position in September 2010. +(2) +Mr. Borrello was hired effective April 1, 2011. +3 +The following is a brief description of the background and principal occupation of each director and executive officer: +Vince Borrello joined the Company in April 2011 as Vice President/General Manager - Permian Basin. For the period August 2008 through April 2011, he worked as an independent consultant for various companies, including the Company from July 2009 until February 2011. Prior to that, from February 2006 until August 2008, he served as President and Chief Operating Officer for Lothian Oil, Inc. which has been active in the Wolfberry trend in the Midland Basin for many years. During his 37 years of experience in the oil and gas industry he also held technical and leadership positions with Texas Oil & Gas Corporation and Marathon Oil Company. Mr. Borrello is an active member of the Society of Petroleum Engineers and a member of the Permian Basin Petroleum Club. He is a graduate of Louisiana State University in 1974 with a B.S. degree in Petroleum Engineering and he is a Registered Professional Engineer in the States of Texas and Oklahoma. +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, positions he had held with the Company or its predecessors since 1984. He has been employed by the Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is son of the late Sim C. Callon, one of the Company's co-founders and the nephew of the late John S. Callon, the other co-founder. +Mr. Callon has been involved in the oil and gas industry virtually all his life and has developed a wide network of personal and business relationships within the oil and gas industry. We believe that his strong financial background combined with his many years of operational experience throughout changing conditions in the market and industry provide him with the ability to successfully lead the Company. +Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in May 2007, she had served as assistant controller since May 2004. Mrs. Conn has held various other positions in finance and accounting since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She received her B.S. degree in accounting from Southeastern Louisiana University in 1990 and is a member of the American Institute of Certified Public Accountants and the Mississippi Society of Certified Public Accountants. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco's merger with BP in 1998, he served in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, he is a member of the Board of Directors of QEP Resources, a publicly-traded oil and gas company, and the Non-Executive Chairman of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company. +Mr. Flury has many years of prior experience with a major oil and gas company. Mr. Flury continues his involvement in the industry through his other directorship positions. We believe his executive-level perspective and decision making abilities will continue to prove beneficial to the Company. +Robert A. Mayfield is the Corporate Secretary for the Company and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in 1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. Since 2007, Mr. McVay has been a Managing Director of Edgewater Energy, LLC, an oil and gas consulting and investment company. From 2000 to 2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led the global E&P Operations Excellence effort for improving the operating efficiency of BP's upstream operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In January 2008 he became a member of the board of directors of Praxair, Inc., the largest industrial gases company in North and South America. In May 2008 Mr. McVay also became a member of the board of directors of Chicago Bridge and Iron, N.V., a publicly-traded engineering, procurement, and construction company. +4 +Mr. McVay has been directly involved in almost all aspects of the oil and gas industry, including drilling, production, finance, environmental risk, and safety. Outside of his involvement with Callon, Mr. McVay is active in other industry consulting assignments which keep him fully abreast of trends and current activity in the operational areas in which Callon is pursuing development. +Gary A. Newberry joined the Company in April 2010 as Vice President - Production and Development. In September 2010, Mr. Newberry was promoted to Senior Vice President - Operations. Mr. Newberry graduated from Marietta College in 1977 with a B.S. degree in Petroleum Engineering. After graduation he joined Marathon Oil Company as a Production and Drilling Engineer working in Alaska, the Gulf of Mexico, and the Rockies. He held various supervisory and management roles of increasing responsibility over production and drilling operations in the mid-continent, Alaska and the Permian Basin. As a Business Unit Leader, Mr. Newberry was responsible for all upstream business activity in Oklahoma, Alaska, and the Rockies and served as Marathon's Worldwide Operations Manager. Mr. Newberry retired from Marathon Oil Company after 33 years of service. +Anthony J. Nocchiero was nominated to the Board of Directors in March 2011. From April 2007 until September 2010, Mr. Nocchiero held the position of senior vice president and chief financial officer for CF Industries, Inc. From July 2005 until March 2007, he was the vice president and chief financial officer for Merisant Worldwide, Inc. From January 2002 to July 2005, Mr. Nocchiero was self-employed as an advisor and private consultant. From January 1999 until December 2001, Mr. Nocchiero served as vice president and chief financial officer of BP Chemicals, the global petrochemical business of BP p.l.c. Prior to that, he spent twenty-four years with Amoco Corporation in various financial and management positions, including service as Amoco's vice president and controller from April 1998 to January 1999. Mr. Nocchiero holds a B.S. degree in chemical engineering from Washington University in St. Louis and an M.B.A. degree from the Kellogg Graduate School of Management at Northwestern University. +Mr. Nocchiero has previous experience serving as a member of the board of directors of various public and private companies including Terra Nitrogen LP, Keytrade AG, Vysis Corporation and the Chicago Chamber of Commerce. He brings to the Company broad technical knowledge in oil and gas operations, and extensive experience with finance and M&A related transactions. +H. Clark Smith is the Chief Information Officer for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in March 2001, he had served as Manager - Information Technology since January 1990 and in other computer related positions with the Company and its predecessors since 1983. At Mississippi State University, he majored in Industrial Technology. During his tenure with the Company, he has received extensive technical and management training from the University of Southern Mississippi, International Business Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also served as Manager - Information Services with Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi Computing Consultants, both located in Natchez, MS. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and served as Corporate Controller from 2004 to May 2007. Prior to being appointed Treasurer, he served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed by the Company and its predecessors since 1983. Prior to his employment with the Company, he was employed by International Paper Company as a plant controller. He received his B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. Prior to his retirement in December 2010, he served for over twenty-five years as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. In November 2004 he successfully completed the International Uniform Certified Public Accountant Qualification Examination and has received a CPA Certificate from the State of Illinois. Mr. Wallace also retired from the board of directors of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy. +Mr. Wallace has extensive financial and accounting experience in not only the oil and gas industry but in a number of other related industries as a result of his association with Fred. Olsen, Ltd. and various associated or related companies. He held senior management positions and was a member of Fred. Olsen's board of directors for many years. We believe that Mr. Wallace's unique perspective of the risks and rewards in the oil and gas industry is an asset to our Board of Directors. +B. F. Weatherly is an Executive Vice President and also serves as the Chief Financial Officer for the Company and Callon Petroleum Operating Company. He has been a member of the Board of Directors since 1994. Prior to joining the Company in his current position in November 2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. +5 +He was also a general partner of CapSource Fund, L.P., a Jackson, Mississippi investment fund, and held that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc. +Mr. Weatherly has many years of executive management and financial management positions in energy related companies with emphasis on structuring and completion of many types of financial transactions. Additionally, serving as managing director of two investment funds provides insight into seeking financing alternatives for Callon. +Stephen F. Woodcock is the Vice President of Exploration for the Company and Callon Petroleum Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics since his initial employment by the Company and Callon Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master's degree in geophysics from Oregon State University in 1975. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +Board of Director Structure and Responsibilities +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, our business and affairs are managed under the direction of the Board of Directors. The Board of Directors generally meets on a quarterly basis to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board of Directors may also hold special meetings, execute unanimous written consents, and participate in telephone conference calls when an important matter requires Board action. During 2011, the Board of Directors of the Company met formally six times and executed six unanimous written consents. All of the Company's directors attended all of the board meetings. In addition, to promote open discussion, the non-management directors meet in executive (private) sessions without management following each quarterly board meeting. The chairperson of such executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, at the first executive session held in each fiscal year, the independent directors select a different independent director to serve as the chairperson for all executive sessions held during that fiscal year. L. Richard Flury, chairman of the Compensation Committee, presided over all executive sessions during 2011. It is the policy of the Board that, to the extent possible, all directors attend the 2012 Annual Meeting of Shareholders. All then current directors attended the 2011 Annual Meeting of Shareholders. +Director Independence. It is the policy of the Board of Directors that a majority of the members of the Board be independent of the Company's management. The Company's Corporate Governance Principles contain the following guidelines to assist the Board in determining director independence in accordance with the applicable NYSE and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate family member is an executive officer or former executive officer of the Company, shall be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose immediate family member is receiving, or in the last three years has received, more than $120,000 per year in direct compensation from the Company, other than fees received in such director's capacity as a member of the Board or any Board committee and pension payments or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) shall be considered “independent.” Compensation received by an immediate family member for service as a non-executive employee of the Company need not be considered in determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed by, or whose immediate family member is, or in the past three years has been, affiliated with or employed in a professional capacity by, a present or former internal auditor or independent auditing firm of the Company shall be considered “independent”; +• +No director who is, or in the past three years has been, employed as, or whose immediate family member is, or in the past three years has been, employed as, an executive officer by any company for which any executive officer of the Company serves as a member of its compensation committee (or, in the absence of a compensation committee, the board committee performing equivalent functions, or, in the absence of such committee, the Board of Directors) shall be considered “independent”; +• +No director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1,000,000 or 2% of such other company's consolidated gross revenue shall be considered “independent” until three years after such payments fall below such threshold; and +6 +• +An “immediate family member” includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home. When applying the three-year look-back provisions, it does not include individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and Nocchiero do not have any material relationships with the Company that may interfere with the exercise of their independence from management and the Company and are independent directors under applicable NYSE rules, SEC rules and in accordance with our Corporate Governance Principles. +Chairman of the Board. Our Board of Directors believes that Fred L. Callon, our current President and Chief Executive Officer, is uniquely qualified to also serve as Chairman of the Board of Directors. Mr. Callon is the son of one of the founders of the Company and has been involved in the oil and gas industry virtually all his professional career. He is the director who is most familiar with our day-to-day operations, our technical and financial strengths, and our overall ability to execute the business strategy adopted by the board. His experience and knowledge of the oil and gas industry promotes the opportunity for a successful blend of our independent directors' perspectives and oversight responsibilities. In his capacity as Chairman, Mr. Callon has the following responsibilities: +• +Schedules all meetings of the Board; +• +Establishes Board meeting agendas; +• +Chairs meetings of the Board and the Annual Meeting of Shareholders; +• +Ensures that the flow of information provided to the Board is timely, complete, and accurate; +• +Communicates with all directors on key issues and concerns outside of Board meetings; +• +Assists the Board and executive officers in assuring compliance with and implementation of our governance principles; and +• +Represents the Company to and interacts with external shareholders. +The Board of Directors believes that having Mr. Callon serve as both the Chief Executive Officer and the Chairman of the Board of Directors is a unique benefit to the overall success and growth of the Company. The Board does not have an independent lead director. +Communication with the Board of Directors. In order to provide the Company's shareholders and other interested parties with a direct and open line of communication to the Board of Directors, the Board of Directors has adopted procedures for communications to directors. Callon shareholders and other interested persons may communicate with the Chairman of the Company's Audit Committee or with any other director of the Company, individually or as a group, by written communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, MS 39120. The Board of Directors will review the effectiveness of these procedures from time to time and, if appropriate, recommend changes. Copies of all communications received pursuant to these procedures will be retained for a period of at least one year. As of the record date, no such communications have been received. +All communications received in accordance with these procedures will be reviewed initially by senior management of the Company. Senior management will relay all such communications to the appropriate director or directors unless it is determined that the communication: +• +does not relate to the business or affairs of the Company or the functioning or constitution of the Board of Directors or any of its committees; +• +relates to routine or insignificant matters that do not warrant the attention of the Board of Directors; +• +is an advertisement or other commercial solicitation or communication; +• +is frivolous or offensive; or +• +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate. Any such response will be made only in accordance with applicable law and regulations relating to the disclosure of information. +Board's Role in Risk Oversight. The Company is exposed to a number of risks and undertakes enterprise risk management reviews to identify and evaluate these risks and to develop plans to mitigate them effectively. The Company's executive officers are directly responsible for the Company's enterprise risk management function and report to the Board of Directors. The information flow +7 +and communication between our Board and senior management regarding long-term strategic planning and short-term operational reporting includes matters of material risk inherent in our business of exploring for and producing oil and natural gas. Also, our Audit Committee, among other duties, is charged with overseeing significant financial risk exposures and the steps management has taken to monitor, control and report such exposures and has compliance oversight responsibilities. Although not inclusive, a list of items considered generally includes: +• +accurate and complete financial reporting; +• +rules and regulations of the NYSE; +• +environmental and safety issues; +• +safeguarding of Company assets; +• +adequacy of insurance protection; +• +compliance with all credit facility covenants; and +• +employee relations issues. +The Board of Directors plays a key role in the oversight of the Company's enterprise risk management function. Using their collective skills and experience, they consider information provided by management and provide feedback and make recommendations, if needed, to help minimize risk to the Company's current and future value. +In addition, our Audit Committee considers our practices regarding risk assessment and risk management, relating to our contingent liabilities, our oil and natural gas reserve estimation practices, as well as major legislative and regulatory developments that could affect us. Our Audit Committee also oversees our Code of Business Conduct and Ethics, and responses to any alleged violations of our policies made by whistleblowers. Our Compensation Committee reviews and attempts to mitigate risks which may result from our compensation policies, including working directly with senior management to determine whether such programs improperly encourage management to take undue risks relating to the business and/or whether risks arising from our compensation programs are likely to have a material adverse effect on the Company. Our Strategic Planning Committee organizes and oversees the Board's participation in the risk assessment and management process as it relates to the Company's strategic plan. +The Board also believes that the Board's role of oversight of risk management is facilitated by the Company's leadership structure. By combining the positions of Chairman of the Board and Chief Executive Officer, the Board gains a valuable perspective that combines the operational expertise of a member of management with the oversight focus of a member of the Board. Our Board of Directors believes that this division of risk management related roles among the Company's independent directors fosters an atmosphere of significant involvement in the oversight of risk and that this shared oversight is appropriate for the Company. +Committees of the Board of Directors +In order to facilitate the various functions of the Board of Directors, the Board of Directors has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Strategic Planning Committee. These committees are more fully described below: +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas of financial reporting and accounting integrity. The Audit Committee reviews the accounting and auditing procedures and financial reporting practices of the Company and is responsible for the engagement of and overseeing all audit work conducted by the Company's independent registered public accounting firm. The Audit Committee is governed by a charter that has been approved by the Board of Directors. The Audit Committee meets periodically with the Company's management, internal auditor and its independent registered public accounting firm to review the Company's financial information and systems of internal controls and ensures such parties are properly discharging their responsibilities. The independent registered public accounting firm reports directly to the Audit Committee and at least annually meets with the Audit Committee without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom satisfy the independence requirements for audit committee members under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are “independent” and “financially literate” as defined by NYSE rules. Members of the Audit Committee may not simultaneously serve on the audit committee of more than two other public companies. The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and Nocchiero. Mr. Richard O. Wilson served as a director and as a member of the Audit Committee until his retirement in May 2011. Mr. Nocchiero was elected as a new director in May 2011 and assumed the member vacancy created by Mr. Wilson's retirement. The Board of Directors has determined that Mr. Wallace and Mr. Nocchiero +8 +have the accounting or financial management expertise to be considered a “financial expert” as defined and required by the NYSE rules and by the Exchange Act. +The Audit Committee held five meetings and did not execute any unanimous written consents during 2011. All members of the Audit Committee attended all the meetings. The Audit Committee's report on its activities during 2011 appears later in this proxy statement under the caption “Audit Committee Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of the Company's consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing reports thereon. The Audit Committee's responsibility is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public accounting firm, served as the Company's independent registered public accounting firm during 2010 and 2011 and was appointed by the Audit Committee to serve in that capacity for 2012. +Audit Fees. Fees billed for professional services rendered by Ernst & Young LLP for the annual audit and quarterly reviews and for registration statements and other regulatory filings (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $484,301 and $535,660, including out-of-pocket expenses, for the years ended December 31, 2010 and 2011, respectively. +Audit-related Fees . There were no audit-related fees paid in 2010 or 2011. +Tax Fees. Fees billed for professional services rendered by Ernst & Young LLP for the review of the federal tax return, tax advice and tax planning for 2010 and 2011 totaled $14,200 and $13,600, respectively. +All Other Fees. There were no other fees paid to the Company's independent registered public accounting firm in 2010 or 2011. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee pre-approves all audit services and non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of any such member to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its next scheduled meeting. +Audit Committee Report. Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company's audited financial statements at, and for the year ended, December 31, 2011 with management and the Company's independent registered public accounting firm and recommended to the Company's Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. This recommendation was based on: +• +the Audit Committee's review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company's independent registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); +• +discussions with Ernst & Young LLP regarding its independence from the Company and its management; +• +Ernst & Young LLP's confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries and the results of their operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +L. Richard Flury +Anthony J. Nocchiero +9 +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation program designed to optimize the opportunity for the Company to achieve its operating objectives and performance goals while properly blending the program with the short- and long-term interests of the Company's shareholders. We provide our executive officers and other employees with an annual base salary to compensate them for services rendered during the year. Our goal is to set base salaries for our executive officers at levels that are competitive with comparable companies for the skills and requirements of similar positions. In addition to the determination of annual base salaries, the Committee is responsible for determining and recommending variable annual cash bonuses, phantom unit awards payable in the form of cash, and equity awards which may include stock options, restricted stock, restricted stock units, or performance shares. Currently a portion of the annual compensation package is based on certain performance related criteria of the Company for which the Committee is responsible for establishing and approving. The Committee has utilized the services of Meridian Compensation Partners LLC, an independent compensation consulting firm, to assist in the annual review of market and industry data to assess the Company's competitive position with respect to each element of total compensation and to ensure the attraction, retention and appropriate reward to the Company's CEO and other executive officers. In addition to the above, the Committee has the following duties and responsibilities: +• +review, recommend, and discuss with management the compensation discussion and analysis section included in the Company's annual proxy statement; and +• +prepare an annual report on executive compensation for inclusion in the Company's proxy statement for each Annual Meeting of Shareholders. +Consistent with the listing requirements of the NYSE, the Compensation Committee is composed entirely of independent members of our Board of Directors. Each member meets the independence requirements set by the New York Stock Exchange and applicable federal securities laws. Current members are Messrs. Flury (chairman), McVay, Wallace and Nocchiero. Mr. Richard O. Wilson served as a director and as a member of the Compensation Committee until his retirement in May 2011. Mr. Nocchiero was elected as a new director in May 2011 and assumed the member vacancy created by Mr. Wilson's retirement. +The Compensation Committee held four meetings and executed three unanimous written consents during 2011. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. None of the members of the Company's Compensation Committee are or have been officers or employees of the Company or any of its subsidiaries. None of our executive officers served as a member of the board of directors or compensation committee (or other Board committee performing similar functions or, in the absence of any such committee, the entire board of directors) of any other entity that has one or more of its executive officers serving on our Compensation Committee. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for election to the Board; +• +recommend to the Board the members and chairperson for each Board committee; +• +periodically review and assess the Company's Corporate Governance Principles and the Company's Code of Business Conduct and Ethics and make recommendations for changes thereto to the Board; +• +oversee the annual self-evaluation of the performance of the Board and the annual evaluation of the Company's management; and +• +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws. Current members are Messrs. Nocchiero (Chairman), Flury, McVay, and Wallace. Mr. Richard O. Wilson served as a director and as Chairman of the Nominating and Corporate Governance Committee until his retirement in May 2011. Mr. Nocchiero was elected as a new director in May 2011 and assumed the Chairman vacancy created by Mr. Wilson's retirement. The Nominating and Corporate Governance Committee executed one unanimous written consent during 2011. Prior to the formation of this Committee, the entire Board of Directors performed these functions. +10 +Director Identification and Selection. The Nominating and Corporate Governance Committee has established certain criteria it considers as guidelines in considering nominations to the Company's Board of Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, diversity of background and experience, absence of potential conflicts of interest with the Company or its operations, and the availability and willingness to devote sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer of a publicly held company; +• +experience in the Company's industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company's operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the Board of Directors may consider other qualifications and attributes which they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board of Directors. The Nominating and Corporate Governance Committee's goal is to assemble a Board of Directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. In order to ensure that the Board consists of members with a variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set any minimum qualifications and also considers candidates with appropriate non-business backgrounds. Other than ensuring that at least one member of the Board is a financial expert and a majority of the Board members meet all applicable independence requirements, the Committee does not have any specific skills that it believes are necessary for any individual director to possess. Instead, the Committee evaluates potential nominees based on the contribution such nominee's background and skills could have upon the overall functioning of the Board. The Committee takes into account diversity in professional experience, skills and background, and diversity in race and gender, in considering individual director candidates. +In accordance with the Company's by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery of written notice to the Company of such nomination, stating the name and address of the nominee and describing his qualifications. Such notice shall be sent by certified mail or delivered to the principal office of the Company to the attention of the Board of Directors, with a copy to the President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance Committee's knowledge of the Company's Corporate Governance Principles and the needs and qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is best equipped to select nominees that will result in a well-qualified and well-rounded Board of Directors. In making its nominations, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue their service. Current members with qualifications and skills that are consistent with the Committee's criteria for Board service are re-nominated. As to new candidates, the committee will generally poll the Board members and members of management for recommendations. The committee may also review the composition and qualification of the boards of directors of the Company's competitors, and may seek input from industry experts or analysts. The committee reviews the qualifications, experience and background of the candidates. Final candidates are interviewed by the independent directors and executive management. In making its determinations, the committee evaluates each individual in the context of the Board as whole, with the objective of assembling a group that can best represent shareholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the committee makes its recommendation to the Board of Directors. The committee may in the future choose to engage third-party search firms in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate. Any search firm retained to assist the Committee in seeking candidates for the Board will affirmatively be instructed to seek to include diverse candidates from traditional and nontraditional candidate groups. +Strategic Planning Committee Functions and Responsibilities +The Strategic Planning Committee was created to oversee the responsibilities of the Board relating to planning and finance, including: to organize and oversee the Board's participation in the development of a strategic plan and the risk assessment and management process; to follow the progress in the implementation of the strategic plan and to advise the Board if additional Board action appears to be needed to assure successful implementation of the plan or if a need exists to revise the plan in the face of changing conditions or other factors; and to assure that management is addressing the personnel requirements for the successful implementation of the strategic plan. The committee meets periodically during the year, generally prior to the scheduled quarterly board of director meetings, to review the progress of the Company's capital expenditure budget and to evaluate recent trends in the oil and gas industry which may have an impact on the Company's current business strategy for the remainder of the year. +The committee shall consist of no fewer than three members of the Board. The Chair and a majority of the committee members shall meet the independence requirements of the NYSE and such other rules and regulations as may be applicable. Current members +11 +of the Strategic Planning Committee are Messrs. McVay (Chairman), Flury, Wallace, and Nocchiero. Mr. Richard O. Wilson served as a director and as a member of the Strategic Planning Committee until his retirement in May 2011. Mr. Nocchiero was elected as a new director in May 2011 and assumed the member vacancy created by Mr. Wilson's retirement. +Corporate Governance Matters +Corporate Governance Principles . The Company believes that good corporate governance is important to ensure that Callon is managed for the short- and long-term benefit of its shareholders. Available on the Company website, www.callon.com, under the “Investors - Corporate Governance” tab are copies of the Company's: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter; +• +Compensation Committee Charter; +• +Nominating and Corporate Governance Committee Charter; and the +• +Strategic Planning Committee Charter. +Any amendments to or waivers of the foregoing documents will also be posted on the Company's website. Copies of these documents are available in print, free of charge, to any shareholder upon written request to the Company's Corporate Secretary. +Ethics. The Company's Code of Business Conduct and Ethics sets forth our policies and expectations. The Code, which applies to every director, officer and employee, addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company's assets. The Code meets the NYSE's requirements for a code of business conduct and ethics as well as the SEC's definition of a code of ethics applicable to the Company's senior officers. Neither the Board of Directors nor any Board committee has ever granted a waiver of the Code. +12 +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the March 16, 2012, certain information with respect to the ownership of shares of common stock held by (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the nominees for director, (iv) each of the executive officers named in the Summary Compensation Table, and (v) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of common stock has been obtained from filings made by the named beneficial owners with the SEC as of the record date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +157,262(b) +* +L. Richard Flury +102,573(c) +* +Larry D. McVay +78,823(d) +* +Anthony J. Nocchiero +24,423(e) +* +John C. Wallace +-- (f) +* +B. F. Weatherly +122,107(g) +* +Named Executive Officers: +Vincent Borrello +15,762(h) +* +Gary A. Newberry +42,623(i) +* +Stephen F. Woodcock +69,785(j) +* +Directors and Executive Officers: +As a Group (13 persons) +832,903(k) +2.11% +Certain Beneficial Owners: +Franklin Resources, Inc. +5,228,065 (l) +13.80% +One Franklin Parkway +San Mateo, CA 94403 +________________ +* Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power unless such award will vest within sixty days of March 16, 2012. Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of common stock beneficially owned by such holder or class of holders plus the total number of shares of common stock underlying options exercisable or stock awards vesting within sixty days of March 16, 2012, by (ii) the total number of shares of common stock outstanding plus the total number of shares of common stock underlying options exercisable and stock awards vesting within sixty days of March16, 2012, but not common stock underlying such securities held by any other person. +b) +Of the 157,262 shares beneficially owned by Fred L. Callon, 84,014 shares are owned directly by him; 25,215 shares are held by him as custodian for certain minor Callon family members; 16,658 shares are owned within the Company's Employee Savings and Protection Plan; and 31,375 shares are subject to options under the 1996 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of common stock owned by his wife over whom he disclaims beneficial ownership, 299,750 restricted stock units payable in stock, 135,520 restricted stock units payable in cash, and 117,500 phantom units payable in cash. +c) +Of the 102,573 shares beneficially owned by L. Richard Flury, 56,250 shares are owned directly by him; 30,000 shares are held in joint tenancy with his wife; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days; and 6,323 shares of unvested restricted stock which will vest within sixty days of March 16, 2012. +13 +d) +Of the 78,823 shares beneficially owned by Larry D. McVay, 72,500 shares are owned directly by him and 6,323 shares of unvested restricted stock which will vest within sixty days of March 16, 2012. +e) +Of the 24,423 shares beneficially owned by Anthony J. Nocchiero, 18,100 shares are owned directly by him and 6,323 shares of unvested restricted stock which will vest within sixty days of March 16, 2012. +f) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust with the exception of the 18,968 restricted stock units awarded in May 2011 and payable in cash upon his separation of service as a director. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +g) +Of the 122,107 shares beneficially owned by B. F. Weatherly, 10,282 shares are owned directly by him; 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; 33,011 shares are owned within the Company's Employee Savings and Protection Plan; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Weatherly do not include 193,375 restricted stock units payable in stock, 34,125 restricted stock units payable in cash, and 87,500 phantom units payable in cash. +h) +Of the 15,762 shares beneficially owned by Vince Borrello, 762 shares are owned within the Company's Employee Savings and Protection Plan; and 15,000 shares represent unvested restricted stock units which will vest within sixty days of March 16, 2012. Shares indicated as beneficially owned by Mr. Borrello do not include 47,000 restricted stock units payable in stock and 3,000 phantom units payable in cash. +i) +Of the 42,623 shares beneficially owned by Gary A. Newberry, 36,027 shares are owned directly by him and 6,596 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Newberry do not include 127,500 restricted stock units payable in stock, 22,500 restricted stock units payable in cash, and 25,000 phantom units payable in cash. +j) +Of the 69,785 shares beneficially owned by Stephen F. Woodcock, 35,026 shares are owned directly by him; 13,009 shares are owned within the Company's Employee Savings and Protection Plan; and 21,750 shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as beneficially owned by Mr. Woodcock do not include 121,550 restricted stock units payable in stock, 21,450 restricted stock units payable in cash, and 57,500 phantom units payable in cash. +k) +Includes 41,375 shares subject to options under the 1996 Plan, exercisable within 60 days; 45,800 shares subject to options under the 2002 Plan, exercisable within 60 days; 15,000 shares of restricted stock units which will vest within sixty days of March 16, 2012; 18,969 shares of unvested restricted stock which will vest within sixty days of March 16, 2012; and 184,787 shares are owned within the Company's Employee Savings and Protection Plan. +l) +Information is based upon a Schedule 13G/A filed with the SEC on November 10, 2011 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G/A, Franklin represents that it has sole voting power with respect to 5,228,065 shares of common stock and sole dispositive power with respect to 5,336,818 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control” as defined in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by the SEC's regulations to furnish the Company and the NYSE copies of all Section 16(a) forms they file with the SEC. +Based solely on review of the copies of such reports furnished to the Company during, or with respect to, the fiscal year ended December 31, 2011, and written representations from all of the Company's officers and directors, to the Company's knowledge, all of the Company's officers, directors and greater than ten percent shareholders have complied with all Section 16(a) filing requirements for the year ended December 31, 2011. +14 +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +Compensation Discussion and Analysis +of Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee is appointed by the Board of Directors of the Company to assist the Board in performing its fiduciary responsibilities relating to compensation of the Company's Chief Executive Officer and other executive officers. The Compensation Committee is directly responsible for the incentive compensation programs, which include programs that are designed specifically for our senior officers, including our executive officers included in the “Summary Compensation Table”, whom we sometimes refer to as the “named executive officers.” +During 2011, the Compensation Committee retained the services of Meridian Compensation Partners LLC to assess the effectiveness of the Company's compensation program and to obtain a more complete picture of the overall compensation environment, based on surveys of other companies within our industry. Meridian consultants attended all meetings of the Committee and provided the Committee with information regarding the pay practices of similarly-sized companies. The Compensation Committee considered the advice of the consultant as only one factor among the other items discussed in this compensation discussion and analysis. Actual compensation decisions for individual officers are the result of the Compensation Committee's subjective analysis of a number of factors, including the individual officer's performance, experience, skills or tenure with us, changes to the individual's position and trends in compensation practices within our peer group or industry. The Compensation Committee also uses its discretion to adjust any of the components of compensation to achieve our goal of recruiting, developing, motivating, and retaining individuals with the skills necessary to execute our business strategy and develop and grow our business. +While the consultant interacts with the Company's executive officers in order to complete its assignments and prepare its reports, the consultant reports directly to the Compensation Committee. Meridian has not provided any services to us other than advice and recommendations with respect to the determination of the amount and form of executive and director compensation at the request of the Committee. +The Compensation Committee has established procedures that it considers adequate to ensure that the compensation consultant's advice to the Committee remains objective and is not influenced by our management. With the consent of the Compensation Committee chair, the consultant may, from time to time, contact our executive officers for information necessary to complete its assignments and may make reports and presentations to and on behalf of the Committee that the executive officers may also receive. +2011 Advisory Vote +The Compensation Committee considered the results of the 2011 advisory, non-binding “say-on-pay” proposal in connection with the discharge of its responsibilities. Because 95% of our shareholders voting on the “say on pay” proposal approved the compensation of the named executive officers described in our proxy statement for our 2011 annual meeting of shareholders, the Compensation Committee did not implement significant changes to our executive compensation program as a result of the shareholder advisory vote. +Compensation Risks +The Compensation Committee, with assistance of the consultant, extensively reviewed the elements of executive compensation during 2011 to determine whether any portion of executive compensation encouraged excessive risk taking. Management of the Company conducted a similar risk assessment with respect to other employees. Management and the Compensation Committee do not believe that our compensation policies and practices for our executive officers and other employees present risks that are reasonably likely to have a material adverse effect on the Company. In addition, we believe that the mix and design of the elements of compensation do not encourage management to assume excessive risks. +15 +Compensation Program Philosophy and Objectives +Our business strategy is to increase shareholder value by increasing reserves and production levels, increasing reserve life and predictability of production, diversifying risk, and strengthening our balance sheet. Our compensation program is designed to attract, retain and motivate employees in order to effectively implement our strategy. Specifically, our compensation program has four objectives: +• +To facilitate ownership of our common stock by our executive officers and employees through equity-based incentives so that their interests are closely aligned with those of our shareholders in terms of both risk and reward; +• +To attract and retain motivated and qualified executives whose performance continues to contribute to the execution of both our short- and long-term strategic goals; +• +To create a “pay for performance” oriented environment that rewards significant contributions to our short- and long-term strategic goals while avoiding excessive risks; and +• +To provide an executive compensation structure that is internally equitable based upon the level of responsibility of our executives. +We strive to minimize turnover of our executive talent by providing a compensation package which includes a mix of stable annual cash compensation along with performance-based and at-risk compensation to ensure our executive's attention remains focused on the Company's and the shareholders' interest. +Use of Market Data +In order to assist in the determination of compensation, Meridian provided the Compensation Committee with market data from a group of peer companies in the industry that are similar in size and operations to Callon. The peer group is reviewed each year and is adjusted, as required, based on changes in the peer companies' operations and changes in Callon's operations. The Committee looks at Callon's size from an asset standpoint along with relevant operating and financial metrics relative to the peer companies to help frame appropriate levels of compensation as a reference point for decision-making. Our management and Compensation Committee use the information regarding peer companies to confirm their compensation decisions for reasonableness. We do not target a specific percentile of our peer group, and the market data is just one factor considered by the Committee in determining compensation. +The table below indicates the Peer Companies (“Peer Companies”) which were used to determine base salaries, cash bonuses, and long-term compensation for 2011. +Peer Companies +ATP Oil and Gas Corp. +Brigham Exploration Company +Carrizo Oil & Gas, Inc. +Goodrich Petroleum Corporation +Endeavor International Corporation +McMoran Exploration Company +Comstock Resources, Inc. +Petroquest Energy Inc. +Stone Energy Corp. +Swift Energy Company +16 +Elements of Compensation +While we do not have a pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term compensation, we have designed the components of our compensation programs so that, as an executive's responsibility increases, his compensation mix is generally weighted more heavily toward performance-based and at-risk compensation and less heavily toward base salary, while at the same time remaining competitive. The Committee believes that the compensation environment for qualified executives in the oil and gas industry is highly competitive and in order to compete in this environment, our executive officers' compensation should have the following components: +Component +Purpose +Philosophy Statement +Base Salary +Ÿ To pay for expertise and experience +Ÿ Attract and retain talent +Ÿ Provide stable compensation level +Ÿ In the aggregate, compared against peers +given relative size +Ÿ Reflective of individual skills, experience and +expertise necessary to execute our business +strategy +Annual Cash Reward and Incentive Compensation +Ÿ Motivate superior operational and +financial performance +Ÿ Provide annual recognition of performance +based on achievement of individual and +corporate objectives +Ÿ To promote and encourage pay-for- +performance +Ÿ In the aggregate, bonus opportunities +compared against peers given relative size for +reasonableness +Ÿ Reflective of internal equity considerations +Ÿ Goals aligned with annual strategic objectives +of the Company +Ÿ Modest or no reward for performance below +expectations and potential for significantly +increased reward for exceptional performance +Ÿ Provide balance in compensation programs +and avoid encouraging undue risk-taking +Long-Term Equity Incentives +Ÿ Directly align employees with +shareholders +Ÿ Create significant retention hook +Ÿ Match competitive practices to attract and +retain employees +Ÿ Ultimate value delivered influenced by the +Company's return to shareholders as +compared against peer companies +Ÿ Appropriate opportunities based on a review +of multiple reference points: +- Industry peer grant values +- Historical grant practices +- Internal relative positioning +- Provide balance in compensation +programs and avoid encouraging undue +risk-taking +Retirement and Health Benefits +Ÿ Provide financial security for employees +and their families +Ÿ Help ensure a financial safety net +Ÿ Match competitive practices +Ÿ Programs generally consistent, regardless of +level, across the organization +Ÿ Benefit levels competitive with peer +companies +Severance Protection +Ÿ Match competitive practices to attract and +retain employees +Ÿ For change in control protection, help +ensure executives consider all possible +transactions to increase shareholder value +Ÿ Benefit levels based on peer group practices +with consideration to shareholder value +How We Determine Each Element of Compensation. +Base Salaries . At a regularly scheduled meeting, generally in March of each year, the Committee reviews the base salary for the Chief Executive Officer and other named executive officers. Actual individual salary amounts are not objectively determined, but instead reflect the Compensation Committee's subjective analysis of a number of factors, including the individual officer's experience, skills or tenure with the Company, changes to the individual's position within the Company, trends in compensation practices within our peer group or industry, and his or her expected future contribution to the success of our Company. In addition, the Compensation Committee also carefully considers the input and recommendations of the CEO when evaluating factors relative to the other executive officers, or, in the case of the CEO, the Compensation Committee considers the input and recommendations of the chairman of the Compensation Committee. Upon review of these various factors and taking into consideration the Company's philosophy of emphasizing incentive compensation, the Committee made no changes to existing executive officer salaries during 2011. +Vince Borrello joined us in April 2011 as the Vice President/General Manager - Permian Basin. His base salary of $250,000 per year was determined by negotiation and was approved by the Compensation Committee. +17 +Annual Cash Reward and Incentive Compensation . Executive officers, senior management and certain other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a cash bonus. As with base salary, the Committee looks at Callon's size from an asset size and other operating metrics standpoint relative to the Peer Companies as a reference point for determining the reasonableness of targeted bonus opportunities. For 2011, the Committee set the initial bonus percentage targets for the Chief Executive Officer, the Chief Financial Officer, and the Senior Vice President - Operations at 100%, 90%, and 90% of base salary, respectively. The other named executive officers were eligible for a bonus targeted at 50% to 60% of base salary. Bonus percentage of base salary targets for other senior management and non-management technical personnel were not specifically set. +Each year, following the Board of Directors' approval of the annual operating budget and financial forecast for the next year, the Compensation Committee sets performance related cash bonus guidelines for the next year. These guidelines are used as a reference point and no specific formula or weighting is considered. After the end of the performance period, the Committee meets to evaluate the Company's actual performance relative to these pre-determined cash bonus guidelines on a percentage basis. The Committee reserves the right to adjust the results based on unexpected events outside the control of the Company which may have negatively impacted the guideline attainment percentage. Cash bonus amounts for each named executive officer are calculated based on the attainment percentage and their respective salary bonus percentage, and adjusted, if necessary, for superior individual performance above and beyond the original corporate performance guidelines. +The Compensation Committee desired to set reasonable guidelines for 2011 bonus consideration which reflect strategic business focus points and which encourage management to promote growth of the Company and foster added shareholder value. The agreed focus points and results for the year 2011 were as follows: +Focus Point +Achievements +Conduct operation in a safe manner. +The Company achieved an ORIR Recordable Incidents level of 0.65 which is considerably below the target of 1.5 set for the year and in line with the incident levels achieved by much larger E&P operating companies. +Continue Permian drilling plan within peer costs. +In 2011, the Company drilled 36 wells in the Wolfberry formation on our acreage in the Midland basin at an average cost of approximately $2.3 million per well. The average well cost was within the cost guidelines when considering the wells were drilled deeper than originally projected and considering the continued upward cost pressure of hydraulic fracturing of wells in this area. Our average well cost was also within the range of well cost disclosed by peer companies drilling similar wells in the Permian Basin during 2011. +Add acreage to our Permian Basin focus area. +During the year 2011, the market for acreage in the core of the Permian Basin continued to escalate in price making the economics of most acreage offered unattractive. However, the Company was able to add 728 acres of prospective acreage at a reasonable price. Negotiations on an available acreage position accelerated in the 4 th quarter of 2011 but were not completed before year-end. In January 2012 the Company added 14,470 net exploratory acres in the northern portion of the Permian Basin. +Meet specified operational and financial targets +For 2011, operational and financial metrics were for total production, cash flow from operations, reserve additions, and pre-tax income. The production goal was achieved and was within guidance given to the public. Cash flow from operations exceeded the budgeted amount for 2011 by over $22 million. Reserve additions for the year were approximately 4.1 MMboe which exceeded the target of 3.5 MMboe. Pre-tax income of $37 million was $25 million in excess of the agreed upon goal for the year. +At the March 2012 Compensation Committee meeting, the Committee subjectively evaluated the Company's overall performance against the focus points and guidelines set for 2011 and determined that the Company met expectations for the year. The Committee noted that despite external factors such as commodity pricing and the significantly increased interest in and the competitive nature of leasing activity in the Company's Permian Basin focus area which impacted the Company's ability to add prospective acreage, the Company continued to efficiently drill wells, increased Permian Basin production by over 100% as compared to 2010 production and increased net oil and gas reserves. +For 2011, Mr. Callon received a cash bonus of $464,520, representing 100% of his base salary in 2011. In addition to his +18 +responsibilities as Chairman of the Board and his leadership in achieving the goals set forth above, Mr. Callon was specifically recognized for his long-term proven track record of leadership and his vision of the Company's long-term growth strategy. He continued to seek and implement meaningful ways to increase our oil and natural gas reserves, promote safe environmental operations, and improve the Company's financial stability, all of which contribute to increased shareholder value. Early in 2011, under Mr. Callon's leadership, the Company completed a public offering of 10.1 million shares of common stock which provided $73.8 million in funds available for future operational and exploration needs. A portion of the proceeds were used to redeem $31 million of the Company's outstanding 13% Senior Notes, thereby reducing the overall debt level of the Company. Using his experience in the oil and gas industry, Mr. Callon continued to guide the Company's transition from primarily an off-shore oil producing company to a more balanced production ratio by expanding our operations in the Permian Basin located near Midland, Texas. +Recognizing their individual contributions to achievement of the goals discussed above, for 2011, Messrs Weatherly, Newberry, Woodcock, and Borrello received cash bonuses of $327,600, $315,000, $171,600, and $150,000, respectively, representing 90%, 90%, 60%, and 60%, respectively, of their base salaries in 2011. +Long-term Equity Incentives . The Compensation Committee administers our long-term incentive plans and performs functions that include approving award recipients, determining the timing of grants and assigning the number of shares awarded, fixing the time and manner in which awards are exercisable, setting option exercise prices and vesting and expiration dates, and from time to time adopting rules and regulations for our plans. For the grant of equity compensation to executive officers, our Compensation Committee will typically consider information provided by the compensation consultant related to the overall competitive environment associated with long-term compensation. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. However, our Committee does follow a policy of not granting equity incentives when material non-public information exists that may affect the short-term price of our stock. +The Committee considered information provided by the consultant, the long-term incentive practices of the Peer Group, and the Company's financial situation and share availability and determined in May 2011 to grant long-term incentives to the named executive officers as set forth below. +Name +Restricted Stock Units Payable in Common Stock +Restricted Stock Units Payable in Cash (3) +Phantom Units Payable in Cash (4) +Fred L. Callon +93,500(1) +16,500 +55,000 +B. F. Weatherly +63,750(1) +11,250 +37,500 +Gary A. Newberry +42,500(1) +7,500 +25,000 +Stephen F. Woodcock +34,000(1) +6,000 +20,000 +Vince Borrello +17,000(1) +45,000(2) +3,000 +-- +-- +-- +(1) +Amount represents restricted stock units vesting on May 12, 2014 and payable in Company common stock on the vesting date. +(2) +Mr. Borrello was hired on April 4, 2011. His employment offer included 45,000 restricted stock units vesting ratably on each subsequent three anniversary dates. +(3) +Amount represents restricted stock units vesting on May 12, 2014 and payable in cash based on the average of the opening and closing NYSE market price of the Common Stock on the date of payment. +(4) +Amount represents performance-based phantom units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on the Company's total shareholder return when compared to the Peer Companies. The adjusted performance-based units will vest on December 31, 2013. +We believe a mix of long-term incentives payable in cash and stock, a portion of which has time-based vesting and a portion of which vests based on performance, achieves our goals of incentivizing our executive officers and aligning their interests with those of our shareholders. +The performance-based phantom units are subject to an adjustment based on the Company's total shareholder return measured against a group of peer companies as follows: +Callon's Total Shareholder Return Rank versus Peers +Phantom Units Vesting as a Percentage of Target +1 or 2 +150% +3 or 4 +125% +5 or 6 +100% +7 or 8 +50% +9, 10, or 11 +—% +19 +At the end of the vesting period, the earned awards will be provided to the participant without any additional holding period. +Information concerning all unvested performance shares and outstanding options held by our named executive officers is contained in the "Outstanding Equity Awards at December 31, 2011" table. +Retirement and Health/Welfare Benefits . We provide certain benefits that we believe are standard in the industry to all of our employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents, group life insurance for employees and their spouses, accidental death and dismemberment coverage for employees, long-term disability, a Company sponsored cafeteria plan and a 401(k) employee savings and protection plan. The costs of these benefits are paid entirely by the Company. Employee life insurance amounts surpassing the Internal Revenue Service maximum are treated as additional compensation to all employees. The Company's 401(k) contribution to each qualified participant, including the named executive officers, is calculated based on 5% of the employee's IRS eligible salary, excluding overtime pay and annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, including amounts deferred by named executive officers, up to a maximum of 5% of IRS eligible compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not otherwise available to all of our employees. We provide our Chief Executive Officer, Chief Financial Officer and other executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service's annual lease value method for personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company's payment of annual premiums for a term life insurance policy for which Mr. Callon is the sole beneficiary and which the Company has no economic interest in the proceeds. The costs associated with these benefits for the named executive officers are reported as “Other Compensation” in the Summary Compensation Table. The Committee feels these perquisites are common to the oil and gas industry and the value of such benefits is considered in determining total compensation of our executives. +Severance Protection. Callon has not entered into any employment agreements with any of our executive officers. To align with market practices and in order to ensure all named executive officers are motivated to consider any transaction that would increase shareholder value, we have entered into change-in-control severance compensation agreements with our executive officers which include continued salary, benefits and accelerated vesting of equity awards. We believe that these provisions create important retention tools for us, as providing for accelerated vesting of equity awards upon a termination of employment in connection with a change in control provides employees with value in the event of a termination of employment that was beyond their control. In addition, we believe that it is important to provide the named executive officers with a sense of stability, both in the midst of transactions that may create uncertainty regarding their future employment and post-termination as they seek future employment. We believe post-termination payments allow management to focus their attention and energy on making the best objective business decisions that are in the interest of the Company without allowing personal considerations to cloud the decision-making process. Further, we believe that such protections maximize shareholder value by encouraging the named executive officers to review objectively any proposed transaction in determining whether such proposal or termination is in the best interest of our shareholders, whether or not the executive will continue to be employed. These agreements match competitive practices and are all similar in structure except that Mr. Callon's benefit levels are higher to reflect his position as the CEO of the Company. These agreements include non-competition, non-solicitation, and non-disclosure provisions. In addition, the agreements contain a “claw back” provisions that will apply in the event any of these provisions are violated by the executive in order to protect the Company in the event the benefits are triggered. Effective January 2011, the Company amended and restated the severance agreements with Mr. Callon, Mr. Weatherly, and Mr. Woodcock to eliminate the excise tax gross-up provisions attributable to excess parachute payments in each of these contracts to align with evolving governance practices, and replace such gross-up provisions with a “net best” provision. The Company entered into a change-in-control severance compensation agreements with Gary A. Newberry and Vince Borrello in September 2011. Despite competitive market practices to the contrary, the Committee chose not to provide guaranteed severance benefits outside of a change-in-control. In the event of a termination of employment outside of a change-in-control, the Committee will consider the circumstances of each case separately. +Internal Revenue Service Limitations . When establishing our compensation programs, we consider all relevant tax laws. Our programs are designed to comply with Section 409A of the tax code, which applies to nonqualified deferred compensation, in order to prevent negative tax consequences for our executives. Under Section 162(m) of the Internal Revenue Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. However, the Committee reserves the right to use its judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate and in the best interest of the shareholders, after taking into consideration changing +20 +business conditions or the executive's individual performance and/or changes in specific job duties and responsibilities. During 2009, the Company did not have any employees who exceeded the non-performance based compensation limit established by Internal Revenue Code Section 162(m). During 2010, the non-performance based compensation attributable to Fred L. Callon exceeded the limit established by Internal Revenue Code Section 162(m) in the amount of $197,199. During 2011, the non-performance based compensation attributable to Fred L. Callon and Gary A. Newberry exceeded the limit established by Internal Revenue Code Section 162(m) in the amount of $194,527 and $44,311, respectively. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and members of our Board of Directors are prevented from buying or selling Company stock during periodic “trading blackout” periods. A trading blackout period is placed in effect by senior management when material non-public information about the Company may exist and may have an influence on the marketplace. +Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors adopted a stock ownership policy which applies to the Chief Executive Officer and the other named executive officers. The provisions of the policy provide for the investment position, computed on December 31 of each year, of the Chief Executive Officer to be no less than six times his or her base salary. For other named executive officers, the investment position shall be no less than two times base salary. Investment position is defined as calculated value of shares owned, shares owned indirectly, equivalent shares invested in the officer's 401(k) plan, and unvested portion of time-based vesting of performance shares or restricted shares. Value attributable to shares represented by both vested and unvested stock options and the value of unvested performance-based vesting of performance shares or restricted shares are excluded. Each officer has a period of five years from the date of adoption to attain the required investment position. If a named officer becomes subject to a greater investment position due to a promotion or an increase in salary, he or she will be expected to attain the increased investment position within three years of the change. +The Compensation Committee reserves the right to approve an alternate stock ownership guideline for named officers who can demonstrate a severe hardship in meeting the general guidelines. +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides that the Company shall not enter into a related party transaction unless such transaction is approved by the Audit Committee after a review of the transaction by the Audit Committee for potential conflicts of interest. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, our Code of Business Conduct and Ethics provides that an officer's or a director's conflict of interest with the Company may only be waived if the Nominating and Governance Committee approves the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging their duties. As of December 31, 2011, we are not aware of any related party transactions with our executive officers that may cause a conflict of interest with the Company. +Recoupment Policy. We currently do not have a recovery policy applicable to annual incentive bonuses or equity awards other than those required under Sarbanes-Oxley legislation. The Compensation Committee will continue to evaluate the need to adopt such a policy in light of pending legislation. +Compensation Committee Recommendation +We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions included in this proxy statement. Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in this proxy statement. +L. Richard Flury (Chairman) +Larry D. McVay +John C. Wallace +Anthony J. Nocchiero +The following table sets forth certain information with respect to the Chief Executive Officer and Chief Financial Officer of the Company and the three most highly compensated executive officers of the Company serving in such positions as of December 31, 2011. We sometimes refer to the officers listed below as the “named executive officers.” +21 +Summary Compensation Table +Name and Principal Position +Year +Annual +Salary +($) +Cash +Bonus +($) +Stock +Awards +($) +All Other +Compen- +sation +($)(11) +Total +($) +Fred L. Callon +Chairman, President and Chief Executive Officer +2011 +464,520 +464,520 +(3 +) +1,156,650 +(5 +) +60,646 +2,146,336 +2010 +464,520 +575,000 +944,063 +(6 +) +61,076 +2,044,659 +2009 +464,520 +696,780 +325,000 +(7 +) +58,838 +1,545,138 +B. F. Weatherly +Executive Vice President and Chief Financial Officer +2011 +364,000 +327,600 +(3 +) +788,625 +(5 +) +42,157 +1,522,382 +2010 +364,000 +420,000 +755,250 +(6 +) +40,514 +1,579,764 +2009 +364,000 +546,000 +85,313 +(7 +) +48,795 +1,044,108 +Gary A. Newberry +Senior Vice President - Operations +2011 +350,000 +315,000 +(3 +) +525,750 +(5 +) +41,074 +1,231,824 +2010 +250,077 +(1 +) +100,000 +300,000 +(4 +) +273,000 +375,000 +(8) +(9) +42,297 +1,340,374 +Stephen F. Woodcock +Vice President, Exploration +2011 +286,000 +171,600 +(3 +) +420,600 +(5 +) +41,862 +920,062 +2010 +286,000 +171,600 +566,438 +(6 +) +53,197 +1,077,235 +2009 +286,000 +171,600 +45,500 +(7 +) +43,002 +546,102 +Vince Borrello +Vice President and General Manager - Permian Basin Operations +2011 +187,500 +(2 +) +150,000 +(3 +) +140,200 +351,450 +(5) +(10) +29,258 +858,408 +(1) +Mr. Newberry's employment date was April 1, 2010 and initial annual salary was $320,000. Upon his promotion in September 2010, his annual salary was increased to $350,000. +(2) +Mr. Borrello's employment date was April 4, 2011 and his annual salary was $250,000. +(3) +Cash bonus declared in March 2012 attributable for services performed during 2011. +(4) +Represents a sign-on bonus paid in April 2010 as an additional incentive for employment. +(5) +Represents the grant date fair value of the restricted stock units and performance-based phantom units granted to the named executive officers on May 12, 2011 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +(6) +Represents the grant date fair value of the restricted stock units and performance-based phantom units granted to the named executive officers on May 7, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(7) +Represents the grant date fair value of the restricted stock units granted to the named executive officers on August 14, 2009 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnote 4 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 12, 2010. +(8) +Represents the grant date fair value of the restricted stock units granted to the named executive officer on April 1, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(9) +Represents the grant date fair value of the restricted stock units granted to the named executive officer on September 22, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(10) +Represents the grant date fair value of the restricted stock units granted to the named executive officers on April 4, 2011 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +(11) +See table and related footnotes below. +22 +Table of All Other Compensation +Name +Year +Company +Contributed Cash to +401(k) +($) +Company +Contributed Common Stock to 401(k) +($)(1) +Company Provided Auto +($)(2) +Company +Paid +Other +($) +Total +($) +Fred L. Callon +2011 +18,375 +6,125 +21,457 +14,689(3) +60,646 +2010 +18,375 +6,125 +21,887 +14,689(3) +61,076 +2009 +18,375 +6,125 +22,838 +11,500(3) +58,838 +B. F. Weatherly +2011 +18,375 +6,125 +17,657 +— +42,157 +2010 +18,375 +6,125 +16,014 +— +40,514 +2009 +18,375 +6,125 +15,047 +9,248(4) +48,795 +Gary A. Newberry +2011 +18,375 +6,125 +16,574 +— +41,074 +2010 +18,375 +6,125 +17,797 +— +42,297 +Stephen F. Woodcock +2011 +18,375 +6,125 +17,362 +— +41,862 +2010 +18,375 +6,125 +19,118 +9,579(4) +53,197 +2009 +18,375 +6,125 +18,502 +— +43,002 +Vince Borrello +2011 +12,981 +4,327 +11,950 +— +29,258 +(1) +Company contributions to each person's 401(k) account consist of a basic contribution equal to five percent (5%) of eligible annual base salary (funded one-half in cash and one-half in equivalent-valued common stock) plus a matching amount (limited to five percent (5%) of eligible annual base salary if such employee individually contributed at least eight percent (8%) of their eligible annual base salary). The number of shares contributed is determined on a monthly basis by dividing one-half of the total basic cash contribution by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life plus insurance, fuel, maintenance and repairs. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which Mr. Callon is the sole beneficiary. +(4) +Represents taxable income associated with the purchase of a Company automobile at below estimated fair market value. +23 +Grant of Plan-Based Awards During 2011 +The following table presents grants of equity awards during the fiscal year ending December 31, 2011: +Name +Grant +Date +Estimated Future Payouts Under +Equity Incentive Plan Awards (1) +All Other Stock Awards: Number of Shares of +Stock or Units +Grant Date Fair Value +($)(5) +Thresh-old +(#) +Target +(#) +Maxi- +mum +(#) +Fred L. Callon +5/12/2011 +— +— +— +93,500(2) +655,435 +5/12/2011 +— +— +— +16,500(3) +115,665 +5/12/2011 +— +55,000 +82,500 +— +385,550 +B. F. Weatherly +5/12/2011 +— +— +— +63,750(2) +446,888 +5/12/2011 +— +— +11,250(3) +78,863 +5/12/2011 +— +37,500 +56,250 +— +262,875 +Gary A. Newberry +5/12/2011 +— +— +— +42,500(2) +297,925 +5/12/2011 +— +— +— +7,500(3) +52,575 +5/12/2011 +— +25,000 +37,500 +— +175,250 +Stephen F. Woodcock +5/12/2011 +— +— +— +34,000(2) +238,340 +5/12/2011 +— +— +— +6,000(3) +42,060 +5/12/2011 +— +20,000 +30,000 +— +140,200 +Vince Borrello +4/4/2011 +— +— +— +45,000(4) +351,450 +5/12/2011 +— +— +— +17,000(2) +119,170 +5/12/2011 +— +— +— +3,000(3) +21,030 +(1) +Amount represents performance-based phantom units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on certain performance metrics when compared to Company identified peer companies. The adjusted performance-based shares will vest on December 31, 2013. +(2) +Amount represents restricted stock units vesting on May 12, 2014 and is payable in Company common stock on the vesting date. +(3) +Amount represents restricted stock units vesting on May 12, 2014 and is payable in cash based on the average of the opening and closing NYSE market price of the Common Stock on the date of payment. +(4) +Amount represents restricted stock units awarded as an inducement for employment. These units will vest ratably on each of three subsequent anniversary dates. +(5) +This column shows the grant date fair value of the awards granted to the named executive officers on the date indicated computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company's consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +Stock-Based Incentive Compensation Plans +The 2011 Omnibus Incentive Plan (the “2011 Omnibus Plan”) was approved by shareholders on May 12, 2011. Prior to that date, the Company maintained five common stock-based incentive plans for its officers, directors and employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, the 2006 Plan, and the 2009 Plan (collectively, the “Prior Plans”). These Prior Plans will continue until all remaining awards are satisfied or expire but, any shares not reserved for future awards under the Prior Plans on the adoption date of the 2011 Omnibus Plan were transferred to and available under the 2011 Omnibus Plan. Any and all shares that may become available as a result of future stock option exercises or share award vesting under the Prior Plans will also be transferred to and available under the 2011 Omnibus Plan. No future grants will be made under the Prior Plans. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company's sole shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan terminated effective July 14, 2004; therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the 1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, the shareholders of the Company approved an increase in the available number of shares of common stock reserved for issuance under the 1996 Plan to 2,200,000 shares. Award activity in 2011 and prior to the approval date of the 2011 Omnibus Plan included the expiration of 10,000 vested stock options. As of the approval date of the 2011 Omnibus Plan, a total of 314,548 unreserved shares became available for future awards under the 2011 Omnibus Plan. Subsequent to the approval of the 2011 Omnibus Plan, 15,000 vested stock options expired and became available for issuance under the 2011 Omnibus Plan. +24 +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan under the provisions of the SEC rules and regulations at the time it was adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly based plan, the aggregate number of shares underlying awards granted to officers and directors cannot exceed 50% of the total number of shares underlying the awards granted to all employees during any three-year period. Award activity in 2011 and prior to the approval date of the 2011 Omnibus Plan included the forfeiture of 13,334 restricted stock units. Therefore, as of the approval date of the 2011 Omnibus Plan, a total of 40,800 unreserved shares became available for future awards under the 2011 Omnibus Plan. Subsequent to the approval of the 2011 Omnibus Plan, an additional 32,750 shares were returned to the 2002 Plan and became available for issuance under the 2011 Omnibus Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the 2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders on May 4, 2006. Pursuant to the 2006 Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. Award activity in 2011 and prior to the approval date of the 2011 Omnibus Plan included the forfeiture of 101,000 restricted stock units and 4,207 shares became available as a result of restricted stock units vesting. Therefore, as of the approval date of the 2011 Omnibus Plan, a total of 155,572 unreserved shares became available for future awards under the 2011 Omnibus Plan. Subsequent to the approval of the 2011 Omnibus Plan, an additional 32,750 shares were returned to the 2002 Plan and became available for issuance under the 2011 Omnibus Plan. +2009 Plan. The 2009 Plan was approved by the shareholders on April 30, 2009. Pursuant to the 2009 Plan, 1,250,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, restricted stock units, or performance shares or units. Award activity in 2011 and prior to the approval date of the 2011 Omnibus Plan included the issuance of 45,000 restricted stock units and the forfeiture of 10,000 restricted stock units. Therefore, as of the approval date of the 2011 Omnibus Plan, a total of 278,175 unreserved shares became available for future awards under the 2011 Omnibus Plan. Subsequent to the approval of the 2011 Omnibus Plan, an additional 4,503 shares were returned to the 2009 Plan and became available for issuance under the 2011 Omnibus Plan. +2011 Omnibus Plan. The 2011 Omnibus Plan was approved by the shareholders on May 12, 2011. Pursuant to the 2011 Omnibus Plan, the total number of shares available for awards shall be equal to the sum of (a) Two Million Three Hundred Thousand (2,300,000) shares, (b) any and all Shares that are available for awards under the Prior Plans as of the approval date that are not reserved for outstanding awards that were granted under the Prior Plans on the approval date, and (c) any and all shares that may become available for awards under the Prior Plans on or after the approval date that were reserved for outstanding awards that were granted under the Prior Plans before the approval date, as provided in Section 4.2(b). Awards available under the 2011 Omnibus Plan include grants of stock options, stock appreciation rights or units, restricted stock, restricted stock units, or performance shares or units. On the initial approval date, a total 3,089,095 shares were available for future grants. Subsequent to the approval date, 52,253 shares became available under the 2011 Omnibus Plan from the Prior Plans. In addition, 2011 awards totaled 791,954. Therefore as of March 16, 2012, a total of 2,349,394 shares remain unissued within the 2011 Omnibus Plan. +The following information represents information concerning our equity compensation plans as of December 31, 2011: +Plan +Number of securities to be issued upon exercise of outstanding options (#)(a) +Weighted Average exercise price of outstanding options ($) (b) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in columns (a) +1994 Plan (1) +10,000 +12.40 +— +1996 Plan (1) +76,375 +9.47 +— +2002 Plan (2) +74,149 +6.44 +— +2006 Plan (1) +12,000 +14.17 +— +2009 Plan (1) +— +— +— +2011 Plan (1) +— +— +2,349,394 +(1) +Plan approved by the Company's shareholders. +(2) +Plan was adopted as a “broadly based” plan which did not require shareholder approval. See “Stock-Based Incentive Compensation Plans - 2002 Plan” for a description of the material terms of the Plan. +Long-Term Incentive Plan Awards +The Company does not have a long-term incentive plan for its employees other than the stock-based incentive compensation plans mentioned above and in the Compensation Discussion and Analysis. +25 +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards at December 31, 2011 for the named executive officers: +Option Awards +Stock Awards +Name +Number +of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or Units of Stock that Have Not Vested +(#) +Market +Value of Shares +or Units of Stock +that Have +Not vested +($)(16) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)(16) +Fred L. Callon +18,750 (1) +4.50 +7/12/2012 +— +— +— +— +12,625 (2) +3.70 +8/12/2012 +— +— +— +— +— +— +— +100,000(5) +497,000 +100,000(6) +497,000 +— +— +— +106,250(7) +528,063 +18,750(8) +93,188 +— +— +— +— +— +62,500(9) +310,625 +— +— +— +93,500( 10 ) +464,695 +16,500(11 ) +82,005 +— +— +— +— +— +55,000(12 ) +273,350 +B. F. Weatherly +5,000(3) +6.05 +5/8/2012 +— +— +— +— +5,000(4) +5.12 +5/2/2013 +— +— +— +— +— +— +— +44,625(5) +221,786 +7,875(6) +39,139 +— +— +— +85,000(7) +422,450 +15,000(8) +74,550 +— +— +— +— +— +50,000(9) +248,500 +— +— +— +63,750(10 ) +316,838 +11,250(11 ) +55,913 +— +— +— +— +— +37,500(12 ) +186,375 +Gary A. Newberry +— +— +— +85,000(13) +422,450 +15,000(14) +74,550 +— +— +— +42,500(10 ) +221,225 +7,500( 11) +37,275 +— +— +— +— +— +25,000(12 ) +124,250 +Stephen F. Woodcock +13,250 (1) +4.50 +7/12/2012 +— +— +— +— +8,500 (2) +3.70 +8/23/2012 +— +— +— +— +— +— +— +23,800(5) +118,286 +4,200(6) +20,874 +— +— +— +63,750(7) +316,838 +11,250(8) +55,913 +— +— +— +— +— +37,500(9) +186,375 +— +— +— +34,000(10 ) +168,980 +6,000( 11) +29,820 +— +— +— +— +— +20,000(12) +99,400 +Vince Borrello +— +— +— +45,000(15 ) +223,650 +— +— +— +— +— +17,000(10 ) +84,490 +3,000( 12) +14,910 +(1) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(2) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(3) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(4) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(5) +Represents restricted stock units awarded August 14, 2009 and are payable in stock on August 14, 2012, the vesting date. +(6) +Represents restricted stock units awarded August 14, 2009 and are payable in cash on August 14, 2012, the vesting date. +(7) +Represents restricted stock units awarded May 7, 2010 and are payable in stock on May 7, 2013, the vesting date. +(8) +Represents restricted stock units awarded May 7, 2010 and are payable in cash on May 7, 2013, the vesting date. +(9) +Amount represents performance-based phantom units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on the Company's total shareholders return when compared to Company identified peer companies. The adjusted performance-based units will vest on December 31, 2012. +(10) +Represents restricted stock units awarded May 12, 2011 and are payable in stock on May 12, 2014, the vesting date. +(11) +Represents restricted stock units awarded May 12, 2011 and are payable in cash on May 12, 2014, the vesting date. +(12) +Amount represents performance-based phantom units payable in cash on the vesting date and which will be adjusted between 0% and 150% based on the Company's total shareholders return compared to Company identified peer companies. The adjusted performance-based units will vest on December 31, 2013. +(13) +Represents restricted stock units awarded September 22, 2010 and are payable in stock on May 7, 2013, the vesting date. +(14) +Represents restricted stock units awarded September 22, 2010 and are payable in cash on May 7, 2013, the vesting date. +(15) +Represents restricted stock units awarded April 1, 2011and are payable in stock. Units vest one-third on each subsequent anniversary date following the award date. +(16) +Amounts calculated based on the December 30, 2011 closing price on the NYSE of $4.97 per share. +26 +Option Exercises and Stock Vested +The following table indicates option exercises and stock vesting during 2011 for the named executive officers: +Name +Option Awards +Stock Awards +Number of +Shares Acquired +on Exercise +(#) +Value +Realized On +Exercise +($) +Number of +Shares Acquired +on +Vesting +(#) +Value +Realized on +Vesting +($) +Fred L. Callon +— +— +23,000(1) +154,000(3) +B. F. Weatherly +— +— +15,000(1) +100,439(3) +Gary A. Newberry +— +— +50,000(2) +409,042(4) +Stephen F. Woodcock +— +— +8,000(1) +53,561(3) +Vince Borrello +— +— +— +— +(1) +Represents vesting of shares awarded April 18, 2008 +(2) +Represents vesting of shares awarded April 1, 2010 +(3) +Represents the aggregate dollar amount realized on the date of vesting based on the market price of a share of Company stock on the NYSE on April 18, 2011. +(4) +Represents the aggregate dollar amount realized on the date of vesting based on the market price of a share of Company stock on the NYSE on January 1, 2011. +27 +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable upon termination following a change in control or upon death, disability or retirement. No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer's termination was effective as of December 31, 2011. In presenting this disclosure, we describe amounts earned through December 31, 2011 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive's separation from the Company, our estimates are of the amounts which would be paid out to the executives upon their termination. +Name and +Reason for Termination +Base +Salary +($)(3) +Cash +Bonus +($)(3) +Accelerated +Stock Award +Vesting +($)(4) +Continued +Employee +Benefits +($)(5)(6) +Total +($) +Fred L. Callon +Change in Control (1) +1,393,560 +1,393,560 +2,745,925 +123,026 +5,656,071 +Death, Disability, or Retirement (2) +— +— +2,745,925 +— +2,745,925 +B. F. Weatherly +Change in Control (1) +728,000 +689,500 +1,565,550 +52,670 +3,035,720 +Death, Disability, or Retirement (2) +— +— +1,565,550 +— +1,565,550 +Gary A. Newberry +Change in Control (1) +700,000 +600,000 +869,750 +52,670 +2,222,420 +Death, Disability, or Retirement (2) +— +— +869,750 +— +869,750 +Stephen F. Woodcock +Change in Control (1) +572,000 +343,200 +996,485 +52,640 +1,964,325 +Death, Disability, or Retirement (2) +— +— +996,485 +— +996,485 +Vince Borrello +Change in Control (1) +500,000 +300,000 +323,050 +52,640 +1,175,690 +Death, Disability, or Retirement (2) +— +— +323,050 +— +323,050 +(1) +The Company entered into a Severance Compensation Agreement with each of the named executive officers listed in the table above. See “Employment Agreements, Termination of Employment and Change‑in‑Control Arrangements.” +(2) +“Disability” is generally defined as the employee's inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six (6) continuous months together with the reasonable likelihood, as determined by the Board of Directors after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee's attainment of an age which the Board of Directors determines to be consistent with normal retirement age. +(3) +In accordance with Mr. Callon's Severance Compensation Agreement, the computation uses a three-year multiple with respect to the severance amount relating to salary and target bonus while a two-year multiple is used for the other named executive officers. See “Employment Agreements, Termination of Employment and Change‑in‑Control Arrangements.” +(4) +The amounts are computed based on unvested stock awards at December 30, 2011 using the closing price of the Company's common stock on the NYSE on the last trading day of 2011, at $4.97 per share. +(5) +Benefits consist of thirty-six (36) months of employer provided family medical and dental insurance, life insurance, dependent life insurance, accidental death coverage and disability coverage for Mr. Callon and twenty-four (24) months for the other named executive officers in the table. +(6) +Mr. Callon's amount includes an additional $14,689 for each of the three years representing premiums on a life insurance policy for which the Company does not have any beneficial interest. +Employment Agreements, Termination of Employment and Change‑in‑Control Arrangements +Employment Agreements. The Company does not have any employment agreements with any executive officer. +Severance Compensation Agreements. The Company entered into Severance Compensation Agreements with each of the named executive officers. The Agreements will terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the earliest of (1) December 31, 2012, provided, however, that, on each anniversary date thereafter (each such date, an “Anniversary Date”), the expiration date shall automatically be extended for one additional year unless, immediately prior to such Anniversary Date, either party shall have given written notice that it does not wish to extend this +28 +Agreement, but in no event shall the expiration date be earlier than the second anniversary of the effective date of a Change of Control; (2) the termination of the Executive's employment with Callon based on death, Disability (as defined in Section 3.1 of the Agreement), or Cause (as defined in Section 3.2 of the Agreement; and (3) the voluntary resignation of the Executive for any reason other than Good Reason (as defined in Section 3.3 of the Agreement). +Pursuant to the Agreement, if the executive incurs a “separation from service” from the Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and other authoritative guidance issued thereunder) without cause by the Company or for good reason by him within two years following a Change of Control of the Company (or in certain cases, prior to a change of control), then the executive is entitled to a single lump-sum cash payment (payable on the date that is six months following the triggering event) in an amount equal to three times the sum (with respect to Mr. Callon) of (a) the annual base salary in effect immediately prior to the Change of Control or, if higher, in effect immediately prior to the separation from service, and (b) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the Change of Control occurs, based on a forecast that has been approved by the Board of the results for the fiscal year in which the Change of Control occurs. For the remaining named executive officers except, the salary and bonus multiple is two times. In addition, the Company must maintain at its expense until thirty-six (36) months after a separation from service all life, disability, medical, dental, accident, and health insurance coverage for Mr. Callon. For the remaining named executive officers, the continued benefit period is twenty-four (24) months. If the executive's employment is terminated as a result of his death or Disability, the Company is only required to make such payments if the termination occurred within six months after a Change of Control. “Good reason” is generally defined in the Agreement as a change in compensation, benefits, position, responsibilities, or location. A Change of Control is generally defined in the Agreement as (i) any person or group of persons acting in concert shall have become the beneficial owner of more than 50% of the outstanding common stock of the Company; (ii) the shareholders of the Company shall cause a change in the majority of the members of the Board of Directors within a twelve-month period; or (iii) the Company or its shareholders shall enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company. +The Agreements also provide that, upon a Change of Control, all stock options shall automatically become fully exercisable and all performance shares, restricted stock, stock appreciation rights and other similar rights held by the executive shall become fully vested, provided however, that such acceleration of vesting shall not occur if it would be an impermissible acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the total value of the outstanding and unvested stock rights as of the date of separation from service. +The Agreements incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the “net-best” provision included in the Agreement is appropriate. If any payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. +29 +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an additional $20,000 per year for the chairman of the Audit Committee, an additional $15,000 per year to the chairman of the Compensation Committee, an additional $10,000 per year to the chairman of the Nominating and Corporate Governance Committee, and an additional $10,000 to the chairman of the Strategic Planning Committee. Each non-management director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In addition to cash compensation the Compensation Committee may, from time to time, grant performance shares. During 2011, the Compensation Committee awarded shares of restricted stock with equivalent value equal to $125,000 each to Messrs. Flury, McVay, and Nocchiero. The restricted stock shall vest on the earlier of: (a) the first anniversary of the Grant Date, provided that Grantee continues to be a member of the Board (or is otherwise providing services to the Company as an employee) through such date; or (b) the date Grantee ceases to provide any services to the Company as an employee or director, other than for Cause, after reaching age sixty (60). The Compensation Committee may determine in its sole discretion that the restricted stock shall vest on a “qualified separation from service.” For purposes hereof, a “qualified separation from service” is defined as a Separation from Service, other than for Cause, following a minimum of five (5) years of tenure on the Board and occurring within five (5) years prior to Grantee attaining the age sixty (60). The table below indicates the total compensation earned and paid during 2011 for each non-management director: +Non-Management Director Compensation for 2011 +Name +Fees +Earned +or Paid +in Cash +($)(2) +Stock +Awards +($)(7) +Option +Awards +($) +All Other +Compensation +($) +Total +($) +L. Richard Flury +55,000(3) +125,000 +— +— +180,000 +Larry D. McVay +50,000(4) +125,000 +— +— +175,000 +John C. Wallace +60,000(5) +125,000 +— +— +185,000 +Anthony J. Nocchiero +25,000(6) +125,000 +— +— +175,000 +Richard O. Wilson (1) +25,000 +— +— +— +25,000 +(1) +Mr. Wilson's term as a director expired on May 12, 2011. For personal reasons, he elected to not stand for re-election at the Annual Meeting held on May 12, 2011. His normal annual compensation was pro-rated for one-half year of service. +(2) +Does not include reimbursement of expenses associated with attending the Board meetings. +(3) +Represents annual retainer of $40,000 and an additional $15,000 for acting as chairman of the Compensation Committee. +(4) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Strategic Planning Committee. +(5) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as chairman of the Audit Committee. +(6) +Represents one half of the annual retainer of $40,000. Mr. Nocchiero was elected to serve as a director on May 12, 2011. +(7) +Amounts calculated utilizing the provisions of FASB ASC Topic 718. See notes 9 and 10 of the consolidated financial statements in the Company's Annual Report for the year ended December 31, 2011 regarding assumptions underlying valuation of equity awards. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any additional compensation for his services in this capacity and therefore has been omitted from the table above. Mr. Weatherly also serves as a member of the Board of Directors and does not receive any additional compensation associated with those services. +The Company has established ownership requirements for its outside directors. Each director is required to achieve the a minimum value of common stock equal to at least 5 times the annual retainer within the next five years. +30 +PROPOSAL 2 +AN ADVISORY VOTE APPROVING OUR EXECUTIVE COMPENSATION +Callon is required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated under Section 14A of the Exchange Act, to seek a non-binding advisory vote from its shareholders to approve the compensation paid to its named executive officers as disclosed in this proxy statement. We encourage shareholders to read the “Compensation Discussion and Analysis” and “Executive Compensation and Other Related Information” sections of this proxy statement for a more detailed discussion of our compensation programs and policies, the compensation and governance-related actions taken in 2011 and the compensation awarded to our named executive officers. +Callon actively reviews and assesses its executive compensation program in light of the industry in which it operates, the marketplace for executive talent in which it competes, and the evolving compensation governance and best practices. Callon is focused on compensating its executive officers fairly and in a manner that promotes our compensation philosophy as described under Compensation Discussion and Analysis. +Our Board of Directors believes that Callon's executive compensation program satisfies these objectives, properly aligns the interests of our executive officers with those of our shareholders, and is worthy of shareholder support. In determining whether to approve this proposal, we believe that shareholders should consider the following: +Independent Compensation Committee. Executive compensation is reviewed and established by a Compensation Committee of the Board consisting solely of independent directors. The Compensation Committee meets in executive session, without executive officers present, in determining annual compensation. The Compensation Committee receives data, analysis and input from an independent compensation consultant that is not permitted to perform any additional services for Callon management. +Performance-Based Incentive Compensation. Elements of performance-based, incentive compensation are largely aligned with financial and operational objectives established in the Board-approved annual operating plan. +Elimination of Tax Gross-ups. Starting in 2011, executive officers will not be eligible for a tax related gross-up on any element of current and future compensation. +“Double Trigger” Severance Agreements with Fixed Term . Callon's change in control severance agreements with executive officers require an actual or constructive termination of employment before benefits are paid following any change in control. +Equity Plans. Our equity plans generally include three-year minimum vesting periods for time-based awards, prohibit repricing or exchange of outstanding option awards, and require options be granted with exercise prices at fair market value on the date of grant. +Stock Ownership Guidelines. Our executive officers are subject to stock ownership guidelines described in “Compensation Discussion and Analysis.” +For these reasons, the Board recommends that shareholders vote in favor of the following resolution: +“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of Callon's named executive officers, as disclosed in Callon's 2012 proxy statement (including the Compensation Discussion and Analysis, the compensation tables and related footnotes and narrative disclosures under the heading “Executive Compensation and Other Related Information”).” +Although this vote is advisory and is not binding on the Board, the Compensation Committee of the Board values the input and views of Callon shareholders. The Board and the Compensation Committee will review the results of the vote and take them into consideration when considering future executive compensation policies and decisions. +The Board of Directors recommends a vote “FOR” the advisory vote on executive compensation. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such approval at the 2012 Annual Meeting. +31 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable NYSE rules to be directly responsible for the appointment, compensation and retention of the Company's independent registered public accountants. The Audit Committee has appointed Ernst & Young LLP, independent registered public accounting firm, for the examination of the accounts and audit of the financial statements of the Company for the year ending December 31, 2012. While shareholder ratification is not required by the Company's bylaws or otherwise, the Board of Directors will present a proposal to the shareholders to approve and ratify as part of good corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. A representative of Ernst & Young LLP will be present at the 2012 Annual Meeting and will have the opportunity to make a statement, if he desires, and to respond to appropriate questions. +The Board of Directors recommends that the shareholders approve and ratify the appointment of Ernst & Young LLP as its independent registered public accounting firm of the Company for the fiscal year ending December 31, 2012. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such ratification at the 2012 Annual Meeting. +32 +SHAREHOLDERS' PROPOSALS +FOR 2013 ANNUAL MEETING +Shareholders who desire to present proposals at the 2013 Annual Meeting of Shareholders and to have proposals included in the Company's proxy materials must submit their proposals to the Company at its principal executive offices not later than December 3, 2012. If the date of the 2013 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2012 Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2013 Annual Meeting of Shareholders. +The person named in the Company's form of proxy for the 2013 Annual Meeting will have discretionary authority to vote any proxies they hold at such meeting on any matter for which the Company does not receive notice by February 18, 2013, unless the Company changes the date of its 2013 Annual Meeting of Shareholders by more than 30 days from the date of the 2012 Annual Meeting of Shareholders, in which case such persons will be able to exercise discretionary authority if notice of the matter has not been received in a reasonable time before the Company mails its proxy materials for the 2013 Annual Meeting of Shareholders. +If the date of the 2013 Annual Meeting of Shareholders is advanced or delayed by more than 30 calendar days from the date of the 2012 Annual Meeting of Shareholders, the Company shall, in a timely manner, inform shareholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company's proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, it is suggested that shareholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2011 Annual Report to Shareholders and the Company's Report on Form 10-K for the fiscal year ended December 31, 2011. Printed copies of the Company's Annual Report, the Company's Annual Report on Form 10-K, Corporate Governance Principles, Code of Business Conduct and Ethics and Charters of Board Committees are available to shareholders upon written request to the Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. You may also view the documents on the Company's website at www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the 2012 Annual Meeting other than those described above. If other business comes before the 2012 Annual Meeting, the persons named on the proxy will vote the proxy in accordance with what they consider to be in the best interests of the Company and its shareholders. Please sign, date, and return your proxy promptly to avoid unnecessary expense. All shareholders are urged, regardless of the number of shares owned, to participate in the 2012 Annual Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +Natchez, Mississippi +Fred L. Callon +April 2, 2012 +Chairman, President and Chief Executive Officer +33 +34 +35 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000928022-12-000032/proxy_rpt.txt b/raw/proxies/0000928022/0000928022-12-000032/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000928022-13-000124/proxy.txt b/raw/proxies/0000928022/0000928022-13-000124/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..92e4072a77eb47a5d3bc2ec922e932cf589a3800 --- /dev/null +++ b/raw/proxies/0000928022/0000928022-13-000124/proxy.txt @@ -0,0 +1,328 @@ +DEF 14A +1 +a2013-proxyforspecialmeeti.htm +CALLON PETROLEUM COMPANY PRELIMINARY PROXY +2013 - Preliminary PROXY for Special Meeting of Shareholders +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Rule 14a-101 +Schedule 14A Information +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +x +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +o +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS +TO BE HELD (________) +To Our Stockholders: +Notice is hereby given and you are cordially invited to attend a Special Meeting of Stockholders for Callon Petroleum Company (“Company” or “Callon”) to be held on (________) at 9:00 a.m. CST at the Company's Corporate Headquarters located at 200 N. Canal Street, Natchez, MS 39120 (“Special Meeting”), for the following purposes. +1. +To approve an amendment to Article Four of the Company's Certificate of Incorporation increasing the number of authorized shares of Common Stock of the Company (“Common Stock”) from 60 million shares to 110 million shares; and +2. +To transact such other business as may properly come before the meeting and any adjournment thereof. +Stockholders of record at the close of business on the September 23, 2013 (the "Record Date") may attend and vote at the Special Meeting, and any adjournment or postponements thereof. A list of stockholders entitled to vote at the Special Meeting will be available at the Company's office at 200 North Canal St., Natchez, MS 39120 during normal business hours for a period of ten days prior to the meeting. If you wish to attend the Special Meeting in person, you must present valid government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Special Meeting, in order to be admitted you must present proof of your beneficial ownership of the Common Stock, such as a bank or brokerage account statement indicating that you owned shares of the Common Stock at the close of business on the Record Date. For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting. +Whether or not you plan to attend the meeting, please vote electronically via the Internet or by telephone, or complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope. See “How do I cast my vote?” in the proxy statement for more details. +By Order of the Board of Directors, +/s/ B.F. Weatherly +Natchez, MS B. F. Weatherly +September 20, 2013 +Executive Vice President, Chief Financial Officer (“CFO”) and Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials for the Special Stockholder Meeting to be Held on (________) : The Proxy Statement is available at www.iproxydirect.com/CPE. +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +SPECIAL MEETING OF STOCKHOLDERS +(________) +INFORMATION CONCERNING SOLICITATION AND VOTING +The Company's Board of Directors (“Board”) is soliciting proxies for a Special Meeting of Stockholders to be held on (________) at 9:00 a.m. CST at the Company's Corporate Headquarters located at 200 N. Canal Street, Natchez, MS 39120, and at any adjournments or postponements of the meeting. This proxy statement contains important information for you to consider when deciding how to vote on the matter brought before the meeting. Please read it carefully. This proxy statement and the accompanying proxy card are first being mailed to stockholders on or about October 4, 2013 . +The Company will pay the expenses for the preparation of the proxy materials and the solicitation of your proxy. The Company has hired Issuer Direct to solicit your proxy, and they will do so by telephone, mail or other means of communication. The Company's directors, officers and regular employees may solicit proxies on behalf of Callon, personally or by telephone, without additional compensation. +QUESTIONS AND ANSWERS +Q: Who can vote at the meeting? +A: +You can attend and vote at the meeting if you were a stockholder at the close of business on the Record Date. The Board set September 23, 2013 as the Record Date for the meeting. On that date, there were 40,427,963 shares outstanding and entitled to vote at the meeting. +Q: +What proposals will be voted on at the meeting? +A: +One proposal is scheduled to be voted upon at the meeting: +• Approval of an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60 million to 110 million. +Q: +Why did I receive a full set of proxy materials? +A: +Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to the Company's proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of the proxy material on the Internet. The Company's Board has made these proxy materials available to you on the Internet on or about September 30, 2013 at https://www.iproxydirect.com/CPE , which is the cookies-free website. +Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of the Common Stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of a third-party proxy solicitation firm, AST Phoenix Advisors, to assist us in the Company's solicitation efforts. +2 +Q: +How do I cast my vote? +A: +There are three convenient methods for registered stockholders to direct their vote by proxy without attending the Special Meeting: +• Vote by Internet. You can vote via the Internet. The website address for Internet voting is provided on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. CST on October 30, 2013 . Internet voting is available 24 hours a day. If you vote via the Internet, you do NOT need to vote by telephone or return a proxy card. +• Vote by Telephone. You can also vote by telephone by calling the toll-free telephone number provided on the Internet link on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. CST on October 30, 2013 . Telephone voting is available 24 hours a day. If you vote by telephone, you do NOT need to vote over the Internet or return a proxy card. +• Vote by Mail. You can vote by marking, dating and signing the printed copy of the proxy card and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Special Meeting. +In the event that you return a signed proxy card on which no directions are specified, your shares will be voted as recommended by the Company's Board on the proposal, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any postponement or adjournment of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Special Meeting. +If your shares are registered in the name of a broker, bank or other nominee (typically referred to as being held in “street name”), you will receive instructions from your broker, bank or other nominee that must be followed in order for your broker, bank or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If Internet or telephone voting is unavailable from your broker, bank or other nominee, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided. +In the event you do not provide instructions on how to vote, your broker may have authority to vote your shares. Under the rules that govern brokers who are voting with respect to shares that are held in street name, brokers have the discretion to vote such shares on routine matters, including the proposal to approve the amendment to our Certificate of Incorporation to increase the number of authorized shares, but not on non-routine matters. +Your vote is especially important . Therefore, please instruct your broker regarding how to vote your shares on these matters promptly . See “Vote Required” following the proposal for further information. +If you hold shares through a broker, bank or other nominee and wish to be able to vote in person at the meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot at the meeting. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the Special Meeting. The inspector of election will count votes cast at the meeting. +Q: +Can I revoke or change my proxy? +A: +Yes. You may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the Internet or by telephone, or by delivering written notice of revocation of your proxy to the Company's Corporate Secretary at our principal executive offices before the beginning of the meeting. You may also revoke your proxy by attending the meeting and voting in person, although attendance at the meeting will not in and of itself revoke a valid proxy that was previously delivered. If you hold shares through a broker, bank or other nominee, you must contact that nominee to revoke any prior voting instructions. You also may revoke any prior voting instructions by voting in person at the meeting if you obtain a legal proxy as described above. +Q: +How does the Board recommend I vote on the proposal? +A: +The Board recommends you vote “ FOR ” the amendment to the Certificate of Incorporation increasing the number of authorized shares of Common Stock from 60 million shares to 110 million shares. +3 +Q: +Who will count the vote? +A: +The inspector of election will count the vote. Callon's Corporate Secretary will act as the inspector of election. +Q: +What is a "quorum?" +A: +A quorum is the number of shares that must be present to hold the meeting. The quorum requirement for the meeting is a majority of the outstanding shares as of the Record Date, present in person or represented by proxy. Your shares will be counted for purposes of determining if there is a quorum if you are present and vote in person at the meeting, or have voted on the Internet, by telephone or by properly submitting a proxy card or voting instruction card by mail. Abstentions and broker non-votes also count toward the quorum. An abstention will have the same practical effect as a vote against the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock. “Broker non-votes” occur when brokers, banks or other nominees that hold shares on behalf of beneficial owners do not receive voting instructions from the beneficial owners prior to the meeting and do not have discretionary voting authority to vote those shares. +Q: +What vote is required to approve the amendment to the Certificate of Incorporation? +A: +The affirmative vote of a majority of the shares of common stock having voting power is required to approve the proposed amendment to the Company's Certificate of Incorporation. +Q: +What does it mean if I get more than one proxy card? +A: +Your shares are likely registered in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. +Q: +How many votes can I cast? +A: +On all matters you, are entitled to one vote per share. +Q: +Where can I find the voting results of the meeting? +A: +The preliminary voting results will be announced at the meeting. The final results will be published in a current report on Form 8-K to be filed with the SEC within four business days of the meeting. +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This proxy statement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this proxy statement are forward-looking statements. The Company can give no assurances that the assumptions upon which such forward-looking statements are based will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for our most recent fiscal year, elsewhere in this proxy statement and from time to time in other filings made by us with the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified by the Cautionary Statements. Except as required by law, the Company does not update any forward looking statements. +4 +PROPOSAL +AMENDMENT TO ARTICLE FOUR OF THE COMPANY'S CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM 60 MILLION SHARES TO 110 MILLION SHARES +Proposed Amendment to Certificate of Incorporation +The Board has adopted a resolution approving and recommending to the stockholders for their approval a proposal to amend Article Four of the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60 million shares to 110 million shares (the “Article Four Amendment”). +The form of the Article Four Amendment is as follows: +"The first sentence of Article Four is hereby amended and restated to be read in its entirety as follows: +“The Corporation shall have authority to issue two classes of stock, and the total number authorized shall be 110,000,000 shares of Common Stock, par value $.01 per share, and 2,500,000 shares of Preferred Stock, par value $.01 per share.” +Background and Reasons for Increasing the Authorized Shares of Common Stock +The Company has experienced positive growth over the past four years and it therefore now needs additional authorized shares of Common Stock in order to adequately meet the demands of that growth and other corporate obligations. The Company has no present plans, agreements or understandings for the issuance of any of the additional shares to be authorized by the proposed amendment. As the current capitalization table below indicates, there are only 483,034 shares currently available for issuance in conducting business and meeting the needs of possible equity demands in the future. The Company feels that this is a slim operating margin and it is prudent and good business practice to have an adequate amount of Common Stock available in order to be in a position to take advantage of potential growth opportunities that might arise. The Board concurs with this assessment and believes that the recommended increase in the number of authorized shares is warranted and will give the Company the financial flexibility to timely meet the future equity capital requirements of its business. If the Certificate of Incorporation is amended, the additional shares would be available for possible acquisitions requiring equity as consideration, equity issuance in capital markets transactions, stock incentive plans, the reservation related to the Series A Preferred Stock, and for any other proper general corporate purpose. +In May 2013, the Company issued 1,578,948 shares of Series A Cumulative Preferred Stock (“Preferred Stock”). The terms of the Preferred Stock provide that if a Change of Control (as defined) occurs, the Company may redeem the Preferred Stock. If the Company does not redeem the Preferred Stock, the holders of the Preferred Stock may elect to convert the Preferred Stock into a number of shares of our Common Stock, or the common equity securities of the entity surviving the Change of Control, equal to the $50 liquidation value of the Preferred Stock plus accumulated and unpaid dividends divided by the market value of the Common Stock or the equity securities of the entity surviving the Change of Control. A Change of Control is generally defined as the acquisition by a person of 50% of the outstanding Common Stock and, following such acquisition, the Common Stock is no longer listed on a national securities exchange. +In order to limit the number of shares of Common Stock which the Company could be required to issue in connection with a Change of Control, the Preferred Stock terms contain a “share cap” which is the maximum number of shares into which the Preferred Stock may be converted, regardless of the market price of the Common Stock. The share cap is generally set at approximately 50% of the market value of the Common Stock on the closing of the Preferred Stock offering. However, because the Company had insufficient authorized shares of Common Stock to set the share cap at that number, the share cap was set at 16,800,007 shares. The Company agreed that if it increased its authorized shares of Common Stock the share cap would automatically increase to 42,331,046 shares. +The Preferred Stock is not convertible into Common Stock, except for the limited conversion rights following a Change of Control. +5 +Current Capitalization Table +Currently, the Company's authorized capital stock consists of 60,000,000 shares of Common Stock and 2,500,000 shares of preferred stock. As of September 23, 2013 , the Company had 40,427,963 shares of Common Stock outstanding and an additional 19,089,003 shares reserved for issuance upon vesting or exercise of restricted stock, stock options and the limited conversion rights of the Series A Preferred Stock. +The following table depicts the authorized capital stock of the Company as of the Record Date: +Common Stock Outstanding, Reserved and Available +Total authorized +60,000,000 +Total shares outstanding +40,427,963 +Reserved for issuance upon exercise of outstanding stock options +52,000 +Reserved for issuance upon vesting of outstanding equity awards & 401(k) Plan +2,236,996 +Currently reserved for issuance for limited conversion feature of Series A preferred stock +16,800,007 +Total outstanding and reserved +59,516,966 +Available +483,034 +General Effect of the Amendment +The following table shows the capital structure of the Company if the proposal to amend the Certificate of Incorporation to increase the number of shares of Common Stock is approved by the stockholders and becomes effective: +Post-Amendment Capitalization Table +Common Stock Outstanding, Reserved and Available +Total authorized +110,000,000 +Total Amount Outstanding +40,427,963 +Reserved for issuance upon exercise of outstanding stock options +52,000 +Reserved for issuance upon vesting of outstanding equity awards & 401(k) Plan +2,236,996 +Reserved for issuance for limited conversion feature of Series A preferred stock +42,331,046 +Total outstanding and reserved +85,048,005 +Available +24,951,995 +If the stockholders approve the amendment to the Company's Certificate of Incorporation to increase the Company's authorized Common Stock, the Company will have 24,951,995 shares of authorized Common Stock available for future issuance. The additional shares of Common Stock authorized by the amendment that are not reserved for other purposes may be issued periodically on authorization by the Board, without further approval by the stockholders, unless such authorization is required by applicable law or the rules of the NYSE. Shares of Common Stock may be issued for such consideration as the Board may determine, and as may be permitted by applicable law. +The proposed amendment to the Certificate of Incorporation does not change the terms of the Common Stock. The additional shares of Common Stock to be authorized by adoption of the amendment would have rights identical to the currently outstanding Common Stock of the Company. Any future issuance of additional shares of Common Stock would not affect the rights of the holders of currently outstanding Common Stock of the Company, except for effects incidental to increasing the number of shares of the Company's Common Stock outstanding, such as a dilutive effect on the Company's earnings per share, voting power or other interests of then existing stockholders. The overall effect of an issuance of additional shares of Common Stock and the existence of certain provisions contained in the Company's Certificate of Incorporation and By-laws may be to render more difficult the accomplishment of any attempted merger, takeover or other change in control affecting the Company and/or the removal of +6 +the Company's incumbent Board and management. However, this proposal is not in response to any effort of which the Company is aware to accumulate its stock or to obtain control of the Company and it is not part of a plan by management to recommend a series of similar amendments to the Board and the stockholders. +Effective Date +If approved by the stockholders, it is anticipated that the amendment to the Certificate of Incorporation will become effective as soon as practicable after the Special Meeting. Upon approval of this proposal at the Special Meeting, the Company will file the Article Four Amendment with the Secretary of State of the State of Delaware, and the number of authorized shares of Common Stock will be increased from 60 million shares to 110 million shares (without affecting par value). +If stockholders do not approve this proposal at the Special Meeting, then the Company may seek to obtain stockholder approval of an increase in authorized shares at future stockholder meetings. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE INCREASE IN AUTHORIZED SHARES OF COMMON STOCK TO 110 MILLION SHARES. +7 +PRINCIPAL STOCKHOLDERS +Management and Principal Stockholders +The following table sets forth, as of the Record Date, certain information with respect to the ownership of shares of Common Stock held by: (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding Common Stock; (ii) each director; (iii) each executive officer; and (iv) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of Common Stock has been obtained from filings made by the named beneficial owners with the SEC as of the Record Date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of +Certain Beneficial Owners +Beneficial Ownership +Percent +Directors: +Fred L. Callon +306,016 +(b) +* +L. Richard Flury +106,484 +(c) +* +Larry D. McVay +86,484 +(d) +* +Anthony J. Nocchiero +38,334 +(e) +* +John C. Wallace +— +(f) +* +B. F. Weatherly +219,065 +(g) +* +Named Officers: +John Weihe +107,186 +(h) +* +Gary A. Newberry +146,570 +(i) +* +Joseph C. Gatto, Jr. +31,485 +(j) +* +Directors and Executive Officers: +As a Group (9 persons) +1,041,624 +(k) +2.58 +% +Certain Beneficial Owners: +Franklin Resources, Inc. +One Franklin Parkway +San Mateo, CA 94403 +5,228,065 +(l) +12.92 +% +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +2,212,695 +(m) +5.47 +% +RR Advisors, LLC +3953 Maple Avenue, Suite 180 +Dallas, TX 75219 +2,481,363 +(n) +6.13 +% +* +Less than 1% +(a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power, unless such award will vest within sixty days of September 23, 2013 . Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of Common Stock beneficially owned by such holder or class of holders plus the total number of shares of Common Stock underlying options exercisable or stock awards vesting within sixty days of September 23, 2013 , by (ii) the total number of shares of Common Stock outstanding plus the total number of shares of Common Stock underlying options exercisable and stock awards vesting within sixty days of September 23, 2013 , but not Common Stock underlying such securities held by any other person. +(b) +Of the 306,016 shares beneficially owned by Fred L. Callon, 227,304 shares are held directly by him; 25,215 shares are held by him as custodian for certain minor Callon family members; and 53,497 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of Common Stock owned by his wife over whom he disclaims beneficial ownership, 405,124 and 71,492 restricted stock units payable in stock and cash, respectively, and 504,027 phantom units payable in cash. +(c) +Of the 106,484 shares beneficially owned by L. Richard Flury, 76,484 shares are owned directly by him; 30,000 shares are held in joint tenancy with his wife; Shares indicated as beneficially owned by Mr. Flury do not include 5,000 and 5,000 shares subject to options under the 1996 and 2002 Plans, respectively. +(d) +Of the 86,484 shares beneficially owned by Larry D. McVay, all are owned directly by him. Shares indicated as beneficially owned by Mr. McVay do not include 35,014 restricted stock units awarded in May 2013 and payable in cash upon his separation of service as a director. +(e) +Of the 38,334 shares beneficially owned by Anthony J. Nocchiero, are shares are held directly by him. +8 +(f) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust, with the exception of the 5,000 , 5,000 , and 5,000 shares subject to options under the 1994 , 1996 , and 2002 Plans, respectively; and the 18,969 , 22,768 , and 35,014 restricted stock units awarded in May 2011, 2012 and 2013, respectively, and payable in cash upon his separation of service as a director. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +(g) +Of the 219,065 shares beneficially owned by B. F. Weatherly, 98,374 shares are owned directly by him; 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; and 51,877 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weatherly do not include 250 shares of Series A preferred stock held directly by him; 196,191 and 34,621 restricted stock units payable in stock and cash, respectively, and 228,337 phantom units payable in cash.2481 +(h) +Of the 107,186 shares beneficially owned by John Weihe, 25,633 shares are owned directly by him and, 81,553 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weihe do not include 55,038 and 2,830 restricted stock units payable in stock and cash, respectively, and 47,609 phantom units payable in cash. +(i) +Of the 146,570 shares beneficially owned by Gary A. Newberry, 125,079 shares are owned directly by him and 21,491 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Newberry do not include 124,187 and 21,915 restricted stock units payable in stock and cash, respectively, and 141,705 phantom units payable in cash. +(j) +Of the 31,485 shares beneficially owned by Joseph C. Gatto, Jr., 24,216 are owned directly by him and 7,269 shares are owned within the Company's Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Gatto do not include 1,500 shares of Series A preferred stock are owned directly by him; 124,612 and 10,225 restricted stock units payable in stock and cash, respectively, and 78,273 phantom units payable in cash. +(k) +Includes 215,687 shares owned within the Company's Employee Savings and Protection Plan. +(l) +Information is based upon a Schedule 13G/A filed with the SEC on November 10, 2011 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G/A, Franklin represents that it has sole voting power with respect to 5,228,065 shares of Common Stock and sole dispositive power with respect to 5,336,818 shares of Common Stock. +(m) +Information is based upon a Schedule 13G/A filed with the SEC on February 8, 2013 by BlackRock, Inc. In this Schedule 13G/A, BlackRock, Inc. represents that it has sole voting power with respect to 2,212,695 shares of Common Stock and sole dispositive power with respect to 2,212,695 shares of Common Stock. +(n) +Information is based upon a Schedule 13G filed with the SEC on February 4, 2013 by Robert J. Raymond, RR Advisors, LLC, RCH Energy Opportunity Fund II GP, L.P., and RCH Energy Opportunity Fund II, L.P. In this Schedule 13G, Robert J. Raymond and RR Advisors, LLC represent that they have shared voting power and shared dispositive power with respect to 2,481,363 shares of Common Stock and RCH Energy Opportunity Fund II GP, L.P. and RCH Energy Opportunity Fund II, L.P. represent that they have shared voting power and shared dispositive power with respect to 2,379,822 shares of Common Stock. +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control”, as defined in the applicable plan. +STOCKHOLDERS' PROPOSALS FOR 2014 ANNUAL MEETING +Stockholders who desire to present proposals at the 2014 Annual Meeting of Stockholders and to have proposals included in the Company's proxy materials must submit their proposals to the Company at its principal executive offices not later than December 28, 2013. If the date of the 2014 Annual Meeting of Stockholders is changed by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2014 Annual Meeting of Stockholders. +The person named in the Company's form of proxy for the 2014 Annual Meeting will have discretionary authority to vote any proxies they hold at such meeting on any matter for which the Company does not receive notice by February 18, 2014, unless the Company changes the date of its 2014 Annual Meeting of Stockholders by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, in which case such persons will be able to exercise discretionary authority if notice of the matter has not been received in a reasonable time before the Company mails its proxy materials for the 2014 Annual Meeting of Stockholders. +If the date of the 2014 Annual Meeting of Stockholders is advanced or delayed by more than 30 calendar days from the date of the 2013 Annual Meeting of Stockholders, the Company shall, in a timely manner, inform stockholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company's proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, it is suggested that stockholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. The Company reserves the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above or other applicable requirements. +9 +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2012 Annual Report to Stockholders and the Company's Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 14, 2013 , and in the Company's Quarterly Report on Form 10-Q (“Form 10-Q”) for the quarter ended June 30, 2013 , filed on August 8, 2013 . Documents filed with the SEC, including t he Company's Annual Report, the Company's Annual Report on Form 10-K, Proxy Statement for the 2013 Annual Meeting, and Form 10-Q, and other corporate documents, including the Corporate Governance Principles, Code of Business Conduct and Ethics, and Charters of Board Committees, may be accessed by stockholders on the Company's website at www.callon.com or printed copies are available upon written request to the B. F. Weatherly, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. +By Order of the Board of Directors, +/s/ B.F. Weatherly +Natchez, MS B.F. Weatherly +September 20, 2013 +Executive Vice President, Chief Financial Officer and Corporate Secretary +10 +11 +12 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000928022-13-000124/proxy_rpt.txt b/raw/proxies/0000928022/0000928022-13-000124/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000950123-09-067301/proxy.txt b/raw/proxies/0000928022/0000950123-09-067301/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8884ff7059f8b9de58a8f8cbe2110be6285dc742 --- /dev/null +++ b/raw/proxies/0000928022/0000950123-09-067301/proxy.txt @@ -0,0 +1,1259 @@ +DEF 14A +1 +h68855ddef14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +Schedule 14A Information +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the +offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and +the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Callon Petroleum Company +NOTICE OF SPECIAL MEETING OF SHAREHOLDERS +TO BE HELD DECEMBER 31, 2009 +To the Shareholders of Callon Petroleum Company: +You are cordially invited to attend the Special Meeting of Shareholders for Callon Petroleum +Company (the “Company”) to be held at the Company’s Corporate Headquarters located at 200 N. Canal +Street, Natchez, MS 39120 on Thursday, December 31, 2009 at 10:00 a.m. Information about the +meeting and the proposals to be considered are presented in the Notice of Special Meeting and the +proxy statement on the following pages. +At the meeting you will be asked to consider and vote on the following matters: +(i) +An amendment to Article Four of the Company’s Certificate of Incorporation +increasing the number of authorized shares of common stock of the Company from 30 +million shares to 60 million shares; +(ii) +The approval of the issuance of shares of the Company’s common stock, issuable +upon conversion of the Company’s convertible preferred stock, that equals or exceeds +20% of the voting power or the number of shares of the Company’s common stock +outstanding immediately prior to the original issuance of the convertible preferred +stock; and +(iii) +To transact such other business as may properly come before the meeting and +any adjournment thereof. +The Board of Directors has approved these proposals and the Company urges you to vote in favor +of these proposals and such other matters as may be submitted to you for a vote at the meeting. +The Board of Directors has fixed the close of business on November 30, 2009, as the record +date for determining shareholders entitled to notice of, and to vote at, the Special Meeting. +Callon Petroleum Company’s proxy statement is attached. Pursuant to new rules promulgated by +the Securities and Exchange Commission (“SEC”), we have elected to provide access to the Company’s +proxy materials both by sending you this full set of proxy materials, including a proxy card, and +by notifying you of the availability of the proxy material on the Internet. This proxy statement +and the accompanying proxy card are available at the Company’s website at www.callon.com . In +accordance with SEC rules, you may access the proxy statement at www.callon.com , which does not +have “cookies” that identify visitors to the site. +Your participation in the Company’s affairs is important regardless of the number of shares +you hold. To ensure your representation at the meeting, the Company urges you to mark, sign, date, +and return the enclosed proxy card promptly even if you anticipate attending in person. If you +attend, you will, of course, be entitled to vote in person. +By Order of the Board of Directors, +/s/ Robert A. Mayfield +Natchez, MS +December 1, 2009 +Robert A. Mayfield +Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials for the Special Shareholder Meeting +to be held on December 31, 2009: The proxy statement is available at www.callon.com . +Table of Contents +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE +MEETING, PLEASE MARK, SIGN, AND DATE THE ENCLOSED PROXY AND RETURN IT IN +THE ENCLOSED ENVELOPE TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF +YOU ATTEND THE MEETING, +YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO, EVEN IF +YOU HAVE PREVIOUSLY SUBMITTED YOUR PROXY. +TABLE OF CONTENTS +PROXY STATEMENT +GENERAL INFORMATION +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +PROPOSAL 1 — AMENDMENT TO ARTICLE FOUR OF THE COMPANY’S CERTIFICATE OF +INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF +THE COMPANY FROM 30 MILLION SHARES TO 60 MILLION SHARES +PROPOSAL 2 — ISSUANCE OF COMMON STOCK UPON CONVERSION OF +CONVERTIBLE PREFERRED STOCK +PRINCIPAL SHAREHOLDERS +OTHER MATTERS +SHAREHOLDERS’ PROPOSALS +FOR 2010 ANNUAL MEETING +INCORPORATION BY REFERENCE +CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF CONVERTIBLE PREFERRED STOCK +LETTER FROM AUDITORS REGARDING AUDITED FINANCIAL STATEMENTS +LETTER FROM AUDITORS REGARDING INTERNAL CONTROL +Table of Contents +Callon Petroleum Company +PROXY STATEMENT +GENERAL INFORMATION +This proxy statement is furnished in connection with the solicitation by the Board of +Directors of Callon Petroleum Company (the “Company” or “Callon”), a Delaware corporation, of +proxies to be voted at the Special Meeting of Shareholders on Thursday, December 31, 2009 at 10:00 +a.m., which is a Special Meeting to be held at the Company’s Corporate Headquarters located at 200 +N. Canal Street, Natchez, MS 39120 (the “Special Meeting”). This proxy statement and the +accompanying proxy card are first being mailed to shareholders on or about December 3, 2009. +At the meeting you will be asked to consider and vote on the following matters relative to the +Company’s capital structure: +(i) +An amendment to Article Four of the Company’s Certificate of Incorporation +increasing the number of authorized shares of common stock of the Company from 30 +million shares to 60 million shares; +(ii) +The approval of the issuance of shares of the Company’s common stock, issuable +upon conversion of the Company’s convertible preferred stock, that equals or exceeds +20% of the voting power or the number of shares of the Company’s common stock +outstanding immediately prior to the original issuance of the convertible preferred +stock; and +(iii) +To transact such other business as may properly come before the Special +Meeting and any adjournment thereof. +Record Date and Voting Securities +The Board of Directors has fixed the close of business on November 30, 2009, as the record +date for the determination of shareholders entitled to notice of, and to vote at, the Special +Meeting. As of the record date, there were 25,598,743 shares of Callon’s common stock, $0.01 par +value per share, outstanding. Holders of common stock are entitled to notice of the Special Meeting +and to one vote per share of common stock owned as of the record date at the Special Meeting. No +shareholder shall be allowed to cumulate votes. +Proxies +The Board of Directors is soliciting a proxy in the form accompanying this proxy statement for +use at the Special Meeting, and will not vote the proxy at any other meeting. Mr. Fred L. Callon +and Mr. B.F. Weatherly, or each acting individually, are the persons named as proxies on the proxy +card accompanying this proxy statement, who have been selected to serve in such capacity. Mr. +Callon is the President and Chief Executive Officer of the Company and Mr. Weatherly is the +Executive Vice President and Chief Financial Officer of the Company. +Revocation of Proxies +Each shareholder giving a proxy has the power to revoke it at any time before the shares +represented by that proxy are voted. Revocation of a proxy is effective when the Secretary of the +Company receives either (i) an instrument revoking the proxy or (ii) a duly executed proxy bearing +a later date. Additionally, a shareholder may change or revoke a previously executed proxy by +voting in person at the Special Meeting. +Table of Contents +Voting of Proxies +Because many Callon shareholders are unable to attend the Special Meeting, the Board of +Directors solicits proxies to give each shareholder an opportunity to vote on all matters scheduled +to come before the meeting as set forth in this proxy statement. Shareholders are urged to read +carefully the material in this proxy statement, specify their choice on each matter by marking the +appropriate boxes on the enclosed proxy card, and sign, date, and return the card in the enclosed +stamped envelope. +Each proxy that is (a) properly executed, (b) timely received by the Company before or at the +Special Meeting, and (c) not properly revoked by the shareholder pursuant to the instructions +above, will be voted in accordance with the directions specified on the proxy and otherwise in +accordance with the judgment of the persons designated therein as proxies. If no choice is +specified and the proxy is properly signed and returned, the shares will be voted by the persons +named as proxies in accordance with the recommendations of the Board of Directors contained in this +proxy statement. +Dissenters’ Rights of Appraisal +Under Delaware corporate law, our shareholders are not entitled to appraisal rights with +respect to the proposals being voted on at the Special Meeting, and we will not independently +provide our shareholders with any such rights. +Quorum; Method of Tabulation +The holders of a majority of all issued and outstanding shares of common stock entitled to +vote at the Special Meeting, whether present in person or represented by proxy, will constitute a +quorum. The affirmative vote of a majority of the shares of common stock having voting power is +required to approve the proposed amendment to the Company’s Certificate of Incorporation. The +affirmative vote of the holders of a majority of shares of common stock represented and voting, in +person or by proxy, at the Special Meeting is required to approve the issuance of the shares of +common stock upon conversion of our convertible preferred stock. +One or more inspectors of election appointed for the meeting will tabulate the votes cast in +person or by proxy at the Special Meeting, and will determine whether or not a quorum is present. +The inspectors of election will treat abstentions as shares that are present and entitled to vote +for purposes of determining the presence of a quorum, but as unvoted for purposes of determining +the approval of any matter submitted to the shareholders for a vote. Therefore, abstentions will be +the equivalent of a “no” vote for matters related to the changes to the Company’s capital structure +and approval of the issuance of common shares upon conversion of the convertible preferred stock. +Many of the Company’s shares of common stock are held in “street name,” meaning that a +depository, broker-dealer or other financial institution holds the shares in its name, but such +shares are beneficially owned by another person. Generally, a street name holder must receive +direction from the beneficial owner of the shares to vote on issues other than routine shareholder +matters such as the election of directors or ratification of auditors. If a broker indicates on a +proxy that it does not have discretionary authority as to certain shares to vote on a particular +matter, those shares will not be considered present and entitled to vote at the Special Meeting for +such matter. Accordingly, broker non-votes will be the equivalent of a “no” vote for purposes of +the proposal to change the Company’s capital structure but will have the practical effect of +reducing the number of affirmative votes required to achieve a majority vote for purposes of the +proposal to approve the issuance of common shares upon the conversion of the convertible preferred +stock by reducing the total number of votes cast from which the majority is calculated. +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This proxy statement may contain “forward-looking statements” within the meaning of Section +27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All +statements other than statements of historical facts included in this proxy statement are +forward-looking statements. We can give no assurances that the assumptions upon which such +forward-looking statements are based will prove to have been correct. Important factors that could +cause actual results to differ materially from our expectations (“Cautionary Statements”) are +disclosed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for our +most recent fiscal year, elsewhere in this proxy statement and from time to time in other filings +made by us with the SEC. All +2 +Table of Contents +subsequent written and oral forward-looking statements attributable to us or persons acting on +our behalf are expressly qualified by the Cautionary Statements. Except as required by law, we do +not undertake to update any such forward looking statements. +PROPOSAL 1 — AMENDMENT TO ARTICLE FOUR OF THE COMPANY’S CERTIFICATE OF +INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF +THE COMPANY FROM 30 MILLION SHARES TO 60 MILLION SHARES +Proposed Amendment to Certificate of Incorporation +The Board of Directors has adopted a resolution approving and recommending to the shareholders +for their approval a proposal to amend Article Four of the Company’s Certificate of Incorporation +to increase the number of authorized shares of common stock from 30 million shares to 60 million +shares (the “Article Four Amendment”). +The form of the Article Four Amendment is as follows: +“The +Certificate is hereby amended by amending and restating the first sentence of +Article Four to be read in its entirety as follows: +‘The Corporation shall have authority to issue two classes of stock, +and the total number authorized shall be 60,000,000 shares of Common +Stock, par value $.01 per share, and 2,500,000 shares of Preferred +Stock, par value $.01 per share.’” +Background and Reasons for Increasing the Authorized Shares of Common Stock +As we have previously reported, we have been actively evaluating several options for a +restructuring of our balance sheet, particularly with respect to our $200,000,000 9.75% Senior +Notes due 2010 (“Senior Notes”). +On October 20, 2009, we commenced an offer to exchange our Senior Notes for a new issue of 13% +Senior Secured Notes due 2016 (“Exchange Notes”) and shares of common stock and a new issue of +convertible preferred stock. For each $1,000 principal amount of Senior Notes validly tendered and +not withdrawn on or before the expiration date of the exchange offer, holders were entitled to +receive $750 principal amount of Exchange Notes, 20.625 shares of our common stock and 1.6875 +shares of the new issue of convertible preferred stock. The exchange offer expired on November 23, +2009, and we received valid tenders from holders of approximately $184 million aggregate principal +amount of Senior Notes. The Senior Notes validly tendered and accepted were exchanged into $138 +million in principal amount of Exchange Notes, 3,794,262 shares of common stock and 310,802 shares +of convertible preferred stock. +Currently, the Company’s authorized capital stock consists of 30,000,000 shares of common +stock and 2,500,000 shares of preferred stock. As of November 30, 2009, we had 25,598,743 shares of +common stock outstanding (including the 3,794,262 issued in the exchange offer), an additional +2,282,783 shares reserved for issuance upon vesting or exercise of restricted stock, stock options +and warrants, and 1,310,387 uncommitted shares +under approved stock incentive plans. Upon conversion of the convertible preferred stock, we would be required to issue a +total of 3,108,020 additional shares of common stock. +Accordingly, because we did not have available a sufficient amount of authorized common stock +to exchange for outstanding Senior Notes, the transaction was structured to provide for convertible +preferred stock which would be convertible into common stock at a rate of ten shares of common +stock per share of convertible preferred stock upon shareholder approval of, and the filing of, an +amendment to our Certificate of Incorporation to, increase the number of authorized shares of +common stock to a sufficient amount (“Automatic Conversion”). If this proposal is approved, subject +to shareholder approval of Proposal No. 2, the Automatic Conversion will take place immediately +following the effectiveness of the Article Four Amendment. For further information on the terms of +the convertible preferred stock, see Proposal No. 2. +3 +Table of Contents +The following table depicts the authorized capital stock of the Company as of the record date: +Current Capitalization Table +Common Stock Outstanding and Committed +Total Amount Outstanding +25,598,743 +Reserved for Issuance Upon Vesting of Restricted Stock +939,425 +Reserved for Issuance Upon Exercise of Outstanding Stock Options +978,358 +Reserved for Issuance Upon Exercise of Warrants +365,000 +Total Outstanding and Committed +27,881,526 +Uncommitted Under Approved Stock Incentive Plans +1,310,387 +Total +29,191,913 +Total Authorized +30,000,000 +Available +808,087 +The Company currently has 808,087 shares of common stock that are unreserved and available for +issuance. However, a total of 3,108,020 shares of common stock are issuable upon conversion of the +convertible preferred stock issued in the exchange offer. Therefore, we must amend our Certificate +of Incorporation to increase the number of authorized shares of common stock by an amount +sufficient to permit the conversion of all of the convertible preferred stock into shares of common +stock. We will not receive any cash proceeds from issuance of common stock on conversion of the +convertible preferred stock pursuant to the Automatic Conversion. +If shareholders do not approve this proposal by March 15, 2010, dividends on the shares of +convertible preferred stock will begin to accrue. The terms of the convertible preferred stock +provide for a dividend rate of 18% per annum payable semi-annually on each September 15 and March +15, beginning March 15, 2010, which dividend rate shall escalate by 1% each semi-annual dividend +period if not converted into common stock, subject to a cap of 25%. Assuming all shares of +convertible preferred stock are outstanding at March 15, 2010, the Company would be obligated to +pay to the holders of the convertible preferred stock approximately $1.3 million if shareholders do +not approve Proposal No. 1 and Proposal No. 2 by such time, subject to increase as described below. +General Effect of the Amendment +If the Article Four Amendment is approved and becomes effective, subject to shareholder +approval of Proposal No. 2, each share of convertible preferred stock would automatically convert +into ten shares of common stock as a result of the Automatic Conversion. The following table shows +the capital structure of the Company if Proposal No. 1 is approved by the shareholders and becomes +effective: +Post-Amendment Capitalization Table +Common Stock Outstanding and Committed +Total Amount Outstanding +25,598,743 +Reserved for Issuance Upon Conversion of Preferred Stock +3,108,020 +Reserved for Issuance Upon Exercise of Outstanding Stock Options +978,358 +Reserved for Issuance Upon Vesting of Restricted Stock +939,425 +Reserved for Issuance Upon Exercise of Warrants +365,000 +Total Outstanding and Committed +30,989,546 +Uncommitted Under Approved Stock Incentive Plans +1,310,387 +Total +32,299,933 +Total Authorized +60,000,000 +Available +27,700,067 +If the shareholders approve the increase of the Company’s authorized common stock under this +proposal and the Automatic Conversion takes place, +the Company will have 27,700,067 shares of authorized common stock available for +issuance. The additional shares +4 +Table of Contents +of common stock authorized by the amendment that are not reserved +for other purposes may be issued periodically on authorization by the Board of Directors, without +further approval by the shareholders, unless such authorization is required by applicable law or +the rules of the NYSE. Shares of common stock may be issued for such consideration as the Board of +Directors may determine, and as may be permitted by applicable law. The proposed amendment to the +Certificate of Incorporation does not change the terms of the common stock. +Effective Date +If approved by the shareholders, it is anticipated that the amendment to the Certificate of +Incorporation will become effective as soon as practicable after the Special Meeting. Upon approval +of this proposal at the Special Meeting, the Company will file the Article Four Amendment with the +Secretary of State of the State of Delaware, and the number of authorized shares of common stock +will be increased from 30 million shares to 60 million shares (without affecting par value). +If +shareholders do not approve this Proposal No. 1 at the Special Meeting, then we may seek to +obtain shareholder approval of an increase in authorized shares at future shareholder meetings. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE INCREASE IN AUTHORIZED SHARES OF COMMON STOCK TO +60 MILLION SHARES. +5 +Table of Contents +PROPOSAL 2 — ISSUANCE OF COMMON STOCK UPON CONVERSION OF +CONVERTIBLE PREFERRED STOCK +Issuance of Preferred Stock +As described above, on October 20, 2009, we commenced an offer to exchange our $200,000,000 +9.75% Senior Notes due 2010 (“Senior Notes”) for a new issue of 13% Senior Secured Notes due 2016 +(“Exchange Notes”) and shares of common and preferred stock. For each $1,000 principal amount of +Senior Notes validly tendered and not withdrawn on or before the expiration date, holders were +entitled to receive $750 principal amount of Exchange Notes, 20.625 shares of our common stock and +1.6875 shares of a new issue of convertible preferred stock. The exchange offer expired on November +23, 2009, and we received valid tenders from holders of approximately $184 million aggregate +principal amount of Senior Notes. The Senior Notes validly tendered and accepted were exchanged +into approximately $138 million in principal amount of Exchange Notes, 3,794,262 shares of common +stock and 310,802 shares of convertible preferred stock. +The terms of the convertible preferred stock provide for a dividend rate of 18% per annum +payable semi-annually on each September 15 and March 15, beginning March 15, 2010, which dividend +rate shall escalate by 1% each semi-annual dividend period if not converted into common stock, +subject to a cap of 25%. Please see the information under the caption “Description of the +Convertible Preferred Stock” below for additional information on the convertible preferred stock. +NYSE Shareholder Approval Requirement +Because our common stock is listed on the NYSE, we are subject to NYSE rules and regulations. +NYSE Listed Company Manual Section 312.03(c) requires shareholder approval prior to the issuance or +sale of securities convertible into shares of our common stock in any transaction or series of +transactions if (1) the shares of common stock will have upon issuance voting power equal to 20% or +more of the voting power outstanding before the issuance of the convertible securities or (2) the +number of shares of common stock to be issued will upon issuance equal 20% or more of the number of +shares of common stock outstanding before the issuance of the convertible securities. +Under the exchange offer, 3,794,262 shares of common stock were issued in exchange for the +Senior Notes. An additional 3,108,020 shares of common stock will be issuable upon the conversion +of the convertible preferred stock. Because the issuance of the 3,108,020 shares of common stock +causes the transaction to exceed the 20% threshold described above, we are required to seek +shareholder approval prior to conversion. Accordingly, we are seeking shareholder approval of the +issuance of such additional shares of our common stock upon conversion of the preferred stock. +Consequences if Shareholders Approve the Proposal +Conversion of Preferred Stock; Issuance of Shares . If the shareholders approve this Proposal +No. 2, subject to shareholder approval of Proposal No. 1, then the convertible preferred stock will +be automatically converted into 3,108,020 shares of our common stock. +Rights of Investors . The rights and privileges associated with shares of our common stock +issued upon conversion of the convertible preferred stock will be identical to the rights and +privileges associated with the common stock held by our existing common shareholders, including +voting rights. +Market Price. Such shares of our common stock will be freely transferable without restriction +under the Securities Act of 1933, as amended, unless they are sold to an affiliate of the Company. +This free transferability may materially and adversely impact the market price of our common stock +if large quantities of our common stock issued upon conversion of the preferred stock are sold in +the market. +Dilution . If the shareholders approve this Proposal No. 2, subject to shareholder approval of +Proposal No. 1, we will issue 3,108,020 additional shares of common stock upon conversion. The +issuance of these additional +6 +Table of Contents +shares would constitute approximately 12% of both the voting power and the number of shares of +our common stock outstanding as of the record date. +As a result, our existing shareholders may incur substantial dilution +of their voting power and may own a significantly smaller percentage of our outstanding common +stock. +Consequences if Shareholders Do Not Approve the Proposal +Dividends . If shareholders do not approve this proposal, the terms of the convertible +preferred stock provide for a dividend rate of 18% per annum beginning on March 15, 2010, which +dividend rate shall escalate by 1% each September 15 and March 15, beginning on September 15, 2010, +if not converted into common stock, subject to a cap of 25%. Assuming all shares of convertible +preferred stock are outstanding as of March 15, 2010, accrued dividends on the convertible +preferred stock would be approximately $1.3 million if shareholders do not approve this Proposal +No. 2 by such time, subject to increase as described in this proposal. +Shareholders’ Meetings . If shareholders do not approve this Proposal No. 2 at the Special +Meeting, then we may seek to obtain shareholder approval to permit the issuance of shares of our +common stock upon conversion of the preferred stock at future shareholder meetings. +Description of the Convertible Preferred Stock +The following is a summary of the material terms and provisions of the powers, designations, +preferences and rights of the convertible preferred stock, as contained in the Certificate of +Designations, Preferences and Rights of Convertible Preferred Stock (the “Certificate of +Designations”), which is attached to this proxy statement as Appendix A. Shareholders are urged to +read the Certificate of Designations relating to the convertible preferred stock in its entirety. +We are authorized to issue up to 2,500,000 shares of preferred stock, par value $0.01 per +share. As of November 30, 2009, there were 310,802 shares of preferred stock outstanding. Shares +of preferred stock may be issued from time to time in one or more series as the board of directors +may from time to time determine, each of said series to be distinctively designated. The voting +powers, preferences and relative, participating, optional and other special rights, and the +qualifications, limitations or restrictions thereof, if any, of each such series of preferred stock +may differ from those of any and all other series of preferred stock at any time outstanding, and, +subject to certain limitations of our Certificate of Incorporation and the Delaware General +Corporation Law (“DGCL”), the board of directors may fix or alter, by resolution or resolutions, +the designation, number, voting powers, preferences and relative, participating, optional and other +special rights, and qualifications, limitations and restrictions thereof, of each such series of +preferred stock. +The issuance of any such preferred stock could adversely affect the rights of the holders of +our common stock and therefore, reduce the value of the common stock. The ability of the board of +directors to issue preferred stock could discourage, delay, or prevent a takeover of us. +The Convertible Preferred Stock +Amount. The number of shares constituting the convertible preferred stock is 310,802, which +may be increased or decreased by resolution of the board of directors. +Ranking. The convertible preferred stock will, with respect to dividend rights and rights on +liquidation, winding up and dissolution of the Company, rank senior to the common stock and all +other classes and series of capital stock of the Company. +Dividends. Commencing on March 15, 2010, the holders of convertible preferred stock shall be +entitled to receive, whether or not declared or paid, a cumulative dividend computed like interest +at the per annum rate of eighteen percent of the stated value on each outstanding convertible +preferred share, which rate increases one percent on each March 15 and September 15 beginning +September 15, 2010, up to a maximum rate per annum of twenty-five percent. Accrued dividends do not +bear interest. No dividends shall be declared or paid, or funds set apart for the payment of +dividends on, any junior securities for any period unless all accrued dividends have been, or +7 +Table of Contents +contemporaneously are, paid in full. No junior securities may be repurchased, redeemed or +otherwise acquired or retired for value by the Company, and no monies paid into or set apart or +made available for a sinking or other like fund for the repurchase, redemption or other acquisition +or retirement for value of any junior securities by the Company, unless, in any such case, all +accrued dividends on all outstanding convertible preferred stock have been, or contemporaneously +are, paid in full. +Redemptions of Junior Securities . No junior securities of the Company after the date on which +any shares of the convertible preferred stock are authorized, issued or outstanding shall be +repurchased, redeemed or otherwise acquired or retired for value by the Company, and no monies +shall be paid into or set apart or made available for a sinking or other like fund for the +repurchase, redemption or other acquisition or retirement for value of any junior securities by the +Company, unless, in any such case, all accrued dividends on all outstanding shares of the +convertible preferred stock shall have been, or contemporaneously are, paid in full. +Voting Rights. Except as may be otherwise expressly provided in our Certificate of +Incorporation or as expressly required by the DGCL, the shares of convertible preferred stock have +no voting rights. So long as any shares of convertible preferred stock are outstanding, and unless +the consent or approval of a greater number of shares shall then be required by law, without first +obtaining the consent or approval of the holders of at least two-thirds of the shares of +convertible preferred stock then outstanding, the Company will not: (i) amend, alter, or repeal the +certificate of incorporation or the bylaws, or waive any provisions thereof, in a manner that would +materially and adversely affect the rights, preferences, privileges, or powers of the shares of +convertible preferred stock; (ii) purchase, redeem or otherwise acquire or retire for value any +junior securities, or any securities exercisable or exchangeable for junior securities, other than +in connection with the surrender by employees of the Company of portions of equity awards to +satisfy tax withholding obligations; (iii) authorize, create, increase the authorized amount of, or +issue any class or series, or any shares of any class or series, of capital stock of the Company +ranking senior in priority to, or in parity with, the convertible preferred stock with respect to +the right to dividends or preference on liquidation; or (iv) declare, pay, or set apart for +payment, any dividends or any other distributions of any sort by the Company in respect of any +other capital stock of the Company other than the convertible preferred stock, including the common +stock. +Liquidation, Dissolution, or Winding Up. In the event of any liquidation, dissolution, or +winding up of the Company (a “Liquidation Event”), whether voluntary or involuntary, no holders of +junior securities shall receive, by reason of their ownership thereof, any payment or distribution +of any of the assets of the Company until the holders of the convertible preferred stock then +outstanding, by reason of their ownership thereof, shall have first received an amount in cash per +share equal to 100% of the stated value thereof, plus an amount in cash equal to all accrued +dividends through the date of the effectiveness of the Liquidation Event (accrued dividends +together with the stated value being referred to as the “Liquidation Preference”). If, upon the +occurrence of any Liquidation Event, the assets and funds of the Company available to be +distributed among the holders of the convertible preferred stock shall be insufficient to permit +the payment to such holders of the full Liquidation Preference, then the holders of junior +securities shall not receive, by reason of their ownership thereof, any payment or distribution of +any of the assets of the Company, and the holders of all such shares of convertible preferred stock +shall share ratably in any distribution of assets of the Company in accordance with the amounts +that would be payable on any such distribution if the Liquidation Preference were to be paid in +full. None of the voluntary sale, conveyance, exchange and transfer (for cash, shares of stock, +other securities or other consideration) of all or substantially all of the property or assets of +the Company, and no consolidation or merger of the Company with any one or more other corporations, +shall be deemed to be a Liquidation Event unless such voluntary sale, conveyance, exchange or +transfer shall be in connection with a plan of liquidation, dissolution or winding up of the +Company. +Automatic Conversion . Immediately upon the later to occur of (i) effectiveness of an +amendment to the certificate of incorporation increasing the number of authorized shares of common +stock and (ii) the receipt of any required approval for listing of the shares of common stock to be +issued upon conversion of the convertible preferred stock on the NYSE, each share of convertible +preferred stock shall automatically convert into a number of fully paid and non-assessable shares +of common stock (the “Conversion Rate”) equal to the quotient obtained by dividing the stated value +plus the amount of accrued dividends by the Conversion Price. The initial “Conversion Price” for +shares of convertible preferred stock shall be $66.67, as such price may be adjusted. The initial +Conversion Rate shall be ten shares of common stock for one shares of convertible preferred stock. +8 +Table of Contents +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ISSUANCE OF THE SHARES OF THE +COMPANY’S COMMON STOCK ISSUABLE UPON CONVERSION OF OUR CONVERTIBLE PREFERRED STOCK. +PRINCIPAL SHAREHOLDERS +Management and Principal Shareholders +The following table sets forth, as of the record date, certain information with respect to the +ownership of shares of common stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) each of +the executive officers named in the Summary Compensation Table, and (iv) all executive officers and +directors of the Company as a group. Information set forth in the table with respect to beneficial +ownership of common stock has been obtained from filings made by the named beneficial owners with +the SEC as of the record date or, in the case of executive officers and directors of the Company, +has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of +Beneficial +Beneficial Owner +Ownership +Percent +Directors: +Fred L. Callon +310,210 +(b) +1.21 +% +L. Richard Flury +46,250 +(c) +* +Larry D. McVay +16,250 +(d) +* +John C. Wallace +— +(e) +* +B. F. Weatherly +109,618 +(f) +* +Richard O. Wilson +154,474 +(g) +* +Steven B. Hinchman +2,042 +(h) +* +Named Executive Officers: +* +Stephen F. Woodcock +100,784 +(i) +* +Rodger W. Smith +58,710 +(j) +* +Directors and Executive Officers: +As a Group (12 persons) +999,330 +(k) +3.85 +% +Certain Beneficial Owners: +Donald Smith & Co., Inc. +1,841,827 +(l) +7.19 +% +152 W. 57 th Street, 22 nd Floor +New York, NY 10019 +Barclays Global Investors, NA +1,670,035 +(m) +6.52 +% +400 Howard Street +San Francisco, CA 94105 +Dimensional Fund Advisors LP +1,714,144 +(n) +6.70 +% +1299 Ocean Avenue +Santa Monica, CA 90401 +* +Indicates beneficial ownership of less than 1% of the outstanding shares of common stock. +(a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have +sole voting and dispositive power with respect to such shares. Beneficial ownership does not +include the unvested portion of performance stock awards due to lack of voting and disposition +power. Percentage ownership of a holder or class of holders is calculated by dividing (i) the +number of shares of common stock beneficially owned by such holder or class of holders plus the +total number of shares of common stock underlying options exercisable within sixty days of the +record date, by (ii) the total number of shares of common stock outstanding plus the +9 +Table of Contents +total +number of shares of common stock underlying options exercisable within sixty days of the record +date, but not common stock underlying such securities held by any other person. +(b) +Of the 310,210 shares beneficially owned by Fred L. Callon, 61,110 shares are owned directly +by him; 92,170 shares are held by him as custodian for certain minor Callon family members; +15,555 shares are owned within the Company’s Employee Savings and Protection Plan; and 141,375 +shares are subject to options under the 1996 Plan, exercisable within 60 days. Shares indicated +as owned by Mr. Callon do not include 24,904 shares of common stock owned by his wife over which +he disclaims any beneficial ownership, 56,000 shares of unvested performance stock, and 200,000 +unvested restricted stock units of which 100,000 are payable in stock and 100,000 are payable in +cash. +(c) +Of the 46,250 shares beneficially owned by L. Richard Flury, 36,250 shares are owned +directly by him; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 +days; and 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days. +Shares indicated as owned by Mr. Flury do not include 20,000 shares of unvested performance +stock. +(d) +Of the 16,250 shares beneficially owned by Larry D. McVay, 16,250 shares are owned directly +by him. Shares indicated as owned by Mr. McVay do not include 20,000 shares of unvested +performance stock. +(e) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust. +The Trust is a discretionary trust in which Mr. Wallace has no absolute interest and disclaims +any beneficial interest. +(f) +Of the 109,618 shares beneficially owned by B.F. Weatherly, 2,288 shares are owned within +his personal IRA account; 62,278 shares are held in joint tenancy with his wife; 20,052 shares +are owned within the Company’s Employee Savings and Protection Plan; 20,000 shares are subject +to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are subject to +options under the 2002 Plan, exercisable within 60 days. Shares indicated as owned by Mr. +Weatherly do not include 41,250 shares of unvested performance stock and 52,500 unvested +restricted stock units of which 44,625 are payable in stock and 7,875 are payable in cash. +(g) +Of the 154,474 shares beneficially owned by Richard O. Wilson, 92,655 shares are held in a +family limited partnership; 6,819 shares are held in a Trust account; 5,000 shares are subject +to options under the 1994 Plan, exercisable within 60 days; 40,000 shares are subject to options +under the 1996 Plan, exercisable within 60 days; and 10,000 shares are subject to options under +the 2002 Plan, exercisable within 60 days;. Shares indicated as owned by Mr. Wilson do not +include 20,000 shares of unvested performance stock. +(h) +All of the 2,042 shares beneficially owned by Steven B. Hinchman are owned within the +Company’s Employee Savings and Protection Plan. Shares indicated as owned by Mr. Hinchman do +not include 500,000 unvested stock options and 200,000 unvested performance shares. +(i) +Of the 100,784 shares beneficially owned by Stephen F. Woodcock, 24,057 are owned directly +by him; 10,977 shares are owned within the Company’s Employee Savings and Protection Plan; +44,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; and 21,750 +shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated +as owned by Mr. Woodcock do not include 24,000 shares of unvested performance stock and 28,000 +unvested restricted stock units of which 23,800 are payable in stock and 4,200 are payable in +cash. +(j) +Of the 58,710 shares beneficially owned by Rodger W. Smith, 17,201 shares are owned directly +by him; 21,509 shares are owned within the Company’s Employee Savings and Protection Plan; and +20,000 shares are subject to options under the 1996 Plan, exercisable within 60 days. Shares +indicated as owned by Mr. Smith do not include 16,400 shares of unvested performance stock and +21,000 unvested restricted stock units of which 17,850 are payable in stock and 3,150 are +payable in cash. +(k) +Includes 5,000 shares subject to options under the 1994 Plan, exercisable within 60 days; +288,875 shares subject to options under the 1996 Plan, exercisable within 60 days; 55,800 shares +subject to options under the 2002 Plan, exercisable within 60 days; and 181,254 shares are owned +within the Company’s Employee Savings and Protection Plan. Shares indicated as owned do not +include 500,000 unvested options, 430,050 shares of unvested performance stock, and 343,500 +unvested restricted stock units of which 221,975 are payable in stock and 121,525 are payable in +cash. +10 +Table of Contents +(l) +Information is based upon a Schedule 13G filed with the Commission on February 11, 2009 by +Donald Smith & Co., Inc. In this Schedule 13G, Donald Smith represents that it has sole voting +power with respect to 1,674,385 shares and sole dispositive power with respect to 1,841,827 +shares of common stock. +(m) +Information is based upon a Schedule 13G filed with the Commission on February 5, 2009 by +Barclays Global Investors, NA; Barclays Global Fund Advisors; Barclays Global Investors, LTD; +Barclays Global Investors Japan Limited; Barclays Global Investors Canada Limited; Barclays +Global Investors Australia Limited; and Barclays Global Investors (Deutschland) AG (“Barclays”). +In this Schedule 13G, Barclays represents that it has sole voting power with respect to +1,592,204 shares of common stock, and sole dispositive power with respect to 1,670,035 shares of +common stock. +(n) +Information is based upon a Schedule 13G/A filed with the Commission on February 9, 2009 by +Dimensional Fund Advisors LP. In this Schedule 13G, Dimensional represents that it has sole +voting power with respect to 1,677,658 shares of common stock and sole dispositive power with +respect to 1,714,144 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of +holders acquire investment power for these shares immediately upon a “change of control” as defined +in the applicable plan. +OTHER MATTERS +Additional Information +We file annual, quarterly and current reports, proxy statements and other information with the +SEC under the Exchange Act. You may read and copy any document that we file at the SEC’s Public +Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the +operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The SEC also maintains +a website that contains reports, proxy statements, information statements and other information +about issuers, like Callon Petroleum Company, that file electronically with the SEC. The address of +that website is www.sec.gov. In addition, our common stock is listed on the New York Stock Exchange +and similar information concerning us can be inspected and copied at the offices of the New York +Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. You are encouraged to read the +information that we file with the SEC, which discloses important information about us to you in +those documents. This information includes any filing we have made with the SEC under Sections +13(a), 13(c), 14 or 15(d) of the Exchange Act. Our proxy statement for the Special Meeting is +available at www.callon.com . +Proxy Solicitation Expense +We will pay the expenses for the preparation of the proxy materials and the solicitation of +your proxy. We have hired The Altman Group to solicit your proxy, and they will do so by telephone, +mail or other means of communication. We have agreed to pay The Altman Group a fee of $5,500.00, +and have agreed to reimburse their reasonable out-of-pocket expenses. We will also reimburse +brokers and other nominees for costs incurred in mailing proxy materials. +SHAREHOLDERS’ PROPOSALS +FOR 2010 ANNUAL MEETING +Shareholders who desire to present proposals at the 2010 Annual Meeting of Shareholders and to +have proposals included in the Company’s proxy materials must submit their proposals to the Company +at its principal executive offices not later than November 30, 2009. If the date of the 2010 Annual +Meeting of Shareholders is changed by more than 30 days from the date of the 2009 Annual Meeting of +Shareholders, the deadline for submitting proposals is a reasonable time before the Company begins +to print and mail its proxy materials for its 2010 Annual Meeting of Shareholders. +The person named in the Company’s form of proxy for the 2010 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive +11 +Table of Contents +notice by February 15, 2010, unless the Company changes the date of its +2010 Annual Meeting of Shareholders by more than 30 days from the date of the 2009 Annual Meeting +of Shareholders, in which case such persons will be able to exercise discretionary authority if +notice of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2010 Annual Meeting of Shareholders. +If the date of the 2010 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2009 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +INCORPORATION BY REFERENCE +We are incorporating by reference specified documents that we file with the SEC, which means +that incorporated documents are considered part of this proxy statement. We are disclosing +important information to you by referring you to those documents and information we subsequently +file with the SEC will automatically update and supersede information contained in this proxy +statement and in our other filings with the SEC. We incorporate by reference Items 7, 7A, 8 and 9 +from Part I of the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December +31, 2008, filed on March 20, 2009; and Items 1, 2 and 3 from Part I of the Company’s Quarterly +Report on Form 10-Q (“Form 10-Q”) for the quarter ended September 30, 2009, filed on November 9, +2009, and any other items in that Quarterly Report on Form 10-Q expressly updating the above +reference items from our Annual Report on Form 10-K. The Form 10-K and Form 10-Q are being +delivered to shareholders with this proxy statement. +By Order of the Board of Directors, +/s/ B.F. Weatherly +Natchez, MS +December 1, 2009 +B.F. Weatherly +Director, Executive Vice President and +Chief Financial Officer +Each shareholder, whether or not he or she expects to be present in person at the Special Meeting, +is requested to MARK, SIGN, DATE, and RETURN THE ENCLOSED PROXY CARD in the accompanying envelope +as promptly as possible. A shareholder may revoke his or her proxy at any time prior to voting. +12 +Table of Contents +APPENDIX A +CERTIFICATE OF DESIGNATIONS, PREFERENCES +AND RIGHTS OF CONVERTIBLE PREFERRED STOCK +OF +CALLON PETROLEUM COMPANY +Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, CALLON +PETROLEUM COMPANY, a Delaware corporation (the “Corporation” ), certifies that, pursuant to the +authority conferred upon its Board of Directors by the Certificate of Incorporation, as amended, of +the said Corporation, the said Board of Directors on October 2, 2009 adopted the following +resolution creating a series of Preferred Stock: +RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of the +Corporation by Article Four of the Certificate of Incorporation, as amended, of the Corporation, a +series of Preferred Stock, with an initial stated value of $66.67 per share, of the Corporation to +be known as Convertible Preferred Stock be, and hereby is, created, and that the designation and +number of shares, and the relative rights, preferences, and limitations thereof (in addition to the +provisions set forth in the Certificate of Incorporation of the Corporation, as amended, that are +applicable to Preferred Stock generally) shall be as follows: +A. Certain Definitions . When used in this Certificate of Designations, the following terms +shall have the meanings specified: +“Accrued Dividends” has the meaning set forth in Section D.1. +“Amendment” has the meaning set forth in Section H.1. +“As-Converted-to-Common-Stock-Basis” gives effect immediately prior to the applicable record +date to the conversion of the Convertible Preferred Stock and Accrued Dividends thereon into Common +Stock in accordance with Section H as if the Amendment (as such term is defined in Section H) had +become effective. +“Board” means the board of directors of the Corporation. +“Bylaws” means the Corporation’s bylaws, as may be amended from time to time. +“Capital Stock” means: +1. +in the case of a corporation, corporate stock; +2. +in the case of an association or business entity, any and all shares, +interests, participations, rights or other equivalents (however designated) of +corporate stock; +3. +in the case of a partnership or limited liability company, partnership or +membership interests (whether general or limited); and +Table of Contents +4. +any other interest or participation that confers on a Person the right to +receive a share of the profits and losses of, or distributions of assets of, the +issuing Person, but excluding from all of the foregoing any debt securities convertible +into Capital Stock, whether or not such debt securities include any right of +participation with Capital Stock. +“Certificate of Incorporation” means the Corporation’s certificate of incorporation, as it may +be amended from time to time. +“Common Stock” means the Corporation’s Common Stock, $0.01 par value per share. +“Conversion Price” has the meaning in Section H.1. +“Conversion Rate” has the meaning in Section H.1. +“Convertible Preferred Stock” has the meaning set forth in Section B. +“Exchange Act” means the federal Securities Exchange Act of 1934, as amended, and the rules +and regulations of the SEC promulgated thereunder. +“Issue Date” means the date on which any shares of the Convertible Preferred Stock are first +issued. +“Junior Securities” has the meaning set forth in Section C. +“Liquidation Event” has the meaning set forth in Section G.1. +“Liquidation Preference” has the meaning set forth in Section G.1. +“Person” means any individual, corporation, partnership, joint venture, association, +joint-stock company, trust, unincorporated organization, limited liability company, government or +other entity. +“Preferred Stock” means the Corporation’s authorized Preferred Stock, $0.01 par value per +share. +“SEC” means the U.S. Securities and Exchange Commission. +“Senior Credit Agreement” means the Second Amended and Restated Credit Agreement dated as of +September 25, 2008, by and among Callon Petroleum Company, the “Lenders” described therein, Regions +Bank, as Syndication Agent, Capital One, N.A., as Documentation Agent, and Union Bank, N.A., as +Administrative Agent, as amended by Amendment No. 1 dated as of March 19, 2009; including any +guarantees, collateral documents, instruments and agreements executed in connection therewith, and +any amendments, supplements, modifications, extensions, renewals, restatements, refundings or +refinancings thereof (so long as the amended, supplemented, modified, extended, renewed, restated, +refunded or refinanced debt is not subordinate to other debt of the Corporation) and any indentures +or credit facilities or commercial paper facilities with banks or other institutional lenders or +investors that replace, refund or refinance any part of the loans, notes, other credit facilities +or commitments thereunder, including any such replacement, refunding or refinancing facility or +indenture that increases the amount borrowable thereunder or alters the maturity thereof. +A-2 +Table of Contents +“Stated Value” shall mean $66.67 per share, as adjusted for changes in the Convertible +Preferred Stock by stock split, stock dividend, stock combination, or the like occurring with +respect to the Convertible Preferred Stock after the Issue Date. +“Subsidiary” of the Corporation means: +1. +any corporation, association or other business entity of which more than 50% of +the total voting power of shares of Capital Stock entitled (without regard to the +occurrence of any contingency and after giving effect to any voting agreement or +stockholders’ agreement that effectively transfers voting power) to vote in the +election of directors, managers or trustees of the corporation, association or other +business entity is at the time owned or controlled, directly or indirectly, by the +Corporation or one or more of the other Subsidiaries of the Corporation (or a +combination thereof); and +2. +any partnership (i) the sole general partner or the managing general partner of +which is the Corporation or a Subsidiary of the Corporation or (ii) the only general +partners of which are the Corporation or one or more Subsidiaries of the Corporation +(or any combination thereof). +B. Designation and Amount . The shares of the series of Preferred Stock designated hereby +shall be denominated as “Convertible Preferred Stock,” and the number of shares constituting such +series shall be 310,802. Such number of shares may be increased or decreased by resolution of +the Board of Directors; provided that no decrease shall reduce the number of shares of +Convertible Preferred Stock to a number less than that of the shares then outstanding plus the +number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants +or upon the conversion of any outstanding securities issued by the Corporation exercisable for or +convertible into the Convertible Preferred Stock. Shares of the Convertible Preferred Stock shall +be issued in book entry form in restricted accounts at the Corporation or its transfer agent and +registered in the holders’ respective names. +C. Ranking . +The Convertible Preferred Stock shall, with respect to dividend rights and rights on +liquidation, winding up and dissolution of the Corporation, rank senior to the Common Stock and all +other classes and series of Capital Stock of the Corporation now or after the Issue Date +authorized, issued or outstanding (collectively with the Common Stock, “Junior Securities” ). +D. Dividends . +Subject to Section E below, +1. Declarations and Accrual . Commencing on March 15, 2010, the holders of shares of +Convertible Preferred Stock, in preference to the holders of Junior Securities, shall be entitled +to receive, if, as and when declared by the Board of Directors or any duly authorized committee +thereof, out of assets legally available therefor, a cumulative dividend computed like interest at +the per annum rate of eighteen percent of the Stated Value on each outstanding share of Convertible +Preferred Stock, which rate shall increase one percent on each March 15 and September 15 beginning +September 15, 2010, up to a maximum rate per annum of twenty-five percent (all dividends on +Convertible Preferred Stock described in this Section D.1 whether or +A-3 +Table of Contents +not declared or accruing but remaining unpaid being referred to herein as “Accrued +Dividends” ). Any Accrued Dividends shall not bear interest. +2. Priority of Payment. No dividends shall be declared or paid, or funds set apart for the +payment of dividends on, any Junior Securities for any period unless all Accrued Dividends shall +have been, or contemporaneously are, paid in full. +3. Redemptions of Junior Securities. No Junior Securities shall be repurchased, redeemed or +otherwise acquired or retired for value by the Corporation, and no monies shall be paid into or set +apart or made available for a sinking or other like fund for the repurchase, redemption or other +acquisition or retirement for value of any Junior Securities by the Corporation, unless, in any +such case, all Accrued Dividends on all outstanding shares of the Convertible Preferred Stock shall +have been, or contemporaneously are, paid in full. +E. Voting Rights . +1. Generally . Except as may be otherwise expressly provided in the Certificate of +Incorporation or as expressly required by the Delaware General Corporation Law, the Convertible +Preferred Stock shall have no voting rights. +2. Certain Matters . So long as any shares of Convertible Preferred Stock shall be +outstanding, and unless the consent or approval of a greater number of shares shall then be +required by law, without first obtaining the consent or approval of the holders of at least +two-thirds of the shares of the Convertible Preferred Stock then outstanding, the Corporation shall +not: (i) amend, alter, or repeal the Certificate of Incorporation or the Bylaws, or waive any +provisions thereof, in a manner that would materially and adversely affect the rights, preferences, +privileges, or powers of the Convertible Preferred Stock; provided , further , that +no amendment, alteration or repeal shall be made that has a disproportionate effect on any holder +of Convertible Preferred Stock in a manner different than other holders of Convertible Preferred +Stock; (ii) purchase, redeem or otherwise acquire or retire for value any Junior Securities, or any +securities exercisable or exchangeable for Junior Securities, other than in connection with the +surrender by employees of the Corporation of portions of equity awards to satisfy tax withholding +obligations; (iii) authorize, create, increase the authorized amount of, or issue any class or +series, or any shares of any class or series, of Capital Stock of the Corporation ranking senior in +priority to, or in parity with, the Convertible Preferred Stock with respect to the right to +dividends or preference on liquidation; or (iv) declare, pay, or set apart for payment, any +dividends or any other distributions of any sort by the Corporation in respect of any other Capital +Stock of the Corporation other than the Convertible Preferred Stock, including the Common Stock. +F. Reacquired Shares . +Any shares of Convertible Preferred Stock redeemed, purchased, or otherwise acquired by the +Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition +thereof, and, if necessary to provide for the lawful redemption or purchase of such shares, the +capital represented by such shares shall be reduced in accordance with the Delaware General +Corporation Law. All such shares shall upon their cancellation (and compliance with any applicable +provisions of the laws of the State of Delaware) become authorized but unissued shares of Preferred +Stock and may be redesignated and reissued as part of any other series of +A-4 +Table of Contents +Preferred Stock, subject +to the conditions or restrictions on authorizing, or creating, or issuing any class or series, or +any shares of any class or series, set forth in Section E.2. +G. Liquidation, Dissolution, or Winding Up . +1. Priority . In the event of any liquidation, dissolution, or winding up of the Corporation +(a “Liquidation Event” ), whether voluntary or involuntary, no holders of Junior Securities shall +receive, by reason of their ownership thereof, any payment or distribution of any of the assets of +the Corporation until the holders of the shares of Convertible Preferred Stock then outstanding, by +reason of their ownership thereof, shall have first received an amount in cash per share of +Convertible Preferred Stock equal to 100% of the Stated Value thereof, plus an amount in cash equal +to all Accrued Dividends through the date of the effectiveness of the Liquidation Event +(Accrued Dividends together with the Stated Value being referred to herein as the “Liquidation +Preference” ). If, upon the occurrence of any Liquidation Event, the assets and funds of the +Corporation available to be distributed among the holders of the Convertible Preferred Stock shall +be insufficient to permit the payment to such holders of the full Liquidation Preference, then the +holders of Junior Securities shall not receive, by reason of their ownership thereof, any payment +or distribution of any of the assets of the Corporation, and the holders of all such shares of +Convertible Preferred Stock shall share ratably in any distribution of assets of the Corporation in +accordance with the amounts that would be payable on any such distribution if the Liquidation +Preference were to be paid in full. +2. Excluded Events . For purposes of this Section G, none of the voluntary sale, conveyance, +exchange and transfer (for cash, shares of stock, other securities or other consideration) of all +or substantially all of the property or assets of the Corporation, and no consolidation or merger +of the Corporation with any one or more other corporations, shall be deemed to be a Liquidation +Event unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a +plan of liquidation, dissolution or winding up of the Corporation. +H. Conversion . +1. Automatic . Immediately upon the later to occur of (i) effectiveness of an amendment to the +Certificate of Incorporation increasing the number of authorized shares of Common Stock to at least +60,000,000 shares (the “Amendment” ) and (ii) the receipt of any required approval for listing of +the shares of Common Stock to be issued upon conversion of the Convertible Preferred Stock on the +New York Stock Exchange (or such other exchange or market as the Common Stock may then be listed or +traded) (provided that if no such approval is required for the issuance of Common Stock upon +conversion of the Convertible Preferred Stock then the condition in this Section H.1(ii) shall be +deemed satisfied), each share of Convertible Preferred Stock shall automatically be converted into +a number of fully paid and non-assessable shares of Common Stock (the “Conversion Rate” ) equal to +the quotient obtained by dividing the Stated Value plus the amount of Accrued Dividends by the +Conversion Price. The initial “Conversion Price” for the Convertible Preferred Stock shall be +$66.67, as such price is adjusted in accordance with Sections H.3 through H.6. All references to +the Conversion Price herein shall mean the Conversion Price as so adjusted. The initial Conversion +Rate shall be ten shares of Common Stock for one share of Convertible Preferred Stock. +2. Mechanics of Conversion . Upon the occurrence of the event specified in Section H.1 above, +the outstanding shares of Convertible Preferred Stock and Accrued Dividends thereon shall be +converted automatically without any further action by the holders of such +A-5 +Table of Contents +shares. Upon the +occurrence of such automatic conversion of the Convertible Preferred Stock and Accrued Dividends +thereon, the Corporation will make entries in the share registry of the Corporation or any transfer +agent for the Convertible Preferred Stock in the holders’ respective names for the +number of shares of Common Stock into which the shares of Convertible Preferred Stock +surrendered and Accrued Dividends thereon were convertible on the date on which such automatic +conversion occurred. +3. Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from +time to time after the Issue Date effect a subdivision or like transaction of the outstanding +Common Stock without a corresponding subdivision of the Convertible Preferred Stock, the Conversion +Price in effect immediately before that subdivision shall be proportionately decreased. +Conversely, if the Corporation shall at any time or from time to time after the Issue Date combine +the outstanding shares of Common Stock into a smaller number of shares or like transaction without +a corresponding combination of the Convertible Preferred Stock, the Conversion Price in effect +immediately before the combination shall be proportionately increased. Any adjustment under this +Section H.3 shall become effective at the close of business on the date the subdivision or +combination becomes effective. +4. Adjustment for Common Stock Dividends and Distributions . If the Corporation at any time or +from time to time after the Issue Date makes, or fixes a record date for the determination of +holders of Common Stock entitled to receive, a dividend or other distribution payable in additional +shares of Common Stock without provision for a like dividend on shares of Convertible Preferred +Stock based on the Conversion Rate, then the Conversion Price that is then in effect shall be +decreased as of the time of such issuance or, in the event such record date is fixed, as of the +close of business on such record date, by multiplying the Conversion Price then in effect by a +fraction (i) the numerator of which is the total number of shares of Common Stock issued and +outstanding immediately prior to the time of such issuance or the close of business on such record +date, and (ii) the denominator of which is the total number of shares of Common Stock issued and +outstanding immediately prior to the time of such issuance or the close of business on such record +date plus the number of shares of Common Stock issuable in payment of such dividend or +distribution; provided , however , that if such record date is fixed and such +dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, +the Conversion Price shall be recomputed accordingly as of the close of business on such record +date and thereafter the Conversion Price shall be adjusted pursuant to this Section H.4 to reflect +the actual payment of such dividend or distribution. +5. Adjustment for Reclassification, Exchange and Substitution . If at any time or from time to +time after the Issue Date, the Common Stock issuable upon the conversion of the Convertible +Preferred Stock and Accrued Dividends thereon is changed into the same or a different number of +shares of any other class or classes of stock, whether by recapitalization, reclassification or +otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, +merger, consolidation or sale of assets, in each case as provided for elsewhere in this Section H), +in any such event the Convertible Preferred Stock and any Accrued Dividends thereon shall +automatically convert into the kind and amount of stock and other securities and property +receivable upon such recapitalization, reclassification or other change on an +As-Converted-to-Common-Stock-Basis, all subject to further adjustment as provided herein or with +respect to such other securities or property by the terms thereof. +6. Reorganizations, Mergers, Consolidations or Sales of Assets . Subject to Section I, if at +any time or from time to time after the Issue Date, there is a capital reorganization +A-6 +Table of Contents +of the Common +Stock (other than a Liquidation Event or a recapitalization, subdivision, combination, +reclassification, exchange or substitution of shares provided for elsewhere in this Section H), as +a part of such capital reorganization, provision shall be made so that the holders of the +Convertible +Preferred Stock shall receive on an As-Converted-to-Common-Stock-Basis the number of shares of +stock or other securities or property of the Corporation to which a holder of the number of shares +of Common Stock would have been entitled in such event, subject to adjustment as provided herein +with respect to such stock or securities by the terms thereof. In any such case, appropriate +adjustment shall be made in the application of the provisions of this Section H with respect to the +rights of the holders of Convertible Preferred Stock after the capital reorganization to the end +that the provisions of this Section H (including adjustment of the Conversion Price then in effect +and the Conversion Rate) shall be applicable after that event and be as nearly equivalent as +practicable. +7. Certificate of Adjustment . In each case of an adjustment or readjustment of the Conversion +Price for the number of shares of Common Stock or other securities issuable upon conversion of the +Convertible Preferred Stock and Accrued Dividends thereon, the Corporation, at its expense, shall +compute such adjustment or readjustment in accordance with the provisions hereof and prepare a +certificate showing such adjustment or readjustment, and shall deliver such certificate as provided +in Section I. The certificate shall set forth such adjustment or readjustment showing in detail +the facts upon which such adjustment or readjustment is based, including a statement of the +Conversion Price at the time in effect and the type and amount, if any, of shares of Common Stock +or other securities or property that at the time would be received upon conversion of the +Convertible Preferred Stock and any Accrued Dividends. +8. Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of +Convertible Preferred Stock and any Accrued Dividends thereon. All shares of Common Stock +(including fractions thereof) issuable upon conversion of more than one share of Convertible +Preferred Stock and Accrued Dividends thereon by a holder thereof shall be aggregated for purposes +of determining whether the conversion would result in the issuance of any fractional share. If, +after the aforementioned aggregation, the conversion would result in the issuance of any fractional +share, the Corporation shall, at its option, in lieu of issuing any fractional share, (i) pay cash +equal to the product of such fraction multiplied by the Common Stock’s fair market value (as +determined by the average closing market value for the 10 trading days on the principal stock +exchange on which the Common Stock is traded prior to the conversion, or, in the event that such +value is not ascertainable, as determined by the Board in good faith) on the date of conversion, +(ii) round upward the number of shares due to the holder in question to the nearest whole share, or +(iii) aggregate and sell all fractional shares on behalf of the holders in question. +9. Reservation of Stock Issuable Upon Conversion . Upon the effectiveness of the amendment to +the Certificate of Incorporation described in Section H.1, the Corporation shall have authorized +but unissued shares of Common Stock sufficient for effecting the conversion of the shares of the +Convertible Preferred Stock and any Accrued Dividends. +I. Notices . +All notices or communications in respect of the Convertible Preferred Stock other than +pursuant to Section I shall be sufficiently given if given in writing and delivered in person or by +first-class mail, postage prepaid, to any holder of the Convertible Preferred Stock at such +holder’s last address appearing on the books of the Company, or if given in such other manner, +A-7 +Table of Contents +as +may be permitted by the terms hereof, in the Certificate of Incorporation or Bylaws or by +applicable law. +J. Procedures for Voting and Consents . +The rules and procedures for calling and conducting any meeting of the holders of Convertible +Preferred Stock (including, without limitation, the fixing of a record date in connection +therewith), the solicitation and use of proxies at such a meeting, the obtaining of written +consents and any other aspect or matter with regard to such a meeting or such consents shall be +governed by any rules that the Board (or a duly authorized committee of the Board), in its +discretion, may adopt from time to time, which rules and procedures shall conform to the +requirements of the Certificate of Incorporation, Bylaws, or Delaware General Corporate Law. +K. Record Holders . +To the fullest extent permitted by applicable law, the Corporation and the transfer agent, if +any, for the Convertible Preferred Stock may deem and treat the record holder of any share of +Convertible Preferred Stock as the true and lawful owner thereof for all purposes, and neither the +Corporation nor such transfer agent shall be affected by any notice to the contrary. +L. Effectiveness . +This Certificate of Designations shall be effective as of 6:01 p.m., EDT on the date of filing +of the same with the Secretary of State of Delaware. +[Signature Page Follows] +A-8 +Table of Contents +IN WITNESS WHEREOF, CALLON PETROLEUM COMPANY has caused this Certificate of Designations, +Preferences and Rights of Convertible Preferred Stock to be duly executed by its duly authorized +officer, this 24th day of November, 2009. +CALLON PETROLEUM COMPANY +By: +/s/ B.F. Weatherly +B.F. Weatherly +Executive Vice President and +Chief Financial Officer +[Signature Page] +Table of Contents +APPENDIX B +Report of Independent Registered Public Accounting Firm +The Board of Directors and Stockholders of +Callon Petroleum Company +We have audited the accompanying consolidated balance sheets of Callon Petroleum Company as of +December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ +equity and cash flows for each of the three years in the period ended December 31, 2008. These +financial statements are the responsibility of the Company’s management. Our responsibility is to +express an opinion on these financial statements based on our audits. +We conducted our audits in accordance with the standards of the Public Company Accounting +Oversight Board (United States). Those standards require that we plan and perform the audit to +obtain reasonable assurance about whether the financial statements are free of material +misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and +disclosures in the financial statements. An audit also includes assessing the accounting +principles used and significant estimates made by management, as well as evaluating the overall +financial statement presentation. We believe that our audits provide a reasonable basis for our +opinion. +In our opinion, the financial statements referred to above present fairly, in all material +respects, the consolidated financial position of Callon Petroleum Company as of December 31, 2008 +and 2007, and the consolidated results of its operations and its cash flows for each of the three +years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting +principles. +As discussed in Note 2 to the financial statements, in 2007 the Company changed its method of +accounting for income taxes. +We also have audited, in accordance with the standards of the Public Company Accounting +Oversight Board (United States), Callon Petroleum Company’s internal control over financial +reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated +Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our +report dated March 19, 2009, expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +New Orleans, Louisiana +March 19, 2009 +Table of Contents +APPENDIX C +Report of Independent Registered Public Accounting Firm +The Board of Directors and Stockholders of +Callon Petroleum Company +We have audited Callon Petroleum Company’s internal control over financial reporting as of December +31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the +Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Callon +Petroleum Company’s management is responsible for maintaining effective internal control over +financial reporting and for its assessment of the effectiveness of internal control over financial +reporting included in the accompanying Management’s Report on Internal Control over Financial +Reporting. Our responsibility is to express an opinion on the Company’s internal control over +financial reporting based on our audit. +We conducted our audit in accordance with the standards of the Public Company Accounting Oversight +Board (United States). Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether effective internal control over financial reporting was +maintained in all material respects. Our audit included obtaining an understanding of internal +control over financial reporting, assessing the risk that a material weakness exists, testing and +evaluating the design and operating effectiveness of internal control based on the assessed risk, +and performing such other procedures as we considered necessary in the circumstances. We believe +that our audit provides a reasonable basis for our opinion. +A company’s internal control over financial reporting is a process designed to provide reasonable +assurance regarding the reliability of financial reporting and the preparation of financial +statements for external purposes in accordance with generally accepted accounting principles. A +company’s internal control over financial reporting includes those policies and procedures that (1) +pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the +transactions and dispositions of the assets of the company; (2) provide reasonable assurance that +transactions are recorded as necessary to permit preparation of financial statements in accordance +with generally accepted accounting principles, and that receipts and expenditures of the company +are being made only in accordance with authorizations of management and directors of the company; +and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized +acquisition, use, or disposition of the company’s assets that could have a material effect on the +financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or +detect misstatements. Also, projections of any evaluation of effectiveness to future periods are +subject to the risk that controls may become inadequate because of changes in conditions, or that +the degree of compliance with the policies or procedures may deteriorate. +In our opinion, Callon Petroleum Company maintained, in all material respects, effective internal +control over financial reporting as of December 31, 2008, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight +Board (United States), the consolidated balance sheets of Callon Petroleum Company as of December +31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and +cash flows for each of the three years in the period ended December 31, 2008 and our report dated +March 19, 2009, expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +New Orleans, Louisiana +March 19, 2009 +Table of Contents +SPECIAL MEETING OF SHAREHOLDERS OF CALLON PETROLEUM COMPANY December 31, 2009 NOTICE OF INTERNET +AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and proxy card are available +at http://www.callon.com Please sign, date and mail your proxy card in the envelope provided as +soon as possible. Please detach along perforated line and mail in the envelope provided. +00030030000000000000 1 123109 THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1 AND 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR +BLACK INK AS SHOWN HERE x Signature of Shareholder Date: To change the address on your account, +please check the box at right and indicate your new address in the address space above. Please note +that changes to the registered name(s) on the account may not be submitted via this method. FOR +AGAINST ABSTAIN 1. An amendment to Article Four of the Company’s Certificate of Incorporation +increasing the number of authorized shares of common stock of the Company from 30 million shares to +60 million shares. 2. To approve of the issuance of shares of the Company’s common stock, issuable +upon conversion of the Company’s convertible preferred stock, that equals or exceeds 20% of the +voting power or the number of shares of the Company’s common stock outstanding immediately prior to +the original issuance of the convertible preferred stock. 3. In their discretion, the Proxies are +authorized to vote upon such other business as may properly come before the meeting or any +adjournments thereof. THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED +HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSALS 1 AND 2. PLEASE MARK, +SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +Signature of Shareholder Date: Note: Please sign exactly as your name or names appear on this +Proxy. When shares are held jointly, each holder should sign. When signing as executor, +administrator, attorney, trustee or guardian, please give full title as such. If the signer is a +corporation, please sign full corporate name by duly authorized officer, giving full title as such. +If signer is a partnership, please sign in partnership name by authorized person. +Table of Contents +0 CALLON PETROLEUM COMPANY 200 North Canal Street, Natchez, Mississippi 39120 Proxy Solicited +on Behalf of the Board of Directors of the Company for the Special Meeting of Shareholders on +December 31, 2009 The undersigned hereby appoints Fred L. Callon and B.F. Weatherly and each of +them, as proxies of the undersigned, each with full power to act without the other and with full +power of substitution and re-substitution, to vote all the shares of Common Stock of Callon +Petroleum Company that the undersigned is entitled to vote at the Special Meeting of Shareholders +to be held on December 31, 2009, at 10:00 a.m., Natchez time, at the Company’s executive offices +located at 200 N. Canal Street, Natchez, MS 39120, and at any postponements or adjournments +thereof, with all the powers the undersigned would have if personally present, as follows: IF NO +DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSALS 1 +AND 2 AS INDICATED ON THE REVERSE SIDE HEREOF. You are encouraged to specify your choices by +marking the appropriate boxes (SEE REVERSE SIDE) but you need not mark any boxes if you wish to +vote in accordance with the Board of Directors’ recommendations. The Proxies cannot vote your +shares unless you sign and return this card. (Continued and to be signed on the reverse side) 14475 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950123-09-067301/proxy_rpt.txt b/raw/proxies/0000928022/0000950123-09-067301/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000950123-10-025226/proxy.txt b/raw/proxies/0000928022/0000950123-10-025226/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f2c44e22edfa1f733b67e4c7e763b6daf30f14af --- /dev/null +++ b/raw/proxies/0000928022/0000950123-10-025226/proxy.txt @@ -0,0 +1,2904 @@ +DEF 14A +1 +h70094def14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +CALLON PETROLEUM COMPANY +NOTICE OF THE 2010 ANNUAL MEETING OF SHAREHOLDERS +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +PROPOSAL I +ELECTION OF DIRECTORS +BENEFICIAL OWNERSHIP OF SECURITIES +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2010 ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD TUESDAY, MAY 4, 2010 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the 2010 Annual Meeting of +Shareholders of the Company which will be held in Natchez, Mississippi, on Tuesday, May 4, 2010, at +9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, +Mississippi 39120, for the following purposes: +1. +To elect two Class I directors to hold office until the 2013 Annual Meeting of +Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2010; and +3. +To transact such other business as may properly come before the 2010 Annual +Meeting or any adjournment or adjournments thereof. +Specific details of the matters proposed before the 2010 Annual Meeting are set forth in the +proxy statement accompanying and forming part of this notice. +Only shareholders of record at the close of business on March 5, 2010 will be entitled to +notice of, and to vote at, the 2010 Annual Meeting, or any adjournment or postponements thereof. +Each common share is entitled to one vote per share. Whether or not you plan to attend the 2010 +Annual Meeting, we request that you sign, date and promptly mail the enclosed proxy in the +pre-addressed envelope enclosed. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Natchez, Mississippi +Robert A. Mayfield +March 16, 2010 +Corporate Secretary +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY +CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED +IF THE ENVELOPE IS MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE 2010 ANNUAL MEETING +MAY REVOKE THEIR PROXIES AND VOTE IN PERSON. +Important Notice Regarding the Availability of Proxy Materials for the Stockholders’ Meeting: +Our proxy material relating to our 2010 Annual Meeting (notice, proxy statement, proxy and +2009 Annual Report to Shareholders) is available on our website at www.callon.com. This +information will also be available by calling 1-800-451-1294 or by email at terryt@callon.com. For +the date, time and location of the 2010 Annual Meeting and an identification of the matters to be +voted upon at the 2010 Annual Meeting, please see the “Notice of Annual Meeting of Shareholders.” +For the Board’s recommendations regarding those matters, please refer to “Proposal 1 — Election of +Directors” and “Proposal 2 — Ratification of Appointment of Independent Registered Public +Accounting Firm”. For information on how to obtain directions to be able to attend the meeting and +vote in person, please contact Terry Trovato, Investor Relations, Callon Petroleum Company, 200 +North Canal Street, Natchez, Mississippi, 39120. +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2010 ANNUAL MEETING OF SHAREHOLDERS +TUESDAY, MAY 4, 2010 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on behalf of +the Board of Directors of Callon Petroleum Company, a Delaware corporation, from shareholders of +the Company for use at the 2010 Annual Meeting of Shareholders of the Company to be held on +Tuesday, May 4, 2010, at 9:00 a.m., in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway +Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The purpose of +the meeting is to consider and vote upon the matters described in the accompanying Notice of the +2010 Annual Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, +will be voted in accordance with the directions specified on the proxy, and otherwise in accordance +with the judgment of the persons designated therein as proxies. Any proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for the election of the +nominees named herein to the Board of Directors and in favor of the other proposals set forth in +the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the +Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a +later date, or by voting in person at the 2010 Annual Meeting. Proxies submitted by mail must be +received on or before Tuesday, May 4, 2010. Submitting your proxy by mail will not affect your +right to vote in person if you decide to attend the 2010 Annual Meeting. +If you hold your shares in street name it is critical that you cast your vote if you want it +to count in the election of Directors (Proposal 1 of this Proxy Statement). In the past, if you +held your shares in street name and you did not indicate how you wanted your shares voted in the +election of Directors, your bank or broker was allowed to vote those shares on your behalf in the +election of Directors as they felt appropriate. Recent changes in regulation were made to eliminate +the ability of your bank or broker to vote your uninstructed shares in the election of Directors on +a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your +bank or broker how to vote in the election of Directors, no votes will be cast on your behalf. Your +bank or broker will, however, continue to have discretion to vote any uninstructed shares on the +ratification of the appointment of the Company’s independent registered public accounting firm +(Proposal 2 of this Proxy Statement). If you are a shareholder of record and you do not cast your +vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting. +This proxy statement and the accompanying notice and form of proxy are being mailed to +shareholders on or about March 16, 2010. The Annual Report for the Company’s fiscal year ended +December 31, 2009 is also being mailed to shareholders contemporaneously with this proxy statement, +although the Annual Report does not form a part of the material for the solicitation of proxies. +The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our +common stock for which the Company has agreed to pay those costs. In addition, the Company has +retained the services of The Altman Group, Inc. to assist us in our solicitation efforts at an +estimated cost of $3,500. +Financial and other information concerning the Company is contained in the Annual Report to +Shareholders for the year ended December 31, 2009. Pursuant to rules promulgated by the Securities +and Exchange Commission (SEC), we have elected to provide access to the Company’s proxy materials +both by sending you this full set of proxy materials, including a proxy card, and by notifying you +of the availability of the proxy material on the Internet. This proxy statement, the accompanying +proxy card and the Company’s 2009 Annual Report to Shareholders are available at the Company’s +website at www.callon.com. In accordance with SEC rules, you may access the proxy statement at +www.callon.com, which does not have “cookies” that identify visitors to the site. +1 +Table of Contents +Matters to be Considered at the 2010 Annual Meeting of Shareholders +Unless otherwise indicated, proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of two Class I director +nominees to the Board of Directors named herein and (2) ratification of the appointment of Ernst & +Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2010. +The Board of Directors is not presently aware of any other proposals that may be brought +before the 2010 Annual Meeting. In the event other proposals are brought before the 2010 Annual +Meeting, the persons named in the enclosed proxy will vote in accordance with what they consider to +be in the best interests of the Company and our shareholders. +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 5, 2010 as the record +date for the determination of shareholders entitled to notice of, and to vote at, the 2010 Annual +Meeting. A complete list of all shareholders entitled to vote at the 2010 Annual Meeting will be +open for examination by any shareholder during normal business hours for a period of ten days prior +to the 2010 Annual Meeting at the offices of the Company, located at 200 North Canal Street, +Natchez, Mississippi 39120. Such list will also be available at the 2010 Annual Meeting and may +be inspected by any valid shareholder who is present. +On the record date, our outstanding voting securities consisted of 28,740,863 shares of common +stock. Holders of common stock will be entitled to one vote per share held of record on the record +date for each proposal presented at the 2010 Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on +the record date, whether present in person or represented by proxy, will constitute a quorum for +the transaction of business at the 2010 Annual Meeting. For purposes of determining whether a +quorum is present under Delaware law, broker non-votes and abstentions do count towards the +establishment of a quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares +of common stock present and voting, in person or by proxy, at the 2010 Annual Meeting. Abstentions +and broker non-votes have no effect on determinations of plurality except to the extent that they +affect the total votes received by any particular candidate. +A majority of the votes represented by the shareholders present at the 2010 Annual Meeting, in +person or by proxy, is necessary for the ratification of the appointment of the Company’s +independent registered public accounting firm. If this appointment is not ratified by holders of +our voting securities, the Audit Committee and the Board may reconsider its appointment and +endorsement, respectively. Even if the selection is ratified, the Audit Committee may direct the +appointment of a different independent registered public accounting firm at any time during the +year if it determines that such a change would be in the best interests of the Company and its +shareholders. Abstaining shares will be considered present at the 2010 Annual Meeting so that the +effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the +shares will not be considered present at the 2010 Annual Meeting so that broker non-votes will have +the practical effect of reducing the number of affirmative votes required to achieve a majority +vote by reducing the total number of shares from which the majority is calculated. A broker +“non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a +particular proposal because the nominee does not have discretionary voting power with respect to +that item and the broker has not received voting instructions from the beneficial owner. +Votes cast at the meeting will be counted by the inspector of election. +2 +Table of Contents +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of +Directors is divided into three classes of equal size, designated as Class I (currently with two +directors), Class II (currently with two directors) and Class III (currently with two directors). +One class of directors is elected at each Annual Meeting of shareholders to serve for a three-year +term. +The term of the two Class I directors, Mr. Larry D. McVay and Mr. John C. Wallace, will expire +on the date of the 2010 Annual Meeting. Mr. McVay and Mr. Wallace were nominated to serve as Class +I directors until the 2013 Annual Meeting, or until his successor has been duly elected and +qualified. Both were nominated by the Board of Directors upon the recommendation of the Nominating +and Corporate Governance Committee. +All shares of common stock represented by the proxies will be voted “FOR” the election of both +director nominees, except where authority to vote in the election of a director has been withheld. +Should either of the nominees become unable or unwilling to serve as a director at the time of the +2010 Annual Meeting, the person or persons exercising the proxies will vote for the election of +substitute nominee designated by the Board of Directors, or the Board of Directors may choose to +reduce the number of members of the Board of Directors to be elected at the 2010 Annual Meeting in +order to eliminate the vacancy. Messrs. McVay and Wallace have consented to be nominated and have +expressed their intention to serve if elected. The Board of Directors has no reason to believe +that the nominees will be unable or unwilling to serve if elected. Only the nominees or a +substitute nominee designated by the Board of Directors will be eligible to stand for election as a +director at the 2010 Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of both nominees . +3 +Table of Contents +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors +whose terms will continue after the 2010 Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Age +as of +Record +Company +Name +Date +Position Since +Present Company Position +Class I Directors: +(Term Expires in 2010) +Larry D. McVay +62 +2007 +Director, Nominee +John C. Wallace +71 +1994 +Director, Nominee +Class II Directors: +(Term Expires in 2011) +B. F. Weatherly +65 +1994 +Director, Executive Vice President and Chief Financial Officer +Richard O. Wilson +80 +1995 +Director +Class III Directors: +(Term Expires in 2012) +Fred L. Callon +60 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer +L. Richard Flury +62 +2004 +Director +Other Executive Officers: +Mitzi P. Conn +41 +2007 +Corporate Controller +Steven B. Hinchman +51 +2009 +Executive Vice President, and Chief Operating Officer (1) +Robert A. Mayfield +59 +2000 +Corporate Secretary +Thomas E. Schwager +59 +1997 +former Vice President (2) +H. Clark Smith +57 +2001 +Chief Information Officer +Rodger W. Smith +60 +1999 +Vice President and Treasurer +Stephen F. Woodcock +58 +1997 +Vice President +(1) +Mr. Hinchman’s employment date was June 1, 2009. +(2) +Mr. Schwager retired from the Company effective April 24, 2009. +The following is a brief description of the background and principal occupation of each +director and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is son of Sim C. Callon, one of the Company’s +co-founders and the nephew of the late John S. Callon, the other co-founder. +Mr. Callon has been involved in the oil and gas industry virtually all his life and has +developed a wide network of personal and business relationships within the oil and gas industry. +His strong financial background combined +4 +Table of Contents +with his many years of operational experience throughout +changing conditions in the market and industry provide him with the ability to successfully lead +the Company. +Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in May 2007, she had served as assistant +controller since May 2004. Mrs. Conn has held various other positions in finance and accounting +since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham +Resources, Inc. She received her B.S. degree in accounting from Southeastern Louisiana University +in 1990 and is a member of the American Institute of Certified Public Accountants and the +Mississippi Society of Certified Public Accountants. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger with BP in 1998, he served in various executive positions and was Chief Executive for +Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time +of the merger. Currently, he is a member of the Board of Directors of Questar Corporation, a +publicly traded oil and gas company, and the Chicago Bridge and Iron Company, N.V., a +publicly-traded engineering, procurement and construction company. +Mr. Flury has many years of prior experience with a major oil and gas company. Mr Flury +continues his involvement in the industry through his other directorship positions. His +executive-level perspective and decision making abilities continue to prove beneficial to the +success of the Company. +Steven B. Hinchman is an Executive Vice President and also serves as the Chief Operating +Officer for the Company and Callon Petroleum Operating Company. Prior to joining the Company in +June 2009, Mr. Hinchman, was Executive Vice President of Technology and Services for Marathon Oil +Corporation, a position he held since April 2008, and served as a member of Marathon’s Executive +Committee, a position he held since October 2000. Mr. Hinchman originally joined Marathon in 1980 +as a field engineer and subsequently held a number of technical, staff and managerial positions of +increasing responsibility in their domestic and international exploration and production +organizations. Mr. Hinchman received a bachelor’s degree in petroleum engineering from +Pennsylvania State University in 1980, and a master’s degree in the same field of study from the +Colorado School of Mines in 1987. Mr. Hinchman is a member of the board of directors of the +American Petroleum Institute, a member, a Visiting Committee Member of the Petroleum Engineering +Department of the Colorado School of Mines, a member of the board of directors of the Sam Houston +Council of the Boy Scouts of America, and a member of the Industrial and Professional Advisory +Council of the Department of Energy and Geo-Environmental Engineering at Pennsylvania State +University. In 2005, he received the distinguished Penn State Alumni Fellow Award. +Robert A. Mayfield is the Corporate Secretary and also oversees tax services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in +1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his +retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the +largest oil producing companies in Russia. Since 2007, Mr. McVay has been a Managing Director of +Edgewater Energy Partners, LLC, an oil and gas consulting and investment company. From 2000 to +2003, he served as Technology Vice President and Vice President of Health, Safety and Environment +for BP. He also led the global E&P Operations Excellence effort for improving the operating +efficiency of BP’s upstream operations. Mr. McVay has led a distinguished international oil and +gas career spanning 38 years with Amoco, BP and TNK-BP. He worked in various engineering, +management and leadership positions with Amoco and BP both domestically and internationally. Mr. +McVay earned a mechanical engineering degree from Texas Tech University where he was recognized as +a Distinguished Engineer in 1995. In January 2008 he became a member of the Board of Directors of +Praxair, Inc., the largest industrial gases company in North and South America. In May 2008 Mr. +McVay also became a member of the Board of Directors of Chicago Bridge and Iron, N.V., a +publicly-traded engineering, procurement, and construction company. +Mr. McVay has been directly involved in almost all aspects of the oil and gas industry, +including drilling, production, finance, environmental risk, and safety. Outside of his +involvement with Callon, Mr. McVay is active in other industry consulting assignments which keep +him fully abreast of trends and current activity in the operational areas in which Callon is +pursuing development. +5 +Table of Contents +Thomas E. Schwager was Vice President of Engineering and Operations for the Company and Callon +Petroleum Operating Company from November 1997 until his retirement on April 24, 2009. Mr. +Schwager held various engineering positions with the Company and its predecessors since 1981. +Prior to joining the Company, Mr. Schwager held engineering positions with Exxon Company USA in +Louisiana and Texas. He received his B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is the Chief Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager — +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager — Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and +Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and Corporate +Controller in 2004. Prior to being appointed Treasurer, he served as Manager of Budget and +Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting +and has been employed by the Company and its predecessors since 1983. Prior to his employment with +the Company, he was employed by International Paper Company as a plant controller. He received his +B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. +Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, +after which he joined Baring Brothers & Co., Limited in London, England. For over twenty-five +years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in +1968 and which specializes in the business of shipping, renewable energy and property development. +He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. +In November 2004 he successfully completed the International Uniform Certified Public Accountant +Qualification Examination (“IQEX”) and has received a CPA Certificate from the State of Illinois. +Mr. Wallace is a director of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping +companies with interests in offshore energy services and renewable energy. +Mr. Wallace has extensive financial and accounting experience in not only the oil and gas +industry but in a number of other related industries as a result of his association with Fred. +Olsen, Ltd. and their various subsidiary companies. He has held senior management positions and +has been a member of Fred. Olsen’s Board of Directors for many years. The Company feels that Mr. +Wallace has a unique perspective of the risks and rewards in the oil and gas industry. +B. F. Weatherly is an Executive Vice President and also serves as the Chief Financial Officer +for the Company and Callon Petroleum Operating Company. Prior to joining the Company in November +2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since +1989. He was also a general partner of CapSource Fund, L.P., Jackson, Mississippi, an investment +fund, and held that position since 1997. Mr. Weatherly received a Master of Accountancy degree +from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with +Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and +Weatherford International, Inc. +Mr. Weatherly has many years of executive management and financial management positions in +energy related companies with emphasis on structuring and completion of many types of financial +transactions. Additionally, serving as managing director of two investment funds provides insight +into seeking financing alternatives for Callon. +Richard O. Wilson retired in 2004 after working for over 50 years in offshore drilling and +construction which included two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group +Vice President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, +Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of +Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In +2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +6 +Table of Contents +Mr. Wilson has over 50 years of experience directly related to the domestic and world-wide oil +and gas exploration and production efforts. His managerial and executive-level experience provides +a strong base to help guide the Company in its analysis of current and future operational aspects. +Stephen F. Woodcock is the Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing Company and Division +Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s degree in geophysics +from Oregon State University in 1975. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who +is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +The Board of Directors and Governance Matters +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, +our business and affairs are managed under the direction of the Board of Directors. The Board of +Directors generally meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the +Board of Directors may also hold special meetings, execute unanimous written consents, and +participate in telephone conference calls when an important matter requires Board action. +During 2009, the Board of Directors of the Company met formally nine times and executed three +unanimous written consents. All of the Company’s directors attended all of the board meetings. In +addition, to promote open discussion, the non-management directors meet in executive (private) +sessions without management following each quarterly board meeting. The chairperson of such +executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, +at the first executive session held in each fiscal year, the independent directors select a +different independent director to serve as the chairperson for all executive sessions held during +that fiscal year. L. Richard Flury, chairman of the Compensation Committee presided over all +executive sessions during 2009. +In order to facilitate the various functions of the Board of Directors, the Board of Directors +has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance +Committee, and a Strategic Planning Committee. These committees are more fully described in the +following pages. +Director Independence. It is the policy of the Board of Directors that a majority of the +members of the Board be independent of the Company’s management. The Company’s Corporate +Governance Principles contain the following guidelines to assist the Board in determining director +independence in accordance with the applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $120,000 per year in direct compensation from the Company, other than fees +received in such director’s capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” Compensation received by an immediate family member for +service as a non-executive employee of the Company need not be considered in +determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent”; +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board committee performing equivalent functions, or, in the absence of +such committee, the Board of Directors) shall be considered “independent”; +7 +Table of Contents +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold; and +• +An “immediate family member” includes a person’s spouse, parents, children, +siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic +employees) who shares such person’s home. When applying the three-year look-back +provisions, it does not include individuals who are no longer immediate family members +as a result of legal separation or divorce, or those who have died or become +incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and +Wilson do not have any material relationships with the Company that may interfere with the exercise +of their independence from management and the Company and are independent directors under +applicable New York Stock Exchange rules, SEC rules and in accordance with our Corporate Governance +Principles. +Corporate Governance Principles . The Company believes that good corporate governance is +important to ensure that Callon Petroleum Company is managed for the short- and long-term benefit +of its shareholders. Available on the Company website, www.callon.com, under the section +“Governance,” are copies of the Company’s: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter; +• +Compensation Committee Charter; +• +Nominating and Corporate Governance Committee Charter; +• +Strategic Planning Committee Charter; and +• +Members serving on each of the Board of Directors’ Committees. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s +website. Copies of these documents are available in print, free of charge, to any shareholder upon +request to the Company’s Corporate Secretary. +Company Leadership Structure +Fred L. Callon currently serves as President and Chief Executive Officer of the Company and +serves as Chairman of the Board of Directors. Mr. Callon is the son of one of the founders of the +Company and has been involved in the oil and gas industry virtually all his professional career. +In his capacity as Chairman, Mr. Callon has the following responsibilities: +• +Calls meetings of the Board, +• +Chairs meetings of the Board and the Annual Shareholders’ Meeting, +• +Establishes Board meeting schedules and agendas, +• +Ensures that information provided to the Board is timely, complete, and accurate, +• +Communicates with all directors on key issues and concerns outside of Board +meetings, and +• +Represents the Company to and interacts with external shareholders and employees. +The Board of Directors believes that having Mr. Callon serve as both the Chief Executive +Officer and the Chairman of the Board of Directors is a benefit to the overall success and growth +of the Company. Since he manages the day-to-day operations, he has a unique perspective on the +Company’s technical and financial strengths and is best positioned to chair Board meetings where +key business issues and corporate strategies are discussed on a routine basis. The Board does not +have an independent lead director. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and +expectations. The Code, which applies to every director, officer and employee, addresses a number +of topics, including conflicts of interest, relationships with others, corporate payments, +disclosure policy, compliance with laws, corporate opportunities and the protection and proper use +of the Company’s assets. The Code meets the New York Stock Exchange’s requirements for a code of +business conduct and ethics as well as the SEC’s definition of a code of ethics applicable to the +Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted +a waiver of the Code. +Communication with the Board of Directors. In order to provide the Company’s +shareholders and other interested parties with a direct and open line of communication to the Board +of Directors, the Board of Directors has +8 +Table of Contents +adopted procedures for communications to directors. +Callon shareholders and other interested persons may communicate with the Chairman of the Company’s +Audit Committee, or with the non-management directors of the Company as a group, by written +communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum +Company, 200 North Canal Street, Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication: +• +does not relate to the business or affairs of the Company or the functioning or +constitution of the Board of Directors or any of its committees; +• +relates to routine or insignificant matters that do not warrant the attention of +the Board of Directors; +• +is an advertisement or other commercial solicitation or communication; +• +is frivolous or offensive; or +• +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the communication is appropriate. Any such response will be made only in accordance with +applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures from time to time and, if appropriate, recommend changes. As of the record +date, no such communications have been received. +Attendance at 2010 Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the 2010 Annual Meeting of Shareholders. All then current +directors attended the 2009 Annual Meeting of Shareholders. +Oversight of Risk Management +The Company is exposed to a number of risks and undertakes enterprise risk management +reviews to identify and evaluate these risks and to develop plans to manage them effectively. The +Company’s executive officers are directly responsible for the Company’s enterprise risk management +function and report to the Board of Directors. Although not inclusive, a list of items considered +generally includes: +• +accurate and complete financial reporting, +• +rules and regulations of the NYSE, +• +environmental and safety issues, +• +safeguarding of Company assets, +• +adequacy of insurance protection, +• +compliance with all credit facility covenants, and +• +employee relations issues. +The Board of Directors plays a key role in the oversight of the Company’s enterprise risk +management function. Using their collective skills and experience, they consider information +provided by management and provide feedback and make recommendations, if needed, to try to help +minimize risk to the Company’s current and future value. +Committees of the Board of Directors +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas +of financial reporting and accounting integrity. The Audit Committee reviews the accounting and +auditing procedures and financial reporting practices of the Company and is responsible for the +engagement of and overseeing all audit work conducted by the Company’s independent registered +public accounting firm. The Audit Committee is governed by a charter that has been approved by the +Board of Directors. The Audit Committee meets periodically with the Company’s management, internal +auditor and its independent registered public accounting firm to review the Company’s financial +information and systems of internal controls and ensures such parties are properly discharging +their responsibilities. The independent registered public accounting firm reports directly to the +Audit Committee +9 +Table of Contents +and annually meets with the Audit Committee without management representatives +present. The Audit Committee has the authority to investigate any matters brought to its attention +and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom +satisfy the independence requirements for audit committee members under Rule 10A-3 of the +Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New +York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the +audit committee of more than two other public companies. +The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and +Wilson. Additionally, the Board of Directors has determined that Mr. Wallace has the accounting or +financial management expertise to be considered a “financial expert” as defined and required by the +New York Stock Exchange’s rules and by the Securities Exchange Act of 1934. +The Audit Committee held six meetings and did not execute any unanimous written consents +during 2009. All members of the Audit Committee attended all the meetings. The Audit Committee’s +report on its activities during 2009 appears later in this proxy statement under the caption “Audit +Committee Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible +for establishing and maintaining internal controls over financial reporting and for assessing the +effectiveness of those controls. The independent registered public accounting firm is responsible +for performing independent audits of the Company’s consolidated financial statements and internal +controls over financial reporting in accordance with the standards of the Public Company Accounting +Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility +is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public +accounting firm, served as the Company’s independent registered public accounting firm during 2008 +and 2009 and was appointed by the Audit Committee to serve in that capacity for 2010. +Audit Fees. Fees billed for professional services rendered by Ernst & Young LLP for the +annual audit and quarterly reviews and for registration statements and other regulatory filings +(including the requirements under Section 404 of the Sarbanes-Oxley Act) were $491,471 and +$393,897, including out-of-pocket expenses, for the years ended December 31, 2008 and 2009, +respectively. +Audit-related Fees . There were no audit-related fees paid in 2008 or 2009. +Tax Fees. Fees billed for professional services rendered by Ernest & Young LLP for the +review of the federal tax return, tax advice and tax planning for 2008 and 2009 totaled $36,850 and +$18,600, respectively. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2008 or 2009. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee +pre-approves all audit services and non-audit services (including the fees and terms thereof) to be +performed for the Company by its independent registered public accounting firm, as required by +applicable law or listing standards and subject to the terms of the audit and non-audit services +pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or +more of its members when appropriate, including the authority to grant pre-approvals of audit and +permitted non-audit services, provided that decisions of any such member to grant pre-approvals are +consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its +next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s +audited financial statements at, and for the year ended, December 31, 2009 with management and the +Company’s independent registered public accounting firm and recommended to the Company’s Board of +Directors that the Company’s audited financial statements be included in the Company’s Annual +Report on Form 10-K for the year ended December 31, 2009. This recommendation was based on: +10 +Table of Contents +• +the Audit Committee’s review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company’s independent registered public accounting firm, Ernst & +Young LLP, of the matters required to be discussed by auditing standards generally +accepted in the United States of America, including the communication matters required +to be discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by +Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); +• +discussions with Ernst & Young LLP regarding its independence from the Company and +its management; +• +Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the +financial position of the Company and its consolidated subsidiaries and the results of +their operations and cash flows for the periods presented in conformity with accounting +principles generally accepted in the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Richard O. Wilson +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation +program designed to optimize the opportunity for the Company to achieve its operating objectives +and performance goals while properly blending it with the short- and long-term interests of the +Company’s shareholders. The Committee annually reviews market and industry data to assess the +Company’s competitive position with respect to each element of total compensation and to ensure the +attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In +addition to the determination of annual base salaries, the Committee is responsible for determining +and recommending variable annual bonuses in the form of cash and/or equity awards. The Committee +maintains authority over the Company’s stock incentive plans from which either stock options, +restricted stock, restricted stock units, or performance shares can be awarded as part of the total +annual compensation package. Currently the variable portion of the annual compensation package is +based on certain performance related criteria of the Company for which the Committee is responsible +for establishing and approving. In addition to the above, the Committee has the following duties +and responsibilities: +• +review, recommend, and discuss with management the compensation discussion and +analysis section included in the Company’s annual proxy statement; and +• +prepare an annual report on executive compensation for inclusion in the Company’s +proxy statement for each Annual Meeting of Shareholders. +Consistent with the listing requirements of the New York Stock Exchange, the Compensation +Committee is composed entirely of independent members of our Board of Directors. Each member +meets the independence requirements set by the New York Stock Exchange and applicable federal +securities laws. Current members are Messrs. Flury (chairman), McVay, Wallace and Wilson. +The Compensation Committee held four meetings and executed three unanimous written consents +during 2009. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. The members of the Company’s +Compensation Committee are Messrs. Flury (Chairman), McVay, Wallace and Wilson, none of whom are or +have been officers or employees of the Company or any of its subsidiaries. No executive officer of +the Company served as a member of the Board of Directors or compensation committee (or other Board +committee performing similar functions or, in the absence of any such committee, the entire Board +of Directors) of another corporation, one of whose executive officers served on our Compensation +Committee or as our director. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for +election to the Board; +• +recommend to the Board the members and chairperson for each Board committee; +11 +Table of Contents +• +periodically review and assess the Company’s Corporate Governance Principles and +the Company’s Code of Business Conduct and Ethics and make recommendations for changes +thereto to the Board; +• +oversee the annual self-evaluation of the performance of the Board and the annual +evaluation of the Company’s management; and +• +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Current members are Messrs. Wilson (Chairman), +Flury, McVay, and Wallace. +The Nominating and Corporate Governance Committee did not hold a formal meeting during 2009 +but executed one unanimous written consent during 2009. Prior to the formation of this Committee, +the entire Board of Directors performed these functions. +Director Identification and Selection. The Nominating and Corporate Governance Committee has +established certain criteria it considers as guidelines in considering nominations to the Company’s +Board of Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, +diversity of background and experience, absence of potential conflicts of interest with +the Company or its operations, and the availability and willingness to devote +sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer +of a publicly held company; +• +experience in the Company’s industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company’s operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the +Board of Directors may consider other qualifications and attributes which they believe are +appropriate in evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of +Directors that brings to the Company a variety of perspectives and skills derived from high quality +business and professional experience. In order to ensure that the Board consists of members with a +variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set +any minimum qualifications and also considers candidates with appropriate non-business backgrounds. +Other than ensuring that at least one member of the Board is a financial expert and a majority of +the Board members meet all applicable independence requirements, the Committee does not have any +specific skills that it believes are necessary for any individual director to possess. Instead, +the Committee evaluates potential nominees based on the contribution such nominee’s background and +skills could have upon the overall functioning of the Board. In accordance with the Company’s +by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery +of written notice to the Company of such nomination, stating the name and address of the nominee +and describing his qualifications. Such notice shall be sent by certified mail or delivered to +the principal office of the Company to the attention of the Board of Directors, with a copy to the +President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. In making its nominations, the Nominating and Corporate Governance Committee identifies +nominees by first evaluating the current members of the Board willing to continue their service. +Current members with qualifications and skills that are consistent with the Committee’s criteria +for Board service are re-nominated. As to new candidates, the committee will generally poll the +Board members and members of management for recommendations. The committee may also review the +composition and qualification of the boards of directors of the Company’s competitors, and may seek +input from industry experts or analysts. The committee reviews the qualifications, experience and +background of the candidates. Final candidates are interviewed by the independent directors and +executive management. In making its determinations, the committee evaluates each individual in the +context of the Board as whole, with the objective of assembling a group that can best represent +shareholder interests through the exercise of sound judgment. After review and deliberation of all +feedback and data, the committee makes its recommendation to the Board of Directors. The committee +may in the future choose to engage third-party search firms in situations where particular +qualifications are required or where existing contacts are not sufficient to identify an +appropriate candidate. +Strategic Planning Committee Functions and Responsibilities +The Strategic Planning Committee was created to oversee the responsibilities of the Board +relating to planning and finance, including: to organize and oversee the Board’s participation in +the development of the Strategic Plan +12 +Table of Contents +and the risk assessment and management process; to follow the +progress in the implementation of the Strategic Plan and to advise the Board if additional Board +action appears to be needed to assure successful implementation of the plan or if a need exists to +revise the plan in the face of changing conditions or other factors; and to assure that management +is addressing the personnel requirements for the successful implementation of the Strategic Plan. +The committee will consist of no fewer than three members of the Board. The Chair and a majority of +the committee members shall meet the independence requirements of the New York Stock Exchange and +such other rules and regulations as may be applicable. Current members of the Strategic Planning +Committee are Larry D. McVay (chairman), L. Richard Flury, John C. Wallace, and Richard O. Wilson. +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the record date, certain information with respect to the +ownership of shares of common stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the +nominees for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of common stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +record date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. +Name and Address of +Common Stock (a) +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +309,716 +(b) +1.06 +% +L. Richard Flury +46,250 +(c) +* +Larry D. McVay +16,250 +(d) +* +John C. Wallace +— +(e) +* +B. F. Weatherly +119,189 +(f) +* +Richard O. Wilson +194,474 +(g) +* +Named Executive Officers: +* +Steven B. Hinchman +— +(h) +Rodger W. Smith. +57,780 +(i) +* +Stephen F. Woodcock +99,608 +(j) +* +Thomas E. Schwager +— +(k) +* +Directors and Executive Officers: +As a Group (12 persons) +1,049,350 +(l) +3.51 +% +Certain Beneficial Owners: +Dimensional Fund Advisors LP. +1,475,051 +(m) +5.13 +% +1299 Ocean Avenue +Santa Monica, CA 90401 +Franklin Resources, Inc. +5,468,076 +(n) +19.03 +% +One Franklin Parkway +San Mateo, CA 94403 +* +Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to +have sole voting and dispositive power with respect to such shares. Beneficial ownership +does not include the unvested portion of performance stock awards due to lack of voting and +disposition power. Percentage ownership of a holder or class of holders is calculated by +dividing (i) the number of shares of common stock beneficially owned by such holder or +class of holders plus the total number of shares of common stock underlying options +exercisable within sixty days of March 5, 2010, by (ii) the total number of shares of +common stock outstanding plus the total number of shares of common stock underlying options +exercisable within sixty days of March 5, 2010, but not common stock underlying such +securities held by any other person. +b) +Of the 309,716 shares beneficially owned by Fred L. Callon, 61,110 shares are owned +directly by him; 92,170 shares are held by him as custodian for certain minor Callon family +members; 15,061 shares are owned within the Company’s Employee Savings and Protection Plan; +and 141,375 shares are subject to +13 +Table of Contents +options under the 1996 Plan, exercisable within 60 days. +Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of common +stock owned by his wife over whom he disclaims beneficial ownership and 56,000 shares of +unvested restricted stock and 200,000 restricted stock units, of which 100,000 units are +payable in stock and 100,000 units are payable in cash. +c) +Of the 46,250 shares beneficially owned by L. Richard Flury, 36,250 shares are owned +directly by him; 5,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 5,000 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as beneficially owned by Mr. Flury do not include 20,000 +shares of unvested restricted stock. +d) +Of the 16,250 shares beneficially owned by Larry D. McVay, all 16,250 shares are owned +directly by him. Shares indicated as beneficially owned by Mr. McVay do not include 20,000 +shares of unvested restricted stock. +e) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family +Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since +April 2008 has also been transferred to the Wallace Family Trust. Mr. Wallace has no +voting and dispositive power over the shares owned by the Trust. +f) +Of the 119,189 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned +within his personal IRA account; 58,814 shares are held in joint tenancy with his wife; +33,087 shares are owned within the Company’s Employee Savings and Protection Plan; 20,000 +shares are subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 +shares are subject to options under the 2002 Plan, exercisable within 60 days. Shares +indicated as beneficially owned by Mr. Weatherly do not include 41,250 shares of unvested +restricted stock and 52,500 restricted stock units, of which 44,625 units are payable in +stock and 7,875 units are payable in cash. +g) +Of the 194,474 shares beneficially owned by Richard O. Wilson, 132,655 shares are held +in a family limited partnership; 6,819 shares are held in a Trust account; 5,000 shares are +subject to options under the 1994 Plan, exercisable within 60 days; 40,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 10,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as +beneficially owned by Mr. Wilson do not include 20,000 shares of unvested restricted stock. +h) +Shares indicated as beneficially owned by Steven B. Hinchman do not include 200,000 +shares of unvested restricted stock and 500,000 shares subject to options. Both awards +were granted outside the stock incentive plans as an inducement for employment. Mr. +Hinchman’s options are not exercisable within 60 days. +i) +Of the 57,780 shares beneficially owned by Rodger W. Smith, 17,203 shares are owned +directly by him; 20,577 shares are owned within the Company’s Employee Savings and +Protection Plan; and 20,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days. Shares indicated as beneficially owned by Mr. Smith do not include 16,400 +shares of unvested restricted stock and 21,000 restricted stock units, of which 17,850 +units are payable in stock and 3,150 units are payable in cash. +j) +Of the 99,608 shares beneficially owned by Stephen F. Woodcock, 24,060 are owned +directly by him; 9,798 shares are owned within the Company’s Employee Savings and +Protection Plan; 44,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 21,750 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as beneficially owned by Mr. Woodcock do not include +24,000 shares of unvested restricted stock and 28,000 restricted stock units, of which +23,800 units are payable in stock and 4,200 units are payable in cash. +k) +Mr. Schwager retired on April 24, 2009 and is no longer required to report his +beneficial ownership to the Company. +l) +Includes 5,000 shares subject to options under the 1994 Plan, exercisable within 60 +days; 288,875 shares subject to options under the 1996 Plan, exercisable within 60 days; +55,800 shares subject to options under the 2002 Plan, exercisable within 60 days; and +188,082 shares are owned within the Company’s Employee Savings and Protection Plan. +m) +Information is based upon a Schedule 13G-A filed with the Commission on February 8, +2010 by Dimensional Fund Advisors LP. In this Schedule 13G, Dimensional represents that it +has sole voting power with respect to 1,470,351 shares of common stock and sole dispositive +power with respect to 1,475,051 shares of common stock. +14 +Table of Contents +n) +Information is based upon a Schedule 13G filed with the Commission on January 15, 2010 +by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin +Advisers, Inc. (collectively “Franklin”). In this Schedule 13G, Franklin represents that +it has sole voting power with respect to 5,359,323 shares of common stock and sole +dispositive power with respect to 5,468,076 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of +holders acquire investment power for these shares immediately upon a “change of control” as defined +in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission initial reports of +ownership and reports of changes in ownership of common stock and other equity securities of the +Company. Officers, directors and greater than ten percent shareholders are required by the +Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all +Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2009, and written representations from all of the +Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, +directors and greater than ten percent shareholders have complied with all Section 16(a) filing +requirements for the year ended December 31, 2009. +Compensation Discussion and Analysis +of Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee of our Board of Directors oversees our compensation programs. The +primary function of the Committee is to assist our Board of Directors in the discharge of its +fiduciary responsibilities relating to compensation of our Chief Executive Officer and other +executives. From time to time the Committee has retained a compensation consultant to assess the +effectiveness of the Company’s compensation programs. +In 2009, the Compensation Committee again retained Hewitt Associates LLC to evaluate and make +recommendations concerning Callon’s compensation practices and procedures. This included both the +form and amount of compensation paid to the executive officers. The Compensation Committee +considered the advice of the consultant as only one factor among the other items discussed in this +compensation discussion and analysis. +Hewitt Associates LLC reports directly to the Compensation Committee. Hewitt has not provided +any services to us other than advice and recommendations with respect to the determination of the +amount and form of executive and director compensation at the request of the +Committee. +The Compensation Committee has established procedures that it considers adequate to +ensure that the compensation consultant’s advice to the committee remains objective and is not +influenced by our management. With the consent of the Compensation Committee chair, the independent +compensation consultant may, from time to time, contact our executive officers for information +necessary to complete its assignments and may make reports and presentations to and on behalf of +the committee that the executive officers may also receive. +Compensation Risks +The Compensation Committee, with assistance of its independent compensation consultant, +extensively reviewed the elements of executive compensation during 2009 to determine whether any +portion of executive compensation encouraged excessive risk taking. Management of the Company +conducted a similar risk assessment with respect to other employees. Management and the +Compensation Committee believe that risks arising from our compensation policies and practices for +our executive officers and other employees are not reasonably likely to have a material adverse +effect on the Company. In addition, we believe that the mix and design of the elements of +compensation do not encourage management to assume excessive risks. +15 +Table of Contents +Compensation Program Philosophy and Objectives +Our business strategy is to enhance stockholder value through sustained growth in our reserve +base, production levels and resulting cash flows from operations. Our compensation program is +designed to attract, retain, and motivate employees in order to effectively implement our strategy. +Our compensation program has four objectives: +• +To attract, retain and motivate qualified executives whose performance is key to the +successful execution of our business strategy and the achievement of our short- and +long-term corporate goals; +• +To create a “pay for performance” oriented environment that rewards significant +contributions to our short- and long-term strategic goals; +• +To provide an executive compensation structure that is internally equitable based +upon the level of responsibility of our executives; and +• +To align the interests of our executive officers with those of our shareholders. +Use of Market Data +In order to assist in the determination of compensation, Hewitt provides the Compensation +Committee with market data from a group of peer companies in the industry that are similar in size +and operations to Callon. The peer group is adjusted each year based on changes in the industry and +changes in Callon’s operations. The Committee looks at Callon’s size from an asset standpoint +relative to the peer companies to help frame appropriate levels of compensation as a reference +point for decision-making. The market data is one of several factors considered by the Committee in +determining compensation. +The table below indicates the Peer Companies (“Peer Companies”) which were used for +compensation decisions during 2009. +Peer Companies +ATP Oil and Gas Corp. +Comstock Resources Inc. +Mariner Energy Inc. +McMoran Exploration Company +Newfield Exploration Co. +Petroquest Energy Inc. +Plains Exploration & Production Co. +Stone Energy Co. +Swift Energy Company +W & T Offshore Inc. +Elements of Compensation +The Committee believes that the compensation environment for qualified executives in +the domestic oil and gas industry is highly competitive. We also believe that similar compensation +pressure has resulted from increased financial reporting and corporate governance regulatory issues +implemented within recent years. In order to compete in this environment, our executive officers’ +compensation has the following components: +16 +Table of Contents +Component +Purpose +Philosophy Statement +Base Salary +• Pay for expertise and experience +• Attract and retain +• Provide stable compensation level +• In the aggregate, targeted at an appropriate level against the peers given relative size +• Reflective of individual experience and expertise +Annual Cash Reward +and Incentive +Compensation +• Motivate superior operational and financial performance +• Provide annual recognition of performance +• In the aggregate, bonus opportunities targeted at an appropriate level against the peers given relative size +• Reflective of internal equity considerations +• Goals aligned with annual strategic objectives of the Company +• Modest or no payout for performance below expectations and potential for significantly increased payout for exceptional performance +Long-Term Equity +Incentives +• Directly align employees with shareholders +• Create significant retention hook +• Match competitive practices to attract and retain employees +• Ultimate value delivered influenced by the Company’s return to shareholders as compared against peer companies +• Appropriate opportunities based on a review of multiple reference points: +— Industry peer grant values +— Historical grant practices +— Internal relative positioning +Retirement and +Health/Welfare +Benefits +• Provide financial security +• Help ensure a financial safety net +• Match competitive practices +• Programs generally consistent, regardless of level, across the organization +• Benefit levels competitive with peer companies +Severance Protection +• Match competitive practices to attract and retain employees +• Benefit levels based on peer group practices with consideration to shareholder value +• For change in control +protection, help ensure executives +consider all possible transactions to +increase shareholder value +How we Determine Each Element of Compensation. +Base Salaries . At a regularly scheduled meeting, generally in March of each year, the +Committee uses the market data supplied by Hewitt to compare the current annual base salaries of +the executive officers to current base salaries for similar executive positions at peer companies. +In addition to the market data, the Committee also considers various factors such as each +executive’s motivation level, leadership ability, overall knowledge and experience in his +particular segment of our business, the competitive compensation environment for such individual, +the financial strength of the Company, that person’s unique skills and his or her expected future +contribution to the success of our Company. The Committee feels that if these qualities are +rewarded, the executives will be motivated to achieve our corporate goals and successfully +implement our business strategies. Upon review of these various factors, at its March 2009 +meeting, the Compensation Committee determined that no additional base salary adjustments were +needed, particularly in light of cost-saving efforts being pursued by the Company. +Mr. Hinchman’s base salary was established at his hiring as part of the negotiation process. +The Committee considered the salary he was paid at his previous employer and market data provided +by Hewitt to determine his salary. +Annual Cash Reward and Incentive Compensation . Executive officers, senior management and +other non-management technical personnel have the potential to receive a significant portion of +their annual cash compensation as a cash bonus. As with base salary, the Committee looks at +Callon’s size from a revenue standpoint relative to the peer companies as a reference point for +determining targeted bonus opportunities. For 2009, the Committee set the bonus opportunities for +the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer at 100%, 90%, and +75% of base salary, respectively. The other named executive officers were eligible for a bonus +targeted at 50 to 60% of their base salary. Mr. Hinchman’s opportunity was set at his time of +17 +Table of Contents +hire based on an analysis of market data and as part of the negotiation process to bring Mr. Hinchman aboard. The other officers’ +opportunities were unchanged from the prior year. +Each year, following the Board of Directors’ approval of the annual operating budget and +financial forecast for the next year, the Compensation Committee sets performance related cash +bonus guidelines for the next year. These guidelines are used as a reference point and no specific +formula or weighting is considered. For 2009, the guidelines were set in March and based on the +following areas: +• +Complete a significant acquisition of producing properties in one of the Company’s +new areas of focus. Operational and financial performance as measured by production, +cash flow from operations, and income before taxes; and +• +Negotiate and execute a transaction to extend or restructure the Company’s Senior +Unsecured Notes. +After the end of the performance period, the Committee meets to evaluate the extent to which +the guidelines were met. In addition, the Committee may also consider how unexpected events +affecting the Company may impact the bonus attainment percentage. Also, our Committee encourages +our executives to pursue long-term goals, even if these long-term goals may result in a reduction +in our near-term performance. Accordingly, after determining the overall bonus attainment +percentage, the Committee reserves the right to adjust an individual’s bonus amount based on +individual achievements and contributions to the Company. +At the March 2010 Compensation Committee meeting, the Committee subjectively evaluated the +Company’s performance against the guidelines set for fiscal 2009 noting that: +• +The Company made significant onshore acquisitions of producing properties and +undeveloped acreage increasing the Company’s oil and gas reserves and providing the +Company with a multi-year inventory of drilling locations; +• +Operational and financial performance against goals was above expectations +established at the beginning of the year; +• +The Company’s financial team successfully extended its major long-term credit +agreement; and +• +The Company’s management took various other actions that substantially improved the +financial stability of the Company. +The Committee observed that management had exceeded its 2009 goals. The committee +acknowledged that several members of the management team and the Chief Executive Officer had +performed above expectations while managing the financial affairs of the Company through a +difficult global financial market and deserved recognition above the target bonus amounts. Using +its discretion the committee awarded higher than target bonus awards for a limited number of +management employees including the Chief Executive Officer. +Long-term Equity Incentives . The Compensation Committee administers our long-term incentive +plans and performs functions that include selecting award recipients, determining the timing of +grants and assigning the number of shares awarded, fixing the time and manner in which awards are +exercisable, setting option exercise prices and vesting and expiration dates, and from time to time +adopting rules and regulations for our plans. For the grant of equity compensation to executive +officers, our Compensation Committee will typically consider information provided by Hewitt and our +Chief Executive Officer, related to the overall competitive environment associated with long-term +compensation. All awards are priced at the fair market value on the grant date in accordance with +SFAS No. 123R. We do not have any program, plan or obligation that requires us to grant equity +compensation on specified dates. However, our Committee does follow a policy of not granting +equity incentives when material non-public information exists that may affect the short-term price +of our stock. +Mr. Hinchman was awarded long-term incentives upon his hiring in June 2009. These long-term +incentives were structured based on recommendations from Hewitt. Significant emphasis was placed +on alignment with shareholders and the size of the award was determined in consideration of market +data for his position and for the amount of equity provided by his previous employer. Consequently, +he was provided with 500,000 options which vest upon Callon’s share price achieving $5.00 (33% +vest), $10.00 (33% vest), and $15.00 (33% vest). Additionally, he was provided with 200,000 +restricted shares, 50% of which vest based on continued employment at the end of four years and 50% +vest based on the Company’s relative shareholder return performance compared to the Peer Companies +on June 1, 2012. +18 +Table of Contents +The Committee considered information provided by Hewitt, the long-term incentive practices of +the peer group, and the Company’s financial situation and share availability and determined in +August 2009 to grant long-term incentives to the executive officers. The grants consisted of +restricted stock units which will vest on the on the earlier of (a) the third anniversary of the +grant date, provided that grantee maintains continuous employment through such date; or (b) a +separation from service, other than for cause, after reaching age sixty (60). The restricted stock +units were designed to be payable on the vesting date, 85% in Company stock and 15% in cash based +on the price of the common stock on the date of vesting. +Information concerning all unvested performance shares and outstanding options held by our +named executive officers is contained in the “Outstanding Equity Awards at December 31, 2009” +table. +Retirement and Health/Welfare Benefits . We provide certain benefits that we believe are +standard in the industry to all of our employees. These benefits consist of a group medical and +dental insurance program for employees and their qualified dependents, group life insurance for +employees and their spouses, accidental death and dismemberment coverage for employees, long-term +disability, a Company sponsored cafeteria plan and a 401-K employee savings and protection plan. +The costs of these benefits are paid entirely by the Company. Employee life insurance amounts +surpassing the Internal Revenue Service maximum are treated as additional compensation to all +employees. The Company’s 401-K contribution to each qualified participant, including the named +executive officers, is calculated based on 5% of the employee’s eligible salary, excluding overtime +pay and annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, +limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, +including amounts deferred by named executive officers, up to a maximum of 5% of eligible +compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not +otherwise available to all of our employees. We provide our Chief Executive Officer, Chief +Financial Officer and other executive officers with use of a Company automobile. We purchase the +automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to +recognize taxable income using the Internal Revenue Service’s annual lease value method for +personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s +payment of a term life insurance policy for which Mr. Callon is the sole beneficiary and which the +Company has no economic interest in the proceeds. The costs associated with these benefits for the +named executive officers are reported as “Other Compensation” in the Summary Compensation Table. +The Committee feels these perquisites are common to the oil and gas industry and the value of such +benefits is considered in determining total compensation of our executives. +Severance Protection. Callon has not entered into any employment agreements with our executive +officers. To align with market practices and in order to ensure all named executive officers are +motivated to consider any transaction that would increase shareholder value, each of our named +executive officers has a change-in-control agreement. These agreements match competitive practices +and are all similar in structure except that Mr. Callon’s benefit levels are higher to reflect his +position as the CEO of the Company. Additionally, these agreements also include a non-competition +and non-solicitation provision in order to protect the Company in the event the benefits are +triggered. Despite competitive market practices to the contrary, the Committee chose not to +provide guaranteed severance benefits outside of a change-in-control. In the event of a +termination of employment outside of a change-in-control, the Committee will consider the +circumstances of each case separately. +Internal Revenue Service Limitations . When establishing our compensation programs, we +consider all relevant tax laws. Our programs are designed to comply with Section 409A of the tax +code, which applies to deferred compensation, in order to prevent negative tax consequences for our +executives. Under Section 162(m) of the Internal Revenue Code, a limitation was placed on tax +deductions of any publicly-held corporation for individual compensation to certain executives of +such corporation exceeding $1,000,000 in any taxable year, unless the compensation is +performance-based. During 2009, the Company did not have any employee which exceeded the +non-performance based compensation limit established by Internal Revenue Code Section 162(m). +However, the Committee reserves the right to use its judgment to authorize compensation payments +that do not comply with the exemptions in Section 162(m) when it believe that such payments are +appropriate and in the best interest of the stockholders, after taking into consideration changing +business conditions or the executive’s individual performance and/or changes in specific job duties +and responsibilities. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and +members of our Board of Directors are prevented from buying or selling Company stock during +periodic “trading blackout” periods. A trading blackout period is placed in effect by senior +management when material non-public information about the Company may exist and may have an +influence on the marketplace. There have been no violations to this policy by any named executive +officer during 2009. +19 +Table of Contents +Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors +adopted a stock ownership policy which applies to the Chief Executive Officer and the other named +executive officers. The provisions of the policy provide for the investment position, computed on +December 31 of each year, of the Chief Executive Officer to be no less than three times his or her +base salary. For other named executive officers, the investment position shall be no less than two +times base salary. Investment position is defined as calculated value of shares owned, shares +owned indirectly, equivalent shares invested in the officer’s 401-K plan, and unvested portion of +time-based vesting of performance or restricted shares. Value attributable to shares represented +by both vested and unvested stock options and the value of unvested performance-based vesting of +performance or restricted shares are excluded. Each officer has a period of five years from the +date of adoption to attain the required investment position. If a named officer becomes subject to +a greater investment position due to a promotion or an increase in salary, he or she will be +expected to attain the increased investment position within three years of the change. The +Compensation Committee reserves the right to approve an alternate stock ownership guideline for +named officers who can demonstrate a severe hardship in meeting the general guidelines. +Primarily as a result of the economic downturn and its effect on the Company’s year-end stock +price at December 31, 2009, none of the named officers met the minimum investment value position. +The Compensation Committee will closely monitor officer share holdings and future equity related +activity for each individual. +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2009, we are not aware of any related party transactions with our +executive officers that may cause a conflict of interest with the Company. +Compensation Committee Report +We have reviewed and discussed with management certain Compensation Discussion and Analysis +provisions included in this proxy statement. Based on the reviews and discussions referred to +above, we recommend to the Board of Directors that the Compensation Discussion and Analysis +referred to above be included in this proxy statement. +L. Richard Flury (Chairman) +Larry D. McVay +John C. Wallace +Richard O. Wilson +20 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +The following table sets forth certain information with respect to the Chief Executive +Officer and Chief Financial Officer of the Company and the three most highly compensated executive +officers of the Company serving in such positions as of December 31, 2009. Pursuant to SEC rules, +we have also included Thomas E. Schwager in the table even though he was no longer employed with us +at year end. We sometimes refer to the officers listed below as the “named executive officers.” +Summary Compensation Table +Name +All Other +and +Annual +Cash +Stock +Compen- +Principal +Salary +Bonus +Awards +sation +Total +Position +Year +($) +($) +($) +($)(9) +($) +Fred L. Callon +Chairman and +Chief Executive Officer +2009 +464,520 +696,780 +325,000 +(6) +61,213 +1,547,513 +2008 +464,520 +116,125 +937,020 +(7) +52,572 +1,570,237 +2007 +446,654 +558,319 +(3) +— +52,140 +1,182,113 +125,000 +(4) +B. F. Weatherly +Executive Vice President and Chief +Financial Officer +2009 +364,000 +546,000 +85,313 +(6) +55,804 +1,051,117 +2008 +364,000 +68,250 +611,100 +(7) +43,520 +1,086,870 +2007 +350,000 +328,125 +(3) +— +110,894 +864,019 +75,000 +(4) +Steven B. Hinchman +Executive Vice President and +Chief Operating Officer +2009 +256,346 +(1) +387,000 +551,000 +(8) +22,110 +1,216,456 +Stephen F. Woodcock +Vice President +2009 +286,000 +171,600 +45,500 +(6) +45,376 +548,476 +2008 +286,000 +35,750 +325,920 +(7) +43,513 +691,183 +2007 +258,149 +275,000 +(3) +— +42,291 +625,440 +50,000 +(4) +Thomas E. Schwager +former Vice President +2009 +80,000 +(2) +43,333 +(5) +— +447,807 +571,140 +2008 +260,000 +32,500 +285,180 +(7) +45,870 +623,550 +2007 +232,885 +187,500 +(3) +— +45,056 +515,441 +50,000 +(4) +Rodger W. Smith +Vice President and Treasurer +2009 +218,400 +196,560 +34,125 +(6) +48,372 +497,457 +2008 +218,400 +27,300 +244,440 +(7) +46,872 +537,012 +2007 +198,390 +135,000 +(3) +— +41,495 +409,885 +35,000 +(4) +(1) +Mr. Hinchman joined the Company as Executive Vice President and Chief Operating +Officer effective June 1, 2009. His annual salary is $430,000 per year. +(2) +Mr. Schwager retired from the Company effective April 24, 2009. Prior to his +retirement his annual salary was $260,000. +(3) +In April 2008, the Compensation Committee awarded cash bonuses for services performed +during 2007, exclusive of the cash bonus amount described in (4) below. +(4) +In May 2007, the Compensation Committee awarded a special cash bonus attributable to +the successful closing of the Entrada Field acquisition from BP Exploration and +Production Company and the successful closing of a $200 million revolving credit +facility. +(5) +Represents pro-rated bonus payment for 2009 assuming 100% of targeted bonus levels +would be reached. This amount was paid upon his retirement on April 24, 2009. +(6) +Represents the grant date fair value of the restricted stock units granted to the +named executive officers on August 14, 2009 computed in accordance with FASB ASC Topic +718. The assumptions utilized in the calculation of these amounts are set forth in +footnote 4 to the Company’s consolidated financial statements included in the Annual +Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 12, +2010. +(7) +Represents the grant date fair value of the time-based restricted stock and +Performance shares granted to the named executive officers on April 18, 2008 computed in +accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these +21 +Table of Contents +amounts are set forth in footnote 3 to the Company’s consolidated financial +statements included in the Annual Report on Form 10-K for the year ended December 31, +2008 filed with the SEC on March 19, 2009. +(8) +Represents the grant date fair value of the time-based restricted stock and +Performance shares granted to the named executive officer on June 1, 2009 computed in +accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these +amounts are set forth in footnote 4 to the Company’s consolidated financial statements +included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed +with the SEC on March 12, 2010. +(9) +See table and related footnotes below. +Table of All Other Compensation +Company +Company +Contributed +Company +Contributed +Common +Provided +Company +Cash to +Stock to +Group Life +Company +Paid +401- K +401- K +Insurance +Provided Auto +Other +Total +Name +Year +($) +($)(1) +($) +($)(2) +($) +($) +Fred L. Callon +2009 +18,375 +6,126 +2,374 +22,838 +11,500 +(3) +61,213 +2008 +17,250 +6,286 +2,465 +15,071 +11,500 +(3) +52,572 +2007 +16,875 +5,625 +3,264 +14,876 +11,500 +(3) +52,140 +B. F. Weatherly +2009 +18,375 +6,124 +7,010 +15,047 +9,248 +(4) +55,804 +2008 +17,250 +5,906 +3,784 +16,580 +— +43,520 +2007 +14,766 +5,625 +3,264 +17,894 +69,345 +(5) +110,894 +Steven B. Hinchman +2009 +6,125 +6,125 +786 +9,074 +— +22,110 +Stephen F. Woodcock +2009 +18,375 +6,125 +2,374 +18,502 +— +45,376 +2008 +17,250 +5,616 +2,465 +18,182 +— +43,513 +2007 +16,875 +5,625 +3,264 +16,527 +— +42,291 +Thomas E. Schwager +2009 +6,000 +2,001 +730 +7,409 +431,667 +(6) +447,807 +2008 +17,250 +5,451 +2,465 +20,704 +— +45,870 +2007 +16,875 +5,625 +3,264 +19,292 +— +45,056 +Rodger W. Smith +2009 +16,380 +5,461 +3,643 +22,888 +— +48,372 +2008 +16,920 +5,463 +2,465 +22,024 +— +46,872 +2007 +14,879 +4,960 +2,940 +18,716 +— +41,495 +(1) +Company contributions to each person’s 401-K account consist of a basic contribution +equal to five percent (5%) of eligible annual base salary (funded one-half in cash and +one-half in equivalent-valued common stock) plus a matching amount (limited to five +percent (5%) of eligible annual base salary if such employee individually contributed at +least eight percent (8%) of their eligible annual base salary). The number of shares +contributed is determined on a monthly basis by dividing one-half of the total basic cash +contribution by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life plus insurance, fuel, +maintenance and repairs. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which +Mr. Callon is the sole beneficiary. +(4) +Represents taxable income associated with the purchase of a Company automobile at +below estimated fair market value. +(5) +Represents Company paid expenses associated with Mr. Weatherly’s relocation from +Houston, TX to Natchez, MS as a result of his employment. +(6) +Severance compensation paid in recognition of 27 years of service. +22 +Table of Contents +Grant of Plan-based Awards During 2009 +The following table presents grants of equity awards during the fiscal year ending December +31, 2009: +Estimated Future +Payouts Under +Equity +Incentive +Grant +Plan Awards +Date +Thresh- +Maxi- +All Other Stock Awards: +Fair +Grant +old +Target +mum +Number of Shares of +Value +Name +Date +(#) +(#) +(#) +Stock or Units +($)(6) +Fred L. Callon +08/14/2009 +100,000 +(1) +162,500 +08/14/2009 +100,000 +(2) +162,500 +B. F. Weatherly +08/14/2009 +44,625 +(1) +72,516 +08/14/2009 +7,875 +(2) +12,797 +Steven B. Hinchman +06/01/2009 +100,000 +(3) +275,500 +06/01/2009 +(4) +100,000 +125,000 +150,000 +275,500 +06/01/2009 +(5) +166,666 +333,333 +500,000 +1,377,500 +Stephen F. Woodcock +08/14/2009 +23,800 +(1) +38,675 +08/14/2009 +4,200 +(2) +6,825 +Rodger W. Smith +08/14/2009 +17,850 +(1) +29,006 +08/14/2009 +3,150 +(2) +5,115 +(1) +Amounts represent restricted stock unit grants made under our 2006 and 2009 Stock +Incentive Plans. These awards vest on the third anniversary date of the award and are +payable in common stock. +(2) +Amounts represent restricted stock unit grants made under our 2006 and 2009 Stock +Incentive Plans. These awards vest on the third anniversary date of the award and are +payable in cash. +(3) +Represents time-based restricted stock which will vest on the fourth anniversary date +following the award date. +(4) +Represents performance-based restricted stock which will be adjusted between 0% and +150% based on certain performance metrics when compared to Company identified peer +companies. The performance measurement period begins June 1, 2009 and ends June 1, 2012. +The adjusted performance-based shares will vest on the third anniversary date following the +grant date. +(5) +Represents stock options awarded which will vest in three equal increments when +Callon’s common stock trades above $5.00, $10.00, and $15.00 for twenty (20) consecutive +trading days, respectively. The stock option exercise price is $2.755 per share. +(6) +This column shows the grant date fair value of the awards granted to the named +executive officers on the date indicated computed in accordance with FASB ASC Topic 718. +The assumptions utilized in the calculation of these amounts are set forth in footnote 4 to +the Company’s consolidated financial statements included in the Annual Report on Form 10-K +for the year ended December 31, 2009. +Stock-Based Incentive Compensation Plans +The Company currently maintains five common stock-based incentive plans for its officers, +directors and employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, the 2006 Plan, and the 2009 +Plan. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved +for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan +terminated effective July 14, 2004, therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. +Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the +exercise of options or for grants of performance shares. On August 20, 1998, the Board of +Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase +the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, +the shareholders of the Company approved an increase in the available number of shares of common +stock reserved for issuance under the 1996 Plan to 2,200,000 shares. During 2009, 39,900 unvested +restricted shares of stock were forfeited and 9,917 options expired, all of which were returned to +the Plan and became available for future issuance, Also during 2009, 80,000 shares were awarded to +independent members of our Board of Directors as additional compensation. As of March 5, 2010, +there were 165,748 shares of common stock available for future grant under the 1996 Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance +upon the exercise of options or for grants of stock options, stock appreciation rights or units, +restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan +under the provisions of the New York Stock Exchange rules +23 +Table of Contents +and regulations at the time it was adopted and therefore did not require shareholder approval. Because +the 2002 Plan is a broadly based plan, the aggregate number of shares underlying awards granted to +officers and directors cannot exceed 50% of the total number of shares underlying the awards +granted to all employees during any three-year period. During 2009, 15,000 shares of restricted +stock were forfeited, returned to the Plan and became available for future issuance. Also during +2009, 20,000 restricted shares were issued to new employees. As of March 5, 2010, there were +37,466 shares of common stock available for future grant under the 2002 Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the +2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders on May +4, 2006. Pursuant to the 2006 Plan, 500,000 shares of common stock are reserved for issuance upon +the exercise of options or for grants of stock options, stock appreciation rights or units, +restricted stock, or performance shares or units. During 2009, 32,600 shares were forfeited, +returned to the Plan and became available for future issuance. Also in 2009, 179,150 shares were +issued to officers and employees of the Company. As of March 5, 2010, there were 8,998 shares of +common stock available for future grant under the 2006 Plan. +2009 Plan. The 2009 Plan was approved by the shareholders on April 30, 2009. Pursuant to the +2009 Plan, 1,250,000 shares of common stock were reserved for issuance upon the exercise of options +or for grants of stock options, stock appreciation rights or units, restricted stock, restricted +stock units, or performance shares or units. During 2009, 171,825 shares were awarded to officers +and employees. As of March 5, 2010, there were 1,078,175 shares of common stock available for +future grant under the 2009 Plan. +Long-Term Incentive Plan Awards +The Company does not have a long-term incentive plan for its employees other than the +stock-based incentive compensation plans mentioned above and in the CD&A. +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards +at December 31, 2009 for the named executive officers: +Stock Awards +Equity +Incentive +Plan +Awards: +Equity +Market or +Incentive Plan +Payout +Option Awards +Awards: +Value of +Number +Number of +Unearned +of +Market +Unearned +Shares, +Securities +Number of +Value of Shares +Shares, Units +Units or +Underlying +Shares or +or Units of +or Other +Other +Unexercised +Option +Units of Stock +Stock +Rights that +Rights that +Options +Exercise +Option +that Have Not +that Have +Have Not +Have Not +(#) +Price +Expiration +Vested +Not vested +Vested +Vested +Name +Exercisable +($) +Date +(#) +($)(14) +(#) +($)(14) +Fred L. Callon +110,000 +(1) +10.50 +03/23/2010 +— +— +— +— +18,750 +(2) +4.50 +07/12/2012 +— +— +— +— +12,625 +(3) +3.70 +08/12/2012 +— +— +— +— +— +— +— +10,000 +(8) +15,000 +— +— +— +— +— +23,000 +(10) +34,500 +23,000 +(10) +34,500 +— +— +— +100,000 +(11) +150,000 +100,000 +(11) +150,000 +B. F. Weatherly +15,000 +(4) +10.50 +07/25/2010 +— +— +— +— +5,000 +(5) +6.05 +05/08/2012 +— +— +— +— +5,000 +(6) +5.12 +05/02/2013 +— +— +— +— +— +— +— +11,250 +(9) +16,875 +— +— +— +— +— +15,000 +(10) +22,500 +15,000 +(10) +22,500 +— +— +— +44,625 +(11) +66,938 +7,875 +(11) +11,813 +24 +Table of Contents +Stock Awards +Equity +Incentive +Plan +Awards: +Equity +Market or +Incentive Plan +Payout +Option Awards +Awards: +Value of +Number +Number of +Unearned +of +Market +Unearned +Shares, +Securities +Number of +Value of Shares +Shares, Units +Units or +Underlying +Shares or +or Units of +or Other +Other +Unexercised +Option +Units of Stock +Stock +Rights that +Rights that +Options +Exercise +Option +that Have Not +that Have +Have Not +Have Not +(#) +Price +Expiration +Vested +Not vested +Vested +Vested +Name +Exercisable +($) +Date +(#) +($)(14) +(#) +($)(14) +Steven B. Hinchman +500,000 +(7) +2.755 +06/01/2019 +— +— +— +— +100,000 +(12) +150,000 +— +— +100,000 +(13) +150,000 +— +— +Stephen F. Woodcock +44,000 +(1) +10.50 +03/23/2010 +— +— +— +— +13,250 +(2) +4.50 +07/12/2012 +— +— +— +— +8,500 +(3) +3.70 +08/23/2012 +— +— +— +— +— +— +— +8,000 +(8) +12,000 +— +— +— +— +— +8,000 +(10) +12,000 +8,000 +(10) +12,000 +— +— +— +23,800 +(11) +35,700 +4,200 +(11) +6,300 +Rodger W. Smith +20,000 +(1) +10.50 +03/23/2010 +— +— +— +— +— +— +— +4,400 +(8) +6,600 +— +— +— +— +— +6,000 +(10) +9,000 +6,000 +(10) +9,000 +— +— +— +17,850 +(11) +26,775 +3,150 +(11) +4,725 +(1) +Represents stock options awarded on March 23, 2000 which are 100% vested. +(2) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(3) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(4) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(5) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(6) +Represents stock options awarded on May 2, 2003 which are 100% vested. +(7) +Represents stock options awarded on June 1, 2009 which are not vested and therefore not +currently exercisable. +(8) +Represents 20% of the original award of the 2006 restricted shares awarded August 21, 2006. +Award vests 20% on the grant date and 20% on each anniversary thereafter. +(9) +Represents 25% of the original award of 2006 restricted shares awarded upon employment on +November 16, 2006. Award vest 25% on November 16, 2007 and 25% on each anniversary +thereafter. +(10) +Represents shares awarded April 18, 2008. Time-vested restricted stock is reported under the +first and second columns under “Stock Awards” and performance based shares for which the +performance period has not run is reported under the third and fourth columns under “Stock +Awards.” Performance shares will vest on April 18, 2011, depending on the satisfaction of +performance criteria as described in the CD&A. +(11) +Represents restricted stock units awarded August 14, 2009. Restricted stock units payable in +stock are reported under the first and second columns under “Stock Awards” and restricted +stock units payable in cash are reported under the third and fourth columns under “Stock +Awards.” Restricted stock units shares will vest on August 14, 2012. +(12) +Represents time-based restricted stock which will vest on the fourth anniversary date +following the award date. +25 +Table of Contents +(13) +Represents performance-based restricted stock which will be adjusted between 0% and 150% +based on certain performance metrics when compared to Company identified peer companies. The +performance measurement period begins June 1, 2009 and ends June 1, 2012. The adjusted +performance-based shares will vest on the third anniversary date following the grant date. +(14) +Amounts calculated based on the December 31, 2009 closing price on the New York Stock +Exchange of $1.50 per share. +Option Exercises and Stock Vested Table +The following table indicates option exercises and stock vesting during 2009 for the named +executive officers: +Stock Awards +Option Awards +Number of +Number of +Value +Shares Acquired +Value +Name of +Shares Acquired +Realized On +on +Realized on +Executive +on Exercise +Exercise +Vesting +Vesting +Officer +(#) +($) +(#) +($) +Fred L. Callon +— +— +8,600 +(1) +13,952 +(4) +— +— +10,000 +(2) +20,994 +(5) +B. F. Weatherly +— +— +5,000 +(1) +8,111 +(4) +— +— +11,250 +(3) +18,117 +(6) +Steven B. Hinchman +— +— +— +— +Stephen F. Woodcock +— +— +3,700 +(1) +6,003 +(4) +— +— +8,000 +(2) +16,795 +(5) +Rodger W. Smith +— +— +2,500 +(1) +4,055 +(4) +— +— +4,400 +(2) +9,237 +(5) +(1) +Represents a 20% vesting of restricted shares awarded July 14, 2004. +(2) +Represents a 20% vesting of restricted shares awarded August 21, 2006. +(3) +Represents a 25% vesting of restricted shares awarded November 16, 2006. +(4) +Computed based on the fair market value of the common stock on the date of vesting equal +to $1.495 per share and fair market value of the common stock on the date of payment equal +to $1.625. +(5) +Computed based on the fair market value of the common stock on the date of vesting equal +to $1.60 per share and fair market value of the common stock on the date of payment equal +to $1.625. +(6) +Computed based on the fair market value of the common stock on the date of vesting equal +to $1.635 per share and fair market value of the common stock on the date of payment equal +to $1.61. +26 +Table of Contents +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable upon termination +following a change in control or upon death, disability or retirement. No amounts would be payable +upon termination for other causes. The information assumes, in each case, that the officer’s +termination was effective as of December 31, 2009. In presenting this disclosure, we describe +amounts earned through December 31, 2009 and, in those cases where the actual amounts to be paid +out can only be determined at the time of such executive’s separation from the Company, our +estimates are of the amounts which would be paid out to the executives upon their termination. +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Excise Tax +Total +Reason for Termination +($)(4) +($)(4) +($)(5) +($)(6)(7) +($)(8) +($) +Fred L. Callon +Change in Control (1) +1,393,560 +1,496,224 +384,000 +114,967 +— +3,388,751 +Death, Disability, or +Retirement (2) +— +— +384,000 +— +— +384,000 +B. F. Weatherly +Change in Control (1) +728,000 +678,270 +140,625 +53,645 +— +1,600,540 +Death, Disability, or +Retirement (2) +— +— +140,625 +— +— +140,625 +Steven B. Hinchman +Change in Control (1) +860,000 +774,000 +28,125 +— +— +1,662,125 +Death, Disability, or +Retirement (2) +— +— +150,000 +— +— +150,000 +Stephen F. Woodcock +Change in Control (1) +572,000 +354,900 +78,000 +53,645 +— +1,058,545 +Death, Disability, or +Retirement (2) +— +— +78,000 +— +— +78,000 +Thomas E. Schwager (3) +Rodger W. Smith +Change in Control (1) +436,800 +262,573 +56,100 +53,131 +— +808,604 +Death, Disability, or +Retirement (2) +— +— +56,100 +— +— +56,100 +(1) +The Company entered into a Severance Compensation Agreement dated April 18, 2008 with +each of the five named executive officers listed in the table above. The agreements were +subsequently amended effective on December 31, 2008 to comply with the final Treasury +Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended. +See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(2) +“Disability” is generally defined as the employee’s inability to carry out the normal +and usual duties of his employment on a full-time basis for an entire period of six (6) +continuous months together with the reasonable likelihood, as determined by the Board of +Directors after consultation of a qualified physician, he will be unable to carry out his +normal and usual duties of employment. “Retirement” is generally defined as the employee’s +attainment of an age which the Board of Directors determines to be consistent with normal +retirement age. +(3) +Mr. Schwager retired on April 24, 2009 and is therefore no longer eligible for future +termination or change-in-control payments. +(4) +In accordance with Mr. Callon’s Severance Compensation Agreement, the computation uses +a three-year multiple with respect to the severance amount relating to salary and target +bonus while a two-year multiple is used for the other named executive officers. See +“Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(5) +The amounts are computed based on unvested stock awards at December 31, 2009 using the +closing price of the Company’s common stock on the New York Stock Exchange on such date, +the last trading day for 2009, at $1.50 per share. See below for a description of the +payment of performance shares granted in April 2008. +27 +Table of Contents +(6) +Benefits consist of thirty-six months of employer provided family medical and dental +insurance, life insurance, dependent life insurance, accidental death coverage and +disability coverage for Mr. Callon and twenty-four months for the other named executive +officers. +(7) +Mr. Callon’s amount includes an additional $34,500 representing premiums on a life +insurance policy for which the Company does not have any beneficial interest. +(8) +This calculation is an estimate for the Proxy Statement disclosure only. Payments on an +actual change in control may differ based on factors such as transaction price, timing of +employment termination and payments, and changes in compensation. In computing the excise +tax gross-up, we valued all payments and benefits in accordance with Code Section 280G. Key +assumptions in the gross-up calculation included that the highest marginal federal, state +and Medicare tax rates applied. +Vesting provisions Applicable to Performance Shares Awarded in April 2008 +Upon a change in control or upon the death or termination of employment due to disability of +the employee, the performance period set for the performance shares granted in April 2008 and +described in the CD&A will end on the effective date of the event and all unvested portions of the +performance shares shall vest on such date. Upon retirement on any date after the employee attains +the normal retirement age of 70 years, the performance period will end and all unvested portions of +the performance shares shall vest on such retirement date. If the employee’s employment with the +Company is terminated other than as set forth above, all unvested portions of the performance +shares will be forfeited. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. On April 18, 2008, the Company entered into a Severance +Compensation Agreement with each of the named executive officers, except Mr. Hinchman, which were +subsequently amended effective on December 31, 2008 to comply with the final Treasury Regulations +issued under Section 409A of the Internal Revenue Code of 1986, as amended (“Agreements”). The +Agreements will terminate, except to the extent that any obligation of the Company hereunder +remains unpaid as of such time, upon the earliest of (1) December 31, 2010; provided, however, +that, on each anniversary date thereafter (each such date, an “ Anniversary Date ”), the expiration +date shall automatically be extended for one additional year unless, immediately prior to such +Anniversary Date, either party shall have given written notice that it does not wish to extend this +Agreement, but in no event shall the expiration date be earlier than the second anniversary of the +effective date of a Change of Control; (2) the termination of the Executive’s employment with +Callon based on death, Disability (as defined in Section 3.1 of the Agreement), or Cause (as +defined in Section 3.2 of the Agreement; and (3) the voluntary resignation of the Executive for any +reason other than Good Reason (as defined in Section 3.3 of the Agreement). +Pursuant to the Agreement, if the executive incurs a “separation from service” from the +Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and +any other guidance issued thereunder) without cause by the Company or for good reason by him within +two years following a Change of Control of the Company (or in certain cases, prior to a change of +control), then the executive is entitled to a single lump-sum cash payment (payable six months +following the triggering event) in an amount equal to three times the sum (with respect to Mr. +Callon) of (a) the annual base salary in effect immediately prior to the Change of Control or, if +higher, in effect immediately prior to the separation from service, and (b) the greater of the +average bonus earned with respect to the three most recently completed full fiscal years or the +target bonus for the fiscal year in which the Change of Control occurs, based on a forecast that +has been approved by the Board of the results for the fiscal year in which the Change of Control +occurs. For the remaining named executive officers except, the salary and bonus multiple is two +times. In addition, the Company must maintain at its expense until thirty-six (36) months after a +separation from service all life, disability, medical, dental, accident, and health insurance +coverage for Mr. Callon. For the remaining named executive officers, the continued benefit period +is twenty-four (24) months. If the executive’s employment is terminated as a result of his death +or disability, the Company is only required to make such payments if the termination occurred +within six months of a Change of Control. “Good reason” is generally defined in the Agreement as a +change in compensation, benefits, position, responsibilities, or location. A Change of Control is +generally defined in the Agreement as (i) any person or group of persons acting in concert shall +have become the beneficial owner of more than 50% of the outstanding common stock of the Company; +(ii) the stockholders of the Company shall cause a change in the majority of the members of the +Board of Directors within a twelve-month period; or (iii) the Company or its stockholders shall +enter into an agreement to dispose of all or substantially all of the assets or outstanding capital +stock of the Company. +The Agreements also provide that, upon a Change of Control, all stock options shall +automatically become fully exercisable and all performance shares, restricted stock, stock +appreciation rights and other similar rights held by the executive shall become fully vested, +provided however, that such acceleration of vesting shall not occur if it would be an impermissible +acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of +vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, +or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the +total value of the outstanding and unvested stock rights as of the date of separation from service. +28 +Table of Contents +The Agreements incorporate a provision to provide for the possible impact of the federal +excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess +parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient +and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly +evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, +against individuals who do not exercise stock options in favor of those who do and against those +who elect to defer compensation in favor of those who do not. For these reasons, we believe that +the provision of the excise tax gross-up in the Agreement is appropriate. If any payment is subject +to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, a “gross-up” +payment will be made to place such executive in the same net after-tax position as would have been +the case if no excise tax had been payable. +The Company does not have a Severance Compensation Agreement with Mr. Hinchman but the terms +of his employment include certain provisions and payments upon involuntary termination by the +Company and in the event of a Change of Control. In the event of an involuntary termination by the +Company without Cause, Mr. Hinchman will receive a lump sum cash payment equal to his annual base +salary, the time-vested restricted shares will vest on a prorated basis from the grant date; +performance shares will vest on a prorated basis based on actual performance to the termination +date; and unvested stock options will be forfeited. In the event of a Change of Control of the +Company, Mr. Hinchman will receive, subject to involuntary termination by the Company without Cause +or voluntary termination for Good Reason, a lump sum cash payment of two times the sum of his base +salary and target bonus; and vesting of all equity awards based on performance at the time of +termination. +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an +additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per +year to the chairman of the Compensation Committee, the chairman of the Nominating and Corporate +Governance Committee, and the chairman of the Strategic Planning Committee. Each non-management +director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In +addition to cash compensation the Compensation Committee may, from time to time, grant performance +shares. During 2009, the Compensation Committee awarded 20,000 shares of stock each to Messrs. +Flury, McVay, Wallace, and Wilson. The performance shares shall vest on the earlier of: (a) the +first anniversary of the Grant Date, provided that Grantee continues to be a member of the Board +(or is otherwise providing services to the Company as an employee) through such date; or (b) the +date Grantee ceases to provide any services to the Company as an employee or director, other than +for Cause, after reaching age sixty (60). The Compensation Committee may determine in its sole +discretion that the Performance Shares shall vest on a “qualified separation from service.” For +purposes hereof, a “qualified separation from service” is defined as a Separation from Service, +other than for Cause, following a minimum of five (5) years of tenure on the Board and occurring +within five (5) years prior to Grantee attaining the age sixty (60). The table below indicates the +total compensation earned and paid during 2009 for each non-management director: +Non-Management Director Compensation for 2009 +Fees +Earned +or Paid +Stock +Option +All Other +in Cash +Awards +Awards +Compensation +Total +Name +($)(1) +($)(6) +($) +($) +($) +L. Richard Flury +50,000 +(2) +34,200 +— +— +84,200 +Larry D. McVay +50,000 +(3) +34,200 +— +— +84,200 +John C. Wallace +60,000 +(4) +34,200 +— +— +94,200 +Richard O. Wilson +50,000 +(5) +34,200 +— +— +84,200 +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Compensation Committee. +(3) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Strategic Planning Committee. +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as +chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Nominating and Corporate Governance Committee. +29 +Table of Contents +(6) +Amounts calculated utilizing the provisions of FASB ASC Topic 718. See Note 4 of the +consolidated financial statements in the Company’s Annual Report for the year ended December +31, 2009 regarding assumptions underlying valuation of equity awards. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any +additional compensation for his services in this capacity and therefore has been omitted from the +table above. Mr. Weatherly also serves as a member of the Board of Directors and does not receive +any additional compensation associated with those services. +Securities Authorized for Issuance under Equity Compensation Plans +The following information represents information concerning our equity compensation plans as +of December 31, 2009: +Number of securities to +be issued upon exercise +Weighted Average +Number of securities remaining +of outstanding options +exercise price of +available for future issuance under +(#) +outstanding options ($) +equity compensation plans (excluding +Plan +(a) +(b) +securities reflected in columns (a) +1994 Plan (1) +10,000 +12.40 +— +1996 Plan (1) +380,875 +10.70 +165,748 +2002 Plan (2) +75,483 +6.40 +37,466 +2006 Plan (1) +12,000 +14.17 +8,998 +2009 Plan (1) +0 +0.00 +1,078,175 +(1) +Plan approved by the Company’s shareholders. +(2) +Plan was adopted as a “broadly based” plan which did not require shareholder approval. +See “Stock-Based Incentive Compensation Plans — 2002 Plan” for a description of the +material terms of the Plan. +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable New York Stock +Exchange rules to be directly responsible for the appointment, compensation and retention of the +Company’s independent registered public accountants. The Audit Committee has appointed Ernst & +Young LLP, independent registered public accounting firm, for the examination of the accounts and +audit of the financial statements of the Company for the year ending December 31, 2010. While +shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of +Directors will present a proposal to the shareholders to approve and ratify as part of good +corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to +ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain +Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may +direct the appointment of a different independent registered public accounting firm at any time +during the year if it determines that such a change would be in the best interests of the Company +and its shareholders. A representative of Ernst & Young LLP will be present at the 2010 Annual +Meeting and will have the opportunity to make a statement, if he desires, and to respond to +appropriate questions. +Management recommends that the shareholders approve and ratify the appointment of Ernst & +Young LLP as its independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2010. Unless otherwise indicated, all properly executed proxies received by +the Company will be voted “FOR” such ratification at the 2010 Annual Meeting. +30 +Table of Contents +SHAREHOLDERS’ PROPOSALS +FOR 2011 ANNUAL MEETING +Shareholders who desire to present proposals at the 2011 Annual Meeting of Shareholders +and to have proposals included in the Company’s proxy materials must submit their proposals to the +Company at its principal executive offices not later than November 16, 2010. If the date of the +2011 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2010 +Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before +the Company begins to print and mail its proxy materials for its 2011 Annual Meeting of +Shareholders. +The person named in the Company’s form of proxy for the 2011 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by March 16, 2011, unless the Company changes the date of its 2011 +Annual Meeting of Shareholders by more than 30 days from the date of the 2010 Annual Meeting of +Shareholders, in which case such persons will be able to exercise discretionary authority if notice +of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2011 Annual Meeting of Shareholders. +If the date of the 2011 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2010 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the +2009 Annual Report to Shareholders and the Company’s Report on Form 10-K for the fiscal year ended +December 31, 2009. Printed copies of the Company’s Annual Report, the Company’s Annual Report on +Form 10-K, Corporate Governance Principles, Code of Business Conduct and Ethics and Charters of +Board Committees are available to shareholders upon written request to the Robert A. Mayfield, +Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. +You may also view the documents on the Company’s website at www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the 2010 Annual +Meeting other than those described above. If other business comes before the 2010 Annual Meeting, +the persons named on the proxy will vote the proxy in accordance with what they consider to be in +the best interests of the Company and its shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All +shareholders are urged, regardless of the number of shares owned, to participate in the 2010 Annual +Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +March 16, 2010 +31 +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF CALLON PETROLEUM COMPANY May 4, 2010 NOTICE OF INTERNET +AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and proxy card are available +at http://www.callon.com Please sign, date and mail your proxy card in the envelope provided as +soon as possible. Please detach along perforated line and mail in the envelope provided. +20230000000000000000 0 050410 THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF +DIRECTORS AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN 1. Election of +Directors: 2. To ratify the appointment of Ernst & Young LLP as the Company’s Independent +Registered Public Accounting firm. NOMINEES: FOR ALL NOMINEES O John C. Wallace O Larry D. McVay 3. +In their discretion, the Proxies are authorized to vote upon such other business WITHHOLD AUTHORITY +as may properly come before the meeting or any adjournments thereof. FOR ALL NOMINEES THIS PROXY +WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER FOR ALL EXCEPT (See instructions below) +DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSAL 2. PLEASE MARK, +SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” +and fill in the circle next to each nominee you wish to withhold, as shown here: To change the +address on your account, please check the box at right and indicate your new address in the address +space above. Please note that changes to the registered name(s) on the account may not be submitted +via this method. Signature of Shareholder Date: Signature of Shareholder Date: Note: Please sign +exactly as your name or names appear on this Proxy. When shares are held jointly, each holder +should sign. When signing as executor, administrator, attorney, trustee or guardian, please give +full title as such. If the signer is a corporation, please sign full corporate name by duly +authorized officer, giving full title as such. If signer is a partnership, please sign in +partnership name by authorized person. +Table of Contents +0 CALLON PETROLEUM COMPANY 200 North Canal Street, Natchez, Mississippi 39120 Proxy Solicited +on Behalf of the Board of Directors of the Company for the Annual Meeting of Shareholders on May 4, +2010 The undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent and +proxy with full power of substitution in each, to represent and to vote, as designated on the +reverse, all of the shares of Common Stock of Callon Petroleum Company, held of record by the +undersigned on March 5, 2010 at the Annual Meeting of Shareholders to be held at 9:00 a.m. in the +Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, Natchez, Mississippi 39120 on May +4, 2010, and at any adjournments thereof, on all matters coming before said meeting. IF NO +DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSAL 2 +AS INDICATED ON THE REVERSE SIDE HEREOF. You are encouraged to specify your choices by marking the +appropriate boxes (SEE REVERSE SIDE) but you need not mark any boxes if you wish to vote in +accordance with the Board of Directors’ recommendations. The Proxies cannot vote your shares unless +you sign and return this card. (Continued and to be signed on the reverse side) 14475 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950123-10-025226/proxy_rpt.txt b/raw/proxies/0000928022/0000950123-10-025226/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..275705ff94632205a1a2d716d3a265d07abc760c --- /dev/null +++ b/raw/proxies/0000928022/0000950123-10-025226/proxy_rpt.txt @@ -0,0 +1,11 @@ +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2009, we are not aware of any related party transactions with our \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-01-002040/proxy.txt b/raw/proxies/0000928022/0000950129-01-002040/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0f1607af6c4611a264e7670d6c5cc807b9864cd8 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-01-002040/proxy.txt @@ -0,0 +1,1359 @@ +DEF 14A +1 +h85237def14a.txt +CALLON PETROLEUM COMPANY +1 +SCHEDULE 14A +(RULE 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [ ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the +Commission Only (as permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Rule 14a-12 +Callon Petroleum Company +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +----------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +----------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +----------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +----------------------------------------------------------------------- +(5) Total fee paid: +----------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +----------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +----------------------------------------------------------------------- +(3) Filing Party: +----------------------------------------------------------------------- +(4) Date Filed: +----------------------------------------------------------------------- +2 +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD FRIDAY, MAY 4, 2001 +To the Shareholders of +Callon Petroleum Company (the "Company"): +Notice is hereby given that the Annual Meeting of Shareholders (the +"Annual Meeting") of the Company will be held in Natchez, Mississippi, on +Friday, May 4, 2001, at 9:00 a.m., in the Ballroom of the Isle of Capri Hotel, +645 Canal Street, Natchez, Mississippi 39120, for the following purposes: +1. To elect three Class I directors to hold office until the 2004 +Annual Meeting of Shareholders; +2. To ratify the appointment of Arthur Andersen LLP as the Company's +independent public accountants for the fiscal year ending December +31, 2001; and +3. To transact such other business as may properly come before the +Annual Meeting or any adjournment or adjournments thereof. +Shareholders of record at the close of business on March 23, 2001 will +be entitled to notice of and to vote at, the Annual Meeting, or any adjournment +or adjournments thereof. +Shareholders are cordially invited to attend the Annual Meeting in +person. Those individuals who will not attend and who wish for their shares to +be voted are requested to sign, date and mail promptly the enclosed proxy for +which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/s/ +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 10, 2001 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU +CANNOT ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT +PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF +THE ENVELOPE IS MAILED IN THE UNITED STATES. +3 +PROXY STATEMENT +--------------------- +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +(601) 442-1601 +----------------- +ANNUAL MEETING OF SHAREHOLDERS +FRIDAY, MAY 4, 2001 +----------------- +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation +of proxies on behalf of the Board of Directors of Callon Petroleum Company, a +Delaware corporation (the "Company"), from holders ("Shareholders") of the +common stock, $.01 par value per share ("Common Stock"), of the Company for use +at the Annual Meeting of Shareholders of the Company to be held on Friday, May +4, 2001, at 9:00 a.m., in the Ballroom of the Isle of Capri Hotel, 645 Canal +Street, Natchez, Mississippi 39120, and at any adjournment or adjournments +thereof (such meeting or adjournment thereof is referred to herein as the +"Annual Meeting"), for the purpose of considering and voting upon the matters +set forth in the accompanying Notice of Annual Meeting of Shareholders +("Notice"). +A proxy in the form accompanying this Proxy Statement (each a "Proxy"), +when properly executed and returned, will be voted in accordance with the +directions specified on the Proxy, and otherwise in accordance with the judgment +of the persons designated therein as proxies. Any Proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for +the election of the nominees named herein to the Board of Directors and in favor +of the other proposals set forth in the Notice. Any Proxy may be revoked at any +time before it is exercised by delivering, to the Secretary of the Company, +written notice of revocation or by duly executing a Proxy bearing a later date, +or by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are +being mailed to shareholders on or about April 12, 2001. The Annual Report for +the Company's fiscal year ended December 31, 2000 is also being mailed to +shareholders contemporaneously with this Proxy Statement, although the Annual +Report does not form a part of the material for the solicitation of Proxies. +Proxies will be solicited primarily by mail, but employees of the +Company may also solicit Proxies in person or by telephone. Arrangements may be +made with brokerage firms or other custodians, nominees, and fiduciaries to send +Proxy materials to the beneficial owners of the Common Stock of the Company. All +costs incurred in the solicitation of Proxies will be borne by the Company. +MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING +Unless otherwise indicated, proxies in the form enclosed that are +properly executed, duly returned and not revoked will be voted in favor of: +(1) The election of the three Class I director nominees to the Board +of Directors named herein; and +(2) The ratification of the appointment of Arthur Andersen LLP as the +Company's independent public accountants for the fiscal year +ending December 31, 2001. +The Board of Directors is not presently aware of other proposals that +may be brought before the Annual Meeting. In the event other proposals are +brought before the Annual Meeting, the persons named in the enclosed Proxy will +vote in accordance with what they consider to be in the best interests of the +Company and its Shareholders. +4 +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 23, +2001 as the record date (the "Record Date") for the determination of +shareholders entitled to notice of, and to vote at, the Annual Meeting. A +complete list of all shareholders entitled to vote at the Annual Meeting will be +open for examination by any shareholder during normal business hours for a +period of ten days prior to the Annual Meeting at the offices of the Company, +200 North Canal Street, Natchez, Mississippi 39120. Such list will also be +available at the Annual Meeting and may be inspected by any shareholder who is +present. On the Record Date, the Company's outstanding voting securities +consisted of 13,353,223 shares of Common Stock. Holders of Common Stock will be +entitled to one vote per share of Common Stock held of record on the Record Date +for each proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued +and outstanding on the Record Date, whether present in person or represented by +proxy, will constitute a quorum for the transaction of business at the Annual +Meeting. For purposes of determining whether a quorum is present under Delaware +law, broker non-votes and abstentions count towards the establishment of a +quorum. The election of directors requires the favorable vote of the holders of +a plurality of shares of Common Stock present and voting, in person or by proxy, +at the Annual Meeting. Abstentions and broker non-votes have no effect on +determinations of plurality except to the extent that they affect the total +votes received by any particular candidate. A majority of the votes represented +by the shareholders present at the Annual Meeting, in person or by proxy, is +necessary for ratification of the Company's independent public accountants. +Abstaining shares will be considered present at the Annual Meeting for this +matter so that the effect of abstentions will be the equivalent of a "no" vote. +With respect to broker non-votes, the shares will not be considered present at +the Annual Meeting for this matter so that broker non-votes will have the +practical effect of reducing the number of affirmative votes required to achieve +a majority vote by reducing the total number of shares from which the majority +is calculated. +2 +5 +BENEFICIAL OWNERSHIP OF SECURITIES +MANAGEMENT AND PRINCIPAL SHAREHOLDERS +The following table sets forth, as of the Record Date, certain +information with respect to the ownership of shares of Common Stock and the +Company's $2.125 Convertible Exchangeable Preferred Stock ("Preferred Stock") as +to (i) all persons known by the Company to be the beneficial owners of 5% or +more of the outstanding Common Stock, (ii) each director, (iii) each nominee for +director, (iv) each of the executive officers named in the Summary Compensation +Table, and (v) all executive officers and directors of the Company as a group. +Information set forth in the table with respect to beneficial ownership of +Common Stock and Preferred Stock has been obtained from filings made by the +named beneficial owners with the Securities and Exchange Commission +("Commission") as of the Record Date or, in the case of executive officers and +directors of the Company, has been provided to the Company by such individuals. +Holders of Preferred Stock are not entitled to vote at the Annual Meeting. +COMMON STOCK PREFERRED STOCK +----------------------------- -------------------------------- +BENEFICIAL BENEFICIAL +NAME AND ADDRESS OF OWNERSHIP PERCENT OWNERSHIP PERCENT +BENEFICIAL OWNER (A) (A) +----------------------------------------------------------- ---------------- ----------- ---------------- --------------- +Directors: +John S. Callon........................................ 295,704(b) 2.20% 0 -- +Fred L. Callon........................................ 752,962(c) 5.53% 0 -- +200 North Canal Street +Natchez, Mississippi 39120 +Dennis W. Christian................................... 274,135(d) 2.02% 0 -- +Leif Dons............................................. 15,000(e) * 0 -- +Robert A. Stanger..................................... 60,856(f) * 0 -- +John C. Wallace....................................... 1,954,138(g) 14.57% 0 -- +65 Vincent Square +London, SW1P 2RX, England +B. F. Weatherly....................................... 60,367(h) * 0 -- +Richard O. Wilson..................................... 89,737(i) * 1,000 * +Named Executive Officers: +John S. Weatherly..................................... 248,253(j) 1.83% 0 -- +Stephen F. Woodcock................................... 81,131(k) * 0 -- +Kathy G. Tilley....................................... 178,967(l) 1.32% 0 -- +Directors and Executive Officers: +as a Group (16 persons)............................... 4,279,344(m) 28.72% 1,000 * +Certain Beneficial Owners: +Ganger Rolf ASA....................................... 1,839,386(n) 13.77% 0 -- +Fred. Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA........................................... 1,839,386(n) 13.77% 0 -- +Fred. Olsensgate 2 +0152 Oslo, Norway +State Street Research & Management Company............ 824,400(o) 6.17% 0 -- +One Financial Center, Thirtieth Floor +Boston, Massachusetts 02111-2690 +UBS AG................................................ 759,412(p) 5.69% 0 -- +Bahnhofstrasse 45 +8021, Zurich, Switzerland +NewSouth Capital Management, Inc...................... 1,256,250(q) 9.41% 0 -- +1000 Ridgeway Loop Rd., Suite 233 +Memphis, Tennessee 38120 +Scudder Kemper Investments, Inc....................... 811,500(r) 6.08% 0 -- +345 Park Avenue +New York, New York 10154 +Fleet Boston Corporation.............................. 842,718(s) 6.31% 0 -- +One Hundred Federal Street +Boston, Massachusetts 02110 +*less than 1% +(a) Unless otherwise indicated, each of the above persons may be deemed to +have sole voting and dispositive power with respect to such shares. +3 +6 +(b) Of the 295,704 shares beneficially owned by John S. Callon, 85,704 are +owned directly by him; 10,000 shares are owned in joint tenancy with +his wife; 105,000 shares are held in a family limited partnership; +90,000 shares are subject to options under the Company's 1994 Stock +Incentive Plan ("1994 Plan") exercisable within 60 days; and 5,000 +shares are subject to options under the Company's 1996 Stock Incentive +Plan ("1996 Plan") exercisable within 60 days. Shares indicated as +owned by John S. Callon do not include 43,501 shares of Common Stock +owned by his wife over which he disclaims beneficial ownership. +(c) Of the 752,962 shares beneficially owned by Fred L. Callon, 231,737 +shares are owned directly by him; 184,378 shares are held by him as +custodian for certain minor Callon Family members; 80,000 shares are +subject to options under the 1994 Plan exercisable within 60 days; +171,300 shares are subject to options under the 1996 Plan exercisable +within 60 days; and 85,547 shares are held by Fred L. Callon as Trustee +of shares held by the Callon Petroleum Company Employee Savings and +Protection Plan. Shares indicated as owned by Fred L. Callon do not +include 24,939 shares of Common Stock owned by his wife over which he +disclaims beneficial ownership. +(d) Of the 274,135 shares beneficially owned by Dennis W. Christian, 32,685 +are owned directly by him; 60,000 shares are subject to options under +the 1994 Plan exercisable within 60 days; and 181,450 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(e) Of the 15,000 shares beneficially owned by Leif Dons, 5,000 shares are +subject to options under the 1994 Plan exercisable in 60 days and +10,000 shares are subject to options under the 1996 Plan exercisable in +60 days. +(f) Of the 60,856 shares beneficially owned by Robert A. Stanger, 856 are +owned directly by him; 25,000 shares are subject to options under the +1994 Plan exercisable within 60 days; and 35,000 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(g) Of the 1,954,138 shares beneficially owned by John C. Wallace, 37,781 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 35,000 shares are +subject to options under the 1996 Plan exercisable within 60 days; +16,971 shares are owned by Fred. Olsen, Ltd.; and 1,839,386 shares are +owned by Ganger Rolf ASA ("Ganger Rolf") and Bonheur ASA ("Bonheur"). +See note (n). +(h) Of the 60,367 shares beneficially owned by B. F. Weatherly, 367 shares +are owned directly by him; 25,000 shares are subject to options under +the 1994 Plan exercisable within 60 days; and 35,000 shares are subject +to options under the 1996 Plan exercisable within 60 days. +(i) Of the 89,737 shares beneficially owned by Richard O. Wilson, 25,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; 35,000 shares are subject to options under the 1996 Plan +exercisable within 60 days; 27,464 shares are held in a family limited +partnership; and 2,273 shares are issuable upon conversion of 1,000 +shares of Preferred Stock held in the family partnership. +(j) Of the 248,253 shares beneficially owned by John S. Weatherly, 27,895 +are owned directly by him; 218 shares are held as custodian for his +minor children; 60,000 shares are subject to options under the 1994 +Plan exercisable within 60 days; and 160,140 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(k) Of the 81,131 shares beneficially owned by Stephen F. Woodcock, 6,611 +are owned directly by him and 74,520 shares are subject to options +under the 1996 Plan exercisable within 60 days. +(l) Of the 178,967 shares beneficially owned by Kathy G. Tilley, 23,127 are +owned directly by her; 30,000 shares are subject to options under the +1994 Plan exercisable within 60 days; and 125,840 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(m) Includes 500,000 shares subject to options under the 1994 Plan +exercisable within 60 days and 1,046,370 shares subject to options +under the 1996 Plan exercisable within 60 days. +(n) As disclosed on a Schedule 13D/A, filed with the Commission on +September 12, 2000, by Ganger Rolf, Bonheur, AS Quatro ("Quatro") and +Quatroto AS ("Quatroto"). On August 28, 2000, Ganger Rolf and Bonheur +jointly purchased from Fred. Olsen Energy ASA ("F.O. Energy") an +aggregate of 1,839,386 shares of Common Stock. Ganger Rolf and Bonheur +are currently registered as the joint record owner of, and both possess +shared voting and dispositive power with respect to, all of the +1,839,386 shares of Common Stock formerly owned by F.O. Energy. F.O. +Energy no longer owns +4 +7 +any Common Stock. Ganger Rolf is the owner of 28.81% of the outstanding +common stock of F.O. Energy. Bonheur is the owner of 28.81% of the +outstanding capital stock of Ganger Rolf. Quatro is the owner of 21.3% +of the outstanding capital stock of Bonheur, and Quatroto is the owner +of 20.8% of the outstanding capital stock of Bonheur. Quatro and +Quatroto disclaim beneficial ownership of the shares of Common Stock +owned by Ganger Rolf and Bonheur. John C. Wallace, one of our +directors, is a director of Ganger Rolf and Bonheur, as well as other +companies associated with Ganger Rolf and Bonheur, and as a result, may +be deemed to share the power to vote and dispose of, and therefore be a +beneficial owner of the shares of common stock of Ganger Rolf and +Bonheur. The principal business address and principal executive offices +of Quatro and Quatroto are located at Fred. Olsensgate 2, 0152 Oslo, +Norway. +(o) Information is based upon a Schedule 13G, filed with the Commission on +February 14, 2001, by State Street Research & Management Company +("State Street"). In this Schedule 13G, State Street represents that it +has sole voting power with respect to 784,400 shares and sole +dispositive power with respect to all of the shares it beneficially +owns. +(p) Information is based on a Schedule 13G, filed with the Commission on +February 13, 2001, by UBS AG and its indirect, wholly-owned subsidiary, +Brinson Partners, Inc. Both UBS AG and Brinson Partners, Inc. represent +that they possess sole voting and shared dispositive power with respect +to all of these shares. Brinson Partners, Inc.'s principal business +office is located at 209 South LaSalle, Chicago, Illinois 60604-1295. +(q) Information is based upon a Schedule 13G, filed with the Commission on +February 9, 2001, by NewSouth Capital Management, Inc. +(r) Information is based upon a Schedule 13G, filed with the Commission on +February 14, 2001 by Scudder Kemper Investments, Inc. ("Scudder"). In +this Schedule 13G, Scudder represents that it has sole voting power +with respect to 478,400 shares, shared voting power with respect to +24,000 shares and sole dispositive power with respect to all of these +shares. +(s) Information is based upon a Schedule 13G, filed with the Commission on +February 14, 2001, by Fleet Boston Corporation ("Fleet Boston"). In +this Schedule 13G, Fleet Boston represents that it has sole voting +power with respect to 723,718 shares and sole dispositive power with +respect to all of these shares. +PROPOSAL I +ELECTION OF DIRECTORS +NOMINEES +The Company's Certificate of Incorporation provides for a classified +Board of Directors. The Board of Directors is divided into three classes of +nearly equal size, designated as Class I (currently with three directors), Class +II (currently with three directors) and Class III (currently with two +directors). Initially, directors in each class were elected to hold office for +terms of one year, two years and three years, respectively. Upon the date of +each annual meeting after such initial classification, directors elected to +succeed those directors whose terms expire serve for a term which expires on the +date of the third succeeding annual meeting of shareholders after their +election. +The terms of the three Class I directors, Messrs. Robert A. Stanger, +John C. Wallace and Richard O. Wilson, will expire on the date of the Annual +Meeting. Messrs. Robert A. Stanger, John C. Wallace and Richard O. Wilson (the +"Nominees") have been nominated to serve as Class I directors until the 2004 +Annual Meeting and until their respective successors have been duly elected and +qualified. Each of the Nominees was nominated by the Board of Directors. +It is intended that all shares of Common Stock represented by the +Proxies will be voted for the election of the Nominees, except where authority +to vote in the election of directors has been withheld. Should the Nominees +become unable or unwilling to serve as directors at the time of the Annual +Meeting, the person or persons exercising the Proxies will vote for the election +of substitute Nominees designated by the Board of Directors, or the Board of +Directors may choose to reduce the number of members of the Board of Directors +to be elected at the Annual Meeting in order to eliminate the vacancy. The +Nominees +5 +8 +have consented to be nominated and have expressed their intention to serve if +elected. The Board of Directors has no reason to believe that the Nominees will +be unable or unwilling to serve if elected. Only the Nominees or substitute +Nominees designated by the Board of Directors will be eligible to stand for +election as directors at the Annual Meeting. See "Shareholders' Proposals for +2002 Annual Meeting." +DIRECTORS AND EXECUTIVE OFFICERS +The following table provides information with respect to the Nominees +and all current directors whose terms will continue after the Annual Meeting and +present executive officers of the Company. Each executive officer has been +elected to serve until his or her successor is duly appointed or elected by the +Board of Directors or their earlier removal or resignation from office. +COMPANY POSITION +NAME AGE SINCE PRESENT COMPANY POSITION +------------------------------------- ---------- ------------------ ---------------------------------------------- +CLASS I DIRECTORS: +(Term Expires in 2001) +Robert A. Stanger.................. 61 1995 Director; Nominee +John C. Wallace.................... 62 1994 Director; Nominee +Richard O. Wilson.................. 71 1995 Director; Nominee +CLASS II DIRECTORS: +(Term Expires in 2002) +John S. Callon..................... 81 1994 Director; Chairman of the Board +Leif Dons.......................... 51 1999 Director +B. F. Weatherly.................... 56 1994 Director +CLASS III DIRECTORS: +(Term Expires in 2003) +Fred L. Callon..................... 51 1994 Director; President; Chief Executive +Officer +Dennis W. Christian................ 54 1994 Director; Senior Vice President; Chief +Operating Officer +OTHER EXECUTIVE OFFICERS: +James O. Bassi..................... 46 1997 Vice President; Controller +Robert A. Mayfield................. 50 2000 Corporate Secretary +Thomas E. Schwager................. 50 1997 Vice President +H. Clark Smith .................... 48 2001 Corporate Information Officer +Rodger W. Smith.................... 51 1999 Treasurer +Kathy G. Tilley.................... 55 1996 Vice President +John S. Weatherly.................. 49 1994 Senior Vice President; Chief Financial +Officer +Stephen F. Woodcock................ 49 1997 Vice President +The following is a brief description of the background and principal +occupation of each director (including each Nominee) and executive officer: +James O. Bassi is Vice President and Controller of the Company and +Callon Petroleum Operating Company ("Callon Petroleum Operating"). Prior to +being appointed Vice President in November 1997, he had been Controller since +June 1997. Prior thereto he was Manager of the Accounting Department for the +Company and Callon Petroleum Operating. Mr. Bassi has been employed by the +Company and its predecessors for a total of ten years. Prior to his employment +by the Company, he was employed by Arthur Andersen LLP. He received his B.S. +degree in accounting in 1976 from Mississippi State University. He is a member +of the American Institute of Certified Public Accountants and the Mississippi +Society of Certified Public Accountants. +Fred L. Callon has been President and Chief Executive Officer of the +Company and Callon Petroleum Operating since January 1997. Prior to January +1997, he was President and Chief Operating Officer of the Company and had held +that position with the Company or its predecessors since 1984. He has been +employed by the Company or its predecessors since 1976. He graduated from +Millsaps College in 1972 and received his M.B.A. degree from the Wharton School +of Finance in 1974. Following graduation and until his employment by Callon +Petroleum Operating, he was employed by Peat, Marwick, Mitchell & Co., certified +public accountants. He is the nephew of John S. Callon. +6 +9 +John S. Callon is Chairman of the Board of Directors of the Company and +Callon Petroleum Operating. Effective January 2, 1997, John S. Callon resigned +from his position as Chief Executive Officer of the Company, a position he held +since 1980. Mr. Callon founded the Company's predecessors in 1950, and has held +an executive office with the Company or its predecessors since that time. He has +served as a director of the Mid-Continent Oil and Gas Association and as the +President of the Association's Mississippi-Alabama Division. He has also served +as Vice President for Mississippi of the Independent Petroleum Association of +America. He is a member of the American Petroleum Institute. Mr. Callon is the +uncle of Fred L. Callon. +Dennis W. Christian has been Senior Vice President and Chief Operating +Officer of the Company and Callon Petroleum Operating since January 1997. Prior +to January 1997, he was Senior Vice President of Operations and Acquisitions and +had held that or similar positions with the Company or its predecessors since +1981. Prior to joining Callon Petroleum Operating, he was resident manager in +Stavanger, Norway, for Texas Eastern Transmission Corporation. His previous +experience includes five years with Chevron U.S.A. Inc. Mr. Christian received +his B.S. degree in petroleum engineering in 1969 from Louisiana Polytechnic +Institute. +Leif Dons has since 1997 been Senior Vice President, Business +Development of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged +in the offshore energy service industry. From 1992 until 1997, Mr. Dons was +employed by Kvaerner ASA in various positions, including the fields of +international operations and the commercialization of new technology, and as +resident country manager responsible for Israel and Palestine. From 1983 until +1991, he served as the managing director of Norwegian Oil Consortium A/S & Co., +an oil company with producing properties in Norway. He negotiated the sale of +that company in 1991. From 1973 until 1983, Mr. Dons held various positions as +an analyst, staff engineer and economist at the Pulp and Paper Research +Institute, Norway and Saga Petroleum ASA. Mr. Dons received a Master of Science +degree in engineering from the Norwegian Institute of Technology in 1973. +Robert A. Mayfield is the Corporate Secretary and oversees Tax Services +for the Company and Callon Petroleum Operating. He was appointed Corporate +Secretary in February 2000. Prior to that, he had served as the Manager of Tax +Services and Securities and Exchange Commission Reporting since 1981. Prior to +joining Callon, he was employed by McCormick Oil and Gas Company in Houston, +Texas, where he served as an assistant to the tax manager. Mr. Mayfield received +a B.S. degree in accounting from Louisiana Tech University in 1972 and is a +member of the American Society of Corporate Secretaries. +Thomas E. Schwager is Vice President of Engineering and Operations for +the Company and Callon Petroleum Operating. Prior to being appointed to the +position in November 1997, he has held engineering positions with the Company +and its predecessors since 1981. Prior to joining the Company, Mr. Schwager held +various engineering positions with Exxon Company USA in Louisiana and Texas. He +received his B.S. degree in petroleum engineering from Louisiana State +University in 1972. He is a registered professional engineer and a member of the +Society of Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and +Callon Petroleum Operating. He was appointed to this position in March 2001. He +has served as Manager - Information Technology since January 1990 and in other +computer related positions with the Company and its predecessors since 1983. At +Mississippi State University, he majored in Industrial Technology. During his +tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business +Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also served +as Manager - Information Services with Jefferson Davis Regional Medical Center +and as a principal of the consulting firm, Mississippi Computing Consultants. +Rodger W. Smith is the Treasurer for the Company and Callon Petroleum +Operating. Prior to being appointed to that position in April 1999, he had +served as Manager of Budget and Analysis since 1994. Before that, Mr. Smith was +Manager of Exploration and Production Accounting and has been employed by Callon +and its predecessors since 1983. Prior to his employment with Callon, he was +employed by International Paper Company as a plant controller. He received his +B.S. degree in accounting from the University of Southern Mississippi in 1973. +Robert A. Stanger has been the managing general partner since 1978 of +Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based firm engaged +in publishing financial material and providing investment banking services to +the real estate and oil and gas industries. He is a director of Citizens +Utilities, Stamford, Connecticut, a provider of telecommunications, electric, +natural gas, and water services and Electric Lightwaves, Inc., Seattle, +Washington, a regional fiber optic telephone company. Previously, Mr. Stanger +was Vice President of Merrill Lynch & Co. He received his B.A. degree in +7 +10 +economics from Princeton University in 1961. Mr. Stanger is a member of the +National Association of Securities Dealers and the New York Society of Security +Analysts. +Kathy G. Tilley is Vice President of Business Development for the +Company and Callon Petroleum Operating and has held that position since April +1996. She was employed by Callon Petroleum Operating in December 1989 as Manager +of Acquisitions and prior thereto, held that or similar positions as a +consultant since 1981. Ms. Tilley received her B.A. degree in economics from +Louisiana State University in 1967. +John C. Wallace is a Chartered Accountant having qualified with +PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers +& Co., Limited in London, England. For over fifteen years, he has served as +Chairman of Fred. Olsen Ltd., a London-based corporation which he joined in 1968 +and which specializes in the business of shipping and property development. He +is a director of Fred. Olsen Energy ASA, a publicly held Norwegian company +engaged in the offshore energy service industry; Harland & Wolff PLC, Belfast, a +shipbuilding yard for the offshore oil and gas industry; and Ganger Rolf ASA and +Bonheur ASA, Oslo, both publicly-traded shipping companies. +B. F. Weatherly is a principal of Amerimark Capital Group, Houston, +Texas, an investment-banking firm, and has held that position since 1989. He is +also a general partner of CapSource Fund, L.P., Jackson, Mississippi, an +investment fund, and has held that position since 1997. He received a Master of +Accountancy degree from the University of Mississippi in 1967. He has previously +been associated with Arthur Andersen LLP, and has served as a Senior Vice +President of Weatherford International, Inc. B. F. Weatherly and John S. +Weatherly are brothers. +John S. Weatherly is Senior Vice President and Chief Financial Officer +for the Company and Callon Petroleum Operating. Prior to April 1999, Mr. +Weatherly also held the position of Treasurer. Prior to April 1996, he was Vice +President, Chief Financial Officer and Treasurer of the Company and had held +these positions since 1983. Prior to joining Callon Petroleum Operating in 1980, +he was employed by Arthur Andersen LLP since 1974. He received his B.B.A. degree +in accounting in 1973 and his M.B.A. degree in 1974 from the University of +Mississippi. He is a member of the American Institute of Certified Public +Accountants and the Mississippi Society of Certified Public Accountants. John S. +Weatherly and B. F. Weatherly are brothers. +Richard O. Wilson is an Offshore Consultant. In his 45 years of working +in offshore drilling and construction, he spent two years with Zapata Offshore +and 21 years with Brown & Root, Inc. working in various managerial capacities in +the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United +Kingdom and Mexico. He was a director and senior group vice president of Brown & +Root, Inc. and senior vice president of Halliburton, Inc. For 18 years he was +associated with Fred. Olsen Interests where he served as Chairman of OGC +International PLC, Dolphin A/S and Dolphin Drilling Ltd. Since the sale of OGC +International PLC to Halliburton, Inc. in 1997, he has been a consultant to +Brown & Root, Inc. He holds a B.S. degree in civil engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, +is a member of the Institute of Petroleum, London, England, and a Director of +the Museum of Printing History in Houston, Texas. In 2000 he was elected an +Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company +and Callon Petroleum Operating, being appointed to this position in November +1997. Prior to being appointed to this position, Mr. Woodcock had served as +Manager of Geology and Geophysics since his initial employment by the Company +and Callon Petroleum Operating in 1995. Prior thereto, he was manager of +geophysics for CNG Producing Company and division geophysicist for Amoco +Production Company. Mr. Woodcock received a masters degree in geophysics from +Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are +United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr. +Dons, who is a citizen of Norway. +STOCKHOLDERS' AGREEMENT +Pursuant to a Stockholders' Agreement ("Stockholders' Agreement") among +certain members of the Callon family ("Callon Family"), NOCO Enterprises, L.P. +("NOCO") and F.O. Energy dated September 16, 1994, the Callon Family, on the one +hand and NOCO and F.O. Energy on the other hand, each elected two directors to +the Company's Board of Directors. Specifically, the Stockholders' Agreement +provided that the Callon Family, NOCO and F.O. Energy would use their best +efforts, including voting the shares of Common Stock which they owned, to cause +the Company's Board of Directors to be composed of at least four members, two of +such members to be selected by the Callon Family and two of such members to be +selected by NOCO and F.O. Energy. Messrs. Wallace and Dons were elected to the +Board as +8 +11 +representatives of NOCO and F.O. Energy, and Messrs. Fred and John Callon were +elected to the Board as representatives of the Callon Family. The Stockholders' +Agreement expired on September 16, 1999. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended, +requires the Company's directors and executive officers, and persons who own +more than ten percent of a registered class of the Company's equity securities, +to file with the Commission and any exchange or other system on which such +securities are traded or quoted, initial reports of ownership and reports of +changes in ownership of Common Stock and other equity securities of the Company. +Officers, directors and greater than ten percent shareholders are required by +the Commission's regulations to furnish the Company and any exchange or other +system on which such securities are traded or quoted, with copies of all Section +16(a) forms they file with the Commission. +To the Company's knowledge, based solely on review of the copies of +such reports furnished to the Company during the fiscal year ended December 31, +2000, all of the Company's officers, directors and greater than ten percent +shareholders had complied with all Section 16(a) filing requirements. +INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS +The business of the Company is managed under the direction of the Board +of Directors. The Board of Directors meets on a quarterly basis to review +significant developments affecting the Company and to act on matters requiring +Board approval. The Board of Directors may also hold special meetings when an +important matter requires Board action between regularly scheduled meetings. +Each non-employee director receives an annual fee of $10,000 for service on the +Board of Directors. Under the 1994 Plan, each non-employee director received an +annual automatic grant of an option to purchase 5,000 shares of Common Stock for +an exercise price equal to the fair market price on the date of grant and for a +ten-year term. Pursuant to the 1996 Plan, an option to purchase 5,000 shares of +Common Stock is to be granted to each non-employee director on the date he or +she is initially elected or appointed to the Board for an exercise price equal +to the fair market price on the date of grant and for a ten-year term. +Thereafter, for each subsequent year in which the non-employee director is still +serving as director, he or she shall automatically be granted an option to +purchase an additional 5,000 shares on the same terms. On August 23, 1996, the +Compensation Committee authorized a one-time grant to each non-employee director +of an option to purchase 20,000 shares of Common Stock under the 1996 Plan at a +purchase price of $12.00 per share, the fair market value of the Common Stock on +such date. One-fourth of each option vests at each succeeding annual meeting of +directors following each annual shareholders' meeting, beginning with the 1997 +Annual Meeting. On July 25, 2000, the Compensation Committee authorized a +one-time grant to each non-employee director of an option to purchase 20,000 +shares of Common Stock under the 1996 Plan at a purchase price of $10.50 per +share, the fair market value of the Common Stock on such date. One-fourth of +each option vests on August 23, 2000 and the remaining vests equally at each +succeeding annual meeting of directors following each annual shareholders' +meeting, beginning with the 2001 Annual Meeting. +During 2000, the Board of Directors of the Company met formally eight +times and executed thirteen unanimous written consents. All directors attended +at least 75% of the total number of meetings of the Board of Directors. +In order to facilitate the various functions of the Board of Directors, +the Board of Directors has created an Audit Committee and a Compensation +Committee. The Board of Directors does not have a nominating committee. The +functions customarily performed by a nominating committee are performed by the +entire Board of Directors. Committee members are not remunerated in addition to +their annual Board retainer. +AUDIT COMMITTEE. The Committee monitors the Company's internal +accounting controls, reviews quarterly and annual financial information and +reviews the services and fees of the independent auditors. The Board of +Directors has adopted an Audit Committee Charter that is attached as Appendix I. +Members are Messrs. Robert A. Stanger, Richard O. Wilson and John C. Wallace. +All of the members of the Audit Committee meet the New York Stock Exchange's +independence requirements. The Audit Committee held three meetings during 2000, +and all members of the Audit Committee attended the meetings. +COMPENSATION COMMITTEE. The Compensation Committee establishes and +approves the terms of employment of senior executive officers and reviews and +approves management's recommendations concerning compensation of the other +executive officers and certain other employees. Members are Messrs. B. F. +Weatherly, Chairman, Robert A. Stanger, John C. Wallace and Richard O. Wilson. +The Compensation Committee held three meetings during 2000, and all members of +the Compensation Committee attended all meetings. +9 +12 +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. The Callon Family (including John S. Callon and +Fred L. Callon) is party to a Registration Rights Agreement dated September 16, +1994 (the "Registration Rights Agreement"), pursuant to which they are entitled +to require the Company to register Common Stock owned by them with the +Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. NOCO and the Company have entered into a similar agreement, which +was subsequently amended to include F.O. Energy. The registration rights +agreement with F.O. Energy also covers Common Stock held by its assignees, +Ganger Rolf and Bonheur. +AUDIT COMMITTEE REPORT +The Audit Committee of the Board of Directors assists the board in +overseeing the Company's accounting, auditing and financial reporting practices. +The Company's management has primary responsibility for preparing the Company's +financial statements and implementing its internal accounting controls. The +Audit Committee overseas these activities in order to ensure their quality and +integrity. The Audit Committee has reviewed the audited financial statements in +the Company's Annual Report for the year ended December 31, 2000 with +management. The Audit Committee's discussions with management included a review +of the quality, not just the acceptability, of the accounting principles used to +prepare, the reasonableness of significant judgements with respect to, and the +clarity of disclosures in the Company's financial statements. +The Audit Committee reviewed the quality of the accounting principles +used in preparing our financial statements with Arthur Andersen LLP, the +independent public accountants who are responsible for expressing an opinion on +the conformity of our audited financial statements with generally accepted +accounting principles. The Audit Committee also discussed with Arthur Andersen +LLP such other matters as are required to be discussed with its independent +auditors under generally accepted auditing standards, including Statement on +Auditing Standards No. 61. +AUDIT FEES. For the year ended December 31, 2000, the aggregate fees +billed to the Company by its principal accounting firm, Arthur Andersen LLP, for +services related to Arthur Andersen LLP's audit of the Company's financial +statements and reviews of its Form 10-Qs and Form 10-K for 2000 were $115,000. +FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION. The Company +was not billed any amounts during 2000 by Arthur Andersen LLP for operating or +supervising its information system, or designing a hardware or software system +that aggregates data for, or generates information that is significant to, the +Company's financial statements. +ALL OTHER FEES. The aggregate amount of all other fees Arthur Andersen +LLP billed to the Company during 2000 was $29,200. +After reviewing the non-audit services provided by Arthur Andersen LLP +and engaging in discussions with Arthur Andersen LLP regarding their +independence, the Audit Committee determined that the non-audit services +provided to the Company by Arthur Andersen LLP were not inconsistent with Arthur +Andersen LLP's status as independent auditors. The Audit Committee has received +the letter from Arthur Andersen LLP required by Independence Standards Board +Standard No. 1. +Based on its reviews of the Company's audit financial statements and +the discussions with management and Arthur Andersen LLP discussed above, the +Audit Committee recommended to the Board of Directors that the Company's audited +financial statements be included in its Annual Report on Form 10-K for the year +ended December 31, 2000 for filing with the Commission. +Robert A. Stanger +Richard O. Wilson +John C. Wallace +10 +13 +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +The following table sets forth information with respect to the Chief +Executive Officer of the Company and the four most highly compensated executive +officers of the Company as to whom the total salary and bonus for the years +ended December 31, 2000, 1999 and 1998 exceeded $100,000. +LONG-TERM +ANNUAL COMPENSATION COMPENSATION AWARDS +------------------------------------------ -------------------------- +OTHER RESTRICTED SECURITIES +ANNUAL STOCK UNDERLYING ALL OTHER +SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION +YEAR ($)(A) ($)(B) ($)(C) ($)(D) (#) ($)(E) +------ ---------- --------- ------------ ------------ ------------- ------------ +Fred L. Callon............ 2000 262,650 211,000 -- -- 110,000 30,229 +President and Chief 1999 264,616 174,000 -- -- -- 30,298 +Executive Officer 1998 242,727 -- -- -- 60,000 27,965 +Dennis W. Christian....... 2000 241,638 195,000 -- -- 65,000 28,328 +Sr. Vice President 1999 243,446 169,000 -- -- 35,000 28,420 +and Chief Operating 1998 221,473 -- -- -- 55,000 26,050 +Officer +John S. Weatherly......... 2000 210,120 169,000 -- -- 58,000 25,200 +Sr. Vice President 1999 211,692 147,000 -- -- 31,000 25,270 +and Chief Financial 1998 195,202 -- -- -- 45,000 23,427 +Officer +Kathy G. Tilley........... 2000 178,602 135,000 -- -- 48,000 19,528 +Vice President 1999 179,939 133,000 -- -- 25,000 19,535 +1998 164,850 -- -- -- 30,000 17,818 +Stephen F. Woodcock....... 2000 151,497 100,000 -- -- 44,000 16,562 +Vice President 1999 152,630 105,000 -- -- 25,000 16,593 +1998 144,200 -- -- 412,500 -- 15,599 +(a) The Company issues payroll checks every other Friday. For 1999, there +were twenty-seven payroll checks issued and for 2000, there were +twenty-six payroll checks issued. +(b) The amounts represent that portion of bonuses declared in February 2001 +and March 2000 and earned by service during 2000 and 1999, +respectively. Generally, bonus compensation is not payable unless the +executive remains employed by the Company through the date bonus +compensation is declared, which is generally in March of the following +year. These amounts also include amounts deferred. +(c) None of the named executive officers received perquisites or other +personal benefits, securities or property, the aggregate annual amount +of which exceeded the lesser of $50,000 or 10% of the total of annual +salary and bonus reported for the named executive. +(d) On January 6, 1998, 25,000 performance shares were awarded to Stephen +F. Woodcock and 10% of the shares vested on that date. On January 1, +1999, an additional 20% of the shares vested. On February 18, 1999, the +Board of Directors approved, upon the Compensation Committee's +recommendation, the vesting of the balance of the performance shares +granted. The closing price of the Common Stock on the NYSE on January +6, 1998 was $16.50 per share. +(e) Amounts reflect the Company's contribution in 2000, 1999, and 1998 of +$26,265, $26,462, and $24,273 to Fred L. Callon's 401(k) savings plan +and payment of $3,964, $3,836 and $3,692 term life insurance premiums; +$24,164, $24,344 and $22,147 to Mr. Christian's 401(k) savings plan and +payment of $4,164, $4,076 and $3,903 term life insurance premiums; +$21,012, $21,169 and $19,520 to Mr. Weatherly's 401(k) savings plan and +payment of $4,188, $4,101 and $3,907 term life insurance premiums; +$17,860, $17,994 and $16,485 to Ms. Tilley's 401(k) savings plan and +payment of $1,668, $1,541 and $1,333 term life insurance premiums; and +$15,150, $15,283 and $14,420 to Mr. Woodcock's 401(k) savings plan and +payments of $1,412, $1,310 and $1,179 term life insurance premiums. +11 +14 +EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Fred L. Callon, Dennis W. Christian and John S. Weatherly entered into +employment agreements with the Company effective September 1, 1996 that expired +on January 1, 2001. The agreements provided that Mr. Callon, Mr. Christian and +Mr. Weatherly would receive an annual base salary of at least $200,000, $175,000 +and $165,000, respectively, and that they would be entitled to participate in +any incentive compensation program established by the Company for its executive +officers. +The Company entered into a consulting agreement with John S. Callon, +effective as of January 2, 1997, the day he retired as Chief Executive Officer +of the Company. The agreement was amended on February 18, 1999. Pursuant to the +agreement, John S. Callon provides consulting services to the Company on matters +pertaining to corporate or financial strategy, investor relations and +public/private financing opportunities. The agreement remains in effect from the +effective date until December 31, 2001, subject to renewal for succeeding +five-year periods unless earlier terminated. As compensation for his services +under the agreement, John S. Callon is paid a fee ("Consultation Fee") of not +less than $190,000 per year increased annually based upon the change in the +Consumer Price Index, as adjusted for inflation. In addition, he will remain +eligible to participate in the Company's major medical and disability coverage, +and will be entitled to participate in all other employee benefit plans (other +than a cash bonus program) provided to full-time executives of the Company. As +an inducement for entering into the agreement, John S. Callon was granted 25,000 +restricted shares of Common Stock, 20% of which vests on each of the first five +anniversaries of the effective date of the agreement. On February 18, 1999, the +Board of Directors approved the Compensation Committee's recommendation that all +unvested restricted shares be vested as of such date. +Upon termination of the agreement other than for cause, John S. Callon +or his spouse shall be entitled to receive a termination payment equal to the +Consultation Fee, as adjusted for inflation, to be paid annually until the later +of the death of John S. Callon (if applicable) or his spouse. In lieu of the +termination payment, John S. Callon or his spouse may elect to receive, subject +to the approval of the Board of Directors, a lump sum payment of $1.5 million. +In addition, if the agreement terminates due to the Company's breach, John S. +Callon and his spouse shall be entitled to liquidated damages. The Company may +terminate the agreement for cause. "Cause" is defined generally in the agreement +as willful misconduct or intentional and continual neglect of duties which has +materially and adversely affected the Company. +Pursuant to the 1994 Plan and the 1996 Plan, in the case of a merger or +consolidation where the Company is not the surviving entity, or if the Company +is about to sell or otherwise dispose of substantially all of its assets while +unvested options remain outstanding, the Compensation Committee or other plan +administrator may, in its discretion and without shareholder approval, declare +some or all options exercisable in full before or simultaneously with such +merger, consolidation or sale of assets without regard for prescribed waiting +periods. Alternatively, the Compensation Committee or other plan administrator +may cancel all outstanding options provided option holders are given notice and +a period of 30 days prior to the merger, consolidation or sale to exercise the +options in full. +STOCK-BASED PLANS +The Company currently maintains two Common Stock-based incentive plans +for employees: the Callon Petroleum Company 1994 Stock Incentive Plan and the +Callon Petroleum Company 1996 Stock Incentive Plan. The Company in the past has +used and will continue to use stock options and performance share grants to +attract and retain key employees in the belief that employee stock ownership and +stock related compensation devices encourage a community of interest between +employees and shareholders. +1994 PLAN. The 1994 Plan was adopted on June 30, 1994. Pursuant to the +1994 Plan, 600,000 shares of Common Stock were reserved for issuance upon the +exercise of options or for grants of performance shares. The 1994 Plan is +administered by the Compensation Committee of the Board of Directors. Members of +the Compensation Committee currently are Messrs. Stanger, Wallace, B. F. +Weatherly and Wilson. No awards were granted under the 1994 Plan during 1998 +other than automatic grants to non-employee directors. Automatic option grants +to non-employee directors during 1999 were 25,000 shares. In addition, during +1999 the Compensation Committee approved option grants of 38,750 shares to +certain officers and employees. No awards were granted under the 1994 Plan +during 2000. As of March 23, 2001, there were 370 shares of Common Stock +available for grant under the 1994 Plan. +1996 PLAN. On August 23, 1996, the Board of Directors of the Company +approved and adopted the 1996 Plan and granted awards thereunder to various +employees. The 1996 Plan was approved by the shareholders of the Company at the +1997 Annual Meeting. Pursuant to the 1996 Plan, 900,000 shares of Common Stock +were reserved for issuance upon the exercise of options or for grants of +performance +12 +15 +shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as +permitted pursuant to the terms of the 1996 Plan, to increase the number of +shares of Common Stock reserved for issuance by 300,000 shares to 1,200,000 +shares. During March 1999, the Compensation Committee approved option grants of +206,750 shares to certain officers and employees. During March 2000, the +Compensation Committee approved option grants for 533,000 shares to certain +officers and employees. Pursuant to Proposal II of the 2000 Proxy Statement, the +shareholders approved an increase in the available number of shares of Common +Stock reserved for issuance by 1,000,000 shares to 2,200,000 shares. As of March +23, 2001, there were 235,123 shares of Common Stock available for grant under +the 1996 Plan. +BONUS PLAN. In 1996, the Board of Directors authorized the +establishment of a cash bonus program (the "Bonus Plan") to be administered by +the Compensation Committee in accordance with formulas or procedures determined +by the Compensation Committee on an annual basis. Each year, the Compensation +Committee establishes target level bonuses as a percentage of base salary for +certain officers, managers and staff members. The Committee also establishes +financial and operating goals to be achieved by the Company during the year and +assigns a relative weighting percent to each goal. Cash bonus awards for the +year are then based upon the extent to which such goals were achieved during the +year. See "--Report on Executive Compensation." +1997 EMPLOYEE STOCK PURCHASE PLAN. In 1997, the Board of Directors +authorized the implementation of the Callon Petroleum Company 1997 Employee +Stock Purchase Plan (the "1997 Purchase Plan"), which was approved by the +Company's shareholders at the 1997 Annual Meeting. The Plan provides eligible +employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock +purchase plan. An aggregate of 250,000 shares of Common Stock have been reserved +for issuance over the ten-year term of the 1997 Purchase Plan. The purchase +price per share at which Common Stock will be purchased on the participant's +behalf on each purchase date within an offering period is equal to eighty-five +percent of the fair market value per share of Common Stock. +OPTION GRANTS IN LAST FISCAL YEAR +The following table sets forth certain information concerning the +number and terms of options to purchase Common Stock granted during 2000 to the +Chief Executive Officer and the four most highly compensated executive officers +named in the Summary Compensation Table. The options described below were +granted on March 23, 2000. The exercise price is $10.50 per share and is equal +to the fair market value of the Common Stock at the close of business on the day +prior to grant date. The closing price of the Common Stock on the New York Stock +Exchange on March 22, 2000 was $10.50 per share. Thirty-three percent (33%) of +each grant became vested and exercisable on August 23, 2000. Thirty-four percent +of each grant becomes vested on August 23, 2001 and the remaining thirty-three +percent (33%) becomes vested on August 23, 2002. +OPTION GRANTS IN 2000 +POTENTIAL REALIZABLE VALUE +AT ASSUMED ANNUAL RATES OF +STOCK PRICE APPRECIATION +INDIVIDUAL GRANTS FOR OPTION TERM +------------------------------------------------------------------------------------------------ ----------------------------- +NUMBER OF PERCENT +SECURITIES OF TOTAL +UNDERLYING OPTIONS +OPTIONS GRANTED TO EXERCISE +GRANTED EMPLOYEES IN PRICE +NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($) +--------------------------- --------------- -------------- ------------ --------------------- ------------- --------------- +Fred L. Callon............. 110,000 17.11 10.50 March 23, 2010 726,373 1,840,773 +Dennis W. Christian........ 65,000 10.11 10.50 March 23, 2010 429,221 1,087,729 +John S. Weatherly.......... 58,000 9.02 10.50 March 23, 2010 382,997 970,589 +Kathy G. Tilley............ 48,000 7.47 10.50 March 23, 2010 316,963 803,246 +Stephen F. Woodcock........ 44,000 6.84 10.50 March 23, 2010 290,549 736,309 +13 +16 +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION +VALUES +The following table sets forth certain information concerning the +number and value of unexercised options to purchase Common Stock by the Chief +Executive Officer and the four most highly compensated executive officers named +in the Summary Compensation Table at December 31, 2000. No stock options were +exercised by such persons in 2000. +AGGREGATED OPTION EXERCISES IN 2000 AND OPTION +VALUES AT DECEMBER 31, 2000 +UNEXERCISED OPTIONS AT DECEMBER 31, 2000 +-------------------------------------------------- +NUMBER OF VALUE OF +UNDERLYING IN-THE-MONEY +VALUE SECURITIES OPTIONS +SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ +NAME ON EXERCISE (#) ($) UNEXERCISABLE (A) UNEXERCISABLE ($)(B) +------------------------------ -------------------- ----------- ---------------------- -------------------------- +Fred L. Callon................ -- -- 221,300/103,700 1,365,700/ 634,613 +Dennis W. Christian........... -- -- 213,700/ 71,300 1,363,308/ 434,348 +John S. Weatherly............. -- -- 195,890/ 63,110 1,245,375/ 382,595 +Kathy G. Tilley............... -- -- 137,340/ 50,660 859,495/ 304,693 +Stephen F. Woodcock........... -- -- 67,520/ 36,480 413,281/ 215,220 +(a) Represents awards granted under the 1994 Plan and the 1996 Plan. +(b) On December 31, 2000, the closing price of the Common Stock on the New +York Stock Exchange was $16.6875. +LONG-TERM INCENTIVE PLAN AWARDS +Other than the 1994 Plan and the 1996 Plan, the Company does not have a +long-term incentive plan for its employees. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +The members of the Company's Compensation Committee are Messrs. Robert +A. Stanger, John C. Wallace, B. F. Weatherly and Richard O. Wilson, none of whom +are or have been officers or employees of the Company. +REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is composed of four non-employee directors +who make recommendations to the Board with respect to the annual base and bonus +compensation of the executive officers of the Company. The Compensation +Committee also administers the Company's employee benefit plans. +COMPENSATION POLICY. The Company's goal with respect to its executive +compensation policy is to attract and retain executives who have the ability to +lead Callon in achieving its business objectives in a highly competitive +industry. To this end, the Company's compensation policy is comprised of three +elements: (1) base compensation, (2) bonus compensation, and (3) stock-based +compensation. Historically, the Company has provided for conservative base +salaries with more aggressive incentive compensation in order to emphasize pay +for performance. In addition, the Committee awards stock-based compensation to +encourage greater executive focus on stockholder value. +In the past, the Company had entered into employment agreements with +certain of its executive officers. These agreements established an initial base +salary subject to upward adjustment by the Board of Directors or the +Compensation Committee and provide that such officers are entitled to +participate in the Company's incentive compensation programs. All of these +agreements expired in early 2001, and the Committee has decided not to enter +into new agreements at this time. The Committee's decision was based on its +belief that employment agreements are not needed in order to retain the +Company's executive officers. In the future, the Committee may determine that +employment or other agreements with its executive officers are necessary in +order to retain key employees and achieve the Company's long-term growth +objectives. +14 +17 +Currently, the Committee does not intend to award levels of +compensation that would result in a limitation on the deductibility of a portion +of such compensation for federal income tax purposes pursuant to Section 162(m) +of the Internal Revenue Code of 1986, as amended; however, the Committee may +authorize compensation that results in such limitations in the future if it +determines that such compensation is in the best interest of the Company. +BASE COMPENSATION. The Compensation Committee reviews each executive +officer's salary annually. For 2000, the compensation for Messrs. Fred L. +Callon, Dennis W. Christian and John S. Weatherly was subject to outstanding +compensation agreements. The Committee has applied the same principals to +establish base compensation since the Company was formed in 1994, taking into +account both competitive realities and subjective factors. The base compensation +decision has no specific relationship to Company performance. As its primary +consideration, the Committee evaluates compensation set for comparable positions +by the Company's competitors, targeting the median of such compensation. To +determine base salaries paid by such peer group companies, the Committee +analyzes published industry survey data and proxy and annual report information +among energy companies of similar size, complexity and activity. From time to +time, the Company also engages independent compensation consulting firms. With +input from management of the Company, the Committee also takes into account +certain subjective factors such as individual performance and contribution to +the Company's success, seniority, experience level, internal equities within the +Company and general economic and industry conditions. No specific weight, +however, is assigned to these factors if they are considered. +After reviewing the salary levels of the Company's peers, the Company +decided to increase the base salaries of the Company's executive officers for +2000 by 3%. In addition to evaluating salary increases in the industry, the +Committee also took into account a subjective valuation of each individual +officer's contributions to the Company's performance in 1999, potential +contributions during 2000 and general inflationary considerations. This cost of +living increase was intended to match similar increases by the Company's +competitors and reflects the Committee's commitment to maintaining competitive +salary levels. +BONUS COMPENSATION. In 1996, the Board of Directors established the +Bonus Plan in order to tie compensation to certain fiscal targets affecting +short and long-term share price performance. Since that time, bonus compensation +has been awarded under the Bonus Plan as administered by the Compensation +Committee. As prescribed by the Bonus Plan, the Committee adheres to a formal +mechanism for determining annual bonus compensation. At the core of this +mechanism are pre-set financial and operating goals established by the Committee +as determinants of share price over time. For 2000, these goals were set with +respect to cash flow, net income, net reserve additions and finding costs. The +Committee assigns to each goal a relative weighting percent, which is multiplied +at year-end by the percentage by which each such goal was achieved in order to +determine the "Weighted Goal Achieved." The Committee then derives the "Total +Goal Achieved" by adding together each Weighted Goal Achieved. In addition, the +Committee establishes target level bonuses as a percentage of base salary for +officers and other employees. If the Total Goal Achieved at year-end is (i) less +than 80%, no bonuses will be awarded under the Bonus Plan; (ii) between 80% and +120%, bonuses will be awarded at 80% to 120% of the target level; and (iii) more +than 120%, additional bonuses will be awarded at the discretion of the +Committee. For the year ended December 31, 2000, the Total Goal Achieved was +173% of the goals set for 2000. Accordingly, bonus compensation was awarded. The +Compensation Committee anticipates following a similar formula for determining +cash bonuses for 2001, subject to adjustment for 2001 performance goals. +STOCK-BASED COMPENSATION. The Company relies heavily upon stock options +to compensate executive officers. The Committee generally subjects option grants +to a vesting schedule and establishes the exercise price as the fair market +value (based on trading on the New York Stock Exchange) of the Common Stock on +the date of grant. The Committee believes that these terms align the interests +of the Company's executives with those of its stockholders. +To determine the timing and amount of stock-based awards, the +Compensation Committee considers the factors set forth under "Base Compensation" +above as well as the employee's ability to influence the Company's future +performance. The Committee also takes into account the number of outstanding +unvested options held by an executive officer as well as the size of previous +option awards to such executive officer. After reviewing the number of options +granted by its peers to executive officers, the Committee decided to grant +options in 2000 to certain executive officers in order to maintain a competitive +compensation package. The Committee granted these options under the 1996 Plan to +executive officers and other employees of the Company to equalize their position +vis-a-vis their counterparts in the industry. +15 +18 +In the past, the Committee has issued performance shares to executive +officers. There are no performance shares currently outstanding; however, the +Committee will continue to monitor the Company's stock-based compensation +program to determine if performance shares should be granted in the future. +COMPENSATION OF CHIEF EXECUTIVE OFFICER. Pursuant to the employment +agreement between Fred L. Callon and the Company that was in effect during 2000, +Mr. Callon's annual base salary was set at a floor of $200,000, subject to +increase by the Board of Directors or the Compensation Committee. Mr. Callon's +base salary was increased by the Committee to $262,650 for 2000 as compared to +$255,000 for 1999 in order to keep Mr. Callon's salary level competitive with +the chief executive officer position at peer group companies as well as taking +into account the subjective factors described above under "Base Compensation." +See "Executive Compensation." In particular, the Committee considered Mr. +Callon's leadership role in overseeing the Company's successes during 1999 and +2000 with respect to its drilling and acquisition program, particularly in the +Gulf of Mexico deepwater region, and capital market financing activities. +Under the Bonus Plan formula set by the Compensation Committee, Fred L. +Callon earned a bonus of $211,000 during 2000. Mr. Callon was granted 110,000 +additional stock options during 2000. +B. F. Weatherly, Chairman +Robert A. Stanger +John C. Wallace +Richard O. Wilson +16 +19 +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five +years ended December 31, 2000, in the cumulative total shareholder return on the +Company's Common Stock against the cumulative total return for the (i) NASDAQ +Market Value Index, (ii) NYSE Market Value Index and (iii) Media General +Financial Services Industry and Market Index of SIC Group 121 (the "Industry +Group Index") consisting of oil and gas companies. +[COMPARISON OF CUMULATIVE TOTAL RETURN (1) LINE GRAPH] +12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/29/2000 +---------- ---------- ---------- ---------- ---------- ---------- +Callon Petroleum Company (2) $100 $ 53 $ 61 $ 86 $ 68 $ 60 +NASDAQ Market Index (2) $100 $124 $152 $214 $378 $238 +NYSE Market Index (2) $100 $120 $158 $189 $206 $211 +Industry Group Index $100 $129 $120 $ 78 $109 $158 +(1) The comparison of total return on an investment for each of the periods +assumes that $100 was invested on December 29, 1995, in each of the +Company, the NASDAQ Market Index, the NYSE Market Index and the +Industry Group Index, and that all dividends were reinvested. +(2) The Company's Common Stock was traded on the Nasdaq NMS from September +19, 1994 until April 21, 1998. On April 22, 1998, the Company's Common +Stock began trading on the New York Stock Exchange. +17 +20 +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT PUBLIC ACCOUNTANTS +The Board of Directors has appointed Arthur Andersen LLP, independent +public accountants, for the examination of the accounts and audit of the +financial statements of the Company for the year ending December 31, 2001. At +the Annual Meeting, the Board of Directors will present a proposal to the +shareholders to approve and ratify the engagement of Arthur Andersen LLP. A +representative of Arthur Andersen LLP will be present at the Annual Meeting and +will have the opportunity to make a statement, if he desires, and to respond to +appropriate questions. +Management recommends that the shareholders approve and ratify the +appointment of Arthur Andersen LLP as independent public accountants of the +Company for the fiscal year ending December 31, 2001. Unless otherwise +indicated, all properly executed Proxies received by management will be voted +for such ratification at the Annual Meeting. An adverse vote will be considered +as a direction to the Audit Committee of the Board of Directors to select other +auditors in the following year. +SHAREHOLDERS' PROPOSALS FOR 2002 ANNUAL MEETING +Shareholders who desire to present proposals at the 2002 Annual Meeting +of Shareholders and to have proposals included in the Company's proxy materials +must submit their proposals to the Company at its principal executive offices +not later than December 11, 2001. If the date of the 2002 Annual Meeting of +Shareholders is changed by more than 30 days from the date of the 2001 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable +time before the Company begins to print and mail its proxy materials for its +2002 Annual Meeting of Shareholders. +The persons named in the Company's form of proxy for the 2002 Annual +Meeting will have discretionary authority to vote any proxies they hold at such +meeting on any matter for which the Company does not receive notice by February +26, 2002, unless the Company changes the date of its 2002 Annual Meeting of +Shareholders by more than 30 days from the date of the 2001 Annual Meeting of +Shareholders, in which case such persons will be able to exercise discretionary +authority if notice of the matter has not been received in a reasonable time +before the Company mails its proxy materials for the 2002 Annual Meeting of +Shareholders. +If the date of the 2002 Annual Meeting of Shareholders is advanced or +delayed by more than 30 calendar days from the date of the 2001 Annual Meeting +of Shareholders, the Company shall, in a timely manner, inform shareholders of +such change, by including a notice, under Item 5, in its earliest possible +quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company's proxy statement and the new +date for determining whether the Company may exercise discretionary voting +authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company +receives any such proposal, it is suggested that shareholders submit their +proposals by certified mail, return receipt requested, or other means that +permit them to prove the date of delivery. +18 +21 +FINANCIAL STATEMENTS +Financial statements of the Company for its most recent fiscal year are +contained in the 2000 Annual Report and the Company's Report on Form 10-K. +Copies of the Company's Annual Report and the Company's Report on FORM 10-K ARE +AVAILABLE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE INVESTOR RELATIONS +DEPARTMENT, CALLON PETROLEUM COMPANY, 200 NORTH CANAL STREET, NATCHEZ, +MISSISSIPPI 39120. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at +the Annual Meeting other than those described above. If other business comes +before the Annual Meeting, the persons named on the Proxy will vote the Proxy in +accordance with what they consider to be in the best interests of the Company +and its shareholders. +By order of the Board of Directors +/s/ +Fred L. Callon +President and Chief Executive Officer +Natchez, Mississippi +April 10, 2001 +19 +22 +APPENDIX I. +CALLON PETROLEUM COMPANY +AUDIT COMMITTEE CHARTER +The Audit Committee (the "COMMITTEE") of Callon Petroleum Company (the +"COMPANY") is a committee of the Board of Directors. The Committee's function is +to assist the Board of Directors in fulfilling its oversight responsibilities to +shareholders, potential shareholders, and the investment community relating to +corporate accounting and financial reporting practices. In fulfilling this +function, the Committee's primary purposes are to: +1. Serve as an independent and objective party to monitor (a) the +financial information which will be provided to any government body or +the public; (b) the systems of internal controls which management and +the Board of Directors have established; and (c) the Company's +accounting and financial reporting processes. +2. Review and appraise the audit efforts of the Company's independent +accountants. +3. Provide an open avenue of communication among the independent +accountants, financial and senior management and the Board of +Directors. +The Committee shall review and reassess the adequacy of this charter annually +and recommend any proposed changes to the Board of Directors for approval. +I. MEETINGS +The Committee will meet at least annually or more frequently as circumstances +dictate. The Committee may ask members of management or others to attend these +meetings and provide pertinent information as necessary. The Committee will meet +not less than once annually with management and the independent accountants in +separate executive sessions to discuss any matters that the Committee or any of +these persons believe should be discussed privately with the Committee. +II. MEMBERSHIP +The members of the Committee shall meet the independence and experience +requirements of the New York Stock Exchange as described in Section 303 of the +New York Stock Exchange's Listed Company Manual. The Board of Directors shall +appoint the members of the Committee. +III. RESPONSIBILITIES AND DUTIES +To fulfill its responsibilities and duties, the Committee will: +Independent Accountants +1. Confirm with the independent accountants their ultimate +accountability to the Board of Directors and the Committee, as +representatives of the shareholders. +2. Select and recommend to the Board of Directors the independent +accountants to be engaged (or to be proposed for shareholder approval), +review and evaluate the independent accountants, and recommend to the +Board of Directors the discharge of the independent accountants when +circumstances warrant. +3. Oversee the independence of the independent accountants by, among +other things, (a) receiving from the independent accountants a formal +written statement delineating all relationships between the independent +accountants and the Company, consistent with Independence Standards +Board Standard 1; (b) actively engaging in a dialogue with the +independent accountants with respect to any disclosed relationships or +services that may impact the objectivity and independence of the +accountants; and (c) recommending to the Board of Directors the +appropriate action to be taken in response to the independent +accountants' report to satisfy itself of the independent accountants' +independence. +20 +23 +Review of Financial Information +4. Review filings with the SEC and other published documents containing +the Company's financial statements and consider whether the information +contained in these documents is consistent with the information +contained in the financial statements. +5. Review with management and the independent accountants at the +completion of the annual examination: +a. The Company's annual financial statements and related +footnotes. +b. The independent accountants' audit of the financial +statements and his or her report thereon. +c. Any significant changes required in the independent +accountants' audit plan. +d. Any serious difficulties or disputes with management +encountered during the course of the audit. +e. Other matters related to the conduct of the audit, which +are required to be communicated to the Committee by Statement +on Auditing Standards No. 61, or otherwise under generally +accepted auditing standards or any other concerns. +6. Report to the Board of Directors whether or not the Committee +recommends that the audited financial statements should be included in +the Company's Annual Report on Form 10-K for the last fiscal year for +filing with the SEC. +7. If warranted, review and discuss with management and the independent +accountants each SEC report prior to its filing with the SEC or prior +to the release of earnings if significant events, transactions and/or +changes in accounting estimates, which were considered by the +independent accountants in performing the quarterly reviews, have +affected the quality of the Company's financial reporting. +Auditing, Accounting and Financial Reporting Processes +8. Meet periodically with management to review the Company's major +financial risk exposures and the steps management has taken to monitor +and control such exposures. +9. Review any analysis prepared by management and the independent +accountants of significant financial reporting issues and judgments +made in connection with the preparation of the Company's financial +statements. +10. Review any major changes to the Company's auditing and accounting +principals and practices as suggested by the independent accountants or +management. +11. Address other matters required to be communicated between the +Committee, management and the independent accountants related to +financial reporting under Statement on Auditing Standards No. 61. +Additional Responsibilities +12. Report actions of the Committee to the Board of Directors with such +recommendations as the Committee may deem appropriate. +13. Conduct or authorize investigations into any matters within the +Committee's scope of responsibilities. The Committee shall be empowered +to retain independent counsel, accountants or others to assist it in +the conduct of any investigation. +14. Perform such other functions as assigned by law, the Company's +charter or bylaws, or the Board of Directors. +21 +24 +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +OF THE COMPANY FOR THE ANNUAL MEETING ON MAY 4, 2001 +The undersigned hereby constitutes and appoints John S. Callon and Fred L. +Callon and each of them, his true and lawful agents and proxies with full power +of substitution in each, to represent and to vote, as designated on the reverse, +all of the shares of Common Stock of Callon Petroleum Company, held of record by +the undersigned on March 23, 2001, at the Annual Meeting of Shareholders to be +held in the Ballroom of the Isle of Capri Hotel, 645 Canal Street, Natchez, +Mississippi 39120 on May 4, 2001, and at any adjournments thereof, on all +matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY +WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2 AS INDICATED +ON THE REVERSE SIDE HEREOF. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES +(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN +ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +(To be signed on reverse side) +25 +PLEASE DATE, SIGN AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF SHAREHOLDERS +CALLON PETROLEUM COMPANY +MAY 4, 2001 +o Please Detach and Mail in the Envelope Provided o +[X] PLEASE MARK YOUR +VOTES AS IN THIS +EXAMPLE. +FOR WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR +authority for all PROPOSAL 2. +1. ELECTION Nominees FOR AGAINST ABSTAIN +OF +DIRECTORS [ ] [ ] NOMINEES: Robert A. Stanger 2. To ratify the appointment [ ] [ ] [ ] +John C. Wallace of Arthur Andersen LLP as +To withhold authority to vote Richard O. Wilson independent public accountants. +for any specific nominee(s), +mark the "FOR" box and write 3. In their discretion, the Proxies are authorized +the name of each such nominee, to vote upon such other business as may properly +on the line provided below. come before the meeting or any adjournments thereof. +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN +------------------------------- THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, +THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF +DIRECTORS AND "FOR" PROPOSAL 2. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD +PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE +ENCLOSED. +SIGNATURE DATE SIGNATURE DATE +------------------------- -------- -------------------------- --------- +Note: Please sign exactly as name appears hereon. Joint owners should each +sign. when signing as attorney, executor, administrator, trustee or as +guardian, please indicate your full title as such. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-01-002040/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-01-002040/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..bc67dd34e1f12390166612fbb8158eaad0d24de5 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-01-002040/proxy_rpt.txt @@ -0,0 +1,11 @@ +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. The Callon Family (including John S. Callon and +Fred L. Callon) is party to a Registration Rights Agreement dated September 16, +1994 (the "Registration Rights Agreement"), pursuant to which they are entitled +to require the Company to register Common Stock owned by them with the +Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. NOCO and the Company have entered into a similar agreement, which +was subsequently amended to include F.O. Energy. The registration rights +agreement with F.O. Energy also covers Common Stock held by its assignees, +Ganger Rolf and Bonheur. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-02-001917/proxy.txt b/raw/proxies/0000928022/0000950129-02-001917/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c533634e896190a680d5f35d0007509844f50597 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-02-001917/proxy.txt @@ -0,0 +1,1205 @@ +DEF 14A +1 +h96011def14a.txt +CALLON PETROLEUM COMPANY +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(RULE 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the +Commission Only (as permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Rule 14a-12 +Callon Petroleum Company +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[ ] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +----------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +----------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +----------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +----------------------------------------------------------------------- +(5) Total fee paid: +----------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +----------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +----------------------------------------------------------------------- +(3) Filing Party: +----------------------------------------------------------------------- +(4) Date Filed: +----------------------------------------------------------------------- +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD WEDNESDAY, MAY 8, 2002 +To the Shareholders of +Callon Petroleum Company (the "Company"): +Notice is hereby given that the Annual Meeting of Shareholders (the +"Annual Meeting") of the Company will be held in Natchez, Mississippi, on +Wednesday, May 8, 2002, at 9:00 a.m., in the Le Grand Pre Ballroom of the +Natchez Eola Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, for the +following purposes: +1. To elect three Class II directors to hold office until the +2005 Annual Meeting of Shareholders; +2. To transact such other business as may properly come before +the Annual Meeting or any adjournment or adjournments thereof. +Shareholders of record at the close of business on March 27, 2002 will +be entitled to notice of and to vote at, the Annual Meeting, or any adjournment +or adjournments thereof. +Shareholders are cordially invited to attend the Annual Meeting in +person. Those individuals who will not attend and who wish for their shares to +be voted are requested to sign, date and mail promptly the enclosed proxy for +which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/s/ ROBERT A. MAYFIELD +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 15, 2002 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU +CANNOT ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT +PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF +THE ENVELOPE IS MAILED IN THE UNITED STATES. +PROXY STATEMENT +---------- +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +(601) 442-1601 +---------- +ANNUAL MEETING OF SHAREHOLDERS +WEDNESDAY, MAY 8, 2002 +---------- +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation +of proxies on behalf of the Board of Directors of Callon Petroleum Company, a +Delaware corporation (the "Company"), from holders ("Shareholders") of the +common stock, $.01 par value per share ("Common Stock"), of the Company for use +at the Annual Meeting of Shareholders of the Company to be held on Wednesday, +May 8, 2002, at 9:00 a.m., in the Le Grand Pre Ballroom of the Natchez Eola +Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, and at any +adjournment or adjournments thereof (such meeting or adjournment thereof is +referred to herein as the "Annual Meeting"), for the purpose of considering and +voting upon the matters set forth in the accompanying Notice of Annual Meeting +of Shareholders ("Notice"). +A proxy in the form accompanying this Proxy Statement (each a "Proxy"), +when properly executed and returned, will be voted in accordance with the +directions specified on the Proxy, and otherwise in accordance with the judgment +of the persons designated therein as proxies. Any Proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for +the election of the nominees named herein to the Board of Directors. Any Proxy +may be revoked at any time before it is exercised by delivering, to the +Secretary of the Company, written notice of revocation or by duly executing a +Proxy bearing a later date, or by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are +being mailed to shareholders on or about April 15, 2002. The Annual Report for +the Company's fiscal year ended December 31, 2001 is also being mailed to +shareholders contemporaneously with this Proxy Statement, although the Annual +Report does not form a part of the material for the solicitation of Proxies. +Proxies will be solicited primarily by mail, but employees of the +Company may also solicit Proxies in person or by telephone. Arrangements may be +made with brokerage firms or other custodians, nominees, and fiduciaries to send +Proxy materials to the beneficial owners of the Common Stock of the Company. All +costs incurred in the solicitation of Proxies will be borne by the Company. +MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING +Unless otherwise indicated, proxies in the form enclosed that are +properly executed, duly returned, and not revoked will be voted in favor of the +election of the three Class II director nominees to the Board of Directors named +herein. +The Board of Directors is not presently aware of other proposals that +may be brought before the Annual Meeting. In the event other proposals are +brought before the Annual Meeting, the persons named in the enclosed Proxy will +vote in accordance with what they consider to be in the best interests of the +Company and its Shareholders. +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 27, +2002 as the record date (the "Record Date") for the determination of +shareholders entitled to notice of, and to vote at, the Annual Meeting. A +complete list of all shareholders entitled to vote at the Annual Meeting will be +open for examination by any shareholder during normal business hours for a +period of ten days prior to the Annual Meeting at the offices of the Company, +200 North Canal Street, Natchez, Mississippi 39120. Such list will +also be available at the Annual Meeting and may be inspected by any shareholder +who is present. On the Record Date, the Company's outstanding voting securities +consisted of 13,424,216 shares of Common Stock. Holders of Common Stock will be +entitled to one vote per share of Common Stock held of record on the Record Date +for each proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued +and outstanding on the Record Date, whether present in person or represented by +proxy, will constitute a quorum for the transaction of business at the Annual +Meeting. For purposes of determining whether a quorum is present under Delaware +law, broker non-votes and abstentions count towards the establishment of a +quorum. The election of directors requires the favorable vote of the holders of +a plurality of shares of Common Stock present and voting, in person or by proxy, +at the Annual Meeting. Abstentions and broker non-votes have no effect on +determinations of plurality except to the extent that they affect the total +votes received by any particular candidate. +BENEFICIAL OWNERSHIP OF SECURITIES +MANAGEMENT AND PRINCIPAL SHAREHOLDERS +The following table sets forth, as of the Record Date, certain +information with respect to the ownership of shares of Common Stock and the +Company's $2.125 Convertible Exchangeable Preferred Stock ("Preferred Stock") as +to (i) all persons known by the Company to be the beneficial owners of 5% or +more of the outstanding Common Stock, (ii) each director, (iii) each nominee for +director, (iv) each of the executive officers named in the Summary Compensation +Table, and (v) all executive officers and directors of the Company as a group. +Information set forth in the table with respect to beneficial ownership of +Common Stock and Preferred Stock has been obtained from filings made by the +named beneficial owners with the Securities and Exchange Commission +("Commission") as of the Record Date or, in the case of executive officers and +directors of the Company, has been provided to the Company by such individuals. +Holders of Preferred Stock are not entitled to vote at the Annual Meeting. +COMMON STOCK PREFERRED STOCK +----------------------------- ------------------------------ +NAME AND ADDRESS OF BENEFICIAL BENEFICIAL +BENEFICIAL OWNER OWNERSHIP(a) PERCENT OWNERSHIP(a) PERCENT +------------------- ------------ ---------- ------------ ---------- +Directors: +John S. Callon ................................... 201,187(b) 1.49% 0 -- +Fred L. Callon ................................... 829,423(c) 6.05% 0 -- +200 North Canal Street +Natchez, Mississippi 39120 +Dennis W. Christian .............................. 298,235(d) 2.18% 0 -- +Leif Dons ........................................ 25,000(e) * 0 -- +Robert A. Stanger ................................ 70,856(f) * 0 -- +John C. Wallace .................................. 1,964,138(g) 14.56% 0 -- +65 Vincent Square +London, SW1P 2RX, England +B. F. Weatherly .................................. 71,288(h) * 0 -- +Richard O. Wilson ................................ 104,737(i) * 1,000 * +Named Executive Officers: +John S. Weatherly ................................ 273,096(j) 2.00% 0 -- +Stephen F. Woodcock .............................. 96,091(k) * 0 -- +Kathy G. Tilley .................................. 197,224(l) 1.45% 0 -- +Directors and Executive Officers: +as a Group (16 persons) .......................... 4,443,098(m) 29.27% 1,000 * +Certain Beneficial Owners: +Ganger Rolf ASA .................................. 1,839,386(n) 13.70% 0 -- +Fred. Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA ...................................... 1,839,386(n) 13.70% 0 -- +Fred. Olsensgate 2 +0152 Oslo, Norway +State Street Research & Management Company ....... 894,400(o) 6.66% 0 -- +One Financial Center, Thirtieth Floor +Boston, Massachusetts 02111-2690 +Wellington Management Company, LLP ............... 765,300(p) 5.70% 0 -- +75 State Street +Boston, Massachusetts 02109 +NewSouth Capital Management, Inc. ................ 1,296,820(q) 9.66% 0 -- +1000 Ridgeway Loop Rd., Suite 233 +Memphis, Tennessee 38120 +Dimensional Fund Advisors Inc. ................... 728,100(r) 5.42% 0 -- +1299 Ocean Avenue, 11th Floor +Santa Monica, CA 90401 +Security Management Company, LLC ................. -- -- 101,000(s) 16.81% +700 SW Harrison Street +Topeka, Kansas 66636-0001 +---------- +* Less than 1% +2 +(a) Unless otherwise indicated, each of the persons listed in the following +table may be deemed to have sole voting and dispositive power with +respect to such shares. +(b) Of the 201,187 shares beneficially owned by John S. Callon, 86,187 are +owned directly by him; 10,000 shares are owned in joint tenancy with +his wife; 90,000 shares are subject to options under the Company's 1994 +Stock Incentive Plan ("1994 Plan") exercisable within 60 days; and +15,000 shares are subject to options under the Company's 1996 Stock +Incentive Plan ("1996 Plan") exercisable within 60 days. Shares +indicated as owned by John S. Callon do not include 43,501 shares of +Common Stock owned by his wife over which he disclaims beneficial +ownership. +(c) Of the 829,423 shares beneficially owned by Fred L. Callon, 231,737 +shares are owned directly by him; 184,378 shares are held by him as +custodian for certain minor Callon Family members; 80,000 shares are +subject to options under the 1994 Plan exercisable within 60 days; +208,700 shares are subject to options under the 1996 Plan exercisable +within 60 days; and 124,608 shares are held by Fred L. Callon as +Trustee of shares held by the Callon Petroleum Company Employee Savings +and Protection Plan. Shares indicated as owned by Fred L. Callon do not +include 24,939 shares of Common Stock owned by his wife over which he +disclaims beneficial ownership. +(d) Of the 298,235 shares beneficially owned by Dennis W. Christian, 34,685 +are owned directly by him; 60,000 shares are subject to options under +the 1994 Plan exercisable within 60 days; and 203,550 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(e) Of the 25,000 shares beneficially owned by Leif Dons, 5,000 shares are +subject to options under the 1994 Plan exercisable in 60 days and +20,000 shares are subject to options under the 1996 Plan exercisable in +60 days. +(f) Of the 70,856 shares beneficially owned by Robert A. Stanger, 856 are +owned directly by him; 25,000 shares are subject to options under the +1994 Plan exercisable within 60 days; and 45,000 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(g) Of the 1,964,138 shares beneficially owned by John C. Wallace, 37,781 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 45,000 shares are +subject to options under the 1996 Plan exercisable within 60 days; +16,971 shares are owned by Fred. Olsen, Ltd.; and 1,839,386 shares are +owned by Ganger Rolf ASA ("Ganger Rolf") and Bonheur ASA ("Bonheur"). +See note (n). +(h) Of the 71,288 shares beneficially owned by B. F. Weatherly, 1,288 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; and 45,000 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(i) Of the 104,737 shares beneficially owned by Richard O. Wilson, 25,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; 45,000 shares are subject to options under the 1996 Plan +exercisable within 60 days; 32,464 shares are held in a family limited +partnership; and 2,273 shares are issuable upon conversion of 1,000 +shares of Preferred Stock held in the family partnership. +(j) Of the 273,096 shares beneficially owned by John S. Weatherly, 33,018 +are owned directly by him; 218 shares are held as custodian for his +minor children; 60,000 shares are subject to options under the 1994 +Plan exercisable within 60 days; and 179,860 shares are subject to +options under the 1996 Plan exercisable within 60 days. +3 +(k) Of the 96,091 shares beneficially owned by Stephen F. Woodcock, 6,611 +are owned directly by him and 89,480 shares are subject to options +under the 1996 Plan exercisable within 60 days. +(l) Of the 197,224 shares beneficially owned by Kathy G. Tilley, 25,064 are +owned directly by her; 30,000 shares are subject to options under the +1994 Plan exercisable within 60 days; and 142,160 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(m) Includes 500,000 shares subject to options under the 1994 Plan +exercisable within 60 days and 1,255,630 shares subject to options +under the 1996 Plan exercisable within 60 days. +(n) As disclosed on a Schedule 13D/A, filed with the Commission on March 6, +2002, by Ganger Rolf, Bonheur, AS Quatro ("Quatro"), and Invento AS +("Invento"). On August 28, 2000, Ganger Rolf and Bonheur jointly +purchased from Fred. Olsen Energy ASA ("F.O. Energy") an aggregate of +1,839,386 shares of Common Stock. Ganger Rolf and Bonheur are currently +registered as the joint record owner of, and both possess shared voting +and dispositive power with respect to, all of the 1,839,386 shares of +Common Stock formerly owned by F.O. Energy. F.O. Energy no longer owns +any Common Stock. Quatro is the owner of 21.3% of the outstanding +capital stock of Bonheur, and Invento is the owner of 20.8% of the +outstanding capital stock of Bonheur. Quatro and Invento disclaim +beneficial ownership of the shares of Common Stock owned by Ganger Rolf +and Bonheur. John C. Wallace, one of our directors, is a director of +Ganger Rolf and Bonheur, as well as other companies associated with +Ganger Rolf and Bonheur, and as a result, may be deemed to share the +power to vote and dispose of, and therefore be a beneficial owner of +the shares of common stock of Ganger Rolf and Bonheur. The principal +business address and principal executive offices of Quatro and Invento +are located at Fred. Olsengate 2, 0152 Oslo, Norway. +(o) Information is based upon a Schedule 13G provided to the Company dated +February 21, 2002, by State Street Research & Management Company +("State Street"). In this Schedule 13G, State Street represents that it +has sole voting power with respect to 859,400 shares and sole +dispositive power with respect to 894,400 shares. +(p) Information is based on a Schedule 13G, filed with the Commission on +February 12, 2002, by Wellington Management Company, LLP +("Wellington"). In this Schedule 13G, Wellington represents that they +possess shared voting with respect to 170,300 shares and shared +dispositive power with respect to 765,300 shares. +(q) Information is based upon a Schedule 13G, filed with the Commission on +February 14, 2002, by NewSouth Capital Management, Inc ("NewSouth"). In +this Schedule 13G, NewSouth represents that it has sole voting power +with respect to 955,620 shares, shared dispositive power with respect +to 52,700 shares and sole dispositive power with respect to 1,244,120 +shares. +(r) Information is based upon a Schedule 13G, filed with the Commission on +February 12, 2002 by Dimensional Fund Advisors Inc. ("Dimensional"). In +this Schedule 13G, Dimensional represents that it has sole voting power +with respect to 728,100 shares and sole dispositive power with respect +to all of these shares. +(s) Information is based upon a Schedule 13G, filed with the Commission on +February 12, 2002, by Security Management Company, LLP ("Security"). In +this Schedule 13G, Security represents that it has sole voting power +with respect to 101,000 shares and sole dispositive power with respect +to all of these shares. +PROPOSAL I +ELECTION OF DIRECTORS +NOMINEES +The Company's Certificate of Incorporation provides for a classified +Board of Directors. The Board of Directors is divided into three classes of +nearly equal size, designated as Class I (currently with three directors), Class +II (currently with three directors) and Class III (currently with two +directors). Initially, directors in each class were elected to hold office for +terms of one year, two years and three years, respectively. Upon the date of +each annual meeting after such initial classification, directors elected to +4 +succeed those directors whose terms expire serve for a term which expires on the +date of the third succeeding annual meeting of shareholders after their +election. +The terms of the three Class II directors, Messrs. John S. Callon, Leif +Dons and B.F. Weatherly, will expire on the date of the Annual Meeting. Messrs. +John S. Callon, Leif Dons and B.F. Weatherly (the "Nominees") have been +nominated to serve as Class II directors until the 2005 Annual Meeting and until +their respective successors have been duly elected and qualified. Each of the +Nominees was nominated by the Board of Directors. +It is intended that all shares of Common Stock represented by the +Proxies will be voted for the election of the Nominees, except where authority +to vote in the election of directors has been withheld. Should the Nominees +become unable or unwilling to serve as directors at the time of the Annual +Meeting, the person or persons exercising the Proxies will vote for the election +of substitute Nominees designated by the Board of Directors, or the Board of +Directors may choose to reduce the number of members of the Board of Directors +to be elected at the Annual Meeting in order to eliminate the vacancy. The +Nominees have consented to be nominated and have expressed their intention to +serve if elected. The Board of Directors has no reason to believe that the +Nominees will be unable or unwilling to serve if elected. Only the Nominees or +substitute Nominees designated by the Board of Directors will be eligible to +stand for election as directors at the Annual Meeting. See "Shareholders' +Proposals for 2003 Annual Meeting." +DIRECTORS AND EXECUTIVE OFFICERS +The following table provides information with respect to the Nominees +and all current directors whose terms will continue after the Annual Meeting and +present executive officers of the Company. Each executive officer has been +elected to serve until his or her successor is duly appointed or elected by the +Board of Directors or their earlier removal or resignation from office. +COMPANY +POSITION +NAME AGE SINCE PRESENT COMPANY POSITION +---- --- -------- ------------------------ +CLASS I DIRECTORS: +(Term Expires in 2004) +Robert A. Stanger.................. 62 1995 Director +John C. Wallace.................... 63 1994 Director +Richard O. Wilson.................. 72 1995 Director +CLASS II DIRECTORS: +(Term Expires in 2002) +John S. Callon..................... 82 1994 Director; Chairman of the Board; Nominee +Leif Dons.......................... 52 1999 Director; Nominee +B. F. Weatherly.................... 57 1994 Director; Nominee +CLASS III DIRECTORS: +(Term Expires in 2003) +Fred L. Callon..................... 52 1994 Director; President; Chief Executive Officer +Dennis W. Christian................ 55 1994 Director; Senior Vice President; Chief +Operating Officer +OTHER EXECUTIVE OFFICERS: +James O. Bassi..................... 47 1997 Vice President; Controller +Robert A. Mayfield................. 51 2000 Corporate Secretary +Thomas E. Schwager................. 51 1997 Vice President +H. Clark Smith .................... 49 2001 Corporate Information Officer +Rodger W. Smith.................... 52 1999 Treasurer +Kathy G. Tilley.................... 56 1996 Vice President +John S. Weatherly.................. 50 1994 Senior Vice President; Chief Financial +Officer +Stephen F. Woodcock................ 50 1997 Vice President +The following is a brief description of the background and principal +occupation of each director (including each Nominee) and executive officer: +5 +James O. Bassi is Vice President and Controller of the Company and +Callon Petroleum Operating Company ("Callon Petroleum Operating"). Prior to +being appointed Vice President in November 1997, he had been Controller since +June 1997. Prior to being appointed to his position as Controller, he had been +Manager of the Accounting Department for the Company and Callon Petroleum +Operating. Mr. Bassi has been employed by the Company and its predecessors for a +total of eleven years. Prior to his employment by the Company, he was employed +by Arthur Andersen LLP. He received his B.S. degree in accounting in 1976 from +Mississippi State University. He is a member of the American Institute of +Certified Public Accountants and the Mississippi Society of Certified Public +Accountants. +Fred L. Callon has been President and Chief Executive Officer of the +Company and Callon Petroleum Operating since January 1997. Prior to January +1997, he was President and Chief Operating Officer of the Company, positions he +had held with the Company or its predecessors since 1984. He has been employed +by the Company or its predecessors since 1976. Mr. Callon graduated from +Millsaps College in 1972 and received his M.B.A. degree from the Wharton School +of Finance in 1974. Following graduation and until his employment by Callon +Petroleum Operating, he was employed by Peat, Marwick, Mitchell & Co., certified +public accountants. He is the nephew of John S. Callon. +John S. Callon is Chairman of the Board of Directors of the Company and +Callon Petroleum Operating. Effective January 2, 1997, John S. Callon resigned +from his position as Chief Executive Officer of the Company, a position he had +held since 1980. Mr. Callon founded the Company's predecessors in 1950, and has +held an executive office with the Company or its predecessors since that time. +He has served as a director of the Mid-Continent Oil and Gas Association and as +the President of the Association's Mississippi-Alabama Division. He has also +served as Vice President for Mississippi of the Independent Petroleum +Association of America. He is a member of the American Petroleum Institute. Mr. +Callon is the uncle of Fred L. Callon. +Dennis W. Christian has been Senior Vice President and Chief Operating +Officer of the Company and Callon Petroleum Operating since January 1997. Prior +to January 1997, he was Senior Vice President of Operations and Acquisitions and +had held that or similar positions with the Company or its predecessors since +1981. Prior to joining Callon Petroleum Operating, he was resident manager in +Stavanger, Norway, for Texas Eastern Transmission Corporation. His previous +experience includes five years with Chevron U.S.A. Inc. Mr. Christian received +his B.S. degree in petroleum engineering in 1969 from Louisiana Polytechnic +Institute. +Leif Dons has since 1997 been Senior Vice President, Business +Development of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged +in the offshore energy service industry. From 1992 until 1997, Mr. Dons was +employed by Kvaerner ASA in various positions, including the fields of +international operations and the commercialization of new technology, and as +resident country manager responsible for Israel and Palestine. From 1983 until +1991, he served as the Managing Director of Norwegian Oil Consortium A/S & Co., +an oil company with producing properties in Norway. He negotiated the sale of +that company in 1991. From 1973 until 1983, Mr. Dons held various positions as +an analyst, staff engineer and economist at the Pulp and Paper Research +Institute, Norway and Saga Petroleum ASA. Mr. Dons received a Master of Science +degree in engineering from the Norwegian Institute of Technology in 1973. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax +Services for the Company and Callon Petroleum Operating. He was appointed +Corporate Secretary in February 2000. Prior to this appointment as Corporate +Secretary, he had served as the Manager of Tax Services and Securities and +Exchange Commission Reporting since 1981. Prior to joining Callon, he was +employed by McCormick Oil and Gas Company in Houston, Texas, where he served as +an assistant to the tax manager. Mr. Mayfield received his B.S. degree in +accounting from Louisiana Tech University in 1972 and is a member of the +American Society of Corporate Secretaries. +Thomas E. Schwager has been Vice President of Engineering and +Operations for the Company and Callon Petroleum Operating since November 1997. +Mr. Schwager has held engineering positions with the Company and its +predecessors since 1981. Prior to joining the Company, Mr. Schwager held various +engineering positions with Exxon Company USA in Louisiana and Texas. He received +his B.S. degree in petroleum engineering from Louisiana State University in +1972. He is a registered professional engineer and a member of the Society of +Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and +Callon Petroleum Operating. Prior to being appointed to that position in March +2001, he had served as Manager - Information Technology since January 1990 and +in other computer related positions with the Company and its predecessors since +1983. At Mississippi State University, he majored in Industrial Technology. +During his tenure with the Company, he has received extensive technical and +management training from the University +6 +of Southern Mississippi, International Business Machines, Microsoft, Novell, and +Arthur Andersen & Company. He has also served as Manager - Information Services +with Jefferson Davis Regional Medical Center and as a principal of the +consulting firm, Mississippi Computing Consultants. +Rodger W. Smith is the Treasurer for the Company and Callon Petroleum +Operating. Prior to being appointed to that position in April 1999, he had +served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith +was Manager of Exploration and Production Accounting and has been employed by +the Company and its predecessors since 1983. Prior to his employment with the +Company, he was employed by International Paper Company as a plant controller. +He received his B.S. degree in accounting from the University of Southern +Mississippi in 1973. +Robert A. Stanger has been the managing general partner since 1978 of +Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based firm engaged +in publishing financial material and providing investment banking services to +the real estate and oil and gas industries. He is a director of Citizens +Utilities, Stamford, Connecticut, a provider of telecommunications, electric, +natural gas, and water services and Electric Lightwaves, Inc., Seattle, +Washington, a regional fiber optic telephone company. Previously, Mr. Stanger +was Vice President of Merrill Lynch & Co. He received his B.A. degree in +economics from Princeton University in 1961. Mr. Stanger is a member of the +National Association of Securities Dealers and the New York Society of Security +Analysts. +Kathy G. Tilley is Vice President of Business Development for the +Company and Callon Petroleum Operating, a position she has held since April +1996. Ms. Tilley was employed by Callon Petroleum Operating in December 1989 as +Manager of Acquisitions and prior thereto, had held that or similar positions as +a consultant to the Company since 1981. Ms. Tilley received her B.A. degree in +economics from Louisiana State University in 1967. +John C. Wallace is a Chartered Accountant having qualified with +PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers +& Co., Limited in London, England. For over fifteen years, he has served as +Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 +and which specializes in the business of shipping and property development. Mr. +Wallace is a director of Fred. Olsen Energy ASA, a publicly held Norwegian +company engaged in the offshore energy service industry; Harland & Wolff PLC, +Belfast, a shipbuilding yard for the offshore oil and gas industry; and Ganger +Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies. +B. F. Weatherly has been a principal of CapSource Financial, Houston, +Texas, an investment-banking firm, since 1989. He is also a general partner of +CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and has held +that position since 1997. Mr. Weatherly received a Master of Accountancy degree +from the University of Mississippi in 1967. Mr. Weatherly has previously been +associated with Arthur Andersen LLP, and has served as a Senior Vice President +of Brown & Root, Inc. and Weatherford International, Inc. B. F. Weatherly and +John S. Weatherly are brothers. +John S. Weatherly is Senior Vice President and Chief Financial Officer +for the Company and Callon Petroleum Operating. Prior to April 1999, Mr. +Weatherly also held the position of Treasurer. Prior to April 1996, he was Vice +President, Chief Financial Officer and Treasurer of the Company and had held +these positions since 1983. Prior to joining Callon Petroleum Operating in 1980, +he had been employed by Arthur Andersen LLP since 1974. Mr. Weatherly received +his B.B.A. degree in accounting in 1973 and his M.B.A. degree in 1974 from the +University of Mississippi. Mr. Weatherly is a member of the American Institute +of Certified Public Accountants and the Mississippi Society of Certified Public +Accountants. John S. Weatherly and B. F. Weatherly are brothers. +Richard O. Wilson is an Offshore Consultant. In his 45 years of working +in offshore drilling and construction, he spent two years with Zapata Offshore +and 21 years with Brown & Root, Inc. working in various managerial capacities in +the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United +Kingdom and Mexico. Mr. Wilson was a director and Senior Group Vice President of +Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC +International PLC, Dolphin A/S and Dolphin Drilling Ltd. Since the sale of OGC +International PLC to Halliburton, Inc. in 1997, Mr. Wilson has been a consultant +to Brown & Root, Inc. He holds a B.S. degree in civil engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, +is a member of the Institute of Petroleum, London, England, and a Director of +the Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected +an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company +and Callon Petroleum Operating. Prior to being appointed to this position in +November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics +since his initial employment by the Company and Callon Petroleum +7 +Operating in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock +received a masters degree in geophysics from Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are +United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr. +Dons, who is a citizen of Norway. +STOCKHOLDERS' AGREEMENT +Pursuant to a Stockholders' Agreement ("Stockholders' Agreement") among +certain members of the Callon family ("Callon Family"), NOCO Enterprises, L.P. +("NOCO") and F.O. Energy dated September 16, 1994, the Callon Family, on the one +hand and NOCO and F.O. Energy on the other hand, each elected two directors to +the Company's Board of Directors. Specifically, the Stockholders' Agreement +provided that the Callon Family, NOCO and F.O. Energy would use their best +efforts, including voting the shares of Common Stock which they owned, to cause +the Company's Board of Directors to be composed of at least four members, two of +such members to be selected by the Callon Family and two of such members to be +selected by NOCO and F.O. Energy. Messrs. Wallace and Dons were elected to the +Board as representatives of NOCO and F.O. Energy, and Messrs. Fred and John +Callon were elected to the Board as representatives of the Callon Family. The +Stockholders' Agreement expired on September 16, 1999. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended, +requires the Company's directors and executive officers, and persons who own +more than ten percent of a registered class of the Company's equity securities, +to file with the Commission and any exchange or other system on which such +securities are traded or quoted, initial reports of ownership and reports of +changes in ownership of Common Stock and other equity securities of the Company. +Officers, directors and greater than ten percent shareholders are required by +the Commission's regulations to furnish the Company and any exchange or other +system on which such securities are traded or quoted, with copies of all Section +16(a) forms they file with the Commission. +To the Company's knowledge, based solely on review of the copies of +such reports furnished to the Company during the fiscal year ended December 31, +2001, all of the Company's officers, directors and greater than ten percent +shareholders had complied with all Section 16(a) filing requirements. +INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS +The business of the Company is managed under the direction of the Board +of Directors. The Board of Directors meets on a quarterly basis to review +significant developments affecting the Company and to act on matters requiring +Board approval. The Board of Directors may also hold special meetings when an +important matter requires Board action between regularly scheduled meetings. +Each non-employee director receives an annual fee of $10,000 for service on the +Board of Directors and is reimbursed for out-of-pocket expenses incurred to +attend the Board meetings. In addition, effective January 1, 2002, each +non-employee director will receive $2,000 for each meeting of the Board attended +in person and $1,000 for his participation in each telephonic Board meeting. On +the date he or she is initially elected or appointed to the Board, each +non-employee director receives an annual automatic grant of an option to +purchase 5,000 shares of Common Stock for an exercise price equal to the fair +market price on the date of grant and for a ten-year term. Thereafter, for each +subsequent year in which the non-employee director is still serving as director, +he or she shall automatically be granted an option to purchase an additional +5,000 shares on the same terms. +On August 23, 1996, the Compensation Committee authorized a one-time +grant to each non-employee director of an option to purchase 20,000 shares of +Common Stock under the 1996 Plan at a purchase price of $12.00 per share, the +fair market value of the Common Stock on such date. One-fourth of each option +vests at each succeeding annual meeting of directors following each annual +shareholders' meeting, beginning with the 1997 Annual Meeting. On July 25, 2000, +the Compensation Committee authorized a one-time grant to each non-employee +director of an option to purchase 20,000 shares of Common Stock under the 1996 +Plan at a purchase price of $10.50 per share, the fair market value of the +Common Stock on such date. One-fourth of each option vests on August 23, 2000 +and the remaining vests equally at each succeeding annual meeting of directors +following each annual shareholders' meeting, beginning with the 2001 Annual +Meeting. +During 2001, the Board of Directors of the Company met formally four +times and executed eight unanimous written consents. All directors attended at +least 75% of the total number of meetings of the Board of Directors. +8 +In order to facilitate the various functions of the Board of Directors, +the Board of Directors has created an Audit Committee and a Compensation +Committee. The Board of Directors does not have a nominating committee. The +functions customarily performed by a nominating committee are performed by the +entire Board of Directors. Committee members are not remunerated in addition to +their annual Board retainer. +AUDIT COMMITTEE. The Committee monitors the Company's internal +accounting controls, reviews quarterly and annual financial information and +reviews the services and fees of the independent auditors. The Board of +Directors adopted an Audit Committee Charter in 2000. Members are Messrs. Robert +A. Stanger, Chairman, Richard O. Wilson, and John C. Wallace. All of the members +of the Audit Committee meet the New York Stock Exchange's independence +requirements. The Audit Committee held two meetings during 2001, and all members +of the Audit Committee attended the meetings. +COMPENSATION COMMITTEE. The Compensation Committee establishes and +approves the terms of employment of senior executive officers and reviews and +approves management's recommendations concerning compensation of the other +executive officers and certain other employees. Members are Messrs. B. F. +Weatherly, Chairman, Robert A. Stanger, John C. Wallace and Richard O. Wilson. +The Compensation Committee held four meetings during 2001, and all members of +the Compensation Committee attended all meetings. +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. The Callon Family (including John S. Callon and +Fred L. Callon) is party to a Registration Rights Agreement dated September 16, +1994 (the "Registration Rights Agreement"), pursuant to which they are entitled +to require the Company to register Common Stock owned by them with the +Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. NOCO and the Company have entered into a similar agreement, which +was subsequently amended to include F.O. Energy. The registration rights +agreement with F.O. Energy also covers Common Stock held by its assignees, +Ganger Rolf and Bonheur. +AUDIT COMMITTEE REPORT +The Audit Committee of the Board of Directors assists the board in +overseeing the Company's accounting, auditing and financial reporting practices. +The Company's management has primary responsibility for preparing the Company's +financial statements and implementing its internal accounting controls. The +Audit Committee overseas these activities in order to ensure their quality and +integrity. The Audit Committee has reviewed the audited financial statements in +the Company's Annual Report for the year ended December 31, 2001 with +management. The Audit Committee's discussions with management included a review +of the quality, not just the acceptability, of the accounting principles used to +prepare, the reasonableness of significant judgements with respect to, and the +clarity of disclosures in the Company's financial statements. +The Audit Committee reviewed the quality of the accounting principles +used in preparing our financial statements with Arthur Andersen LLP, the +independent public accountants who are responsible for expressing an opinion on +the conformity of our audited financial statements with generally accepted +accounting principles. The Audit Committee also discussed with Arthur Andersen +LLP such other matters as are required to be discussed with its independent +auditors under generally accepted auditing standards, including Statement on +Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90. +FEES PAID TO AUDIT FIRM. Fees paid to auditor Arthur Andersen LLP for +the annual audit were $135,000. All other fees were $42,000 including +audit-related fees of $26,000 and other fees of $16,000. Audit-related fees +include accounting consultation, various attest services under professional +standards, assistance with registration statements, comfort letters and +consents. Other fees were primarily tax services. There were no financial +information systems design and implementation fees. +After reviewing the non-audit services provided by Arthur Andersen LLP +and engaging in discussions with Arthur Andersen LLP regarding their +independence, the Audit Committee determined that the non-audit services +provided to the Company by Arthur Andersen LLP were not inconsistent with Arthur +Andersen LLP's status as independent auditors. The Audit Committee has received +the letter from Arthur Andersen LLP required by Independence Standards Board +Standard No. 1. +Based on its reviews of the Company's audit financial statements and +the discussions with management and Arthur Andersen LLP discussed above, the +Audit Committee recommended to the Board of +9 +Directors that the Company's audited financial statements be included in its +Annual Report on Form 10-K for the year ended December 31, 2001 for filing with +the Commission. +Robert A. Stanger, Chairman +Richard O. Wilson +John C. Wallace +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +The following table sets forth information with respect to the Chief +Executive Officer of the Company and the four most highly compensated executive +officers of the Company for the years ended December 31, 2001, 2000 and 1999. +LONG-TERM +ANNUAL COMPENSATION COMPENSATION AWARDS +------------------------------------------------- -------------------------- +OTHER +ANNUAL RESTRICTED SECURITIES ALL OTHER +COMPEN- STOCK UNDERLYING COMPEN- +SALARY BONUS SATION AWARD(S) OPTIONS SATION +YEAR ($)(a) ($)(b) ($)(c) ($) (#) ($)(d) +---- ----------- ----------- ----------- ----------- ----------- ----------- +Fred L. Callon ............. 2001 271,843 -- -- -- -- 31,117 +President and Chief 2000 262,650 211,000 -- -- 110,000 30,189 +Executive Officer 1999 264,616 174,000 -- -- -- 30,298 +Dennis W. Christian ........ 2001 250,096 -- -- -- -- 29,181 +Sr. Vice President 2000 241,638 195,000 -- -- 65,000 28,328 +and Chief Operating 1999 243,446 169,000 -- -- 35,000 28,420 +Officer +John S. Weatherly .......... 2001 217,474 -- -- -- -- 25,944 +Sr. Vice President 2000 210,120 169,000 -- -- 58,000 25,201 +and Chief Financial 1999 211,692 147,000 -- -- 31,000 25,270 +Officer +Kathy G. Tilley ............ 2001 184,854 -- -- -- -- 20,216 +Vice President 2000 178,602 135,000 -- -- 48,000 19,528 +1999 179,939 133,000 -- -- 25,000 19,535 +Stephen F. Woodcock ........ 2001 168,985 -- -- -- -- 18,479 +Vice President 2000 151,497 100,000 -- -- 44,000 16,562 +1999 152,630 105,000 -- -- 25,000 16,593 +(a) The Company issues payroll checks every other Friday. For 1999, there +were twenty-seven payroll checks issued and for 2000 and 2001, there +were twenty-six payroll checks issued. +(b) There were no bonuses declared in 2002 for service during 2001. The +prior year amounts represent that portion of bonuses declared in +February 2001 and March 2000 and earned by service during 2000 and +1999, respectively. Generally, bonus compensation is not payable unless +the executive remains employed by the Company through the date bonus +compensation is declared, which is generally in March of the following +year. These amounts also include amounts deferred. +(c) None of the named executive officers received perquisites or other +personal benefits, securities or property, the aggregate annual amount +of which exceeded the lesser of $50,000 or 10% of the total of annual +salary and bonus reported for the named executive. +(d) Amounts reflect the Company's contribution in 2001, 2000, and 1999 of +$27,185, 26,265, and $26,462 to Fred L. Callon's 401(k) savings plan +and payment of $3,932, $3,924, and $3,836 term life insurance premiums; +$25,009, $24,164, and $24,344 to Mr. Christian's 401(k) savings plan +and payment of $4,172, $4,164, and $4,076 term life insurance premiums; +$21,747, $21,012, and $21,169 to Mr. Weatherly's 401(k) savings plan +and payment of $4,197, $4,189, and $4,101 term life insurance premiums; +$18,484, $17,860, +10 +and $17,994 to Ms. Tilley's 401(k) savings plan and payment of $1,732, +$1,668, and $1,541 term life insurance premiums; and $16,898, $15,150, +and $15,283 to Mr. Woodcock's 401(k) savings plan and payments of +$1,581, $1,412, and $1,310 term life insurance premiums. +EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +SEVERANCE COMPENSATION AGREEMENTS. Effective January 1, 2002, the +Company entered into Severance Compensation Agreements (the "Agreements") with +Fred L. Callon, Dennis W. Christian and John S. Weatherly providing for certain +benefits to each of them in the event that a "change of control" occurs during +the three-year period after the execution of such Agreements. Each Agreement is +for a three-year term and is automatically extended for successive one year +periods unless either the Company or the executive notifies the other party +prior to such renewal that it has elected to terminate the Agreement; provided +that the term of each Agreement shall be until the later of two years following +the date of a change of control and the satisfaction of all obligations of the +Company under the Agreement. The Agreements terminate upon each executive's +death, disability termination for cause or voluntary resignation other than for +"good reason." +Pursuant to the Agreements, if either Messrs. Callon, Christian or +Weatherly's employment with the Company is terminated without cause by the +Company or for good reason by the executive within two years following a change +of control by the Company, the executive is entitled to a single lump sum cash +payment in an amount equal to three times the sum of (a) the annual base salary +of such executive in effect prior to such termination, and (b) the higher of the +average bonus earned by the executive during the three preceding years or the +target bonus that the executive is eligible to receive during the year of +termination. If the Messrs. Callon, Christian or Weatherly's employment is +terminated as a result of their death or disability, the Company is only +required to make such payments if the termination occurred within six months of +a change of control. "Good reason" is generally defined in the Agreements as a +change in the executive's compensation, benefits, position, responsibilities, or +location. +The Agreements also provide that, upon a change of control, all stock +options, restricted stock, stock appreciation rights and other similar rights +held by Messrs. Callon, Christian or Weatherly shall automatically become fully +exercisable notwithstanding any vesting or exercisability provisions. +If any payment to one of Messrs. Callon, Christian or Weatherly would +be subject to any excise tax under Section 4999 of the Internal Revenue Code of +1986, as amended, a "gross-up" payment will be made to place such executive in +the same net after-tax position as would have been the case if no excise tax had +been payable. +CONSULTING AGREEMENT. The Company entered into a consulting agreement +with John S. Callon, effective as of January 2, 1997, the day he retired as +Chief Executive Officer of the Company. The agreement was amended on February +18, 1999. Pursuant to the agreement, John S. Callon provides consulting services +to the Company on matters pertaining to corporate or financial strategy, +investor relations and public/private financing opportunities. The agreement +remains in effect from the effective date until December 31, 2001, subject to +renewal for succeeding five-year periods unless earlier terminated. As +compensation for his services under the agreement, John S. Callon is paid a fee +of not less than $190,000 per year increased annually based upon the change in +the Consumer Price Index, as adjusted for inflation. In addition, he will remain +eligible to participate in the Company's major medical and disability coverage, +and will be entitled to participate in all other employee benefit plans (other +than a cash bonus program) provided to full-time executives of the Company. As +an inducement for entering into the agreement, John S. Callon was granted 25,000 +restricted shares of Common Stock, 20% of which vests on each of the first five +anniversaries of the effective date of the agreement. On February 18, 1999, the +Board of Directors approved the Compensation Committee's recommendation that all +unvested restricted shares be vested as of such date. +On January 1, 2002, the Company and Mr. Callon agreed to terminate the +consulting agreement upon the financing or refinancing of $45 million of the +Company's indebtedness. As of April 1, 2002, the financing conditions to +termination have not been met. +Upon termination of the agreement, John S. Callon is entitled to +receive a termination payment of $1.5 million, adjusted for inflation, and the +Company will remain obligated to continue to provide medical and disability +coverage. +Pursuant to the 1994 Plan and the 1996 Plan, in the case of a merger or +consolidation where the Company is not the surviving entity, or if the Company +is about to sell or otherwise dispose of substantially all of its assets while +unvested options remain outstanding, the Compensation Committee or other plan +11 +administrator may, in its discretion and without shareholder approval, declare +some or all options exercisable in full before or simultaneously with such +merger, consolidation or sale of assets without regard for prescribed waiting +periods. Alternatively, the Compensation Committee or other plan administrator +may cancel all outstanding options provided option holders are given notice and +a period of 30 days prior to the merger, consolidation or sale to exercise the +options in full. +STOCK-BASED PLANS +The Company currently maintains three Common Stock-based incentive +plans for employees: the Callon Petroleum Company 1994 Stock Incentive Plan, the +Callon Petroleum Company 1996 Stock Incentive Plan, and the 2002 Stock Incentive +Plan. The Company in the past has used and will continue to use stock options +and performance share grants to attract and retain key employees in the belief +that employee stock ownership and stock related compensation devices encourage a +community of interest between employees and shareholders. The Compensation +Committee of the Board of Directors administers all three of the Stock Incentive +Plans. Members of the Compensation Committee currently are Messrs. Stanger, +Wallace, B. F. Weatherly, and Wilson. +1994 PLAN. The 1994 Plan was adopted on June 30, 1994. Pursuant to the +1994 Plan, 600,000 shares of Common Stock were reserved for issuance upon the +exercise of options or for grants of performance shares. During 1999, options to +purchase 25,000 shares were granted to non-employee directors pursuant to +automatic grants. In addition, during 1999 the Compensation Committee approved +option grants of 38,750 shares to certain officers and employees. No awards were +granted under the 1994 Plan during 2000 or 2001. As of March 27, 2002, there +were 370 shares of Common Stock available for grant under the 1994 Plan. +1996 PLAN. On August 23, 1996, the Board of Directors of the Company +approved and adopted the 1996 Plan and granted awards thereunder to various +employees. The 1996 Plan was approved by the shareholders of the Company at the +1997 Annual Meeting. Pursuant to the 1996 Plan, 900,000 shares of Common Stock +were reserved for issuance upon the exercise of options or for grants of +performance shares. On August 20, 1998, the Board of Directors amended the 1996 +Plan, as permitted pursuant to the terms of the 1996 Plan, to increase the +number of shares of Common Stock reserved for issuance by 300,000 shares to +1,200,000 shares. During March 1999, the Compensation Committee approved option +grants of 206,750 shares to certain officers and employees. During March 2000, +the Compensation Committee approved option grants for 533,000 shares to certain +officers and employees. On May 4, 2001 the shareholders of the Company approved +an increase in the available number of shares of Common Stock reserved for +issuance under the 1996 Plan by 1,000,000 shares to 2,200,000 shares. Automatic +option grants to non-employee directors during 2001 were 30,000 shares. On +January 2, 2002, option grants totaling 15,000 shares were awarded to newly +hired employees. As of March 27, 2002, there were 190,123 shares of Common Stock +available for grant under the 1996 Plan. +2002 PLAN. On February 14, 2002, the Board of Directors of the Company +approved and adopted the 2002 Stock Incentive Plan (the "2002 Plan"). Pursuant +to the 2002 Plan, 350,000 shares of common stock shall be reserved for issuance +upon the exercise of options or for grants of stock options, stock appreciation +rights or units, bonus stock, or performance shares or units. This Plan +qualifies as a "broadly based" plan under the provisions of the New York Stock +Exchanges rules and regulations and therefore did not require shareholder +approval. Because the 2002 Plan is a broadly based plan, the aggregate number of +shares underlying awards granted to officers and directors cannot exceed 50% of +the total number of shares underlying the awards granted to all employees during +any three-year period. On February 14, 2002, the Board of Directors authorized +the grant of 300,000 shares pursuant to the 2002 Plan. +BONUS PLAN. In 1996, the Board of Directors authorized the +establishment of a cash bonus program (the "Bonus Plan") to be administered by +the Compensation Committee in accordance with formulas or procedures determined +by the Compensation Committee on an annual basis. Each year, the Compensation +Committee establishes target level bonuses as a percentage of base salary for +certain officers, managers and staff members. The Compensation Committee also +establishes financial and operating goals to be achieved by the Company during +the year and assigns a relative weighting percent to each goal. Cash bonus +awards for the year are then based upon the extent to which such goals were +achieved during the year. See "--Report on Executive Compensation." +1997 EMPLOYEE STOCK PURCHASE PLAN. In 1997, the Board of Directors +authorized the implementation of the Callon Petroleum Company 1997 Employee +Stock Purchase Plan (the "1997 Purchase Plan"), which was approved by the +Company's shareholders at the 1997 Annual Meeting. The Plan provides eligible +employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock +purchase plan. An +12 +aggregate of 250,000 shares of Common Stock have been reserved for issuance over +the ten-year term of the 1997 Purchase Plan. The purchase price per share at +which Common Stock will be purchased on the participant's behalf on each +purchase date within an offering period is equal to eighty-five percent of the +fair market value per share of Common Stock. +OPTION GRANTS IN LAST FISCAL YEAR +There were no options to purchase Common Stock or stock appreciation +rights granted during 2001 to the Chief Executive Officer and the four most +highly compensated executive officers named in the Summary Compensation Table. +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION +VALUES +The following table sets forth certain information concerning the +number and value of unexercised options to purchase Common Stock by the Chief +Executive Officer and the four most highly compensated executive officers named +in the Summary Compensation Table at December 31, 2001. No stock options were +exercised by such persons in 2001. +AGGREGATED OPTION EXERCISES IN 2001 AND OPTION +VALUES AT DECEMBER 31, 2001 +UNEXERCISED OPTIONS AT DECEMBER 31, 2001 +--------------------------------------------- +VALUE OF +NUMBER OF UNDERLYING IN-THE-MONEY +VALUE SECURITIES OPTIONS +SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ +NAME ON EXERCISE (#) ($) UNEXERCISABLE (a) UNEXERCISABLE ($)(b) +---- --------------- -------- ------------------- -------------------- +Fred L. Callon................ -- -- 288,700 / 36,300 0 / 0 +Dennis W. Christian........... -- -- 263,550 / 21,450 0 / 0 +John S. Weatherly............. -- -- 239,860 / 19,140 0 / 0 +Kathy G. Tilley............... -- -- 172,160 / 15,840 0 / 0 +Stephen F. Woodcock........... -- -- 89,480 / 14,520 0 / 0 +(a) Represents awards granted under the 1994 Plan and the 1996 Plan. +(b) On December 31, 2001, the closing price of the Common Stock on the New +York Stock Exchange was $6.85. +LONG-TERM INCENTIVE PLAN AWARDS +Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company +does not have a long-term incentive plan for its employees. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +The members of the Company's Compensation Committee are Messrs. B. F. +Weatherly, Robert A. Stanger, John C. Wallace, and Richard O. Wilson, none of +whom are or have been officers or employees of the Company. +REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is composed of four non-employee directors +who make recommendations to the Board with respect to the annual base and bonus +compensation of the executive officers of the Company. The Compensation +Committee also administers the Company's employee benefit plans. +COMPENSATION POLICY. The Company's goal with respect to its executive +compensation policy is to attract and retain executives who have the ability to +lead Callon in achieving its business objectives in a highly competitive +industry. To this end, the Company's compensation policy is comprised of three +elements: (1) base compensation, (2) bonus compensation, and (3) stock-based +compensation. Historically, the Company has provided for conservative base +salaries with more aggressive incentive compensation in order to emphasize pay +for performance. In addition, the Committee awards stock-based compensation to +encourage greater executive focus on stockholder value. +13 +In the past, the Company had entered into employment agreements with +certain of its executive officers. These agreements established an initial base +salary subject to upward adjustment by the Board of Directors or the +Compensation Committee and provide that such officers are entitled to +participate in the Company's incentive compensation programs. All of these +agreements expired in early 2001, and the Committee has decided not to enter +into new employment agreements at this time. The Compensation Committee believes +that, in order to retain highly qualified executives, it must provide these +persons with some security against organizational and personnel changes in the +event of a change of control of the Company. In order to provide this security, +in early 2002, the Company entered into the Severance Compensations Agreement +described under "--Employment Agreements, Termination of Employment and Change +of Control Arrangements-- Severance Compensation Agreements." The Compensation +Committee believes that these agreements are necessary to provide fair treatment +to key executives in the event of a change of control. In the future, the +Committee may determine that employment or other agreements with its executive +officers, in addition to the Severance Compensation Agreements, are necessary in +order to retain key employees and achieve the Company's long-term growth +objectives. +Currently, the Committee does not intend to award levels of +compensation that would result in a limitation on the deductibility of a portion +of such compensation for federal income tax purposes pursuant to Section 162(m) +of the Internal Revenue Code of 1986, as amended; however, the Committee may +authorize compensation that results in such limitations in the future if it +determines that such compensation is in the best interest of the Company. +BASE COMPENSATION. The Compensation Committee reviews each executive +officer's salary annually. The Committee has applied the same principals to +establish base compensation since the Company was formed in 1994, taking into +account both competitive realities and subjective factors. The base compensation +decision has no specific relationship to Company performance. As its primary +consideration, the Committee evaluates compensation set for comparable positions +by the Company's competitors, targeting the median of such compensation. To +determine base salaries paid by such peer group companies, the Committee +analyzes published industry survey data and proxy and annual report information +among energy companies of similar size, complexity and activity. From time to +time, the Company also engages independent compensation consulting firms. With +input from management of the Company, the Committee also takes into account +certain subjective factors such as individual performance and contribution to +the Company's success, seniority, experience level, internal equities within the +Company and general economic and industry conditions. No specific weight, +however, is assigned to these factors if they are considered. +After reviewing the salary levels of the Company's peers, the Company +decided to increase the base salaries of the Company's executive officers for +2001 by 3.5%, representing a "cost of living" adjustment. In addition to +evaluating salary increases in the industry, the Committee also took into +account a subjective valuation of each individual officer's contributions to the +Company's performance in 2000, potential contributions during 2001, and general +inflationary considerations. This cost of living increase was intended to match +similar increases by the Company's competitors and reflects the Committee's +commitment to maintaining competitive salary levels. +BONUS COMPENSATION. In 1996, the Board of Directors established the +Bonus Plan in order to tie compensation to certain fiscal targets affecting +short and long-term share price performance. Since that time, bonus compensation +has been awarded under the Bonus Plan as administered by the Compensation +Committee. As prescribed by the Bonus Plan, the Committee adheres to a formal +decision process for determining annual bonus compensation. At the core of this +process are pre-set financial and operating goals established by the Committee +as determinants of share price over time. For 2001, these goals were set with +respect to cash flow, net income, net reserve additions, and finding costs. The +Committee assigns to each goal a relative weighting percent, which is multiplied +at year-end by the percentage by which each such goal was achieved in order to +determine the "Weighted Goal Achieved." The Committee then derives the "Total +Goal Achieved" by adding together each Weighted Goal Achieved. In addition, the +Committee establishes target level bonuses as a percentage of base salary for +officers and other employees. If the Total Goal Achieved at year-end is (i) less +than 80%, no bonuses will be awarded under the Bonus Plan; (ii) between 80% and +120%, bonuses will be awarded at 80% to 120% of the target level; and (iii) more +than 120%, additional bonuses will be awarded at the discretion of the +Committee. For the year ended December 31, 2001, the Total Goal Achieved was +less than the required minimum of 80% of the goals set for 2001. Accordingly, no +bonus compensation was awarded. The Compensation Committee anticipates following +a similar formula for determining cash bonuses for 2002, subject to adjustment +for 2002 performance goals. +STOCK-BASED COMPENSATION. The Company relies heavily upon stock options +to compensate executive officers. The Committee generally subjects option grants +to a vesting schedule and establishes +14 +the exercise price as the fair market value (based on trading on the New York +Stock Exchange) of the Common Stock on the date of grant. The Committee believes +that these terms align the interests of the Company's executives with those of +its stockholders. +To determine the timing and amount of stock-based awards, the +Compensation Committee considers the factors set forth under "Base Compensation" +above as well as the employee's ability to influence the Company's future +performance. The Committee also takes into account the number of outstanding and +unvested options held by an executive officer as well as the size of previous +option awards to such executive officer. Based on the Company's operating +results and the market price of its Common Stock, the Committee decided not to +grant options in 2001 to executive officers. +In the past, the Committee has issued performance shares to executive +officers. There are no performance shares currently outstanding; however, the +Committee will continue to monitor the Company's stock-based compensation +program to determine if performance shares should be granted in the future. +COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. Callon's base salary was +increased by the Committee to $271,843 for 2001 as compared to $262,650 for 2000 +in order to keep Mr. Callon's salary level competitive with the chief executive +officer position at peer group companies as well as taking into account the +subjective factors described above under "Base Compensation." See "Executive +Compensation." In particular, the Committee considered Mr. Callon's leadership +role in overseeing the Company's drilling program, particularly in the Gulf of +Mexico deepwater region, and capital market financing activities. +Under the Bonus Plan formula set by the Compensation Committee, Fred L. +Callon did not earn a bonus during 2001. Mr. Callon was not granted any +additional stock options during 2001. +B. F. Weatherly, Chairman +Robert A. Stanger +John C. Wallace +Richard O. Wilson +15 +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five +years ended December 31, 2001, in the cumulative total shareholder return on the +Company's Common Stock against the cumulative total return for the (i) NYSE +Market Value Index and (ii) Media General Financial Services Industry and Market +Index of SIC Group 121 (the "Industry Group Index") consisting of oil and gas +companies. +[GRAPH] +12/31/96 12/31/97 12/31/98 12/31/99 12/29/00 12/31/01 +Callon Petroleum Company (2) $ 100 $ 86 $ 61 $ 78 $ 88 $ 36 +NYSE Market Value Index (2) $ 100 $ 132 $ 157 $ 171 $ 176 $ 160 +Industry Group Index (2) $ 100 $ 93 $ 60 $ 84 $ 123 $ 100 +(1) The comparison of total return on an investment for each of the periods +assumes that $100 was invested on December 31, 1996, in the Company, +the NYSE Market Index and the Industry Group Index, and that all +dividends were reinvested. +(2) The Company's Common Stock was traded on the Nasdaq NMS from September +19, 1994 until April 21, 1998. On April 22, 1998, the Company's Common +Stock began trading on the New York Stock Exchange. +16 +INDEPENDENT PUBLIC ACCOUNTANTS +As of April 15, 2002, the Board of Directors has not selected an +independent public accounting firm for the examination of the accounts and audit +of the financial statements of the Company for the year ending December 31, +2002. This decision has been delayed due to the uncertainties surrounding the +availability of future services by Arthur Andersen LLP. It is anticipated that +the independent public accounting firm that will audit the Company's financial +statements for the year ended December 31, 2002 will be selected in the near +future. +Arthur Andersen LLP served as independent public accountants for the +examination of the accounts and audit of the financial statements of the Company +for the year ending December 31, 2001. A representative of Arthur Andersen LLP +will be present at the Annual Meeting and will have an opportunity to make a +statement, if he desires, and to respond to appropriate questions. +SHAREHOLDERS' PROPOSALS FOR 2003 ANNUAL MEETING +Shareholders who desire to present proposals at the 2003 Annual Meeting +of Shareholders and to have proposals included in the Company's proxy materials +must submit their proposals to the Company at its principal executive offices +not later than December 16, 2002. If the date of the 2003 Annual Meeting of +Shareholders is changed by more than 30 days from the date of the 2002 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable +time before the Company begins to print and mail its proxy materials for its +2003 Annual Meeting of Shareholders. +The persons named in the Company's form of proxy for the 2003 Annual +Meeting will have discretionary authority to vote any proxies they hold at such +meeting on any matter for which the Company does not receive notice by March 3, +2003, unless the Company changes the date of its 2003 Annual Meeting of +Shareholders by more than 30 days from the date of the 2002 Annual Meeting of +Shareholders, in which case such persons will be able to exercise discretionary +authority if notice of the matter has not been received in a reasonable time +before the Company mails its proxy materials for the 2003 Annual Meeting of +Shareholders. +If the date of the 2003 Annual Meeting of Shareholders is advanced or +delayed by more than 30 calendar days from the date of the 2001 Annual Meeting +of Shareholders, the Company shall, in a timely manner, inform shareholders of +such change, by including a notice, under Item 5, in its earliest possible +quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company's proxy statement and the new +date for determining whether the Company may exercise discretionary voting +authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company +receives any such proposal, it is suggested that shareholders submit their +proposals by certified mail, return receipt requested, or other means that +permit them to prove the date of delivery. +FINANCIAL STATEMENTS +Financial statements of the Company for its most recent fiscal year are +contained in the 2001 Annual Report and the Company's Report on Form 10-K. +COPIES OF THE COMPANY'S ANNUAL REPORT AND THE COMPANY'S REPORT ON FORM 10-K ARE +AVAILABLE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE INVESTOR RELATIONS +DEPARTMENT, CALLON PETROLEUM COMPANY, 200 NORTH CANAL STREET, NATCHEZ, +MISSISSIPPI 39120. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at +the Annual Meeting other than those described above. If other business comes +before the Annual Meeting, the persons named on the Proxy will vote the Proxy in +accordance with what they consider to be in the best interests of the Company +and its shareholders. +By order of the Board of Directors +/s/ FRED L. CALLON +Natchez, Mississippi Fred L. Callon +April 15, 2002 President and Chief Executive Officer +17 +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +OF THE COMPANY FOR THE ANNUAL MEETING ON MAY 8, 2002 +The undersigned hereby constitutes and appoints John S. Callon and Fred L. +Callon and each of them, his true and lawful agents and proxies with full power +of substitution in each, to represent and to vote, as designated on the reverse, +all of the shares of Common Stock of Callon Petroleum Company, held of record by +the undersigned on March 27, 2002, at the Annual Meeting of Shareholders to be +held in the Le Grand Pre Ballroom of the Natchez Eola Hotel, 100 North Pearl +Street, Natchez, Mississippi 39120 on May 8, 2002, and at any adjournments +thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL +BE VOTED "FOR" THE ELECTION OF DIRECTORS AS INDICATED ON THE REVERSE SIDE +HEREOF. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES +(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN +ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +(To be signed on reverse side) +PLEASE DATE, SIGN AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF SHAREHOLDERS +CALLON PETROLEUM COMPANY +MAY 8, 2002 +o Please Detach and Mail in the Envelope Provided o +[X] PLEASE MARK YOUR +VOTES AS IN THIS +EXAMPLE. +FOR WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS. +authority for all +1. ELECTION Nominees 2. In their discretion, the Proxies are authorized +OF to vote upon such other business as may properly +DIRECTORS [ ] [ ] NOMINEES: John S. Callon come before the meeting or any adjournments thereof. +Leif Dons +To withhold authority to vote B. F. Weatherly THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN +for any specific nominee(s), THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, +mark the "FOR" box and write THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF +the name of each such nominee, DIRECTORS. +on the line provided below. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD +PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE +------------------------------- ENCLOSED. +SIGNATURE DATE SIGNATURE DATE +------------------------- -------- -------------------------- --------- +Note: Please sign exactly as name appears hereon. Joint owners should each +sign. when signing as attorney, executor, administrator, trustee or as +guardian, please indicate your full title as such. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-02-001917/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-02-001917/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..bc67dd34e1f12390166612fbb8158eaad0d24de5 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-02-001917/proxy_rpt.txt @@ -0,0 +1,11 @@ +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. The Callon Family (including John S. Callon and +Fred L. Callon) is party to a Registration Rights Agreement dated September 16, +1994 (the "Registration Rights Agreement"), pursuant to which they are entitled +to require the Company to register Common Stock owned by them with the +Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. NOCO and the Company have entered into a similar agreement, which +was subsequently amended to include F.O. Energy. The registration rights +agreement with F.O. Energy also covers Common Stock held by its assignees, +Ganger Rolf and Bonheur. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-03-001996/proxy.txt b/raw/proxies/0000928022/0000950129-03-001996/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0b2db8c5adeed9a0901fb3a2a6a5e6ff1acf114d --- /dev/null +++ b/raw/proxies/0000928022/0000950129-03-001996/proxy.txt @@ -0,0 +1,1349 @@ +DEF 14A +1 +h03281def14a.txt +CALLON PETROLEUM COMPANY - MEETING: MAY 2, 2003 +OMB APPROVAL +-------------------------- +OMB Number: 3235-0059 +Expires: August 31, 2004 +Estimated average burden +hours per response...14.73 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant [ ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement. +[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY +RULE 14a-6(e)(2)). +[X] Definitive Proxy Statement. +[ ] Definitive Additional Materials. +[ ] Soliciting Material Pursuant to Section 240.14a-12 +Callon Petroleum Company +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +-------------------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +-------------------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +-------------------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +-------------------------------------------------------------------------------- +5) Total fee paid: +-------------------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +-------------------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +-------------------------------------------------------------------------------- +3) Filing Party: +-------------------------------------------------------------------------------- +4) Date Filed: +-------------------------------------------------------------------------------- +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION +CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A +CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD FRIDAY, MAY 2, 2003 +To the Shareholders of +Callon Petroleum Company (the "Company"): +Notice is hereby given that the Annual Meeting of Shareholders (the +"Annual Meeting") of the Company will be held in Natchez, Mississippi, on +Friday, May 2, 2003, at 9:00 a.m., in the St. Louis Room of the Natchez +Convention Center, 211 Main Street, Natchez, Mississippi 39120, for the +following purposes: +1. To elect two Class III directors to hold office until the 2006 +Annual Meeting of Shareholders; and +2. To ratify the appointment of Ernst & Young LLP as the +Company's independent auditors for the fiscal year ending +December 31, 2003; and +3. To transact such other business as may properly come before +the Annual Meeting or any adjournment or adjournments thereof. +Shareholders of record at the close of business on March 21, 2003 will +be entitled to notice of, and to vote at, the Annual Meeting, or any adjournment +or adjournments thereof. +Shareholders are cordially invited to attend the Annual Meeting in +person. Those individuals who will not attend and who wish for their shares to +be voted are requested to sign, date and mail promptly the enclosed proxy card +for which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/S/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 14, 2003 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU +CANNOT ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT +PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF +THE ENVELOPE IS MAILED IN THE UNITED STATES. +PROXY STATEMENT +--------------------- +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +(601) 442-1601 +----------------- +ANNUAL MEETING OF SHAREHOLDERS +FRIDAY, MAY 2, 2003 +----------------- +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation +of proxies on behalf of the Board of Directors of Callon Petroleum Company, a +Delaware corporation (the "Company"), from holders ("Shareholders") of the +common stock, $.01 par value per share ("Common Stock"), of the Company for use +at the Annual Meeting of Shareholders of the Company to be held on Friday, May +2, 2003, at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, +211 Main Street, Natchez, Mississippi 39120, and at any adjournment or +adjournments thereof (such meeting or adjournment thereof is referred to herein +as the "Annual Meeting"), for the purpose of considering and voting upon the +matters set forth in the accompanying Notice of Annual Meeting of Shareholders +("Notice"). +A proxy in the form accompanying this Proxy Statement (each a "Proxy"), +when properly executed and returned, will be voted in accordance with the +directions specified on the Proxy, and otherwise in accordance with the judgment +of the persons designated therein as proxies. Any Proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for +the election of the nominees named herein to the Board of Directors and in favor +of the other proposals set forth in the Notice. Any Proxy may be revoked at any +time before it is exercised by delivering, to the Secretary of the Company, +written notice of revocation or a duly executed Proxy bearing a later date, or +by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are +being mailed to Shareholders on or about April 14, 2003. The Annual Report for +the Company's fiscal year ended December 31, 2002 is also being mailed to +Shareholders contemporaneously with this Proxy Statement, although the Annual +Report does not form a part of the material for the solicitation of Proxies. +Proxies will be solicited primarily by mail, but employees of the +Company may also solicit Proxies in person or by telephone. Arrangements may be +made with brokerage firms or other custodians, nominees, and fiduciaries to send +proxy materials to the beneficial owners of the Common Stock of the Company. All +costs incurred in the solicitation of Proxies will be borne by the Company. +MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING +Unless otherwise indicated, Proxies in the form enclosed that are +properly executed, duly returned, and not revoked will be voted in favor of (1) +the election of the two Class III director nominees to the Board of Directors +named herein, and (2) the ratification of the appointment of Ernst & Young LLP +as the Company's independent auditors for the fiscal year ending December 31, +2003. +The Board of Directors is not presently aware of other proposals that +may be brought before the Annual Meeting. In the event other proposals are +brought before the Annual Meeting, the persons named in the enclosed Proxy will +vote in accordance with what they consider to be in the best interests of the +Company and its Shareholders. +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 21, +2003 as the record date (the "Record Date") for the determination of +Shareholders entitled to notice of, and to vote at, the Annual Meeting. A +complete list of all Shareholders entitled to vote at the Annual Meeting will be +open for examination by any Shareholder during normal business hours for a +period of ten days prior to the Annual Meeting at the offices of the Company, +200 North Canal Street, Natchez, Mississippi 39120. Such list will also be +available at the Annual Meeting and may be inspected by any Shareholder who is +present. On the Record Date, the Company's outstanding voting securities +consisted of 13,919,457 shares of Common Stock. Holders of Common Stock will be +entitled to one vote per share of Common Stock held of record on the Record Date +for each proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued +and outstanding on the Record Date, whether present in person or represented by +Proxy, will constitute a quorum for the transaction of business at the Annual +Meeting. For purposes of determining whether a quorum is present under Delaware +law, broker non-votes and abstentions count towards the establishment of a +quorum. The election of directors requires the favorable vote of the holders of +a plurality of shares of Common Stock present and voting, in person or by Proxy, +at the Annual Meeting. Abstentions and broker non-votes have no effect on +determinations of plurality except to the extent that they affect the total +votes received by any particular candidate. A majority of the votes represented +by the Shareholders present at the Annual Meeting, in person or by proxy, is +necessary for ratification of the appointment of the Company's independent +auditors. Abstaining shares will be considered present at the Annual Meeting for +this matter so that the effect of abstentions will be the equivalent of a "no" +vote. With respect to broker non-votes, the shares will not be considered +present at the Annual Meeting for this matter so that broker non-votes will have +the practical effect of reducing the number of affirmative votes required to +achieve a majority vote by reducing the total number of shares from which the +majority is calculated. +2 +BENEFICIAL OWNERSHIP OF SECURITIES +MANAGEMENT AND PRINCIPAL SHAREHOLDERS +The following table sets forth, as of the Record Date, certain +information with respect to the ownership of shares of Common Stock and the +Company's $2.125 Convertible Exchangeable Preferred Stock ("Preferred Stock") as +to (i) all persons known by the Company to be the beneficial owners of 5% or +more of the outstanding Common Stock, (ii) each director, (iii) each nominee for +director, (iv) each of the executive officers named in the Summary Compensation +Table, and (v) all executive officers and directors of the Company as a group. +Information set forth in the table with respect to beneficial ownership of +Common Stock and Preferred Stock has been obtained from filings made by the +named beneficial owners with the Securities and Exchange Commission +("Commission") as of the Record Date or, in the case of executive officers and +directors of the Company, has been provided to the Company by such individuals. +Holders of Preferred Stock are not entitled to vote at the Annual Meeting. +COMMON STOCK +---------------------------------- +NAME AND ADDRESS OF BENEFICIAL +BENEFICIAL OWNER OWNERSHIP PERCENT +(A) +--------------------------------------------------- ----------------- ------------- +Directors: +John S. Callon ............................... 234,384(b) 1.67% +Fred L. Callon ............................... 795,339(c) 5.58% +200 North Canal Street +Natchez, Mississippi 39120 +Dennis W. Christian .......................... 363,095(d) 2.56% +Leif Dons .................................... 40,250(e) * +Robert A. Stanger ............................ 92,856(f) * +John C. Wallace .............................. 1,986,138(g) 14.19% +72 Chelsea Gate Apartments +93 Ebury Bridge Road +London, SW1W 8RB, United Kingdom +B. F. Weatherly .............................. 94,288(h) * +Richard O. Wilson ............................ 133,328(i) * +Named Executive Officers: +John S. Weatherly ............................ 332,268(j) 2.34% +Stephen F. Woodcock .......................... 131,558(k) * +Kathy G. Tilley .............................. 243,869(l) 1.73% +Directors and Executive Officers: +as a Group (16 persons) ...................... 4,865,253(m) 30.63% +Certain Beneficial Owners: +Ganger Rolf ASA .............................. 1,839,386(n) 13.21% +Fred. Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA .................................. 1,839,386(n) 13.21% +Fred. Olsensgate 2 +0152 Oslo, Norway +State Street Research & Management Company ... 894,400(o) 6.43% +One Financial Center, Thirtieth Floor +Boston, Massachusetts 02111-2690 +Dimensional Fund Advisors Inc. ............... 946,700(p) 6.80% +1299 Ocean Avenue, 11th Floor +Santa Monica, CA 90401 +---------------- +* Less than 1% +(a) Unless otherwise indicated, each of the persons listed in the following +table may be deemed to have sole voting and dispositive power with +respect to such shares. +(b) Of the 234,384 shares beneficially owned by John S. Callon, 104,437 are +owned directly by him; 10,000 shares are owned in joint tenancy with +his wife; 4,947 shares are owned within the Company's Employee Savings +and Protection Plan; 90,000 shares are subject to options under the +Company's 1994 Stock Incentive Plan ("1994 Plan") exercisable within 60 +days; and 25,000 shares +3 +are subject to options under the Company's 1996 Stock Incentive Plan +("1996 Plan") exercisable within 60 days. Shares indicated as owned +by John S. Callon do not include 43,501 shares of Common Stock owned +by his wife over which he disclaims beneficial ownership. +(c) Of the 795,339 shares beneficially owned by Fred L. Callon, 277,487 +shares are owned directly by him; 184,378 shares are held by him as +custodian for certain minor Callon family members; 8,474 shares are +owned within the Company's Employee Savings and Protection Plan; 80,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; and 245,000 shares are subject to options under the 1996 Plan +exercisable within 60 days. Shares indicated as owned by Fred L. Callon +do not include 24,939 shares of Common Stock owned by his wife over +which he disclaims beneficial ownership. +(d) Of the 363,095 shares beneficially owned by Dennis W. Christian, 70,338 +are owned directly by him; 7,757 shares are owned within the Company's +Employee Savings and Protection Plan; 60,000 shares are subject to +options under the 1994 Plan exercisable within 60 days; and 225,000 +shares are subject to options under the 1996 Plan exercisable within 60 +days. +(e) Of the 40,250 shares beneficially owned by Leif Dons, 5,250 are owned +directly by him; 5,000 shares are subject to options under the 1994 +Plan exercisable within 60 days and 30,000 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(f) Of the 92,856 shares beneficially owned by Robert A. Stanger, 12,856 +are owned directly by him; 25,000 shares are subject to options under +the 1994 Plan exercisable within 60 days; and 55,000 shares are subject +to options under the 1996 Plan exercisable within 60 days. +(g) Of the 1,986,138 shares beneficially owned by John C. Wallace, 49,781 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 55,000 shares are +subject to options under the 1996 Plan exercisable within 60 days; +16,971 shares are owned by Fred. Olsen, Ltd.; and 1,839,386 shares are +owned by Ganger Rolf ASA ("Ganger Rolf") and Bonheur ASA ("Bonheur"). +See note (n). +(h) Of the 94,288 shares beneficially owned by B. F. Weatherly, 14,288 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; and 55,000 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(i) Of the 133,328 shares beneficially owned by Richard O. Wilson, 25,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; 55,000 shares are subject to options under the 1996 Plan +exercisable within 60 days; 49,464 shares are held in a family limited +partnership; and 3,864 shares are issuable upon conversion of 1,700 +shares of Preferred Stock held in the family limited partnership. +(j) Of the 332,268 shares beneficially owned by John S. Weatherly, 65,947 +are owned directly by him; 218 shares are held as custodian for his +minor children; 7,103 shares are owned within the Company's Employee +Savings and Protection Plan; 60,000 shares are subject to options under +the 1994 Plan exercisable within 60 days; and 199,000 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(k) Of the 131,558 shares beneficially owned by Stephen F. Woodcock, 22,611 +are owned directly by him; 4,947 shares are owned within the Company's +Employee Savings and Protection Plan; and 104,000 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(l) Of the 243,869 shares beneficially owned by Kathy G. Tilley, 50,353 are +owned directly by her; 5,516 shares are owned within the Company's +Employee Savings and Protection Plan; 30,000 shares are subject to +options under the 1994 Plan exercisable within 60 days; and 158,000 +shares are subject to options under the 1996 Plan exercisable within 60 +days. +(m) Includes 500,000 shares subject to options under the 1994 Plan +exercisable within 60 days; 1,460,500 shares subject to options under +the 1996 Plan exercisable within 60 days; and 3,864 shares issuable +upon conversion of 1,700 shares of Preferred Stock. +(n) As disclosed on a Schedule 13D/A, filed with the Commission on March 6, +2002, by Ganger Rolf, Bonheur, AS Quatro ("Quatro"), and Invento AS +("Invento"). On August 28, 2000, Ganger Rolf and Bonheur jointly +purchased from Fred. Olsen Energy ASA ("F.O. Energy") an aggregate of +1,839,386 shares of Common Stock. Ganger Rolf and Bonheur are currently +registered as the joint record owner of, and both possess shared voting +and dispositive power with respect to, all of the +4 +1,839,386 shares of Common Stock formerly owned by F.O. Energy. F.O. +Energy no longer owns any Common Stock. Quatro is the owner of 21.3% of +the outstanding capital stock of Bonheur, and Invento is the owner of +20.8% of the outstanding capital stock of Bonheur. Quatro and Invento +disclaim beneficial ownership of the shares of Common Stock owned by +Ganger Rolf and Bonheur. John C. Wallace, one of our directors, is a +director of Ganger Rolf and Bonheur, as well as other companies +associated with Ganger Rolf and Bonheur, and as a result, may be deemed +to share the power to vote and dispose of, and, therefore, be a +beneficial owner of, the shares of Common Stock owned by Ganger Rolf +and Bonheur. The principal business address and principal executive +offices of Quatro and Invento are located at Fred. Olsensgate 2, 0152 +Oslo, Norway. +(o) Information is based upon a Schedule 13G provided to the Company dated +February 14, 2003, by State Street Research & Management Company +("State Street"). In this Schedule 13G, State Street represents that it +has sole voting power with respect to 859,400 shares of Common Stock +and sole dispositive power with respect to 894,400 shares of Common +Stock. +(p) Information is based upon a Schedule 13G/A, filed with the Commission +on February 13, 2003, by Dimensional Fund Advisors Inc. +("Dimensional"). In this Schedule 13G, Dimensional represents that it +has sole voting power and sole dispositive power with respect to +946,700 shares of Common Stock. +PROPOSAL I +ELECTION OF DIRECTORS +NOMINEES +The Company's Certificate of Incorporation provides for a classified +Board of Directors. The Board of Directors is divided into three classes of +nearly equal size, designated as Class I (currently with three directors), Class +II (currently with three directors) and Class III (currently with two +directors). One class of directors is elected at each annual meeting of +Shareholders to serve for a three-year term. +The terms of the two Class III directors, Messrs. Fred L. Callon and +Dennis W. Christian, will expire on the date of the Annual Meeting. Messrs. Fred +L. Callon and Dennis W. Christian (the "Nominees") have been nominated to serve +as Class III directors until the 2006 Annual Meeting and until their respective +successors have been duly elected and qualified. Each of the Nominees was +nominated by the Board of Directors. +It is intended that all shares of Common Stock represented by the +Proxies will be voted for the election of the Nominees, except where authority +to vote in the election of directors has been withheld. Should the Nominees +become unable or unwilling to serve as directors at the time of the Annual +Meeting, the person or persons exercising the Proxies will vote for the election +of substitute Nominees designated by the Board of Directors, or the Board of +Directors may choose to reduce the number of members of the Board of Directors +to be elected at the Annual Meeting in order to eliminate the vacancy. The +Nominees have consented to be nominated and have expressed their intention to +serve if elected. The Board of Directors has no reason to believe that the +Nominees will be unable or unwilling to serve if elected. Only the Nominees or +substitute Nominees designated by the Board of Directors will be eligible to +stand for election as directors at the Annual Meeting. See "Shareholders' +Proposals for 2004 Annual Meeting." +5 +DIRECTORS AND EXECUTIVE OFFICERS +The following table provides information with respect to the Nominees, +all current directors whose terms will continue after the Annual Meeting, and +the present executive officers of the Company. Each executive officer has been +elected to serve until his or her successor is duly appointed or elected by the +Board of Directors or their earlier removal or resignation from office. +COMPANY +POSITION +NAME AGE SINCE PRESENT COMPANY POSITION +------------------------------------- ---------- ------------------ ---------------------------------------------- +CLASS I DIRECTORS: +(Term Expires in 2004) +Robert A. Stanger.................. 63 1995 Director +John C. Wallace.................... 64 1994 Director +Richard O. Wilson.................. 73 1995 Director +CLASS II DIRECTORS: +(Term Expires in 2005) +John S. Callon..................... 83 1994 Director; Chairman of the Board +Leif Dons.......................... 53 1999 Director +B. F. Weatherly.................... 58 1994 Director +CLASS III DIRECTORS: +(Term Expires in 2003) +Fred L. Callon..................... 53 1994 Director; President; Chief Executive +Officer; Nominee +Dennis W. Christian................ 56 1994 Director; Senior Vice President; Chief +Operating Officer; Nominee +OTHER EXECUTIVE OFFICERS: +James O. Bassi..................... 48 1997 Vice President; Controller +Robert A. Mayfield................. 52 2000 Corporate Secretary +Thomas E. Schwager................. 52 1997 Vice President +H. Clark Smith .................... 50 2001 Corporate Information Officer +Rodger W. Smith.................... 53 1999 Treasurer +Kathy G. Tilley.................... 57 1996 Vice President +John S. Weatherly.................. 51 1994 Senior Vice President; Chief Financial +Officer +Stephen F. Woodcock................ 51 1997 Vice President +The following is a brief description of the background and principal +occupation of each director (including each Nominee) and executive officer: +James O. Bassi is Vice President and Controller of the Company and +Callon Petroleum Operating Company ("Callon Petroleum Operating"). Prior to +being appointed Vice President in November 1997, he had been Controller since +June 1997. Prior to being appointed to his position as Controller, he had been +Manager of the Accounting Department for the Company and Callon Petroleum +Operating. Mr. Bassi has been employed by the Company and its predecessors for a +total of twelve years. Prior to his employment by the Company, he was employed +by Arthur Andersen LLP. He received his B.S. degree in accounting in 1976 from +Mississippi State University. He is a member of the American Institute of +Certified Public Accountants and the Mississippi Society of Certified Public +Accountants. +Fred L. Callon has been President and Chief Executive Officer of the +Company and Callon Petroleum Operating since January 1997. Prior to January +1997, he was President and Chief Operating Officer of the Company, positions he +had held with the Company or its predecessors since 1984. He has been employed +by the Company or its predecessors since 1976. Mr. Callon graduated from +Millsaps College in 1972 and received his M.B.A. degree from the Wharton School +of Finance in 1974. Following graduation and until his employment by Callon +Petroleum Operating, he was employed by Peat, Marwick, Mitchell & Co., certified +public accountants. He is the nephew of John S. Callon. +John S. Callon is Chairman of the Board of Directors of the Company and +Callon Petroleum Operating. Effective January 2, 1997, John S. Callon resigned +from his position as Chief Executive Officer of the Company, a position he had +held since 1980. Mr. Callon founded the Company's predecessors in +6 +1950, and has held an executive office with the Company or its predecessors +since that time. He has served as a director of the Mid-Continent Oil and Gas +Association and as the President of the Association's Mississippi-Alabama +Division. He has also served as Vice President for Mississippi of the +Independent Petroleum Association of America. He is a member of the American +Petroleum Institute. Mr. Callon is the uncle of Fred L. Callon. +Dennis W. Christian has been Senior Vice President and Chief Operating +Officer of the Company and Callon Petroleum Operating since January 1997. Prior +to January 1997, he was Senior Vice President of Operations and Acquisitions and +had held that or similar positions with the Company or its predecessors since +1981. Prior to joining Callon Petroleum Operating, he was resident manager in +Stavanger, Norway, for Texas Eastern Transmission Corporation. His previous +experience includes five years with Chevron U.S.A. Inc. Mr. Christian received +his B.S. degree in petroleum engineering in 1969 from Louisiana Polytechnic +Institute. +Leif Dons has since 1997 been Senior Vice President, Business +Development of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged +in the offshore energy service industry. From 1992 until 1997, Mr. Dons was +employed by Kvaerner ASA in various positions, including the fields of +international operations and the commercialization of new technology, and as +resident country manager responsible for Israel and Palestine. From 1983 until +1991, he served as the Managing Director of Norwegian Oil Consortium A/S & Co., +an oil company with producing properties in Norway. He negotiated the sale of +that company in 1991. From 1973 until 1983, Mr. Dons held various positions as +an analyst, staff engineer and economist at the Pulp and Paper Research +Institute, Norway and Saga Petroleum ASA. Mr. Dons received a Master of Science +degree in engineering from the Norwegian Institute of Technology in 1973. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax +Services for the Company and Callon Petroleum Operating. He was appointed +Corporate Secretary in February 2000. Prior to his appointment as Corporate +Secretary, he had served as the Manager of Tax Services and Securities and +Exchange Commission Reporting since 1981. Prior to joining Callon, he was +employed by McCormick Oil and Gas Company in Houston, Texas, where he served as +an assistant to the tax manager. Mr. Mayfield received his B.S. degree in +accounting from Louisiana Tech University in 1972 and is a member of the +American Society of Corporate Secretaries. +Thomas E. Schwager has been Vice President of Engineering and +Operations for the Company and Callon Petroleum Operating since November 1997. +Mr. Schwager has held various engineering positions with the Company and its +predecessors since 1981. Prior to joining the Company, Mr. Schwager held +engineering positions with Exxon Company USA in Louisiana and Texas. He received +his B.S. degree in petroleum engineering from Louisiana State University in +1972. He is a registered professional engineer and a member of the Society of +Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and +Callon Petroleum Operating. Prior to being appointed to that position in March +2001, he had served as Manager - Information Technology since January 1990 and +in other computer related positions with the Company and its predecessors since +1983. At Mississippi State University, he majored in Industrial Technology. +During his tenure with the Company, he has received extensive technical and +management training from the University of Southern Mississippi, International +Business Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also +served as Manager - Information Services with Jefferson Davis Regional Medical +Center and as a principal of the consulting firm, Mississippi Computing +Consultants. +Rodger W. Smith is the Treasurer for the Company and Callon Petroleum +Operating. Prior to being appointed to that position in April 1999, he had +served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith +was Manager of Exploration and Production Accounting and has been employed by +the Company and its predecessors since 1983. Prior to his employment with the +Company, he was employed by International Paper Company as a plant controller. +He received his B.S. degree in accounting from the University of Southern +Mississippi in 1973. +Robert A. Stanger since 1978 has been the Chief Executive Officer and +Chairman of Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based +firm engaged in publishing financial material and providing investment banking +services to the real estate and oil and gas industries. He is a director of +Citizens Utilities, Stamford, Connecticut, a provider of telecommunications, +electric, natural gas, and water services. Previously, Mr. Stanger was Vice +President of Merrill Lynch & Co. He received his B.A. degree in economics from +Princeton University in 1961. Mr. Stanger is a member of the National +Association of Securities Dealers and the New York Society of Security Analysts. +7 +Kathy G. Tilley is Vice President of Business Development for the +Company and Callon Petroleum Operating, a position she has held since April +1996. Ms. Tilley was employed by Callon Petroleum Operating in December 1989 as +Manager of Acquisitions and prior thereto, had held that or similar positions as +a consultant to the Company since 1981. Ms. Tilley received her B.A. degree in +economics from Louisiana State University in 1967. +John C. Wallace is a Chartered Accountant having qualified with +PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers +& Co., Limited in London, England. For over twenty years, he has served as +Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 +and which specializes in the business of shipping, renewable energy and property +development. Mr. Wallace is a director of Fred. Olsen Energy ASA, a +publicly-held Norwegian company engaged in the offshore energy service industry; +and Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping +companies. +B. F. Weatherly has been a principal of CapSource Financial, Houston, +Texas, an investment-banking firm, since 1989. He is also a general partner of +CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and has held +that position since 1997. Mr. Weatherly received a Master of Accountancy degree +from the University of Mississippi in 1967. Mr. Weatherly has previously been +associated with Arthur Andersen LLP, and has served as a Senior Vice President +of Brown & Root, Inc. and Weatherford International, Inc. B. F. Weatherly and +John S. Weatherly are brothers. +John S. Weatherly is Senior Vice President and Chief Financial Officer +for the Company and Callon Petroleum Operating. Prior to April 1999, Mr. +Weatherly also held the position of Treasurer. Prior to April 1996, he was Vice +President, Chief Financial Officer and Treasurer of the Company and had held +these positions since 1983. Prior to joining Callon Petroleum Operating in 1980, +he had been employed by Arthur Andersen LLP since 1974. Mr. Weatherly received +his B.B.A. degree in accounting in 1973 and his M.B.A. degree in 1974 from the +University of Mississippi. Mr. Weatherly is a member of the American Institute +of Certified Public Accountants and the Mississippi Society of Certified Public +Accountants. John S. Weatherly and B. F. Weatherly are brothers. +Richard O. Wilson is an Offshore Consultant. In his 47 years of working +in offshore drilling and construction, he spent two years with Zapata Offshore +and 21 years with Brown & Root, Inc. working in various managerial capacities in +the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United +Kingdom and Mexico. Mr. Wilson was a director and Senior Group Vice President of +Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC +International PLC, Dolphin A/S and Dolphin Drilling Ltd. Since the sale of OGC +International PLC to Halliburton, Inc. in 1997, Mr. Wilson has been a consultant +to Brown & Root, Inc. He holds a B.S. degree in civil engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, +is a member of the Institute of Petroleum, London, England, and a Director of +the Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected +an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company +and Callon Petroleum Operating. Prior to being appointed to this position in +November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics +since his initial employment by the Company and Callon Petroleum Operating in +1995. Prior thereto, he was Manager of Geophysics for CNG Producing Company and +Division Geophysicist for Amoco Production Company. Mr. Woodcock received a +master's degree in geophysics from Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are +United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr. +Dons, who is a citizen of Norway. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended, +requires the Company's directors and executive officers, and persons who own +more than ten percent of a registered class of the Company's equity securities, +to file with the Commission and any exchange or other system on which such +securities are traded or quoted, initial reports of ownership and reports of +changes in ownership of Common Stock and other equity securities of the Company. +Officers, directors and greater than ten percent shareholders are required by +the Commission's regulations to furnish the Company and any exchange or other +system on which such securities are traded or quoted, with copies of all Section +16(a) forms they file with the Commission. +8 +To the Company's knowledge, based solely on review of the copies of +such reports furnished to the Company during, or with respect to, the fiscal +year ended December 31, 2002, all of the Company's officers, directors and +greater than ten percent shareholders had complied with all Section 16(a) filing +requirements. +INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS +The business of the Company is managed under the direction of the Board +of Directors. The Board of Directors meets on a quarterly basis to review +significant developments affecting the Company and to act on matters requiring +Board approval. The Board of Directors may also hold special meetings when an +important matter requires Board action between regularly scheduled meetings. +Each non-employee director receives an annual fee of $10,000 for service on the +Board of Directors and is reimbursed for out-of-pocket expenses incurred to +attend the Board meetings. In addition, effective January 1, 2002, each +non-employee director will receive $2,000 for each meeting of the Board attended +in person and $1,000 for his participation in each telephonic Board meeting. On +the date he or she is initially elected or appointed to the Board, each +non-employee director receives an annual automatic grant of an option to +purchase 5,000 shares of Common Stock for an exercise price equal to the fair +market price on the date of grant and for a ten-year term. Thereafter, for each +subsequent year in which the non-employee director is still serving as a +director, he or she will automatically be granted an option to purchase an +additional 5,000 shares on the same terms. +On August 23, 1996, the Compensation Committee authorized a one-time +grant to each non-employee director of an option to purchase 20,000 shares of +Common Stock under the 1996 Plan at a purchase price of $12.00 per share, the +fair market value of the Common Stock on such date. One-fourth of each option +vested at each succeeding annual meeting of directors following each annual +Shareholders' meeting, beginning with the 1997 Annual Meeting. On July 25, 2000, +the Compensation Committee authorized a one-time grant to each non-employee +director of an option to purchase 20,000 shares of Common Stock under the 1996 +Plan at a purchase price of $10.50 per share, the fair market value of the +Common Stock on such date. One-fourth of each option vested on August 23, 2000 +and the remaining options vested at each succeeding annual meeting of directors +following each annual Shareholders' meeting, beginning with the 2001 Annual +Meeting. On August 27, 2002, the Compensation Committee authorized the grant of +a total of 70,500 shares of restricted stock to the non-employee directors. The +restricted stock grant provided that the shares would vest with respect to +one-third of the shares on November 15, 2002, November 15, 2003 and November 15, +2004. The closing price of the Company's Common Stock on the New York Stock +Exchange was $3.72 per share on August 27, 2002. +During 2002, the Board of Directors of the Company met formally eight +times and executed eleven Unanimous Written Consents. Every director attended +all of the Board meetings held during 2002. +In order to facilitate the various functions of the Board of Directors, +the Board of Directors has created an Audit Committee and a Compensation +Committee. The Board of Directors does not have a Nominating Committee. The +functions customarily performed by a Nominating Committee are performed by the +entire Board of Directors. Committee members are not remunerated in addition to +their annual Board retainer. +AUDIT COMMITTEE. The Audit Committee monitors the Company's internal +accounting controls, reviews quarterly and annual financial information and +reviews the services and fees of the independent auditors. The Board of +Directors adopted an Audit Committee Charter in 2000. Members are Messrs. Robert +A. Stanger, Chairman, Richard O. Wilson, and John C. Wallace. All of the members +of the Audit Committee meet the New York Stock Exchange's independence +requirements. The Audit Committee held two meetings and executed one Unanimous +Written Consent during 2002. All members of the Audit Committee attended both +the meetings. +COMPENSATION COMMITTEE. The Compensation Committee establishes and +approves the terms of employment of senior executive officers and reviews and +approves management's recommendations concerning compensation of the other +executive officers and certain other employees. Members are Messrs. B. F. +Weatherly, Chairman, Robert A. Stanger, John C. Wallace and Richard O. Wilson. +The Compensation Committee held four meetings during 2002, and all members of +the Compensation Committee attended all meetings. +9 +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. Members of the Callon family (including John S. +Callon and Fred L. Callon) are party to a Registration Rights Agreement dated +September 16, 1994 (the "Registration Rights Agreement"), pursuant to which they +are entitled to require the Company to register Common Stock owned by them with +the Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. Ganger Rolf and Bonheur, as assignees of F.O. Energy, are parties +to a similar registration rights agreement. +AUDIT COMMITTEE REPORT +The Audit Committee of the Board of Directors assists the Board in +overseeing the Company's accounting, auditing and financial reporting practices. +The Company's management has primary responsibility for preparing the Company's +financial statements and implementing its internal accounting controls. The +Audit Committee overseas these activities in order to ensure their quality and +integrity. The Audit Committee has reviewed the audited financial statements in +the Company's Annual Report for the year ended December 31, 2002 with +management. The Audit Committee's discussions with management included a review +of the quality, not just the acceptability, of the accounting principles used to +prepare, the reasonableness of significant judgments with respect to, and the +clarity of disclosures in the Company's financial statements. +On June 19, 2002, the Audit Committee recommended that the Board of +Directors remove Arthur Andersen LLP as the Company's independent auditors and +appoint Ernst & Young LLP as the independent auditors for examination of the +accounts and audit of the financial statements of the Company for the year +ending December 31, 2002. On that date, the Board of Directors executed a +Unanimous Written Consent to adopt the recommendation. +The Audit Committee reviewed the quality of the accounting principles +used in preparing the Company's financial statements with Ernst & Young LLP, the +independent auditors who are responsible for expressing an opinion on the +conformity of the Company's audited financial statements with generally accepted +accounting principles. The Audit Committee also discussed with Ernst & Young LLP +such other matters as are required to be discussed with its independent auditors +under generally accepted auditing standards, including Statement on Auditing +Standards No. 61 and other professional standards. +FEES PAID TO AUDIT FIRM. Fees paid for professional services rendered +in 2002 by Ernst & Young LLP for the annual audit and quarterly reviews were +$128,000 plus expenses of $6,250. Audit fees for professional services related +to year-end December 31, 2002 by Arthur Andersen LLP, the auditor prior to the +appointment of Ernst & Young LLP, were $40,500. Audit-related fees include +accounting consultation services, various attest services under professional +standards, assistance with registration statements, comfort letters and +consents. There were no financial information systems design and implementation +fees for either audit firm during 2002. During 2002 there were no other fees +paid to Ernst & Young LLP for audit-related fees or other fees. Other fees paid +for professional services rendered in 2002 by Arthur Andersen LLP, primarily +related to tax services, were $6,000. +After reviewing the non-audit services provided by Ernst & Young LLP +and engaging in discussions with Ernst & Young LLP regarding their independence, +the Audit Committee determined that the non-audit services provided to the +Company by Ernst & Young LLP were not inconsistent with Ernst & Young LLP's +status as independent auditors. The Audit Committee has received the written +disclosure and the letter from Ernst & Young LLP required by Independence +Standards Board Standard No. 1. +Based on its reviews of the Company's audited financial statements and +the discussions with management and Ernst & Young LLP discussed above, the Audit +Committee recommended to the Board of Directors that the Company's audited +financial statements be included in its Annual Report on Form 10-K for the year +ended December 31, 2002 for filing with the Commission. +Robert A. Stanger, Chairman +Richard O. Wilson +John C. Wallace +10 +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +The following table sets forth information with respect to the Chief +Executive Officer of the Company and the four most highly compensated executive +officers of the Company ("Named Executive Officers") for the years ended +December 31, 2002, 2001 and 2000. +LONG-TERM +COMPENSATION +ANNUAL COMPENSATION AWARDS +------------------------------------------ -------------------------- +OTHER RESTRICTED SECURITIES +ANNUAL STOCK UNDERLYING ALL OTHER +SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION +YEAR ($) ($)(a) ($)(b) ($)(c) (#)(d) ($)(e) +------ ----------- ---------- ------------ ------------ ------------- -------------- +Fred L. Callon............ 2002 278,639 79,750 0 242,475 31,375 27,235 +President and Chief 2001 271,843 0 0 0 0 31,117 +Executive Officer 2000 262,650 211,000 0 0 110,000 30,189 +Dennis W. Christian....... 2002 256,268 74,250 0 217,300 28,850 26,985 +Sr. Vice President 2001 250,096 0 0 0 0 29,181 +and Chief Operating 2000 241,638 195,000 0 0 65,000 28,328 +Officer +John S. Weatherly......... 2002 222,911 64,250 0 197,425 25,000 25,146 +Sr. Vice President 2001 217,474 0 0 0 0 25,944 +and Chief Financial 2000 210,120 169,000 0 0 58,000 25,201 +Officer +Kathy G. Tilley........... 2002 189,475 45,000 0 148,400 22,500 20,668 +Vice President 2001 184,854 0 0 0 0 20,216 +2000 178,602 135,000 0 0 48,000 19,528 +Stephen F. Woodcock........ 2002 174,250 42,000 0 84,800 21,750 19,100 +Vice President 2001 168,985 0 0 0 0 18,479 +2000 151,497 100,000 0 0 44,000 16,562 +-------------- +(a) The 2002 bonus amounts were declared in February 2003 and were earned +by service performed during 2002. There were no bonuses declared in +February 2002 for service performed in 2001. The 2000 bonus amounts +were declared in February 2001 and earned by service during 2000. +Generally, bonus compensation is not payable unless the executive +remains employed by the Company through the date bonus compensation is +declared, which is generally in February or March of the following +year. These amounts also include amounts that were deferred at the +election of the Named Executive Officers. +(b) None of the Named Executive Officers received perquisites or other +personal benefits, securities or property, the aggregate annual amount +of which exceeded the lesser of $50,000 or 10% of the total of annual +salary and bonus reported for such officer. +(c) On February 14, 2002, the following shares of restricted stock were +awarded under the 1996 Plan: Fred L. Callon, 45,750 shares; Dennis W. +Christian, 41,000 shares; John S. Weatherly, 37,250 shares; Kathy G. +Tilley, 28,000 shares; and Stephen F. Woodcock, 16,000 shares. On +February 14, 2002 the closing price of the Company's Common Stock on +the New York Stock Exchange was $5.30 per share. Pursuant to the terms +of the restricted stock awards, the shares shall vest with respect to +one-third of the shares on November 15, 2002, with respect to an +additional one-third of the shares on November 15, 2003, and with +respect to the remaining one-third of the shares on November 15, 2004. +On November 14, 2002, the award was amended to provide that the vesting +date with respect to the shares not vested on that date would be +deferred for successive three-month periods unless the grantee provides +written notice to the Company of his or her desire to allow vesting. As +of November 15, 2002, no such written communication had been received +from any of the Named Executive Officers and therefore, one-third of +the award was deferred until February 15, 2003. As of December 31, +2002, Mr. Callon held 45,750 shares of unvested restricted stock with +an aggregate market value of $153,623, Mr. Christian held 41,000 shares +of unvested restricted stock with an aggregate market value of +$137,350, Mr. Weatherly held 37,250 shares of unvested restricted stock +with an aggregate market value of $124,788, Ms. Tilley held 28,000 +shares of unvested restricted stock with an aggregate market value of +$93,800, and Mr. Woodcock held 16,000 shares of unvested restricted +stock with an aggregate market value of $53,600. The value of the +unvested restricted stock held by the Named +11 +Executive Officers as of December 31, 2002 is based on the closing +price of the Company's Common Stock on the NYSE on such date, which was +$3.35 per share. Any dividends paid by the Company will be payable on +outstanding shares of restricted stock. +(d) On July 12, 2002 and August 23, 2002, options granted to Fred L. Callon +were 18,750 shares and 12,625 shares, respectively; Dennis W. +Christian, 17,250 shares and 11,600 shares, respectively; John S. +Weatherly, 15,000 shares and 10,000 shares, respectively; Kathy G. +Tilley, 13,500 shares and 9,000 shares, respectively; and Stephen F. +Woodcock, 13,250 shares and 8,500 shares, respectively. Options +exercise prices were $4.50 and $3.70 per share, respectively. +(e) Amounts reflect the Company's contribution in 2002, 2001, and 2000 of +$23,303, $27,185 and $26,265 to Fred L. Callon's 401(k) savings plan +and payment of $3,932, $3,932 and $3,924 term life insurance premiums; +$22,813, $25,009 and $24,164 to Mr. Christian's 401(k) savings plan and +payment of $4,172, $4,172 and $4,164 term life insurance premiums; +$20,949, $21,747 and $21,012 to Mr. Weatherly's 401(k) savings plan and +payment of $4,197, $4,197 and $4,189 term life insurance premiums; +$18,847, $18,484 and $17,860 to Ms. Tilley's 401(k) savings plan and +payment of $1,821, $1,732 and $1,668 term life insurance premiums; and +$17,425, $16,898 and $15,150 to Mr. Woodcock's 401(k) savings plan and +payments of $1,675, $1,581 and $1,412 term life insurance premiums. +EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +SEVERANCE COMPENSATION AGREEMENTS. Effective January 1, 2002, the +Company entered into Severance Compensation Agreements (the "Agreements") with +Fred L. Callon, Dennis W. Christian and John S. Weatherly providing for certain +benefits to each of them in the event that a "change of control" occurs during +the three-year period after the execution of such Agreements. Each Agreement is +for a three-year term and is automatically extended for successive one-year +periods unless either the Company or the executive notifies the other party +prior to such renewal that it has elected to terminate the Agreement; provided +that the term of each Agreement shall be until the later of two years following +the date of a change of control and the satisfaction of all obligations of the +Company under the Agreement. The Agreements terminate upon each executive's +death, disability termination for cause or voluntary resignation other than for +"good reason." +Pursuant to the Agreements, if either Messrs. Callon, Christian or +Weatherly's employment with the Company is terminated without cause by the +Company or for good reason by the executive within two years following a change +of control by the Company, the executive is entitled to a single lump-sum cash +payment in an amount equal to three times the sum of (a) the annual base salary +of such executive in effect prior to such termination, and (b) the higher of the +average bonus earned by the executive during the three preceding years or the +target bonus that the executive is eligible to receive during the year of +termination. If Messrs. Callon, Christian or Weatherly's employment is +terminated as a result of their death or disability, the Company is only +required to make such payments if the termination occurred within six months of +a change of control. "Good reason" is generally defined in the Agreements as a +change in the executive's compensation, benefits, position, responsibilities, or +location. +The Agreements also provide that, upon a change of control, all stock +options, restricted stock, stock appreciation rights and other similar rights +held by Messrs. Callon, Christian or Weatherly shall automatically become fully +exercisable notwithstanding any vesting or exercisability provisions. +If any payment to one of Messrs. Callon, Christian or Weatherly would +be subject to any excise tax under Section 4999 of the Internal Revenue Code of +1986, as amended, a "gross-up" payment will be made to place such executive in +the same net after-tax position as would have been the case if no excise tax had +been payable. +CONSULTING AGREEMENT. The Company entered into a consulting agreement +with John S. Callon, effective as of January 2, 1997, the day he retired as +Chief Executive Officer of the Company. The agreement was amended on February +18, 1999. Pursuant to the agreement, John S. Callon provided consulting services +to the Company on matters pertaining to corporate or financial strategy, +investor relations and public/private financing opportunities. The agreement +remained in effect from the effective date until December 31, 2001, subject to +renewal for succeeding five-year periods unless earlier terminated. As +compensation for his services under the agreement, John S. Callon was paid a fee +of not less than $190,000 per year increased annually based upon the change in +the Consumer Price Index, as adjusted for inflation. In addition, he will remain +eligible to participate in the Company's major medical and disability coverage, +and will be entitled to participate in all other employee benefit plans (other +than a cash bonus program) provided to full-time executives of the Company. As +an inducement for entering into the agreement, John S. Callon was granted 25,000 +restricted shares of Common Stock, 20% of which were to vest on each of the +first five anniversaries following the effective date of the agreement. On +February +12 +18, 1999, the Board of Directors approved the Compensation Committee's +recommendation that all unvested restricted shares be vested as of such date. +On January 1, 2002, the Company and Mr. Callon agreed to terminate the +consulting agreement upon the successful financing or refinancing of $45 million +of the Company's indebtedness. In July 2002, these conditions were met and a +$1.5 million, adjusted for inflation, termination payment was paid. The Company +remains obligated to continue to provide medical and disability coverage to Mr. +Callon and his spouse. +CHANGE IN CONTROL. Pursuant to the Callon Petroleum Company 1994 Stock +Incentive Plan (the "1994 Plan"), the Callon Petroleum Company 1996 Stock +Incentive Plan (the "1996 Plan"), and the Callon Petroleum Company 2002 Stock +Incentive Plan (the "2002 Plan"), in the case of a merger or consolidation where +the Company is not the surviving entity, or if the Company is about to sell or +otherwise dispose of substantially all of its assets while unvested options +remain outstanding, the Compensation Committee or other plan administrator may, +in its discretion and without Shareholder approval, declare some or all options +exercisable in full before or simultaneously with such merger, consolidation or +sale of assets without regard for prescribed waiting periods. Alternatively, the +Compensation Committee or other plan administrator may cancel all outstanding +options provided option holders are given notice and a period of 30 days prior +to the merger, consolidation or sale to exercise the options in full. +STOCK-BASED INCENTIVE COMPENSATION PLANS +The Company currently maintains three Common Stock-based incentive +plans for its directors and employees: the 1994 Plan, the 1996 Plan, and the +2002 Plan. The Company in the past has used and will continue to use stock +options, restricted stock, and performance share grants to attract and retain +key directors and employees in the belief that stock ownership and stock related +compensation devices encourage a continuity of interest between directors, +employees and Shareholders. The Compensation Committee of the Board of Directors +administers all three of the Stock Incentive Plans. Members of the Compensation +Committee currently are Messrs. B. F. Weatherly, as chairman; Stanger; Wallace; +and Wilson. +1994 PLAN. The 1994 Plan was adopted on June 30, 1994 and approved by +the Company's sole shareholder on that date. Pursuant to the 1994 Plan, 600,000 +shares of Common Stock were reserved for issuance upon the exercise of options +or for grants of performance shares. No awards have been made under the 1994 +Plan since 1999. As of March 21, 2003, there were 370 shares of Common Stock +available for grant under the 1994 Plan. +1996 PLAN. On August 23, 1996, the Board of Directors of the Company +approved and adopted the 1996 Plan and granted awards thereunder to various +employees. The 1996 Plan was approved by the Shareholders of the Company June +19, 1997. Pursuant to the 1996 Plan, 900,000 shares of Common Stock were +reserved for issuance upon the exercise of options or for grants of performance +shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as +permitted pursuant to the terms of the 1996 Plan, to increase the number of +shares of Common Stock reserved for issuance by 300,000 shares to 1,200,000 +shares. On May 9, 2000, the Shareholders of the Company approved an increase in +the available number of shares of Common Stock reserved for issuance under the +1996 Plan by 1,000,000 shares to 2,200,000 shares. During 2000, the Compensation +Committee approved option grants for 788,000 shares to certain directors, +officers and employees. Automatic option grants to non-employee directors during +2001 were 30,000 shares. During 2002, the Compensation Committee approved option +grants for 139,000 shares to certain directors, officers and employees and +option grants totaling 120,000 shares were cancelled. Also in 2002, the +Compensations Committee approved grants of 168,000 shares of restricted stock to +certain officers and employees. As of March 21, 2003, there were 31,979 shares +of Common Stock available for grant under the 1996 Plan. +2002 PLAN. On February 14, 2002, the Board of Directors of the Company +approved and adopted the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of +Common Stock shall be reserved for issuance upon the exercise of options or for +grants of stock options, stock appreciation rights or units, restricted stock, +or performance shares or units. This Plan qualifies as a "broadly based" plan +under the provisions of the New York Stock Exchanges' rules and regulations and +therefore did not require Shareholder approval. Because the 2002 Plan is a +broadly based plan, the aggregate number of shares underlying awards granted to +officers and directors cannot exceed 50% of the total number of shares +underlying the awards granted to all employees during any three-year period. +During 2002, the Compensation Committee authorized option grants for 171,000 +shares and awarded 132,000 shares of restricted stock to certain directors, +officers and employees. Also during 2002, option grants totaling 2,250 shares +were cancelled, 2,000 shares of restricted stock were forfeited and 5,700 shares +of restricted stock were sold to satisfy federal and state +13 +income tax liabilities. As of March 21, 2003, there were 69,598 shares of Common +Stock available for grant under the 2002 Plan +BONUS PLAN. In 1996, the Board of Directors authorized the +establishment of a cash bonus program (the "Bonus Plan") to be administered by +the Compensation Committee in accordance with formulas or procedures determined +by the Compensation Committee on an annual basis. Each year, the Compensation +Committee establishes target level bonuses as a percentage of base salary for +executive officers and certain other employees. The Compensation Committee also +establishes financial and operating goals to be achieved by the Company during +the year and assigns a relative weighting percent to each goal. Cash bonus +awards for the year are then based upon the extent to which such goals were +achieved during the year. See "--Report on Executive Compensation." +1997 EMPLOYEE STOCK PURCHASE PLAN. In 1997, the Board of Directors +authorized the implementation of the Callon Petroleum Company 1997 Employee +Stock Purchase Plan (the "1997 Purchase Plan"), which was approved by the +Company's Shareholders on June 19, 1997. The Plan provides eligible employees of +the Company with the opportunity to acquire a proprietary interest in the +Company through participation in a payroll deduction-based employee stock +purchase plan. An aggregate of 250,000 shares of Common Stock have been reserved +for issuance over the ten-year term of the 1997 Purchase Plan. The purchase +price per share at which Common Stock can be purchased by the participant on +each purchase date within an offering period is equal to eighty-five percent of +the fair market value per share of Common Stock. +OPTION GRANTS IN THE LAST FISCAL YEAR +The following table sets forth certain information concerning the +number and terms of options to purchase Common Stock granted during 2002 to the +Named Executive Officers. The options described below were granted on July 12, +2002 and August 23, 2002. The exercise price is $4.50 and $3.70 per share, +respectively, and is equal to the fair market value of the Common Stock at the +close of business on the day prior to grant date. The closing price of the +Common Stock on the New York Stock Exchange on March 21, 2003 was $3.95 per +share. Thirty-three and one-third percent of each grant will become vested and +exercisable on each anniversary following the grant date. +INDIVIDUAL OPTION GRANTS IN 2002 +POTENTIAL +PERCENT REALIZABLE VALUE +NUMBER OF OF TOTAL AT ASSUMED ANNUAL +SECURITIES OPTIONS RATES OF STOCK +UNDERLYING GRANTED TO PRICE APPRECIATION +OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM +GRANTED IN FISCAL PRICE +NAME (#) YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10%($) +----------------------------- ----------- -------------- ----------- --------------------- ---------- ---------- +Fred L. Callon................ 18,750 6.05% 4.50 July 12, 2012 53,063 134,472 +12,625 4.07% 3.70 August 23, 2012 29,377 74,448 +Dennis W. Christian........... 17,250 5.56% 4.50 July 12, 2012 48,818 123,714 +11,600 3.74% 3.70 August 23, 2012 26,992 68,403 +John S. Weatherly............. 15,000 4.84% 4.50 July 12, 2012 42,450 107,578 +10,000 3.23% 3.70 August 23, 2012 23,269 58,968 +Kathy G. Tilley............... 13,500 4.35% 4.50 July 12, 2012 38,205 96,820 +9,000 2.90% 3.70 August 23, 2012 20,942 53,072 +Stephen F. Woodcock........... 13,250 4.27% 4.50 July 12, 2012 37,498 95,027 +8,500 2.74% 3.70 August 23, 2012 19,779 50,123 +14 +AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION +VALUES +The following table sets forth certain information concerning the +number and value of unexercised options to purchase Common Stock by the Named +Executive Officers at December 31, 2002. No stock options were exercised by such +persons in 2002. +AGGREGATED OPTION EXERCISES IN 2002 AND OPTION +VALUES AT DECEMBER 31, 2002 +UNEXERCISED OPTIONS AT DECEMBER 31, 2002 +------------------------------------------------ +NUMBER OF VALUE OF +UNDERLYING IN-THE-MONEY +VALUE SECURITIES OPTIONS +SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ +NAME ON EXERCISE (#) ($) UNEXERCISABLE (a) UNEXERCISABLE ($)(b) +------------------------------ -------------------- ----------- ---------------------- ------------------------ +Fred L. Callon................ 0 0 325,000 / 31,375 0 / 0 +Dennis W. Christian........... 0 0 285,000 / 28,850 0 / 0 +John S. Weatherly............. 0 0 259,000 / 25,000 0 / 0 +Kathy G. Tilley............... 0 0 188,000 / 22,500 0 / 0 +Stephen F. Woodcock........... 0 0 104,000 / 21,750 0 / 0 +----------- +(a) Represents awards granted under the 1994 Plan, the 1996 Plan, and the +2002 Plan. +(b) On December 31, 2002, the closing price of the Common Stock on the New +York Stock Exchange was $3.35 per share. +LONG-TERM INCENTIVE PLAN AWARDS +Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company +does not have a long-term incentive plan for its employees. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +The members of the Company's Compensation Committee are Messrs. B. F. +Weatherly, Robert A. Stanger, John C. Wallace, and Richard O. Wilson, none of +whom are or have been officers or employees of the Company or had a relationship +requiring disclosure under this caption. +REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is composed of four non-employee directors +who make recommendations to the Board with respect to the annual base and bonus +compensation of the executive officers of the Company. The Compensation +Committee also administers the Company's employee benefit plans. +COMPENSATION POLICY. The Company's goal with respect to its executive +compensation policy is to attract and retain executives who have the ability to +lead Callon in achieving its business objectives in a highly competitive +industry. To this end, the Company's compensation policy is comprised of three +elements: (1) base compensation, (2) bonus compensation, and (3) stock-based +compensation. Historically, the Company has provided for conservative base +salaries with more aggressive incentive compensation in order to emphasize pay +for performance. In addition, the Compensation Committee awards stock-based +compensation to encourage greater executive focus on shareholder value. +The Company does not have any employment agreements with its executive +officers at this time. However, the Compensation Committee believes that, in +order to retain highly qualified executives, it must provide these persons with +some security against organizational and personnel changes in the event of a +change of control of the Company. In order to provide this security, in early +2002, the Company entered into the Severance Compensation Agreements described +under "--Employment Agreements, Termination of Employment and Change of Control +Arrangements--Severance Compensation Agreements." The Compensation Committee +believes that these agreements are necessary to provide fair treatment to key +executives in the event of a change of control. In the future, the Compensation +Committee may determine that employment or other agreements with its executive +officers, in addition to the Severance Compensation Agreements, are necessary in +order to retain key employees and achieve the Company's long-term growth +objectives. +15 +Currently, the Compensation Committee does not intend to award levels +of compensation that would result in a limitation on the deductibility of a +portion of such compensation for federal income tax purposes pursuant to Section +162(m) of the Internal Revenue Code of 1986, as amended; however, the +Compensation Committee may authorize compensation that results in such +limitations in the future if it determines that such compensation is in the best +interest of the Company. +BASE COMPENSATION. The Compensation Committee reviews each executive +officer's salary annually. The Compensation Committee has applied the same +principals to establish base compensation since the Company was formed in 1994, +taking into account both competitive realities and subjective factors. The base +compensation decision has no specific relationship to Company performance. As +its primary consideration, the Compensation Committee evaluates compensation set +for comparable positions by the Company's competitors, targeting the median of +such compensation. To determine base salaries paid by such peer group companies, +the Compensation Committee analyzes published industry survey data and proxy and +annual report information among energy companies of similar size, complexity and +activity. From time to time, the Company also engages independent compensation +consulting firms. With input from management of the Company, the Compensation +Committee also takes into account certain subjective factors such as individual +performance and contribution to the Company's success, seniority, experience +level, internal equities within the Company and general economic and industry +conditions. No specific weight, however, is assigned to these factors if they +are considered. +After reviewing the salary levels of the Company's peers, the Company +decided to increase the base salaries of the Company's executive officers for +2002 by 2.5%, representing a "cost of living" adjustment. In addition to +evaluating salary increases in the industry, the Compensation Committee also +took into account a subjective valuation of each individual officer's +contributions to the Company's performance in 2001, potential contributions +during 2002, and general inflationary considerations. This cost of living +increase was intended to match similar increases by the Company's competitors +and reflects the Compensation Committee's commitment to maintaining competitive +salary levels. +BONUS COMPENSATION. In 1996, the Board of Directors established the +Bonus Plan in order to tie compensation to certain fiscal targets affecting +short and long-term share price performance. Since that time, bonus compensation +has been awarded under the Bonus Plan as administered by the Compensation +Committee. As prescribed by the Bonus Plan, the Compensation Committee adheres +to a formal decision process for determining annual bonus compensation. At the +core of this process are pre-set financial and operating goals established by +the Compensation Committee as determinants of share price over time. For 2002, +the goals set were the successful financing or refinancing of $45 million of the +Company's indebtedness and the implementation of an acceptable business plan for +2002 and 2003. +Historically, the Compensation Committee has assigned a relative +weighting percent to each individual goal, evaluated the percentage by which +each individual goal was achieved, and derived a percentage of the total goal +achieved by adding together the percentage, based on relative weight, of each +individual goal achieved. The Compensation Committee also establishes target +level bonuses as a percentage of base salary for officers and other employees. +In the past, the amount of the target level bonus that was granted was based on +the percentage of the total goal achieved. The target level bonuses for 2002 +were established at less than historical levels. However, unlike the financial +targets used as goals in prior years, the specific nature of the goals set for +2002 prevented an evaluation of the percentage of such goals achieved. +Therefore, the target level bonuses were awarded on an all or nothing basis for +2002. Since the goals set by the Compensation Committee were reached by Callon +in 2002, the target level bonuses were awarded. +STOCK-BASED COMPENSATION. The Company relies heavily upon stock options +to compensate executive officers. The Compensation Committee generally subjects +option grants to a vesting schedule and establishes the exercise price as the +fair market value (based on trading on the New York Stock Exchange) of the +Common Stock on the date of grant. The Compensation Committee believes that +these terms align the interests of the Company's executives with those of its +Shareholders. +To determine the timing and amount of stock-based awards, the +Compensation Committee considers the factors set forth under "Base Compensation" +above as well as the employee's ability to influence the Company's future +performance. The Compensation Committee also takes into account the number of +outstanding and unvested options held by an executive officer as well as the +size of previous option awards to such executive officer. As a result of the +contributions of the executive officers of the Company to the successful +financing of the Company's indebtedness and the implementation of an acceptable +business plan for 2002 and 2003, the Company awarded to executive officers and +certain +16 +employees a total of 300,000 shares of restricted stock and granted options to +acquire a total of 265,000 shares during 2002. +In the past, the Compensation Committee has issued performance shares +to executive officers. There are no performance shares currently outstanding; +however, the Compensation Committee will continue to monitor the Company's +stock-based compensation program to determine if performance shares should be +granted in the future. +COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. Callon's base salary was +increased by the Compensation Committee to $278,639 for 2002 as compared to +$271,843 for 2001 in order to keep Mr. Callon's salary level competitive with +the chief executive officer position at peer group companies as well as taking +into account the subjective factors described above under "Base Compensation." +See "Executive Compensation." In particular, the Compensation Committee +considered Mr. Callon's leadership role in overseeing the Company's successful +financing of the Company's indebtedness and the implementation of an acceptable +business plan for 2002 and 2003. +B. F. Weatherly, Chairman +Robert A. Stanger +John C. Wallace +Richard O. Wilson +17 +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five +years ended December 31, 2002, in the cumulative total shareholder return on the +Company's Common Stock against the cumulative total return for the (i) Media +General Financial Services Industry and Market Index of SIC Group 121 (the "MG +Group Index") consisting of independent oil and gas companies and (ii) the NYSE +Market Index. +COMPARISON OF 5-YEAR CUMMULATIVE TOTAL RETURN +AMONG CALLON PETROLEUM COMPANY, MG GROUP INDEX +AND THE NYSE MARKET INDEX (1) +[LINE GRAPH] +------------ ------------ ------------ ------------ ------------ ------------- +12/31/1997 12/31/1998 12/31/1999 12/29/2000 12/31/2001 12/31/2002 +------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------- +CALLON PETROLEUM COMPANY (2) $ 100 $ 71 $ 91 $ 103 $ 42 $ 21 +------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------- +MG GROUP INDEX (2) $ 100 $ 65 $ 91 $ 132 $ 108 $ 113 +------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------- +NYSE MARKET INDEX (2) $ 100 $ 119 $ 130 $ 133 $ 122 $ 99 +------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------- +(1) The comparison of total return on an investment for each of the periods +assumes that $100 was invested on December 31, 1997 in the Company, the +MG Group Index and the NYSE Market Index, and that all dividends were +reinvested. +(2) The Company's Common Stock was traded on the Nasdaq NMS from September +19, 1994 until April 21, 1998. On April 22, 1998, the Company's Common +Stock began trading on the New York Stock Exchange. +18 +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT AUDITORS +CHANGE IN INDEPENDENT AUDITORS +On June 28, 2002, Arthur Andersen LLP was dismissed as independent +auditors for the Company effective upon the date Ernst & Young LLP was appointed +as the new independent auditors for the Company to replace Arthur Andersen LLP +for the year ending December 31, 2002. The decision to dismiss Arthur Andersen +LLP and to appoint Ernst & Young LLP was recommended by the Audit Committee of +the Company's Board of Directors at its meeting in June 2002, and was approved +by the Company's Board of Directors subject to the negotiation of a satisfactory +engagement letter with Ernst & Young LLP by the CFO of the Company. Such +successful negotiation of the engagement letter with Ernst & Young LLP was +completed on June 28, 2002. +Arthur Andersen LLP's report on the Company's financial statements for +the two fiscal years ended December 31, 2000 and December 31, 2001, did not +contain an adverse opinion or disclaimer of opinion and were not qualified or +modified as to uncertainty, audit scope or accounting principles. +During the Company's two most recent fiscal years and the period from +January 1, 2002 through June 28, 2002, there were no disagreements with Arthur +Andersen LLP on any matter of accounting principles or practices, financial +statement disclosure, or auditing scope or procedure, which disagreements, if +not resolved to the satisfaction of Arthur Andersen LLP, would have caused it to +make reference to the subject matter of the disagreements in connection with its +report. +As required under the Commission regulations, the Company provided +Arthur Andersen LLP with a copy of this disclosure and requested that Arthur +Andersen LLP furnish the Company with a letter addressed to the Commission +stating whether it agrees with the statement by the Company in this disclosure +and, if not, stating the respects in which it does not agree. Arthur Andersen +LLP's letter is included as Exhibit 16.1 to the Company's Current Report on Form +8-K dated June 28, 2002 that has been filed with the Commission. +RATIFICATION OF INDEPENDENT AUDITORS +The Board of Directors has appointed Ernst & Young LLP, independent +auditors, for the examination of the accounts and audit of the financial +statements of the Company for the year ending December 31, 2003. At the Annual +Meeting, the Board of Directors will present a proposal to the Shareholders to +approve and ratify the engagement of Ernst & Young LLP. A representative of +Ernst & Young LLP will be present at the Annual Meeting and will have the +opportunity to make a statement, if he desires, and to respond to appropriate +questions. +Management recommends that the Shareholders approve and ratify the +appointment of Ernst & Young LLP as independent auditors of the Company for the +fiscal year ending December 31, 2003. Unless otherwise indicated, all properly +executed Proxies received by management will be voted for such ratification at +the Annual Meeting. An adverse vote will be considered as a direction to the +Audit Committee of the Board of Directors to select other auditors in the +following year. +SHAREHOLDERS' PROPOSALS +FOR 2004 ANNUAL MEETING +Shareholders who desire to present proposals at the 2004 Annual Meeting +of Shareholders and to have proposals included in the Company's proxy materials +must submit their proposals to the Company at its principal executive offices +not later than December 16, 2003. If the date of the 2004 Annual Meeting of +Shareholders is changed by more than 30 days from the date of the 2003 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable +time before the Company begins to print and mail its proxy materials for its +2004 Annual Meeting of Shareholders. +The persons named in the Company's form of proxy for the 2004 Annual +Meeting will have discretionary authority to vote any proxies they hold at such +meeting on any matter for which the Company does not receive notice by March 1, +2004, unless the Company changes the date of its 2004 Annual +19 +Meeting of Shareholders by more than 30 days from the date of the 2003 Annual +Meeting of Shareholders, in which case such persons will be able to exercise +discretionary authority if notice of the matter has not been received in a +reasonable time before the Company mails its proxy materials for the 2004 Annual +Meeting of Shareholders. +If the date of the 2004 Annual Meeting of Shareholders is advanced or +delayed by more than 30 calendar days from the date of the 2003 Annual Meeting +of Shareholders, the Company shall, in a timely manner, inform Shareholders of +such change, by including a notice, under Item 5, in its earliest possible +quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company's proxy statement and the new +date for determining whether the Company may exercise discretionary voting +authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company +receives any such proposal, it is suggested that Shareholders submit their +proposals by certified mail, return receipt requested, or other means that +permit them to prove the date of delivery. +FINANCIAL STATEMENTS +Financial statements of the Company for its most recent fiscal year are +contained in the 2002 Annual Report and the Company's Report on Form 10-K. +COPIES OF THE COMPANY'S ANNUAL REPORT AND THE COMPANY'S REPORT ON FORM 10-K ARE +AVAILABLE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE INVESTOR RELATIONS +DEPARTMENT, CALLON PETROLEUM COMPANY, 200 NORTH CANAL STREET, NATCHEZ, +MISSISSIPPI 39120. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at +the Annual Meeting other than those described above. If other business comes +before the Annual Meeting, the persons named on the Proxy will vote the Proxy in +accordance with what they consider to be in the best interests of the Company +and its Shareholders. +By order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +President and Chief Executive Officer +Natchez, Mississippi +April 14, 2003 +20 +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +OF THE COMPANY FOR THE ANNUAL MEETING ON MAY 2, 2003 +The undersigned hereby constitutes and appoints John S. Callon and Fred +L. Callon and each of them, his true and lawful agents and proxies with full +power of substitution in each, to represent and to vote, as designated on the +reverse, all of the shares of Common Stock of Callon Petroleum Company, held of +record by the undersigned on March 21, 2003, at the Annual Meeting of +Shareholders to be held in the St. Louis Room of the Natchez Convention Center, +211 Main Street, Natchez, Mississippi 39120 on May 2, 2003, and at any +adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS +PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2 AS +INDICATED ON THE REVERSE SIDE HEREOF. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES (SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN +ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +(Continued and to be signed on the reverse side) +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +MAY 2, 2003 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +* PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED. * +20230000000000000000 0 050203 +------------------------------------------------------------------------------------------------------------------------------------ +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOW HERE [X] +------------------------------------------------------------------------------------------------------------------------------------ +FOR AGAINST ABSTAIN +1. Election of Directors: 2. To ratify the appointment of Ernst & Young LLP as [ ] [ ] [ ] +independent auditors. +NOMINEES: +[ ] FOR ALL NOMINEES [ ] Fred L. Callon 3. In their discretion, the Proxies are authorized to vote upon such +[ ] Dennis W. Christian Other business as may properly come before the meeting or +[ ] WITHHOLD AUTHORITY any adjournments thereof. +FOR ALL NOMINEES +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN +[ ] FOR ALL EXCEPT THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, +(SEE INSTRUCTIONS BELOW) THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF +DIRECTORS AND "FOR" PROPOSAL 2. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD +PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE +ENCLOSED. +INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY +INDIVIDUAL NOMINEE(S), MARK "FOR ALL +EXCEPT" AND FILL IN THE CIRCLE NEXT +TO EACH NOMINEE YOU WISH TO WITHHOLD, +AS SHOWN HERE: [X] +-------------------------------------------------- +-------------------------------------------------- +To change the address on your account, +please check the box at right and indicate +your new address in the address space above. [ ] +Please note that changes to the registered +name(s) on the account may not be submitted +via this method. +-------------------------------------------------- +Signature of Shareholder Date: Signature of Shareholder Date: +------------------------- ---------- ------------------------- ---------- +NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN. WHEN +SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF THE SIGNER IS A +CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DUTY AUTHORIZED OFFICER, GIVING FULL TITLE AS SUCH. IF SIGNER IS A +PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-03-001996/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-03-001996/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b07098ebe2c9831ea442e9a43913fd7a11d1d5e8 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-03-001996/proxy_rpt.txt @@ -0,0 +1,9 @@ +TRANSACTIONS WITH RELATED PERSONS +REGISTRATION RIGHTS. Members of the Callon family (including John S. +Callon and Fred L. Callon) are party to a Registration Rights Agreement dated +September 16, 1994 (the "Registration Rights Agreement"), pursuant to which they +are entitled to require the Company to register Common Stock owned by them with +the Commission for sale to the public in a firm commitment public offering and +generally to include shares owned by them in registration statements filed by +the Company. Ganger Rolf and Bonheur, as assignees of F.O. Energy, are parties +to a similar registration rights agreement. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-04-002164/proxy.txt b/raw/proxies/0000928022/0000950129-04-002164/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..03d2c0efcbbce72c0096ee2ceafb48cd897819a8 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-04-002164/proxy.txt @@ -0,0 +1,2507 @@ +DEF 14A +1 +h14465def14a.htm +CALLON PETROLEUM COMPANY - DATED 5/6/2004 +def14a +Table of Contents +OMB APPROVAL +OMB Number: 3235-0059 +Expires: February 28, +2006 +Estimated average +burden hours per +response...12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[ ] +CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) +[X] +Definitive Proxy Statement +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to Section 240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +[X] +No fee required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1 +) +Title of each class of securities to which transaction applies: +2 +) +Aggregate number of securities to which transaction applies: +3 +) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set +forth the +amount on which the filing fee is calculated and state how it was determined): +4 +) +Proposed maximum aggregate value of transaction: +5 +) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for +which the +offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form +or Schedule and the date +of its filing. +1 +) +Amount Previously Paid: +2 +) +Form, Schedule or Registration Statement No.: +3 +) +Filing Party: +4 +) +Date Filed: +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION +CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS +A CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 6, 2004 +To the Shareholders of +Callon Petroleum Company (the “Company”): +Notice is hereby given that the Annual Meeting of Shareholders (the +“Annual Meeting”) of the Company will be held in Natchez, Mississippi, on +Thursday, May 6, 2004, at 9:00 a.m., in the St. Louis Room of the Natchez +Convention Center, 211 Main Street, Natchez, Mississippi 39120, for the +following purposes: +1. +To elect three Class I directors to hold office until the +2007 Annual Meeting of Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the +Company’s independent auditors for the fiscal year ending December +31, 2004; and +3. +To transact such other business as may properly come before +the Annual Meeting or any adjournment or adjournments thereof. +Shareholders of record at the close of business on March 26, 2004 will be +entitled to notice of, and to vote at, the Annual Meeting, or any adjournment +or adjournments thereof. +Shareholders are cordially invited to attend the Annual Meeting in person. +Those individuals who will not attend and who wish for their shares to be +voted are requested to sign, date and mail promptly the enclosed proxy card for +which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 16, 2004 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU CANNOT +ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY +IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE +ENVELOPE IS MAILED IN THE UNITED STATES. +TABLE OF CONTENTS +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +BENEFICIAL OWNERSHIP OF SECURITIES +PROPOSAL I ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +PERFORMANCE GRAPH +PROPOSAL II RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS +SHAREHOLDERS’ PROPOSALS FOR 2005 ANNUAL MEETING +FINANCIAL STATEMENTS +OTHER BUSINESS +Appendix A +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 6, 2004 +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation of +proxies on behalf of the Board of Directors of Callon Petroleum Company, a +Delaware corporation (the “Company”), from holders (“Shareholders”) of the +common stock, $.01 par value per share (“Common Stock”), of the Company for use +at the Annual Meeting of Shareholders of the Company to be held on Thursday, +May 6, 2004, at 9:00 a.m., in the St. Louis Room of the Natchez Convention +Center, 211 Main Street, Natchez, Mississippi 39120, and at any adjournment or +adjournments thereof (such meeting or adjournment thereof is referred to herein +as the “Annual Meeting”), for the purpose of considering and voting upon the +matters set forth in the accompanying Notice of Annual Meeting of Shareholders +(“Notice”). +A proxy in the form accompanying this Proxy Statement (each a “Proxy”), +when properly executed and returned, will be voted in accordance with the +directions specified on the Proxy, and otherwise in accordance with the +judgment of the persons designated therein as proxies. Any Proxy which does +not withhold authority to vote or on which no other instructions are given will +be voted for the election of the nominees named herein to the Board of +Directors and in favor of the other proposals set forth in the Notice. Any +Proxy may be revoked at any time before it is exercised by delivering, to the +Secretary of the Company, written notice of revocation or a duly executed Proxy +bearing a later date, or by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are +being mailed to Shareholders on or about April 16, 2004. The Annual Report for +the Company’s fiscal year ended December 31, 2003 is also being mailed to +Shareholders contemporaneously with this Proxy Statement, although the Annual +Report does not form a part of the material for the solicitation of Proxies. +Proxies will be solicited primarily by mail, but employees of the Company +may also solicit Proxies in person or by telephone. Arrangements may be made +with brokerage firms or other custodians, nominees, and fiduciaries to send +proxy materials to the beneficial owners of the Common Stock of the Company. +All costs incurred in the solicitation of Proxies will be borne by the Company. +Matters to be Considered at the Annual Meeting +Unless otherwise indicated, Proxies in the form enclosed that are properly +executed, duly returned, and not revoked will be voted in favor of (1) the +election of the three Class I director nominees to the Board of Directors named +herein, and (2) the ratification of the appointment of Ernst & Young LLP as the +Company’s independent auditors for the fiscal year ending December 31, 2004. +The Board of Directors is not presently aware of other proposals that may +be brought before the Annual Meeting. In the event other proposals are brought +before the Annual Meeting, the persons named in the enclosed Proxy will vote in +accordance with what they consider to be in the best interests of the Company +and its Shareholders. +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 26, 2004 +as the record date (the “Record Date”) for the determination of Shareholders +entitled to notice of, and to vote at, the Annual Meeting. A complete list of +all Shareholders entitled to vote at the Annual Meeting will be open for +examination by any Shareholder during normal business hours for a period of ten +days prior to the Annual Meeting at the offices of the Company, 200 North Canal +Street, Natchez, Mississippi 39120. Such list will also be available at the +Annual Meeting and may be inspected by any Shareholder who is present. On the +Record Date, the Company’s outstanding voting securities consisted of +13,970,560 shares of Common Stock. Holders of Common Stock will be entitled to +one vote per share of Common Stock held of record on the Record Date for each +proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued and +outstanding on the Record Date, whether present in person or represented by +Proxy, will constitute a quorum for the transaction of business at the Annual +Meeting. For purposes of determining whether a quorum is present under +Delaware law, broker non-votes and abstentions count towards the establishment +of a quorum. The election of directors requires the favorable vote of the +holders of a plurality of shares of Common Stock present and voting, in person +or by Proxy, at the Annual Meeting. Abstentions and broker non-votes have no +effect on determinations of plurality except to the extent that they affect the +total votes received by any particular candidate. A majority of the votes +represented by the Shareholders present at the Annual Meeting, in person or by +proxy, is necessary for ratification of the appointment of the Company’s +independent auditors. Abstaining shares will be considered present at the +Annual Meeting for this matter so that the effect of abstentions will be the +equivalent of a “no” vote. With respect to broker non-votes, the shares will +not be considered present at the Annual Meeting for this matter so that broker +non-votes will have the practical effect of reducing the number of affirmative +votes required to achieve a majority vote by reducing the total number of +shares from which the majority is calculated. +2 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the Record Date, certain information +with respect to the ownership of shares of Common Stock held by (i) all persons +known by the Company to be the beneficial owners of 5% or more of the +outstanding Common Stock, (ii) each director, (iii) each nominee for director, +(iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. +Information set forth in the table with respect to beneficial ownership of +Common Stock has been obtained from filings made by the named beneficial owners +with the Securities and Exchange Commission (“Commission”) as of the Record +Date or, in the case of executive officers and directors of the Company, has +been provided to the Company by such individuals. Holders of the Company’s +$2.125 Convertible Exchangeable Preferred Stock (“Preferred Stock”) are not +entitled to vote at the Annual Meeting. +Common Stock +Beneficial +Name and Address of +Ownership +Beneficial Owner +(a) +Percent +Directors: +John S. Callon +240,955 +(b) +1.71 +% +Fred L. Callon +697,307 +(c) +4.87 +% +Dennis W. Christian +0 +(d) +* +Leif Dons +50,250 +(e) +* +Robert A. Stanger +102,856 +(f) +* +John C. Wallace +1,979,167 +(g) +14.08 +% +Kings Scholars House +230 Vauxhall Bridge Road +London, SW1V 1AU, United Kingdom +B. F. Weatherly +101,288 +(h) +* +Richard O. Wilson +150,146 +(i) +1.07 +% +Named Executive Officers: +John S. Weatherly +332,409 +(j) +2.33 +% +Stephen F. Woodcock +135,513 +(k) +* +Kathy G. Tilley +0 +(l) +* +Directors and Executive Officers: +as a Group (15 persons) +4,108,564 +(m) +26.53 +% +Certain Beneficial Owners: +Ganger Rolf ASA +1,839,386 +(n) +13.17 +% +Fred. Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA +1,839,386 +(n) +13.17 +% +Fred. Olsensgate 2 +0152 Oslo, Norway +Ingalls & Snyder LLC +1,320,560 +(o) +9.45 +% +61 Broadway +New York, NY 10006 +Dimensional Fund Advisors Inc. +1,004,000 +(p) +7.19 +% +1299 Ocean Avenue, 11 th Floor +Santa Monica, CA 90401 +3 +Table of Contents +Common Stock +Beneficial +Name and Address of +Ownership +Beneficial Owner +(a) +Percent +Franklin Resources, Inc. +1,650,000 +(q) +11.81 +% +One Franklin Parkway +San Mateo, CA 94403 +Robert L. Gipson +765,910 +(r) +5.48 +% +C/O Ingalls & Snyder LLC +61 Broadway +New York, NY 10006 +North Sound Capital LLC +800,000 +(s) +5.73 +% +53 Forest Avenue, Suite 202 +Old Greenwich, CT 06870 +* +Less than 1% +(a) +Unless otherwise indicated, each of the persons listed in the following +table may be deemed to have sole voting and dispositive power with respect +to such shares. +(b) +Of the 240,955 shares beneficially owned by John S. Callon, 104,437 are +owned directly by him; 11,518 shares are owned within the Company’s +Employee Savings and Protection Plan; 90,000 shares are subject to options +under the Company’s 1994 Stock Incentive Plan (“1994 Plan”) exercisable +within 60 days; 30,000 shares are subject to options under the Company’s +1996 Stock Incentive Plan (“1996 Plan”) exercisable within 60 days; and +5,000 shares are subject to options under the 2002 Plan exercisable within +60 days. Shares indicated as owned by John S. Callon do not include +53,501 shares of Common Stock owned by his wife over which he disclaims +beneficial ownership. +(c) +Of the 697,307 shares beneficially owned by Fred L. Callon, 259,799 +shares are owned directly by him; 92,170 shares are held by him as +custodian for certain minor Callon family members; 9,880 shares are owned +within the Company’s Employee Savings and Protection Plan; 80,000 shares +are subject to options under the 1994 Plan exercisable within 60 days; and +255,458 shares are subject to options under the 1996 Plan exercisable +within 60 days. Shares indicated as owned by Fred L. Callon do not +include 24,904 shares of Common Stock owned by his wife over which he +disclaims beneficial ownership. +(d) +Pursuant to a Retirement Package and Release Agreement (the “Christian +Retirement Agreement”) dated March 9, 2004, Mr. Christian resigned as an +officer, employee and a director of the Company and all of its +subsidiaries and affiliates. The Christian Retirement Agreement provided +for an initial cash payment of $1,350,000 to be paid to Mr. Christian +following the execution of the Christian Retirement Agreement and an +additional final cash payment of $150,000, plus 6% interest, to be placed +in escrow to be released to Mr. Christian on March 9, 2005. The Christian +Retirement Agreement also provided that Mr. Christian would deliver into +escrow, original copies of all option agreements following the initial +cash payment. Mr. Christian has delivered into escrow an option agreement +to acquire 60,000 shares (all of which are vested as of the Record date) +under the 1994 Plan and option agreements to acquire 253,850 shares (of +which 234,617 are vested as of the Record Date) under the 1996 Plan. +Because these options have been placed in escrow, they are not exercisable +within 60 days. The option agreements are to be released from escrow and +returned to the Company upon receipt of the final cash payment by Mr. +Christian. +(e) +Of the 50,250 shares beneficially owned by Leif Dons, 5,250 are owned +directly by him; 5,000 shares are subject to options under the 1994 Plan +exercisable within 60 days; 35,000 shares are subject to options under the +1996 Plan exercisable within 60 days; and 5,000 shares are subject to +options under the 2002 Plan exercisable within 60 days. +(f) +Of the 102,856 shares beneficially owned by Robert A. Stanger, 12,856 are +owned directly by him; 25,000 shares are subject to options under the 1994 +Plan exercisable within 60 days; 60,000 shares are subject to options +under the 1996 Plan exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan exercisable within 60 days. +(g) +Of the 1,979,167 shares beneficially owned by John C. Wallace, 49,781 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 60,000 shares are subject +to options under the 1996 Plan exercisable within 60 days; 5,000 +4 +Table of Contents +shares +are subject to options under the 2002 Plan exercisable within 60 days; and +1,839,386 shares are owned by Ganger Rolf ASA (“Ganger Rolf”) and Bonheur +ASA (“Bonheur”). See note (n). +(h) +Of the 101,288 shares beneficially owned by B. F. Weatherly, 11,288 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 60,000 shares are subject +to options under the 1996 Plan exercisable within 60 days; and 5,000 +shares are subject to options under the 2002 Plan exercisable within 60 +days. +(i) +Of the 150,146 shares beneficially owned by Richard O. Wilson, 25,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; 60,000 shares are subject to options under the 1996 Plan exercisable +within 60 days; 5,000 shares are subject to options under the 2002 Plan +exercisable within 60 days; 49,464 shares are held in a family limited +partnership; and 10,682 shares are issuable upon conversion of 4,700 +shares of Preferred Stock. +(j) +Of the 332,409 shares beneficially owned by John S. Weatherly, 56,605 are +owned directly by him; 109 shares are held as custodian for his minor +child; 8,362 shares are owned within the Company’s Employee Savings and +Protection Plan; 60,000 shares are subject to options under the 1994 Plan +exercisable within 60 days; and 207,333 shares are subject to options +under the 1996 Plan exercisable within 60 days. +(k) +Of the 135,513 shares beneficially owned by Stephen F. Woodcock, 18,194 +are owned directly by him; 6,069 shares are owned within the Company’s +Employee Savings and Protection Plan; 104,000 shares are subject to +options under the 1996 Plan exercisable within 60 days; and 7,250 shares +are subject to options under the 2002 Plan exercisable within 60 days. +(l) +Pursuant to a Retirement Package and Release Agreement (the “Tilley +Retirement Agreement”) dated March 9, 2004, Ms. Tilley resigned as an +officer and employee of the Company and all of its subsidiaries and +affiliates. The Tilley Retirement Agreement provided for an initial cash +payment of $900,000 to be paid to Ms. Tilley following the execution of +the Tilley Retirement Agreement and an additional final cash payment of +$100,000, plus 6% interest, to be placed in escrow to be released to Ms. +Tilley on March 9, 2005. The Tilley Retirement Agreement also provided +that Ms. Tilley would deliver into escrow, original copies of all option +agreements following the initial cash payment. Ms. Tilley has delivered +into escrow an option agreement to acquire 30,000 shares (all of which are +vested as of the Record date) under the 1994 Plan, option agreements to +acquire 158,000 shares (all of which are vested as of the Record date) +under the 1996 Plan and option agreements to acquire 22,500 shares (of +which 7,500 are vested as of Record Date) under the 2002 Plan. Because +these options have been placed in escrow, they are not exercisable within +60 days. The option agreements are to be released from escrow and +returned to the Company upon receipt of the final cash payment by Ms. +Tilley. +(m) +Includes 399,000 shares subject to options under the 1994 Plan, +exercisable within 60 days; 1,058,974 shares subject to options under the +1996 Plan exercisable within 60 days; 44,616 shares are subject to +options under the 2002 Plan exercisable within 60 days; and 10,682 shares +issuable upon conversion of 4,700 shares of Preferred Stock. +(n) +As disclosed on a Schedule 13D/A, filed with the Commission on March 6, +2002, by Ganger Rolf, Bonheur, AS Quatro (“Quatro”), and Invento AS +(“Invento”). On August 28, 2000, Ganger Rolf and Bonheur jointly +purchased from Fred. Olsen Energy ASA (“F.O. Energy”) an aggregate of +1,839,386 shares of Common Stock. Ganger Rolf and Bonheur are currently +registered as the joint record owner of, and both possess shared voting +and dispositive power with respect to, all of the 1,839,386 shares of +Common Stock formerly owned by F.O. Energy. F.O. Energy no longer owns any +Common Stock. Quatro is the owner of 21.3% of the outstanding capital +stock of Bonheur, and Invento is the owner of 20.8% of the outstanding +capital stock of Bonheur. Quatro and Invento disclaim beneficial +ownership of the shares of Common Stock owned by Ganger Rolf and Bonheur. +John C. Wallace, one of our directors, is a director of Ganger Rolf and +Bonheur, as well as other companies associated with Ganger Rolf and +Bonheur, and as a result, may be deemed to share the power to vote and +dispose of, and, therefore, be a beneficial owner of, the shares of Common +Stock owned by Ganger Rolf and Bonheur. The principal business address +and principal executive offices of Quatro and Invento are located at +Hvitstenveien 11, 1545 Hvitsten, Norway. +5 +Table of Contents +(o) +Information is based upon a Schedule 13G filed with the Commission on +February 5, 2004, by Ingalls & Snyder (“Ingalls”). In this Schedule 13G, +Ingalls represents that it has shared dispositive power with respect to +1,320,560 shares of Common Stock. +(p) +Information is based upon a Schedule 13G/A, filed with the Commission on +February 6, 2004, by Dimensional Fund Advisors Inc. (“Dimensional”). In +this Schedule 13G/A, Dimensional represents that it has sole voting power +and sole dispositive power with respect to 1,004,000 shares of Common +Stock. +(q) +Information is based upon a Schedule 13G provided to the Company dated +January 12, 2004, by Franklin Resources, Inc. (parent holding company), +Charles B. Johnson and Rupert H. Johnson, Jr. (principal shareholders of +parent holding company), and Franklin Advisers, Inc. (investment adviser), +(collectively “Franklin Advisers”). In this Schedule 13G, Franklin +Advisers represents that it has sole voting power and sole dispositive +power with respect to 1,650,000 shares of Common Stock. +(r) +Information is based upon a Schedule 13G/A, filed with the Commission on +February 5, 2004, by Robert L. Gipson (“Gipson”). In this Schedule 13G/A, +Gipson represents that he has shared voting power with respect to 265,210 +shared of Common Stock and shared dispositive power with respect to +765,210 shares of Common Stock. +(s) +Information is based upon a Schedule 13G filed with the Commission on +March 26, 2004, by North Sound Capital LLC (“North Sound”). In this +Schedule 13G, North Sound represents that it has shared voting power and +shared dispositive power with respect to 800,000 shares of Common Stock. +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +The Company’s Certificate of Incorporation provides for a classified Board +of Directors. The Board of Directors is divided into three classes of nearly +equal size, designated as Class I (currently with three directors), Class II +(currently with three directors) and Class III (currently with one director). +One class of directors is elected at each annual meeting of Shareholders to +serve for a three-year term. +The terms of the three Class I directors, Messrs. Robert A. Stanger, John +C. Wallace and Richard O. Wilson, will expire on the date of the Annual +Meeting. Messrs. Robert A. Stanger, John C. Wallace and Richard O. Wilson (the +“Nominees”) have been nominated to serve as Class I directors until the 2007 +Annual Meeting and until their respective successor have been duly elected and +qualified. Each of the Nominees was nominated by the Board of Directors. +It is intended that all shares of Common Stock represented by the Proxies +will be voted for the election of the Nominees, except where authority to vote +in the election of directors has been withheld. Should the Nominees become +unable or unwilling to serve as directors at the time of the Annual Meeting, +the person or persons exercising the Proxies will vote for the election of +substitute Nominees designated by the Board of Directors, or the Board of +Directors may choose to reduce the number of members of the Board of Directors +to be elected at the Annual Meeting in order to eliminate the vacancy. The +Nominees have consented to be nominated and have expressed their intention to +serve if elected. The Board of Directors has no reason to believe that the +Nominees will be unable or unwilling to serve if elected. Only the Nominees or +substitute Nominees designated by the Board of Directors will be eligible to +stand for election as directors at the Annual Meeting. See “Shareholders’ +Proposals for 2005 Annual Meeting.” +6 +Table of Contents +Directors and Executive Officers +The following table provides information with respect to the Nominees, all +current directors whose terms will continue after the Annual Meeting, and the +present executive officers of the Company. Each executive officer has been +elected to serve until his or her successor is duly appointed or elected by the +Board of Directors or their earlier removal or resignation from office. +Company +Name +Age +Position Since +Present Company Position +Class I Directors: +(Term Expires in 2004) +Robert A. Stanger +64 +1995 +Director; Nominee +John C. Wallace +65 +1994 +Director; Nominee +Richard O. Wilson +74 +1995 +Director; Nominee +Class II Directors: +(Term Expires in 2005) +John S. Callon +84 +1994 +Director; Chairman of the Board +Leif Dons +54 +1999 +Director +B. F. Weatherly +59 +1994 +Director +Class III Directors: +(Term Expires in 2006) +Fred L. Callon +54 +1994 +Director; President; Chief Executive Officer +Other Executive Officers: +Robert A. Mayfield +53 +2000 +Corporate Secretary +Thomas E. Schwager +53 +1997 +Vice President +H. Clark Smith +51 +2001 +Corporate Information Officer +Rodger W. Smith +54 +1999 +Treasurer +John S. Weatherly +52 +1994 +Senior Vice President; Chief Financial Officer +Stephen F. Woodcock +52 +1997 +Vice President +The following is a brief description of the background and principal occupation +of each director (including each Nominee) and executive officer: +Fred L. Callon has been President and Chief Executive Officer of the +Company and Callon Petroleum Operating Company since January 1997. Prior to +January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has +been employed by the Company or its predecessors since 1976. Mr. Callon +graduated from Millsaps College in 1972 and received his M.B.A. degree from the +Wharton School of Finance in 1974. Following graduation and until his +employment by Callon Petroleum Operating Company, he was employed by Peat, +Marwick, Mitchell & Co., certified public accountants. He is the nephew of +John S. Callon. +John S. Callon is Chairman of the Board of Directors of the Company and +Callon Petroleum Operating Company. Effective January 2, 1997, John S. Callon +resigned from his position as Chief Executive Officer of the Company, a +position he had held since 1980. Mr. Callon founded the Company’s predecessors +in 1950, and has held an executive office with the Company or its predecessors +since that time. He has served as a director of the Mid-Continent Oil and Gas +Association and as the President of the Association’s Mississippi-Alabama +Division. He has also served as Vice President for Mississippi of the +Independent Petroleum Association of America. He is a member of the American +Petroleum Institute. Mr. Callon is the uncle of Fred L. Callon. +Leif Dons has since 1997 been Senior Vice President, Business Development +of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged in the +offshore energy service industry. From 1992 until 1997, Mr. Dons was employed +by Kvaerner ASA in various positions, including the fields of international +operations and the commercialization of new technology. From 1983 until 1991, +he served as the Managing Director of Norwegian Oil Consortium A/S & Co., an +oil company with producing +7 +Table of Contents +properties in Norway. From 1973 until 1983, Mr. +Dons held various positions as an analyst, staff engineer and +economist at the Pulp and Paper Research Institute, Norway and Saga +Petroleum ASA. Mr. Dons received a Master of Science degree in engineering +from the Norwegian Institute of Technology in 1973. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax +Services for the Company and Callon Petroleum Operating Company. He was +appointed Corporate Secretary in February 2000. Prior to his appointment as +Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining +Callon, he was employed by McCormick Oil and Gas Company in Houston, Texas, +where he served as an assistant to the tax manager. Mr. Mayfield received his +B.S. degree in accounting from Louisiana Tech University in 1972 and is a +member of the American Society of Corporate Secretaries. +Thomas E. Schwager has been Vice President of Engineering and Operations +for the Company and Callon Petroleum Operating Company since November 1997. +Mr. Schwager has held various engineering positions with the Company and its +predecessors since 1981. Prior to joining the Company, Mr. Schwager held +engineering positions with Exxon Company USA in Louisiana and Texas. He +received his B.S. degree in petroleum engineering from Louisiana State +University in 1972. He is a registered professional engineer and a member of +the Society of Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and Callon +Petroleum Operating Company. Prior to being appointed to that position in +March 2001, he had served as Manager – Information Technology since January +1990 and in other computer related positions with the Company and its +predecessors since 1983. At Mississippi State University, he majored in +Industrial Technology. During his tenure with the Company, he has received +extensive technical and management training from the University of Southern +Mississippi, International Business Machines, Microsoft, Novell, and Arthur +Andersen & Company. He has also served as Manager – Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting +firm, Mississippi Computing Consultants. +Rodger W. Smith is the Treasurer for the Company and Callon Petroleum +Operating Company. Prior to being appointed to that position in April 1999, he +had served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. +Smith was Manager of Exploration and Production Accounting and has been +employed by the Company and its predecessors since 1983. Prior to his +employment with the Company, he was employed by International Paper Company as +a plant controller. He received his B.S. degree in accounting from the +University of Southern Mississippi in 1973. +Robert A. Stanger since 1978 has been the Chief Executive Officer and +Chairman of Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based +firm engaged in publishing financial material and providing investment banking +services to the real estate and oil and gas industries. He is a director of +Citizens Utilities, Stamford, Connecticut, a provider of telecommunications +services. Previously, Mr. Stanger was Vice President of Merrill Lynch & Co. +He received his B.A. degree in economics from Princeton University in 1961. +Mr. Stanger is a member of the National Association of Securities Dealers and +the New York Society of Security Analysts. +John C. Wallace is a Chartered Accountant having qualified with +PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers +& Co., Limited in London, England. For over twenty years, he has served as +Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 +and which specializes in the business of shipping, renewable energy and +property development. Mr. Wallace is a director of Fred. Olsen Energy ASA, a +publicly-held Norwegian company engaged in the offshore energy service +industry; and Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded +shipping companies. +B. F. Weatherly has been a principal of CapSource Financial, Houston, +Texas, an investment-banking firm, since 1989. He is also a general partner of +CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and has held +that position since 1997. Mr. Weatherly received a Master of Accountancy +degree from the University of Mississippi in 1967. Mr. Weatherly has +previously been associated with Arthur Andersen LLP, and has served as a Senior +Vice President of Brown & Root, Inc. and Weatherford International, Inc. B. F. +Weatherly and John S. Weatherly are brothers. +John S. Weatherly is Senior Vice President and Chief Financial Officer for +the Company and Callon Petroleum Operating Company. Prior to April 1999, Mr. +Weatherly also held the position of Treasurer. Prior to April 1996, he was +Vice President, Chief Financial Officer and Treasurer of the Company and had +held these positions since 1983. Prior to joining Callon Petroleum Operating +Company in 1980, he had been employed by Arthur Andersen LLP since 1974. Mr. +Weatherly received his B.B.A. degree in +8 +Table of Contents +accounting in 1973 and his M.B.A. +degree in 1974 from the University of Mississippi. Mr. Weatherly is a member +of the American Institute of Certified Public Accountants and the Mississippi +Society of Certified Public Accountants. John S. Weatherly and B. F. Weatherly +are brothers. +Richard O. Wilson is an Offshore Consultant. In his 48 years of working +in offshore drilling and construction, he spent two years with Zapata Offshore +and 21 years with Brown & Root, Inc. working in various managerial capacities +in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United +Kingdom and Mexico. Mr. Wilson was a director and Senior Group Vice President +of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 +years he was associated with Fred. Olsen Interests where he served as Chairman +of OGC International PLC, Dolphin A/S and Dolphin Drilling Ltd. Since the sale +of OGC International PLC to Halliburton, Inc. in 1997, Mr. Wilson has been a +consultant to Brown & Root, Inc. He holds a B.S. degree in civil engineering +from Rice University. Mr. Wilson is a Fellow in the American Society of Civil +Engineers, a Director of Flotek Industries, Inc. and a Director of the Museum +of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected an +Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and +Callon Petroleum Operating Company. Prior to being appointed to this position +in November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics +since his initial employment by the Company and Callon Petroleum Operating +Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock +received a master’s degree in geophysics from Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are +United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr. +Dons, who is a citizen of Norway. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires +the Company’s directors and executive officers, and persons who own more than +ten percent of a registered class of the Company’s equity securities, to file +with the Commission and any exchange or other system on which such securities +are traded or quoted, initial reports of ownership and reports of changes in +ownership of Common Stock and other equity securities of the Company. +Officers, directors and greater than ten percent shareholders are required by +the Commission’s regulations to furnish the Company and any exchange or other +system on which such securities are traded or quoted, with copies of all +Section 16(a) forms they file with the Commission. +To the Company’s knowledge, based solely on review of the copies of such +reports furnished to the Company during, or with respect to, the fiscal year +ended December 31, 2003, all of the Company’s officers, directors and greater +than ten percent shareholders had complied with all Section 16(a) filing +requirements. +Information Concerning the Operation of the Board of Directors +The business of the Company is managed under the direction of the Board of +Directors. The Board of Directors meets on a quarterly basis to review +significant developments affecting the Company and to act on matters requiring +Board approval. The Board of Directors may also hold special meetings when an +important matter requires Board action between regularly scheduled meetings. +Each non-employee director receives an annual fee of $10,000 for service on the +Board of Directors and is reimbursed for out-of-pocket expenses incurred to +attend the Board meetings. In addition, each non-employee director receives +$2,000 for each meeting of the Board attended in person and $1,000 for his +participation in each telephonic Board meeting. On the date he or she is +initially elected or appointed to the Board, each non-employee director +receives an automatic grant of an option to purchase 5,000 shares of Common +Stock for an exercise price equal to the fair market price on the date of grant +and for a ten-year term. Thereafter, for each subsequent year in which the +non-employee director serves as a director, he or she is automatically granted +an option to purchase an additional 5,000 shares on the same terms. +On August 23, 1996, the Compensation Committee authorized a one-time grant +to each non-employee director of an option to purchase 20,000 shares of Common +Stock under the 1996 Plan at a purchase price of $12.00 per share, the fair +market value of the Common Stock on such date. As of the Record Date, all such +options are fully vested. On July 25, 2000, the Compensation Committee +authorized a one-time grant to each non-employee director of an option to +purchase 20,000 shares of Common Stock under the 1996 Plan at a purchase price +of $10.50 per share, the fair market value of the Common Stock on such date. +As of the Record Date, all such options are fully vested. On August 27, 2002, +the +9 +Table of Contents +Compensation Committee authorized the grant of a total of 70,500 shares of +restricted stock to the non-employee directors. The restricted stock grant +provided that the shares will vest with respect to one-third of the shares on +November 15, 2002, November 15, 2003 and November 15, 2004. The closing price +of the Company’s Common Stock on the New York Stock Exchange was $3.72 per +share on August 27, 2002. +During 2003, the Board of Directors of the Company met formally four times +and executed 13 Unanimous Written Consents. All of the Company’s directors +attended more than 75% of the aggregate of the total number of board meetings +and meetings of committees of which he is a member. +Code of Business Conduct and Ethics. In March 2004, the Board adopted a +Code of Business Conduct and Ethics which applies to all directors, officers +and employees of the Company. The Board has not granted any waivers to the +Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics +is accessible on the Company’s website http://www.callon.com. Any amendments to +or waivers of the Code of Business Conduct Ethics will also be posted on the +Company’s website. +Communication with the Board of Directors. In order to provide the +Company’s shareholders and other interested parties with a direct and open line +of communication to the Board of Directors, the Board of Directors has adopted +the following procedures for communications to directors. Callon shareholders +and other interested persons may communicate with the Chairman of the Company’s +Audit Committee or with the non-management directors of the Company as a group +by written communications addressed in care of Robert A. Mayfield, Corporate +Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, MS +39120. +All communications received in accordance with these procedures will be +reviewed initially by senior management of the Company. Senior management will +relay all such communications to the appropriate director or directors unless +it is determined that the communication (a) does not relate to the business or +affairs of the Company or the functioning or constitution of the Board of +Directors or any of its committees; (b) related to routine or insignificant +matters that do not warrant the attention of the Board of Directors; (c) is an +advertisement or other commercial solicitation or communication; (d) is +frivolous or offensive; or (e) is otherwise not appropriate for delivery to +directors. +The director or directors who receive any such communication will have +discretion to determine whether the subject matter of the communication should +be brought to the attention of the full Board of Directors or one or more of +its committees and whether any response to the person sending the communication +is appropriate. Any such response will be made only in accordance with +applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received +pursuant to these procedures for a period of at least one year. The Board of +Directors will review the effectiveness of these procedures from time to time +and, if appropriate, recommend changes. +Attendance at Annual Meeting of Shareholders. It is the policy of the +Board that, to the extent possible, all directors attend the annual meeting of +shareholders. All directors attended the 2003 annual meeting of shareholders. +Board Committees. In order to facilitate the various functions of the +Board of Directors, the Board of Directors has created an Audit Committee, a +Compensation Committee and a Nominating and Corporate Governance Committee. +Committee members are not remunerated in addition to their annual Board +retainer. +Audit Committee. The purpose of the Audit Committee is to oversee (i) the +integrity of the Company’s financial statements and disclosures, (ii) the +Company’s compliance with legal and regulatory requirements, (iii) the +qualifications, independence and performance of the Company’s independent +auditors, (iv) the performance of the Company’s internal audit function and +independent auditors, (v) the Company’s internal control systems, and (vi) the +Company’s procedures for monitoring compliance with the Company’s Code of +Business Conduct and Ethics. +The principal function of the Audit Committee is to assist the Board of +Directors in the areas of financial reporting and accounting integrity. As +such, it meets periodically with the independent auditors and management, +including each in executive session. Management is solely responsible for the +financial statements and the financial reporting process, including the system +of internal controls, and has represented to the Audit Committee and the Board +of Directors that the financial statements discussed below were prepared in +accordance with accounting principles generally accepted in the United States +of +10 +Table of Contents +America appropriate in the circumstances and necessarily include some +amounts based on management’s estimates and judgments. The Company’s +independent auditors, Ernst & Young LLP (“E&Y”), are responsible for expressing +an opinion on the conformity of these financial statements, in all material +respects, with accounting principles generally accepted in the United States of +America. +The Audit Committee’s Charter provides that the Company’s independent +auditor may provide only those services pre-approved by the Audit Committee. +The Audit Committee annually reviews and pre-approves the audit, review, attest +and permitted non-audit services to be provided during the next audit cycle by +the independent auditor. To the extent practicable, at the same meeting the +Audit Committee also reviews and approves a budget for each of such services. +Services proposed to be provided by the independent auditor that have not +been pre-approved during the annual review and the fees for such proposed +services must be pre-approved by the Audit Committee. Additionally, fees for +previously approved services that are expected to exceed the previously +approved budget must also be approved by the Audit Committee. +All requests or applications for the independent auditor to provide +services to the Company must be submitted to the Audit Committee by the +independent auditor and management and state as to whether, in their view, the +request or application is consistent with applicable laws, rules and +regulations relating to auditor independence. In the event that any member of +management or the independent auditor becomes aware that any services are +being, or have been, provided by the independent auditor to the Company without +the requisite pre-approval, such individual must immediately notify the Chief +Financial Officer, who must promptly notify the Chairman of the Audit Committee +and appropriate management so that prompt action may be taken to the extent +deemed necessary or advisable. +The Audit Committee may delegate to a member(s), the authority to grant +specific pre-approvals under its policy with respect to audit, review, attest +and permitted non-audit services, provided that any such grant of pre-approval +shall be reported to the full Audit Committee no later than its next scheduled +meeting. +This Committee is comprised of Messrs. Stanger (Chairman), Wilson and +Wallace. The Board of Directors has affirmatively determined that each of the +members is financially literate and is an independent director for purposes of +New York Stock Exchange rules applicable to members of the audit committee, +meaning that the director has no relationship to the Company that may interfere +with the exercise of their independence from management and the Company (an +“Independent Director”). The Board of Directors believes that all three +members of the Audit Committee currently possess the financial expertise +necessary for the Audit Committee to properly fulfill its purposes. +Additionally, the Board of Directors has determined that Mr. Wallace has the +accounting or financial management expertise to be considered a “financial +expert” as defined and required by the New York Stock Exchange’s rules and by +the Securities Act of 1934. An audit committee financial expert is a person +who has (i) an understanding of generally accepted accounting principles and +financial statements, (ii) the ability to assess the general application of +said principles in connection with the accounting for estimates, accruals and +reserves, (iii) experience preparing, auditing, analyzing or evaluating +financial statements of comparable breadth and complexity to Callon’s financial +statements, and (iv) an understanding of internal controls and procedures. The +Audit Committee has sole responsibility for retaining, dismissing and +compensating the Company’s independent auditors. The Board of Directors adopted +an Audit Committee Charter in 2000 and revised the Charter in 2004 to meet the +updated requirements of the SEC and the NYSE. The Audit Committee’s report on +its activities during 2003 and 2004 appear later in this proxy statement under +the caption “Audit Committee Report.” +The Audit Committee held six meetings and executed two Unanimous Written +Consents during 2003. All members of the Audit Committee attended the +meetings. The Audit Committee Charter is available on the Company’s website at +http://www.callon.com. +Compensation Committee. The purpose of the Compensation Committee is to +(i) assist the Board of Directors in the discharge of its fiduciary +responsibilities relating to the fair and competitive compensation of the +Company’s Chief Executive Officer ( " CEO " ) and other executives and (ii) prepare +an annual report on executive compensation for inclusion in the Company’s proxy +statement for the annual meeting of shareholders. The Committee administers the +Company’s incentive compensation and stock option and other equity based plans +in which the CEO and other executive officers may be participants and +recommends to the Board amendments to such plans or adoption of new plans. In +connection with administering such plans, the Committee shall have the +authority to (i) approve option guidelines and the general size of overall +grants, (ii) make grants, (iii) interpret the plans, (iv) determine the rules +and regulations relating to the plans, (v) modify or cancel existing grants and +substitute new grants (with the consent of grantees), (vi) designate employees +eligible to participate in the plans, and +11 +Table of Contents +(vii) impose such limitations, +restrictions and conditions upon any award as the Committee deems appropriate +and as permitted under the applicable plan. The Committee annually reviews and +establishes the base salary, incentive compensation, deferred compensation, +stock options, performance units and other equity based awards for the CEO and +makes recommendations to the Board with respect to compensation of the +Company’s other executive officers. With the exception of B.F. Weatherly, each +member of the Committee meets the independence requirements of the New York +Stock Exchange and applicable federal securities +laws. Therefore, effective April 12, 2004, Mr. B.F. Weatherly resign from +the Compensation Committee. Remaining members are Messrs. Robert A. Stanger, +John C. Wallace and Richard O. Wilson. The Compensation Committee held four +meetings during 2003. All members of the Compensation Committee attended all +meetings. The Compensation Committee Charter is available on the Company’s +website at http://www.callon.com. +Nominating and Corporate Governance Committee. The purpose of the +Committee is to (i) identify and recommend to the Board individuals qualified +to be nominated for election to the Board, (ii) recommend to the Board the +members and Chairperson for each Board committee, (iii) periodically review and +assess the Company’s Corporate Governance Principles and the Company’s Code of +Business Conduct and Ethics and make recommendations for changes thereto to the +Board and (iv) oversee the annual self-evaluation of the performance of the +Board and the annual evaluation of the Company’s management. Each member of +the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. The Committee was formed in +April 2004. Members are Messrs. Wallace, Wilson, and Stanger. Prior to the +formation of this Committee, the entire Board of Directors performed these +functions. The Nominating and Corporate Governance Committee Charter is +available on the Company’s website at http://www.callon.com. +The Nominating and Corporate Governance Committee has established certain +criteria it considers as guidelines in considering nominations to the Company’s +Board of Directors. The criteria include: (a) personal characteristics, +including such matters as integrity, age, education, diversity of background +and experience, absence of potential conflicts of interest with the Company or +its operations, and the availability and willingness to devote sufficient time +to the duties of a director of the Company; (b) experience in corporate +management, such as serving as an officer or former officer of a publicly held +company; (c) experience in the Company’s industry and with relevant social +policy concerns; (d) experience as a board member of another publicly held +company; (e) academic expertise in an area of the Company’s operations; and (f) +practical and mature business judgment. The criteria are not exhaustive and the +Nominating and Corporate Governance Committee and the Board of Directors may +consider other qualifications and attributes which they believe are appropriate +in evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to +assemble a Board of Directors that brings to the Company a variety of +perspectives and skills derived from high quality business and professional +experience. In doing so, the Nominating and Corporate Governance Committee also +considers candidates with appropriate non-business backgrounds. +The Board of Directors believes that, based on the Nominating and +Corporate Governance Committee’s knowledge of the Company’s corporate +governance principles and the needs and qualifications of the Board at any +given time, the Nominating and Corporate Governance Committee is best equipped +to select nominees that will result in a well-qualified and well-rounded board +of directors. Accordingly, it is the policy of the Nominating and Corporate +Governance Committee not to accept unsolicited nominations from shareholders. +In making its nominations, the Nominating and Corporate Governance Committee +identifies nominees by first evaluating the current members of the Board +willing to continue their service. Current members with qualifications and +skills that are consistent with the committee’s criteria for Board service are +re-nominated. As to new candidates, the committee will generally poll the Board +members and members of management for recommendations. The committee may also +review the composition and qualification of the boards of directors of the +Company’s competitors, and may seek input from industry experts or analysts. +The committee reviews the qualifications, experience and background of the +candidates. Final candidates are interviewed by the independent directors and +executive management. In making its determinations, the committee evaluates +each individual in the context of the Board as whole, with the objective of +assembling a group that can best represent shareholder interests through the +exercise of sound judgment. After review and deliberation of all feedback and +data, the committee makes its recommendation to the Board of Directors. The +committee may in the future choose to engage third-party search firms in +situations where particular qualifications are required or where existing +contacts are not sufficient to identify an appropriate candidate. +Corporate Governance Principles. In 2004, the Company and the Board +adopted the Corporate Governance Principles (the " Principles " ) to assist the +Board of Directors (the “Board " ) in the exercise of its responsibilities. +These guidelines will be interpreted in the context of all applicable laws and +the +12 +Table of Contents +Company’s Certificate of Incorporation, Bylaws and other corporate +governance documents. The Principles are intended to serve as a flexible +framework within which the Board may conduct its business and not as a set of +legally binding obligations. The Company’s Corporate Governance Principles is +available on the Company’s website at http://www.callon.com. +Audit Committee Report +The Audit Committee’s powers and responsibilities, and the qualifications +required of each of its members, are set forth in the Audit Committee Charter. +Actions taken by the Audit Committee during 2003 and 2004 consisted of the +following: +Amended Committee Charter. Based on the recommendation of the Audit +Committee after consideration of the newly issued listing standards of the New +York Stock Exchange, the Board of Directors amended the Charter in 2004. A copy +of the Audit Committee Charter, as revised, is attached as Appendix A, and is +available on the Company’s website at http://www.callon.com. The principal +changes, which enumerate details of the responsibilities of the Audit Committee +as required by the listing standards, were: +(a) +to provide that the Audit Committee review and discuss +quarterly disclosures contained in the financial statements and +Management’s Discussion and Analysis of Financial Condition and +Results of Operations in the Company’s SEC filings, prior to the +filing of such disclosures; +(b) +to provide that the Audit Committee generally review the type +of information to be disclosed in earnings press releases; +(c) +to formally require the Audit Committee to periodically +consult with management about internal controls, completeness and +accuracy of financial statements and audit procedures; and +(d) +to make other minor modifications to conform provisions of +the existing charter to technical requirements of rules recently +adopted by the Securities and Exchange Commission as proposed by the +New York Stock Exchange. +Audit Fees Paid to Independent Auditors. Fees paid for professional +services rendered related to the year ended December 31, 2002 by Arthur +Andersen LLP, the auditor prior to the appointment of Ernst & Young LLP, were +$40,500. Fees paid for professional services rendered related to the audit of +the Company’s annual financial statements and review of the quarterly financial +statements for the year ended December 31, 2002 by Ernst & Young LLP, were +$128,000 plus expenses of $6,250. For the year ended December 31, 2003, fees +paid for professional services rendered by Ernst & Young LLP for the annual +audit and quarterly reviews were $157,000, including out-of-pocket expenses. +The Audit Committee has concluded that providing the tax-related services +mentioned below is compatible with maintaining the principal auditor’s +independence. +Audit-related Fees . There were no audit-related fees paid in 2002 or +2003. +Tax Fees. Professional services billed by Arthur Andersen LLP for the +review of the federal tax return, tax advice and tax planning in 2002 were +$6,000. Professional services billed by Ernst & Young LLP for the review of +the federal tax return, federal, state and local tax planning and advice, +quarterly estimated tax payments, and assistance/analysis of tax attributes for +2003 were $24,900. +All Other Fees. There were no other fees paid to the Company’s +independent auditors in 2002 or 2003. +All of the services provided by the Company’s independent auditors during +2002 and 2003 were pre-approved by the Audit Committee. +Approval of Company’s Annual Report on Form 10-K . Acting pursuant to its +Charter, the Audit Committee reviewed the Company’s audited financial +statements at, and for the year ended, December 31, 2003 with management and +the Company’s independent auditors and recommended to the Company’s Board of +Directors that the financial statements be included in the Company’s Annual +Report on Form 10-K for 2003. This recommendation was based on: the Audit +Committee’s review of the audited +13 +Table of Contents +financial statements; discussion of the +financial statements with management; discussion with the Company’s independent +auditors, Ernst & Young LLP, of the matters required to be discussed by +auditing standards generally accepted in the United States of America, +including the matters required to be discussed by SAS 61; receipt from Ernst +&Young LLP of the written disclosures and letter required by Independence +Standards Board Standard No.1 (Independence Discussions with Audit Committees); +discussions with Ernst & Young LLP regarding its independence from the Company +and its management; and Ernst & Young LLP’s confirmation that it would issue +its opinion that the consolidated financial statements present fairly, +in all material respects, the financial position of the Company and its +consolidated subsidiaries and the results of their operations and cash flows +for the periods presented in conformity with accounting principles generally +accepted in the United States of America. +Robert A. Stanger, Chairman +Richard O. Wilson +John C. Wallace +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth information with respect to the Chief +Executive Officer of the Company and the four most highly compensated executive +officers of the Company (“Named Executive Officers”) for the years ended +December 31, 2003, 2002 and 2001. +Long-Term +Annual Compensation +Compensation Awards +Other +Annual +Restricted +Securities +All Other +Compen- +Stock +Underlying +Compen- +Salary +Bonus +sation +Award(s) +Options +sation +Year +($) +($)(a) +($)(b) +($)(c) +(#)(d) +($)(e) +Fred L. Callon +2003 +285,605 +0 +0 +0 +0 +26,596 +President and Chief +2002 +278,639 +79,750 +0 +242,475 +31,375 +27,235 +Executive Officer +2001 +271,843 +0 +0 +0 +0 +31,117 +Dennis W. Christian +2003 +262,675 +0 +0 +0 +0 +26,106 +Sr. Vice President +2002 +256,268 +74,250 +0 +217,300 +28,850 +26,985 +and Chief Operating +2001 +250,096 +0 +0 +0 +0 +29,181 +Officer (f) +John S. Weatherly +2003 +228,484 +0 +0 +0 +0 +24,372 +Sr. Vice President +2002 +222,911 +64,250 +0 +197,425 +25,000 +25,146 +and Chief Financial +2001 +217,474 +0 +0 +0 +0 +25,944 +Officer +Kathy G. Tilley +2003 +194,212 +0 +0 +0 +0 +20,331 +Vice President (f) +2002 +189,475 +45,000 +0 +148,400 +22,500 +20,668 +2001 +184,854 +0 +0 +0 +0 +20,216 +Stephen F. Woodcock +2003 +178,606 +0 +0 +0 +0 +19,405 +Vice President +2002 +174,250 +42,000 +0 +84,800 +21,750 +19,100 +2001 +168,985 +0 +0 +0 +0 +18,479 +(a) +As a result of the successful financing of the Company’s indebtedness and +the implementation of an acceptable business plan for 2002 and 2003, the +Company awarded cash bonuses to the executive officers and certain other +employees, a portion of which was paid in July 2002 and a portion or which +was paid in September 2002. These bonuses were considered to be earned by +service performed during 2002. These amounts include any amounts that +were deferred at the election of the Named Executive Officers. +14 +Table of Contents +(b) +None of the Named Executive Officers received perquisites or other +personal benefits, securities or property, the aggregate annual amount of +which exceeded the lesser of $50,000 or 10% of the total of annual salary +and bonus reported for such officer. +(c) +On February 14, 2002, the following shares of restricted stock were +awarded under the 1996 Plan: Fred L. Callon, 45,750 shares; Dennis W. +Christian, 41,000 shares; John S. Weatherly, 37,250 shares; Kathy G. +Tilley, 28,000 shares; and Stephen F. Woodcock, 16,000 shares. On February +14, 2002 the closing price of the Company’s Common Stock on the New York +Stock Exchange was $5.30 per share. Pursuant to the terms of the +restricted stock awards, the shares shall vest with +respect to one-third of the shares on November 15, 2002, with respect to +an additional one-third of the shares on November 15, 2003, and with +respect to the remaining one-third of the shares on November 15, 2004. On +November 14, 2002, the award was amended to provide that the vesting date +with respect to the shares not vested on that date would be deferred for +successive three-month periods unless the grantee provides written notice +to the Company of his or her desire to allow vesting. As of November 15, +2002, no such written communication had been received from any of the +Named Executive Officers and therefore, one-third of the award was +deferred until February 15, 2003. As of December 31, 2003, Mr. Fred +Callon held 15,250 shares of unvested restricted stock with an aggregate +market value of $158,143, Mr. Christian held 13,667 shares of unvested +restricted stock with an aggregate market value of $141,727, Mr. +Weatherly held 12,417 shares of unvested restricted stock with an +aggregate market value of $128,764, Ms. Tilley held 9,333 shares of +unvested restricted stock with an aggregate market value of $96,783, and +Mr. Woodcock held 5,333 shares of unvested restricted stock with an +aggregate market value of $55,303. The value of the unvested restricted +stock held by the Named Executive Officers as of December 31, 2003 is +based on the closing price of the Company’s Common Stock on the NYSE on +such date, which was $10.37 per share. Any dividends paid by the Company +will be payable on outstanding shares of restricted stock. +(d) +On July 12, 2002 and August 23, 2002, options granted to Fred L. Callon +were 18,750 shares and 12,625 shares, respectively; Dennis W. Christian, +17,250 shares and 11,600 shares, respectively; John S. Weatherly, 15,000 +shares and 10,000 shares, respectively; Kathy G. Tilley, 13,500 shares and +9,000 shares, respectively; and Stephen F. Woodcock, 13,250 shares and +8,500 shares, respectively. Options exercise prices were $4.50 and $3.70 +per share, respectively. +(e) +Amounts reflect the Company’s contribution in 2003, 2002, and 2001 of +$22,664, $23,303 and $27,185 to Fred L. Callon’s 401(k) savings plan and +payment of $3,932, $3,932 and $3,932 term life insurance premiums; +$21,934, $22,813 and $25,009 to Mr. Christian’s 401(k) savings plan and +payment of $4,172, $4,172 and $4,172 term life insurance premiums; +$20,175, $20,949 and $21,747 to Mr. Weatherly’s 401(k) savings plan and +payment of $4,197, $4,197 and $4,197 term life insurance premiums; +$18,510, $18,847 and $18,484 to Ms. Tilley’s 401(k) savings plan and +payment of $1,821, $1,821 and $1,732 term life insurance premiums; and +$17,730, $17,425 and $16,898 to Mr. Woodcock’s 401(k) savings plan and +payments of $1,675, $1,675 and $1,581 term life insurance premiums. +(f) +Effective March 9, 2004, Mr. Christian and Ms. Tilley resigned as +officers and employees of the Company. +Employment Agreements, Termination of Employment and Change-in-Control +Arrangements +Severance Compensation Agreements. Effective January 1, 2002, the Company +entered into Severance Compensation Agreements (the “Agreements”) with Fred L. +Callon, Dennis W. Christian and John S. Weatherly providing for certain +benefits to each of them in the event that a “change of control” occurs during +the three-year period after the execution of such Agreements. Mr. Christian’s +Agreement was terminated pursuant to the Christian Retirement Agreement +described below. Each Agreement is for a three-year term and is automatically +extended for successive one-year periods unless either the Company or the +executive notifies the other party prior to such renewal that it has elected to +terminate the Agreement; provided that the term of each Agreement shall be +until the later of two years following the date of a change of control and the +satisfaction of all obligations of the Company under the Agreement. The +Agreements terminate upon each executive’s death, disability termination for +cause or voluntary resignation other than for “good reason.” +Pursuant to the Agreements, if either Messrs. Callon or Weatherly’s +employment with the Company is terminated without cause by the Company or for +good reason by the executive within two years following a change of control by +the Company, the executive is entitled to a single lump-sum cash payment in an +15 +Table of Contents +amount equal to three times the sum of (a) the annual base salary of such +executive in effect prior to such termination, and (b) the higher of the +average bonus earned by the executive during the three preceding years or the +target bonus that the executive is eligible to receive during the year of +termination. If Messrs. Callon or Weatherly’s employment is terminated as a +result of their death or disability, the Company is only required to make such +payments if the termination occurred within six months of a change of control. +“Good reason” is generally defined in the Agreements as a change in the +executive’s compensation, benefits, position, responsibilities, or location. +The Agreements also provide that, upon a change of control, all stock +options, restricted stock, stock appreciation rights and other similar rights +held by Messrs. Callon or Weatherly shall automatically become fully +exercisable notwithstanding any vesting or exercisability provisions. +If any payment to either Messrs. Callon or Weatherly would be subject to +any excise tax under Section 4999 of the Internal Revenue Code of 1986, as +amended, a “gross-up” payment will be made to place such executive in the same +net after-tax position as would have been the case if no excise tax had been +payable. +Consulting Agreement. The Company entered into a consulting agreement +with John S. Callon, effective as of January 2, 1997, the day he retired as +Chief Executive Officer of the Company. The agreement was amended on February +18, 1999. Pursuant to the agreement, John S. Callon provided consulting +services to the Company on matters pertaining to corporate or financial +strategy, investor relations and public/private financing opportunities. The +agreement remained in effect from the effective date until December 31, 2001, +subject to renewal for succeeding five-year periods unless earlier terminated. +As compensation for his services under the agreement, John S. Callon was paid a +fee of not less than $190,000 per year increased annually based upon the change +in the Consumer Price Index, as adjusted for inflation. In addition, he will +remain eligible to participate in the Company’s major medical and disability +coverage, and will be entitled to participate in all other employee benefit +plans (other than a cash bonus program) provided to full-time executives of the +Company. As an inducement for entering into the agreement, John S. Callon was +granted 25,000 restricted shares of Common Stock, 20% of which were to vest on +each of the first five anniversaries following the effective date of the +agreement. On February 18, 1999, the Board of Directors approved the +Compensation Committee’s recommendation that all unvested restricted shares be +vested as of such date. +On January 1, 2002, the Company and Mr. Callon agreed to terminate the +consulting agreement upon the successful financing or refinancing of $45 +million of the Company’s indebtedness. In July 2002, these conditions were met +and a $1.5 million, adjusted for inflation, termination payment was paid. The +Company remains obligated to continue to provide medical and disability +coverage to Mr. Callon and his spouse. +Change in Control . Pursuant to the Callon Petroleum Company 1994 Stock +Incentive Plan (the “1994 Plan”), the Callon Petroleum Company 1996 Stock +Incentive Plan (the “1996 Plan”), and the Callon Petroleum Company 2002 Stock +Incentive Plan (the “2002 Plan”), in the case of a merger or consolidation +where the Company is not the surviving entity, or if the Company is about to +sell or otherwise dispose of substantially all of its assets while unvested +options remain outstanding, the Compensation Committee or other plan +administrator may, in its discretion and without Shareholder approval, declare +some or all options exercisable in full before or simultaneously with such +merger, consolidation or sale of assets without regard for prescribed waiting +periods. Alternatively, the Compensation Committee or other plan administrator +may cancel all outstanding options provided option holders are given notice and +a period of 30 days prior to the merger, consolidation or sale to exercise the +options in full. +Retirement Package and Release Agreements. Effective March 9, 2004 the +Company and all of its subsidiaries and affiliates entered into the Christian +Retirement Agreement and the Tilley Retirement Agreement. +In accordance with the Christian Retirement Agreement, Mr. Christian +resigned as an officer, employee and a director of the Company and all of its +subsidiaries and affiliates. The Christian Retirement Agreement provided for +an initial cash payment of $1,350,000, less applicable federal and state income +taxes, to be paid to Mr. Christian following the execution of the Christian +Retirement Agreement and an additional final cash payment of $150,000, plus an +amount equal to 6% per annum interest thereon from March 9, 2004 to March 9, +2005, and less applicable federal and state income taxes, to be placed in +escrow to be released to Mr. Christian on March 9, 2005. The Christian +Retirement Agreement also provided that Mr. Christian would also deliver into +escrow, original copies of all option agreements following the initial cash +payment. +16 +Table of Contents +In accordance with the Tilley Retirement Agreement, Ms. Tilley resigned as +an officer and employee of the Company and all of its subsidiaries and +affiliates. The Tilley Retirement Agreement provided for an initial cash +payment of $900,000, less applicable federal and state income taxes, to be paid +to Ms. Tilley following the execution of the Tilley Retirement Agreement and an +additional final cash payment of $100,000, plus an amount equal to 6% per annum +interest thereon from March 9, 2004 to March 9, 2005, and less applicable +federal and state income taxes, to be placed in escrow to be released to Ms. +Tilley on March 9, 2005. The Tilley Retirement Agreement also provided that +Ms. Tilley would also deliver into escrow, original copies of all option +agreements following the initial cash payment. +Stock-Based Incentive Compensation Plans +The Company currently maintains three Common Stock-based incentive plans +for its directors and employees: the 1994 Plan, the 1996 Plan, and the 2002 +Plan. The Company in the past has used and will continue to use stock options, +restricted stock, and performance share grants to attract and retain key +directors and employees in the belief that stock ownership and stock related +compensation devices encourage a continuity of interest between directors, +employees and Shareholders. The Compensation Committee of the Board of +Directors administers all three of the stock incentive plans. Members of the +Compensation Committee currently are Messrs. B. F. Weatherly, as chairman; +Stanger; Wallace; and Wilson. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the +Company’s sole shareholder on that date. Pursuant to the 1994 Plan, 600,000 +shares of Common Stock were reserved for issuance upon the exercise of options +or for grants of performance shares. No awards have been made under the 1994 +Plan since 1999. During 2003, 11,000 options were forfeited and returned to +the 1994 Plan. As of March 26, 2004, there were 11,370 shares of Common Stock +available for grant under the 1994 Plan. +1996 Plan . On August 23, 1996, the Board of Directors of the Company +approved and adopted the 1996 Plan and granted awards thereunder to various +employees. The 1996 Plan was approved by the Shareholders of the Company on +June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of Common Stock were +reserved for issuance upon the exercise of options or for grants of performance +shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as +permitted pursuant to the terms of the 1996 Plan, to increase the number of +shares of Common Stock reserved for issuance by 300,000 shares to 1,200,000 +shares. On May 9, 2000, the Shareholders of the Company approved an increase +in the available number of shares of Common Stock reserved for issuance under +the 1996 Plan by 1,000,000 shares to 2,200,000 shares. During 2000, the +Compensation Committee approved option grants for 788,000 shares to certain +directors, officers and employees. Automatic option grants to non-employee +directors during 2001 were 30,000 shares. In July 2002, the Compensation +Committee approved option grants for 139,000 shares to certain directors, +officers and employees and option grants totaling 120,000 shares were +cancelled. Also in August 2002, the Compensations Committee approved grants of +168,000 shares of restricted stock to certain officers and employees. There +were no awards of options or restricted stock in 2003. During 2003 and 2004, +59,911 shares were withheld to pay federal and state income taxes associated +with option exercises and vesting of restricted stock and 68,000 options were +cancelled, all of which were returned to the 1996 Plan. As of March 26, 2004, +there were 154,034 shares of Common Stock available for grant under the 1996 +Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company +approved and adopted the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares +of Common Stock shall be reserved for issuance upon the exercise of options or +for grants of stock options, stock appreciation rights or units, restricted +stock, or performance shares or units. This Plan qualified as a “broadly +based” plan under the provisions of the New York Stock Exchanges’ rules and +regulations at the time it was adopted and therefore did not require +Shareholder approval. Because the 2002 Plan is a broadly based plan, the +aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted +to all employees during any three-year period. During 2002, the Compensation +Committee authorized option grants for 171,000 shares and awarded 132,000 +shares of restricted stock to certain directors, officers and employees. Also +during 2002, option grants totaling 2,250 shares were cancelled and 2,000 +shares of restricted stock were forfeited. During 2003 and 2004, the +Compensation Committee authorized the grant of 30,000 options to the +non-employee directors. There were no awards of restricted stock in 2003 and +2004. During 2003, 7,533 shares of previously granted restricted stock were +cancelled and returned to the plan. Also in 2003, 12,050 options were cancelled +and returned to the 2002 Plan. As of March 26, 2004, there were 40,833 shares +of Common Stock available for grant under the 2002 Plan. +17 +Table of Contents +Bonus Plan . In 1996, the Board of Directors authorized the establishment +of a cash bonus program (the “Bonus Plan”) to be administered by and in +accordance with the procedures determined by the Compensation Committee. If a +cash bonus is awarded, the Compensation Committee establishes target level +bonuses as a percentage of base salary for executive officers and certain other +employees. See “Report on Executive Compensation.” +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors +authorized the implementation of the Callon Petroleum Company 1997 Employee +Stock Purchase Plan (the “1997 Purchase Plan”), which was approved by the +Company’s Shareholders on June 19, 1997. The Plan provides +eligible employees of the Company with the opportunity to acquire a proprietary +interest in the Company through participation in a payroll deduction-based +employee stock purchase plan. An aggregate of 250,000 shares of Common Stock +have been reserved for issuance over the ten-year term of the 1997 Purchase +Plan. The purchase price per share at which Common Stock can be purchased by +the participant on each purchase date within an offering period is equal to +eighty-five percent of the fair market value per share of Common Stock. +Option Grants in the Last Fiscal Year +There were no option grants during the fiscal year ended December 31, 2003 +except for the automatic grants of 5,000 shares to each of the six non-employee +directors. +Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option +Values +The following table sets forth certain information concerning the number +and value of unexercised options to purchase Common Stock by the Named +Executive Officers at December 31, 2003. No stock options were exercised by +such persons in 2003. +AGGREGATED OPTION EXERCISES IN 2003 AND OPTION +VALUES AT DECEMBER 31, 2003 +Unexercised Options at December 31, 2003 +Number of +Value of +Underlying +In-the-Money +Value +Securities +Options +Shares Acquired +Realized +Exercisable/ +Exercisable/ +Name +On Exercise (#) +($) +Unexercisable (a) +Unexercisable ($)(b) +Fred L. Callon +0 +0 +335,458/20,917 +148,430/129,516 +Dennis W. Christian (c) +0 +0 +294,617/19,233 +179,264/119,084 +John S. Weatherly +0 +0 +267,333/16,667 +156,807/103,169 +Kathy G. Tilley (c) +0 +0 +195,500/15,000 +118,813/92,850 +Stephen F. Woodcock +0 +0 +111,250/14,500 +79,074/89,649 +(a) +Represents awards granted under the 1994 Plan, the 1996 Plan, and the +2002 Plan. +(b) +On December 31, 2003, the closing price of the Common Stock on the New +York Stock Exchange was $10.37 per share. +(c) +Effective March 9, 2004, Mr. Christian and Ms. Tilley resigned from the +Company and placed all option agreements into an escrow account. The +option agreements are to be released from escrow and returned to the +Company upon receipt of final cash payment pursuant to the Retirement +Agreements. Because the option agreements have been placed in escrow, +neither Mr. Christian nor Ms. Tilley is permitted to exercise any of the +vested options listed in this table. +Long-Term Incentive Plan Awards +Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company +does not have a long-term incentive plan for its employees. +Compensation Committee Interlocks and Insider Participation +The members of the Company’s Compensation Committee are Messrs. B. F. +Weatherly, Robert A. Stanger, John C. Wallace, and Richard O. Wilson, none of +whom are or have been officers or employees of the Company or had a +relationship requiring disclosure under this caption. +18 +Table of Contents +Report on Executive Compensation +The Committee’s purpose is to review and approve compensation arrangements +for the Company’s Chief Executive Officer, other executive officers and +directors. The Compensation Committee also administers certain other employee +benefits plans (such as the Company’s 1994, 1996 and 2002 Stock Incentive +Plans). The Committee also makes recommendations regarding shareholder approval +of amendments to existing plans or the adoption of new plans, and produces an +annual report on executive compensation for inclusion in the Company’s proxy +statement, in accordance with applicable rules and regulations. The Committee’s +role, composition, duties and responsibilities are set forth in its Charter +which was approved by the Board of Directors. +Executive Compensation Philosophy +The Company’s executive compensation program is primarily designed to be +competitive with other oil and gas exploration and production companies which +the Company views as competitors for business, employee talent, and shareholder +investments. The Company also recognizes the need to provide compensation that +encourages pay for performance and greater executive focus on shareholder +value. In this effort, the Committee considers and reviews comparative +information provided by management and which is supported by compensation +information provided by an executive compensation consulting firm. +The Company does not have any employment agreements with its executive +officers at this time. However, the Compensation Committee believes that, in +order to retain highly qualified executives, it must provide these persons with +some security against organizational and personnel changes in the event of a +change of control of the Company. In order to provide this security, in early +2002, the Company entered into the Severance Compensation Agreements described +under “#Employment Agreements, Termination of Employment and Change of Control +Arrangements#Severance Compensation Agreements.” The Compensation Committee +believes that these agreements are necessary to provide fair treatment to key +executives in the event of a change of control. In the future, the +Compensation Committee may determine that employment or other agreements with +its executive officers, in addition to the Severance Compensation Agreements, +are necessary in order to retain key employees and achieve the Company’s +long-term growth objectives. +Base Salaries. Base salaries are designed to be at competitive levels and +when combined with the other components of the compensation program, are set to +attract and retain qualified executives and managers. Changes in base salaries +are made after considering competitive positions in the industry and individual +performance. +After reviewing the salary levels of the Company’s peers, the Company decided +to increase the base salaries of the Company’s executive officers for 2003 by +2%, representing a “cost of living” adjustment. In addition to evaluating +salary increases in the industry, the Compensation Committee also took into +account a subjective valuation of each individual officer’s contributions to +the Company’s performance in 2002. This cost of living increase was intended +to match similar increases by the Company’s competitors and reflects the +Compensation Committee’s commitment to maintaining competitive salary levels +within the Company and comparable industry groups. +Annual Cash Bonuses. Cash bonuses provide an opportunity to earn +additional cash rewards for yearly business success. The incentive bonus +targets for the officers are set annually and are expressed as a percentage of +base salary. +Long-Term Incentives. Long-term incentive compensation provides a reward +for business success in future years and, being based on performance, is linked +to shareholders’ interests. The Company’s long-term incentives are granted +periodically to promote alignment of officer interests with that of +shareholders. This type of award could consist of performance stock and/or +stock options. Performance stock is the Company’s Common Stock registered in +the executive’s name and carry voting rights but restricted from resale until +certain vesting occurs. Each year, the Committee determines the amount and +proportion of each type of long-term incentive for each Officer. +Compensation of the Chief Executive Officer +Mr. Callon’s base salary was increased by the Compensation Committee to +$291,317 for 2004 as compared to $285,605 for 2003 in order to keep Mr. +Callon’s salary level competitive with the chief executive officer position at +peer group companies as well as taking into account the subjective factors +described above under “Base Compensation” above. In particular, the +Compensation Committee considered Mr. Callon’s leadership role in overseeing +the Company’s successful financing of the +19 +Table of Contents +Company’s $200 million of +indebtedness and the implementation of an acceptable business plan for 2004. +B. F. Weatherly, Chairman +Robert A. Stanger +John C. Wallace +Richard O. Wilson +20 +Table of Contents +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five +years ended December 31, 2003, in the cumulative total shareholder return on +the Company’s Common Stock against the cumulative total return for the (i) +Media General Financial Services Industry and Market Index of SIC Group 121 +(the “MG Group Index”) consisting of independent oil and gas companies and (ii) +the NYSE Market Index. The comparison of total return on an investment for +each of the periods assumes that $100 was invested on December 31, 1998 in the +Company, the MG Group Index and the NYSE Market Index, and that all dividends +were reinvested. +12/31/1998 +12/31/1999 +12/29/2000 +12/31/2001 +12/31/2002 +12/31/2003 +Callon Petroleum Company +$ +100 +$ +127 +$ +143 +$ +59 +$ +29 +$ +89 +MG Group Index +$ +100 +$ +125 +$ +197 +$ +167 +$ +168 +$ +255 +NYSE Market Index +$ +100 +$ +109 +$ +110 +$ +99 +$ +79 +$ +105 +21 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT AUDITORS +Ratification of Independent Auditors +The Board of Directors has appointed Ernst & Young LLP, independent +auditors, for the examination of the accounts and audit of the financial +statements of the Company for the year ending December 31, 2004. At the Annual +Meeting, the Board of Directors will present a proposal to the Shareholders to +approve and ratify the engagement of Ernst & Young LLP. A representative of +Ernst & Young LLP will be present at the Annual Meeting and will have the +opportunity to make a statement, if he desires, and to respond to appropriate +questions. +Management recommends that the Shareholders approve and ratify the +appointment of Ernst & Young LLP as independent auditors of the Company for the +fiscal year ending December 31, 2004. Unless otherwise indicated, all properly +executed Proxies received by management will be voted for such ratification at +the Annual Meeting. An adverse vote will be considered as a direction to the +Audit Committee of the Board of Directors to select other auditors in the +following year. +SHAREHOLDERS’ PROPOSALS +FOR 2005 ANNUAL MEETING +Shareholders who desire to present proposals at the 2005 Annual Meeting of +Shareholders and to have proposals included in the Company’s proxy materials +must submit their proposals to the Company at its principal executive offices +not later than December 15, 2004. If the date of the 2005 Annual Meeting of +Shareholders is changed by more than 30 days from the date of the 2004 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable +time before the Company begins to print and mail its proxy materials for its +2005 Annual Meeting of Shareholders. +The persons named in the Company’s form of proxy for the 2005 Annual +Meeting will have discretionary authority to vote any proxies they hold at such +meeting on any matter for which the Company does not receive notice by February +28, 2005, unless the Company changes the date of its 2005 Annual Meeting of +Shareholders by more than 30 days from the date of the 2004 Annual Meeting of +Shareholders, in which case such persons will be able to exercise discretionary +authority if notice of the matter has not been received in a reasonable time +before the Company mails its proxy materials for the 2005 Annual Meeting of +Shareholders. +If the date of the 2005 Annual Meeting of Shareholders is advanced or +delayed by more than 30 calendar days from the date of the 2004 Annual Meeting +of Shareholders, the Company shall, in a timely manner, inform Shareholders of +such change, by including a notice, under Item 5, in its earliest possible +quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the +new date for determining whether the Company may exercise discretionary voting +authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives +any such proposal, it is suggested that Shareholders submit their proposals by +certified mail, return receipt requested, or other means that permit them to +prove the date of delivery. +22 +Table of Contents +FINANCIAL STATEMENTS +Financial statements of the Company for its most recent fiscal year are +contained in the 2003 Annual Report and the Company’s Report on Form 10-K. +Printed copies of the Company’s Annual Report and the Company’s Report on Form +10-K are available to Shareholders upon written request to the Investor +Relations Department, Callon Petroleum Company, 200 North Canal Street, +Natchez, Mississippi 39120. You may also view the documents on the Company’s +website. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the +Annual Meeting other than those described above. If other business comes +before the Annual Meeting, the persons named on the Proxy will vote the Proxy +in accordance with what they consider to be in the best interests of the +Company and its Shareholders. +By order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +President and Chief Executive Officer +Natchez, Mississippi +April 16, 2004 +23 +Table of Contents +Appendix A +CALLON PETROLEUM COMPANY +Audit Committee Charter +(As revised April 2004) +This Audit Committee Charter ( “Charter” ) sets forth the purpose and membership +requirements of the Audit Committee (the “Committee” ) of the Board of Directors +(the “Board” ) and establishes the authority and responsibilities delegated to +it by the Board. +1. +Purpose . The purpose of the Committee is to oversee (i) the integrity of +the Company’s financial statements and disclosures, (ii) the Company’s +compliance with legal and regulatory requirements, (iii) the +qualifications, independence and performance of the Company’s independent +auditing firm (the “External Auditor” ), (iv) the performance of the +Company’s internal audit function and External Auditors, (v) the Company’s +internal control systems, and (vi) the Company’s procedures for monitoring +compliance with the Company’s Code of Business Conduct and Ethics. +2. +Committee Members . +2.1. +Composition and Appointment . The Committee shall consist of three +(3) or more members of the Board. The Board shall designate members of +the Committee. The members and Chairperson of the Committee shall be +appointed by the Board on the recommendation of the Nominating and +Corporate Governance Committee. Membership on the Committee shall +rotate at the Board’s discretion. The Board shall fill vacancies on +the Committee and may remove a Committee member from the membership of +the Committee at any time without cause. Members shall serve until +their successors are appointed by the Board. +2.2. +Independence . Each member of the Committee must meet the +independence requirements of the New York Stock Exchange ( “NYSE” ) and +applicable state and federal law, including the rules and regulations +of the Securities and Exchange Commission ( “SEC” ). +2.3. +Financial Literacy . Each member of the Committee shall, in the +Board’s judgment, be financially literate or must become financially +literate within a reasonable period of time after such member’s +appointment to the Committee. At least one member of the Committee +shall, in the Board’s judgment, have accounting or related financial +management expertise. In addition, in connection with the preparation +of any reports regarding the financial experience of the members of the +Committee to be included in the Company’s periodic public reports, the +Board shall determine with respect to each member of the Committee +whether or not, in the Board’s judgment, such member is an “audit +committee financial expert,” as such term is defined by the SEC. +2.4. +Subcommittees . The Committee shall have the authority to delegate +authority and responsibilities to subcommittees; provided, that no +subcommittee shall consist of less than two members. +2.5. +Simultaneous Service on Other Audit Committees . If a member of the +Committee serves on the audit committee (or, in the absence of an audit +committee, the board committee performing equivalent functions, or, in +the absence of such committee, the board of directors) of more than two +(2) other public companies, the Board must affirmatively determine that +such simultaneous service on multiple audit committees will not impair +the ability of such member to serve on the Committee. The basis for +the Board’s determination shall be disclosed in the Company’s proxy +statement prepared in connection with its annual meeting of +stockholders. +3. +Authority . +3.1. +Education . To help ensure that the members of the Committee have +the proper knowledge to perform their responsibilities, Committee +members shall have the authority, at the Company’s expense, to attend +outside educational programs, retain outside professionals to conduct +educational programs and undertake other appropriate steps to keep +current with developments in accounting, disclosure, risk management, +internal controls, auditing and other matters that are relevant to the +carrying out of the Committee’s responsibilities. +24 +Table of Contents +3.2. +Advisors . The Committee shall have the authority to retain, at the +Company’s expense, independent legal, financial and other advisors +( “Advisors” ) it deems necessary to fulfill its responsibilities. +3.3. +Investigations . The Committee shall have the authority to conduct +investigations that it deems necessary to fulfill its responsibilities. +3.4. +Information . The Committee shall have the authority to require any +officer, director or employee of the Company, the Company’s outside +legal counsel and the External Auditor to meet with the Committee and +any of its Advisors and to respond to the Committee’s inquiries. The +Committee shall have full access to the books, records and facilities +of the Company in carrying out its responsibilities. +3.5. +Funding . The Committee shall have the authority to determine, on +behalf of the Company, the compensation of (i) the External Auditor for +its services in rendering an audit report and (ii) any Advisors +employed by the Company pursuant to Section 3.2. +4. +Meetings . +4.1. +Frequency of Meetings . The Committee shall meet, or otherwise +discuss, at least once per fiscal quarter in connection with (i) its +review of the Company’s financial statements and the disclosures that +are to be included in the Company’s Form 10-Q and Form 10-K filings +with the SEC, including the disclosures under “Management’s Discussion +and Analysis of Financial Condition and Results of Operations” and (ii) +the preparation of the Committee’s report to be included in the +Company’s proxy statement in connection with the Company’s annual +meeting of stockholders pursuant to Section 10.4 below. The +Chairperson may call a special meeting at any time he or she deems +advisable. +4.2. +Executive Sessions . The Committee shall maintain free and open +communication with (i) the Company’s chief executive officer ( “CEO” ), +(ii) the Company’s chief financial officer ( “CFO” ) being responsible +for all financial matters and overseeing internal auditing ( “Internal +Auditor” ), (iii) the External Auditor, and (iv) the Company’s general +counsel, or outside legal counsel retained for general corporate +purposes, ( “General Counsel” ) and shall periodically meet in separate +executive (private) sessions with each such person and other members of +the Company’s management to discuss any matters that the Committee or +any such person believes should be discussed privately with the +Committee. +4.3. +Minutes . Minutes of each meeting of the Committee shall be kept by +the corporate secretary to document the discharge by the Committee of +its responsibilities. A copy thereof shall be incorporated with and +into the next regularly scheduled meeting of the Board. +4.4. +Quorum . A quorum shall consist of the greater of one-half of the +Committee’s membership or two persons. The act of a majority of the +Committee members present at a meeting at which a quorum is present +shall be the act of the Committee. +4.5. +Agenda . The Chairperson of the Committee shall prepare an agenda +for each meeting of the Committee, in consultation with Committee +members and any appropriate member of the Company’s management or +staff, as necessary. As requested by the Chairperson, members of the +Company’s management and staff shall assist the Chairperson with the +preparation of any background materials necessary for any Committee +meeting. +4.6. +Presiding Officer . The Chairperson of the Committee shall preside +at all Committee meetings. If the Chairperson is absent at a meeting, +a majority of the Committee members present at a meeting shall appoint +a different presiding officer for that meeting. +5. +External Auditor Oversight . +5.1. +Selection and Evaluation . Subject to shareholder ratification, if +such ratification is required by applicable law or the certificate of +incorporation or the bylaws of the Company, the Committee shall have +sole responsibility for the appointment, retention, oversight, +termination and replacement of the External Auditor and for the +approval of all audit and engagement fees. The Committee shall +annually, following the completion of the audit reports and at such +other times as it deems appropriate, evaluate the performance of the +External Auditor, including a +25 +Table of Contents +specific +evaluation of the External Auditor’s lead (or coordinating) audit +partner having primary responsibility for the Company’s audit. +5.2. +Pre-Approval of External Auditor Services . +5.2.1. +Committee Pre-Approval . No audit services or non-audit services +shall be provided to the Company by the External Auditor unless +first pre-approved by the Committee and unless permitted by +applicable securities laws and the rules and regulations of the SEC. +If the Committee approves an audit service within the scope of the +engagement of the External Auditor, such audit service shall be +deemed to have been pre-approved for purposes of this Section. +5.2.2. +Pre-Approval Exception . Pre-approval shall not be required under +Section 5.2.1. for non-audit services provided by the External +Auditor, if (i) the aggregate amount of all such non-audit services +provided to the Company constitutes not more than the five percent +(5%) of the total amount of revenues paid by the Company to the +External Auditor during the fiscal year in which such non-audit +services are provided, (ii) such non-audit services were not +recognized by the Company at the time of the External Auditor’s +engagement to be non-audit services, and (iii) such non-audit +services are promptly brought to the attention of the Committee and +approved by the Committee prior to the completion of the audit. +5.2.3. +Delegation of Pre-Approval Authority . The Committee may delegate +to one (1) or more members of the Committee the authority to grant +pre-approval of non-audit services required by this Section, +including the pre-approval described in clause (iii) of Section +5.2.2. The decision of any member to whom such authority is +delegated to pre-approve non-audit services shall be presented to +the full Committee for its approval at its next scheduled meeting. +5.3. +Independence . The Committee shall periodically meet with +management, the Internal Auditor and the External Auditor to assess and +satisfy itself that the External Auditor is “independent” in accordance +with the rules and regulations of the NYSE and the SEC. The Committee +shall annually obtain from the External Auditor a written statement +delineating (i) all relationships between the External Auditor and the +Company that may impact the External Auditor’s objectivity and +independence, (ii) confirmation that none of the Company’s CEO, +controller, CFO, chief accounting officer, Internal Auditor, or any +person serving in an equivalent position to any of the foregoing for +the Company, was employed by such External Auditor and participated in +any capacity in the audit of the Company during the one (1) year period +preceding the date of the initiation of the audit for which the +External Auditor is engaged, and (iii) all the disclosures required by +Independence Standards Board Standard No. 1. +5.4. +Quality Control . The Committee shall annually obtain from the +External Auditor a written report describing (i) the External Auditor’s +internal quality-control procedures; and (ii) any material issues +raised by (a) the External Auditor’s most recent internal +quality-control review or peer review, or (b) any inquiry or +investigation by governmental or accounting profession authorities, in +each case, within the preceding five years, respecting one or more +independent audits carried out by the External Auditor, and any steps +taken to deal with any such issues. +5.5. +Audit Partner Rotation . The Committee shall annually obtain from +the External Auditor a written statement confirming that neither the +lead (or coordinating) audit partner having primary responsibility for +the Company’s audit nor the audit partner responsible for reviewing the +Company’s audit has performed audit services for the Company in each of +the Company’s five (5) previous fiscal years. +5.6. +External Auditor Reports Review . The Committee shall review with +management, the Internal Auditor and the External Auditor (i) the +reports required to be prepared by the External Auditor under Section +10A(k) of the Securities Exchange Act of 1934 regarding (a) all +critical accounting policies and practices used by the Company and (b) +all alternative treatments of the Company’s financial information +within GAAP that have been discussed with management, the ramifications +of the use of such alternative disclosures and treatments and the +treatment preferred by the External Auditor; and (ii) all other +material written communications between the External Auditor, +management and the Internal Auditor, such as any management letter or +schedule of unadjusted differences. +26 +Table of Contents +5.7. +Internal Control Assessment . The Committee shall annually obtain +from the External Auditor a written report in which the External +Auditor attests to and reports on the assessment of the Company’s +internal controls made by the Company’s management. +5.8. +Accountability of External Auditor . The External Auditor shall +report directly to the Committee and shall be ultimately accountable to +the Committee. The Committee shall obtain an annual written statement +from the External Auditor confirming its accountability to the +Committee. +5.9. +Audit Assessment . The Committee shall annually assess with +management, the Internal Auditor and the External Auditor any problems +or difficulties encountered in connection with the audit process and +managements’ response, including any restrictions on the scope of the +External Auditor’s activities or on access to requested information, +any accounting adjustments that were noted or proposed by the External +Auditor but were “passed” (as immaterial or otherwise), any +communications between the External Auditor’s team assigned to the +Company’s audit and the External Auditor’s national office respecting +auditing or accounting issues presented by the Company’s audit, and any +“management” or “internal control” letter issued, or proposed to be +issued, by the External Auditor to the Company. +5.10. +SAS 61 Communications . The Committee shall discuss with the +External Auditor the matters required to be discussed under Statement +on Auditing Standards No. 61. +5.11. +Audit Disagreement Inquiry . The Committee shall periodically +inquire of management and the External Auditor as to any disagreements +that may have occurred between them relating to the Company’s financial +statements or disclosures. The Committee shall have sole +responsibility for the resolution of any disagreements between +management and the External Auditor regarding financial reporting. +5.12. +Hiring Policy . The Committee shall draft a policy regarding the +hiring by the Company of employees or former employees of the Company’s +External Auditors. After consideration of the pressures that may exist +for employees of the External Auditor to consciously or subconsciously +seek employment with the Company, the Committee shall make a +determination as to whether or not such policy should be disclosed to +the External Auditor and whether or not the External Auditor should be +required to disclose such policy to each of its employees that provide +services in connection with the Company’s audit. +6. +Internal Auditing Oversight . +6.1. +Internal Auditing Staff . The Committee shall annually evaluate the +performance of the Internal Auditor and the internal auditing +department, or the entity retained to provide internal audit services, +with management and the External Auditor. +6.2. +Internal Audit Process . The Committee shall oversee the Company’s +internal audit function and any other appropriate control process in +place for reviewing and approving the Company’s internal transactions +and accounting; provided, that (i) this Section 6.2 shall not be +construed to require the Company to establish a separate internal audit +department or dedicate employees to the task on a full-time basis and +(ii) the Company may choose to outsource this function to a firm other +than the External Auditor. The Committee shall meet periodically, at +its discretion, with the Internal Auditor, the External Auditor and +management to review (i) plans for the internal audit program +(including scope, responsibilities, budget and staffing) for the coming +year, (ii) the coordination of such plans with the work of the External +Auditor, and (iii) the progress and results of the internal auditing +process. +6.3. +Internal Audit Reports . The Committee shall meet periodically, at +its discretion, with the Internal Auditor to review any significant +reports to management prepared by the internal auditing staff together +with management’s response and follow-up to these reports. The +Internal Auditor shall provide a summary of all significant internal +audit reports to the Committee each quarter. +7. +Financial Statements and Disclosure Oversight . +7.1. +SEC Filings and Earnings Releases and Guidance . Prior to the +filing by the Company with the SEC of any annual report on Form 10-K or +any quarterly report on Form 10-Q, the Committee shall review with +management and the External Auditor the financial statements +27 +Table of Contents +and the disclosure under “Management’s Discussion and Analysis of Financial +Condition and Results of Operations” contained therein. In addition, +the Committee shall periodically, at its discretion, review with +management and the External Auditor the Company’s procedures (including +types of information to be disclosed and the type of presentation to be +made) with respect to press releases that contain information regarding +the Company’s historical or projected financial performance and the +provision of any such information, earnings guidance or other financial +information to a financial analyst or rating agency. Such reviews +should include consideration of (i) off-balance sheet transactions, +obligations (including contingent obligations) and other relationships +with unconsolidated entities or other persons that may have a current or +future effect on the Company’s financial condition, results of +operation, liquidity, capital expenditures or significant components of +revenues or expenses; (ii) pro forma financial information, including +any information required to reconcile such information with financial +information prepared in accordance with GAAP; (iii) underlying estimates +upon which the presented financial information is based; (iv) the +reasonableness of significant judgments made in the preparation of the +presented financial information; (v) whether, notwithstanding proper +technical application of the applicable accounting rules, the presented +financial information conforms to the accounting principles upon which +the relevant accounting rules are based; and (vi) whether, +notwithstanding proper technical application of the applicable +accounting rules, the presented financial information misleads investors +as to the Company’s underlying economic condition. +7.2. +Accounting Changes . The Committee shall, before their +implementation, review with management and the External Auditor and +approve all significant changes proposed to be made in the Company’s +accounting principles and practices. +7.3. +Adequate Disclosure . The Committee shall periodically, at its +discretion, inquire of management, the External Auditor, the General +Counsel and, if the Committee deems it appropriate, outside legal +counsel as to whether the Company’s financial statements comport with +the disclosure requirements of federal securities laws, notwithstanding +their conformity to accounting principles and practices. +7.4. +Criticisms . The Committee shall periodically, at its discretion, +inquire of management, the General Counsel and the External Auditor as +to their knowledge of any criticism of the Company’s financial +statements or disclosures by any financial analysts, rating agencies, +media sources or other reliable third-party sources. The Committee +shall establish procedures for (i) the receipt, retention, +investigation and resolution of complaints received by the Company +regarding accounting, internal accounting controls or auditing matters; +and (ii) the confidential anonymous submission by the Company’s +employees of concerns regarding questionable accounting or auditing +matters. +8. +Internal Controls and Compliance with Laws and Regulations and Code of +Business Conduct and Ethics Oversight . +8.1. +Internal Controls and Compliance Policies . For the purpose of +assessing their adequacy and effectiveness, the Committee (i) shall +periodically, at its discretion, review and assess with management, the +Internal Auditor, the General Counsel and the External Auditor (a) the +internal control systems of the Company, including whether such +controls are reasonably designed to ensure that appropriate information +comes to the attention of the Committee in a timely manner, prevent +violations of law and corporate policy and permit the Company to +prepare accurate and informative financial reports, (b) the Company’s +policies on compliance with laws and regulations, (c) the Company’s +Code of Business Conduct and Ethics, and (d) the methods and procedures +for monitoring compliance with such policies; and (ii) shall elicit any +recommendations for the improvement of the Code of Business Conduct and +Ethics and such controls, policies, methods and procedures. The +Committee shall review with management and the External Auditor, prior +to its annual filing, the internal control report (containing the +annual assessment of the effectiveness of the internal control +structure and procedures of the Company for ensuring the accuracy of +public disclosures) that is required to be filed by the Company with +the SEC on Form 10-K. +8.2. +Information Security . The Committee shall periodically, at its +discretion, review and assess with management and the External Auditor +the adequacy of the security for the Company’s information systems and +the Company’s contingency plans in the event of a systems breakdown or +security breach. +28 +Table of Contents +8.3. +Code of Business Conduct and Ethics Violations and Waivers . The +Committee shall periodically, at its discretion, inquire of management, +the Internal Auditor and the External Auditor as to their knowledge of +(i) any violation of the Code of Business Conduct and Ethics, (ii) any +waiver of compliance with the Code of Business Conduct and Ethics, and +(iii) any investigations undertaken with regard to compliance with the +Code of Business Conduct and Ethics. Any waiver of the Code of +Business Conduct and Ethics with respect to a director or executive +officer may only be granted by the Committee. All waivers granted by +the Committee shall be promptly reported to the entire Board and be +publicly disclosed as required by the rules and regulations of the SEC +and NYSE. +8.4. +Misconduct Allegations . The Committee shall periodically, at its +discretion, inquire of management and the General Counsel of their +knowledge of any allegations of director or officer misconduct or +misconduct by the Company (whether made by employees or third parties). +8.5. +Disagreements with Legal Counsel . The Committee shall +periodically, in its discretion, inquire of management, the General +Counsel and, if appropriate, outside legal counsel of any disagreements +that may have occurred between management and legal counsel regarding +any public disclosures or any other legal compliance issue. +8.6. +Related Party Transactions Oversight . The Company shall not enter +into a related party transaction unless such transaction is approved by +the Committee after a review of the transaction by the Committee for +potential conflicts of interest. A transaction will be considered a +“related party transaction” if the transaction would be required to be +disclosed under Item 404 of Regulation S-K. +9. +Risk Management Oversight . +9.1. +Risk Exposure . The Committee shall periodically meet with +management and each Independent Auditor to review and discuss (a) +guidelines and policies with respect to risk assessment and risk +management to the extent necessary or appropriate to govern the process +by which the Company’s risk assessment and management is undertaken and +handled (although the Committee is not required to be the sole body +responsible for risk assessment and management) and (b) the Company’s +major financial risk exposures and the steps management has taken to +monitor and control such exposures. If the Company manages and +assesses its risk through mechanisms other than the Committee, the +mechanisms need not be replaced by the Committee, but the processes in +place should be reviewed in a general manner by the Committee. +9.2. +Insurance . The Committee shall periodically review and assess +insurance coverage, including Directors and Officers Liability, +property and casualty loss, errors and omissions and surety bonds, with +management and, at the Committee’s discretion, General Counsel. +9.3. +Special-Purpose Entities and Off-Balance Sheet Transactions . The +Committee shall periodically meet with management, the Internal +Auditor, the General Counsel and the External Auditor to review and +assess all “special-purpose” entities of the Company and all complex +financing transactions involving the Company, including all related +off-balance sheet accounting matters. +9.4. +Consultation with Legal Counsel . The Committee shall periodically, +at its discretion, review with the General Counsel and, if the +Committee deems it appropriate, outside legal counsel legal matters +(including material claims, pending legal proceedings, government +investigations and material reports, notices or inquires received from +governmental agencies) that may have a significant impact on the +Company’s financial statements or risk management. +10. +Reports and Assessments . +10.1. +Board Reports . The Chairperson of the Committee shall, +periodically, at his or her discretion, report to the Board on +Committee actions and on the fulfillment of the Committee’s +responsibilities under this Charter. Such reports shall include any +issues that arise with respect to the quality or integrity of the +Company’s financial statements, the Company’s compliance with legal or +regulatory requirements, the performance and independence of the +Company’s External Auditors and the performance of the Company’s +internal audit function. This report shall be presented and +incorporated with and into the next regularly scheduled Board meeting. +29 +Table of Contents +10.2. +Charter Assessment . The Committee shall annually assess the +adequacy of this Charter and advise the Board and the Nominating and +Corporate Governance Committee of its assessment and of its +recommendation for any changes to the Charter. The Committee shall, if +requested by management, assist management with the preparation of a +certification to be presented annually to the NYSE affirming that the +Committee reviewed and reassessed the adequacy of this Charter. +10.3. +Committee Self-Assessment . The Committee shall annually make a +self-assessment of its performance and shall report the results of such +self-assessment to the Board and the Nominating and Corporate +Governance Committee. +10.4. +Proxy Statement Report . The Committee shall prepare an annual +report as required by the rules and regulations of the SEC and submit +it to the Board for inclusion in the Company’s proxy statement prepared +in connection with its annual meeting of stockholders. +10.5. +Recommend Action . The Committee shall annually make a +determination as to whether to recommend to the Board that the audited +financials (certified by the External Auditor) be included in the +Company’s annual report on Form 10-K for filing with the SEC. +10.6. +Board Access to External Auditor . The Committee shall, whenever +the Board of Directors or the Committee deems it appropriate, have the +External Auditor attend a meeting of the Board to discuss specific +issues and to answer questions from the directors. +11. +General . +11.1. +Financial Statement Responsibility . The Company’s management is +responsible for the preparation, presentation and integrity of the +Company’s financial statements and disclosures, and the External +Auditor is responsible for auditing year-end financial statements and +reviewing quarterly financial statements and conducting other +procedures. It is not the duty of the Committee to certify the +Company’s financial statements, to guarantee the External Auditor’s +report or to plan or conduct audits. Since the primary function of the +Committee is oversight, the Committee shall be entitled to rely on the +expertise, skills and knowledge of management, the Internal Auditor and +the External Auditor and the accuracy of information provided to the +Committee by such persons in carrying out its oversight +responsibilities. Nothing in this Charter is intended to change the +responsibilities of management and the External Auditor. +11.2. +Charter Guidelines . While the responsibilities of the Committee +set forth in Section 5 through 10 above are contemplated to be the +principal recurring activities of the Committee in carrying out its +oversight function, these responsibilities are to serve as a guide with +the understanding that the Committee may diverge from them as it deems +appropriate given the circumstances. +12. +Qualified Legal Compliance Committee Duties . +12.1. +Purpose . The Committee shall fulfill the requirements of a +Qualified Legal Compliance Committee, as defined in Part 205 of Title +17, Chapter II of the Code of Federal Regulations ( “Part 205” ). +12.2. +Written Procedures . The Committee shall have the authority and +responsibility to establish written procedures to confidentially +receive, consider and retain reports of evidence of a material +violation by the Company, its officers, directors, employees or agents +of federal or state securities laws, material breach of fiduciary duty, +or a similar material violation of any federal or state law. +12.3. +Report Submission . The Committee shall have the authority and +responsibility to inform the Company’s chief legal officer, as such +term is used in Part 205 ( “CLO” ), and CEO (or the equivalents thereof) +of any report of evidence of a material violation (except in case of +futility). +12.4. +Investigation Determination . The Committee shall determine +whether an investigation is necessary regarding any report of evidence +of a material violation by the Company, its officers, directors, +employees or agents. If the Committee determines an investigation is +necessary or +30 +Table of Contents +appropriate, the Committee shall (i) notify the Board of +its determination to investigate, (ii) initiate an investigation, which +may be conducted either by the CLO (or the equivalent thereof) or by +outside counsel, and (iii) retain such additional Advisors to assist in +such investigation as the Committee deems necessary or appropriate. +12.5. +Conclusion of Investigation . At the conclusion of any +investigation the Committee shall (i) have the authority and +responsibility to recommend, by majority vote, that the Company +implement an appropriate response to evidence of a material violation, +and (ii) inform the Company’s CLO and CEO (or the equivalents thereof) +and the Board of the results of any such investigation and the +appropriate remedial measures to be adopted, if any. +12.6. +Notification of SEC . The Committee shall have the authority to +take all other appropriate action, including the authority to notify +the SEC in the event that the Company fails in any material respect to +implement an appropriate response that the Committee has recommended +the Company to take; provided, that the Committee determines, by +majority vote and after consultation with counsel, that such +notification would be required by law or in the best interest of the +Company. +12.7. +General Authority . The Committee shall have the authority to take +any other action necessary to meet the requirements of a Qualified +Legal Compliance Committee under Part 205. +31 +Table of Contents +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy Solicited on Behalf of the Board of Directors +of the Company for the Annual Meeting on May 6, 2004 +The undersigned hereby constitutes and appoints John S. Callon and +Fred L. Callon and each of them, his true +and lawful agents and proxies with full power of substitution in each, to +represent and to vote, as designated on +the reverse, all of the shares of Common Stock of Callon Petroleum Company, +held of record by the undersigned on +March 26, 2004 at the Annual Meeting of Shareholders to be held in the St. +Louis Room of the Natchez Convention +Center, 211 Main Street, Natchez, Mississippi 39120 on May 6, 2004, and at +any adjournments thereof, on all +matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS +PROXY WILL BE VOTED “FOR” THE ELECTION OF +DIRECTORS AND “FOR” PROPOSAL 2 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choices by marking the appropriate +boxes (SEE REVERSE SIDE) but you need +not mark any boxes if you wish to vote in accordance with the Board of +Directors’ recommendations. The Proxies +cannot vote your shares unless you sign and return this card. +(Continued and to be signed on the reverse side) +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +May 6, 2004 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +Ñ Please detach along perforated line and mail in the envelope provided. Ñ +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +1. Election of Directors: +o +FOR ALL NOMINEES +NOMINEES: +ο Robert A. Stanger +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +ο John C. Wallace +ο Richard O. Wilson +o +FOR ALL EXCEPT +(See instructions below) +INSTRUCTION: +To withhold authority to vote for any individual +nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each +nominee you wish to withhold, as shown here: l +FOR +AGAINST +ABSTAIN +2. +To ratify the appointment of Ernst & Young LLP as independent +auditors. +o +o +o +3. +In their discretion, the Proxies are authorized to vote upon such other +business as may properly come before the meeting or any adjournments +thereof. +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED +HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION +OF DIRECTORS AND “FOR” PROPOSAL 2. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, +PRE-ADDRESSED ENVELOPE ENCLOSED. +To change the address on your account, please check the box at +right and indicate your new address in the address space above. +Please note that changes to the registered name(s) on the +account may not be submitted via this method. +o +Signature of Shareholder Date: Signature of Shareholder Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When +shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or +guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly +authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by +authorized person. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-04-002164/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-04-002164/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..278b81ffeaf272561b74300a8656fbfece88b968 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-04-002164/proxy_rpt.txt @@ -0,0 +1,59 @@ +Related Party Transactions Oversight . The Company shall not enter +into a related party transaction unless such transaction is approved by +the Committee after a review of the transaction by the Committee for +potential conflicts of interest. A transaction will be considered a +“related party transaction” if the transaction would be required to be +disclosed under Item 404 of Regulation S-K. +9. +Risk Management Oversight . +9.1. +Risk Exposure . The Committee shall periodically meet with +management and each Independent Auditor to review and discuss (a) +guidelines and policies with respect to risk assessment and risk +management to the extent necessary or appropriate to govern the process +by which the Company’s risk assessment and management is undertaken and +handled (although the Committee is not required to be the sole body +responsible for risk assessment and management) and (b) the Company’s +major financial risk exposures and the steps management has taken to +monitor and control such exposures. If the Company manages and +assesses its risk through mechanisms other than the Committee, the +mechanisms need not be replaced by the Committee, but the processes in +place should be reviewed in a general manner by the Committee. +9.2. +Insurance . The Committee shall periodically review and assess +insurance coverage, including Directors and Officers Liability, +property and casualty loss, errors and omissions and surety bonds, with +management and, at the Committee’s discretion, General Counsel. +9.3. +Special-Purpose Entities and Off-Balance Sheet Transactions . The +Committee shall periodically meet with management, the Internal +Auditor, the General Counsel and the External Auditor to review and +assess all “special-purpose” entities of the Company and all complex +financing transactions involving the Company, including all related +off-balance sheet accounting matters. +9.4. +Consultation with Legal Counsel . The Committee shall periodically, +at its discretion, review with the General Counsel and, if the +Committee deems it appropriate, outside legal counsel legal matters +(including material claims, pending legal proceedings, government +investigations and material reports, notices or inquires received from +governmental agencies) that may have a significant impact on the +Company’s financial statements or risk management. +10. +Reports and Assessments . +10.1. +Board Reports . The Chairperson of the Committee shall, +periodically, at his or her discretion, report to the Board on +Committee actions and on the fulfillment of the Committee’s +responsibilities under this Charter. Such reports shall include any +issues that arise with respect to the quality or integrity of the +Company’s financial statements, the Company’s compliance with legal or +regulatory requirements, the performance and independence of the +Company’s External Auditors and the performance of the Company’s +internal audit function. This report shall be presented and +incorporated with and into the next regularly scheduled Board meeting. +29 +Table of Contents +10.2. +Charter Assessment . The Committee shall annually assess the +adequacy of this Charter and advise the Board and the Nominating and \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-05-003657/proxy.txt b/raw/proxies/0000928022/0000950129-05-003657/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d57aea8fc47489739c8ff5409e331e9b488431c1 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-05-003657/proxy.txt @@ -0,0 +1,1871 @@ +DEF 14A +1 +h24167def14a.htm +CALLON PETROLEUM COMPANY +def14a +Table of Contents +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +February 28, 2006 +Estimated average burden +hours per +response +12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant +þ +Filed by a Party other than the Registrant +o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +CALLON PETROLEUM +COMPANY +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +þ No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information +contained in this form are not required to respond unless the form displays a currently valid +OMB control number. +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD THURSDAY, MAY 5, 2005 +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +BENEFICIAL OWNERSHIP OF SECURITIES +PROPOSAL I +ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +AGGREGATED OPTION EXERCISES IN 2004 AND OPTION VALUES AT DECEMBER 31, 2004 +PERFORMANCE GRAPH +PROPOSAL II +RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDERS’ PROPOSALS FOR 2006 ANNUAL MEETING +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +CALLON PETROLEUM +COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 5, 2005 +To the Shareholders of +Callon Petroleum Company (the “Company”): +Notice is hereby given that the Annual Meeting of Shareholders (the “Annual Meeting”) of the +Company will be held in Natchez, Mississippi, on Thursday, May 5, 2005, at 9:00 a.m., in the St. +Louis Room of the Natchez Convention Center, 211 Main Street, Natchez, Mississippi 39120, for the +following purposes: +1. +To elect two Class II directors to hold office until the 2008 Annual Meeting of +Shareholders and to elect one Class III director to hold office until the 2006 Annual +Meeting of Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2005; and +3. +To transact such other business as may properly come before the Annual Meeting +or any adjournment or adjournments thereof. +Shareholders of record at the close of business on March 25, 2005 will be entitled to notice +of, and to vote at, the Annual Meeting, or any adjournment or adjournments thereof. +Shareholders are cordially invited to attend the Annual Meeting in person. Those individuals +who will not attend and who wish for their shares to be voted are requested to sign, date and mail +promptly the enclosed proxy card for which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 13, 2005 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU CANNOT ATTEND, PLEASE SIGN +AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR +YOUR USE. NO POSTAGE IS REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. +Table of Contents +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +_________________ +ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 5, 2005 +_________________ +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation of proxies on +behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation (the +“Company”), from holders (“Shareholders”) of the common stock, $.01 par value per share (“Common +Stock”), of the Company for use at the Annual Meeting of Shareholders of the Company to be held on +Thursday, May 5, 2005, at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, 211 +Main Street, Natchez, Mississippi 39120, and at any adjournment or adjournments thereof (such +meeting or adjournment thereof is referred to herein as the “Annual Meeting”), for the purpose of +considering and voting upon the matters set forth in the accompanying Notice of Annual Meeting of +Shareholders (“Notice”). +A proxy in the form accompanying this Proxy Statement (each a “Proxy”), when properly executed +and returned, will be voted in accordance with the directions specified on the Proxy, and otherwise +in accordance with the judgment of the persons designated therein as proxies. Any Proxy which does +not withhold authority to vote or on which no other instructions are given will be voted for the +election of the nominees named herein to the Board of Directors and in favor of the other proposals +set forth in the Notice. Any Proxy may be revoked at any time before it is exercised by +delivering, to the Secretary of the Company, written notice of revocation or a duly executed Proxy +bearing a later date, or by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are being mailed to +Shareholders on or about April 13, 2005. The Annual Report for the Company’s fiscal year ended +December 31, 2004 is also being mailed to Shareholders contemporaneously with this Proxy Statement, +although the Annual Report does not form a part of the material for the solicitation of Proxies. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +Proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of the +Common Stock of the Company. All costs incurred in the solicitation of Proxies will be borne by +the Company. +Matters to be Considered at the Annual Meeting +Unless otherwise indicated, Proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of two Class II director +nominees and one Class III director nominee to the Board of Directors named herein, and (2) the +ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public +accounting firm for the fiscal year ending December 31, 2005. +The Board of Directors is not presently aware of other proposals that may be brought before +the Annual Meeting. In the event other proposals are brought before the Annual Meeting, the +persons named in the enclosed Proxy will vote in accordance with what they consider to be in the +best interests of the Company and its Shareholders. +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 25, 2005 as the record +date (the “Record Date”) for the determination of Shareholders entitled to notice of, and to vote +at, the Annual Meeting. A complete list of all Shareholders entitled to vote at the Annual Meeting +will be open for examination by any Shareholder during normal business hours for a period of ten +days prior to the Annual Meeting at the offices of the Company, 200 North Canal Street, Natchez, +Mississippi 39120. Such list will also be available at the Annual Meeting and may be inspected by +any Shareholder who is present. On the Record Date, the Company’s outstanding voting securities +consisted of 17,720,866 shares of Common Stock. Holders of Common Stock will be entitled to one +vote per share of Common Stock held of record on the Record Date for each proposal to be presented +at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued and outstanding on +the Record Date, whether present in person or represented by Proxy, will constitute a quorum for +the transaction of business at the Annual Meeting. For purposes of determining whether a quorum is +present under Delaware law, broker non-votes and abstentions count towards the establishment of a +quorum. The election of directors requires the favorable vote of the holders of a plurality of +shares of Common Stock present and voting, in person or by Proxy, at the Annual Meeting. +Abstentions and broker non-votes have no effect on determinations of plurality except to the extent +that they affect the total votes received by any particular candidate. A majority of the votes +represented by the Shareholders present at the Annual Meeting, in person or by proxy, is necessary +for ratification of the appointment of the Company’s independent registered public accounting firm. +Abstaining shares will be considered present at the Annual Meeting for this matter so that the +effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the +shares will not be considered present at the Annual Meeting for this matter so that broker +non-votes will have the practical effect of reducing the number of affirmative votes required to +achieve a majority vote by reducing the total number of shares from which the majority is +calculated. +2 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the Record Date, certain information with respect to the +ownership of shares of Common Stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding Common Stock, (ii) each director, (iii) each +nominee for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of Common Stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +Record Date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. Holders of the Company’s $2.125 Convertible Exchangeable +Preferred Stock (“Preferred Stock”) are not entitled to vote at the Annual Meeting. +Common Stock +Beneficial +Name and Address of +Ownership +Beneficial Owner +(a) +Percent +Directors: +John S. Callon +144,437 +(b) +* +Fred L. Callon +620,717 +(c) +3.45 +% +Robert A. Stanger +104,778 +(d) +* +John C. Wallace +1,920,312 +(e) +10.78 +% +Kings Scholars House +230 Vauxhall Bridge Road +London, SW1V 1AU, United Kingdom +B. F. Weatherly +97,933 +(f) +* +Richard O. Wilson +149,568 +(g) +* +L. Richard Flury +— +* +Named Executive Officers: +John S. Weatherly +277,192 +(h) +1.55 +% +Stephen F. Woodcock +128,114 +(i) +* +Thomas E. Schwager +26,354 +(j) +* +Rodger W. Smith +51,813 +(k) +* +Directors and Executive Officers: +As a Group (13 persons) +3,648,307 +(l) +19.32 +% +Certain Beneficial Owners: +Ganger Rolf ASA +1,779,386 +(m) +10.04 +% +Fred Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA +1,779,386 +(m) +10.04 +% +Fred Olsensgate 2 +0152 Oslo, Norway +Wellington Management Company, LLP +1,517,900 +(n) +8.57 +% +75 State Street +Boston, MA 02109 +Franklin Resources, Inc. +1,537,500 +(o) +7.98 +% +One Franklin Parkway +San Mateo, CA 94403 +Dimensional Fund Advisors Inc. +1,351,100 +(p) +7.62 +% +1299 Ocean Avenue, 11 th Floor +Santa Monica, CA 90401 +Palo Alto Investors, LLC +887,600 +(q) +5.01 +% +470 University Avenue +Palo Alto, CA 94301 +* +Less than 1% +(a) +Unless otherwise indicated, each of the persons listed in the following table may be deemed +to have sole voting and dispositive power with respect to such shares. Beneficial ownership +does not include the 2004 restricted stock awards due to lack of voting and disposition power. +(b) +Of the 144,437 shares beneficially owned by John S. Callon, 104,437 are owned directly by +him; 5,000 shares are subject to options under the Company’s 1994 Stock Incentive Plan (“1994 +Plan”) +3 +Table of Contents +exercisable within 60 days; 30,000 shares are subject to options under the Company’s +1996 Stock Incentive Plan (“1996 Plan”) exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan exercisable within 60 days. Shares indicated as owned +by John S. Callon do not include 53,501 shares of Common Stock owned by his wife over which he +disclaims beneficial ownership. +(c) +Of the 620,717 shares beneficially owned by Fred L. Callon, 251,715 shares are owned directly +by him; 92,170 shares are held by him as custodian for certain minor Callon family members; +10,915 shares are owned within the Company’s Employee Savings and Protection Plan; and 265,917 +shares are subject to options under the 1996 Plan exercisable within 60 days. Shares +indicated as owned by Fred L. Callon do not include 24,904 shares of Common Stock owned by his +wife over which he disclaims beneficial ownership. +(d) +Of the 104,778 shares beneficially owned by Robert A. Stanger, 14,778 are owned directly by +him; 25,000 shares are subject to options under the 1994 Plan exercisable within 60 days; +60,000 shares are subject to options under the 1996 Plan exercisable within 60 days; and 5,000 +shares are subject to options under the 2002 Plan exercisable within 60 days. +(e) +Of the 1,920,312 shares beneficially owned by John C. Wallace, 50,926 shares are owned +directly by him; 25,000 shares are subject to options under the 1994 Plan exercisable within +60 days; 60,000 shares are subject to options under the 1996 Plan exercisable within 60 days; +and 5,000 shares are subject to options under the 2002 Plan exercisable within 60 days; and +1,779,386 shares are owned by Ganger Rolf ASA (“Ganger Rolf”) and Bonheur ASA (”Bonheur”). +Mr. Wallace disclaims beneficial ownership of the shares of Common Stock owned by Ganger Rolf +and Bonheur. See note (m). +(f) +Of the 97,933 shares beneficially owned by B. F. Weatherly, 6,288 shares are owned directly +by him; 1,645 shares are held in joint tenancy with his wife; 25,000 shares are subject to +options under the 1994 Plan exercisable within 60 days; 60,000 shares are subject to options +under the 1996 Plan exercisable within 60 days; and 5,000 shares are subject to options under +the 2002 Plan exercisable within 60 days. +(g) +Of the 149,568 shares beneficially owned by Richard O. Wilson, 25,000 shares are subject to +options under the 1994 Plan exercisable within 60 days; 60,000 shares are subject to options +under the 1996 Plan exercisable within 60 days; 5,000 shares are subject to options under the +2002 Plan exercisable within 60 days; 48,886 shares are held in a family limited partnership; +and 10,682 shares are issuable upon conversion of 4,700 shares of Preferred Stock. +(h) +Of the 277,192 shares beneficially owned by John S. Weatherly, 52,221 are owned directly by +him; 109 shares are held as custodian for his minor child; 9,195 shares are owned within the +Company’s Employee Savings and Protection Plan; and 215,667 shares are subject to options +under the 1996 Plan exercisable within 60 days. +(i) +Of the 128,114 shares beneficially owned by Stephen F. Woodcock, 2,855 are owned directly by +him; 6,759 shares are owned within the Company’s Employee Savings and Protection Plan; 104,000 +shares are subject to options under the 1996 Plan exercisable within 60 days; and 14,500 +shares are subject to options under the 2002 Plan exercisable within 60 days. +(j) +Of the 26,354 shares beneficially owned by Thomas E. Schwager, 3,651 are owned directly by +him; 703 shares are owned within the Company’s Employee Savings and Protection Plan; and +22,000 shares are subject to options under the 1996 Plan exercisable within 60 days. +(k) +Of the 51,813 shares beneficially owned by Rodger W. Smith, 6,813 shares are owned within the +Company’s Employee Savings and Protection Plan; and 45,000 shares are +subject to options under the 1996 Plan exercisable within 60 days. +(l) +Includes 119,000 shares subject to options under the 1994 Plan, exercisable within 60 days; +986,451 shares subject to options under the 1996 Plan exercisable within 60 days; 48,867 +shares are subject to options under the 2002 Plan exercisable within 60 days; 42,754 shares +are owned within the Company’s Employee Savings and Protection Plan; and 10,682 shares +issuable upon conversion of 4,700 shares of Preferred Stock. +(m) +As disclosed on a Schedule 13D/A filed with the Commission on March 6, 2002, by Ganger Rolf, +Bonheur, AS Quatro (“Quatro”), and Invento AS (“Invento”). On August 28, 2000, Ganger Rolf +4 +Table of Contents +and Bonheur jointly purchased from Fred. Olsen Energy ASA (“F.O. Energy”) an aggregate of +1,839,386 shares of Common Stock. Ganger Rolf and Bonheur reported that they possessed shared +voting and dispositive power with respect to, all of the 1,839,386 shares of Common Stock +formerly owned by F.O. Energy. F.O. Energy no longer owns any Common Stock. Quatro is the +owner of 21.3% of the outstanding capital stock of Bonheur, and Invento is the owner of 20.8% +of the outstanding capital stock of Bonheur. Quatro and Invento disclaim beneficial ownership +of the shares of Common Stock owned by Ganger Rolf and Bonheur. John C. Wallace, one of our +directors, is a director of Ganger Rolf and Bonheur, as well as other companies associated +with Ganger Rolf and Bonheur. The principal business address and principal executive offices +of Quatro and Invento are located at Hvitstenveien 11, 1545 Hvitsten, Norway. +In June 2004, the F. O. Energy stock certificate for the 1,839,386 shares was cancelled and +reissued to Ganger Rolf and Bonheur for 919,693 shares each. Subsequent to the filing of the +Schedule 13D/A and the certificate reissue, Ganger Rolf and Bonheur each disposed of 30,000 +shares. +(n) +Information is based upon a Schedule 13G/A filed with the Commission on February 14, 2005 by +Wellington Management Company, LLP (“Wellington”). In this Schedule 13G/A, Wellington +represents that it has shared voting power with respect to 835,800 shares and shared +dispositive power with respect to 1,517,900 shares of Common Stock. +(o) +Information is based upon a Schedule 13G/A filed with the Commission on February 14, 2005 by +Franklin Resources, Inc. (parent holding company), Charles B. Johnson and Rupert H. Johnson, +Jr. (principal shareholders of parent holding company), and Franklin Advisers, Inc. +(investment adviser), (collectively “Franklin Advisers”). In this Schedule 13G, Franklin +Advisers, Inc. represents that it has sole voting power and sole dispositive power with +respect to 1,537,500 shares of Common Stock issuable upon exercise of warrants. +(p) +Information is based upon a Schedule 13G filed with the Commission on February 9, 2005 by +Dimensional Fund Advisors Inc. (“Dimensional”). In this Schedule 13G, Dimensional represents +that it has sole voting power and sole dispositive power with respect to 1,351,100 shares of +Common Stock. +(q) +Information is based upon a Schedule 13G filed with the Commission on February 10, 2005 by +William Leland Edwards, Palo Alto Investors and Palo Alto Investors, LLC. In this Schedule +13G, each of the filing persons represents that it has shared voting power and investment +power with respect to 883,400 shares of Common Stock, and Mr. Edwards represents that he has +sole voting and dispositive power with respect to 4,200 shares of Common Stock. +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +The Company’s Certificate of Incorporation provides for a classified Board of Directors. The +Board of Directors is divided into three classes of nearly equal size, designated as Class I +(currently with three directors), Class II (currently with two directors) and Class III (currently +with two directors). One class of directors is elected at each annual meeting of Shareholders to +serve for a three-year term. +The terms of the two Class II directors, Messrs. John S. Callon and B. F. Weatherly, will +expire on the date of the Annual Meeting. Mr. John S. Callon has chosen not to serve as a director +beyond the end of his current term which expires at the Annual Meeting. The Board of Directors has +reduced the size of the board of directors from seven to six effective upon the termination of Mr. +Callon’s term. In order to keep the number of directors in each class equal, the Board of +Directors has nominated Richard O. Wilson, currently a Class I Director, to the Class II position +being vacated by Mr. Callon. Mr. L. Richard Flury was appointed to the Board of Directors in July +2004 to serve until the 2005 Annual Meeting. +Messrs. Richard O. Wilson and B. F. Weatherly have been nominated to serve as Class II +directors until the 2008 Annual Meeting and L. Richard Flury has been nominated to serve as a Class +III director until the 2006 Annual Meeting, or until their respective successors have been duly +elected and qualified. Each of +5 +Table of Contents +the persons described in the preceding sentence (the “Nominees”) +was nominated by the Board of Directors. +It is intended that all shares of Common Stock represented by the Proxies will be voted for +the election of the Nominees, except where authority to vote in the election of directors has been +withheld. Should the Nominees become unable or unwilling to serve as directors at the time of the +Annual Meeting, the person or persons exercising the Proxies will vote for the election of +substitute Nominees designated by the Board of Directors, or the Board of Directors may choose to +reduce the number of members of the Board of Directors to be elected at the Annual Meeting in order +to eliminate the vacancy. The Nominees have consented to be nominated and have expressed their +intention to serve if elected. The Board of Directors has no reason to believe that the Nominees +will be unable or unwilling to serve if elected. Only the Nominees or substitute Nominees +designated by the Board of Directors will be eligible to stand for election as directors at the +Annual Meeting. See “Shareholders’ Proposals for 2006 Annual Meeting.” +Directors and Executive Officers +The following table provides information with respect to the Nominees, all current directors +whose terms will continue after the Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Company +Name +Age +Position Since +Present Company Position +Class I Directors: +(Term Expires in 2007) +Robert A. Stanger +65 +1995 +Director +John C. Wallace +66 +1994 +Director +Class II Directors: +(Term Expires in 2005) +B. F. Weatherly +60 +1994 +Director, Nominee +Richard O. Wilson +75 +1995 +Director, Nominee +Class III Directors: +(Term Expires in 2006) +Fred L. Callon +55 +1994 +Director; Chairman of the Board; +President; and Chief Executive +Officer +L. Richard Flury +57 +2004 +Director, Nominee +Other Executive Officers: +Robert A. Mayfield +54 +2000 +Corporate Secretary +Thomas E. Schwager +54 +1997 +Vice President +H. Clark Smith +52 +2001 +Corporate Information Officer +Rodger W. Smith +55 +1999 +Corporate Controller and Treasurer +John S. Weatherly +53 +1994 +Senior Vice President; Chief +Financial Officer +Stephen F. Woodcock +53 +1997 +Vice President +The following is a brief description of the background and principal occupation of each +director (including each Nominee) and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is the nephew of John S. Callon. +6 +Table of Contents +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger with BP in 1998, he served in various executive positions and was Chief Executive for +Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time +of the merger. Currently, he is a member of the Board of Directors of the Questar Corporation, a +publicly-traded oil and gas company, and the Chicago Bridge and Iron Company, N.V., a +publicly-traded engineering, procurement and construction company, and serves as a Trustee of +Thunderbird — The Garvin School of International Management. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in +1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and +Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering +positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. +Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his +B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager – +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is the Corporate Controller and Treasurer for the Company and Callon +Petroleum Operating Company. Mr. Smith was appointed Corporate Controller in 2004. Prior to being +appointed Treasurer in April 1999, he had served as Manager of Budget and Analysis since 1994. +Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed +by the Company and its predecessors since 1983. Prior to his employment with the Company, he was +employed by International Paper Company as a plant controller. He received his B.S. degree in +accounting from the University of Southern Mississippi in 1973. +Robert A. Stanger has been the Chief Executive Officer and Chairman of Robert A. Stanger & +Company, Inc., a Shrewsbury, New Jersey-based firm engaged in publishing financial material and +providing investment banking services to the real estate and oil and gas industries since 1978. He +is a director of Citizens Utilities, Stamford, Connecticut, a provider of telecommunications +services. Previously, Mr. Stanger was Vice President of Merrill Lynch & Co. He received his B.A. +degree in economics from Princeton University in 1961. Mr. Stanger is a member of the National +Association of Securities Dealers and the New York Society of Security Analysts. +John C. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in +Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. For over +twenty years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that he +joined in 1968 and which specializes in the business of shipping, renewable energy and property +development. He received his B. Comm degree majoring in Accounting and Economics from McGill +University in 1959. In November 2004 he successfully completed the International Uniform Certified +Public Accountant Qualification Examination (“IQEX”) and has applied for a CPA Certificate from the +State of Illinois. Mr. Wallace is a director of Fred. Olsen Energy ASA, a publicly-held Norwegian +company engaged in the offshore energy service industry; and Ganger Rolf ASA and Bonheur ASA, Oslo, +both publicly-traded shipping companies. +B. F. Weatherly has been a principal of CapSource Financial, Houston, Texas, an +investment-banking firm, since 1989. He is also a general partner of CapSource Fund, L.P., +Jackson, Mississippi, an investment fund, and has held that position since 1997. Mr. Weatherly +received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly +has previously been associated with +7 +Table of Contents +Arthur Andersen LLP, and has served as a Senior Vice President +of Brown & Root, Inc. and Weatherford International, Inc. B. F. Weatherly and John S. Weatherly +are brothers. +John S. Weatherly is Senior Vice President and Chief Financial Officer for the Company and +Callon Petroleum Operating Company. Prior to April 1999, Mr. Weatherly also held the position of +Treasurer. Prior to April 1996, he was Vice President, Chief Financial Officer and Treasurer of +the Company and had held these positions since 1983. Prior to joining Callon Petroleum Operating +Company in 1980, he had been employed by Arthur Andersen LLP since 1974. Mr. Weatherly received +his B.B.A. degree in accounting in 1973 and his M.B.A. degree in 1974 from the University of +Mississippi. Mr. Weatherly is a member of the American Institute of Certified Public Accountants +and the Mississippi Society of Certified Public Accountants. John S. Weatherly and B. F. Weatherly +are brothers. +Richard O. Wilson is an Offshore Consultant. In his 48 years of working in offshore drilling +and construction, he spent two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom and Mexico. Mr. Wilson was a director and Senior Group Vice +President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years he was +associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, Dolphin +A/S and Dolphin Drilling Ltd. Since the sale of OGC International PLC to Halliburton, Inc. in +1997, Mr. Wilson has been a consultant to Brown & Root, Inc. He holds a B.S. degree in civil +engineering from Rice University. Mr. Wilson is a Fellow in the American Society of Civil +Engineers, a Director of Flotek Industries, Inc. and a Director of the Museum of Printing History +in Houston, Texas. In 2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy +Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s +degree in geophysics from Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are United States citizens, +except Mr. Wallace, who is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian +citizenship. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission and any exchange +or other system on which such securities are traded or quoted, initial reports of ownership and +reports of changes in ownership of Common Stock and other equity securities of the Company. +Officers, directors and greater than ten percent shareholders are required by the Commission’s +regulations to furnish the Company and any exchange or other system on which such securities are +traded or quoted, with copies of all Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2004, and written representations from all of the +Company’s officers and directors that, except as described below, all filings on Form 3, 4 and 5 +under Section 16(a) of the Securities Act required during, or with respect to, the year ended +December 31, 2004 had been made, to the Company’s knowledge and subject to two exceptions described +below , all of the Company’s officers, directors and greater than ten percent shareholders +have complied with all Section 16(a) filing requirements for the year ended December 31, 2004. +Mr. Richard O. Wilson filed one late report, through an oversight by the Company’s compliance +officer in charge of filing Section 16(a) reports on behalf of officers and directors, in March +2005 disclosing a gift of shares in December 2004. Ganger Rolf ASA and Bonheur ASA failed to +report the purchase of shares in June 2004 and the sale of shares in November 2004. The +transactions for each company were reported on a Form 4 filed on April 5, 2005. +Information Concerning the Operation of the Board of Directors +The business of the Company is managed under the direction of the Board of Directors. The +Board of Directors meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. The Board of Directors may also hold +special meetings when an important matter requires Board action between regularly scheduled +meetings. Prior to June 2004, each non-employee director received an annual fee of $10,000 for +service on the Board of Directors and was +8 +Table of Contents +reimbursed for out-of-pocket expenses incurred to attend +the Board meetings. In addition, each non-employee director received $2,000 for each meeting of +the Board attended in person and $1,000 for his participation in each telephonic Board meeting. In +June 2004, the Compensation Committee altered the Board members’ compensation to an annual retainer +of $40,000 per year with an additional $20,000 per year for the chairman of the Audit Committee and +an additional $10,000 per year to the chairman of the Compensation Committee. On the date he or she +is initially elected or appointed to the Board, each non-employee director receives an automatic +grant of an option to purchase 5,000 shares of Common Stock for an exercise price equal to the fair +market price on the date of grant and for a ten-year term. Thereafter, for each subsequent year in +which the non-employee director serves as a director, he or she is automatically granted an option +to purchase an additional 5,000 shares on the same terms. +On August 23, 1996, the Compensation Committee authorized a one-time grant to each +non-employee director of an option to purchase 20,000 shares of Common Stock under the 1996 Plan at +a purchase price of $12.00 per share, the fair market value of the Common Stock on such date. As +of the Record Date, all such options are fully vested. On July 25, 2000, the Compensation +Committee authorized a one-time grant to each non-employee director of an option to purchase 20,000 +shares of Common Stock under the 1996 Plan at a purchase price of $10.50 per share, the fair market +value of the Common Stock on such date. As of the Record Date, all such options are fully vested. +On August 27, 2002, the Compensation Committee authorized the grant of a total of 70,500 shares of +restricted stock to the non-employee directors. The restricted stock grant provided that the +shares will vest with respect to one-third of the shares on November 15, 2002, November 15, 2003 +and November 15, 2004. The closing price of the Company’s Common Stock on the New York Stock +Exchange was $3.72 per share on August 27, 2002. +On July 14, 2004, the Compensation Committee authorized a one-time grant to each non-employee +director of 25,000 shares of restricted stock. The restricted stock grant provided that the shares +will vest with respect to one-fifth of the shares on July 14, 2005 and one-fifth of the shares on +each successive July 14 th thereafter. As of the Record Date, none of the grants have +yet vested. The closing price of the Company’s Common Stock on the New York Stock Exchange was +$13.82 per share on the grant date. +On August 18, 2004, the Compensation Committee authorized a one-time grant to L. Richard Flury +of 25,000 shares of restricted stock. The restricted stock grant provided that the shares will +vest with respect to one-fifth of the shares on July 14, 2005 and one-fifth of the shares on each +successive July 14 th thereafter. As of the Record Date, none of the grants have yet +vested. The closing price of the Company’s Common Stock on the New York Stock Exchange was $11.75 +per share on the grant date. +During 2004, the Board of Directors of the Company met formally four times and executed eleven +Unanimous Written Consents. All of the Company’s directors attended more than 75% of the aggregate +of the total number of board meetings and meetings of committees of which he is a member. In +addition, the non-management directors meet in executive sessions without management following each +quarterly board meeting. Richard O. Wilson, as chairman of the Nominating and Corporate Governance +Committee, presides over such executive sessions. +Director Independence. The Company’s Corporate Governance Principles contain the following +guidelines to assist the Board in determining director independence in accordance with the +applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended. +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $100,000 per year in direct compensation from the Company, other than fees +received in such director’s capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” Compensation received by an immediate family member for +service as a non-executive employee of the Company need not be considered in +determining independence. +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent.” +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any +9 +Table of Contents +company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board committee performing equivalent functions, or, in the absence of +such committee, the board of directors) shall be considered “independent.” +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold. +The Board of Directors has affirmatively determined that Messrs. Wallace, Stanger, Wilson and +Flury are independent directors under applicable New York Stock Exchange rules. Each of these +directors meets the standards for independence contained in the Company’s Corporate Governance +Principles as described above. These directors do not have any material relationships with the +Company that may interfere with the exercise of their independence from management and the Company. +Corporate Governance Principles . In April 2004, the Board adopted Corporate Governance +Principles. These guidelines govern the function and operation of the Company’s Board of +Directors, including the qualification and independence standards for Board members. The Company’s +Corporate Governance Principles are accessible on the Company’s website http://www.callon.com. +Code of Business Conduct and Ethics. In March 2004, the Board adopted a Code of +Business Conduct and Ethics which applies to all directors, officers and employees of the Company. +The Board has not granted any waivers to the Code of Business Conduct and Ethics. The Code of +Business Conduct and Ethics is accessible on the Company’s website http://www.callon.com. Any +amendments to or waivers of the Code of Business Conduct Ethics will also be posted on the +Company’s website. +Communication with the Board of Directors. In order to provide the Company’s +shareholders and other interested parties with a direct and open line of communication to the Board +of Directors, the Board of Directors has adopted the following procedures for communications to +directors. Callon shareholders and other interested persons may communicate with the Chairman of +the Company’s Audit Committee or with the non-management directors of the Company as a group by +written communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon +Petroleum Company, 200 North Canal Street, Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication (a) does not +relate to the business or affairs of the Company or the functioning or constitution of the Board of +Directors or any of its committees; (b) relates to routine or insignificant matters that do not +warrant the attention of the Board of Directors; (c) is an advertisement or other commercial +solicitation or communication; (d) is frivolous or offensive; or (e) is otherwise not appropriate +for delivery to directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the communication is appropriate. Any such response will be made only in accordance with applicable +law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures from time to time and, if appropriate, recommend changes. As of the Record +Date, no communications have been received. +Attendance at Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the annual meeting of shareholders. All directors attended +the 2004 annual meeting of shareholders. +Board Committees. In order to facilitate the various functions of the Board of Directors, the +Board of Directors has created an Audit Committee, a Compensation Committee and a Nominating and +Corporate Governance Committee. The chairman of the Audit Committee receives an additional $20,000 +annual retainer and the chairman of the Compensation Committee receives an additional $10,000 +annual retainer +10 +Table of Contents +fee. The chairman of the Nominating and Corporate Governance Committee is not +remunerated in addition to his annual Board retainer. +Audit Committee. The purpose of the Audit Committee is to oversee (i) the integrity of the +Company’s financial statements and disclosures, (ii) the Company’s compliance with legal and +regulatory requirements, (iii) the qualifications, independence and performance of the Company’s +independent registered public accounting firm, (iv) the performance of the Company’s internal audit +function, (v) the Company’s internal control systems, and (vi) the Company’s procedures for +monitoring compliance with the Company’s Code of Business Conduct and Ethics. +The principal function of the Audit Committee is to assist the Board of Directors in the areas +of financial reporting and accounting integrity. As such, it meets periodically with the Company’s +independent registered public accounting firm and management, including each in executive session. +Management is solely responsible for the Company’s financial statements and the financial reporting +process, including the system of internal controls, and has represented to the Audit Committee and +the Board of Directors that the financial statements discussed below were prepared in accordance +with accounting principles generally accepted in the United States of America appropriate in the +circumstances and necessarily include some amounts based on management’s estimates and judgments. +The Company’s independent registered public accounting firm, Ernst & Young LLP, is responsible for +expressing an opinion on the conformity of these financial statements, in all material respects, +with accounting principles generally accepted in the United States of America. +The Audit Committee’s Charter provides that the Company’s independent registered public +accounting firm may provide only those services pre-approved by the Audit Committee. The Audit +Committee annually reviews and pre-approves the audit, review, attest and permitted non-audit +services to be provided during the next audit cycle by the independent registered public accounting +firm. To the extent practicable, at the same meeting the Audit Committee also reviews and approves +a budget for each of such services. Services proposed to be provided by the independent registered +public accounting firm that have not been pre-approved during the annual review and the fees for +such proposed services must be pre-approved by the Audit Committee. Additionally, fees for +previously approved services that are expected to exceed the previously approved budget must also +be approved by the Audit Committee. +All requests or applications for the independent registered public accounting firm to provide +services to the Company must be submitted to the Audit Committee by the independent registered +public accounting firm and management and state as to whether, in their view, the request or +application is consistent with applicable laws, rules and regulations relating to registered public +accounting firm independence. In the event that any member of management or the independent +registered public accounting firm becomes aware that any services are being, or have been, provided +by the independent registered public accounting firm to the Company without the requisite +pre-approval, such individual must immediately notify the Chief Financial Officer, who must +promptly notify the Chairman of the Audit Committee and appropriate management so that prompt +action may be taken to the extent deemed necessary or advisable. +The Audit Committee may delegate to a member(s), the authority to grant specific pre-approvals +under its policy with respect to audit, review, attest and permitted non-audit services, provided +that any such grant of pre-approval shall be re ported to the full Audit Committee no later than +its next scheduled meeting. +The Audit Committee is comprised of Messrs. Wallace (Chairman), Stanger, Wilson and Flury. +The Board of Directors has affirmatively determined that each of the members is financially +literate and is an independent director for purposes of New York Stock Exchange rules applicable to +members of the audit committee, meaning that the director has no relationship to the Company that +may interfere with the exercise of their independence from management and the Company (an +“Independent Director”). The Board of Directors believes that all four members of the Audit +Committee currently possess the financial expertise necessary for the Audit Committee to properly +fulfill its purposes. Additionally, the Board of Directors has determined that Mr. Wallace has the +accounting or financial management expertise to be considered a “financial expert” as defined and +required by the New York Stock Exchange’s rules and by the Securities Exchange Act of 1934. An +audit committee financial expert is a person who has (i) an understanding of generally accepted +accounting principles and financial statements, (ii) the ability to assess the general application +of said principles in connection with the accounting for estimates, accruals and reserves, (iii) +experience preparing, auditing, analyzing or evaluating financial statements of comparable breadth +and complexity to Callon’s financial statements, (iv) an understanding of internal controls and +procedures, and (v) an understanding of audit committee functions. The Audit Committee has sole +responsibility for retaining, dismissing and compensating the Company’s independent registered +public accounting firm. The Board of Directors adopted an Audit Committee Charter in 2000 and +revised the Charter in 2004 to meet the updated requirements of the SEC and the NYSE. The Audit +Committee’s +11 +Table of Contents +report on its activities during 2003 and 2004 appear later in this proxy statement +under the caption “Audit Committee Report.” +The Audit Committee held four meetings and executed two Unanimous Written Consents during +2004. All members of the Audit Committee attended the meetings. The Audit Committee Charter is +available on the Company’s website at http://www.callon.com. +Compensation Committee. The purpose of the Compensation Committee is to (i) assist the Board +of Directors in the discharge of its fiduciary responsibilities relating to the fair and +competitive compensation of the Company’s Chief Executive Officer ( “ CEO ” ) and other executives and +(ii) prepare an annual report on executive compensation for inclusion in the Company’s proxy +statement for the annual meeting of shareholders. The Committee administers the Company’s incentive +compensation and stock option and other equity based plans in which the CEO and other executive +officers may be participants and recommends to the Board amendments to such plans or adoption of +new plans. In connection with administering such plans, the Committee has the authority to (i) +approve option guidelines and the general size of overall grants, (ii) make grants, (iii) interpret +the plans, (iv) determine the rules and regulations relating to the plans, (v) modify or cancel +existing grants and substitute new grants (with the consent of grantees), (vi) designate employees +eligible to participate in the plans, and (vii) impose such limitations, restrictions and +conditions upon any award as the Committee deems appropriate and as permitted under the applicable +plan. The Committee annually reviews and establishes the base salary, incentive compensation, +deferred compensation, stock options, performance units and other equity based awards for the CEO +and makes recommendations to the Board with respect to compensation of the Company’s other +executive officers. Each member of the Committee meets the independence requirements of the New +York Stock Exchange and applicable federal securities laws. Messrs. Stanger (Chairman), Wallace, +Wilson, and Flury are members of this committee. The Compensation Committee held four meetings and +executed one Unanimous Written Consent during 2004. All members of the Compensation Committee +attended all meetings. The Compensation Committee Charter is available on the Company’s website at +http://www.callon.com. +Nominating and Corporate Governance Committee. The purpose of the Committee is to (i) +identify and recommend to the Board individuals qualified to be nominated for election to the +Board, (ii) recommend to the Board the members and Chairperson for each Board committee, (iii) +periodically review and assess the Company’s Corporate Governance Principles and the Company’s Code +of Business Conduct and Ethics and make recommendations for changes thereto to the Board and (iv) +oversee the annual self-evaluation of the performance of the Board and the annual evaluation of the +Company’s management. Each member of the Committee meets the independence requirements of the New +York Stock Exchange and applicable federal securities laws. The Committee was formed in April +2004. Members are Messrs. Wilson (Chairman), Wallace, Stanger, and Flury. The Nominating and +Corporate Governance Committee did not hold any meetings but executed one Unanimous Written Consent +during 2004. Prior to the formation of this Committee, the entire Board of Directors performed +these functions. The Nominating and Corporate Governance Committee Charter is available on the +Company’s website at http://www.callon.com. +The Nominating and Corporate Governance Committee has established certain criteria it +considers as guidelines in considering nominations to the Company’s Board of Directors. The +criteria include: (a) personal characteristics, including such matters as integrity, age, +education, diversity of background and experience, absence of potential conflicts of interest with +the Company or its operations, and the availability and willingness to devote sufficient time to +the duties of a director of the Company; (b) experience in corporate management, such as serving as +an officer or former officer of a publicly held company; (c) experience in the Company’s industry +and with relevant social policy concerns; (d) experience as a board member of another publicly held +company; (e) academic expertise in an area of the Company’s operations; and (f) practical and +mature business judgment. The criteria are not exhaustive and the Nominating and Corporate +Governance Committee and the Board of Directors may consider other qualifications and attributes +which they believe are appropriate in evaluating the ability of an individual to serve as a member +of the Board of Directors. The Nominating and Corporate Governance Committee’s goal is to assemble +a Board of Directors that brings to the Company a variety of perspectives and skills derived from +high quality business and professional experience. In order to ensure that the Board consists of +members with a variety of perspectives and skills, the Nominating and Corporate Governance +Committee has not set any minimum qualifications and also considers candidates with appropriate +non-business backgrounds. Other than ensuring that at least one member of the Board is a financial +expert and a majority of the Board members meet all applicable independence requirements, the +Committee does not have any specific skills that it believes are necessary for any individual +director to possess. Instead, the Committee evaluates potential nominees based on the contribution +such nominees background and skills could have upon the overall functioning of the Board. +12 +Table of Contents +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s corporate governance principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. Accordingly, it is the policy of the Nominating and Corporate Governance Committee not +to accept unsolicited nominations from shareholders. In making its nominations, the Nominating and +Corporate Governance Committee identifies nominees by first evaluating the current members of the +Board willing to continue their service. Current members with qualifications and skills that are +consistent with the committee’s criteria for Board service are re-nominated. As to new candidates, +the committee will generally poll the Board members and members of management for recommendations. +The committee may also review the composition and qualification of the boards of directors of the +Company’s competitors, and may seek input from industry experts or analysts. The committee reviews +the qualifications, experience and background of the candidates. Final candidates are interviewed +by the independent directors and executive management. In making its determinations, the committee +evaluates each individual in the context of the Board as whole, with the objective of assembling a +group that can best represent shareholder interests through the exercise of sound judgment. After +review and deliberation of all feedback and data, the committee makes its recommendation to the +Board of Directors. The committee may in the future choose to engage third-party search firms in +situations where particular qualifications are required or where existing contacts are not +sufficient to identify an appropriate candidate. +L. Richard Flury was recommended to the Nominating and Corporate Governance Committee by +Richard O. Wilson. After following the processes described above, the Nominating and Corporate +Governance Committee unanimously recommended that Mr. L. Richard Flury be appointed to the +Company’s board of directors and nominated for election by shareholders as a Class III director at +the 2005 Annual Meeting. +Corporate Governance Principles. In 2004, the Company and the Board adopted the Corporate +Governance Principles (the “ Principles ” ) to assist the Board of Directors (the “Board ” ) in the +exercise of its responsibilities. These guidelines will be interpreted in the context of all +applicable laws and the Company’s Certificate of Incorporation, Bylaws and other corporate +governance documents. The Principles are intended to serve as a flexible framework within which +the Board may conduct its business and not as a set of legally binding obligations. The Company’s +Corporate Governance Principles is available on the Company’s website at http://www.callon.com. +Audit Committee Report +The Audit Committee’s powers and responsibilities, and the qualifications required of each of +its members, are set forth in the Audit Committee Charter. Actions taken by the Audit Committee +during 2003 and 2004 consisted of the following: +Audit Fees Paid to Independent Registered Public Accounting Firm. Fees paid in 2003 and 2004 +for professional services rendered related to the year ended December 31, 2003 by Ernst & Young LLP +for the annual audit and quarterly reviews were $123,750 and $33,250, respectively, including +out-of-pocket expenses. Fees paid in 2004 and 2005 for professional services rendered related to +the year ended December 31, 2004 by Ernst & Young LLP for the annual audit and quarterly reviews +(including the new requirements under the Sarbanes-Oxley Act Section 404) were $189,000 and +$100,384, respectively, including out-of-pocket expenses. Fees paid in connection with the +Company’s registration of senior notes and the public offering of common stock during 2004 was +$36,500; there were no such fees paid in 2003. The Audit Committee has concluded that providing +the tax-related services mentioned below is compatible with maintaining the principal registered +public accounting firm’s independence. +Audit-related Fees . There were no audit-related fees paid in 2003 or 2004. +Tax Fees. Professional services billed by Ernst & Young LLP for the review of the federal +tax return, federal, state and local tax planning and advice, quarterly estimated tax payments, and +assistance/analysis of tax attributes for 2003 were $24,900. Fees paid in 2004 for the review of +the federal tax return, tax advice and tax planning services totaled $8,200. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2003 or 2004. +13 +Table of Contents +All of the services provided by the Company’s independent registered public accounting firm +during 2003 and 2004 were pre-approved by the Audit Committee. +Amended Committee Charter. Based on the recommendation of the Audit Committee after +consideration of the newly issued listing standards of the New York Stock Exchange, the Board of +Directors amended the Audit Committee Charter in 2004. The principal changes, which enumerate +details of the responsibilities of the Audit Committee as required by the listing standards, were: +(a) +to provide that the Audit Committee review and discuss quarterly disclosures +contained in the financial statements and Management’s Discussion and Analysis of +Financial Condition and Results of Operations in the Company’s SEC filings, prior to +the filing of such disclosures; +(b) +to provide that the Audit Committee generally review the type of information +to be disclosed in earnings press releases; +(c) +to formally require the Audit Committee to periodically consult with +management about internal controls, completeness and accuracy of financial statements +and audit procedures; and +(d) +to make other minor modifications to conform provisions of the existing +charter to technical requirements of rules recently adopted by the Securities and +Exchange Commission as proposed by the New York Stock Exchange. +Approval of Company’s Annual Report on Form 10-K . Acting pursuant to its Charter, the Audit +Committee reviewed the Company’s audited financial statements at, and for the year ended, December +31, 2004 with management and the Company’s independent registered public accounting firm and +recommended to the Company’s Board of Directors that the Company’s audited financial statements be +included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. This +recommendation was based on: the Audit Committee’s review of the audited financial statements; +discussion of the financial statements with management; discussion with the Company’s independent +registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by +auditing standards generally accepted in the United States of America, including the matters +required to be discussed by SAS 61; receipt from Ernst &Young LLP of the written disclosures and +letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); discussions with Ernst & Young LLP regarding its independence from the Company and its +management; and Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the financial position +of the Company and its consolidated subsidiaries and the results of their operations and cash flows +for the periods presented in conformity with accounting principles generally accepted in the United +States of America. +Management is responsible for establishing and maintaining internal controls over financial +reporting and for assessing the effectiveness of those controls. The independent registered public +accounting firm is responsible for performing independent audits of the Company’s consolidated +financial statements and internal controls over financial reporting in accordance with the +standards of the Public Company Accounting Oversight Board (United States) and issuing reports +thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & +Young LLP, an independent registered public accounting firm, served as the Company’s independent +registered public accounting firm during 2004 and was appointed by the Audit Committee to serve in +that capacity for 2005. In connection with these responsibilities, the Audit Committee met with +management and the independent registered public accounting firm to review and discuss the December +31, 2004 financial statements and matters related to Section 404 of the Sarbanes-Oxley Act of 2002. +The Audit Committee also discussed with the independent registered public accounting firm the +matters required by Statement on Auditing Standards No. 61, as amended (Communication with Audit +Committees). The Audit Committee also received written disclosures from the independent registered +public accounting firm required by Independence Standards Board Standard No. 1 (Independence +Discussions with Audit Committees) and the Audit Committee discussed their independence with the +independent registered public accounting firm. +John C. Wallace, Chairman +Richard O. Wilson +Robert A. Stanger +L. Richard Flury +14 +Table of Contents +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth information with respect to the Chief Executive Officer of the +Company and the four most highly compensated executive officers of the Company (“Named Executive +Officers”) and two additional former executive officers for the years ended December 31, 2004, 2003 +and 2002. +Annual Compensation +Long-Term +Other +Compensation Awards +Annual +Restricted +Securities +All Other +Compen- +Stock +Underlying +Compen- +Salary +Bonus +sation +Award(s) +Options +sation +Year +($) +($)(a) +($)(b) +($)(c) +(#)(d) +($)(e) +Fred L. Callon +2004 +344,405 +100,000 +0 +594,600 +0 +30,488 +Chairman and Chief +2003 +285,605 +0 +0 +0 +0 +26,129 +Executive Officer +2002 +278,639 +79,750 +0 +242,475 +31,375 +27,135 +John S. Weatherly +2004 +241,331 +300,000 +0 +414,600 +0 +26,070 +Sr. Vice President +2003 +228,484 +0 +0 +0 +0 +24,273 +and Chief Financial +2002 +222,911 +64,250 +0 +197,425 +25,000 +25,146 +Officer +Dennis W. Christian +2004 +72,135 +0 +0 +0 +0 +1,513,741 +Former Sr. Vice +2003 +265,675 +0 +0 +0 +0 +26,106 +President and Chief +2002 +256,268 +74,250 +0 +217,300 +28,850 +26,985 +Operating Officer (f) +Stephen F. Woodcock +2004 +182,178 +87,500 +0 +255,670 +0 +19,795 +Vice President +2003 +178,606 +0 +0 +0 +0 +19,355 +2002 +174,250 +42,000 +0 +84,800 +21,750 +19,100 +Thomas E. Schwager +2004 +171,462 +87,500 +0 +241,850 +0 +18,628 +Vice President +2003 +168,100 +0 +0 +0 +0 +18,429 +2002 +164,000 +37,000 +0 +74,200 +16,725 +17,935 +Rodger W. Smith +2004 +128,984 +70,000 +0 +172,750 +0 +14,065 +Corporate Controller +2003 +120,822 +0 +0 +0 +0 +13,069 +and Treasurer +2002 +117,875 +18,500 +0 +40,810 +8,050 +12,892 +Kathy G. Tilley +2004 +53,333 +0 +0 +0 +0 +1,009,752 +Former Vice +2003 +194,212 +0 +0 +0 +0 +20,331 +President (f) +2002 +189,475 +45,000 +0 +148,400 +22,500 +20,668 +(a) +As a result of the successful refinancing of the Company’s indebtedness and the +implementation of an acceptable business plan for 2002 and 2003, the Company awarded cash +bonuses to the executive officers and certain other employees, a portion of which was paid in +July 2002 and a portion or which was paid in September 2002. These bonuses were considered to +be earned by service performed during 2002. These amounts include any amounts that were +deferred at the election of the Named Executive Officers. +The bonuses listed for 2004 were paid in March 2004. As discussed under “Report on Executive +Compensation,” in awarding bonuses the Company considers factors occurring from the last bonus +payment date until the date bonuses are paid. As a result of substantial increases in +production, a reduction of the Company’s indebtedness, and successful debt refinancing, the +Company awarded and paid in March 2004, cash bonuses to the executive officers and certain +other employees. These bonuses paid in March 2004 were considered to be earned by service +performed since the last bonus payment date in 2002. These amounts include any amounts that +were deferred at the election of the Named Executive Officers. +15 +Table of Contents +(b) +None of the Named Executive Officers received perquisites or other personal benefits, +securities or property, the aggregate annual amount of which exceeded the lesser of $50,000 or +10% of the total of annual salary and bonus reported for such officer. +(c) +On February 14, 2002, the following shares of restricted stock were awarded under the 1996 +Plan: Fred L. Callon, 45,750 shares; John S. Weatherly, 37,250 shares; Dennis W. Christian, +41,000; Stephen F. Woodcock, 16,000 shares; Thomas E. Schwager, 14,000 shares; Rodger W. +Smith, 7,700 shares; and Kathy G. Tilley, 28,000 shares. The restricted stock awards were +subject to a 1/3rd per annum vesting schedule beginning November 15, 2002. On February 14, +2002 the closing price of the Company’s Common Stock on the New York Stock Exchange was $5.30 +per share. The Compensation Committee declared that upon Mr. Christian’s and Ms. Tilley’s +retirement in March 2004, the remaining unvested restricted stock, being 13,667 and 9,333 +shares, respectively, be deemed fully vested. As of December 31, 2004 all of these shares of +restricted stock had vested. +On July 14, 2004, the following shares of restricted stock were awarded under the 1994 Plan: +Fred L. Callon, 43,000 shares; John S. Weatherly, 30,000 shares; Stephen F. Woodcock, 18,500 +shares; Thomas E. Schwager, 17,500 shares; and Rodger W. Smith, 12,500 shares. The restricted +stock awards were subject to a 20% per annum vesting schedule beginning on July 14, 2005. On +July 14, 2004 the closing price of the Company’s Common Stock on the New York Stock Exchange +was $13.82 per share. These awards are not included in the Beneficial Ownership table due to a +lack of voting and dispositive power. As of December 31, 2004, Mr. Fred Callon held +43,000 shares of unvested restricted stock with an aggregate market value of $621,780, Mr. +Weatherly held 30,000 shares of unvested restricted stock with an aggregate market value of +$433,800, Mr. Woodcock held 18,500 shares of unvested restricted stock with an aggregate +market value of $267,510, Mr. Schwager held 17,500 shares of unvested restricted stock with an +aggregate market value of $253,050, and Mr. Smith held 12,500 shares of unvested restricted +stock with an aggregate market value of $180,750. The value of the unvested restricted stock +held by the Named Executive Officers as of December 31, 2004 is based on the closing price of +the Company’s Common Stock on the NYSE on such date, which was $14.46 per share. Any +dividends paid by the Company will be payable on outstanding shares of restricted stock. +(d) +On July 12, 2002 and August 23, 2002, options granted to Fred L. Callon were 18,750 shares +and 12,625 shares, respectively; John S. Weatherly, 15,000 shares and 10,000 shares, +respectively; Dennis W. Christian, 17,250 shares and 11,600 shares, respectively; Stephen F. +Woodcock, 13,250 shares and 8,500 shares, respectively; Thomas E. Schwager 10,000 and 6,725 +shares, respectively; Rodger W. Smith 4,800 shares and 3,250 shares, respectively; and Kathy +G. Tilley, 13,500 shares and 9,000 shares, respectively. The option grants to Mr. Christian +and Ms. Tilley were not exercised within the required time period following their retirement +in March 2004, therefore they expired. Options exercise prices were $4.50 and $3.70 per +share, respectively. +(e) +Amounts reflect the Company’s contribution in 2004, 2003, and 2002 of $26,700, $22,197 and +$23,203 to Fred L. Callon’s 401(k) savings plan and payment of $3,788, $3,932, and $3,932 term +life insurance premiums; $6,183, $21,934, and $22,813 to Mr. Christian’s 401(k) savings plan, +payment of $432, $4,172, and $4,172 term life insurance premiums and $1,507,126 in severance +benefits paid in 2004; $22,017, $20,076, and $20,949 to Mr. Weatherly’s 401(k) savings plan +and payment of $4,053, $4,197, and $4,197 term life insurance premiums; $18,218, $17,680, and +$17,425 to Mr. Woodcock’s 401(k) savings plan and payments of $1,577, $1,675, and $1,675 term +life insurance premiums; $17,146, $16,852, and $16,400 to Mr. Schwager’s 401(k) savings plan +and payment of $1,482, $1,577, and $1,535 term life insurance premiums; $4,572, $18,510, and +$18,847 to Ms. Tilley’s 401(k) savings plan and payment of $429, $1,821, $1,821 term life +insurance premiums and $1,004,751 in severance benefits paid in 2004; and $12,899, $11,936 and +$11,788 to Mr. Smith’s 401(k) savings plan and payment of $1,166, $1,133, and $1,104 term life +insurance premiums. +(f) +Effective March 9, 2004, Mr. Christian resigned as a director, officer and employee of the +Company. Ms. Tilley also resigned as an officer and employee of the Company on that date. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. Effective January 1, 2002, the Company entered into +Severance Compensation Agreements (the “Agreements”) with Fred L. Callon and John S. Weatherly +providing for certain benefits to each of them in the event that a “change of control” occurs +during the three-year period after the execution of such Agreements. Each Agreement is for a +three-year term and is automatically extended for successive one-year periods unless either the +Company or the executive notifies +16 +Table of Contents +the other party prior to such renewal that it has elected to +terminate the Agreement; provided that the term of each Agreement shall be until the later of two +years following the date of a change of control and the satisfaction of all obligations of the +Company under the Agreement. Neither the Company nor Mr. Callon or Mr. Weatherly elected to +terminate the Agreements prior to January 1, 2005. As a result, the Agreements were automatically +extended until January 1, 2006. The Agreements terminate upon each executive’s death, disability +termination for cause or voluntary resignation other than for “good reason.” +Pursuant to the Agreements, if either Messrs. Callon or Weatherly’s employment with the +Company is terminated without cause by the Company or for good reason by the executive within two +years following a change of control by the Company, the executive is entitled to a single lump-sum +cash payment in an amount equal to three times the sum of (a) the annual base salary of such +executive in effect prior to such termination, and (b) the higher of the average bonus earned by +the executive during the three preceding years or the target bonus that the executive is eligible +to receive during the year of termination. If Messrs. Callon or Weatherly’s employment is +terminated as a result of their death or disability, the Company is only required to make such +payments if the termination occurred within six months of a change of control. “Good reason” is +generally defined in the Agreements as a change in the executive’s compensation, benefits, +position, responsibilities, or location. +The Agreements also provide that, upon a change of control, all stock options, restricted +stock, stock appreciation rights and other similar rights held by Messrs. Callon or Weatherly shall +automatically become fully exercisable notwithstanding any vesting or exercisability provisions. +If any payment to either Messrs. Callon or Weatherly would be subject to any excise tax under +Section 4999 of the Internal Revenue Code of 1986, as amended, a “gross-up” payment will be made to +place such executive in the same net after-tax position as would have been the case if no excise +tax had been payable. +Change in Control . Pursuant to the Callon Petroleum Company 1994 Stock Incentive Plan (the +“1994 Plan”), the Callon Petroleum Company 1996 Stock Incentive Plan (the “1996 Plan”), and the +Callon Petroleum Company 2002 Stock Incentive Plan (the “2002 Plan”), in the case of a merger or +consolidation where the Company is not the surviving entity, or if the Company is about to sell or +otherwise dispose of substantially all of its assets while unvested options remain outstanding, the +Compensation Committee or other plan administrator may, in its discretion and without Shareholder +approval, declare some or all options exercisable in full before or simultaneously with such +merger, consolidation or sale of assets without regard for prescribed waiting periods. +Alternatively, the Compensation Committee or other plan administrator may cancel all outstanding +options provided option holders are given notice and a period of 30 days prior to the merger, +consolidation or sale to exercise the options in full. +Retirement Package and Release Agreements. Effective March 9, 2004 the Company, and all of +its subsidiaries and affiliates, entered into a retirement agreement with Dennis W. Christian +(former Sr. Vice President and Director), (the “Christian Retirement Agreement”) and Kathy G. +Tilley (former Vice President), (the “Tilley Retirement Agreement”.) +In accordance with the Christian Retirement Agreement, Mr. Christian resigned as an officer, +employee and a director of the Company and all of its subsidiaries and affiliates. The Christian +Retirement Agreement provided for an initial cash payment of $1,350,000, less applicable federal +and state income taxes, to be paid to Mr. Christian following the execution of the Christian +Retirement Agreement and an additional final cash payment of $150,000, plus an amount equal to 6% +per annum interest thereon from March 9, 2004 to March 9, 2005, and less applicable federal and +state income taxes, to be placed in escrow to be released to Mr. Christian on March 9, 2005. The +Christian Retirement Agreement also provided that Mr. Christian would deliver into escrow, original +copies of option agreements as to 313,850 shares exercisable at an average of $9.81 per share, +following the initial cash payment. On December 6, 2004, Mr. Christian and the Company jointly +agreed to finalize the Christian Retirement Agreement and release the escrowed funds, net of an +adjustment for accrued interest to November 30, 2004. As agreed, Mr. Christian released the +original copies of all option agreements and such option agreements were voided. +In accordance with the Tilley Retirement Agreement, Ms. Tilley resigned as an officer and +employee of the Company and all of its subsidiaries and affiliates. The Tilley Retirement +Agreement provided for an initial cash payment of $900,000, less applicable federal and state +income taxes, to be paid to Ms. Tilley following the execution of the Tilley Retirement Agreement +and an additional final cash payment of $100,000, plus an amount equal to 6% per annum interest +thereon from March 9, 2004 to March 9, 2005, and less applicable federal and state income taxes, to +be placed in escrow to be released to Ms. Tilley on March 9, 2005. The Tilley Retirement Agreement +also provided that Ms. Tilley would deliver into escrow, original copies of option agreements as to +210,500 shares exercisable at an average of $9.82 per share, following the initial cash payment. +On December 6, 2004, Ms. Tilley and the Company jointly agreed to finalize the Tilley Retirement +Agreement and release the escrowed funds, net of an adjustment for accrued +17 +Table of Contents +interest to November 30, +2004. As agreed, Ms. Tilley released the original copies of all option agreements and such option +agreements were voided. +Stock-Based Incentive Compensation Plans +The Company currently maintains three Common Stock-based incentive plans for its directors and +employees: the 1994 Plan, the 1996 Plan, and the 2002 Plan. The Company in the past has used and +will continue to use stock options, restricted stock, and performance share grants to attract and +retain key directors and employees in the belief that stock ownership and stock related +compensation devices encourage a continuity of interest between directors, employees and +Shareholders. The Compensation Committee of the Board of Directors administers all three of the +stock incentive plans. Members of the Compensation Committee currently are Messrs. Stanger +(Chairman), Wallace, and Wilson. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of Common Stock were reserved +for issuance upon the exercise of options or for grants of performance shares. Prior to 2004, no +awards have been made under the 1994 Plan since 1999. During 2004, 25,000 options were issued to +the non-employee directors, 90,000 options expired and were returned to the 1994 Plan, 247,500 +shares were returned to the 1994 Plan as a result of being withheld to pay federal and state income +taxes associated with option exercises and vesting of restricted stock, and 323,870 shares were +issued as compensation in the form of restricted stock to non-employee directors and various +company employees. As of March 25, 2005, there were no remaining shares of Common Stock available +for grant under the 1994 Plan. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan and granted awards thereunder to various employees. The 1996 Plan was approved by the +Shareholders of the Company on June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of Common +Stock were reserved for issuance upon the exercise of options or for grants of performance shares. +On August 20, 1998, the Board of Directors amended the 1996 Plan, as permitted pursuant to the +terms of the 1996 Plan, to increase the number of shares of Common Stock reserved for issuance by +300,000 shares to 1,200,000 shares. On May 9, 2000, the Shareholders of the Company approved an +increase in the available number of shares of Common Stock reserved for issuance under the 1996 +Plan by 1,000,000 shares to 2,200,000 shares. During 2004, 411,850 options expired and were +returned to the 1996 Plan, 51,051 shares were returned to the 1996 Plan as a result of being +withheld to pay federal and state income taxes associated with option exercises and vesting of +restricted stock, and 106,130 shares were issued as compensation in the form of restricted stock to +non-employee directors and various company employees. During 2005, 35,921 shares were returned to +the 1996 Plan as a result of being withheld to pay federal and state income taxes associated with +option exercises. As of March 25, 2005, there were 537,647 shares of Common Stock available for +grant under the 1996 Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of Common Stock shall be reserved for +issuance upon the exercise of options or for grants of stock options, stock appreciation rights or +units, restricted stock, or performance shares or units. This Plan qualified as a “broadly based” +plan under the provisions of the New York Stock Exchanges’ rules and regulations at the time it was +adopted and therefore did not require Shareholder approval. Because the 2002 Plan is a broadly +based plan, the aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted to all employees +during any three-year period. During 2004, 24,833 options expired and were returned to the 2002 +Plan. To date in 2005, 15,000 stock options were granted to a key employee. As of March 25, 2005, +there were 50,666 shares of Common Stock available for grant under the 2002 Plan. +Cash Bonus Plan . In 1996, the Board of Directors authorized the establishment of a cash bonus +program (the “Bonus Plan”) to be administered by and in accordance with the procedures determined +by the Compensation Committee. Pursuant to the Bonus Plan, various factors are used to tie +officers’ and certain key employees’ compensation to the Company’s performance. Annual financial +and operating goals are the initial basis for determining target level bonuses. The Compensation +Committee also incorporates other significant operational factors occurring during the period over +which bonuses are being determined into the process. See “Report on Executive Compensation.” +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors authorized the +implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 +Purchase Plan”), which was approved by the Company’s Shareholders on June 19, 1997. The Plan +provides eligible employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock purchase plan. An +aggregate of 250,000 +18 +Table of Contents +shares of Common Stock have been reserved for issuance over the ten-year term +of the 1997 Purchase Plan. The purchase price per share at which Common Stock can be purchased by +the participant on each purchase date within an offering period is equal to eighty-five percent of +the fair market value per share of Common Stock. As of March 25, 2005, all reserved shares have +been issued. +Option Grants in the Last Fiscal Year +There were no option grants during the fiscal year ended December 31, 2004 except for the +automatic grants of 5,000 shares to each of the five non-employee directors. +Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values +The following table sets forth certain information concerning the number and value of +unexercised options to purchase Common Stock by the Named Executive Officers at December 31, 2004. +No stock options were exercised by such persons in 2003. +AGGREGATED OPTION EXERCISES IN 2004 AND OPTION +VALUES AT DECEMBER 31, 2004 +Unexercised Options at December 31, 2004 +Number of +Value of +Underlying +In-the-Money +Securities +Options +Shares Acquired +Value +Exercisable/ +Exercisable/ +Name +On Exercise (#) +Realized ($) +Unexercisable (a) +Unexercisable ($)(b) +Fred L. Callon +80,000 +248,800 +265,917/10,458 +1,134,642/107,258 +John S. Weatherly +60,000 +186,600 +215,667/8,333 +954,783/85,663 +Dennis W. Christian (c) +— +— +— / — +— / — +Stephen F. Woodcock +— +— +118,500/7,250 +545,794/74,476 +Thomas E. Schwager +51,151 +230,898 +59,000/5,574 +200,640/57,310 +Rodger W. Smith +9,000 +27,990 +50,367/2,683 +219,889/27,589 +Kathy G. Tilley (c) +— +— +— / — +— / — +(a) +Represents awards granted under the 1994 Plan, the 1996 Plan, and the 2002 Plan. +(b) +On December 31, 2004, the closing price of the Common Stock on the New York Stock Exchange +was $14.46 per share. +(c) +Effective March 9, 2004, Mr. Christian resigned as a director, officer and employee of the +Company. Ms. Tilley also resigned as an officer and employee of the Company on that date. +Long-Term Incentive Plan Awards +Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company does not have a +long-term incentive plan for its employees. +Compensation Committee Interlocks and Insider Participation +The members of the Company’s Compensation Committee are Messrs. Robert A. Stanger, John C. +Wallace, Richard O. Wilson, and L. Richard Flury, none of whom are or have been officers or +employees of the Company or any of its subsidiaries or had a relationship requiring disclosure +under this caption. +Report on Executive Compensation +The Compensation Committee’s purpose is to review and approve compensation arrangements for +the Company’s Chief Executive Officer, other executive officers and directors. The Compensation +Committee also administers certain other employee benefits plans (such as the Company’s 1994, 1996 +and 2002 Stock Incentive Plans). The Committee also makes recommendations regarding shareholder +approval of amendments to existing plans or the adoption of new plans, and produces an annual +report on executive compensation for inclusion in the Company’s proxy statement, in accordance with +applicable rules and regulations. The Committee’s role, composition, duties and responsibilities +are set forth in its Charter which was approved by the Board of Directors. +19 +Table of Contents +Executive Compensation Philosophy +The Company’s executive compensation program is primarily designed to be competitive with +other oil and gas exploration and production companies which the Company views as competitors for +business, employee talent, and shareholder investments. The Company also recognizes the need to +provide compensation that encourages pay for performance and greater executive focus on shareholder +value. In this effort, the Committee considers and reviews comparative information provided by +management and which is supported by compensation information provided by an executive compensation +consulting firm. +The Company does not have any employment agreements with its executive officers at this time. +However, the Compensation Committee believes that, in order to retain highly qualified executives, +it must provide these persons with some security against organizational and personnel changes in +the event of a change of control of the Company. In order to provide this security, in early 2002, +the Company entered into the Severance Compensation Agreements described under “ ¾ Employment +Agreements, Termination of Employment and Change of Control Arrangements ¾ Severance +Compensation Agreements.” The Compensation Committee believes that these agreements are necessary +to provide fair treatment to key executives in the event of a change of control. In the future, +the Compensation Committee may determine that employment or other agreements with its executive +officers, in addition to the Severance Compensation Agreements, are necessary in order to retain +key employees and achieve the Company’s long-term growth objectives. +Base Salaries. Base salaries are designed to be at competitive levels and when combined with +the other components of the compensation program, are set to attract and retain qualified +executives and managers. Changes in base salaries are made after considering competitive positions +in the industry and individual performance. +After reviewing the salary levels of the Company’s peers, the Company decided to increase the +base salaries of the Company’s executive officers for 2004 by two percent, representing a “cost of +living” adjustment. In addition to evaluating salary increases in the industry, the Compensation +Committee also took into account a subjective valuation of each individual officer’s contributions +to the Company’s performance in 2003 and 2004. This cost of living increase was intended to match +similar increases by the Company’s competitors and reflects the Compensation Committee’s commitment +to maintaining competitive salary levels within the Company and comparable industry groups. +Cash Bonuses. The Compensation Committee administers the Bonus Plan whereby various factors +are used to tie officers’ and certain key employees’ compensation to the Company’s performance. +Bonuses have not been paid in all years. If paid, bonuses are typically awarded in March based on +accomplishment of the goals set and the other factors discussed below since March of the preceding +year. With respect to the bonuses paid in March 2004, the Compensation Committee evaluated the +annual financial and operating goals related to production volumes, cash flow before preferred +stock dividends, net income before preferred stock dividends, reserve additions, and finding costs +as the initial basis for determining target level bonuses. For the bonuses paid in March 2004, the +Compensation Committee also incorporated other factors occurring since March 2002, the last date +bonuses were paid, into the process. The factors considered were the successful completion of +equity security offerings, debt reduction, debt restructuring, new oil and gas prospect generation, +reserve replacement, increases in production volumes and other significant operational aspects of +the Company. +Long-Term Incentives. Long-term incentive compensation provides a reward for business success +in future years and, being based on performance, is linked to shareholders’ interests. The +Company’s long-term incentives are granted periodically to promote alignment of officer interests +with that of shareholders. This type of award could consist of performance stock and/or stock +options. Each year, the Committee determines the amount and proportion of each type of long-term +incentive for each director, officer and key employee. +The Company relies upon stock options and awards of restricted stock to compensate directors, +executive officers and key employees. The Compensation Committee generally subjects option grants +to a vesting schedule and establishes the exercise price as the fair market value (based on trading +on the New York Stock Exchange) of the Common Stock on the date of grant. Performance stock awards +are also subject to a vesting schedule. The Compensation Committee believes that these terms align +the interests of the Company’s executives with those of its Shareholders. +To determine the timing and amount of stock-based awards, the Compensation Committee considers +the factors set forth under “Base Compensation” above as well as the employee’s ability to +influence the Company’s future performance. The Compensation Committee also takes into account the +number of outstanding and unvested options and performance shares held by an executive officer as +well as +20 +Table of Contents +the size of previous awards to such executive officer. As a result of the Company’s +overall success and the contributions of the directors, executive officers and key employees, the +Company awarded a total of 430,000 shares of restricted stock during 2004. Also in 2004, recurring +option grants to non-employee directors totaled 25,000 shares. +Compensation of the Chief Executive Officer +The Compensation Committee reviews the CEO’s salary and total compensation package annually. +This review process encompasses a number of factors, both quantitative and qualitative. Some of +the factors considered are as follows: +• +His continued quest to increase value to the shareholders, +• +His greater policy and decision making authority, +• +His ability to attract and maintain key employees, +• +His ability to create an atmosphere of teamwork, fairness and motivation to other employees, +• +The Company’s past financial and operating results, +• +His leadership experience and individual achievements during his tenure, +• +His higher level of responsibility with respect to the strategic short-term and +long-term direction of the Company, and +• +The total compensation package of those similarly situated and in comparable, peer +group companies in the oil and gas exploration and production industry. +Although the Committee does not assign any pre-determined weight to any specific factor, the +Committee considers all of them relevant to the past and future success of the Company. Therefore, +in June 2004, his base salary was increased to $400,000 as compared to $291,317 for the previous +year. In particular, the Compensation Committee considered Mr. Callon’s leadership role in +overseeing the Company’s successful restructuring of the Company’s senior unsecured credit +facility, the closing of the public offering of 3.4 million shares of common stock and the +implementation of an acceptable business plans for 2004 and 2005. Pursuant to the Company’s Bonus +Plan, Mr. Callon also received a $100,000 cash bonus in March 2004 in recognition of his leadership +role in the Company accomplishing the annual operating goals and other significant company +operational accomplishments discussed above under “ ¾ Cash Bonuses.” The Committee also +considered Mr. Callon’s individual efforts in promoting the success of the Company and increased +shareholder value in awarding the bonuses in March 2004. +Robert A. Stanger, Chairman +Richard O. Wilson +John C. Wallace +L. Richard Flury +21 +Table of Contents +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five years ended December +31, 2004, in the cumulative total shareholder return on the Company’s Common Stock against the +cumulative total return for the (i) Core Data Financial Services Industry and Market Index of SIC +Group 121 (the “Core Data Group Index”) consisting of independent oil and gas companies and (ii) +the NYSE Market Index. The comparison of total return on an investment for each of the +periods assumes that $100 was invested on December 31, 1999 in the Company, the Core Data Group +Index and the NYSE Market Index, and that all dividends were reinvested. +COMPARE 5- YEAR CUMULATIVE +TOTAL RETURN +AMONG CALLON PETROLEUM COMPANY +NYSE MARKET INDEX AND COREDATA GROUP INDEX +ASSUMES $100 INVESTED ON +DEC. 31, 1999 +ASSUMES DIVIDEND REINVESTED +FISCAL YEAR ENDING DEC. 31, 2004 +1999 +2000 +2001 +2002 +2003 +2004 +Callon Petroleum Company +$ +100 +$ +113 +$ +43 +$ +23 +$ +70 +$ +98 +Core Data Group Index +$ +100 +$ +152 +$ +109 +$ +101 +$ +132 +$ +185 +NYSE Market Index +$ +100 +$ +102 +$ +93 +$ +76 +$ +99 +$ +111 +22 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Board of Directors has appointed Ernst & Young LLP, independent registered public +accounting firm, for the examination of the accounts and audit of the financial statements of the +Company for the year ending December 31, 2005. At the Annual Meeting, the Board of Directors will +present a proposal to the Shareholders to approve and ratify the engagement of Ernst & Young LLP. +A representative of Ernst & Young LLP will be present at the Annual Meeting and will have the +opportunity to make a statement, if he desires, and to respond to appropriate questions. +Management recommends that the Shareholders approve and ratify the appointment of Ernst & +Young LLP as independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2005. Unless otherwise indicated, all properly executed Proxies received by +management will be voted for such ratification at the Annual Meeting. An adverse vote will be +considered as a direction to the Audit Committee of the Board of Directors to select another +registered public accounting firm in the following year. +SHAREHOLDERS’ PROPOSALS +FOR 2006 ANNUAL MEETING +Shareholders who desire to present proposals at the 2006 Annual Meeting of Shareholders +and to have proposals included in the Company’s proxy materials must submit their proposals to the +Company at its principal executive offices not later than December 14, 2005. If the date of the +2006 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2005 +Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before +the Company begins to print and mail its proxy materials for its 2006 Annual Meeting of +Shareholders. +The person named in the Company’s form of proxy for the 2005 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by February 27, 2006, unless the Company changes the date of its +2006 Annual Meeting of Shareholders by more than 30 days from the date of the 2005 Annual Meeting +of Shareholders, in which case such persons will be able to exercise discretionary authority if +notice of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2006 Annual Meeting of Shareholders. +If the date of the 2006 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2005 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform Shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that Shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +23 +Table of Contents +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the +2004 Annual Report and the Company’s Report on Form 10-K. Printed copies of the Company’s Annual +Report, the Company’s Annual Report on Form 10-K , Corporate Governance Principles, Code of Business +Conduct and Ethics and Charters of Board Committees are available to Shareholders upon written +request to the Investor Relations Department, Callon Petroleum Company, 200 North Canal Street, +Natchez, Mississippi 39120. You may also view the documents on the Company’s website. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the Annual Meeting +other than those described above. If other business comes before the Annual Meeting, the persons +named on the Proxy will vote the Proxy in accordance with what they consider to be in the best +interests of the Company and its Shareholders. +By order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +April 13, 2005 +24 +Table of Contents +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy Solicited on Behalf of the Board of +Directors of the Company for the Annual Meeting on May 5, 2005 +The undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent +and proxy with full power of substitution in each, to represent and to vote, as designated on the +reverse, all of the shares of Common Stock of Callon Petroleum Company, held of record by the +undersigned on March 25, 2005 at the Annual Meeting of Shareholders to be held in the St. Louis +Room of the Natchez Convention Center, 211 Main Street, Natchez, Mississippi 39120 on May 5, 2005, +and at any adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED +“FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE +SIDE) but you need not mark any boxes if you wish to vote in accordance with the Board of +Directors’ recommendations. The Proxies cannot vote your shares unless you sign and return this +card. +(Continued and to be signed on the reverse side) +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +May 5, 2005 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE þ +1. +Election of Directors: +NOMINEES: +o +FOR ALL NOMINEES +¡ L. +Richard Flury +¡ B.F. Weatherly +¡ Richard +O. Wilson +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +o +FOR ALL EXCEPT +(See instructions below) +INSTRUCTION: +To withhold authority to vote for any +individual nominee(s), mark “FOR ALL EXCEPT” and fill in +the circle next to each nominee you wish to withhold, as +shown here: l +To change the address on your account, please check +the box at right and indicate your new address in +the address space above. Please note that changes +to the registered name(s) on the account may not be +submitted via this method. +o +FOR +AGAINST +ABSTAIN +2. +To ratify the appointment of Ernst & Young LLP as Company’s +Independent Registered Public Accounting firm. +o +o +o +3. +In their discretion, the Proxies are authorized to vote upon +such other business as may properly come before the meeting or +any adjournments thereof. +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER +DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED +“FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE +STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +Signature of Shareholder +Date: +Signature of Shareholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held +jointly, each holder should sign. When signing as executor, administrator, attorney, trustee +or guardian, please give full title as such. If the signer is a corporation, please sign full +corporate name by duly authorized officer, giving full title as such. If signer is a +partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-05-003657/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-05-003657/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000950129-06-004025/proxy.txt b/raw/proxies/0000928022/0000950129-06-004025/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3d577ab9d507a1ce683834dd1e5eb7af5eb67a70 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-06-004025/proxy.txt @@ -0,0 +1,3584 @@ +DEF 14A +1 +h34848def14a.htm +CALLON PETROLEUM COMPANY +def14a +Table of Contents +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +January 31, 2008 +Estimated average burden +hours per +response +14.25 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant +þ +Filed by a Party other than the Registrant +o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +CALLON PETROLEUM +COMPANY +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +þ No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +SEC 1913 (02-02) +Persons who are to respond to the collection of information +contained in this form are not required to respond unless the form displays a currently valid +OMB control number. +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +PROXY STATEMENT +ANNUAL MEETING OF SHAREHOLDERS +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +BENEFICIAL OWNERSHIP OF SECURITIES +PROPOSAL I +EXECUTIVE COMPENSATION +AGGREGATED OPTION EXERCISES IN 2005 AND OPTION VALUES AT DECEMBER 31, 2005 +PERFORMANCE GRAPH +PROPOSAL II +PROPOSAL III +SHAREHOLDERS’ PROPOSALS FOR 2007 ANNUAL MEETING +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 4, 2006 +To the Shareholders of +Callon +Petroleum Company (the “Company”): +Notice is hereby given and you are cordially invited to attend the Annual Meeting of +Shareholders (the “Annual Meeting”) of the Company which will be held in Natchez, Mississippi, on +Thursday, May 4, 2006, at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, 211 +Main Street, Natchez, Mississippi 39120, for the following purposes: +1. +To elect two Class III directors to hold office until the 2009 Annual Meeting +of Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2006; +3. +To approve and ratify the Callon Petroleum Company 2006 Stock Incentive Plan; +and +4. +To transact such other business as may properly come before the Annual Meeting +or any adjournment or adjournments thereof. +The specific details of the matters proposed to be put before the Annual Meeting are set forth +in the proxy statement accompanying and forming part of this notice. +Only shareholders of record at the close of business on March 24, 2006 will be entitled to +notice of, and to vote at, the Annual Meeting, or any adjournment or postponements thereof. Each +common share is entitled to one vote per share. Whether or not you plan to attend the Annual +Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed +envelope enclosed. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 14, 2006 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU CANNOT ATTEND, PLEASE SIGN +AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR +YOUR USE. NO POSTAGE IS REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. +STOCKHOLDERS WHO ATTEND THE 2006 ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON. +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 4, 2006 +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation of proxies on +behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation (the +“Company”), from holders (“Shareholders”) of the common stock, $.01 par value per share (“Common +Stock”), of the Company for use at the Annual Meeting of Shareholders of the Company to be held on +Thursday, May 4, 2006, at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, 211 +Main Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof (such +meeting or adjournment thereof is referred to herein as the “Annual Meeting”), for the purpose of +considering and voting upon the matters set forth in the accompanying Notice of Annual Meeting of +Shareholders (“Notice”). +A proxy in the form accompanying this Proxy Statement (each a “Proxy”), when properly executed +and returned, will be voted in accordance with the directions specified on the Proxy, and otherwise +in accordance with the judgment of the persons designated therein as proxies. Any Proxy which does +not withhold authority to vote or on which no other instructions are given will be voted for the +election of the nominees named herein to the Board of Directors and in favor of the other proposals +set forth in the Notice. Any Proxy may be revoked at any time before it is exercised by +delivering, to the Corporate Secretary of the Company, written notice of revocation or a duly +executed Proxy bearing a later date, or by voting in person at the Annual Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are being mailed to +Shareholders on or about April 14, 2006. The Annual Report for the Company’s fiscal year ended +December 31, 2005 is also being mailed to Shareholders contemporaneously with this Proxy Statement, +although the Annual Report does not form a part of the material for the solicitation of Proxies. +The contents of this proxy statement have been approved by the Board of Directors of the Company. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +Proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of the +Common Stock of the Company. All costs incurred in the solicitation of Proxies will be borne by +the Company. +Matters to be Considered at the Annual Meeting +Unless otherwise indicated, Proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of two Class III director +nominees to the Board of Directors named herein, (2) the ratification of the appointment of Ernst & +Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2006, and (3) the approval and ratification of the Callon Petroleum Company 2006 Stock +Incentive Plan (“2006 Stock Incentive Plan.”) +The Board of Directors is not presently aware of any other proposals that may be brought +before the Annual Meeting. In the event other proposals are brought before the Annual Meeting, the +persons +named in the enclosed Proxy will vote in accordance with what they consider to be in the best +interests of the Company and its Shareholders. +1 +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 24, 2006 as the record +date (the “Record Date”) for the determination of Shareholders entitled to notice of, and to vote +at, the Annual Meeting. A complete list of all Shareholders entitled to vote at the Annual Meeting +will be open for examination by any Shareholder during normal business hours for a period of ten +days prior to the Annual Meeting at the offices of the Company, 200 North Canal Street, Natchez, +Mississippi 39120. Such list will also be available at the Annual Meeting and may be inspected by +any Shareholder who is present. On the Record Date, the Company’s outstanding voting securities +consisted of 19,516,239 shares of Common Stock. Holders of Common Stock will be entitled to one +vote per share of Common Stock held of record on the Record Date for each proposal to be presented +at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued and outstanding on +the Record Date, whether present in person or represented by Proxy, will constitute a quorum for +the transaction of business at the Annual Meeting. For purposes of determining whether a quorum is +present under Delaware law, broker non-votes and abstentions count towards the establishment of a +quorum. The election of directors requires the favorable vote of the holders of a plurality of +shares of Common Stock present and voting, in person or by Proxy, at the Annual Meeting. +Abstentions and broker non-votes have no effect on determinations of plurality except to the extent +that they affect the total votes received by any particular candidate. A majority of the votes +represented by the Shareholders present at the Annual Meeting, in person or by proxy, is necessary +for approval of the 2006 Stock Incentive Plan and ratification of the appointment of the Company’s +independent registered public accounting firm. Abstaining shares will be considered present at the +Annual Meeting for these matters so that the effect of abstentions will be the equivalent of a “no” +vote. With respect to broker non-votes, the shares will not be considered present at the Annual +Meeting for these matters so that broker non-votes will have the practical effect of reducing the +number of affirmative votes required to achieve a majority vote by reducing the total number of +shares from which the majority is calculated. A broker “non-vote” occurs when a nominee holding +shares for a beneficial owner does not vote on a particular proposal because the nominee does not +have discretionary voting power with respect to that item and the broker has not received voting +instructions from the beneficial owner. Votes cast at the meeting will be counted by the inspector +of election. +2 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the Record Date, certain information with respect to the +ownership of shares of Common Stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding Common Stock, (ii) each director, (iii) each +nominee for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of Common Stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +Record Date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. +Name and Address of +Common Stock (a) +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +560,464 +(b) +2.84 +% +L. Richard Flury +10,000 +(c) +* +John C. Wallace +144,060 +(d) +* +B. F. Weatherly +89,481 +(e) +* +Richard O. Wilson +147,703 +(f) +* +Named Executive Officers: +* +Stephen F. Woodcock +102,587 +(g) +* +Thomas E. Schwager +1,856 +(h) +* +Rodger W. Smith +39,126 +(i) +* +H. Clark Smith +47,518 +(j) +* +Directors and Executive Officers: +As a Group (10 persons) +1,198,027 +(k) +5.94 +% +Certain Beneficial Owners: +Wellington Management Company, LLP +1,391,000 +(l) +7.13 +% +75 State Street +Boston, MA 02109 +Franklin Resources, Inc. +1,537,500 +(m) +7.88 +% +One Franklin Parkway +San Mateo, CA 94403 +Dimensional Fund Advisors Inc. +1,634,900 +(n) +8.38 +% +1299 Ocean Avenue, 11 th Floor +Santa Monica, CA 90401 +Barclays Global Investors, NA +1,377,916 +(o) +7.06 +% +45 Fremont Street +San Francisco, CA 94105 +Kennedy Capital Management, Inc. +1,011,000 +(p) +5.18 +% +10829 Olive Blvd. +St. Louis, MO 63141 +* +Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the following table may be +deemed to have sole voting and dispositive power with respect to such shares. Beneficial +ownership does not include the unvested portion of the 2004 restricted stock awards due to +lack of voting and disposition power. Percentage ownership of a holder or class of holders +is calculated by dividing (i) the number of shares of Common Stock outstanding attributed +to such holder or class of holders plus the total number of shares of Common Stock +underlying options exercisable within sixty days of March 24, 2006, by (ii) the total +number of shares of Common Stock outstanding plus the total number of shares of Common +Stock underlying options exercisable within sixty days of March 24, 2006, but not Common +Stock underlying such securities held by any other person. +b) +Of the 560,464 shares beneficially owned by Fred L. Callon, 255,720 shares are owned +directly by him; 92,170 shares are held by him as custodian for certain minor Callon family +members; 11,199 shares are owned within the Company’s Employee Savings and Protection Plan; +and 201,375 shares are subject to options under the 1996 Plan exercisable within 60 days. +Shares indicated as owned by Mr. Callon do not include 24,904 shares of Common Stock owned +by his wife over which he disclaims beneficial ownership and 34,400 shares of unvested restricted +stock. +3 +Table of Contents +c) +Of the 10,000 shares beneficially owned by L. Richard Flury, 5,000 shares are owned +directly by him and 5,000 shares are subject to options under the 1996 Plan exercisable +within 60 days. Shares indicated as owned by Mr. Flury do not include 20,000 shares of +unvested restricted stock. +d) +Of the 144,060 shares beneficially owned by John C. Wallace, 59,060 shares are owned +directly by him; 15,000 shares are subject to options under the 1994 Plan exercisable +within 60 days; 65,000 shares are subject to options under the 1996 Plan exercisable within +60 days; and 5,000 shares are subject to options under the 2002 Plan exercisable within 60 +days. Shares indicated as owned by Mr. Wallace do not include 20,000 shares of unvested +restricted stock. +e) +Of the 89,481 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned +within his personal IRA account; 2,193 shares are held in joint tenancy with his wife; +15,000 shares are subject to options under the 1994 Plan exercisable within 60 days; 65,000 +shares are subject to options under the 1996 Plan exercisable within 60 days; and 5,000 +shares are subject to options under the 2002 Plan exercisable within 60 days. Shares +indicated as owned by Mr. Weatherly do not include 20,000 shares of unvested restricted +stock. +f) +Of the 147,703 shares beneficially owned by Richard O. Wilson, 15,000 shares are +subject to options under the 1994 Plan exercisable within 60 days; 65,000 shares are +subject to options under the 1996 Plan exercisable within 60 days; 5,000 shares are subject +to options under the 2002 Plan exercisable within 60 days; 55,884 shares are held in a +family limited partnership; and 6,819 shares are held in a Trust account. Shares indicated +as owned by Mr. Wilson do not include 20,000 shares of unvested restricted stock. +g) +Of the 102,587 shares beneficially owned by Stephen F. Woodcock, 4,836 are owned +directly by him; 7,001 shares are owned within the Company’s Employee Savings and +Protection Plan; 69,000 shares are subject to options under the 1996 Plan exercisable +within 60 days; and 21,750 shares are subject to options under the 2002 Plan exercisable +within 60 days. Shares indicated as owned by Mr. Woodcock do not include 14,800 shares of +unvested restricted stock. +h) +Of the 1,856 shares beneficially owned by Thomas E. Schwager, 1,651 are owned directly +by him; and 205 shares are owned within the Company’s Employee Savings and Protection Plan. +Shares indicated as owned by Mr. Schwager do not include 14,000 shares of unvested +restricted stock. +i) +Of the 39,126 shares beneficially owned by Rodger W. Smith, 1,463 shares are owned +directly by him; 6,980 shares are owned within the Company’s Employee Savings and +Protection Plan; 28,000 shares are subject to options under the 1996 Plan exercisable +within 60 days; and 2,683 shares are subject to options under the 2002 Plan exercisable +within 60 days. Shares indicated as owned by Mr. Smith do not include 10,000 shares of +unvested restricted stock. +j) +Of the 47,518 shares beneficially owned by H. Clark Smith, 15,704 shares are owned +directly by him; 4,764 shares are owned within the Company’s Employee Savings and +Protection Plan; 7,000 shares are subject to options under the 1994 Plan exercisable within +60 days; 12,000 shares are subject to options under the 1996 Plan exercisable within 60 +days; and 8,050 shares are subject to options under the 2002 Plan exercisable within 60 +days. Shares indicated as owned by Mr. Smith do not include 8,800 shares of unvested +restricted stock. +k) +Includes 59,000 shares subject to options under the 1994 Plan exercisable within 60 +days; 529,925 shares subject to options under the 1996 Plan exercisable within 60 days; +53,483 shares are subject to options under the 2002 Plan exercisable within 60 days; and +34,254 shares are owned within the Company’s Employee Savings and Protection Plan. Shares +indicated as owned do not include 170,800 shares of unvested restricted stock. +l) +Information is based upon a Schedule 13G/A filed with the Commission on February 14, +2006 by Wellington Management Company, LLP (“Wellington”). In this Schedule 13G/A, +Wellington represents that it has shared voting power with respect to 782,800 shares and +shared dispositive power with respect to 1,391,000 shares of Common Stock. +m) +Information is based upon a Schedule 13G/A filed with the Commission on February 13, +2006 by Franklin Resources, Inc. (parent holding company), Charles B. Johnson and Rupert H. +Johnson, Jr. (principal shareholders of parent holding company), and Franklin Advisers, +Inc. (investment adviser), (collectively “Franklin Advisers”). In this Schedule 13G, +Franklin Advisers, Inc. +4 +Table of Contents +represents that it has sole voting power and sole dispositive power +with respect to 1,537,500 shares of Common Stock issuable upon exercise of warrants. +n) +Information is based upon a Schedule 13G/A filed with the Commission on February 6, +2006 by Dimensional Fund Advisors Inc. (“Dimensional”). In this Schedule 13G, Dimensional +represents that it has sole voting power and sole dispositive power with respect to +1,634,900 shares of Common Stock. +o) +Information is based upon a Schedule 13G filed with the Commission on January 26, 2006 +by Barclays Global Investors, NA., Barclays Global Fund Advisors, Barclays Global +Investors, LTD., and Barclays Global Investors Japan Trust and Banking Company Limited +(collectively “Barclays”). In this Schedule 13G, Barclays represents that it has sole +voting power with respect to 1,257,687 shares of common stock and sole dispositive power +with respect to 1,377,916 shares of Common Stock. +p) +Information is based upon a Schedule 13G filed with the Commission on February 14, 2006 +by Kennedy Capital Management, Inc. (“Kennedy”). In this Schedule 13G, Kennedy represents +that it has sole voting power with respect to 981,400 shares of common stock and sole +dispositive power with respect to 1,011,000 shares of Common Stock. +With respect to shares issuable upon exercise of stock options, the named individuals +acquire investment power for these shares immediately upon a “change of control” as defined in +the applicable plan. +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +The Company’s Certificate of Incorporation provides for a classified Board of Directors. The +Board of Directors is divided into three classes of nearly equal size, designated as Class I +(currently with one director), Class II (currently with two directors) and Class III (currently +with two directors). One class of directors is elected at each annual meeting of Shareholders to +serve for a three-year term. +The terms of the two Class III directors, Messrs. Fred L. Callon and L. Richard Flury, will +expire on the date of the Annual Meeting. +Messrs. Fred L. Callon and L. Richard Flury have been nominated to serve as Class III +directors until the 2009 Annual Meeting, or until their respective successors have been duly +elected and qualified. Each of the persons described in the preceding sentence (the “Nominees”) +was nominated by the Board of Directors upon the recommendation of the Nominating and Corporate +Governance Committee. +It is intended that all shares of Common Stock represented by the Proxies will be voted “FOR” +the election of the Nominees, except where authority to vote in the election of directors has been +withheld. Should the Nominees become unable or unwilling to serve as directors at the time of the +Annual Meeting, the person or persons exercising the Proxies will vote for the election of +substitute Nominees designated by the Board of Directors, or the Board of Directors may choose to +reduce the number of members of the Board of Directors to be elected at the Annual Meeting in order +to eliminate the vacancy. The Nominees have consented to be nominated and have expressed their +intention to serve if elected. The Board of Directors has no reason to believe that the Nominees +will be unable or unwilling to serve if elected. Only the Nominees or substitute Nominees +designated by the Board of Directors will be eligible to stand for election as directors at the +Annual Meeting. See “Shareholders’ Proposals for 2007 Annual Meeting.” +The Board of Directors recommends that you vote “FOR” the election of Messrs. Callon and +Flury . +5 +Table of Contents +Directors and Executive Officers +The following table provides information with respect to the Nominees, all current directors +whose terms will continue after the Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Company Position +Name +Age +Since +Present Company Position +Class I Directors: +(Term Expires in 2007) +John C. Wallace +67 +1994 +Director +Class II Directors: +(Term Expires in 2008) +B. F. Weatherly +61 +1994 +Director +Richard O. Wilson +76 +1995 +Director +Class III Directors: +(Term Expires in 2006) +Fred L. Callon +56 +1994 +Director, Chairman of the Board, +President, Chief Executive +Officer, and Nominee +L. Richard Flury +58 +2004 +Director, Nominee +Other Executive Officers: +Robert A. Mayfield +55 +2000 +Corporate Secretary +Thomas E. Schwager +55 +1997 +Vice President +H. Clark Smith +53 +2001 +Corporate Information Officer +Rodger W. Smith +56 +1999 +Corporate Controller and Treasurer +Stephen F. Woodcock +54 +1997 +Vice President +The following is a brief description of the background and principal occupation of each +director (including each Nominee) and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is the nephew of the late John S. Callon, the +Company’s founder. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger with BP in 1998, he served in various executive positions and was Chief Executive for +Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time +of the merger. Currently, he is a member of the Board of Directors of Questar Corporation, a +publicly-traded oil and gas company, and the Chicago Bridge and Iron Company, N.V., a +publicly-traded engineering, procurement and construction company, and serves as a Trustee of +Thunderbird — The Garvin School of International Management. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in +1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +6 +Table of Contents +Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and +Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering +positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. +Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his +B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is Corporate Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager — +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager — Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is the Corporate Controller and Treasurer for the Company and Callon +Petroleum Operating Company. Mr. Smith was appointed Corporate Controller in 2004. Prior to being +appointed Treasurer in April 1999, he had served as Manager of Budget and Analysis since 1994. +Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed +by the Company and its predecessors since 1983. Prior to his employment with the Company, he was +employed by International Paper Company as a plant controller. He received his B.S. degree in +accounting from the University of Southern Mississippi in 1973. +John C. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in +Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. For over +twenty years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that he +joined in 1968 and which specializes in the business of shipping, renewable energy and property +development. He received his B. Comm degree majoring in Accounting and Economics from McGill +University in 1959. In November 2004 he successfully completed the International Uniform Certified +Public Accountant Qualification Examination (“IQEX”) and has received a CPA Certificate from the +State of Illinois. Mr. Wallace is a director of Fred. Olsen Energy ASA, a publicly-held Norwegian +company engaged in the offshore energy service industry; and Ganger Rolf ASA and Bonheur ASA, Oslo, +both publicly-traded shipping companies. +B. F. Weatherly has been a principal of CapSource Financial, Houston, Texas, an +investment-banking firm, since 1989. He is also a general partner of CapSource Fund, L.P., +Jackson, Mississippi, an investment fund, and has held that position since 1997. Mr. Weatherly +received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly +has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President +of Brown & Root, Inc. and Weatherford International, Inc. B. F. Weatherly and the late John S. +Weatherly were brothers. +Richard O. Wilson is an Offshore Consultant. In his 50 years of working in offshore drilling +and construction, he spent two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group +Vice President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, +Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of +Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In +2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s +degree in geophysics from Oregon State University in 1975. +All officers and directors (including the Nominees) of the Company are United States citizens, +except Mr. Wallace, who is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian +citizenship. +7 +Table of Contents +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission initial reports of +ownership and reports of changes in ownership of Common Stock and other equity securities of the +Company. Officers, directors and greater than ten percent shareholders are required by the +Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all +Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2005, and written representations from all of the +Company’s officers and directors, to the Company’s knowledge, all of the Company’s +officers, directors and greater than ten percent shareholders have complied with all Section 16(a) +filing requirements for the year ended December 31, 2005. +Information Concerning the Operation of the Board of Directors +The business of the Company is managed under the direction of the Board of Directors. The +Board of Directors meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. The Board of Directors may also hold +special meetings when an important matter requires Board action between regularly scheduled +meetings. +During 2005, the Board of Directors of the Company met formally four times and executed three +Unanimous Written Consents. All of the Company’s directors attended more than 75% of the aggregate +of the total number of board meetings. In addition, the non-employee directors meet in executive +sessions without management following each quarterly board meeting. Richard O. Wilson, chairman of +the Nominating and Corporate Governance Committee for the period prior to August 2005, presided +over all executive sessions. Beginning in August 2005, L. Richard Flury, chairman of the +Nominating and Corporate Governance Committee, presided over all other executive sessions. +Compensation of Non-Employee Directors. Each non-employee director receives an annual +retainer of $40,000 per year with an additional $20,000 per year for the chairman of the Audit +Committee and an additional $10,000 per year to the chairman of the Compensation Committee and the +chairman of the Nominating and Corporate Governance Committee. Each non-employee director is +reimbursed for out-of-pocket expenses incurred to attend Board meetings. On the date he or she is +initially elected or appointed to the Board, each non-employee director receives an automatic grant +of an option to purchase 5,000 shares of Common Stock for an exercise price equal to the fair +market price on the date of grant and for a ten-year term. Thereafter, for each subsequent year in +which the non-employee director serves as a director, he or she is automatically granted an option +to purchase an additional 5,000 shares on the same terms. Periodically, the Compensation Committee +has approved additional option and restricted stock grants to non-employee directors. +Director Independence. It is the policy of the Board of Directors that a majority of the +members of the Board be independent of the Company’s management. The Company’s Corporate +Governance Principles contain the following guidelines to assist the Board in determining director +independence in accordance with the applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $100,000 per year in direct compensation from the Company, other than fees +received in such director’s capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” +Compensation received by an immediate family member for service as a non-executive +employee of the Company need not be considered in determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent;” +8 +Table of Contents +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board committee performing equivalent functions, or, in the absence of +such committee, the board of directors) shall be considered “independent;” +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold; and +• +An “immediate family member” includes a person’s spouse, parents, children, +siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic employees) who shares such person’s +home. When applying the three-year look-back provisions, it does not include +individuals who are no longer immediate family members as a result of legal separation +or divorce, or those who have died or become incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, B.F. Weatherly, +Wallace and Wilson do not have any material relationships with the Company that may interfere with +the exercise of their independence from management and the Company and are independent directors +under applicable New York Stock Exchange and SEC rules. Each of these directors also meets the +standards for independence contained in the Company’s Corporate Governance Principles as described +above. +Corporate Governance Principles . The Company believes that good corporate governance is +important to ensure that Callon Petroleum Company is managed for the long-term benefit of its +shareholders. Available on the Company website, www.callon.com, under the section “Governance”, +are copies of the Company’s: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter; +• +Compensation Committee Charter; and +• +Nominating and Corporate Governance Committee Charter. +Copies of these documents are also available in print, free of charge, to any shareholder upon +request to the Company’s Corporate Secretary. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s +website. +Communication with the Board of Directors. In order to provide the Company’s +shareholders and other interested parties with a direct and open line of communication to the Board +of Directors, the Board of Directors has adopted the following procedures for communications to +directors. Callon shareholders and other interested persons may communicate with the Chairman of +the Company’s Audit Committee or with the non-management directors of the Company as a group by +written communications addressed in care of Corporate Secretary, Callon Petroleum Company, 200 +North Canal Street, Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication (a) does not +relate to the business or affairs of the Company or the functioning or constitution of the Board of +Directors or any of its committees; (b) relates to routine or insignificant matters that do not +warrant the attention of +the Board of Directors; (c) is an advertisement or other commercial solicitation or +communication; (d) is frivolous or offensive; or (e) is otherwise not appropriate for delivery to +directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the communication is appropriate. Any such response will be made only in accordance with applicable +law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures +9 +Table of Contents +from time to time and, if appropriate, recommend changes. As of the Record +Date, no communications have been received. +Attendance at Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the annual meeting of shareholders. All directors attended +the 2005 annual meeting of shareholders. +Board Committees. In order to facilitate the various functions of the Board of Directors, the +Board of Directors has created an Audit Committee, a Compensation Committee and a Nominating and +Corporate Governance Committee. +Audit Committee. The principal function of the Audit Committee is to assist the Board of +Directors in the areas of financial reporting and accounting integrity. The Audit Committee +reviews the accounting and auditing procedures and financial reporting practices of the Company and +is responsible for the engagement of, and overseeing all audit work conducted by, the Company’s +independent registered public accounting firm. The Audit Committee is governed by a Charter that +has been approved by the Board of Directors. The Audit Committee meets periodically with the +Company’s management, internal auditor and independent registered public accounting firm to review +the Company’s financial information and systems of internal controls and ensure such parties are +properly discharging their responsibilities. The independent registered public accounting firm +reports directly to the Audit Committee and periodically meets with the Audit Committee without +management representatives present. +The Audit Committee is composed entirely of non-employee members of the Board, each of whom +satisfy the independence requirements for audit committee members under Rule 10A-3 of the +Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New +York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the +audit committee of more than two other public companies. Following the death of his brother, John +S. Weatherly, the former Senior Vice President and Chief Financial Officer of the Company, B. F. +Weatherly was appointed to the Audit Committee in August 2005. The Audit Committee is comprised of +Messrs. Wallace (Chairman), Flury, Weatherly and Wilson. Additionally, the Board of Directors has +determined that Mr. Wallace has the accounting or financial management expertise to be considered a +“financial expert” as defined and required by the New York Stock Exchange’s rules and by the +Securities Exchange Act of 1934. The Audit Committee’s report on its activities during 2004 and +2005 appears later in this proxy statement under the caption “Audit Committee Report.” +The Audit Committee held six meetings and did not execute any Unanimous Written Consents +during 2005. All members of the Audit Committee attended all the meetings. +Compensation Committee. The purpose of the Compensation Committee is to assist the Board of +Directors in the discharge of its fiduciary responsibilities relating to the fair and competitive +compensation of the Company’s Chief Executive Officer ( " CEO " ) and other executives. In addition, +the Committee administers the Company’s incentive compensation and stock option and other equity +based plans in which the CEO and other executive officers may be participants and recommends to the +Board amendments to such plans or adoption of new plans. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Prior to August 2005, L. Richard Flury served as +chairman of the Compensation Committee. In August 2005, B.F. Weatherly was appointed to the +committee and currently serves as the chairman. Current members are Messrs. Weatherly (chairman), +Flury, Wallace and Wilson. The Compensation Committee held three meetings and executed one +Unanimous Written Consent during 2005. All members of the Compensation Committee attended all the +meetings. +Nominating and Corporate Governance Committee. The purpose of the Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for +election to the Board; +• +recommend to the Board the members and Chairperson for each Board committee; +• +periodically review and assess the Company’s Corporate Governance Principles and +the Company’s Code of Business Conduct and Ethics and make recommendations for changes +thereto to the Board; and +• +oversee the annual self-evaluation of the performance of the Board and the annual +evaluation of the Company’s management. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Prior to August 2005, Richard O. Wilson served as +chairman of the +10 +Table of Contents +Nominating and Corporate Governance Committee. In August 2005, L. Richard Flury +replaced Mr. Wilson as chairman and Mr. B. F. Weatherly was appointed to the Nominating and +Corporate Governance Committee. Current members are Messrs. Flury (Chairman), Wallace, B.F. +Weatherly, and Wilson. The Nominating and Corporate Governance Committee held three meetings and +executed two Unanimous Written Consents during 2005. All members of the Nominating and Corporate +Governance Committee attended all the meetings. Prior to the formation of this Committee, the +entire Board of Directors performed these functions. +Nominee Qualifications. The Nominating and Corporate Governance Committee has established +certain criteria it considers as guidelines in considering nominations to the Company’s Board of +Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, +diversity of background and experience, absence of potential conflicts of interest with +the Company or its operations, and the availability and willingness to devote +sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer +of a publicly held company; +• +experience in the Company’s industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company’s operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the +Board of Directors may consider other qualifications and attributes which they believe are +appropriate in evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of +Directors that brings to the Company a variety of perspectives and skills derived from high quality +business and professional experience. In order to ensure that the Board consists of members with a +variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set +any minimum qualifications and also considers candidates with appropriate non-business backgrounds. +Other than ensuring that at least one member of the Board is a financial expert and a majority of +the Board members meet all applicable independence requirements, the Committee does not have any +specific skills that it believes are necessary for any individual director to possess. Instead, +the Committee evaluates potential nominees based on the contribution such nominee’s background and +skills could have upon the overall functioning of the Board. In accordance with the Company’s +by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery +of written notice to the Company of such nomination, stating the name and address of the nominee +and describing his qualifications. Such notice shall be sent by certified mail or delivered to +the principal office of the Company to the attention of the Board of Directors, with a copy to the +President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. In making its nominations, the Nominating and Corporate Governance Committee identifies +nominees by first evaluating the current members of the Board willing to continue their service. +Current members with qualifications and skills that are consistent with the Committee’s criteria +for Board service are re-nominated. As to new candidates, the committee will generally poll the +Board members and members of management for recommendations. The committee may also review the +composition and qualification of the boards of directors of the Company’s competitors, and may +seek input from industry experts or analysts. The committee reviews the qualifications, experience +and background of the candidates. Final candidates are interviewed by the independent directors +and executive management. In making its determinations, the committee evaluates each individual in +the context of the Board as whole, with the objective of assembling a group that can best represent +shareholder interests through the exercise of sound judgment. After review and deliberation of all +feedback and data, the committee makes its recommendation to the Board of Directors. The committee +may in the future choose to engage third-party search firms in situations where particular +qualifications are required or where existing contacts are not sufficient to identify an +appropriate candidate. +Relationship with Independent Registered Public Accounting Firm +Management is responsible for establishing and maintaining internal controls over financial +reporting and for assessing the effectiveness of those controls. The independent registered public +accounting firm is +11 +Table of Contents +responsible for performing independent audits of the Company’s consolidated +financial statements and internal controls over financial reporting in accordance with the +standards of the Public Company Accounting Oversight Board (United States) and issuing reports +thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & +Young LLP, an independent registered public accounting firm, served as the Company’s independent +registered public accounting firm during 2005 and was appointed by the Audit Committee to serve in +that capacity for 2006. +Audit Fees Paid to Independent Registered Public Accounting Firm. Fees paid for professional +services rendered related to the year ended December 31, 2004 by Ernst & Young LLP for the annual +audit and quarterly reviews (including the requirements under Section 404 of the Sarbanes-Oxley +Act) were $289,384, including out-of-pocket expenses. Fees paid for professional services rendered +related to the year ended December 31, 2005 by Ernst & Young LLP for the annual audit and quarterly +reviews (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $304,916, +including out-of-pocket expenses. The Audit Committee has concluded that providing the +tax-related services mentioned below is compatible with maintaining the principal registered public +accounting firm’s independence. +Audit-related Fees . There were no audit-related fees paid in 2004 or 2005. +Tax Fees. Professional services billed by Ernest & Young LLP for the review of the +federal tax return, federal, state and local tax planning and advice, quarterly estimated tax +payments, and assistance/analysis of tax attributes for 2004 were $8,200. Professional services +billed for the review of the federal tax return, tax advice and tax planning services for 2005 +totaled $18,040. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2004 or 2005. +The Audit Committee pre-approves all audit services and non-audit services (including the fees +and terms thereof) to be performed for the Company by its independent registered public accounting +firm, as required by applicable law or listing standards and subject to the terms of the audit and +non-audit services pre-approval policy adopted by the Audit Committee. The Committee may delegate +authority to one or more of its members when appropriate, including the authority to grant +pre-approvals of audit and permitted non-audit services, provided that decisions of any such member +to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented +to the full Committee at its next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s +audited financial statements at, and for the year ended, December 31, 2005 with management and the +Company’s independent registered public accounting firm and recommended to the Company’s Board of +Directors that the Company’s audited financial statements be included in the Company’s Annual +Report on Form 10-K for the year ended December 31, 2005. This recommendation was based on: +• +the Audit Committee’s review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company’s independent registered public accounting firm, Ernst & +Young LLP, of the matters required to be discussed by auditing standards generally +accepted in the United States of America, including the matters required to be +discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by +Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); +• +discussions with Ernst & Young LLP regarding its independence from the Company and +its management; +• +Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the +financial position of the Company and its consolidated subsidiaries and the results of +their operations and cash flows for the periods presented in conformity with accounting +principles generally accepted in the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +B. F. Weatherly +Richard O. Wilson +12 +Table of Contents +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth information with respect to the Chief Executive Officer of the +Company and the four most highly compensated executive officers of the Company serving in such +positions as of December 31, 2005 and one additional officer (“Named Executive Officers”) for the +years ended December 31, 2005, 2004 and 2003. +Annual Compensation +Long-Term Compensation Awards +Other +Annual +Securities +All Other +Compen- +Restricted +Underlying +Compen- +Salary +Bonus +sation +Stock Award(s) +Options +sation +Year +($) +($)(a) +($)(b) +($)(c) +(#)(d) +($)(e) +Fred L. Callon +2005 +414,000 +230,000 +— +— +— +37,678 +Chairman and Chief +2004 +344,405 +100,000 +— +594,260 +— +30,718 +Executive Officer +2003 +285,605 +— +— +— +— +27,052 +John S. Weatherly +2005 +99,519 +125,000 +— +— +— +11,172 +Senior Vice President +2004 +241,331 +300,000 +— +414,600 +— +25,158 +and Chief Financial +2003 +228,484 +— +— +— +— +23,566 +Officer (f) +Stephen F. Woodcock +2005 +188,555 +75,000 +— +— +— +21,621 +Vice President +2004 +182,178 +87,500 +— +255,670 +— +20,008 +2003 +178,606 +— +— +— +— +20,263 +Thomas E. Schwager +2005 +177,463 +75,000 +— +— +— +20,349 +Vice President +2004 +171,462 +87,500 +— +241,850 +— +18,830 +2003 +168,100 +— +— +— +— +19,329 +Rodger W. Smith +2005 +139,725 +47,000 +— +— +— +16,031 +Corporate Controller +2004 +128,984 +70,000 +— +172,750 +— +14,122 +and Treasurer +2003 +120,822 +— +— +— +— +13,934 +H. Clark Smith +2005 +130,802 +40,000 +— +— +— +15,025 +Corporate +2004 +123,238 +50,000 +— +152,020 +— +13,547 +Information Officer +2003 +120,822 +— +— +— +— +14,067 +(a) +The bonuses listed for 2004 were paid in March 2004 and earned since the last bonus payment +date in 2002. The bonuses listed for 2005 were paid in March 2005 and earned since the last +bonus payment date in 2004. See “Report on Executive Compensation.” These amounts include any +amounts that were deferred at the election of the Named Executive Officers. +(b) +None of the Named Executive Officers received perquisites or other personal benefits, +securities or property, the aggregate annual amount of which exceeded the lesser of $50,000 or +10% of the total of annual salary and bonus reported for such officer. +(c) +On July 14, 2004, the following shares of restricted stock were awarded under the 1994 Plan: +Fred L. Callon, 43,000 shares; John S. Weatherly, 30,000 shares; Stephen F. Woodcock, 18,500 +shares; Thomas E. Schwager, 17,500 shares; Rodger W. Smith, 12,500 shares; H. Clark Smith, +11,000 shares. The restricted stock awards were subject to a 20% per annum vesting schedule +beginning on July 14, 2005. On July 14, 2004 the closing price of the Company’s Common Stock +on the New York Stock Exchange was $13.82 per share. Unvested portions of these awards are not +included in the Beneficial Ownership table due to a lack of voting and dispositive power. As +of December 31, 2005 and 2004, Mr. Fred Callon held 34,400 and 43,000 shares, respectively, of +unvested restricted stock with an aggregate market value of $607,160 and $621,780, +respectively, Mr. Woodcock held 14,800 and 18,500 shares, respectively, of unvested restricted +stock with an aggregate market value of $261,220 and $267,510, Mr. Schwager held 14,000 and +17,500 shares, respectively, of unvested restricted stock with an aggregate market value of +$247,100 and $253,050, Mr. Rodger Smith held +13 +Table of Contents +10,000 and 12,500 shares, respectively, of +unvested restricted stock with an aggregate market value of $176,500 and $180,750, Mr. Clark +Smith held 8,800 and 11,000 shares, respectively, of unvested restricted stock with an +aggregate market value of $155,320 and $159,060. At December 31, 2004 Mr. Weatherly held +30,000 shares of unvested restricted stock valued at $433,800. On the date of his death, May +12, 2005, these shares became 100% vested and were valued at $419,400 or $13.98 per share. +The value of the unvested restricted stock held by the Named Executive Officers as of December +31, 2005 and 2004 is based on the closing price of the Company’s Common Stock on the New York +Stock Exchange on such date, which was $17.65 and $14.46 per share, respectively. Any +dividends paid by the Company will be payable on outstanding shares of restricted stock. +(d) +No options were issued to the Names Executive Officers in 2005, 2004, and 2003. +(e) +Amounts reflect the Company’s contribution in 2005, 2004, and 2003 of $21,000, $26,700 and +$22,197 to Fred L. Callon’s 401(k) savings plan and payment of $16,678, $4,018, and $4,855 for +various insurance premiums; $9,952, $22,017, and $20,076 to Mr. Weatherly’s 401(k) savings +plan and payment of $1,220, $3,141, and $3,490 for various insurance premiums; $18,855, +$18,218, and $17,680 to Mr. Woodcock’s 401(k) savings plan and payments of $2,766, $1,790, and +$2,583 for various insurance premiums; $17,747, $17,146, and $16,852 to Mr. Schwager’s 401(k) +savings plan and payment of $2,602, $1,684, and $2,477 for various insurance premiums; +$13,972, $12,899 and $11,936 to Mr. Rodger Smith’s 401(k) savings plan and payment of $2,059, +$1,223, and $1,998 for various insurance premiums; $13,080, $12,324 and $12,069 to Mr. Clark +Smith’s 401(k) savings plan and payment of $1,945, $1,223, and $1,998 for various insurance +premiums. +(f) +The $99,519 represents salary from January 1, 2005 until his death on May 12, 2005. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. Effective January 1, 2002, the Company entered into a +Severance Compensation Agreement (the “Agreement”) with Fred L. Callon and John S. Weatherly +providing for certain benefits to each of them in the event that a “change of control” occurs. +Each Agreement was for a three-year term and automatically extends for successive one-year periods +unless either the Company or the executive notifies the other party prior to such renewal that it +has elected to terminate the Agreement; provided that the term of each Agreement shall be until the +later of two years following the date of a change of control and the satisfaction of all +obligations of the Company under the Agreement. The Agreement terminates upon each executive’s +death, disability termination for cause or voluntary resignation other than for “good reason.” On +May 12, 2005, Mr. Weatherly passed away and his Agreement automatically terminated. Mr. Callon did +not elect to terminate his Agreement prior to January 1, 2006 and as a result, his Agreement was +automatically extended until January 1, 2007. +Pursuant to the Agreement, if Mr. Callon’s employment with the Company is terminated without +cause by the Company or for good reason by the executive within two years following a change of +control by the Company, the executive is entitled to a single lump-sum cash payment in an amount +equal to three times the sum of (a) the annual base salary of such executive in effect prior to +such termination, and (b) the higher of the average bonus earned by the executive during the three +preceding years or the target bonus that the executive is eligible to receive during the year of +termination. If Mr. Callon’s employment is terminated as a result of his death or disability, the +Company is only required to make such payments if the termination occurred within six months of a +change of control. “Good reason” is generally defined in the Agreement as a change in the +executive’s compensation, benefits, position, responsibilities, or location. A “change of control” +is generally defined in the Agreement as (i) any person or group of persons acting in concert shall +have become the beneficial owner of more than 50% of the outstanding common stock of the Company; +(ii) the +stockholders of the Company shall cause a change in the majority of the members of the Board +of Directors within a twelve-month period; or (iii) the Company or its stockholders shall enter +into an agreement to dispose of all or substantially all of the assets or outstanding capital stock +of the Company. +The Agreement also provide that, upon a change of control, all stock options, restricted +stock, stock appreciation rights and other similar rights held by Mr. Callon shall automatically +become fully exercisable notwithstanding any vesting or exercisability provisions. +If any payment to Mr. Callon is subject to any excise tax under Section 4999 of the Internal +Revenue Code of 1986, as amended, a “gross-up” payment will be made to place such executive in the +same net after-tax position as would have been the case if no excise tax had been payable. +14 +Table of Contents +Change in Control . Pursuant to the Callon Petroleum Company 1994 Stock Incentive Plan (the +“1994 Plan”), the Callon Petroleum Company 1996 Stock Incentive Plan (the “1996 Plan”), and the +Callon Petroleum Company 2002 Stock Incentive Plan (the “2002 Plan”), in the case of a merger or +consolidation where the Company is not the surviving entity, or if the Company is about to sell or +otherwise dispose of substantially all of its assets while unvested options remain outstanding, the +Compensation Committee or other plan administrator may, in its discretion and without Shareholder +approval, declare some or all options exercisable in full before or simultaneously with such +merger, consolidation or sale of assets without regard for prescribed waiting periods. +Alternatively, the Compensation Committee or other plan administrator may cancel all outstanding +options provided option holders are given notice and a period of 30 days prior to the merger, +consolidation or sale to exercise the options in full. +Stock-Based Incentive Compensation Plans +The Company currently maintains three Common Stock-based incentive plans for its directors and +employees: the 1994 Plan, the 1996 Plan, and the 2002 Plan. The Company in the past has used and +will continue to use stock options, restricted stock, and performance share grants to attract and +retain key directors and employees in the belief that stock ownership and stock related +compensation devices encourage a continuity of interest between directors, employees and +Shareholders. The Compensation Committee of the Board of Directors administers all three of the +stock incentive plans. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of Common Stock were reserved +for issuance upon the exercise of options or for grants of performance shares. As of March 24, +2006, there were no remaining shares of Common Stock available for grant under the 1994 Plan. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan and granted awards thereunder to various employees. The 1996 Plan was approved by the +Shareholders of the Company on June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of Common +Stock were reserved for issuance upon the exercise of options or for grants of performance shares. +On August 20, 1998, the Board of Directors amended the 1996 Plan, as permitted pursuant to the +terms of the 1996 Plan, to increase the number of shares of Common Stock reserved for issuance by +300,000 shares to 1,200,000 shares. On May 9, 2000, the Shareholders of the Company approved an +increase in the available number of shares of Common Stock reserved for issuance under the 1996 +Plan by 1,000,000 shares to 2,200,000 shares. During 2005, 35,000 options were issued to +non-employee directors and newly hired employees, 179,431 shares were returned to the 1996 Plan as +a result of being withheld to the exercise price and federal and state income taxes associated with +option exercises and/or vesting of restricted stock, and 40,800 shares were returned to the 1996 +Plan as a result of expired options and restricted stock. To date in 2006, 15,000 options were +issued to a newly hired employee and 208,777 shares were returned to the 1996 Plan associated with +an option exercise and the vesting of restricted stock. As of March 24, 2006, there were 880,734 +shares of Common Stock available for grant under the 1996 Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of Common Stock shall be reserved for +issuance upon the exercise of options or for grants of stock options, stock appreciation rights or +units, restricted stock, or performance shares or units. This Plan qualified as a “broadly based” +plan under the provisions of the New York Stock Exchanges’ rules and regulations at the time it was +adopted and therefore did not require Shareholder approval. Because the 2002 Plan is a broadly +based plan, the aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted to all employees +during any three- +year period. During 2005, 30,000 options were issued to newly hired employees. To date in 2006 +there has been no awards. As of March 24, 2006, there were 35,666 shares of Common Stock available +for grant under the 2002 Plan. +Cash Bonus Plan . In 1996, the Board of Directors authorized the establishment of a cash bonus +program (the “Bonus Plan”) to be administered by and in accordance with the procedures determined +by the Compensation Committee. Pursuant to the Bonus Plan, various factors are used to tie +officers’ and certain key employees’ compensation to the Company’s performance. Annual financial +and operating goals are the initial basis for determining target level bonuses. The Compensation +Committee also incorporates other significant operational factors occurring during the period over +which bonuses are being determined into the process. See “Report on Executive Compensation.” +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors authorized the +implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 +Purchase Plan”), which was approved by the Company’s Shareholders on June 19, 1997. The Plan +provides eligible employees of the Company with the opportunity to acquire a proprietary interest +in the Company +15 +Table of Contents +through participation in a payroll deduction-based employee stock purchase plan. An +aggregate of 250,000 shares of Common Stock have been reserved for issuance over the ten-year term +of the 1997 Purchase Plan. The purchase price per share at which Common Stock can be purchased by +the participant on each purchase date within an offering period is equal to eighty-five percent of +the fair market value per share of Common Stock. As of March 24, 2006, all reserved shares have +been issued. +Option Grants in the Last Fiscal Year +During the fiscal year ended December 31, 2005, automatic grants of 5,000 shares to each of +the four non-employee directors and 45,000 options to newly hired employees were awarded. +Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values +The following table sets forth certain information concerning the number and value of +unexercised options to purchase Common Stock by the Named Executive Officers at December 31, 2005. +AGGREGATED OPTION EXERCISES IN 2005 AND OPTION +VALUES AT DECEMBER 31, 2005 +Unexercised Options at December 31, 2005 +Value of +Number of +In-the-Money +Shares +Underlying +Options +Acquired +Value +Securities +Exercisable/ +On Exercise +Realized +Exercisable/ +Unexercisable +Name +(#) +($) +Unexercisable (a) +($)(b) +Fred L. Callon +37,500 +274,875 +238,875 / — +1,911,931 / — +John S. Weatherly +— +— +224,000 / — +1,755,006 / — +Stephen F. Woodcock +17,500 +128,275 +108,250 / — +922,538 / — +Thomas E. Schwager +64,574 +360,015 +— / — +— / — +Rodger W. Smith +13,867 +113,469 +39,183 / — +296,373 / — +H. Clark Smith +8,500 +62,305 +35,550 / — +302,833 / — +(a) +Represents awards granted under the 1994 Plan, the 1996 Plan, and the 2002 Plan. +(b) +On the last trading day in 2005, the closing price of the Common Stock on the New York Stock +Exchange was $17.65 per share. +Long-Term Incentive Plan Awards +Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company does not have a +long-term incentive plan for its employees. +Compensation Committee Interlocks and Insider Participation +The members of the Company’s Compensation Committee are Messrs. B.F. Weatherly (Chairman), L. +Richard Flury, John C. Wallace and Richard O. Wilson, none of whom are or have been officers or +employees of the Company or any of its subsidiaries or had a relationship requiring disclosure +under this caption. +Report on Executive Compensation +The Compensation Committee’s purpose is to review and approve compensation arrangements for +the Company’s Chief Executive Officer, other executive officers and directors. +Executive Compensation Philosophy +The Company’s executive compensation program is primarily designed to attract, develop, +motivate and retain loyal, talented individuals who are willing to align their personal performance +and compensation expectations with the Company’s primary goal to increase shareholder value, on +both a short-term and a long-term basis. The Company recognizes that it must also remain +competitive with the pay of other +16 +Table of Contents +employers who compete with it for talented employees. Therefore, +we compare, or benchmark, our programs with other independent exploration and production companies +of comparable size and stature. We use this peer group data primarily to ensure that the executive +compensation program as a whole is within the range of comparative pay of the peer group companies. +While this research provides guidance, the program also allows for the reward of an individual’s +significant contribution to the success of the Company. +The Company’s executive officer compensation program is generally based on three components of +remuneration consisting of base salary, potential annual cash bonus and other long-term incentive +compensation in the form of stock-based awards. Executive officers are also covered under the +company’s medical, life, and disability insurance programs along with a 401-K savings plan +available to all employees. +The Company does not have any employment agreements with its executive officers at this time. +However, the Compensation Committee believes that, in order to retain highly qualified executives, +it must provide these persons with some security against organizational and personnel changes in +the event of a change of control of the Company. In order to provide this security, in early 2002, +the Company entered into the Severance Compensation Agreements described under “ ¾ Employment +Agreements, Termination of Employment and Change of Control Arrangements.” The Compensation +Committee believes that agreements such as these are necessary to provide fair treatment to key +executives in the event of a change of control. In the future, the Compensation Committee may +determine that employment or other agreements with its executive officers are necessary in order to +retain key employees and achieve the Company’s long-term growth objectives. +Base Salaries. Base salaries for each executive officer is determined based on the scope of +his or her job responsibilities, level of experience, individual performance, future potential, and +competitive salary practices within the oil and gas industry. +After reviewing the salary levels of the Company’s peers, the Company increased the base +salaries of the Company’s executive officers for 2005 by three and one-half percent, representing a +“cost of living” adjustment. This cost of living increase was intended to match similar increases +by the Company’s competitors and reflects the Compensation Committee’s commitment to maintaining +competitive salary levels within the Company and comparable industry groups. +Potential Annual Cash Bonuses. The Compensation Committee administers a potential cash bonus +plan whereby officers’ and certain key employees’ compensation is tied to the Company’s +pre-determined set of annual operating and financial performance goals. Bonuses have not been paid +in all +years. If paid, bonuses are typically awarded in March of the year following the specified +period for which the goals are established. The Compensation Committee, in some cases, will also +consider other factors such as individual performance and contributions for a given bonus period. +With respect to the bonuses paid in March 2005, the Compensation Committee evaluated the +annual financial and operating goals related to year-end production volumes, cash flow before +preferred stock dividends, net income before preferred stock dividends, reserve additions, and +finding costs as the initial basis for determining target level bonuses. Each component of the set +of goals was given equal weight and resulted in the combined target bonus percentage of 100%. The +percentage was then applied to the executive’s base salary to determine the amount of the cash +bonus. These amounts were then adjusted based on discretionary basis. +Long-Term Incentives. The Company relies upon stock options and awards of restricted stock to +compensate directors, executive officers and certain key employees. Long-term incentive +compensation provides a reward for business success in future years and, being based on +performance, is linked to shareholders’ interests. The Company’s long-term incentives are granted +periodically to promote alignment of officer and key employee interests with that of shareholders. +This type of award could consist of restricted stock and/or stock options. Each year, the +Committee determines the amount, if any, and proportion of each type of long-term incentive for +each director, officer and key employee. +The Compensation Committee generally subjects option grants to a vesting schedule and +establishes the exercise price as the fair market value (based on trading price on the New York +Stock Exchange) of the Common Stock on the date of grant. Restricted stock awards are also subject +to a vesting schedule. +To determine the timing and amount of stock-based awards, the Compensation Committee considers +the factors set forth under “Base Salaries” and “Potential Annual Cash Bonuses” above as well as +17 +Table of Contents +the employee’s ability to influence the Company’s future performance. The Compensation Committee +also takes into account the number of outstanding and unvested options and performance shares held +by an executive officer as well as the size of previous awards to such executive officer. +Compensation of the Chief Executive Officer +The Compensation Committee reviews the CEO’s salary and total compensation package annually. +The Committee does not rely solely on predetermined formulas or a limited set of criteria when it +evaluates the performance of his base salary, cash bonus or his long-term incentives. This review +process encompasses a number of factors, both quantitative and qualitative. Some of the factors +considered are as follows: +• +His continued efforts to increase shareholder value; +• +His ability to monitor the oil and gas industry’s constantly changing environment; +• +His ability to effectively communicate the Company’s future strategy and financial results; +• +His ability to attract and develop a qualified management team; +• +His ability to promote an atmosphere of teamwork with other employees; +• +His ability to lead the company as it continues to embrace new opportunities, +• +His higher level of responsibility subsequent to the death of John S. Weatherly, +former Senior Vice President and Chief Financial Officer in May 2005; and +• +The total compensation package of those similarly situated and in comparable, peer +group companies in the oil and gas exploration and production industry. +Although the Committee does not assign any pre-determined weight to any specific factor, the +Committee considers all of them relevant to the past and future success of the Company. After a +review of the total compensation package offered to similar executive officers within the company’s +peer group, in January 2005, Mr. Callon’s base salary was increased to $400,000 as compared to +$344,405 for the previous year. Mr. Callon also received a three and one-percent cost of living +adjustment, bringing him to a total annual salary of $414,000 for 2005. Pursuant to the Company’s +Bonus Plan, Mr. Callon also received a $230,000 cash bonus in March 2005 in recognition of his +leadership role in the Company accomplishing the annual financial and operating goals and other +significant company operational accomplishments discussed above under “ ¾ Potential Annual Cash +Bonuses.” +B. F. Weatherly, Chairman +L. Richard Flury +John C. Wallace +Richard O. Wilson +18 +Table of Contents +PERFORMANCE GRAPH +The following graph compares the yearly percentage change for the five years ended December +31, 2005, in the cumulative total shareholder return on the Company’s Common Stock against the +cumulative total return for the (i) Hemscott Industry and Market Index of SIC Group 123 (the +“Hemscott Group Index”) consisting of independent oil and gas drilling and exploration companies +and (ii) the New York Stock Exchange Market Index. The comparison of total return on an +investment for each of the periods assumes that $100 was invested on December 31, 2000 in the +Company, the Hemscott Group Index and the New York Stock Exchange Market Index, and that all +dividends were reinvested. +2000 +2001 +2002 +2003 +2004 +2005 +Callon Petroleum Company +$ +100 +$ +41 +$ +20 +$ +62 +$ +87 +$ +106 +Hemscott Group Index +$ +100 +$ +72 +$ +66 +$ +87 +$ +122 +$ +192 +NYSE Market Index +$ +100 +$ +91 +$ +74 +$ +96 +$ +109 +$ +118 +19 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable New York Stock +Exchange rules to be directly responsible for the appointment, compensation and retention of the +Company’s independent registered public accountants. The Audit Committee has appointed Ernst & +Young LLP, independent registered public accounting firm, for the examination of the accounts and +audit of the financial statements of the Company for the year ending December 31, 2006. While +Shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of +Directors will present a proposal to the Shareholders to approve and ratify as part of good +corporate governance principles, the engagement of Ernst & Young LLP. If the Shareholders fail to +ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain +Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may +direct the appointment of a different independent registered public accounting firm at any time +during the year if it determines that such a change would be in the best interest of the Company +and its Shareholders. A representative of Ernst & Young LLP will be present at the Annual Meeting +and will have the opportunity to make a statement, if he desires, and to respond to appropriate +questions. +Management recommends that the Shareholders approve and ratify the appointment of Ernst & +Young LLP as independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2006. Unless otherwise indicated, all properly executed Proxies received by +the Company will be voted “FOR” such ratification at the Annual Meeting. +PROPOSAL III +APPROVAL OF THE CALLON PETROLEUM COMPANY +2006 STOCK INCENTIVE PLAN +General +At a meeting held on March 9, 2006, the Board of Directors of the Company approved the Callon +Petroleum Company 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”), subject to the +approval of the shareholders of the Company. At the Meeting, Shareholders will be asked to approve +and ratify the adoption of the 2006 Stock Incentive Plan. The Board of Directors believes that the +approval of the 2006 Stock Incentive Plan is in the best interests of the Company and its +Shareholders. The 2006 Stock Incentive Plan will authorize the Board of Directors to award grants +at any time following the effective date of the 2006 Stock Incentive Plan. Accordingly, Shareholder +approval of the 2006 Stock Incentive Plan will constitute approval of all awards made under the +2006 Stock Incentive Plan without further approval from the shareholders, except as may be required +by the 2006 Stock Incentive Plan. +The 2006 Stock Incentive Plan is in addition to the Company’s existing stock option plans. +See “Executive Compensation — Stock-Based Incentive Compensation Plans.” +The purpose of the 2006 Stock Incentive Plan is to foster and promote the long-term financial +success of the Company and to increase shareholder value by attracting, motivating and retaining +key employees and directors and providing such participants in the 2006 Stock Incentive Plan with a +program for obtaining an ownership interest in the Company that links and aligns their personal +interests with those of the Company’s shareholders, thus enabling such participants to share in the +long-term growth and success of the Company. To accomplish these goals, the 2006 Stock Incentive +Plan permits the granting of incentive stock options, non-statutory stock options, stock +appreciation rights, restricted stock, and other stock-based awards, some of which may require the +satisfaction of performance-based criteria in order to be payable to participants. If approved, the +2006 Stock Incentive Plan will be an important component of the total compensation package offered +to employees and +directors, reflecting the importance that the Company places on motivating and rewarding +superior results with long-term, performance-based incentives. +20 +Table of Contents +Description of the 2006 Stock Incentive Plan +The following is a summary of the principal features of the 2006 Stock Incentive Plan and its +operation. For additional details regarding the 2006 Stock Incentive Plan you should refer to the +full text of the 2006 Stock Incentive Plan, a copy of which is attached to this proxy statement as +Exhibit A. +Administration. The 2006 Stock Incentive Plan is administered by Compensation Committee +(“Committee”) appointed by the Board of Directors. The Committee is composed of all four directors +who qualify as “outside directors” under Section 162(m) of the Internal Revenue Code and/or as +“non-employee directors” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934. +Subject to the terms of the 2006 Stock Incentive Plan, the Committee has power to select the +persons eligible to receive awards, the type and amount of incentive awards to be awarded, and the +terms and conditions of such awards. To the extent permitted by applicable law, the Committee may +delegate its authority under the 2006 Stock Incentive Plan described in the preceding sentence to +officers or other employees of the Company. The Committee also has the authority to interpret the +2006 Stock Incentive Plan and establish, amend or waive rules necessary or appropriate for the +administration of the 2006 Stock Incentive Plan. +Eligibility. Any employee or director of the Company who, in the opinion of the Committee, is +in a position to contribute to the growth, development or financial success of the Company is +eligible to participate in the 2006 Stock Incentive Plan. In any calendar year, no covered employee +described in Section 162(m) of the Internal Revenue Code or applicable Treasury Regulations may be +granted (in the case of stock options and stock appreciation rights), or have vested (in the case +of restricted stock or other stock-based awards), awards relating to more than 5% of the common +shares outstanding at the time such awards are granted. +Shares Subject to the 2006 Stock Incentive Plan. The maximum number of the Corporation’s +common shares, without par value, that may be delivered pursuant to awards granted under the 2006 +Stock Incentive Plan is 500,000 common shares. Any shares subject to an award under the 2006 Stock +Incentive Plan that are forfeited or terminated, expire unexercised, lapse, or are otherwise +cancelled in a manner such that the common shares covered by such award are not issued may again be +used for awards under the 2006 Stock Incentive Plan. Only the net shares issued upon vesting of +restricted stock and only shares issued as a result of a “cashless” exercise of a stock option or +an incentive stock option shall be considered issued under the 2006 Stock Incentive Plan. A +maximum of 500,000 common shares may be issued upon exercise of incentive stock options. The +maximum number of shares deliverable pursuant to awards granted under the 2006 Stock Incentive Plan +is subject to adjustment by the Committee in the event of certain dilutive changes in the number of +outstanding shares. Under the 2006 Stock Incentive Plan, the Company may issue authorized but +unissued shares, treasury shares, or shares purchased by the Company on the open market or +otherwise. The number of common shares available for future awards is reduced by the net number of +shares issued pursuant to an award. +Transferability. Rights under any award may not be transferred except by will or the laws of +descent and distribution or a qualified domestic relations order. However, the Committee may, in +its discretion, authorize in the applicable award agreement the transfer, without consideration, of +all or a portion of a non-statutory stock option by a participant in the plan to family members, +trusts and entities owned by family members. +Amendment of the 2006 Stock Incentive Plan. The Board of Directors has the power and authority +to terminate or amend the 2006 Stock Incentive Plan at any time; provided, however, the Board of +Directors may not, without the approval of shareholders: +• +other than as a result of a dilutive event, increase the maximum +number of shares which may be issued under the 2006 Stock Incentive +Plan; +• +amend the requirements as to the class of employees eligible to +purchase common shares under the 2006 Stock Incentive Plan; +• +extend the term of the Plan; +• +increase the maximum limits on awards to covered employees as set for +compliance with Section 162(m) of the Internal Revenue Code or +applicable Treasury Regulations; or +• +decrease the authority granted to the Committee under the Plan in +contravention of Rule 16b-3 under the Exchange Act. +21 +Table of Contents +In addition, to the extent that the Committee determines that the listing requirements of any +national securities exchange or quotation system on which the Company’s common shares are then +listed or quoted, or the Internal Revenue Code or regulations promulgated thereunder, require +shareholder approval in order to maintain compliance with such listing requirements or to maintain +any favorable tax advantages or qualifications, then the 2006 Stock Incentive Plan shall not be +amended without approval of the Company’s shareholders. No amendment to the 2006 Stock Incentive +Plan may adversely affect any rights of a holder of an outstanding award under the 2006 Stock +Incentive Plan without such holder’s consent. +Change in Control. Unless provided otherwise in the applicable award agreement, in the event +of a change in control, all outstanding awards shall become 100% vested, free of all restrictions, +immediately and fully exercisable, and deemed earned in full and payable as of the day immediately +preceding the change in control. A “change in control” means the occurrence of any one or more of +the following events: +• +The acquisition by any individual, entity or group of beneficial ownership of 20% or more +of the Company’s common shares or combined voting power; +• +Individuals who constitute the Board of Directors of the Company as of the effective date +of the 2006 Stock Incentive Plan, or successors to such members approved by the Board of +Directors, cease for any reason to constitute at least a majority of the Board of +Directors; +• +the consolidation, merger or the sale or other disposition of all or substantially all of +the assets of the Company; +• +the adoption of any plan or proposal for the liquidation or dissolution of the Company; or +• +the bankruptcy of the Company. +The Board of Directors may determine that any of the events described above will not +constitute a change in control. +Award Agreements and Term. All awards under the 2006 Stock Incentive Plan will be authorized +by the Committee and evidenced by an award agreement setting forth the type of incentive being +granted, the vesting schedule, and other terms and conditions of exercisability. No incentive stock +options may be exercisable for more than ten years from the date of grant, or, in the case of an +incentive stock option granted to an employee who owns or is deemed to own more than ten percent of +the Company’s common shares, 5 years from the date of grant. In no event, however, may incentive +stock options be granted after the expiration of ten (10) years from the effective date of the 2006 +Stock Incentive Plan. +Stock Options. A grant of a stock option entitles a participant to purchase from the Company a +specified number of common shares at a specified price per share. In the discretion of the +Committee, stock options may be granted as non-statutory stock options or incentive stock options, +but incentive stock options may only be granted to employees of the Company. The aggregate fair +market value of the common shares with respect to which incentive stock options become first +exercisable by any participant during any calendar year cannot exceed $100,000. +The Committee may fix any price as the purchase price per common share which may be purchased +under a non-statutory stock option. The purchase price per common shares which may be purchased +under an incentive stock option must be at least equal to the fair market value of the Company’s +common shares on the date of grant. The exercise price for common shares acquired on exercise of a +stock option must be paid in cash, or, if approved by the Committee, delivery of shares of the +Company’s common shares that have been held by the optionee for at least six months with a fair +market value equal to the exercise price of the stock option, the withholding of shares that would +otherwise be issuable upon exercise, participation in a “cashless exercise” arrangement, or payment +of any other form of consideration acceptable to the Committee. +Stock Appreciation Rights (SARs). The grant of a SAR provides the holder with the right to +receive a payment in common shares equal to the excess of the fair market value of a specified +number of common shares on the date the SAR is exercised over a SAR price specified in the +applicable award agreement. The SAR price specified in an award agreement must be equal to or +greater than the fair market value of the Company’s common shares on the date of the grant of the +SAR. +Restricted Stock. A grant of restricted stock is an award of common shares subject to +restrictions or limitations set forth in the 2006 Stock Incentive Plan and in the related award +agreement. The award agreement for restricted stock will specify the time or times within which +such award may be subject to +22 +Table of Contents +forfeiture and any performance goals which must be met in order to +remove any restrictions on such award. Except for the right to vote the shares (unless otherwise +provided in the applicable award agreement) and limitations on transfer or limitation set forth in +the applicable award agreement, holders of restricted stock shall have all of the rights of a +shareholder of the Company, including, if provided in the applicable award agreement, the right to +receive any dividends thereon. +Termination of Employment, Death, Disability and Retirement. Unless otherwise provided in an +award agreement, upon the termination of a participant’s employment the non-vested portions of all +outstanding awards will terminate immediately. Subject to different provisions in an award +agreement, the period during which vested awards may be exercised following a termination of +employment are described below. +(a) +If a participant’s employment is terminated for any reason other than as a +result of death, disability, retirement or for cause, the vested portion of such award +is exercisable for the lesser of the expiration date set forth in the applicable award +agreement or 90 days after the date of termination of employment. +(b) +In the event of the termination of participant’s employment for cause, all +vested awards immediately expire. +(c) +Upon a participant’s retirement, any vested award shall expire on the earlier +of the expiration date set forth in the award agreement for such award or one year +after the date of retirement (three months in the case of incentive stock options). +(d) +Upon the death or disability of a participant, any vested award shall expire on +the earlier of the expiration date set forth in the award agreement or the one year +anniversary date of the participant’s death or disability. +Federal Income Tax Consequences +The following is a general summary as of the date of this proxy statement of the United States +federal income tax consequences associated with the grant of awards under the 2006 Stock Incentive +Plan. This summary does not purport to address all aspects of federal income taxation and does not +describe state, local, or foreign tax consequences. This summary is based upon provisions of the +Internal Revenue Code and the treasury regulations issued thereunder (the “Treasury Regulations”), +and judicial and administrative interpretations under the Internal Revenue Code and Treasury +Regulations, all as in effect as of the date hereof, and all of which are subject to change +(possibly on a retroactive basis). The federal, state and local tax consequences for any +participant will depend upon his or her individual circumstances. Also, this information may not be +applicable to employees of foreign subsidiaries or to participants who are not residents of the +United States. Participants have been and are encouraged to seek the advice of a qualified tax +advisor regarding the tax consequences of participation in the 2006 Stock Incentive Plan. +Non-statutory Stock Options. A participant receiving a non-statutory stock option that has +been issued with an exercise price not less than the fair market value of the Company’s common +shares on the grant date will not recognize income and the Company will not be allowed a deduction +at the time such an option is granted. When a participant exercises a non-statutory stock option, +the difference between the option price and any higher market value of the stock on the date of +exercise will be ordinary income to the participant and will be claimed as a deduction for federal +income tax purposes by the Company. When a participant disposes of shares acquired by the exercise +of the option, any amount received in excess of the fair market value of the shares on the date of +exercise will be treated as short-term or long-term capital gain, depending upon whether the +participant held the shares for more than one year following the exercise of the option. If the +amount received is less than the fair +market value of the shares on the date of exercise, the loss will be treated as short-term or +long-term capital loss, depending upon whether the participant held the shares for more than one +year following the exercise of the option. +Incentive Stock Options. Incentive stock options granted under the 2006 Stock Incentive Plan +are intended to meet the definitional requirements of Section 422 of the Internal Revenue Code for +“incentive stock options.” A participant receiving a grant of incentive stock options will not +recognize income and the Company will not be allowed a deduction at the time such an option is +granted. When a participant exercises an incentive stock option while employed by the Company or +its subsidiary or within the three-month (one year for disability) period after termination of +employment, no ordinary income will be recognized by the participant at that time (and no deduction +will be allowed to the Company) but the excess of the fair market value of the shares acquired by +such exercise over the option price will be taken into account in determining the participant’s +alternative minimum taxable income for purposes of the federal +23 +Table of Contents +alternative minimum tax applicable +to individuals. If the shares acquired upon exercise are not disposed of until more than two years +after the date of grant and one year after the date of transfer of the shares to the participant +(statutory holding periods), the excess of the sale proceeds over the aggregate option price of +such shares will be long-term capital gain, and the Company will not be entitled to any federal +income tax deduction. Except in the event of death, if the shares are disposed of prior to the +expiration of the statutory holding periods (a “Disqualifying Disposition”), the excess of the fair +market value of such shares at the time of exercise over the aggregate option price (but not more +than the gain on the disposition if the disposition is a transaction on which a loss, if sustained, +would be recognized) will be ordinary income at the time of such Disqualifying Disposition (and the +Company or its subsidiary will be entitled to a federal tax deduction in a like amount), and the +balance of the gain, if any, will be capital gain (short-term or long-term depending upon whether +the participant held the shares for more than one year following the exercise of the option). To +the extent that the aggregate fair market value of stock (determined on the date of grant) with +respect to which incentive options become exercisable for the first time during any calendar year +exceeds $100,000, such excess options will be treated as non-statutory options. +Payment Using Shares. If a participant pays the exercise price of a non-statutory or incentive +stock option with previously-owned common shares of the Company and the transaction is not a +Disqualifying Disposition, the shares received equal to the number of shares surrendered are +treated as having been received in a tax-free exchange. The shares received in excess of the number +surrendered will not be taxable if an incentive stock option is being exercised, but will be +taxable as ordinary income to the extent of their fair market value if a non-statutory stock option +is being exercised. The participant does not recognize income and the Company receives no deduction +as a result of the tax-free portion of the exchange transaction. If the use of previously acquired +incentive stock option shares to pay the exercise price of another incentive stock option +constitutes a Disqualifying Disposition, the tax results are as described in the preceding +paragraph. The income treatment will apply to the shares disposed of, but will not affect the +favorable tax treatment of the shares received. +Stock Appreciation Rights and Restricted Stock. A participant receiving a grant of SARs or +restricted stock under the 2006 Stock Incentive Plan will not recognize income, and the Company +will not be allowed a deduction at the time such award is granted, unless the participant makes the +election described below with respect to restricted stock. While an award remains unvested or +otherwise subject to a substantial risk of forfeiture, a participant will recognize compensation +income equal to the amount of any dividends received and the Company will be allowed a deduction in +a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of +forfeiture, the excess of the fair market value of the award on the date of vesting or the +cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant +for the award will be ordinary income to the participant and will be claimed as a deduction for +federal income tax purposes by the Company. Upon disposition of the shares received, the gain or +loss recognized by the participant will be treated as capital gain or loss, and the capital gain or +loss will be short-term or long-term depending upon whether the participant held the shares for +more than one year following the vesting or cessation of the substantial risk of forfeiture. +However, by filing a Section 83(b) election with the Internal Revenue Service within 30 days after +the date of grant of restricted stock, a participant’s ordinary income and commencement of holding +period and the deduction will be determined as of the date of grant. In such a case, the amount of +ordinary income recognized by such a participant and deductible by the Company will be equal to the +excess of the fair market value of the award as of the date of grant over the amount paid, if any, +by the participant for the award. If such election is made and a participant thereafter forfeits +his or her award, no refund or deduction will be allowed for the amount previously included in such +participant’s income. +Requirements Regarding “Deferred Compensation.” Certain of the benefits under the 2006 Stock +Incentive Plan may constitute “deferred compensation” within the meaning of Section 409A of the +Internal Revenue Code, a recently enacted provision governing “nonqualified deferred compensation +plans.” Failure to comply with the requirements of the provisions of Section 409A regarding +participant elections and the timing of payment distributions could result in the affected +participants being required to recognize ordinary income for federal tax purposes earlier than +expected, and to be subject to substantial penalties. +ERISA. The Company believes that the 2006 Stock Incentive Plan is not subject to any of the +provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The 2006 Stock Incentive +Plan is not qualified under Section 401(a) of the Internal Revenue Code. +24 +Table of Contents +Federal Tax Withholding +Any ordinary income realized by a participant upon the exercise of an award under the 2006 +Stock Incentive Plan is subject to withholding of federal, state and local income tax and to +withholding of the participant’s share of tax under the Federal Insurance Contribution Act (“FICA”) +and the Federal Unemployment Tax Act (“FUTA”). +To satisfy federal income tax withholding requirements, the Company will have the right to +require that, as a condition to delivery of any certificate for common shares, the participant +remit to the Company an amount sufficient to satisfy the withholding requirements. Alternatively, +we may withhold a portion of the common shares (valued at fair market value) that otherwise would +be issued to the participant to satisfy all or part of the withholding tax obligations. +Withholding does not represent an increase in the participant’s total income tax obligation, +since it is fully credited toward his or her tax liability for the year. Additionally, withholding +does not affect the participant’s tax basis in the common shares. Compensation income realized and +tax withheld will be reflected on Forms W-2 supplied by the Company to employees by January 31 of +the succeeding year. +Deferred compensation that is subject to Section 409A of the Internal Revenue Code will be +subject to certain federal income tax withholding and reporting requirements. However, pursuant to +IRS Notice 2005-94, the IRS has suspended these withholding and reporting requirements until +further IRS guidance is issued. +Million Dollar Deduction Limit and Other Tax Matters +The Company may not deduct compensation of more than $1,000,000 that is paid to an individual +who, on the last day of the taxable year, is either the Company’s chief executive officer or is +among one of the four other most highly-compensated officers for that taxable year as reported in +the Company’s proxy statement. The limitation on deductions does not apply to certain types of +compensation, including qualified performance-based compensation. The Company intends that +benefits in the form of stock options and restricted stock will be exempt from the $1,000,000 +limitation on deductible compensation either as performance-based compensation or otherwise. +If a individual’s rights under the plan are accelerated as a result of a change in control and +the individual is a “disqualified individual” under Section 280G of the Internal Revenue Code, the +value of any such accelerated rights received by such individual may be included in determining +whether or not such individual has received an “excess parachute payment” under Section 280G of the +Internal Revenue Code, which could result in (i) the imposition of a 20% Federal excise tax (in +addition to Federal income tax) payable by the individual on the value of such accelerated rights, +(ii) the loss by the Company of a compensation deduction on the value of such accelerated rights, +and (iii) the loss by the Company of a compensation deduction. +Awards Granted under the 2006 Stock Incentive Plan +At March 24, 2006, the Company estimates that approximately 40 officers, employees and +directors were eligible to participate in the 2006 Stock Incentive Plan. Because the Committee has +the discretion to grant awards under the 2006 Stock Incentive Plan, it is not possible as of the +date of this proxy statement to determine future awards that will be received by executive +officers, employees and directors under the 2006 Stock Incentive Plan. On March 24, 2006, the +closing price of the Company’s common shares on the New York Stock Exchange was $20.22 per share. +25 +Table of Contents +Securities Authorized for Issuance under Equity Compensation Plans +As of December 31, 2005, the Company had the following securities issuable pursuant to outstanding +option award agreements, weighted-average option exercise price, and remaining shares reserved for +future issuance under the Company’s existing Stock Incentive Plans: +Remaining Shares +Weighted Average +Reserved for Future +Plan Category +Options Outstanding (a) +Exercise Price (b) +Issuance (c) +Plans approved by +Shareholders +1,068,675 +$ +10.55 +686,957 +Plan not approved +by Shareholders +136,883 +$ +6.72 +35,666 +All Plans +1,205,558 +$ +10.11 +722,633 +(a) +Represents the number of common shares to be issued upon exercise of +outstanding option award agreements. +(b) +Represents the weighted-average exercise price of outstanding options. +(c) +Represents the number of remaining shares available for future issuance +(excluding shares reflected in the first column.) +Shareholder Approval +At the Meeting, shareholders will be asked to approve and ratify the adoption of the 2006 +Stock Incentive Plan. Such action requires the affirmative vote of a majority of the votes cast on +the matter, excluding broker non-votes. +The Board of Directors recommends that you vote “FOR” this Proposal. +SHAREHOLDERS’ PROPOSALS +FOR 2007 ANNUAL MEETING +Shareholders who desire to present proposals at the 2007 Annual Meeting of Shareholders +and to have proposals included in the Company’s proxy materials must submit their proposals to the +Company at its principal executive offices not later than December 15, 2006. If the date of the +2007 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2006 +Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before +the Company begins to print and mail its proxy materials for its 2007 Annual Meeting of +Shareholders. +The person named in the Company’s form of proxy for the 2006 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by February 28, 2007, unless the Company changes the date of its +2007 Annual Meeting of Shareholders by more than 30 days from the date of the 2006 Annual +Meeting of Shareholders, in which case such persons will be able to exercise discretionary +authority if notice of the matter has not been received in a reasonable time before the Company +mails its proxy materials for the 2007 Annual Meeting of Shareholders. +If the date of the 2007 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2006 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform Shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that Shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +26 +Table of Contents +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the +2005 Annual Report and the Company’s Report on Form 10-K. Printed copies of the Company’s Annual +Report, the Company’s Annual Report on Form 10-K , Corporate Governance Principles, Code of Business +Conduct and Ethics and Charters of Board Committees are available to Shareholders upon written +request to the Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, +Mississippi 39120. You may also view the documents on the Company’s website at www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the Annual Meeting +other than those described above. If other business comes before the Annual Meeting, the persons +named on the Proxy will vote the Proxy in accordance with what they consider to be in the best +interests of the Company and its Shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All +Shareholders are urged, regardless of the number of shares owned, to participate in the 2006 Annual +Meeting by returning their proxy in the enclosed business reply envelope. +By order of the Board of Directors +/S/ Fred L. Callon +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +April 14, 2006 +27 +Table of Contents +Exhibit A +CALLON PETROLEUM COMPANY +2006 Stock Incentive Plan +(Effective May 4, 2006) +SECTION 1 +General Provisions Relating to +Plan Governance, Coverage and Benefits +1.1 +Establishment and Purpose +Callon Petroleum Company, a Delaware corporation, (the “Company" ) hereby establishes the +Callon Petroleum Company 2006 Stock Incentive Plan effective as of May 4, 2006 (the +“Effective Date" ) (the “Plan" ) for the benefit of the Company and the participants in the +Plan. +The purpose of the Plan is to foster and promote the long-term financial success of the +Company and to increase stockholder value by: (a) encouraging the commitment and retention +of selected key Employees and Outside Directors, (b) motivating superior performance of key +Employees and Outside Directors by means of long-term incentives, (c) encouraging and +providing key Employees and Outside Directors with a program for obtaining ownership +interests in the Company that link and align their personal interests to those of the +Company’s stockholders, (d) maintaining competitive compensation levels, thereby attracting +and retaining key Employees and Outside Directors by providing competitive compensation +opportunities, and (e) enabling key Employees and Outside Directors to share in the +long-term growth and success of the Company. +The Plan will remain in effect, subject to the right of the Board to amend or terminate the +Plan at any time pursuant to Section 6.7 , until the earlier of the date that (a) all +Shares subject to the Plan have been purchased or acquired according to its provisions or +(b) the Plan terminates pursuant to Section 6.18 . However, in no event may an +Incentive Stock Option be granted under the Plan after the expiration of ten (10) years from +the Effective Date. +1.2 +Definitions +The following terms shall have the meanings set forth below: +(a) +Authorized Officer. The Chairman of the Board, the CEO or any other senior +officer of the Company to whom either of them delegate the authority to execute any +Incentive Agreement for and on behalf of the Company. No officer or director shall be +an Authorized Officer with respect to any Incentive Agreement for himself. +(b) +Board. The Board of Directors of the Company. +(c) +CEO. The Chief Executive Officer of the Company. +(d) +Change in Control. Any of the events described in and subject to Section +5.8 . +(e) +Code. The Internal Revenue Code of 1986, as amended, and the regulations and +other authority promulgated thereunder. References herein to any provision of the Code +shall refer to any successor provision thereto. +(f) +Committee. A committee appointed by the Board to administer the Plan. The Plan +shall be administered by the Compensation Committee appointed by the Board consisting +of not less than three directors who fulfill the “non-employee director” requirements +of Rule 16b-3 under the Exchange Act and the “outside director” requirements of Code +Section 162(m). The Compensation Committee of the Board may appoint a subcommittee +provided that, in all events, the members of the Committee for purposes of the Plan +satisfy the requirements of the previous provisions of this paragraph. +The Board shall have the power to fill vacancies on the Committee arising by +resignation, death, removal or otherwise. The Board, in its sole discretion, may +divide the powers and duties of the Committee among one or more separate committees, +or +retain all powers and duties of the Committee in a single Committee. The members of +the Committee shall serve at the discretion of the Board. +28 +Table of Contents +Notwithstanding the preceding paragraphs of this Section 1.2(f) , the term +“Committee” as used in the Plan with respect to any Incentive Award for an Outside +Director shall refer to the entire Board. In the case of an Incentive Award for an +Outside Director, the Board shall have all the powers and responsibilities of the +Committee hereunder as to such Incentive Award, and any actions as to such Incentive +Award may be acted upon only by the Board (unless it otherwise designates in its +discretion). When the Board exercises its authority to act in the capacity as the +Committee hereunder with respect to an Incentive Award for an Outside Director, it +shall so designate with respect to any action that it undertakes in its capacity as +the Committee. +(g) +Common Stock. The common stock of the Company, no par value per share and any +class of common stock into which such common shares may hereafter be converted, +reclassified or recapitalized. +(h) +Company. Callon Petroleum Company and any successor in interest thereto. +(i) +Covered Employee. A named executive officer who is one of the group of covered +employees, as defined in Code Section 162(m) and Treasury Regulation § 1.162-27(c) (or +its successor), during any period that the Company is a Publicly Held Corporation. +(j) +Disability. Disability means that the Grantee, because of ill health, physical +or mental disability or any other reason beyond his control, is unable to perform his +employment duties for a period of six (6) continuous months, as determined in good +faith by the Committee. With respect to any Incentive Stock Option, however, +“Disability” means permanent and total disability as defined in Code Section 22(e)(3). +A determination of Disability may be made by a physician selected or approved by the +Committee and, in this respect, the Grantee shall submit to any reasonable +examination(s) required by such physician upon request. Notwithstanding the foregoing +provisions of this paragraph, in the event any Incentive Award is subject to Code +Section 409A, then, in lieu of the foregoing definition and to the extent necessary to +comply with the requirements of Code Section 409A, the definition of “Disability” for +purposes of such Incentive Award shall be the definition of “disability” provided for +under Code Section 409A and the regulations or other guidance issued thereunder. +(k) +Employee. Any employee of the Company within the meaning of Code Section +3401(c) who, in the opinion of the Committee, is in a position to contribute to the +growth, development or financial success of the Company, including, without limitation, +officers who are members of the Board. +(l) +Employment. Employment means that the individual is employed as an Employee, or +engaged as an Outside Director, by the Company, or by any corporation issuing or +assuming an Incentive Award in any transaction described in Code Section 424(a). In +this regard, neither the transfer of a Grantee from Employment by the Company to +Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment +by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a +termination of Employment of the Grantee. Moreover, the Employment of a Grantee shall +not be deemed to have been terminated because of an approved leave of absence from +active Employment on account of temporary illness, authorized vacation or granted for +reasons of professional advancement, education, or health, or during any period +required to be treated as a leave of absence by virtue of any applicable statute, +Company personnel policy or written agreement. All determinations regarding Employment, +and the termination of Employment hereunder, shall be made by the Committee. +The term “Employment” for all purposes of the Plan shall include (i) active +performance of agreed services by an employee and (ii) current membership on the +Board by an Outside Director. +Notwithstanding anything in the Plan to the contrary, in the event an Incentive +Award issued under the Plan is subject to Code Section 409A, then, to the extent +necessary to comply with Code Section 409A, no Employee or Outside Director shall be +deemed to have suffered a termination of Employment, unless such termination of +Employment +constitutes a “separation from service” as defined under Code Section 409A and the +regulations or other guidance issued thereunder. +(m) +Exchange Act. The Securities Exchange Act of 1934, as amended. +29 +Table of Contents +(n) +Fair Market Value. While the Company is a Publicly Held Corporation, the Fair +Market Value of one Share of Common Stock on the date in question is deemed to be the +average of the opening and closing prices of a Share on the date as of which Fair +Market Value is to be determined, or if no such sales were made on such date, the +closing sales price on the immediately preceding business day of a Share as reported on +the New York Stock Exchange or other principal securities exchange on which Shares are +then listed or admitted to trading. +If the Company is not a Publicly Held Corporation at the time a determination of the +Fair Market Value of the Common Stock is required to be made hereunder, the +determination of Fair Market Value for purposes of the Plan shall be made by the +Committee in its sole and absolute discretion and using a reasonable valuation +method in accordance with the requirements of Code Section 409A and the regulations +and other guidance issued thereunder. In this respect, the Committee may rely on +such financial data, appraisals, valuations, experts, and other sources as, in its +sole and absolute discretion, it deems advisable under the circumstances. +(o) +Grantee. Any Employee or Outside Director who is granted an Incentive Award +under the Plan. +(p) +Immediate Family. With respect to a Grantee, the Grantee’s child, stepchild, +grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, +mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or +sister-in-law, including adoptive relationships. +(q) +Incentive Agreement. The written agreement entered into between the Company and +the Grantee setting forth the terms and conditions pursuant to which an Incentive Award +is granted under the Plan, as such agreement are further defined in Section +5.1 . +(r) +Incentive Award or Award. A grant of an award under the Plan to a Grantee, +including any Non-statutory Stock Option, Incentive Stock Option, Stock Appreciation +Right (SAR), or Restricted Stock Award. +(s) +Incentive Stock Option or ISO. A Stock Option granted by the Committee to an +Employee under Section 2 which is designated by the Committee as an Incentive +Stock Option and is intended to qualify as an Incentive Stock Option under Code Section +422. +(t) +Insider. If the Company is a Publicly Held Corporation, an individual who is, +on the relevant date, an officer, director or ten percent (10%) beneficial owner of any +class of the Company’s equity securities that is registered pursuant to Section 12 of +the Exchange Act, all as defined under Section 16 of the Exchange Act. +(u) +Non-statutory Stock Option. A Stock Option granted by the Committee to a +Grantee under Section 2 that is not designated by the Committee as an Incentive +Stock Option. +(v) +Option Price. The exercise price at which a Share may be purchased by the +Grantee of a Stock Option. +(w) +Other Stock-Based Award. An award granted by the Committee to a Grantee under +Section 4.1 that is valued in whole or in part by reference to, or is otherwise +based upon, Common Stock. +(x) +Outside Director. A member of the Board who is not at the time of grant of an +Incentive Award, an Employee. +(y) +Parent . Any corporation (whether now or hereafter existing) which constitutes a +“parent” of the Company, as defined in Code Section 424(e). +(z) +Plan. The Callon Petroleum Company 2006 Stock Incentive Plan, as set forth +herein and as it may be amended from time to time. +(aa) +Publicly Held Corporation. A corporation issuing any class of common equity +securities required to be registered under Section 12 of the Exchange Act. +30 +Table of Contents +(bb) +Restricted Stock. Shares of Common Stock issued or transferred to a Grantee +pursuant to Section 3 . +(cc) +Restricted Stock Award. An authorization by the Committee to issue or transfer +Restricted Stock to a Grantee pursuant to Section 3 . +(dd) +Restriction Period. The period of time determined by the Committee and set +forth in the Incentive Agreement during which the transfer of Restricted Stock by the +Grantee is restricted. +(ee) +Retirement. The voluntary termination of Employment from the Company +constituting retirement for age (i) on any date after the Employee attains the normal +retirement age of 62 years, or (ii) an earlier retirement date for age as expressly +agreed to by the Committee and designated by the Committee in the Employee’s individual +Incentive Agreement. +(ff) +Share. A share of the Common Stock of the Company. +(gg) +Share Pool. The number of shares authorized for issuance under Section +1.4 , as adjusted for awards and payouts under Section 1.5 and as adjusted +for changes in corporate capitalization under Section 5.6 . +(hh) +Spread. The difference between the exercise price per Share specified in a SAR +grant and the Fair Market Value of a Share on the date of exercise of the SAR. +(ii) +Stock Appreciation Right or SAR. A Stock Appreciation Right as described in +Section 2.5 . +(jj) +Stock Option or Option. Pursuant to Section 2 , (i) an Incentive Stock +Option granted to an Employee or (ii) a Non-statutory Stock Option granted to an +Employee or Outside Director, which Option provides the Grantee with the right to +purchase Shares of Common Stock upon specified terms. In accordance with Code Section +422, only an Employee may be granted an Incentive Stock Option. +(kk) +Subsidiary. Any (i) corporation in an unbroken chain of corporations beginning +with the Company, if each of the corporations other than the last corporation in the +unbroken chain owns stock possessing a majority of the total combined voting power of +all classes of stock in one of the other corporations in the chain, (ii) limited +partnership, if the Company or any corporation described in item (i) above owns a +majority of the general partnership interest and a majority of the limited partnership +interests entitled to vote on the removal and replacement of the general partner, and +(iii) partnership or limited liability company, if the partners or members thereof are +composed only of the Company, any corporation listed in item (i) above or any limited +partnership listed in item (ii) above, except that with respect to the issuance of +Incentive Stock Options, the term “Subsidiary” shall have the same meaning as the term +“subsidiary corporation” as defined in Code Section 424(f) as required by Code Section +422. +1.3 +Plan Administration +(a) +Authority of the Committee. Except as may be limited by law and subject to the +provisions herein, the Committee shall have full power to (i) select Grantees who shall +participate in the Plan; (ii) determine the sizes, duration and types of Incentive +Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive +Agreements; (iv) determine whether any Shares subject to Incentive Awards will be +subject to any restrictions on transfer; (v) construe and interpret the Plan and any +Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, +amend, or waive rules for the Plan’s administration. Further, the Committee shall make +all other determinations which may be necessary or advisable for the administration of +the Plan. +(b) +Meetings. The Committee shall designate a chairman from among its members who +shall preside at its meetings, and shall designate a secretary, without regard to +whether that person is a member of the Committee, who shall keep the minutes of the +proceedings and all records, documents, and data pertaining to its administration of +the Plan. Meetings shall be held at such times and places as shall be determined by the +Committee and the Committee may hold telephonic meetings. The Committee may take any +action otherwise proper under the Plan by the affirmative vote, taken with or without a +meeting, of a +31 +Table of Contents +majority of its members. The Committee may authorize any one or more of +its members or any officer of the Company to execute and deliver documents on behalf of +the Committee. +(c) +Decisions Binding. All determinations and decisions of the Committee shall be +made in its discretion pursuant to the terms and provisions of the Plan, and shall be +final, conclusive and binding on all persons including the Company, its stockholders, +Employees, Grantees, and their estates and beneficiaries. The Committee’s decisions +with respect to any Incentive Award need not be uniform and may be made selectively +among Incentive Awards and Grantees, whether or not such Incentive Awards are similar +or such Grantees are similarly situated. +(d) +Modification of Outstanding Incentive Awards. Subject to the stockholder +approval requirements of Section 6.7 if applicable, the Committee may, in its +discretion, provide for the extension of the exercisability of an Incentive Award, +accelerate the vesting or exercisability of an Incentive Award (except for an Incentive +Award that is a SAR), eliminate or make less restrictive any restrictions contained in +an Incentive Award, waive any restriction or other provisions of an Incentive Award, or +otherwise amend or modify an Incentive Award in any manner that is either (i) not +adverse to the Grantee to whom such Incentive Award was granted, (ii) is consented to +by such Grantee, and (iii) does not cause the Incentive Award to provide for the +deferral of compensation subject to Code Section 409A (unless otherwise determined by +the Committee). With respect to an Incentive Award that is an ISO, no adjustment +thereto shall be made to the extent constituting a “modification” within the meaning of +Code Section 424(h)(3) unless otherwise agreed to by the Grantee in writing. +Notwithstanding the above provisions of this subsection, no amendment or modification +of an Incentive Award shall be made to the extent such modification results in any +Stock Option with an exercise price less than 100% of the Fair Market Value per Share +on the date of grant. +(e) +Delegation of Authority. The Committee may delegate to designated officers or +other employees of the Company any of its duties and authority under the Plan pursuant +to such conditions or limitations as the Committee may establish from time to time; +provided, however, the Committee may not delegate to any person the authority to grant +Incentive Awards or (ii) to take any action which would contravene the requirements of +Rule 16b-3 under the Exchange Act. +(f) +Expenses of Committee. The Committee may employ legal counsel, including, +without limitation, independent legal counsel and counsel regularly employed by the +Company, and other agents as the Committee may deem appropriate for the administration +of the Plan. The Committee may rely upon any opinion or computation received from any +such counsel or agent. All expenses incurred by the Committee in interpreting and +administering the Plan, including, without limitation, meeting expenses and +professional fees, shall be paid by the Company. +(g) +Surrender of Previous Incentive Awards. The Committee may, in its absolute +discretion, grant Incentive Awards to Grantees on the condition that such Grantees +surrender to the Committee for cancellation such other Incentive Awards (including, +without limitation, Incentive Awards with higher exercise prices) as the Committee +directs. Incentive Awards granted on the condition precedent of surrender of +outstanding Incentive Awards shall not count against the limits set forth in +Section 1.4 until such time as such previous Incentive Awards are surrendered +and cancelled. +(h) +Indemnification. Each person who is or was a member of the Committee shall be +indemnified by the Company against and from any damage, loss, liability, cost and +expense that may be imposed upon or reasonably incurred by him in connection with or +resulting from any claim, action, suit, or proceeding to which he may be a party or in +which he may be involved by reason of any action taken or failure to act under the +Plan, except for any such act or omission constituting willful misconduct or gross +negligence. Each such person shall be indemnified by the Company for all amounts +paid by him in settlement thereof, with the Company’s approval, or paid by him in +satisfaction of any judgment in any such action, suit, or proceeding against him, +provided he shall give the Company an opportunity, at its own expense, to handle and +defend the same before he undertakes to handle and defend it on his own behalf. The +foregoing right of indemnification shall not be exclusive of any other rights of +indemnification to which such persons may be entitled under the Company’s Articles +or Certificate of Incorporation or Bylaws, pursuant to any separate indemnification +or hold harmless agreement with the Company, as a matter of law, +32 +Table of Contents +or otherwise, or any power that the Company may have to indemnify them or hold them harmless. +1.4 +Shares of Common Stock Available for Incentive Awards +Subject to adjustment under Section 5.6 , there shall be available for Incentive +Awards that are granted wholly or partly in Common Stock (including rights or Stock Options +that may be exercised for or settled in Common Stock) five hundred thousand (500,000) Shares +of Common Stock. The number of Shares of Common Stock that are the subject of Incentive +Awards under this Plan, which are forfeited or terminated, expire unexercised, lapse, or are +settled in cash in lieu of Common Stock or in another manner such that all or some of the +Shares covered by the Incentive Award are either not issued to a Grantee or are exchanged +for Incentive Awards that do not involve Common Stock, shall again, in each case, +immediately become available for Incentive Awards to be granted under the Plan. The +aggregate number of Shares of Common Stock which may be issued upon exercise of ISOs shall +be five hundred thousand (500,000) of the Shares reserved pursuant to the first sentence of +this paragraph. For purposes of counting Shares against the ISO maximum, only the net number +of Shares issued pursuant to the exercise of an ISO shall be counted. The Committee may from +time to time adopt and observe such procedures concerning the counting of Shares against the +Plan maximum as it may deem appropriate. +During any period that the Company is a Publicly Held Corporation, then unless and until the +Committee determines that a particular Incentive Award granted to a Covered Employee is not +intended to comply with the “performance-based exception” under Code Section 162(m), the +following rules shall apply to grants of Incentive Awards to Covered Employees: +(a) +Subject to adjustment as provided in Section 5.6 , the maximum aggregate +number of Shares of Common Stock attributable to Incentive Awards (including Stock +Options, SARs, and Restricted Stock) that may be granted (in the case of Stock Options +and SARs) or that may vest (in the case of Restricted Stock), as applicable, in any +calendar year pursuant to any Incentive Award held by any individual Covered Employee +shall be two hundred thousand (200,000) Shares. +(b) +Subject to the limitation of paragraph (a) above, the maximum aggregate number +of Shares issuable to any one person pursuant to Incentive Awards shall be five percent +(5%) of the number of Shares of Common Stock outstanding at the time of the grant of an +Incentive Award. +(c) +With respect to any Stock Option or SAR granted to a Covered Employee that is +canceled or re-priced, the number of Shares subject to such Stock Option or SAR shall +continue to count against the maximum number of Shares that may be the subject of Stock +Options or SARs granted to such Covered Employee hereunder and, in this regard, such +maximum number shall be determined in accordance with Code Section 162(m). +1.5 +Share Pool Adjustments for Awards and Payouts +The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis, +the number of Shares authorized for issuance under the Share Pool: +(a) +Stock Option; +(b) +SAR; +(c) +Restricted Stock Award; and +(d) +A payout of an Other Stock-Based Award in Shares. +The following transactions shall restore, on a one Share for one Share basis, the number of +Shares authorized for issuance under the Share Pool: +(a) +A cancellation, termination, expiration, forfeiture, or lapse for any reason of +any Shares subject to an Incentive Award; and +(b) +Payment of an Option Price by withholding Shares which otherwise would be +acquired on exercise (i.e., the Share Pool shall be increased by the number of Shares +withheld in payment of the Option Price). +33 +Table of Contents +Notwithstanding any provisions of the Plan to the contrary, only shares forfeited back to +the Company, shares canceled on account of termination, expiration or lapse of an Incentive +Award, shares surrendered in payment of the exercise price of an option or shares withheld +for payment of applicable employment taxes and/or withholding obligations resulting from the +exercise of an option shall again be available for grant of Incentive Stock Options under +the Plan, but shall not increase the maximum number of shares described in Section +1.4 above as the maximum number of Shares that may be delivered pursuant to Incentive +Stock Options. +1.6 +Common Stock Available +The Common Stock available for issuance or transfer under the Plan shall be made available +from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but +unissued shares, or (c) shares to be purchased or acquired by the Company. No fractional +shares shall be issued under the Plan; payment for fractional shares shall be made in cash. +1.7 +Participation +(a) +Eligibility. The Committee shall from time to time designate those Employees +and/or Outside Directors to be granted Incentive Awards under the Plan, the type of +Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the +case may be, which shall be granted to each such person, and any other terms or +conditions relating to the Incentive Awards as it may deem appropriate to the extent +consistent with the provisions of the Plan. A Grantee, who has been granted an +Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at +any time. +No Insider shall be eligible to be granted an Incentive Award that is subject to +Rule 16a-3 under the Exchange Act unless and until such Insider has granted a +limited power of attorney to those officers of the Company who have been designated +by the Committee for purposes of future required filings under the Exchange Act. +(b) +Incentive Stock Option Eligibility. No individual shall be eligible for the +grant of any Incentive Stock Option except an Employee. However, no Employee shall be +eligible for the grant of any ISO who owns or would own immediately before the grant of +such ISO, directly or indirectly, stock possessing more than ten percent (10%) of the +combined voting power of all classes of stock of the Company, or any Parent or +Subsidiary. This restriction does not apply if, at the time such ISO is granted, the +ISO exercise price is at least one hundred and ten percent (110%) of the Fair Market +Value on the date of grant and the ISO by its terms is not exercisable after the +expiration of five (5) years from the date of grant. For the purpose of the immediately +preceding sentence, the attribution rules of Code Section 424(d) shall apply from the +purpose of determining an Employee’s percentage ownership in the Company or any Parent +or Subsidiary. This paragraph shall be construed consistent with the requirements of +Code Section 422. +1.8 +Types of Incentive Awards +The types of Incentive Awards under the Plan are Stock Options, Stock Appreciation Rights, +Restricted Stock and Other Stock-Based Awards (as described in Section 4 ), or any +combination of the foregoing. +SECTION 2 +Stock Options and Stock Appreciation Rights +2.1 +Grant of Stock Options +The Committee is authorized to grant (a) Non-statutory Stock Options to Employees and +Outside Directors and (b) Incentive Stock Options to Employees only in accordance with the +terms and conditions of the Plan, and with such additional terms and conditions, not +inconsistent with the Plan, as the Committee shall determine in its discretion. Successive +grants may be made to the same Grantee regardless of whether any Stock Option previously +granted to such person remains unexercised. +34 +Table of Contents +2.2 +Stock Option Terms +(a) +Written Agreement. Each grant of a Stock Option shall be evidenced by a written +Incentive Agreement. Among its other provisions, each Incentive Agreement shall set +forth the extent to which the Grantee shall have the right to exercise the Stock Option +following termination of the Grantee’s Employment. Such provisions shall be determined +in the discretion of the Committee, shall be included in the Grantee’s Incentive +Agreement, and need not be uniform among all Stock Options issued pursuant to the Plan. +(b) +Number of Shares. Each Stock Option shall specify the number of Shares of +Common Stock to which it pertains. +(c) +Exercise Price. The exercise price per Share of Common Stock under each Stock +Option shall be determined by the Committee; provided however, that such exercise price +shall not be less than 100% of the Fair Market Value per Share on the date the Stock +Option is granted. Each Stock Option shall specify the method of exercise which shall +be consistent with the requirements of Section 2.4(a) . +(d) +Term. In the Incentive Agreement, the Committee shall fix the term of each +Stock Option, not to exceed ten (10) years from the date of grant for ISO grants or +five (5) years for ISO grants to 10% or greater stockholders pursuant to Section +1.7(b) . In the event no term is fixed, such term shall be ten (10) years from the +date of grant. +(e) +Exercise. The Committee shall determine the time or times at which a Stock +Option may be exercised, in whole or in part. Each Stock Option may specify the +required period of continuous Employment before the Stock Option or portion thereof +will become exercisable. All such terms and conditions shall be set forth in the +Incentive Agreement. +(f) +$100,000 Annual Limit on Incentive Stock Options. Notwithstanding any contrary +provision in the Plan, to the extent that the aggregate Fair Market Value (determined +as of the time the Incentive Stock Option is granted) of the Shares of Common Stock +with respect to which ISOs are exercisable for the first time by any Grantee during any +single calendar year (under the Plan and any other stock option plans of the Company +and its Subsidiaries or Parent) exceeds the sum of $100,000, such ISO shall +automatically be deemed to be a Non-statutory Stock Option but only to the extent in +excess of the $100,000 limit, and not an ISO. In such event, all other terms and +provisions of such Stock Option grant shall remain unchanged. This paragraph shall be +applied by taking ISOs into account in the order in which they were granted and shall +be construed in accordance with Code Section 422(d). +2.3 +Stock Option Exercises +(a) +Method of Exercise and Payment. Stock Options shall be exercised by the +delivery of a signed written notice of exercise to the Company as of a date set by the +Company in advance of the effective date of the proposed exercise. The notice shall set +forth the number of Shares with respect to which the Option is to be exercised, +accompanied by full payment for the Shares. +The Option Price upon exercise of any Stock Option shall be payable to the Company +in full either: (i) in cash or its equivalent; or (ii) subject to prior approval by +the Committee in its discretion, by tendering previously acquired Shares having an +aggregate Fair +Market Value at the time of exercise equal to the Option Price (provided that the +Shares which are tendered must have been held by the Grantee for at least six (6) +months prior to their tender to satisfy the Option Price); or (iii) subject to prior +approval by the Committee in its discretion, by withholding Shares which otherwise +would be acquired on exercise having an aggregate Fair Market Value at the time of +exercise equal to the total Option Price; or (iv) subject to prior approval by the +Committee in its discretion, by a combination of (i), (ii), and (iii) above. +Any payment in Shares shall be effected by the surrender of such Shares to the +Company in good form for transfer and shall be valued at their Fair Market Value on +the date when the Stock Option is exercised. Unless otherwise permitted by the +Committee in its discretion, the Grantee shall not surrender, or attest to the +ownership of, Shares in payment of the Option Price if such action would cause the +Company to recognize compensation expense +35 +Table of Contents +(or additional compensation expense) with +respect to the Stock Option for financial accounting reporting purposes. +The Committee, in its discretion, also may allow the Option Price to be paid with +such other consideration as shall constitute lawful consideration for the issuance +of Shares (including, without limitation, effecting a “cashless exercise” with a +broker of the Option), subject to applicable securities law restrictions and tax +withholdings, or by any other means which the Committee determines to be consistent +with the Plan’s purpose and applicable law. At the direction of the Grantee, the +broker will either (i) sell all of the Shares received when the Option is exercised +and pay the Grantee the proceeds of the sale (minus the Option Price, withholding +taxes and any fees due to the broker); or (ii) sell enough of the Shares received +upon exercise of the Option to cover the Option Price, withholding taxes and any +fees due the broker and deliver to the Grantee (either directly or through the +Company) a stock certificate for the remaining Shares. Dispositions to a broker +affecting a cashless exercise are not exempt under Section 16 of the Exchange Act if +the Company is a Publicly Held Corporation. Moreover, in no event will the Committee +allow the Option Price to be paid with a form of consideration; including a loan or +a “cashless exercise,” if such form of consideration would violate the +Sarbanes-Oxley Act of 2002, as determined by the Committee in its sole discretion. +As soon as practicable after receipt of a written notification of exercise and full +payment, the Company shall deliver, or cause to be delivered, to or on behalf of the +Grantee, in the name of the Grantee or other appropriate recipient, evidence of +ownership for the number of Shares purchased under the Stock Option. +Subject to Section 5.4 , during the lifetime of a Grantee, each Option +granted to him shall be exercisable only by the Grantee (or his legal guardian in +the event of his Disability) or by a broker-dealer acting on his behalf pursuant to +a cashless exercise under the foregoing provisions of this Section 2.4(a) . +(b) +Restrictions on Share Transferability. The Committee may impose such +restrictions on any grant of Stock Options or on any Shares acquired pursuant to the +exercise of a Stock Option as it may deem advisable, including, without limitation, +restrictions under (i) any stockholders’ agreement, buy/sell agreement, right of first +refusal, non-competition, and any other agreement between the Company and any of its +securities holders or employees; (ii) any applicable federal securities laws; (iii) the +requirements of any stock exchange or market upon which such Shares are then listed +and/or traded; or (iv) any blue sky or state securities law applicable to such Shares. +Any certificate issued to evidence Shares issued upon the exercise of an Incentive +Award may bear such legends and statements as the Committee shall deem advisable to +assure compliance with federal and state laws and regulations. +Any Grantee or other person exercising an Incentive Award shall be required, if +requested by the Committee, to give a written representation that the Incentive +Award and the Shares subject to the Incentive Award will be acquired for investment +and not with a view to public distribution; provided, however, that the Committee, +in its discretion, may release any person receiving an Incentive Award from any such +representations either prior to or subsequent to the exercise of the Incentive +Award. +(c) +Notification of Disqualifying Disposition of Shares from Incentive Stock +Options. Notwithstanding any other provision of the Plan, a Grantee who disposes of +Shares of +Common Stock acquired upon the exercise of an Incentive Stock Option by a sale or +exchange either (i) within two (2) years after the date of the grant of the +Incentive Stock Option under which the Shares were acquired or (ii) within one (1) +year after the transfer of such Shares to him pursuant to exercise, shall promptly +notify the Company of such disposition, the amount realized and his adjusted basis +in such Shares. +(d) +Proceeds of Option Exercise. The proceeds received by the Company from the sale +of Shares pursuant to Stock Options exercised under the Plan shall be used for general +corporate purposes. +2.4 +Stock Appreciation Rights +(a) +Grant. The Committee may grant Stock Appreciation Rights that are independent +of Non-statutory Stock Options (“SARs”) , but only with respect to Shares that are +traded on an +36 +Table of Contents +established securities exchange. All SARs granted under the Plan are +intended to satisfy the requirements for stock appreciation rights to be exempt from +the requirements of Code Section 409A, and therefore not provide for any deferral of +compensation subject to Code Section 409A. +(b) +General Provisions. The terms and conditions of each SAR shall be evidenced by +an Incentive Agreement. The exercise price per Share shall never be less than one +hundred percent (100%) of the Fair Market Value of a Share on the grant date of the +SAR. The term of the SAR shall be determined by the Committee. The Committee cannot +include any feature for the deferral of compensation other than the deferral of +recognition of income until exercise of the SAR. +(c) +Exercise. SARs shall be exercisable subject to such terms and conditions as the +Committee shall specify in the Incentive Agreement for the SAR grant, provided that +such terms and conditions are not inconsistent with the Plan. No SAR granted to an +Insider may be exercised prior to six (6) months from the date of grant, except in the +event of his death or Disability which occurs prior to the expiration of such six-month +period if so permitted under the Incentive Agreement. +(d) +Settlement. Upon exercise of the SAR, the Grantee shall receive an amount equal +to the Spread. The Spread, less applicable withholdings, shall be payable only in +Shares within 30 calendar days of the exercise date. In no event shall any SAR be +settled in any manner other than by delivery of Shares that are traded on an +established securities market. In addition, the Incentive Agreement under which such +SARs are awarded, or any other agreements or arrangements, shall not provide that the +Company will purchase any Shares delivered to the Grantee as a result of the exercise +or vesting of a SAR. +SECTION 3 +Restricted Stock +3.1 +Award of Restricted Stock +(a) +Grant. With respect to a Grantee who is an Employee or Outside Director, Shares +of Restricted Stock may be awarded by the Committee with such restrictions during the +Restriction Period as the Committee shall designate in its discretion. Any such +restrictions may differ with respect to a particular Grantee. Restricted Stock shall be +awarded for no additional consideration or such additional consideration as the +Committee may determine, which consideration may be less than, equal to, or more than +the Fair Market Value of the shares of Restricted Stock on the grant date. The terms +and conditions of each grant of Restricted Stock shall be evidenced by an Incentive +Agreement and, during the Restriction Period, such Shares of Restricted Stock must +remain subject to a “substantial risk of forfeiture” within the meaning given to such +term under Code Section 83. +(b) +Immediate Transfer Without Immediate Delivery of Restricted Stock. Unless +otherwise specified in the Grantee’s Incentive Agreement, each Restricted Stock Award +shall not constitute an immediate transfer of the record and beneficial ownership of +the Shares of Restricted Stock to the Grantee in consideration of the performance of +services as an Employee or Outside Director, as applicable, and shall not entitle such +Grantee to any +voting and other ownership rights in such Shares until the date the Restriction +Period ends. +As specified in the Incentive Agreement, a Restricted Stock Award may limit the +Grantee’s dividend rights during the Restriction Period in which the shares of +Restricted Stock are subject to a “substantial risk of forfeiture” (within the +meaning given to such term under Code Section 83) and restrictions on transfer. In +the Incentive Agreement, the Committee may apply any restrictions to the dividends +that the Committee deems appropriate. In the event that any dividend constitutes a +derivative security or an equity security pursuant to the rules under Section 16 of +the Exchange Act, if applicable, such dividend shall be subject to a vesting period +equal to the remaining vesting period of the Shares of Restricted Stock with respect +to which the dividend is paid. +Shares awarded pursuant to a grant of Restricted Stock may be issued in the name of +the Grantee and held, together with a stock power endorsed in blank, by the +Committee or Company (or their delegates) or in trust or in escrow pursuant to an +agreement satisfactory to the Committee, as determined by the Committee, until such +time as the restrictions on +37 +Table of Contents +transfer have expired. All such terms and conditions +shall be set forth in the particular Grantee’s Incentive Agreement. The Company or +Committee (or their delegates) shall issue to the Grantee a receipt evidencing the +certificates held by it which are registered in the name of the Grantee. +3.2 +Restrictions +(a) +Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee may be +subject to the following restrictions until the expiration of the Restriction Period: +(i) a restriction that constitutes a “substantial risk of forfeiture” (as defined in +Code Section 83), or a restriction on transferability; (ii) unless otherwise specified +by the Committee in the Incentive Agreement, the Restricted Stock that is subject to +restrictions which are not satisfied shall be forfeited and all rights of the Grantee +to such Shares shall terminate; and (iii) any other restrictions that the Committee +determines in advance are appropriate, including, without limitation, rights of +repurchase or first refusal in the Company or provisions subjecting the Restricted +Stock to a continuing substantial risk of forfeiture in the hands of any transferee. +Any such restrictions shall be set forth in the particular Grantee’s Incentive +Agreement. +(b) +Issuance of Certificates. Reasonably promptly after the date of grant with +respect to Shares of Restricted Stock, the Company shall cause to be issued a stock +certificate, registered in the name of the Grantee to whom such Shares of Restricted +Stock were granted, evidencing such Shares; provided, however, that the Company shall +not cause to be issued such a stock certificate unless it has received a stock power +duly endorsed in blank with respect to such Shares. Each such stock certificate shall +bear the following legend or any other legend approved by the Company: +The transferability of this certificate and the shares of stock +represented hereby are subject to restrictions, terms and conditions +(including forfeiture and restrictions against transfer) contained +in the Callon Petroleum Company 2006 Stock Incentive Plan and an +Incentive Agreement entered into between the registered owner of +such shares and Callon Petroleum Company 2006 Stock Incentive Plan a +copy of the Plan and Incentive Agreement are on file in the main +corporate office of Callon Petroleum Company. +Such legend shall not be removed from the certificate evidencing such Shares of +Restricted Stock unless and until such Shares vest pursuant to the terms of the +Incentive Agreement. +(c) +Removal of Restrictions. The Committee, in its discretion, shall have the +authority to remove any or all of the restrictions on the Restricted Stock if it +determines that, by reason of a change in applicable law or another change in +circumstance arising after the grant date of the Restricted Stock, such action is +necessary or appropriate. +3.3 +Delivery of Shares of Common Stock +Subject to withholding taxes under Section 6.3 and to the terms of the Incentive +Agreement, a stock certificate evidencing the Shares of Restricted Stock with respect to +which the restrictions in the Incentive Agreement have been satisfied shall be delivered to +the Grantee or other appropriate recipient free of restrictions. +3.4 +Performance Goals. Awards of Restricted Stock under the Plan may be made subject to the +attainment of any of this goals described in this Section 3.4 (“ Performance Goals ”) relating +to one or more business criteria which, where applicable, shall be within the meaning of Code +Section 162(m) and consist of one or more or any combination of the following criteria: cash +flow; cost; revenues; sales; ratio of debt to debt plus equity; net borrowing, credit quality +or debt ratings; profit before tax; economic profit; earnings before interest and taxes; +earnings before interest, taxes, depreciation and amortization; gross margin; earnings per +share (whether on a pre-tax, after-tax, operational or other basis); operating earnings; +capital expenditures; expenses or expense levels; economic value added; ratio of operating +earnings to capital spending or any other operating ratios; free cash flow; net profit; net +sales; net asset value per share; the accomplishment of mergers, acquisitions, dispositions, +public offerings or similar extraordinary business transactions; sales growth; price of the +Company’s Common Stock; return on assets, equity or stockholders’ [ equity; market share; +inventory levels, inventory turn or shrinkage; or total return to stockholders (“ Performance +Criteria ”). Any Performance Criteria may be used to measure the +38 +Table of Contents +performance of the Company as +a whole or any business unit of the Company and may be measured relative to a peer group or +index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or +non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, +(iii) changes in tax or accounting regulations or laws, or (iv) the effect of a merger or +acquisition, as identified in the Company’s quarterly and annual earnings releases. In all +other respects, Performance Criteria shall be calculated in accordance with the Company’s +financial statements, under generally accepted accounting principles, or under a methodology +established by the Committee prior to the issuance of an Award which is consistently applied +and identified in the audited financial statements, including footnotes, or the Management +Discussion and Analysis section of the Company’s annual report. However, to the extent +Section 162(m) of the Code is applicable, the Committee may not in any event increase the +amount of compensation payable to an individual upon the attainment of a Performance Goal. +SECTION 4 +Other Stock-Based Awards +4.1 +Grant of Other Stock-Based Awards +Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are +payable in Shares or in cash, as determined in the discretion of the Committee to be +consistent with the goals of the Company. Other types of Stock-Based Awards that are payable +in Shares include, without limitation, purchase rights, Shares of Common Stock awarded that +are not subject to any restrictions or conditions, convertible or exchangeable debentures, +and other rights convertible into Shares. As is the case with other types of Incentive +Awards, Other Stock-Based Awards may be awarded either alone or in addition to or in +conjunction with any other Incentive Awards. Other Stock-Based Awards that are payable in +Shares are not intended to be deferred compensation that is subject to Code Section 409A +unless otherwise determined and provided by the Committee. +4.2 +Other Stock-Based Award Terms +(a) +Written Agreement. The terms and conditions of each grant of an Other +Stock-Based Award shall be evidenced by an Incentive Agreement. +(b) +Purchase Price. Except to the extent that an Other Stock-Based Award is granted +in substitution for an outstanding Incentive Award or is delivered upon exercise of a +Stock Option, the amount of consideration required to be received by the Company shall +be either (i) no consideration other than services actually rendered (in the case of +authorized and unissued shares) or to be rendered, or (ii) as otherwise specified in +the Incentive Agreement. +(c) +Other Terms. All terms and conditions of Other Stock-Based Awards shall be +determined by the Committee and set forth in the Incentive Agreement, provided that +such terms and conditions are consistent with the Plan. +(d) +Payment. Other Stock-Based Awards shall be paid in Shares, in a single payment +or in installments on such dates as determined by the Committee; all as specified in +the Incentive Agreement. +SECTION 5 +Provisions Relating to Plan Participation +5.1 +Incentive Agreement +Each Grantee to whom an Incentive Award is granted shall be required to enter into an +Incentive Agreement with the Company, in such a form as is provided by the Committee. The +Incentive Agreement shall contain specific terms as determined by the Committee, in its +discretion, with respect to the Grantee’s particular Incentive Award. Such terms need not be +uniform among all Grantees or any similarly situated Grantees. The Incentive Agreement may +include, without limitation, vesting, forfeiture and other provisions particular to the +particular Grantee’s Incentive Award, as well as, for example, provisions to the effect that +the Grantee (a) shall not disclose any confidential information acquired during Employment +with the Company, (b) shall abide by all the terms and conditions of the Plan and such other +terms and conditions as may be imposed by the Committee, (c) shall not interfere with the +employment or other service of any employee, (d) shall not compete with the Company or +become involved in a conflict of interest with the interests of the +39 +Table of Contents +Company, (e) shall +forfeit an Incentive Award if terminated for cause, (f) shall not be permitted to make an +election under Code Section 83(b) when applicable, and (g) shall be subject to any other +agreement between the Grantee and the Company regarding Shares that may be acquired under an +Incentive Award including, without limitation, a stockholders’ agreement, buy-sell +agreement, or other agreement restricting the transferability of Shares by Grantee. An +Incentive Agreement shall include such terms and conditions as are determined by the +Committee, in its discretion, to be appropriate with respect to any individual Grantee. The +Incentive Agreement shall be signed by the Grantee to whom the Incentive Award is made and +by an Authorized Officer. +5.2 +No Right to Employment +Nothing in the Plan or any instrument executed pursuant to the Plan shall create any +Employment rights (including without limitation, rights to continued Employment) in any +Grantee or affect the right of the Company to terminate the Employment of any Grantee at any +time without regard to the existence of the Plan. +5.3 +Securities Requirements +The Company shall be under no obligation to affect the registration pursuant to the +Securities Act of 1933 of any Shares to be issued hereunder or to effect similar compliance +under any state laws. Notwithstanding anything herein to the contrary, the Company shall not +be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant +to the Plan unless and until the Company is advised by its counsel that the issuance and +delivery of such certificates is in compliance with all applicable laws, regulations of +governmental authorities, and the requirements of any securities exchange on which Shares +are traded. The Committee may require, as a condition of the issuance and delivery of +certificates evidencing Shares pursuant to the terms hereof, that the recipient of such +Shares make such covenants, agreements and representations, and that such certificates bear +such legends, as the Committee, in its discretion, deems necessary or desirable. +The Committee may, in its discretion, defer the effectiveness of any exercise of an +Incentive Award in order to allow the issuance of Shares to be made pursuant to registration +or an exemption from registration or other methods for compliance available under federal or +state securities laws. The Committee shall inform the Grantee in writing of its decision to +defer the effectiveness of the exercise of an Incentive Award. During the period that the +effectiveness of the exercise of an Incentive Award has been deferred, the Grantee may, by +written notice to the Committee, withdraw such exercise and obtain the refund of any amount +paid with respect thereto. +If the Shares issuable on exercise of an Incentive Award are not registered under the +Securities Act of 1933, the Company may imprint on the certificate for such Shares the +following legend or any other legend which counsel for the Company considers necessary or +advisable to comply with the Securities Act of 1933: +THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED +UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS +OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN +EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE +SECURITIES LAWS OR PURSUANT TO ANY APPLICABLE EXEMPTION FROM THE +REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN +OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH +REGISTRATION IS NOT REQUIRED. +5.4 +Transferability +Incentive Awards granted under the Plan shall not be transferable or assignable other than: +(a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic +relations order (as defined under Code Section 414(p)); provided, however, only with respect +to Incentive Awards consisting of Non-statutory Stock Options, the Committee may, in its +discretion, authorize all or a portion of the Non-statutory Stock Options to be granted on +terms which permit transfer by the Grantee to (i) the members of the Grantee’s Immediate +Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family members, (iii) +a partnership in which such Immediate Family members are the only partners, or (iv) any +other entity owned solely by Immediate Family members; provided that (A) there may be no +consideration for any such transfer, (B) the Incentive Agreement pursuant to which such +Non-statutory Stock Options are granted must be approved by +40 +Table of Contents +the Committee, and must +expressly provide for transferability in a manner consistent with this Section 5.4 , +(C) subsequent transfers of transferred Non-statutory Stock Options shall be prohibited +except in accordance with clauses (a) and (b) (above) of this sentence, and (D) there may be +no transfer of any Incentive Award in a listed transaction as described in IRS Notice +2003-47. Following any permitted transfer, the Non-statutory Stock Option shall continue to +be subject to the same terms and conditions as were applicable immediately prior to +transfer, provided that the term “Grantee” shall be deemed to refer to the transferee. The +events of termination of employment, as set out in Section 5.7 and in the Incentive +Agreement, shall continue to be applied with respect to the original Grantee, and the +Incentive Award shall be exercisable by the transferee only to the extent, and for the +periods, specified in the Incentive Agreement. +Except as may otherwise be permitted under the Code, in the event of a permitted transfer of +a Non-statutory Stock Option hereunder, the original Grantee shall remain subject to +withholding taxes upon exercise. In addition, the Company and the Committee shall have no +obligation to provide any notices to any Grantee or transferee thereof, including, for +example, notice of the expiration of an Incentive Award following the original Grantee’s +termination of employment. +The designation by a Grantee of a beneficiary of an Incentive Award shall not constitute +transfer of the Incentive Award. No transfer by will or by the laws of descent and +distribution shall be effective to bind the Company unless the Committee has been furnished +with a copy of the deceased Grantee’s enforceable will or such other evidence as the +Committee deems necessary to establish the validity of the transfer. Any attempted transfer +in violation of this Section 5.4 shall be void and ineffective. All determinations +under this Section 5.4 shall be made by the Committee in its discretion. +5.5 +Rights as a Stockholder +(a) +No Stockholder Rights. Except as otherwise provided in Section 3.1(b) +for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted +transferee of such Grantee) shall have no rights as a stockholder with respect to any +Shares of Common Stock until the issuance of a stock certificate or other record of +ownership for such Shares. +(b) +Representation of Ownership. In the case of the exercise of an Incentive Award +by a person or estate acquiring the right to exercise such Incentive Award by reason of +the death or Disability of a Grantee, the Committee may require reasonable evidence as +to the ownership of such Incentive Award or the authority of such person. The Committee +may also require such consents and releases of taxing authorities as it deems +advisable. +5.6 +Change in Stock and Adjustments +(a) +Changes in Law or Circumstances. Subject to Section 5.8 (which only +applies in the event of a Change in Control), in the event of any change in applicable +law or any change in circumstances which results in or would result in any dilution of +the rights granted under the Plan, or which otherwise warrants an equitable adjustment +because it interferes with the intended operation of the Plan, then, if the Board or +Committee should so determine, in its absolute discretion, that such change equitably +requires an adjustment in the number or kind of shares of stock or other securities or +property theretofore subject, or which may become subject, to issuance or transfer +under the Plan or in the terms and conditions of outstanding Incentive Awards, such +adjustment shall be made in accordance with such determination. Such adjustments may +include changes with respect to (i) the aggregate number of Shares that may be issued +under the Plan, (ii) the number of Shares subject to Incentive Awards, and (iii) the +Option Price or other price per Share for outstanding Incentive Awards, but shall not +result in the grant of any Stock Option with an exercise price less than 100% of the +Fair Market Value per Share on the date of grant. The Board or Committee shall give +notice to each applicable Grantee of such adjustment which shall be effective and +binding. +(b) +Exercise of Corporate Powers. The existence of the Plan or outstanding +Incentive Awards hereunder shall not affect in any way the right or power of the +Company or its stockholders to make or authorize any or all adjustments, +recapitalization, reorganization or other changes in the Company’s capital structure +or its business or any merger or consolidation of the Company, or any issue of bonds, +debentures, preferred or prior preference stocks ahead of or affecting the Common +Stock or the rights thereof, or the dissolution or liquidation of the Company, or any +sale or transfer of all or any part of its assets or +41 +Table of Contents +business, or any other corporate +act or proceeding whether of a similar character or otherwise. +(c) +Recapitalization of the Company. Subject to Section 5.8 (which only +applies in the event of a Change in Control), if while there are Incentive Awards +outstanding, the Company shall effect any subdivision or consolidation of Shares of +Common Stock or other capital readjustment, the payment of a stock dividend, stock +split, combination of Shares, recapitalization or other increase or reduction in the +number of Shares outstanding, without receiving compensation therefore in money, +services or property, then the number of Shares available under the Plan and the +number of Incentive Awards which may thereafter be exercised shall (i) in the event of +an increase in the number of Shares outstanding, be proportionately increased and the +Option Price or Fair Market Value of the Incentive Awards awarded shall be +proportionately reduced; and (ii) in the event of a reduction in the number of Shares +outstanding, be proportionately reduced, and the Option Price or Fair Market Value of +the Incentive Awards awarded shall be proportionately increased. The Board or +Committee shall take such action and whatever other action it deems appropriate, in +its discretion, so that the value of each outstanding Incentive Award to the Grantee +shall not be adversely affected by a corporate event described in this Section +5.6(c) . +(d) +Issue of Common Stock by the Company. Except as hereinabove expressly provided +in this Section 5.6 and subject to Section 5.8 in the event of a Change +in Control, the issue by the Company of shares of stock of any class, or securities +convertible into shares of stock of any class, for cash or property, or for labor or +services, either upon direct sale or upon the exercise of rights or warrants to +subscribe therefore, or upon any conversion of shares or obligations of the Company +convertible into such shares or other securities, shall not affect, and no adjustment +by reason thereof shall be made with respect to, the number of, or Option Price or Fair +Market Value of, any Incentive Awards then outstanding under previously granted +Incentive Awards; provided, however, in such event, outstanding Shares of Restricted +Stock shall be treated the same as outstanding unrestricted Shares of Common Stock. +(e) +Assumption under the Plan of Outstanding Stock Options. Notwithstanding any +other provision of the Plan, the Board or Committee, in its discretion, may authorize +the assumption and continuation under the Plan of outstanding and unexercised stock +options or other types of stock-based incentive awards that were granted under a stock +option plan (or other type of stock incentive plan or agreement) that is or was +maintained by a corporation or other entity that was merged into, consolidated with, or +whose stock or assets were acquired by, the Company as the surviving corporation. Any +such action shall be upon such terms and conditions as the Board or Committee, in its +discretion, may deem appropriate, including provisions to preserve the holder’s rights +under the previously granted and unexercised stock option or other stock-based +incentive award; such as, for example, retaining an existing exercise price under an +outstanding stock option. Any such assumption and continuation of any such previously +granted and unexercised incentive award shall be treated as an outstanding Incentive +Award under the Plan and shall thus count against the number of Shares reserved for +issuance pursuant to Section 1.4 . In addition, any Shares issued by the Company +through the assumption or substitution of outstanding grants from an acquired company +shall reduce the Shares available for grants under Section 1.4 . +(f) +Assumption of Incentive Awards by a Successor. Subject to the accelerated +vesting and other provisions of Section 6.8 that apply in the event of a Change +in Control, in the event of a Corporate Event (defined below), each Grantee shall be +entitled to receive, in lieu of the number of Shares subject to Incentive Awards, such +shares of capital stock or other securities or property as may be issuable or payable +with respect to or in exchange for the number of Shares which Grantee would have +received had he exercised the Incentive Award immediately prior to such Corporate +Event, together with any adjustments (including, without limitation, adjustments to the +Option Price and the number of Shares issuable on exercise of outstanding Stock +Options). For this purpose, Shares of Restricted Stock shall be treated the same as +unrestricted outstanding Shares of Common Stock. A “Corporate Event” means any of the +following: (i) a dissolution or liquidation of the Company, (ii) a sale of all or +substantially all of the Company’s assets, or (iii) a merger, consolidation or +combination involving the Company (other than a merger, consolidation or combination +(A) in which the Company is the continuing or surviving corporation and (B) which does +not result in the outstanding Shares being converted into or exchanged for +42 +Table of Contents +different +securities, cash or other property, or any combination thereof). The Board or Committee +shall take whatever other action it deems appropriate to preserve the rights of +Grantees holding outstanding Incentive Awards. +Notwithstanding the previous paragraph of this Section 5.6(f) , but subject +to the accelerated vesting and other provisions of Section 5.8 that apply in +the event of a Change in Control, in the event of a Corporate Event (described in +the previous paragraph), the Board or Committee, in its discretion, shall have the +right and power to: +(i) +cancel, effective immediately prior to the occurrence of the +Corporate Event, each outstanding Incentive Award (whether or not then +exercisable) and, in full consideration of such cancellation, pay to the +Grantee an amount in cash equal to the excess of (A) the value, as determined +by the Board or Committee, of the property (including cash) received by the +holders of Common Stock as a result of such Corporate Event over (B) the +exercise price of such Incentive Award, if any; provided, however, this +subsection (i) shall be inapplicable to an Incentive Award granted within six +(6) months before the occurrence of the Corporate Event if the Grantee is an +Insider and such disposition is not exempt under Rule 16b-3 (or other rules +preventing liability of the Insider under Section 16(b) of the Exchange Act) +and, in that event, the provisions hereof shall be applicable to such Incentive +Award after the expiration of six (6) months from the date of grant; or +(ii) +provide for the exchange or substitution of each Incentive +Award outstanding immediately prior to such Corporate Event (whether or not +then exercisable) for another award with respect to the Common Stock or other +property for which such Incentive Award is exchangeable and, incident thereto, +make an equitable adjustment as determined by the Board or Committee, in its +discretion, in the Option Price or exercise price of the Incentive Award, if +any, or in the number of Shares or amount of property (including cash) subject +to the Incentive Award; or +(iii) +provide for assumption of the Plan and such outstanding +Incentive Awards by the surviving entity or its parent. +The Board or Committee, in its discretion, shall have the authority to take whatever +action it deems to be necessary or appropriate to effectuate the provisions of this +Section 5.6(f) . +5.7 +Termination of Employment, Death, Disability and Retirement +(a) +Termination of Employment. Unless otherwise expressly provided in the Grantee’s +Incentive Agreement or the Plan, if the Grantee’s Employment is terminated for any +reason other than due to his death, Disability, Retirement or for Cause, any non-vested +portion of any Stock Option or other Incentive Award at the time of such termination +shall automatically expire and terminate and no further vesting shall occur after the +termination date. In such event, except as otherwise expressly provided in his +Incentive Agreement, the Grantee shall be entitled to exercise his rights only with +respect to the portion of the Incentive Award that was vested as of his termination of +Employment date for a period that shall end on the earlier of (i) the expiration date +set forth in the Incentive Agreement or (ii) ninety (90) days after the date of his +termination of Employment. +(b) +Termination of Employment for Cause. Unless otherwise expressly provided in the +Grantee’s Incentive Agreement or the Plan, in the event of the termination of a +Grantee’s Employment for Cause, all vested and non-vested Stock Options and other +Incentive Awards granted to such Grantee shall immediately expire, and shall not be +exercisable to any extent, as of 12:01 a.m. (CST) on the date of such termination of +Employment. +Unless otherwise provided in the applicable Incentive Agreement, when used in +connection with the termination of a Grantee’s Employment, “Cause” shall mean the +termination of the Grantee’s Employment by the Company or any Subsidiary by reason +of: +(i) +the conviction of the Grantee by a court of competent +jurisdiction as to which no further appeal can be taken of a crime involving +moral turpitude or a felony or entering the plea of nolo contendere to such +crime by Grantee; +(ii) +the commission by the Grantee of a material act of fraud upon +the Company or any Parent or Subsidiary; +43 +Table of Contents +(iii) +the material misappropriation by the Grantee of any funds or +other property of the Company or any Parent or Subsidiary; +(iv) +the knowing engagement by the Grantee without the written +approval of the Board, in any material activity which directly competes with +the business of the Company or any Parent or Subsidiary, or which would +directly result in a material injury to the business or reputation of the +Company or any Parent or Subsidiary; or +(v) +with respect to any Grantee who is an Employee (A) a material +breach by Employee during his employment period of any of the restrictive +covenants set out in his employment agreement with the Company or any Parent or +Subsidiary, if applicable, or (B) the willful, material and repeated +nonperformance of Employee’s duties to the Company or any Parent or Subsidiary +(other than by reason of Employee’s illness or incapacity), but Cause shall not +exist under this clause; or (v)(A) or (v)(B) until after written notice from +the Board has been given to Employee of such material breach or nonperformance +(which notice specifically identifies the manner and sets forth specific facts, +circumstances and examples in which the Board believes that Employee has +breached the agreement or not substantially performed his duties) and Employee +has failed to cure such alleged breach or nonperformance within the time period +set by the Board, but in no event less than thirty (30) business days after his +receipt of such notice; and, for purposes of this clause (v), no act or failure +to act on Employee’s part shall be deemed “willful” unless it is done or +omitted by Employee not in good faith and without his reasonable belief that +such action or omission was in the best +interest of the Company (assuming disclosure of the pertinent facts, any +action or omission by Employee after consultation with, and in accordance +with the advice of, legal counsel reasonably acceptable to the Company shall +be deemed to have been taken in good faith and to not be willful for +purposes of this definition of “Cause”). +(c) +Retirement. Unless otherwise expressly provided in the Grantee’s Incentive +Agreement or the Plan, upon the termination of Employment due to the Grantee’s +Retirement: +(i) +any non-vested portion of any outstanding Option or other +Incentive Award shall immediately terminate and no further vesting shall occur; +and +(ii) +any vested Option or other Incentive Award shall expire on the +earlier of (A) the expiration date set forth in the Incentive Agreement for +such Incentive Award; or (B) the expiration of (1) one year after the date of +his termination of Employment due to Retirement in the case of any Incentive +Award other than an Incentive Stock Option or (2) three months after his +termination date in the case of an Incentive Stock Option. +(d) +Disability or Death. Unless otherwise expressly provided in the Grantee’s +Incentive Agreement or the Plan, upon termination of Employment as a result of the +Grantee’s Disability or death: +(i) +any non-vested portion of any outstanding Option or other +Incentive Award shall immediately terminate upon termination of Employment and +no further vesting shall occur; and +(ii) +any vested Incentive Award shall expire on the earlier of +either (A) the expiration date set forth in the Incentive Agreement or (B) the +one year anniversary date of the Grantee’s termination of Employment date. +In the case of any vested Incentive Stock Option held by an Employee following +termination of Employment, notwithstanding the definition of “Disability” in +Section 1.2 , whether the Employee has incurred a “Disability” for purposes +of determining the length of the Option exercise period following termination of +Employment under this Section 5.7(d) shall be determined by reference to +Code Section 22(e)(3) to the extent required by Code Section 422(c)(6). The +Committee shall determine whether a Disability for purposes of this Section +5.7(d) has occurred. +(e) +Continuation. Subject to the conditions and limitations of the Plan and +applicable law and regulation in the event that a Grantee ceases to be an Employee or +Outside Director, as +44 +Table of Contents +applicable, for whatever reason, the Committee and Grantee may +mutually agree with respect to any outstanding Option or other Incentive Award then +held by the Grantee (i) for an acceleration or other adjustment in any vesting schedule +applicable to the Incentive Award; (ii) for a continuation of the exercise period +following termination for a longer period than is otherwise provided under such +Incentive Award; or (iii) to any other change in the terms and conditions of the +Incentive Award. In the event of any such change to an outstanding Incentive Award, a +written amendment to the Grantee’s Incentive Agreement shall be required. +Notwithstanding the foregoing, no amendment to a Grantee’s Incentive Award shall be +made to the extent compensation payable pursuant thereto as a result of such amendment +would be considered deferred compensation subject to Code Section 409A, unless +otherwise determined and provided by the Committee. +5.8 +Change in Control +Notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as +defined below), the following actions shall automatically occur as of the day immediately +preceding the Change in Control date unless expressly provided otherwise in the individual +Grantee’s Incentive Agreement: +(a) +all of the Stock Options and Stock Appreciation Rights then outstanding shall +become 100% vested and immediately and fully exercisable; +(b) +all of the restrictions and conditions of any Restricted Stock and any Other +Stock-Based Awards then outstanding shall be deemed satisfied, and the Restriction +Period with respect thereto shall be deemed to have expired, and thus each such +Incentive Award shall become free of all restrictions and fully vested; and +(c) +all of the Performance-Based Stock-Based Awards and any Other Stock-Based +Awards shall become fully vested, deemed earned in full, and promptly paid within +thirty (30) days to the affected Grantees without regard to payment schedules and +notwithstanding that the applicable performance cycle, retention cycle or other +restrictions and conditions have not been completed or satisfied. +For all purposes of this Plan, a “Change in Control” of the Company means the occurrence of +any one or more of the following events: +(a) +any consolidation, merger or share exchange of the Company in which the Company +is not the continuing or surviving corporation or pursuant to which Shares would be +converted into cash, securities or other property, other than a consolidation, merger +or share exchange of the Company in which the holders of the Common Stock immediately +prior to such transaction have the same proportionate ownership of Common Stock of the +surviving corporation immediately after such transaction; +(b) +any sale, lease, exchange or other transfer (excluding transfer by way of +pledge or hypothecation) in one transaction or a series of related transactions, of all +or substantially all of the assets of the Company; +(c) +the stockholders of the Company approve any plan or proposal for the +liquidation or dissolution of the Company; +(d) +the cessation of control (by virtue of their not constituting a majority of +directors) of the Board by the individuals (the “Continuing +Directors” ) who (x) at the +date of this Plan were directors or (y) become directors after the effective date of +the Plan and whose election or nomination for election by the Company’s stockholders, +was approved by a vote of at least two-thirds of the directors then in office who were +directors at the effective date of the Plan or whose election or nomination for +election was previously so approved; +(e) +the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under +the Exchange Act) of an aggregate of 20% of the voting power of the Company’s +outstanding voting securities by any person or group (as such term is used in Rule +13d-5 under the Exchange Act) who beneficially owned less than 15% of the voting power +of the Company’s outstanding voting securities on the effective date of the Plan, or +the acquisition of beneficial ownership of an additional 5% of the voting power of the +Company’s outstanding voting securities by any person or group who beneficially owned +at least 15% of the voting power of the Company’s outstanding voting securities on the +45 +Table of Contents +effective date of the Plan; provided, however, that notwithstanding the foregoing, an +acquisition shall not constitute a Change of Control hereunder if the acquirer is (x) a +trustee or other fiduciary holding securities under an employee benefit plan of the +Company and acting in such capacity, (y) a Subsidiary of the Company or a corporation +owned, directly or indirectly, by the stockholders of the Company in substantially the +same proportions as their ownership of voting securities of the Company or (z) any +other person whose acquisition of shares of voting securities is approved in advance by +a majority of the Continuing Directors; or +(f) +in a Title 11 bankruptcy proceeding, the appointment of a trustee or the +conversion of a case involving the Company to a case under Chapter 7. +Notwithstanding the occurrence of any of the foregoing events set out in this Section +5.8 which would otherwise result in a Change in Control, the Board may determine in its +discretion, if it deems it to be in the best interest of the Company, that an event or +events otherwise constituting or reasonably leading to a Change in Control shall not be +deemed a Change in Control hereunder. Such determination shall be effective only if it is +made by the Board (a) prior to the occurrence of an event that otherwise would be, or +reasonably lead to, a Change in Control, or (b) after such event only if made by the Board a +majority of which is composed of directors who were members +of the Board immediately prior to the event that otherwise would be, or reasonably lead to, +a Change in Control. +Notwithstanding the foregoing provisions of this Section 5.8 , to the extent that any +payment or acceleration hereunder is subject to Code Section 409A for deferred compensation, +Change in Control shall have the meaning set forth in Code Section 409A(2)(A)(v) and any +regulations issued thereunder, which are incorporated herein by reference, but only to the +extent inconsistent with the foregoing provisions as determined in the discretion of the +Committee. +5.9 +Exchange of Incentive Awards +The Committee may, in its discretion, permit any Grantee to surrender outstanding Incentive +Awards in order to exercise or realize his rights under other Incentive Awards or in +exchange for the grant of new Incentive Awards, or require holders of Incentive Awards to +surrender outstanding Incentive Awards (or comparable rights under other plans or +arrangements) as a condition precedent to the grant of new Incentive Awards. +5.10 +Financing +Subject to the requirements of the Sarbanes-Oxley Act of 2002, the Company may extend and +maintain, or arrange for and guarantee, the extension and maintenance of financing to any +Grantee to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are +approved by the Committee in its discretion. +SECTION 6 +General +6.1 +Effective Date and Grant Period +This Plan is adopted by the Board effective as of the Effective Date, subject to the +approval of the stockholders of the Company within one year from the Effective Date. +Incentive Awards may be granted under the Plan at any time prior to receipt of such +stockholder approval; provided, however, if the requisite stockholder approval is not +obtained then any Incentive Awards granted hereunder shall automatically become null and +void and of no force or effect. Notwithstanding the foregoing, any Incentive Award that is +intended to satisfy the “performance-based exception” under Code Section 162(m) shall not be +granted until the terms of the Plan are disclosed to, and approved by, the stockholders of +the Company in accordance with the requirements of the “performance-based exception” under +Code Section 162(m). +6.2 +Funding and Liability of Company +No provision of the Plan shall require the Company, for the purpose of satisfying any +obligations under the Plan, to purchase assets or place any assets in a trust or other +entity to which contributions are made, or otherwise to segregate any assets. In addition, +the Company shall not be required to maintain separate bank accounts, books, records or +other evidence of the existence of a +46 +Table of Contents +segregated or separately maintained or administered +fund for purposes of the Plan. Although bookkeeping accounts may be established with respect +to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any +such accounts shall be used merely as a bookkeeping convenience. The Company shall not be +required to segregate any assets that may at any time be represented by cash, Common Stock +or rights thereto. The Plan shall not be construed as providing for such segregation, nor +shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common +Stock or rights thereto. Any liability or obligation of the Company to any Grantee with +respect to an Incentive Award shall be based solely upon any contractual obligations that +may be created by this Plan and any Incentive Agreement, and no such liability or obligation +of the Company shall be deemed to be secured by any pledge or other encumbrance on any +property of the Company. The Company, the Board or the Committee shall be required to give +any security or bond for the performance of any obligation that may be created by the Plan. +6.3 +Withholding Taxes +(a) +Tax Withholding. The Company shall have the power and the right to deduct or +withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy +federal, +state, and local taxes, domestic or foreign, required by law or regulation to be +withheld with respect to any taxable event arising as a result of the Plan or an +Incentive Award hereunder. Upon the lapse of restrictions on Restricted Stock, the +Committee, in its discretion, may elect to satisfy the tax withholding requirement, +in whole or in part, by having the Company withhold Shares having a Fair Market +Value on the date the tax is to be determined equal to the minimum withholding taxes +which could be imposed on the transaction as determined by the Committee. +(b) +Share Withholding. With respect to tax withholding required upon the exercise +of Stock Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon +any other taxable event arising as a result of any Incentive Awards, Grantees may +elect, subject to the approval of the Committee in its discretion, to satisfy the +withholding requirement, in whole or in part, by having the Company withhold Shares +having a Fair Market Value on the date the tax is to be determined equal to the minimum +withholding taxes which could be imposed on the transaction as determined by the +Committee. All such elections shall be made in writing, signed by the Grantee, and +shall be subject to any restrictions or limitations that the Committee, in its +discretion, deems appropriate. +(c) +Incentive Stock Options. With respect to Shares received by a Grantee pursuant +to the exercise of an Incentive Stock Option, if such Grantee disposes of any such +Shares within (i) two years from the date of grant of such Option or (ii) one year +after the transfer of such shares to the Grantee, the Company shall have the right to +withhold from any salary, wages or other compensation payable by the Company to the +Grantee an amount sufficient to satisfy the minimum withholding taxes which could be +imposed with respect to such disqualifying disposition. +(d) +Loans. To the extent permitted by the Sarbanes-Oxley Act of 2002 or other +applicable law, the Committee may provide for loans, on either a short-term or demand +basis, from the Company to a Grantee who is an Employee to permit the payment of taxes +required by law. +6.4 +No Guarantee of Tax Consequences +Neither the Company nor the Committee makes any commitment or guarantee that any federal, +state or local tax treatment will apply or be available to any person participating or +eligible to participate hereunder. +6.5 +Designation of Beneficiary by Participant +Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named +contingently or successively) to whom any benefit under the Plan is to be paid in case of +his death before he receives any or all of such benefit. Each such designation shall revoke +all prior designations by the same Grantee, shall be in a form prescribed by the Committee, +and will be effective only when filed by the Grantee in writing with the Committee during +the Grantee’s lifetime. In the absence of any such designation, benefits remaining unpaid at +the Grantee’s death shall be paid to the Grantee’s estate. +47 +Table of Contents +6.6 +Deferrals +The Committee shall not permit a Grantee to defer such Grantee’s receipt of the payment of +cash or the delivery of Shares that would, otherwise be due to such Grantee by virtue of the +lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any +requirements or goals with respect to Performance-Based Stock-Based Awards or Other +Stock-Based Awards. +6.7 +Amendment and Termination +The Board shall have the power and authority to terminate or amend the Plan at any time; +provided, however, the Board shall not, without the approval of the stockholders of the +Company within the time period required by applicable law: +(a) +except as provided in Section 5.6 , increase the maximum number of +Shares which may be issued under the Plan pursuant to Section 1.4 ; +(b) +amend the requirements as to the class of Employees eligible to purchase Common +Stock under the Plan; +(c) +extend the term of the Plan; or, +(d) +if the Company is a Publicly Held Corporation (i) increase the maximum limits +on Incentive Awards to Covered Employees as set for compliance with the +“performance-based exception” under Code Section 162(m) or (ii) decrease the authority +granted to the Committee under the Plan in contravention of Rule 16b-3 under the +Exchange Act. +No termination, amendment, or modification of the Plan shall adversely affect in any +material way any outstanding Incentive Award previously granted to a Grantee under the Plan, +without the written consent of such Grantee or other designated holder of such Incentive +Award. +In addition, to the extent that the Committee determines that (a) the listing for +qualification requirements of any national securities exchange or quotation system on which +the Company’s Common Stock is then listed or quoted, if applicable, or (b) the Code (or +regulations promulgated thereunder), require stockholder approval in order to maintain +compliance with such listing requirements or to maintain any favorable tax advantages or +qualifications, then the Plan shall not be amended in such respect without approval of the +Company’s stockholders. +6.8 +Requirements of Law +(a) +Governmental Entities and Securities Exchanges. The granting of Incentive +Awards and the issuance of Shares under the Plan shall be subject to all applicable +laws, rules, and regulations, and to such approvals by any governmental agencies or +national securities exchanges as may be required. Certificates evidencing shares of +Common Stock delivered under this Plan (to the extent that such shares are so +evidenced) may be subject to such stop transfer orders and other restrictions as the +Committee may deem advisable under the rules and regulations of the Securities and +Exchange Commission, any securities exchange or transaction reporting system upon which +the Common Stock is then listed or to which it is admitted for quotation, and any +applicable federal or state securities law, if applicable. The Committee may cause a +legend or legends to be placed upon such certificates (if any) to make appropriate +reference to such restrictions. +(b) +Securities Act Rule 701. If no class of the Company’s securities is registered +under Section 12 of the Exchange Act, then unless otherwise determined by the +Committee, grants of Incentive Awards to “Rule 701 Grantees” (as defined below) and +issuances of the underlying shares of Common Stock, if any, on the exercise or +conversion of such Incentive Awards are intended to comply with all applicable +conditions of Securities Act Rule 701 (“Rule 701”), including, without limitation, the +restrictions as to the amount of securities that may be offered and sold in reliance on +Rule 701, so as to qualify for an exemption from the registration requirements of the +Securities Act. Any ambiguities or inconsistencies in the construction of an Incentive +Award or the Plan shall be interpreted to give effect to such intention. In accordance +with Rule 701, each Grantee shall receive a copy of the Plan on or before the date an +Incentive Award is granted to him, as well as the additional disclosure required by +Rule 701(e) if the aggregate sales price or amount of securities sold during any +consecutive 12-month period exceeds $5,000,000 as determined under Rule 701(e). If Rule +701 (or any successor provision) is amended to eliminate or +48 +Table of Contents +otherwise modify any of the +requirements specified in Rule 701, then the provisions of this Section 6.8(b) +shall be interpreted and construed in accordance with Rule 701 as so amended. For +purposes of this Section 6.8(b) , as determined in accordance with Rule 701, +“Rule 701 Grantees” shall mean any Grantee other than a director of the Company, the +Company’s chairman, CEO, president, chief financial officer, controller and any vice +president of the Company, and any other key employee of the Company who generally has +access to financial and other business related information and possesses sufficient +sophistication to understand and evaluate such information. +6.9 +Rule 16b-3 Securities Law Compliance for Insiders +If the Company is a Publicly Held Corporation, transactions under the Plan with respect to +Insiders are intended to comply with all applicable conditions of Rule 16b-3 under the +Exchange Act. Any ambiguities or inconsistencies in the construction of an Incentive Award +or the Plan +shall be interpreted to give effect to such intention, and to the extent any provision of +the Plan or action by the Committee fails to so comply, it shall be deemed null and void to +the extent permitted by law and deemed advisable by the Committee in its discretion. +6.10 +Compliance with Code Section 162(m) for Publicly Held Corporation +If the Company is a Publicly Held Corporation, unless otherwise determined by the Committee +with respect to any particular Incentive Award, it is intended that the Plan shall comply +fully with the applicable requirements so that any Incentive Awards subject to Section +162(m) that are granted to Covered Employees shall qualify for the “performance-based +exception” under Code Section 162(m), except for grants of Non-statutory Stock Options with +an Option Price set at less than the Fair Market Value of a Share on the date of grant. If +any provision of the Plan or an Incentive Agreement would disqualify the Plan or would not +otherwise permit the Plan or Incentive Award to comply with the “performance-based +exception” under Code Section 162(m) as so intended, such provision shall be construed or +deemed to be amended to conform to the requirements of the “performance-based exception” +under Code Section 162(m) to the extent permitted by applicable law and deemed advisable by +the Committee; provided, however, no such construction or amendment shall have an adverse +effect on the prior grant of an Incentive Award or the economic value to a Grantee of any +outstanding Incentive Award. +6.11 +Notices +(a) +Notice from Insiders to Secretary of Change in Beneficial Ownership. Within two +business days after the date of a change in beneficial ownership of the Common Stock +issued or delivered pursuant to this Plan, an Insider should report to the Secretary of +the Company any such change to the beneficial ownership of Common Stock that is +required to be reported with respect to such Insider under Rule 16(a)-3 promulgated +pursuant to the Exchange Act. Whenever reasonably feasible, Insiders will provide the +Committee with advance notification of such change in beneficial ownership. +(b) +Notice to Insiders and Securities and Exchange Commission. The Company shall +provide notice to any Insider, as well as to the Securities and Exchange Commission, of +any “blackout period,” as defined in Section 306(a)(4) of the Sarbanes-Oxley Act of +2002, in any case in which Insider is subject to the requirements of Section 304 of +said Act in connection with such “blackout period.” +6.12 +Pre-Clearance Agreement with Brokers +Notwithstanding anything in the Plan to the contrary, no shares of Common Stock issued +pursuant to this Plan will be delivered to a broker or dealer that receives such shares for +the account of an Insider unless and until the broker or dealer enters into a written +agreement with the Company whereby such broker or dealer agrees to report immediately to the +Secretary of the Company (or other designated person) a change in the beneficial ownership +of such shares. +6.13 +Successors to Company +All obligations of the Company under the Plan with respect to Incentive Awards granted +hereunder shall be binding on any successor to the Company, whether the existence of such +successor is the result of a direct or indirect purchase, merger, consolidation, or +otherwise, of all or substantially all of the business and/or assets of the Company. +49 +Table of Contents +6.14 +M iscellaneous Provisions +(a) +No Employee, Outside Director, or other person shall have any claim or right to +be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken +hereunder, shall be construed as giving any Employee or Outside Director any right to +be retained in the Employment or other service of the Company or any Parent or +Subsidiary. +(b) +The expenses of the Plan shall be borne by the Company. +(c) +By accepting any Incentive Award, each Grantee and each person claiming by or +through him shall be deemed to have indicated his acceptance of the Plan. +6.15 +Severability +In the event that any provision of this Plan shall be held illegal, invalid or unenforceable +for any reason, such provision shall be fully severable, but shall not affect the remaining +provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, +invalid, or unenforceable provision was not included herein. +6.16 +Gender, Tense and Headings +Whenever the context so requires, words of the masculine gender used herein shall include +the feminine and neuter, and words used in the singular shall include the plural. Section +headings as used herein are inserted solely for convenience and reference and constitute no +part of the interpretation or construction of the Plan. +6.17 +Governing Law +The Plan shall be interpreted, construed and constructed in accordance with the laws of the +State of Delaware without regard to its conflicts of law provisions, except as may be +superseded by applicable laws of the United States. +6.18 +Term of the Plan +Unless terminated earlier pursuant to Section 6.7 hereof, the Plan shall terminate +as of the close of business on May 3, 2016, and no Incentive Award may be granted under the +Plan thereafter, but such termination shall not affect any Incentive Award issued or granted +on or prior to such termination date. +IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed in its name and on its +behalf by its duly authorized officer, effective as of May 4, 2006. +CALLON PETROLEUM COMPANY +By: +/s/ Fred L. Callon +Name: +Fred L. Callon +Title: +President & Chief Executive Officer +50 +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +May 4, 2006 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +ê Please +detach along perforated line and mail in the envelope +provided. ê +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 AND 3. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE +x +FOR +AGAINST +ABSTAIN +1. +Election of Directors: +2. +To +ratify the appointment of Ernst & Young LLP as Company’s +Independent Registered Public Accounting firm. +o +o +o +o +NOMINEES: +FOR ALL NOMINEES +¡ +Fred L. Callon +¡ +L. Richard Flury +To approve and ratify the Callon Petroleum Company 2006 Stock +Incentive Plan. +o +o +o +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +3. +o +FOR ALL EXCEPT +(See Instructions below) +4. +In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or +any adjournments thereof. +THIS PROXY +WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 AND 3. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE +STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +INSTRUCTION: +To withhold authority to vote for any individual nominee(s), mark +“FOR ALL EXCEPT” and fill in the circle next to each +nominee you wish to withhold, as shown here: += +To change the address on your account, please check the box +at right and indicate your new address in the address space +above. Please note that changes to the registered name(s) +on the account may not be submitted +via this method. +o +Signature of Shareholder +Date: +Signature of Shareholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full +title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +Table of Contents +n +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy +Solicited on Behalf of the Board of Directors +of the Company for the Annual Meeting on May 4, 2006 +The undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent and proxy with +full power of substitution in each, to represent and to vote, as designated on the reverse, all of the shares of Common Stock +of Callon Petroleum Company, held of record by the undersigned on March 24, 2006 at the Annual Meeting of Shareholders to be +held at 9:00 a.m. in the St. Louis Room of the Natchez Convention Center, 211 Main Street, Natchez, Mississippi 39120 on May 4, 2006, +and at any adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS +PROXY WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS AND +“FOR” +PROPOSALS 2 AND 3 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choices by marking the appropriate +boxes (SEE REVERSE SIDE) but you need not mark any boxes if +you wish to vote in accordance with the Board of Directors’ +recommendations. The Proxies cannot vote your shares unless you sign and return this card. +(Continued and to be signed on the reverse side) +n +14475 n \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-06-004025/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-06-004025/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0000950129-07-001944/proxy.txt b/raw/proxies/0000928022/0000950129-07-001944/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f28753d7914a5b877cdae2be1f9f801370faa55f --- /dev/null +++ b/raw/proxies/0000928022/0000950129-07-001944/proxy.txt @@ -0,0 +1,3133 @@ +DEF 14A +1 +h45355ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +January 31, 2008 +Estimated average burden +hours per +response +14. +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant +o +Check the appropriate box: +o Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +þ No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 3, 2007 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the Annual Meeting of +Shareholders of the Company which will be held in Natchez, Mississippi, on Thursday, May 3, 2007, +at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, 211 Main Street, Natchez, +Mississippi 39120, for the following purposes: +1. +To elect one Class I director to hold office until the 2010 Annual Meeting of +Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2007; and +3. +To transact such other business as may properly come before the Annual Meeting +or any adjournment or adjournments thereof. +Specific details of the matters proposed to be put before the Annual Meeting are set forth in +the proxy statement accompanying and forming part of this notice. +Only shareholders of record at the close of business on March 19, 2007 will be entitled to +notice of, and to vote at, the Annual Meeting, or any adjournment or postponements thereof. Each +common share is entitled to one vote per share. Whether or not you plan to attend the Annual +Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed +envelope enclosed. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 11, 2007 +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD +AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE +ENVELOPE IS MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE 2007 ANNUAL MEETING MAY +REVOKE THEIR PROXIES AND VOTE IN PERSON. +TABLE OF CONTENTS +PROXY STATEMENT +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +PROPOSAL I +BENEFICIAL OWNERSHIP OF SECURITIES +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +PROPOSAL II +SHAREHOLDERS’ PROPOSALS +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 3, 2007 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on +behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation, from +shareholders of the Company for use at the Annual Meeting of Shareholders of the Company to be held +on Thursday, May 3, 2007, at 9:00 a.m., in the St. Louis Room of the Natchez Convention Center, 211 +Main Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The +purpose of the meeting is to consider and vote upon the matters described in the accompanying +Notice of Annual Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, +will be voted in accordance with the directions specified on the proxy, and otherwise in accordance +with the judgment of the persons designated therein as proxies. Any proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for the election of the +nominees named herein to the Board of Directors and in favor of the other proposals set forth in +the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the +Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a +later date, or by voting in person at the Annual Meeting. Proxies submitted by mail must be +received on or before May 2, 2007. Submitting your proxy by mail will not affect your right to vote +in person if you decide to attend the 2007 annual meeting. If a shareholder holds shares in a +broker’s account and has given specific voting instructions, the shares will be voted in accordance +with those instructions. If no voting instructions have been given, under rules of The New York +Stock Exchange the broker may decide how to vote with respect to those shares as to the Board +nominee and the ratification of the Company’s independent accounting firm for the 2007 fiscal year. +This proxy statement and the accompanying notice and form of proxy are being mailed to +shareholders on or about April 11, 2007. The Annual Report for the Company’s fiscal year ended +December 31, 2006 is also being mailed to shareholders contemporaneously with this proxy statement, +although the Annual Report does not form a part of the material for the solicitation of proxies. +The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our +common stock. All costs incurred in the solicitation of proxies will be borne by the Company. +Matters to be Considered at the Annual Meeting +Unless otherwise indicated, proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of one Class I director +nominee to the Board of Directors named herein, and (2) the ratification of the appointment of +Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal +year ending December 31, 2007. +The Board of Directors is not presently aware of any other proposals that may be brought +before the Annual Meeting. In the event other proposals are brought before the Annual Meeting, the +persons named in the enclosed proxy will vote in accordance with what they consider to be in the +best interests of the Company and our shareholders. +1 +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 19, 2007 as the record +date for the determination of shareholders entitled to notice of, and to vote at, the Annual +Meeting. A complete list of all shareholders entitled to vote at the Annual Meeting will be open +for examination by any shareholder during normal business hours for a period of ten days prior to +the Annual Meeting at the offices of the Company, 200 North Canal Street, Natchez, Mississippi +39120. Such list will also be available at the Annual Meeting and may be inspected by any +shareholder who is present. +On the record date, our outstanding voting securities consisted of 20,750,449 shares of common +stock. Holders of common stock will be entitled to one vote per share held of record on the record +date for each proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on +the record date, whether present in person or represented by proxy, will constitute a quorum for +the transaction of business at the Annual Meeting. For purposes of determining whether a quorum is +present under Delaware law, broker non-votes and abstentions count towards the establishment of a +quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares +of common stock present and voting, in person or by proxy, at the Annual Meeting. Abstentions and +broker non-votes have no effect on determinations of plurality except to the extent that they +affect the total votes received by any particular candidate. +A majority of the votes represented by the shareholders present at the Annual Meeting, in +person or by proxy, is necessary for ratification of the appointment of the Company’s independent +registered public accounting firm. If this appointment is not ratified by holders of our voting +securities, the Audit Committee and the Board may reconsider its appointment and endorsement, +respectively. Even if the selection is ratified, the Audit Committee may direct the appointment of +a different independent registered public accounting firm at any time during the year if it +determines that such a change would be in the best interests of the Company and its shareholders. +Abstaining shares will be considered present at the Annual Meeting for this matter so that the +effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the +shares will not be considered present at the Annual Meeting for this matter so that broker +non-votes will have the practical effect of reducing the number of affirmative votes required to +achieve a majority vote by reducing the total number of shares from which the majority is +calculated. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does +not vote on a particular proposal because the nominee does not have discretionary voting power with +respect to that item and the broker has not received voting instructions from the beneficial owner. +Votes cast at the meeting will be counted by the inspector of election. +2 +Table of Contents +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of +Directors is divided into three classes of nearly equal size, designated as Class I (currently with +one director), Class II (currently with two directors) and Class III (currently with two +directors). One class of directors is elected at each annual meeting of shareholders to serve for +a three-year term. +The term of the one Class I director, Mr. John C. Wallace, will expire on the date of the +Annual Meeting. Mr. Wallace has been nominated to serve as a Class I director until the 2010 +Annual Meeting, or until his successor has been duly elected and qualified. Mr. Wallace was +nominated by the Board of Directors upon the recommendation of the Nominating and Corporate +Governance Committee. +All shares of common stock represented by the proxies will be voted “FOR” the election of Mr. +Wallace, except where authority to vote in the election of the director has been withheld. Should +Mr. Wallace become unable or unwilling to serve as a director at the time of the Annual Meeting, +the person or persons exercising the proxies will vote for the election of substitute nominee +designated by the Board of Directors, or the Board of Directors may choose to reduce the number of +members of the Board of Directors to be elected at the Annual Meeting in order to eliminate the +vacancy. Mr. Wallace has consented to be nominated and has expressed his intention to serve if +elected. The Board of Directors has no reason to believe that Mr. Wallace will be unable or +unwilling to serve if elected. Only Mr. Wallace or a substitute nominee designated by the Board of +Directors will be eligible to stand for election as director at the Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of Mr. Wallace . +3 +Table of Contents +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominee, all current directors +whose terms will continue after the Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Company +Name +Age +Position Since +Present Company Position +Class I Director: +(Term Expires in 2007) +John C. Wallace +68 +1994 +Director; Nominee +Class II Directors: +(Term Expires in 2008) +B. F. Weatherly +62 +1994 +Director, Executive Vice President and Chief Financial Officer +Richard O. Wilson +77 +1995 +Director +Class III Directors: +(Term Expires in 2009) +Fred L. Callon +57 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer +L. Richard Flury +59 +2004 +Director +Other Executive Officers: +Robert A. Mayfield +56 +2000 +Corporate Secretary +Thomas E. Schwager +56 +1997 +Vice President +H. Clark Smith +54 +2001 +Chief Information Officer +Rodger W. Smith +57 +1999 +Corporate Controller and Treasurer +B. F. Weatherly +62 +2006 +Executive Vice President and Chief Financial Officer +Stephen F. Woodcock +55 +1997 +Vice President +The following is a brief description of the background and principal occupation of each +director and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is the nephew of the late John S. Callon, the +Company’s founder. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger with BP in 1998, he served in various executive positions and was Chief Executive for +Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time +of the merger. Currently, he is a member of the Board of Directors of Questar Corporation, a +publicly-traded oil and gas company, and the Chicago Bridge and Iron Company, N.V., a +publicly-traded engineering, procurement and construction company, and serves as a Trustee of +Thunderbird — The Garvin School of International Management. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield +4 +Table of Contents +received his B.S. degree in accounting from Louisiana Tech University in 1972 and is a member +of the Society of Corporate Secretaries & Governance Professionals. +Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and +Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering +positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. +Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his +B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is Chief Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager – +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is the Corporate Controller and Treasurer for the Company and Callon +Petroleum Operating Company. Mr. Smith was appointed Corporate Treasurer in April 1999 and +Corporate Controller in 2004. Prior to being appointed Treasurer, he served as Manager of Budget +and Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production +Accounting and has been employed by the Company and its predecessors since 1983. Prior to his +employment with the Company, he was employed by International Paper Company as a plant controller. +He received his B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in +Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. For over +twenty-five years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that +he joined in 1968 and which specializes in the business of shipping, renewable energy and property +development. He received his B. Comm degree majoring in Accounting and Economics from McGill +University in 1959. In November 2004 he successfully completed the International Uniform Certified +Public Accountant Qualification Examination (“IQEX”) and has received a CPA Certificate from the +State of Illinois. Mr. Wallace is a director of Fred. Olsen Energy ASA, a publicly-held Norwegian +company engaged in the offshore energy service industry; and Ganger Rolf ASA and Bonheur ASA, Oslo, +both publicly-traded shipping companies. +B. F. Weatherly is Executive Vice President and Chief Financial Officer for the Company and +Callon Petroleum Operating Company. Prior to joining the Company in November 2006, he was a +principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was +also a general partner of CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and held +that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the +University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur +Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford +International, Inc. +Richard O. Wilson is an Offshore Consultant. In his 50 years of working in offshore drilling +and construction, he spent two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group +Vice President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, +Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of +Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In +2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s +degree in geophysics from Oregon State University in 1975. +5 +Table of Contents +All officers and directors of the Company are United States citizens, except Mr. Wallace, who +is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +The Board of Directors and Governance Matters +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, +our business and affairs are managed under the direction of the Board of Directors. The Board of +Directors generally meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. The Board of Directors may also hold +special meetings and telephone conference calls when an important matter requires Board action +between regularly scheduled meetings. +During 2006, the Board of Directors of the Company met formally four times and executed five +unanimous written consents. All of the Company’s directors attended more than 75% of the aggregate +of the total number of board meetings. In addition, to promote open discussion, the non-management +directors meet in executive (private) sessions without management following each quarterly board +meeting. The chairperson of such executive sessions is the chairperson of the Nominating and +Corporate Governance Committee unless, at the first executive session held in each fiscal year, the +independent directors select a different independent director to serve as the chairperson for all +executive sessions held during that fiscal year. L. Richard Flury, chairman of the Nominating and +Corporate Governance Committee from January 2006 through September 2006 and chairman of the +Compensation Committee from October 2006 through December 2006, presided over all executive +sessions. +In order to facilitate the various functions of the Board of Directors, the Board of Directors +has created an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance +Committee. These committees are more fully described in the following pages. +Director Independence. It is the policy of the Board of Directors that a majority of the +members of the Board be independent of the Company’s management. The Company’s Corporate +Governance Principles contain the following guidelines to assist the Board in determining director +independence in accordance with the applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $100,000 per year in direct compensation from the Company, other than fees +received in such director’s capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” Compensation received by an immediate family member for +service as a non-executive employee of the Company need not be considered in +determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent;” +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board committee performing equivalent functions, or, in the absence of +such committee, the Board of Directors) shall be considered “independent;” +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold; and +6 +Table of Contents +• +An “immediate family member” includes a person’s spouse, parents, children, +siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic +employees) who shares such person’s home. When applying the three-year look-back +provisions, it does not include individuals who are no longer immediate family members +as a result of legal separation or divorce, or those who have died or become +incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, Wallace and Wilson do +not have any material relationships with the Company that may interfere with the exercise of their +independence from management and the Company and are independent directors under applicable New +York Stock Exchange rules, SEC rules and in accordance with our Corporate Governance Principles. +Prior to his appointment as Executive Vice President and Chief Financial Officer in November 2006, +the Board of Directors also affirmatively determined that Mr. B. F. Weatherly met the criteria and +was an independent director. In connection with his employment with the Company, he no longer +qualified as an independent director. Mr. Weatherly resigned from all committees of the Board, but +will continue his role as a management member of the Board of Directors. +Corporate Governance Principles . The Company believes that good corporate governance is +important to ensure that Callon Petroleum Company is managed for the short- and long-term benefit +of its shareholders. Available on the Company website, www.callon.com, under the section +“Governance”, are copies of the Company’s: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter (attached as Exhibit A); +• +Compensation Committee Charter; +• +Nominating and Corporate Governance Committee Charter; and +• +Members serving on each of the Board of Director’s Committees. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s +website. Copies of these documents are available in print, free of charge, to any shareholder upon +request to the Company’s Corporate Secretary. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and +expectations. The Code, which applies to every director, officer and employee, addresses a number +of topics, including conflicts of interest, relationships with others, corporate payments, +disclosure policy, compliance with laws, corporate opportunities and the protection and proper use +of the Company’s assets. The Code meets the New York Stock Exchange’s requirements for a code of +business conduct and ethics as well as the SEC’s definition of a code of ethics applicable to the +Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted +a waiver of the Code. +Communication with the Board of Directors. In order to provide the Company’s +shareholders and other interested parties with a direct and open line of communication to the Board +of Directors, the Board of Directors has adopted procedures for communications to directors. +Callon shareholders and other interested persons may communicate with the Chairman of the Company’s +Audit Committee, or with the non-management directors of the Company as a group, by written +communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum +Company, 200 North Canal Street, Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication: +• +does not relate to the business or affairs of the Company or the functioning or +constitution of the Board of Directors or any of its committees; +• +relates to routine or insignificant matters that do not warrant the attention of +the Board of Directors; +• +is an advertisement or other commercial solicitation or communication; +• +is frivolous or offensive; or +• +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the +7 +Table of Contents +communication is appropriate. Any such response will be made only in accordance with +applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures from time to time and, if appropriate, recommend changes. As of the record +date, no such communications have been received. +Attendance at Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the Annual Meeting of Shareholders. All directors attended +the 2006 Annual Meeting of Shareholders. +Committees of the Board of Directors +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas +of financial reporting and accounting integrity. The Audit Committee reviews the accounting and +auditing procedures and financial reporting practices of the Company and is responsible for the +engagement of and overseeing all audit work conducted by the Company’s independent registered +public accounting firm. The Audit Committee is governed by a charter that has been approved by the +Board of Directors. The Audit Committee meets periodically with the Company’s management, internal +auditor and independent registered public accounting firm to review the Company’s financial +information and systems of internal controls and ensures such parties are properly discharging +their responsibilities. The independent registered public accounting firm reports directly to the +Audit Committee and periodically meets with the Audit Committee without management representatives +present. The Audit Committee has the authority to investigate any matters brought to its attention +and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom +satisfy the independence requirements for audit committee members under Rule 10A-3 of the +Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New +York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the +audit committee of more than two other public companies. The Audit Committee is currently +comprised of Messrs. Wallace (Chairman), Flury, and Wilson. Prior to his resignation from the +Audit Committee in connection with his employment with the Company, Mr. B. F. Weatherly also served +as a member of the committee. Additionally, the Board of Directors has determined that Mr. Wallace +has the accounting or financial management expertise to be considered a “financial expert” as +defined and required by the New York Stock Exchange’s rules and by the Securities Exchange Act of +1934. +The Audit Committee held five meetings and did not execute any unanimous written consents +during 2006. All members of the Audit Committee attended all the meetings. The Audit Committee’s +report on its activities during 2006 appears later in this proxy statement under the caption “Audit +Committee Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible +for establishing and maintaining internal controls over financial reporting and for assessing the +effectiveness of those controls. The independent registered public accounting firm is responsible +for performing independent audits of the Company’s consolidated financial statements and internal +controls over financial reporting in accordance with the standards of the Public Company Accounting +Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility +is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public +accounting firm, served as the Company’s independent registered public accounting firm during 2005 +and 2006 and was appointed by the Audit Committee to serve in that capacity for 2007. +Audit Fees Paid to Independent Registered Public Accounting Firm. Fees paid for professional +services rendered related to the year ended December 31, 2005 by Ernst & Young LLP for the annual +audit and quarterly reviews (including the requirements under Section 404 of the Sarbanes-Oxley +Act) were $304,916, including out-of-pocket expenses. Fees paid for professional services rendered +related to the year ended December 31, 2006 by Ernst & Young LLP for the annual audit and quarterly +reviews (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $335,892, +including out-of-pocket expenses. The Audit Committee has concluded that providing the +tax-related services mentioned below is compatible with maintaining the principal registered public +accounting firm’s independence. +8 +Table of Contents +Audit-related Fees . There were no audit-related fees paid in 2005 or 2006. +Tax Fees. Professional services billed by Ernest & Young LLP for the review of the +federal tax return, federal, state and local tax planning and advice, quarterly estimated tax +payments, and assistance/analysis of tax attributes for 2005 were $18,040. Professional services +billed for the review of the federal tax return, tax advice and tax planning services for 2006 +totaled $8,545. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2005 or 2006. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee +pre-approves all audit services and non-audit services (including the fees and terms thereof) to be +performed for the Company by its independent registered public accounting firm, as required by +applicable law or listing standards and subject to the terms of the audit and non-audit services +pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or +more of its members when appropriate, including the authority to grant pre-approvals of audit and +permitted non-audit services, provided that decisions of any such member to grant pre-approvals are +consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its +next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s +audited financial statements at, and for the year ended, December 31, 2006 with management and the +Company’s independent registered public accounting firm and recommended to the Company’s Board of +Directors that the Company’s audited financial statements be included in the Company’s Annual +Report on Form 10-K for the year ended December 31, 2006. This recommendation was based on: +• +the Audit Committee’s review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company’s independent registered public accounting firm, Ernst & +Young LLP, of the matters required to be discussed by auditing standards generally +accepted in the United States of America, including the matters required to be +discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by +Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); +• +discussions with Ernst & Young LLP regarding its independence from the Company and +its management; +• +Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the +financial position of the Company and its consolidated subsidiaries and the results of +their operations and cash flows for the periods presented in conformity with accounting +principles generally accepted in the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +Richard O. Wilson +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to: +• +review the compensation philosophy and strategy of the Company and consult with the +CEO, as needed, regarding the role of the Company’s compensation strategy in achieving +the Company’s objectives and performance goals and the short- and long-term interests +of the Company’s shareholders; +• +annually review market and industry data to assess the Company’s competitive +position with respect to the individual elements of total executive compensation to +ensure the attraction, retention and appropriate reward of the Company’s CEO and other +executive officers; +• +administer the Company’s incentive compensation and stock option and other equity +based plans in which the CEO and other executive officers and employees may be +participants; +9 +Table of Contents +• +annually review and establish the base salary, incentive compensation, stock +options, performance shares for the CEO and make recommendations to the Board with +respect to compensation of the Company’s other executive officers and employees; +• +annually review and approve corporate goals and objectives relevant to incentive +compensation of the CEO and other executive officers and employees; +• +review, recommend, and discuss with management the compensation discussion and +analysis section included in the Company’s annual proxy statement; and +• +prepare an annual report on executive compensation for inclusion in the Company’s +proxy statement for the Annual Meeting of Shareholders. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Effective October 1, 2006, L. Richard Flury was +appointed to serve as chairman of the Compensation Committee following the resignation of B.F. +Weatherly. Current members are Messrs. Flury (chairman), Wallace and Wilson. +The Compensation Committee held four meetings and executed four unanimous written consents +during 2006. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. The members of the Company’s +Compensation Committee are Messrs. L. Richard Flury (Chairman), John C. Wallace and Richard O. +Wilson, none of whom are or have been officers or employees of the Company or any of its +subsidiaries or had a relationship requiring disclosure under this caption. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for +election to the Board; +• +recommend to the Board the members and chairperson for each Board committee; +• +periodically review and assess the Company’s Corporate Governance Principles and +the Company’s Code of Business Conduct and Ethics and make recommendations for changes +thereto to the Board; +• +oversee the annual self-evaluation of the performance of the Board and the annual +evaluation of the Company’s management; and +• +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Prior to October 1, 2006, L. Richard Flury served +as chairman of the Nominating and Corporate Governance Committee. Effective October 1, 2006, +Richard O. Wilson replaced Mr. Flury as chairman and Mr. B. F. Weatherly resigned from the +Nominating and Corporate Governance Committee. Current members are Messrs. Wilson (Chairman), +Wallace, and Flury. The Nominating and Corporate Governance Committee held two meetings and +executed two unanimous written consents during 2006. All members of the Nominating and Corporate +Governance Committee attended all the meetings. Prior to the formation of this Committee, the +entire Board of Directors performed these functions. +Director Identification and Selection. The Nominating and Corporate Governance Committee has +established certain criteria it considers as guidelines in considering nominations to the Company’s +Board of Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, +diversity of background and experience, absence of potential conflicts of interest with +the Company or its operations, and the availability and willingness to devote +sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer +of a publicly held company; +• +experience in the Company’s industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company’s operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the +Board of Directors may consider other qualifications and attributes which they believe are +appropriate in +10 +Table of Contents +evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of +Directors that brings to the Company a variety of perspectives and skills derived from high quality +business and professional experience. In order +to ensure that the Board consists of members with a variety of perspectives and skills, the +Nominating and Corporate Governance Committee has not set any minimum qualifications and also +considers candidates with appropriate non-business backgrounds. Other than ensuring that at least +one member of the Board is a financial expert and a majority of the Board members meet all +applicable independence requirements, the Committee does not have any specific skills that it +believes are necessary for any individual director to possess. Instead, the Committee evaluates +potential nominees based on the contribution such nominee’s background and skills could have upon +the overall functioning of the Board. In accordance with the Company’s by-laws, any shareholder may +nominate a person for election to the Board of Directors upon delivery of written notice to the +Company of such nomination, stating the name and address of the nominee and describing his +qualifications. Such notice shall be sent by certified mail or delivered to the principal office +of the Company to the attention of the Board of Directors, with a copy to the President and +Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. In making its nominations, the Nominating and Corporate Governance Committee identifies +nominees by first evaluating the current members of the Board willing to continue their service. +Current members with qualifications and skills that are consistent with the Committee’s criteria +for Board service are re-nominated. As to new candidates, the committee will generally poll the +Board members and members of management for recommendations. The committee may also review the +composition and qualification of the boards of directors of the Company’s competitors, and may seek +input from industry experts or analysts. The committee reviews the qualifications, experience and +background of the candidates. Final candidates are interviewed by the independent directors and +executive management. In making its determinations, the committee evaluates each individual in the +context of the Board as whole, with the objective of assembling a group that can best represent +shareholder interests through the exercise of sound judgment. After review and deliberation of all +feedback and data, the committee makes its recommendation to the Board of Directors. The committee +may in the future choose to engage third-party search firms in situations where particular +qualifications are required or where existing contacts are not sufficient to identify an +appropriate candidate. +11 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the record date, certain information with respect to the +ownership of shares of common stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the +nominee for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of common stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +record date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. +Name and Address of +Common Stock (a) +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +575,769 +(b) +2.75 +% +L. Richard Flury +20,000 +(c) +* +John C. Wallace +141,705 +(d) +* +B. F. Weatherly +85,356 +(e) +* +Richard O. Wilson +138,224 +(f) +* +Named Executive Officers: +* +Stephen F. Woodcock +111,638 +(g) +* +Thomas E. Schwager +8,927 +(h) +* +Rodger W. Smith +42,989 +(i) +* +Directors and Executive Officers: +As a Group (10 persons) +1,228,627 +(j) +5.76 +% +Certain Beneficial Owners: +Wellington Management Company, LLP +1,300,200 +(k) +6.27 +% +75 State Street +Boston, MA 02109 +New York Life Investment Management, LLC. +1,064,530 +(l) +5.13 +% +51 Madison Avenue +New York, NY 10010 +Dimensional Fund Advisors LP +1,689,800 +(m) +8.14 +% +1299 Ocean Avenue +Santa Monica, CA 90401 +Barclays Global Investors, NA +1,456,824 +(n) +7.02 +% +45 Fremont Street +San Francisco, CA 94105 +Kennedy Capital Management, Inc. +1,229,800 +(o) +5.93 +% +10829 Olive Blvd. +St. Louis, MO 63141 +* +Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to +have sole voting and dispositive power with respect to such shares. Beneficial ownership +does not include the unvested portion of performance stock awards due to lack of voting and +disposition power. Percentage ownership of a holder or class of holders is calculated by +dividing (i) the number of shares of common stock beneficially owned by such holder or +class of holders plus the total number of shares of common stock underlying options +exercisable within sixty days of March 19, 2007, by (ii) the total number of shares of +common stock outstanding plus the total number of shares of common stock underlying options +exercisable within sixty days of March 19, 2007, but not common stock underlying such +securities held by any other person. +b) +Of the 575,769 shares beneficially owned by Fred L. Callon, 270,720 shares are owned +directly by him; 92,170 shares are held by him as custodian for certain minor Callon family +members; 11,504 shares are owned within the Company’s Employee Savings and Protection Plan; +and 201,375 shares are subject to options under the 1996 Plan, exercisable within 60 days. +Shares indicated as owned by Mr. Callon do not include 24,904 shares of common stock owned +by his +12 +Table of Contents +wife over whom he disclaims beneficial ownership and 65,800 shares of unvested +performance stock. +c) +Of the 20,000 shares beneficially owned by L. Richard Flury, 15,000 shares are owned +directly by him and 5,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Flury do not include 15,000 shares of +unvested performance stock. +d) +Of the 141,705 shares beneficially owned by John C. Wallace, 76,705 shares are owned +directly by him; 15,000 shares are subject to options under the 1994 Plan, exercisable +within 60 days; 45,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 5,000 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Wallace do not include 15,000 shares of +unvested performance stock. +e) +Of the 85,356 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned +within his personal IRA account; 18,024 shares are held in joint tenancy with his wife; 44 +shares are owned within the Company’s Employee Savings and Protection Plan; 15,000 shares +are subject to options under the 1994 Plan, exercisable within 60 days; 45,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as +owned by Mr. Weatherly do not include 60,000 shares of unvested performance stock. +f) +Of the 138,224 shares beneficially owned by Richard O. Wilson, 66,405 shares are held +in a family limited partnership; 6,819 shares are held in a Trust account; 15,000 shares +are subject to options under the 1994 Plan, exercisable within 60 days; 45,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days;. Shares indicated as +owned by Mr. Wilson do not include 15,000 shares of unvested performance stock. +g) +Of the 111,638 shares beneficially owned by Stephen F. Woodcock, 13,556 are owned +directly by him; 7,332 shares are owned within the Company’s Employee Savings and +Protection Plan; 69,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 21,750 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Woodcock do not include 43,100 shares of +unvested performance stock. +h) +Of the 8,927 shares beneficially owned by Thomas E. Schwager, 8,437 are owned directly +by him; and 490 shares are owned within the Company’s Employee Savings and Protection Plan. +Shares indicated as owned by Mr. Schwager do not include 36,100 shares of unvested +performance stock. +i) +Of the 42,989 shares beneficially owned by Rodger W. Smith, 5,069 shares are owned +directly by him; 7,237 shares are owned within the Company’s Employee Savings and +Protection Plan; 28,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 2,683 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Smith do not include 25,100 shares of +unvested performance stock. +j) +Includes 59,000 shares subject to options under the 1994 Plan, exercisable within 60 +days; 469,925 shares subject to options under the 1996 Plan, exercisable within 60 days; +53,483 shares subject to options under the 2002 Plan, exercisable within 60 days; and +36,104 shares are owned within the Company’s Employee Savings and Protection Plan. Shares +indicated as owned do not include 313,900 shares of unvested performance stock. +k) +Information is based upon a Schedule 13G/A filed with the Commission on February 14, +2007 by Wellington Management Company, LLP. In this Schedule 13G/A, Wellington represents +that it has shared voting power with respect to 717,000 shares and shared dispositive power +with respect to 1,300,200 shares of common stock. +l) +Information is based upon a Schedule 13G filed with the Commission on February 13, 2007 +by New York Life Investment Management, LLC. In this Schedule 13G, New York Life +represents that it has sole voting power and sole dispositive power with respect to +1,064,530 shares of common stock. +13 +Table of Contents +m) +Information is based upon a Schedule 13G/A filed with the Commission on February 9, +2007 by Dimensional Fund Advisors LP. In this Schedule 13G, Dimensional represents that it +has sole voting power and sole dispositive power with respect to 1,689,800 shares of common +stock. +n) +Information is based upon a Schedule 13G filed with the Commission on January 23, 2007 +by Barclays Global Investors, NA., Barclays Global Fund Advisors, Barclays Global +Investors, LTD., +and Barclays Global Investors Japan Trust and Banking Company Limited, Barclays Global +Investors Japan Limited. In this Schedule 13G, Barclays represents that it has sole voting +power with respect to 1,390,856 shares of common stock and sole dispositive power with +respect to 1,456,824 shares of common stock. +o) +Information is based upon a Schedule 13G filed with the Commission on February 13, 2007 +by Kennedy Capital Management, Inc. (“Kennedy”). In this Schedule 13G, Kennedy represents +that it has sole voting power with respect to 1,198,150 shares of common stock and sole +dispositive power with respect to 1,229,800 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of +holders acquire investment power for these shares immediately upon a “change of control” as defined +in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission initial reports of +ownership and reports of changes in ownership of common stock and other equity securities of the +Company. Officers, directors and greater than ten percent shareholders are required by the +Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all +Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2006, and written representations from all of the +Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, +directors and greater than ten percent shareholders have complied with all Section 16(a) filing +requirements for the year ended December 31, 2006. +Compensation Discussion and Analysis +on Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee of our Board of Directors oversees our compensation programs. +Consistent with the listing requirements of the New York Stock Exchange, the Compensation Committee +is composed entirely of independent members of our Board of Directors. The primary function of the +Committee is to assist our Board of Directors in the discharge of its fiduciary responsibilities +relating to compensation of our Chief Executive Officer and other executives. From time to time +the Committee has retained a compensation consultant to assess the effectiveness of the Company’s +compensation program. The Committee did not engage a consultant in 2006. +Compensation Program Philosophy and Objectives +Our business strategy is to enhance shareholder value through sustained growth in our reserve +base, production levels and resulting cash flows from operations. Over the past several years, we +have shifted our emphasis from the acquisition of producing properties to the acquisition of +acreage with development and exploratory drilling opportunities. Our compensation program is +designed to help us successfully implement our strategy. Our compensation program has four +objectives: +• +To attract, retain and motivate qualified executives whose performance is key to the +successful execution of our strategy and the achievement of our corporate goals; +• +To create a performance-oriented environment that rewards achievement of our short- +and long-term strategic goals; +14 +Table of Contents +• +To provide an executive compensation structure that is internally equitable based +upon the level of responsibility of our executives; and +• +To align the interests of our executive officers with those of our shareholders. +The Committee considers various factors such as each executive’s motivation level, leadership +ability, overall knowledge and experience in his particular segment of our business, the +competitive compensation environment for +such individual, that person’s unique skills and his or her expected future contribution to +the success of our company. We feel that if these qualities are rewarded, the executives will be +motivated to achieve our corporate goals and implement our strategies. +Elements of Compensation +The Committee believes that the compensation environment for qualified technical professionals +in the domestic oil and gas industry is highly competitive, particularly as a result of current +efforts to reduce dependence on foreign oil. It also believes that similar compensation pressure +has resulted from increased financial reporting and corporate governance regulatory issues +implemented within recent years. In order to compete in this environment, our executive officers’ +compensation has four components: +• +base salary; +• +annual discretionary cash bonuses; +• +stock option and performance share awards granted periodically under our incentive plans; and +• +other benefits that, in most cases, are available to all salaried employees. +We pay base salaries at appropriate levels to recognize each executive officer’s unique value +and historical contributions to the Company’s success in light of salary norms in the industry and +the general marketplace; to match competition for executive talent; to provide executives with +predictable, regularly-paid income; and to reflect the executive’s position and level of +responsibility. In general, the Committee believes that base salary should be relatively stable +over time, providing the executive a dependable, minimum level of compensation. +We include an annual cash bonus as part of our compensation program because we believe this +element of compensation helps to motivate management to achieve key short-term (annual) corporate +objectives. We also provide an annual cash bonus in order to be competitive from a total +remuneration standpoint. +Long-term equity-based incentive compensation is an element of our compensation policy because +we believe it aligns management and executives’ interests with the interests of the Company’s +shareholders. Our equity incentives also reward the attainment of long-term corporate objectives +by our executives. We generally grant equity awards that are subject to vesting over several years +in order to encourage management and executive retention. We also believe that grants of +equity-based compensation are necessary to enable us to be competitive from a total remuneration +stand point. +We also offer benefits such as matching 401(k) contributions and payment of insurance premiums +in order to provide a competitive remuneration package. +How We Determine Our Compensation Levels +Base Salaries . There are two components to how we determine base salaries. First, in January +of each year, all employee salaries, including salaries of our executive officers, are +automatically increased by a “cost of living” adjustment. The amount of the actual increase is +determined by the Compensation Committee and is tied, generally, to the Consumer Price Index +published by the U. S. Department of Labor for the previous year. Based on this information, the +cost of living adjustment approved by the Committee in January 2006 was 5%. +Second, at a regularly scheduled meeting, generally in March, the Committee reviews annual +base salaries of the executive officers, beginning with the Chief Executive Officer. His +compensation package is compared to the compensation packages of CEOs at other companies the +Committee deems at that time to be similar in operational aspects and in size to us, which we refer +to as “Peer Companies.” For 2006, the Peer Companies wer e W&T Offshore, Inc.; ATP Oil & Gas +Corporation; PetroQuest Energy, Inc.; Energy Partners, Ltd.; and Stone Energy Corporation. +Compensation information with respect to these Peer Companies is obtained from public filings made +by the Peer Companies. +15 +Table of Contents +The Committee then establishes the CEO’s base salary for the ensuing year, targeting the mid +to upper salary range of the Peer Companies. Following this review and discussion, the CEO joins +the Committee meeting. The remaining executive officers’ base salaries are discussed with the CEO +along with his suggestions for adjustments, if necessary. The Committee approves all base salary +adjustments for the executive officers which generally become effective on the next bi-weekly +payroll. +In addition to the annual cost of living adjustment and annual base salary reviews, the +Committee, with input from the CEO, has the discretion to periodically approve any additional +salary adjustments it feels are warranted based on general compensation changes within the +industry, individual performance or significant changes in duties and responsibilities. +In January 2006, Mr. Callon’s salary was increased from $414,000 in 2005 to $434,700, +representing the 5% cost of living adjustment. At its regular meeting in March 2006, after +comparing Mr. Callon’s salary to CEO salaries at the Peer Companies and determining that his salary +was already in the mid to upper range, the Committee determined that no further adjustment was +necessary. +In January 2006, Messrs. Woodcock’s, Schwager’s, and Smith’s salaries were increased from +$188,555; $177,463; and $139,725 to $197,982; $186,336; and $146,711, respectively, representing +the 5% cost of living adjustment. In March 2006, their salaries were increased to $225,000, +$200,000, and $175,000, respectively. These increases were primarily the result of comparisons to +Peer Companies, targeting the mid to upper range of salaries for similar positions. +In November 2006, B.F. Weatherly was hired as the Company’s Executive Vice President and Chief +Financial Officer. His initial annual salary was set by the committee at $350,000. This salary +level was selected based on a comparison of salaries paid for the similar position at the Peer +Companies and targeted the mid to upper range. +Annual Cash Bonuses . Executive officers, senior management and other non-management technical +personnel have the potential to receive a significant portion of their annual cash compensation as +a cash bonus. Each year, following the Board of Director’s approval of the annual operating budget +and financial forecast for the next year, at its regular November meeting, the Compensation +Committee sets cash bonus guidelines for the next year. These guidelines, weighted equally, are +based on measures such as cash flow per share to common shareholders, pre-tax net income, finding +costs, oil and gas production levels, and oil and gas reserve growth. Generally in late February +of the following year, the Committee uses the Company’s year-end audited financial statements to +review our performance relative to each of the guidelines and calculates a bonus attainment +percentage, which is based on the average achievement of these guidelines. If the bonus attainment +percentage ranges between 80% and 120% of the guidelines, the Chief Executive Officer is eligible +for a bonus generally targeted at 100% of his base salary, our other executive officers are +eligible for a bonus generally targeted at 50% of their base salary, and other key management +personnel are eligible for a bonus generally targeted at 20% of their base salary. The Committee +may also consider how unexpected events may have impacted the bonus attainment percentage. For +example, a large acquisition may substantially change our budget and forecast prepared prior to the +beginning of a year, thereby affecting the original guidelines established for payment of bonuses. +In addition, as occurred in 2005, adverse weather conditions may damage our facilities and reduce +our production, cash flows and other measures used as guidelines to assist in determining the +amount of our bonuses. Also, our Committee encourages our executives to pursue long-term goals, +even if these long-term goals may result in a reduction in our near-term performance. Accordingly, +after taking into account the bonus attainment percentage, unanticipated events, as well as +individual achievements and contributions, the Committee in its discretion determines actual bonus +amounts. Cash bonuses earned and approved by the Committee are generally paid prior to March +15 th . +The Compensation Committee approved payment of cash bonuses for fiscal 2006 based upon the +following guidelines: total annual production expressed in billion cubic feet of natural gas +equivalent, cash flow to shareholders, pre-tax net income, reserve additions, and finding costs per +Mcfe. Our actual attainment percentage calculated using audited financial statements for year-end +2006 was approximately 60%. As of April 11, 2007, no cash bonuses attributable to the Named +Executive Officers for 2006 have been awarded. Although individual bonus amounts have not yet been +determined, the Compensation Committee may award cash bonuses to be paid on or before April 23, +2007. Should such bonuses be awarded, this information will be reported on Form 8-K and filed with +the SEC immediately following the award date. +Long-term Compensation . The Compensation Committee administers our incentive plans and +performs functions that include selecting award recipients, determining the timing of grants and +assigning the number of shares awarded, fixing the time and manner in which awards are exercisable, +setting option exercise prices and vesting and expiration dates, and from time to time adopting +rules and regulations for carrying out the purposes of our plans. For compensation decisions +regarding the grant of equity compensation to executive officers, our Compensation Committee +typically consider the competitive environment associated with longer-term +16 +Table of Contents +compensation and +recommendations from our Chief Executive Officer. All awards are priced at the fair market value +on the grant date in accordance with SFAS No. 123R. Beginning in 2004, the Committee adopted a +general policy to grant performance shares in lieu of options due to the many variables in valuing +option awards and now considers granting performance shares every two years rather than each year +as was previously the case with respect to options. +We have no set formula for the granting of equity awards to individual executives or +employees. In August 2006, the Compensation Committee approved the award of an aggregate of +500,000 shares of common stock representing 2.4% of the outstanding common shares on the date of +grant. These shares vested 20% on the grant date and will vest 20% on each anniversary thereafter +and are subject to forfeiture in the event of voluntary termination of employment. The Committee +approved specific award amounts to our executive officers while our Chief Executive Officer +allocated the remaining awards among our other employees. Of the total awarded, 144,000 shares, or +29%, were awarded to the executive officers named in the Summary Compensation Table, excluding B. +F. Weatherly because he was not a full-time employee of the Company at that time. +Upon a change in control, death, disability, retirement or termination without good reason, +any remaining unvested option grants will automatically be deemed 100% vested. Remaining vested +option grants continue to be exercisable for a period of up to one year following the event except +for death, which is two years. Voluntary terminations and terminations for “cause” do not result in +accelerated vesting. +We do not have any program, plan or obligation that requires us to grant equity compensation +on specified dates. However, our Committee does follow a policy of not granting equity incentives +when material non-public information exists that may affect the short-term price of our stock. In +recent years, we have granted equity awards in either July or August generally in connection with a +regularly scheduled Compensation Committee meeting. All equity awards to our employees, including +executive officers, and to our directors have been granted and reflected in our consolidated +financial statements, based upon the applicable accounting guidance, at fair market value on the +grant date in accordance with SFAS No. 123R. Information about unvested performance shares and +outstanding options held by our named executive officers and directors is contained in the +“Outstanding Equity Awards at December 31, 2006” and “Director Compensation” tables. +Other Company Provided Benefits . We provide Company benefits that we believe are standard in +the industry to all of our employees. These benefits consist of a group medical and dental +insurance program for employees and their qualified dependents, group life insurance for employees +and their spouses, accidental death and dismemberment coverage for employees, a Company sponsored +cafeteria plan and a 401-K employee savings and protection plan. The costs of these benefits are +paid entirely by the Company. Employee life insurance amounts surpassing the Internal Revenue +Service maximum are treated as additional compensation to all employees. The company’s 401-K +contribution to each qualified participant, including the named executive officers, is calculated +based on 5% of the employee’s eligible salary, excluding annual cash bonuses, and is paid one-half +in cash and one-half in Company stock, limited to IRS regulations. The Company also matches +employee deferral amounts, including amounts deferred by named executive officers, up to a total of +5% of eligible compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not +otherwise available to all of our employees. We provide our Chief Executive Officer, Chief +Financial Officer and other executive officers with use of a company automobile. We purchase the +automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to +recognize taxable income using the Internal Revenue Service’s annual lease value method for +personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s +payment of term life insurance policies for which Mr. Callon is the sole beneficiary and which the +Company has no economic interest in the proceeds. The costs associated with these benefits for the +Named Executive Officers are reported as “Other Compensation” in the Summary Compensation Table. +Internal Revenue Service Limitations . We have structured our compensation program to comply +with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue +Code, a limitation was placed on tax deductions of any publicly-held corporation for individual +compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, +unless the compensation is performance-based. If an executive is entitled to nonqualified deferred +compensation benefits that are subject to Section 409A, and such benefits do not comply with +Section 409A, then the benefits are taxable in the first year they are not subject to a substantial +risk of forfeiture. In such case, the Service Provider is subject to regular federal income tax, +interest and an additional federal income tax of 20% of the benefit includible in income. The +Company has no individuals with non-performance based compensation paid in excess of the Internal +Revenue Code Section 162(m) tax deduction limit. However, we reserve the right to use our judgment +to authorize compensation payments that do not comply with the exemptions in Section 162(m) when we +believe that such payments are appropriate and in the best interest +17 +Table of Contents +of the stockholders, after +taking into consideration changing business conditions or the executive’s individual performance +and/or changes in specific job duties and responsibilities. +Insider Trading and Stock Ownership Policy . Currently we do not have a stock ownership policy +that applies to our employees. We do have an Insider Trading Policy for which all employees and +members of our Board of Directors are prevented from buying or selling Company stock during an +announced “trading blackout” period. Generally a blackout period is placed in effect by senior management when material non-public +information about the Company exists and may have an influence on the marketplace. +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2006, we are not aware of any related party transactions with our +executive officers that may cause a conflict of interest with the Company. +Compensation Committee Report +We have reviewed and discussed with management certain Compensation Discussion and Analysis +provisions included in the Company’s 2007 Shareholder Meeting Schedule 14A Proxy Statement, filed +pursuant to Section 14(a) of the Securities Exchange Act of 1934. Based on the reviews and +discussions referred to above, we recommend to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in the Company’s 2007 Proxy Statement. +L. Richard Flury (Chairman) +John C. Wallace +Richard O. Wilson +18 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +The following table sets forth certain information with respect to the Chief Executive Officer +of the Company and the four most highly compensated executive officers of the Company serving in +such positions as of December 31, 2006. We sometimes refer to the officers listed below as the +“Named Executive Officers.” +Summary Compensation Table +Name +All Other +and +Stock +Compen- +Principal +Salary +Bonus +Awards +sation +Total +Position +Year +($) +($)(2) +($)(3) +($) +($)(2) +Fred L. Callon +2006 +434,700 +— +118,852 +(4) +55,350 +(9) +819,969 +Chairman and Chief +Executive Officer +211,067 +(5) +B. F. Weatherly +2006 +35,566 +(1) +— +69,100 +(6) +44,983 +(10) +243,733 +Executive Vice +79,150 +(7) +President and Chief +14,934 +(8) +Financial Officer +Stephen F. Woodcock +2006 +217,726 +— +51,134 +(4) +39,960 +(11) +477,673 +Vice President +168,853 +(5) +Thomas E. Schwager +2006 +196,321 +— +48,370 +(4) +39,866 +(12) +419,640 +Vice President +135,083 +(5) +Rodger W. Smith +2006 +167,384 +— +34,550 +(4) +39,216 +(13) +338,241 +Corporate +Controller +and +Treasurer +97,091 +(5) +(1) +Mr. Weatherly joined the Company as Executive Vice President and Chief Financial +Officer effective November 16, 2006. His annual salary is $350,000 per year. +(2) +As of April 11, 2007, no cash bonuses attributable to the Named Executive Officers +for 2006 have been awarded. Although individual bonus amounts have not yet been +determined, the Compensation Committee may award cash bonuses to be paid on or before +April 23, 2007. Should such bonuses be awarded, this information will be reported on +Form 8-K and filed with the SEC immediately following the award date. +(3) +Amounts calculated utilizing the provisions of Statement of Financial Accounting +Standards No. 123R, “Share-based Payments.” See Note 3 of the consolidated financial +statements in the Company’s Annual Report for the year ended December 31, 2006 regarding +assumptions underlying valuation of equity awards. +(4) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on July 14, 2004 pursuant to the Company’s 1994 Stock Incentive Plan. The +closing price of the common stock on the New York Stock Exchange on the date of grant was +$13.82 per share. Amortization for the period represents twelve of the sixty-month +vesting period. Does not include an estimated forfeiture rate of 7.5%. +(5) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on August 21, 2006 pursuant to the Company’s 1996 Stock Incentive Plan. +The closing price of the common stock on the New York Stock Exchange on the date of grant +was $15.83 per share. Amortization for the period represents vesting of 20% of the +original award on the grant date plus four of the remaining forty-eight month vesting +period. Does not include an estimated forfeiture rate of 7.5%. +(6) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on July 14, 2004 pursuant to the Company’s 1994 Stock Incentive Plan. The +closing price of the common stock on the New York Stock Exchange on the date of grant was +$13.82 per share. Amortization for the period represents twelve of the sixty-month +vesting period. Does not include an estimated forfeiture rate of 7.5%. These shares +were granted to Mr. Weatherly while serving as a non-management member of the Board of +Directors. +(7) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on August 21, 2006 pursuant to the Company’s 1996 Stock Incentive Plan. +The closing price of the common stock on the New York Stock Exchange on the date of grant +was $15.83 per share. Shares vesting 100% on the grant date. These shares were granted +to Mr. Weatherly while serving as a non-management member of the Board of Directors. +(8) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on November 16, 2006 pursuant to the Company’s 2006 Stock Incentive Plan. +The closing price of the common stock +19 +Table of Contents +on the New +York Stock Exchange on the date of grant was $15.93 per share. Amortization for the +period represents one of the forty-eight month vesting period. Does not include an +estimated forfeiture rate of 7.5%. +(9) +All other compensation for Fred L. Callon consists of the following: $16,500 +contributed by the Company to his 401(k) savings plan in cash, $5,500 representing the +value of common stock contributed by the Company to his 401(k) savings plan, $3,264 +associated with company provided life insurance, $16,526 representing the depreciation, +maintenance and fuel costs associated with a company-provided automobile originally +purchased in September 2004 for $44,598, and $13,560 associated with two personal term +life insurance policies for which Mr. Callon is sole beneficiary and the premiums are +paid by the Company. +(10) +All other compensation for B. F. Weatherly consists of the following: $673 +contributed by the Company to his 401(k) savings plan in cash, $673 representing the +value of common stock contributed by the Company to his 401(k) savings plan, $272 +associated with company provided life insurance, and $865 representing the depreciation, +maintenance and fuel costs associated with a company-provided automobile originally +purchased in December 2006 for $35,000. During 2006, Mr. Weatherly also earned $35,000 +in retainer fees as a non-management member of the Board of Directors and $7,500 as +chairman of the Compensation Committee. +(11) +All other compensation for Stephen F. Woodcock consists of the following: $16,330 +contributed by the Company to his 401(k) savings plan in cash, $5,443 representing the +value of common stock contributed by the Company to his 401(k) savings plan, $3,264 +associated with company provided life insurance, and $14,923 representing the +depreciation, maintenance and fuel costs associated with a company-provided automobile +originally purchased in January 2004 for $42,091. +(12) +All other compensation for Thomas E. Schwager consists of the following: $14,724 +contributed by the Company to his 401(k) savings plan in cash, $4,908 representing the +value of common stock contributed by the Company to his 401(k) savings plan, $3,264 +associated with company provided life insurance, and $16,970 representing the +depreciation, maintenance and fuel costs associated with a company-provided automobile +originally purchased in October 2006 for $45,354. +(13) +All other compensation for Rodger W. Smith consists of the following: $12,554 +contributed by the Company to his 401(k) savings plan in cash, $4,185 representing the +value of common stock contributed by the Company to his 401(k) savings plan, $2,860 +associated with company provided life insurance, and $19,617 representing the +depreciation, maintenance and fuel costs associated with a company-provided automobile +originally purchased in March 2006 for $43,994. +Grant of Plan-based Awards During 2006 +The following table presents grants of equity awards during the fiscal year ending December +31, 2006: +Estimated Future +Payouts Under +Equity +Incentive Plan +Grant +Awards +Date +Thresh- +Maxi- +Fair +old +Target +mum +Value +Name +Grant Date +(#) +($) +(#) +($) +Fred L. Callon +08/21/06 +— +50,000 +(1) +— +791,500 +B. F. Weatherly +08/21/06 +5,000 +(1) +11/16/06 +— +45,000 +(2) +— +796,000 +Stephen F. Woodcock +08/21/06 +— +40,000 +(1) +— +633,200 +Thomas E. Schwager +08/21/06 +— +32,000 +(1) +— +506,560 +Rodger W. Smith +08/21/06 +— +23,000 +(1) +— +364,090 +(1) +Represents performance shares awarded August 21, 2006 under the 1996 plan. The +closing price on the New York Stock Exchange on the date of grant was $15.83 per share. +Vesting provisions are 20% on the grant date and 20% on each anniversary date +thereafter. Unvested shares do not carry voting rights until vesting occurs. On +December 29, 2006 the closing price of the Company’s common stock on the New York Stock +Exchange was $15.03 per share. +(2) +Represents performance shares awarded November 16, 2006 under the 2006 plan. The +closing price on the New York Stock Exchange on the date of grant was $15.93 per share. +Vesting provisions are 25% on November 16, 2007 and 25% on each anniversary date +thereafter. Unvested shares do not carry voting rights until vesting occurs. On +December 29, 2006 the closing price of the Company’s common stock on the New York Stock +Exchange was $15.03 per share. +20 +Table of Contents +Stock-Based Incentive Compensation Plans +The Company currently maintains four common stock-based incentive plans for its directors and +employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved +for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan +terminated effective July 14, 2004, therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. +Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the +exercise of options or for grants of performance shares. On August 20, 1998, the Board of +Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase +the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, +the shareholders of the Company approved an increase in the available number of shares of common +stock reserved for issuance under the 1996 Plan to 2,200,000 shares. During 2006, 15,000 options +were issued to a newly hired employee, 520,000 performance shares were awarded to company employees +and to non-management directors, 294,427 shares were returned to the plan as a result of being +withheld to pay the exercise price and income taxes associated with option exercises and/or vesting +of performance shares, and 446,384 shares became un-issuable as a result of the termination of the +plan. As of March 19, 2007, there were no remaining shares of common stock available for grant +under the 1996 Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance +upon the exercise of options or for grants of stock options, stock appreciation rights or units, +restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan +under the provisions of the New York Stock Exchange rules and regulations at the time it was +adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly +based plan, the aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted to all employees +during any three-year period. During 2006, 17,500 performance shares were issued. To date in +2007, there have been no awards granted. As of March 19, 2007, there were 18,166 shares of common +stock available for future grant under the 2002 Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the +2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders in +conjunction with the 2006 Annual Meeting of Shareholders held on May 4, 2006. Pursuant to the 2006 +Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for +grants of stock options, stock appreciation rights or units, restricted stock, or performance +shares or units. During 2006, 45,000 performance shares were awarded to B. F. Weatherly as a new +employee. To date in 2007, there have been no awards granted. As of March 19, 2007, there were +455,000 shares of common stock available for future grant under the 2006 Plan. +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors authorized the +implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 +Purchase Plan”), which was approved by the Company’s shareholders on June 19, 1997. The Plan +provided eligible employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock purchase plan. An +aggregate of 250,000 shares of common stock was reserved for issuance over the ten-year term of the +1997 Purchase Plan. The purchase price per share at which common stock could be purchased by the +participant on each purchase date within an offering period was equal to eighty-five percent of the +fair market value per share of common stock. As of March 19, 2007, all reserved shares have been +issued. +Long-Term Incentive Plan Awards +Other than the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan the Company does not +have a long-term incentive plan for its employees. +21 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table contains all equity grants outstanding at December 31, 2006 for the Named +Executive Officers: +Option Awards +Stock Awards +Number +of +Securities +Number of +Market +Underlying +Shares or Units of +Value of Shares +Unexercised +Option +Stock that +or Units of Stock +Options +Exercise +Option +have not +that have +(#) +Price +Expiration +Vested +not vested +Name +Exercisable +($) +Date +(#) +($) +Fred L. Callon +60,000 +(1) +9.46875 +08/20/2008 +— +110,000 +(2) +10.50 +03/23/2010 +— +— +18,750 +(3) +4.50 +07/12/2012 +— +— +12,625 +(4) +3.70 +08/23/2012 +— +— +— +— +— +25,800 +(18) +387,774 +(21) +— +— +— +40,000 +(19) +601,200 +(21) +B. F. Weatherly +5,000 +(5) +9.46875 +05/29/2008 +— +— +5,000 +(6) +10.9688 +04/30/2009 +— +— +5,000 +(7) +15.3125 +06/20/2007 +— +— +5,000 +(8) +13.5625 +05/10/2010 +— +— +20,000 +(9) +10.50 +07/25/2010 +— +— +5,000 +(10) +11.61 +05/04/2011 +— +— +5,000 +(11) +6.05 +05/08/2012 +— +— +5,000 +(12) +5.12 +05/02/2013 +— +— +5,000 +(13) +12.40 +05/06/2014 +— +— +5,000 +(14) +13.71 +05/05/2015 +— +— +— +— +— +15,000 +(18) +225,450 +(21) +— +— +— +45,000 +(20) +676,350 +(21) +Stephen F. Woodcock +25,000 +(15) +9.00 +03/05/2009 +— +— +44,000 +(2) +10.50 +03/23/2010 +— +— +22 +Table of Contents +Option Awards +Stock Awards +Number +of +Securities +Number of +Market +Underlying +Shares or Units of +Value of Shares +Unexercised +Option +Stock that +or Units of Stock +Options +Exercise +Option +have not +that have +(#) +Price +Expiration +Vested +not vested +Name +Exercisable +($) +Date +(#) +($) +13,250 +(3) +4.50 +07/12/2012 +— +— +8,500 +(4) +3.70 +08/23/2012 +— +— +— +— +— +11,100 +(18) +166,833 +(21) +— +— +— +32,000 +(19) +480,960 +(21) +Thomas E. Schwager +— +— +— +10,500 +(18) +157,815 +(21) +— +— +— +25,600 +(19) +384,768 +(21) +Rodger W. Smith +8,000 +(15) +9.00 +03/05/2009 +— +— +20,000 +(2) +10.50 +03/23/2010 +— +— +1,600 +(16) +4.50 +07/12/2012 +— +— +1,083 +(17) +3.70 +08/23/2012 +— +— +— +— +— +7,500 +(18) +112,725 +(21) +— +— +— +17,600 +(19) +264,528 +(21) +(1) +Represents stock options awarded on August 20, 1998 which are 100% vested. +(2) +Represents stock options awarded on March 23, 2000 which are 100% vested. +(3) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(4) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(5) +Represents stock options awarded on May 29, 1998 which are 100% vested. +(6) +Represents stock options awarded on April 30, 1999 which are 100% vested. +(7) +Represents stock options awarded on June 20, 1997 which are 100% vested. +(8) +Represents stock options awarded on May 10, 2000 which are 100% vested. +(9) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(10) +Represents stock options awarded on May 4, 2001 which are 100% vested. +(11) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(12) +Represents stock options awarded on May 2, 2003 which are 100% vested. +(13) +Represents stock options awarded on May 6, 2004 which are 100% vested. +(14) +Represents stock options awarded on May 5, 2005 which are 100% vested. +(15) +Represents stock options awarded on March 5, 1999 which are 100% vested. +(16) +Represents 33% of the original award of stock options awarded on July 12, 2002 which are 100% +vested. +(17) +Represents 33% of the original award of stock options awarded on August 23, 2002 which are +100% vested. +(18) +Represents 60% of the original award of the 2004 performance shares awarded July 14, 2004. +Award vests 20% on July 14, 2005 and 20% on each anniversary thereafter. +(19) +Represents 80% of the original award of the 2006 performance shares awarded August 21, 2006. +Award vests 20% on the grant date and 20% on each anniversary thereafter. +(20) +Represents 100% of the original award of 2006 performance shares awarded upon employment on +November 16, 2006. +Award vest 25% over four years beginning November 16, 2007 and on each anniversary thereafter. +(21) +Amounts calculated based on the December 29, 2006 closing price on the New York Stock +Exchange of $15.03 per share. +23 +Table of Contents +Option Exercises and Stock Vested Table +The following table indicates option exercises and stock vesting during 2006 for the Named +Executive Officers: +Option Awards +Stock Awards +Number of +Shares +Number of +Value +Acquired +Value +Name of +Shares Acquired +Realized On +on +Realized on +Executive +on Exercise +Exercise +Vesting +Vesting +Officer +(#)(1) +($) +(#) +($) +Fred L. Callon +37,500 +(1) +300,188 +(3) +8,600 +(9) +151,403 +(11) +— +— +10,000 +(10) +158,300 +(12) +B. F. Weatherly +5,000 +(2) +27,975 +(4) +5,000 +(9) +88,025 +(11) +5,000 +(1) +29,175 +(5) +5,000 +(10) +79,150 +(12) +5,000 +(1) +33,375 +(6) +— +— +5,000 +(1) +19,000 +(7) +— +— +5,000 +(1) +19,425 +(8) +— +— +Stephen F. Woodcock +17,500 +(1) +140,088 +(3) +3,700 +(9) +65,139 +(11) +— +— +8,000 +(10) +126,640 +(12) +Thomas E. Schwager +— +— +3,500 +(9) +61,618 +(11) +— +— +6,400 +(10) +101,312 +(12) +Rodger W. Smith +8,500 +(1) +68,043 +(3) +2,500 +(9) +44,013 +(11) +— +— +4,400 +(10) +69,652 +(12) +(1) +Represents options awarded on 08/23/1996. +(2) +Represents options awarded on 06/20/1996. +(3) +Represents the difference between fair market value of shares on the date of exercise +of $20.005per share and the option price of $12.00 per share. +(4) +Represents the difference between fair market value of shares on the date of exercise +of $19.345 per share and the option price of $13.75 per share. +(5) +Represents the difference between fair market value of shares on the date of exercise +of $17.835 per share and the option price of $12.00 per share. +(6) +Represents the difference between fair market value of shares on the date of exercise +of $18.675 per share and the option price of $12.00 per share. +(7) +Represents the difference between fair market value of shares on the date of exercise +of $15.80 per share and the option price of $12.00 per share. +(8) +Represents the difference between fair market value of shares on the date of exercise +of $15.885 per share and the option price of $12.00 per share. +(9) +Represents a 20% vesting of performance shares awarded July 14, 2004. +(10) +Represents a 20% vesting of performance shares awarded August 21, 2006. +(11) +Computed based on the fair market value of the common stock on the date of vesting equal +to $17.605 per share. +(12) +Computed based on the fair market value of the common stock on the date of vesting equal +to $15.83 per share. +24 +Table of Contents +Executive Compensation – Post Employment +The following table shows the estimated gross taxable compensation payable upon a change in +control or termination of employment under several scenarios. The information assumes, in each +case, that the officer’s termination was effective as of December 31, 2006. In presenting this +disclosure, we describe amounts earned through December 31, 2006 and, in those cases where the +actual amounts to be paid out can only be determined at the time of such executive’s separation +from the Company, our estimates of the amounts which would be paid out to the executives upon their +termination. +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Other +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(5)(7) +($) +($) +Fred L. Callon +Change in Control (1) +1,304,100 +226,667 +988,974 +67,546 +873,896 +(8) +3,461,183 +Termination for Good Reason (2) +— +— +387,774 +— +— +387,774 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +988,974 +— +— +988,974 +Voluntary termination +— +— +— +— +— +— +B. F. Weatherly +Change in Control (1) +— +— +901,800 +— +— +901,800 +Termination for Good Reason (2) +— +— +— +— +— +— +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +901,800 +— +— +901,800 +Voluntary termination +— +— +— +— +— +— +Stephen F. Woodcock +Change in Control (1) +— +— +647,793 +— +— +647,793 +Termination for Good Reason (2) +— +— +166,833 +— +— +166,833 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +647,793 +— +— +647,793 +Voluntary termination +— +— +— +— +— +— +Thomas E. Schwager +Change in Control (1) +— +— +542,583 +— +— +542,583 +Termination for Good Reason (2) +— +— +157,815 +— +— +157,815 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +542,583 +— +— +542,583 +Voluntary termination +— +— +— +— +— +— +25 +Table of Contents +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Other +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(5)(7) +($) +($) +Rodger W. Smith +Change in Control (1) +— +— +377,253 +— +— +377,253 +Termination for Good Reason (2) +— +— +112,725 +— +— +112,725 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +377,253 +— +— +377,253 +Voluntary termination +— +— +— +— +— +— +(1) +The award agreements under which performance shares were issued to our named +executive officers provide for accelerated vesting upon a change in control or termination +of employment for good reason or upon death, disability or retirement. In addition, Fred +L. Callon is a party to a Severance Compensation Agreement with the Company that provides +for benefits in the event of a change in control or termination of employment. See +Employment Agreements, Termination of Employment and Change-in-Control Arrangements” and +footnote 8 below. “Change in Control” is generally defined consistent with industry +standards. +(2) +“Termination for Good Reason” is generally defined as voluntary termination +following the Company’s failure to maintain and continue the executive’s title or position, +compensation, employee benefits, duties, responsibilities and status with the Company as in +effect at the date the award. The definition also includes the mandatory relocation in +excess of a fifty (50) mile radius of Natchez, MS. +(3) +“Termination for Cause” is generally defined as willful misconduct or intentional +and continual neglect of duties which may continue after the employee has had a reasonable +opportunity to correct the same, commission of fraud or embezzlement, any action intended +to harm the Company, theft or conviction of a felony. +(4) +“Disability” is generally defined as the employee’s inability to carry out the +normal and usual duties of his employment on a full-time basis for an entire period of six +(6) continuous months together with the reasonable likelihood, as determined by the Board +of Directors after consultation of a qualified physician, will be unable to carry out his +normal and usual duties of employment. Retirement is generally defined as the employee’s +attainment of an age which the Board of Directors determines to be consistent with normal +retirement age. +(5) +The amount has been computed based on the provisions contained in Mr. Callon’s +Severance Compensation Agreement. +(6) +The amounts are computed based on unvested stock awards at December 31, 2006 using +the closing price of the Company’s common stock on the New York Stock Exchange on December +29, 2006, the last trading day for 2006, at $15.03 per share. +(7) +Benefits consist of thirty-six months of employer provided family medical and +dental insurance, life insurance, dependent life insurance, accidental death coverage and +disability coverage. +(8) +Amount represents an estimated tax gross-up assuming a change in control on +December 31, 2006. Due to Mr. Callon’s annual salary, bonuses, his taxable income from the +vesting of performance shares, and the exercise of options during the last five years +(which is included for purposes of calculating base compensation under Section 280G), we +estimate that there would be excise taxes imposed on him and a corresponding payment by the +Company. The applicable tax rates for purposes of computing the IRC Section 4999 excise tax +gross-up were as follows: 35% (Federal); 5% (MS state); 1.45% (Medicare), and 20% (IRC +Section 4999). +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. Effective January 1, 2002, the Company entered into a +Severance Compensation Agreement with Fred L. Callon providing for certain benefits in the event +that a “change of control” occurs. The Agreement provides for a three-year term that automatically +extends for successive one-year periods until either the Company or Mr. Callon notifies the other +party prior to such renewal that it has elected to terminate the Agreement; provided that the term +of the Agreement shall be until the later of two years following the date of a change of control +and the satisfaction of all obligations of the Company under the Agreement. The Agreement +terminates upon the executive’s death, disability termination for cause or voluntary resignation +other than for “good reason.” +Pursuant to the Agreement, if Mr. Callon’s employment with the Company is terminated without +cause by the Company or for good reason by him within two years following a change of control by +the Company (or in certain cases, prior to a change of control), then Mr. Callon is entitled to a +single lump-sum cash payment in an amount equal to three times the sum of (a) his annual base +salary, and (b) the higher of the average bonus earned by him during the three preceding years or +the target bonus that he is +26 +Table of Contents +eligible to receive during the year of termination. In addition, the +Company must maintain at its expense until 36 months after the date of termination all life, +disability, medical, dental, accident and health insurance +coverage. If Mr. Callon’s employment is terminated as a result of his death or disability, +the Company is only required to make such payments if the termination occurred within six months of +a change of control. “Good reason” is generally defined in the Agreement as a change in +compensation, benefits, position, responsibilities, or location. A “change of control” is +generally defined in the Agreement as (i) any person or group of persons acting in concert shall +have become the beneficial owner of more than 50% of the outstanding common stock of the Company; +(ii) the stockholders of the Company shall cause a change in the majority of the members of the +Board of Directors within a twelve-month period; or (iii) the Company or its stockholders shall +enter into an agreement to dispose of all or substantially all of the assets or outstanding capital +stock of the Company. +The Agreement also provide that, upon a change of control, all stock options, performance +shares, restricted stock, stock appreciation rights and other similar rights held by Mr. Callon +shall automatically become fully exercisable notwithstanding any vesting or exercisability +provisions. If the Company cannot provide for acceleration of vesting as a result of provisions in +existence prior to a change of control of any plan or agreement, the Company must provide in lieu +thereof a lump-sum cash payment equal to the difference between the total value of the outstanding +stock rights as of the date of termination and the total value of the stock rights in which Mr. +Callon is vested as of the date of termination. +The Agreement incorporates a provision to deal with the impact of the federal excise tax on +excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute +payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and +non-deductibility of such payments by the paying corporation. While the excise tax is seemingly +evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, +against individuals who do not exercise stock options in favor of those who do and against those +who elect to defer compensation in favor of those who do not. For these reasons, we believe that +the provision of the excise tax gross-up in the Agreement is appropriate. If any payment to Mr. +Callon is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as +amended, a “gross-up” payment will be made to place such executive in the same net after-tax +position as would have been the case if no excise tax had been payable. +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an +additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per +year to the chairman of the Compensation Committee and the chairman of the Nominating and Corporate +Governance Committee. At the Company’s expense, each non-management director is reimbursed for +reasonable out-of-pocket costs incurred to attend Board meetings. Pursuant to the 1996 Plan, each +non-management director receives 5,000 stock options each year as part of their total compensation +arrangement. During 2006, the 1996 Plan expired and as a result, the Compensation Committee +elected to grant 5,000 performance shares to each non-management director to replace the lost +options. The amount and frequency of future performance share awards will be at the discretion of +the Compensation Committee. The table below indicates the total compensation earned and paid +during 2006 for each non-management director: +Non-Management Director Compensation for 2006 +Fees +Earned +or Paid +Stock +Option +All Other +in Cash +Awards +Awards +Compensation +Total +Name +($)(1) +($)(5) +($) +($)(9) +($) +L. Richard Flury +50,000 +(2) +57,950 +(6) +— +— +187,100 +79,150 +(8) +John C. Wallace +60,000 +(3) +69,100 +(7) +— +180,225 +388,475 +79,150 +(8) +Richard O. Wilson +42,500 +(4) +69,100 +(7) +— +100,475 +291,225 +79,150 +(8) +27 +Table of Contents +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of +both the Nominating and Corporate Governance Committee and the Compensation Committee, each +for a portion of the year. +(3) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as +chairman of the Audit Committee. +(4) +Represents annual retainer of $40,000 and an additional $2,500 for acting as the chairman of +the Nominating and Corporate Governance Committee for the fourth quarter 2006. +(5) +Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards +No. 123R, “Share-based Payments.” See Note 3 of the consolidated financial statements in the +Company’s Annual Report for the year ended December 31, 2006 regarding assumptions underlying +valuation of equity awards. +(6) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on August 19, 2004. The shares awarded in 2004 had a fair market value of +$11.59 on the date of the award with vesting over a five-year period. Amortization represents +twelve of the sixty-month amortization period. The grant date fair value of the original +award was $289,750. +(7) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on July 14, 2004. The shares awarded in 2004 had a fair market value of $13.82 +on the date of the award with vesting over a five-year period. Amortization represents twelve +of the sixty-month amortization period. The grant date fair value of the original award was +$345,500. +(8) +Represents current year amortization in accordance with FAS 123R of 5,000 shares awarded on +August 21, 2006. The shares awarded in 2006 had a fair market value of $15.83 on the date of +the award with 100% vesting on the date of the award. The grant date fair value of the +original award was $79,150. +(9) +Represents income associated with various 2006 exercises of stock options awarded in prior +years. Combined amount is measured based on the difference between the fair market price of +the common stock on the date of exercise and the option price on the date of exercise. +(10) +At December 31, 2006, Messrs. Flury, Wallace and Wilson held outstanding stock options to +acquire 5,000, 65,000, and 65,000 shares, respectively, which are 100% vested. Also on that +date, Messrs. Flury, Wallace and Wilson have unvested performance shares totaling 15,000 each. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any +additional compensation for his services in this capacity and therefore has been omitted from the +table above. Compensation paid to Mr. Weatherly as a director prior to his appointment in November +2006 as Executive Vice President and Chief Financial Officer is disclosed in the Summary +Compensation Table. +Securities Authorized for Issuance under Equity Compensation Plans +Number of securities +to be issued upon +Weighted Average +Number of securities remaining +exercise of +exercise price of +available for future issuance under +outstanding options +outstanding options +equity compensation plans +(#) +($) +(excluding securities reflected in +Plan +(a) +(b) +columns (a) +1994 Plan (1) +59,000 +10.48 +— +1996 Plan (1) +568,925 +10.53 +— +2002 Plan (2) +112,300 +6.61 +18,166 +2006 Plan (1) +— +— +455,000 +(1) +Plan approved by the Company’s shareholders. +(2) +Plan was adopted as a “broadly based” plan which did not require shareholder approval. +See “Stock-Based Incentive Compensation Plans – 2002 Plan” for a description of the +material terms of the Plan. +28 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable New York Stock +Exchange rules to be directly responsible for the appointment, compensation and retention of the +Company’s independent registered public accountants. The Audit Committee has appointed Ernst & +Young LLP, independent registered public accounting firm, for the examination of the accounts and +audit of the financial statements of the Company for the year ending December 31, 2007. While +shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of +Directors will present a proposal to the shareholders to approve and ratify as part of good +corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to +ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain +Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may +direct the appointment of a different independent registered public accounting firm at any time +during the year if it determines that such a change would be in the best interest of the Company +and its shareholders. A representative of Ernst & Young LLP will be present at the Annual Meeting +and will have the opportunity to make a statement, if he desires, and to respond to appropriate +questions. +Management recommends that the shareholders approve and ratify the appointment of Ernst & +Young LLP as independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2007. Unless otherwise indicated, all properly executed proxies received by +the Company will be voted “FOR” such ratification at the Annual Meeting. +SHAREHOLDERS’ PROPOSALS +FOR 2008 ANNUAL MEETING +Shareholders who desire to present proposals at the 2008 Annual Meeting of Shareholders +and to have proposals included in the Company’s proxy materials must submit their proposals to the +Company at its principal executive offices not later than December 14, 2007. If the date of the +2008 Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2007 +Annual Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before +the Company begins to print and mail its proxy materials for its 2008 Annual Meeting of +Shareholders. +The person named in the Company’s form of proxy for the 2007 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by February 27, 2008, unless the Company changes the date of its +2008 Annual Meeting of Shareholders by more than 30 days from the date of the 2007 Annual Meeting +of Shareholders, in which case such persons will be able to exercise discretionary authority if +notice of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2008 Annual Meeting of Shareholders. +If the date of the 2008 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2007 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +29 +Table of Contents +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the +2006 Annual Report and the Company’s Report on Form 10-K. Printed copies of the Company’s Annual +Report, the Company’s Annual Report on Form 10-K , Corporate Governance Principles, Code of Business +Conduct and Ethics and Charters of Board Committees are available to shareholders upon written +request to the Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal +Street, Natchez, Mississippi 39120. You may also view the documents on the Company’s website at +www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the Annual Meeting +other than those described above. If other business comes before the Annual Meeting, the persons +named on the proxy will vote the proxy in accordance with what they consider to be in the best +interests of the Company and its shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All +shareholders are urged, regardless of the number of shares owned, to participate in the 2007 Annual +Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +April 11, 2007 +30 +Table of Contents +EXHIBIT A +CALLON PETROLEUM COMPANY +Audit Committee Charter +(As revised April 2004) +This Audit Committee Charter ( “Charter” ) sets forth the purpose and membership requirements of the +Audit Committee (the “Committee” ) of the Board of Directors (the “Board” ) and establishes the +authority and responsibilities delegated to it by the Board. +1. +Purpose . The purpose of the Committee is to oversee (i) the integrity of the Company’s +financial statements and disclosures, (ii) the Company’s compliance with legal and regulatory +requirements, (iii) the qualifications, independence and performance of the Company’s +independent auditing firm (the “External Auditor” ), (iv) the performance of the Company’s +internal audit function and External Auditors, (v) the Company’s internal control systems, and +(vi) the Company’s procedures for monitoring compliance with the Company’s Code of Business +Conduct and Ethics. +2. +Committee Members . +2.1. +Composition and Appointment . The Committee shall consist of three (3) or more members +of the Board. The Board shall designate members of the Committee. The members and +Chairperson of the Committee shall be appointed by the Board on the recommendation of the +Nominating and Corporate Governance Committee. Membership on the Committee shall rotate at +the Board’s discretion. The Board shall fill vacancies on the Committee and may remove a +Committee member from the membership of the Committee at any time without cause. Members +shall serve until their successors are appointed by the Board. +2.2. +Independence . Each member of the Committee must meet the independence requirements of +the New York Stock Exchange ( “NYSE” ) and applicable state and federal law, including the +rules and regulations of the Securities and Exchange Commission ( “SEC” ). +2.3. +Financial Literacy . Each member of the Committee shall, in the Board’s judgment, be +financially literate or must become financially literate within a reasonable period of time +after such member’s appointment to the Committee. At least one member of the Committee +shall, in the Board’s judgment, have accounting or related financial management expertise. +In addition, in connection with the preparation of any reports regarding the financial +experience of the members of the Committee to be included in the Company’s periodic public +reports, the Board shall determine with respect to each member of the Committee whether or +not, in the Board’s judgment, such member is an “audit committee financial expert,” as such +term is defined by the SEC. +2.4. +Subcommittees . The Committee shall have the authority to delegate authority and +responsibilities to subcommittees; provided that no subcommittee shall consist of less than +two members. +2.5. +Simultaneous Service on Other Audit Committees . If a member of the Committee serves on +the audit committee (or, in the absence of an audit committee, the board committee +performing equivalent functions, or, in the absence of such committee, the board of +directors) of more than two (2) other +31 +Table of Contents +public companies, the Board must affirmatively determine that such simultaneous service on +multiple audit committees will not impair the ability of such member to serve on the +Committee. The basis for the Board’s determination shall be disclosed in the Company’s +proxy statement prepared in connection with its annual meeting of stockholders. +3. +Authority . +3.1. +Education . To help ensure that the members of the Committee have the proper knowledge +to perform their responsibilities, Committee members shall have the authority, at the +Company’s expense, to attend outside educational programs, retain outside professionals to +conduct educational programs and undertake other appropriate steps to keep current with +developments in accounting, disclosure, risk management, internal controls, auditing and +other matters that are relevant to the carrying out of the Committee’s responsibilities. +3.2. +Advisors . The Committee shall have the authority to retain, at the Company’s expense, +independent legal, financial and other advisors ( “Advisors” ) it deems necessary to fulfill +its responsibilities. +3.3. +Investigations . The Committee shall have the authority to conduct investigations that +it deems necessary to fulfill its responsibilities. +3.4. +Information . The Committee shall have the authority to require any officer, director +or employee of the Company, the Company’s outside legal counsel and the External Auditor to +meet with the Committee and any of its Advisors and to respond to the Committee’s +inquiries. The Committee shall have full access to the books, records and facilities of +the Company in carrying out its responsibilities. +3.5. +Funding . The Committee shall have the authority to determine, on behalf of the +Company, the compensation of (i) the External Auditor for its services in rendering an +audit report and (ii) any Advisors employed by the Company pursuant to Section 3.2. +32 +Table of Contents +4. +Meetings . +4.1. +Frequency of Meetings . The Committee shall meet, or otherwise discuss, at least once +per fiscal quarter in connection with (i) its review of the Company’s financial statements +and the disclosures that are to be included in the Company’s Form 10-Q and Form 10-K +filings with the SEC, including the disclosures under “Management’s Discussion and Analysis +of Financial Condition and Results of Operations” and (ii) the preparation of the +Committee’s report to be included in the Company’s proxy statement in connection with the +Company’s annual meeting of stockholders pursuant to Section 10.4 below. The Chairperson +may call a special meeting at any time he or she deems advisable. +4.2. +Executive Sessions . The Committee shall maintain free and open communication with (i) +the Company’s chief executive officer ( “CEO” ), (ii) the Company’s chief financial officer +( “CFO” ) being responsible for all financial matters and overseeing internal auditing +( “Internal Auditor” ), (iii) the External Auditor, and (iv) the Company’s general counsel, +or outside legal counsel retained for general corporate purposes, ( “General Counsel” ) and +shall periodically meet in separate executive (private) sessions with each such person and +other members of the Company’s management to discuss any matters that the Committee or any +such person believes should be discussed privately with the Committee. +4.3. +Minutes . Minutes of each meeting of the Committee shall be kept by the corporate +secretary to document the discharge by the Committee of its responsibilities. A copy +thereof shall be incorporated with and into the next regularly scheduled meeting of the +Board. +4.4. +Quorum . A quorum shall consist of the greater of one-half of the Committee’s +membership or two persons. The act of a majority of the Committee members present at a +meeting at which a quorum is present shall be the act of the Committee. +4.5. +Agenda . The Chairperson of the Committee shall prepare an agenda for each meeting of +the Committee, in consultation with Committee members and any appropriate member of the +Company’s management or staff, as necessary. As requested by the Chairperson, members of +the Company’s management and staff shall assist the Chairperson with the preparation of any +background materials necessary for any Committee meeting. +4.6. +Presiding Officer . The Chairperson of the Committee shall preside at all Committee +meetings. If the Chairperson is absent at a meeting, a majority of the Committee members +present at a meeting shall appoint a different presiding officer for that meeting. +5. +External Auditor Oversight . +5.1. +Selection and Evaluation . Subject to shareholder ratification, if such ratification is +required by applicable law or the certificate of incorporation or the bylaws of the +Company, the Committee shall have sole responsibility for the appointment, retention, +oversight, termination and replacement of the External Auditor and for the approval of all +audit and engagement fees. The Committee +33 +Table of Contents +shall annually, following the completion of the +audit reports and at such other +times as it deems appropriate, evaluate the performance of the External Auditor, including +a specific evaluation of the External Auditor’s lead (or coordinating) audit partner +having primary responsibility for the Company’s audit. +5.2. +Pre-Approval of External Auditor Services . +5.2.1. +Committee Pre-Approval . No audit services or non-audit services shall be +provided to the Company by the External Auditor unless first pre-approved by the +Committee and unless permitted by applicable securities laws and the rules and +regulations of the SEC. If the Committee approves an audit service within the scope of +the engagement of the External Auditor, such audit service shall be deemed to have been +pre-approved for purposes of this Section. +5.2.2. +Pre-Approval Exception . Pre-approval shall not be required under Section +5.2.1. for non-audit services provided by the External Auditor, if (i) the aggregate +amount of all such non-audit services provided to the Company constitutes not more than +the five percent (5%) of the total amount of revenues paid by the Company to the +External Auditor during the fiscal year in which such non-audit services are provided, +(ii) such non-audit services were not recognized by the Company at the time of the +External Auditor’s engagement to be non-audit services, and (iii) such non-audit +services are promptly brought to the attention of the Committee and approved by the +Committee prior to the completion of the audit. +5.2.3. +Delegation of Pre-Approval Authority . The Committee may delegate to one +(1) or more members of the Committee the authority to grant pre-approval of non-audit +services required by this Section, including the pre-approval described in clause (iii) +of Section 5.2.2. The decision of any member to whom such authority is delegated to +pre-approve non-audit services shall be presented to the full Committee for its +approval at its next scheduled meeting. +5.3. +Independence . The Committee shall periodically meet with management, the Internal +Auditor and the External Auditor to assess and satisfy itself that the External Auditor is +“independent” in accordance with the rules and regulations of the NYSE and the SEC. The +Committee shall annually obtain from the External Auditor a written statement delineating +(i) all relationships between the External Auditor and the Company that may impact the +External Auditor’s objectivity and independence, (ii) confirmation that none of the +Company’s CEO, controller, CFO, chief accounting officer, Internal Auditor, or any person +serving in an equivalent position to any of the foregoing for the Company, was employed by +such External Auditor and participated in any capacity in the audit of the Company during +the one (1) year period preceding the date of the initiation of the audit for which the +External Auditor is engaged, and (iii) all the disclosures required by Independence +Standards Board Standard No. 1. +5.4. +Quality Control . The Committee shall annually obtain from the External Auditor a +written report describing (i) the External Auditor’s internal quality-control procedures; +and (ii) any material issues raised by (a) the External Auditor’s most recent internal +quality-control review or peer review, or (b) any inquiry or investigation by governmental +or accounting profession authorities, in +34 +Table of Contents +each case, within the preceding five years, +respecting one or more independent +audits carried out by the External Auditor, and any steps taken to deal with any such +issues. +5.5. +Audit Partner Rotation . The Committee shall annually obtain from the External Auditor +a written statement confirming that neither the lead (or coordinating) audit partner having +primary responsibility for the Company’s audit nor the audit partner responsible for +reviewing the Company’s audit has performed audit services for the Company in each of the +Company’s five (5) previous fiscal years. +5.6. +External Auditor Reports Review . The Committee shall review with management, the +Internal Auditor and the External Auditor (i) the reports required to be prepared by the +External Auditor under Section 10A(k) of the Securities Exchange Act of 1934 regarding (a) +all critical accounting policies and practices used by the Company and (b) all alternative +treatments of the Company’s financial information within GAAP that have been discussed with +management, the ramifications of the use of such alternative disclosures and treatments and +the treatment preferred by the External Auditor; and (ii) all other material written +communications between the External Auditor, management and the Internal Auditor, such as +any management letter or schedule of unadjusted differences. +5.7. +Internal Control Assessment . The Committee shall annually obtain from the External +Auditor a written report in which the External Auditor attests to and reports on the +assessment of the Company’s internal controls made by the Company’s management. +5.8. +Accountability of External Auditor . The External Auditor shall report directly to the +Committee and shall be ultimately accountable to the Committee. The Committee shall obtain +an annual written statement from the External Auditor confirming its accountability to the +Committee. +5.9. +Audit Assessment . The Committee shall annually assess with management, the Internal +Auditor and the External Auditor any problems or difficulties encountered in connection +with the audit process and managements’ response, including any restrictions on the scope +of the External Auditor’s activities or on access to requested information, any accounting +adjustments that were noted or proposed by the External Auditor but were “passed” (as +immaterial or otherwise), any communications between the External Auditor’s team assigned +to the Company’s audit and the External Auditor’s national office respecting auditing or +accounting issues presented by the Company’s audit, and any “management” or “internal +control” letter issued, or proposed to be issued, by the External Auditor to the Company. +5.10. +SAS 61 Communications . The Committee shall discuss with the External Auditor the +matters required to be discussed under Statement on Auditing Standards No. 61. +5.11. +Audit Disagreement Inquiry . The Committee shall periodically inquire of management +and the External Auditor as to any disagreements that may have occurred between them +relating to the Company’s financial statements or disclosures. The Committee shall have +sole responsibility for the resolution of +35 +Table of Contents +any disagreements between management and the +External Auditor regarding financial reporting. +5.12. +Hiring Policy . The Committee shall draft a policy regarding the hiring by the Company +of employees or former employees of the Company’s External Auditors. After consideration +of the pressures that may exist for employees of the External Auditor to consciously or +subconsciously seek employment with the Company, the Committee shall make a determination +as to whether or not such policy should be disclosed to the External Auditor and whether or +not the External Auditor should be required to disclose such policy to each of its +employees that provide services in connection with the Company’s audit. +6. +Internal Auditing Oversight . +6.1. +Internal Auditing Staff . The Committee shall annually evaluate the performance of the +Internal Auditor and the internal auditing department, or the entity retained to provide +internal audit services, with management and the External Auditor. +6.2. +Internal Audit Process . The Committee shall oversee the Company’s internal audit +function and any other appropriate control process in place for reviewing and approving the +Company’s internal transactions and accounting; provided , that (i) this Section 6.2 +shall not be construed to require the Company to establish a separate internal audit +department or dedicate employees to the task on a full-time basis and (ii) the Company may +choose to outsource this function to a firm other than the External Auditor. The Committee +shall meet periodically, at its discretion, with the Internal Auditor, the External Auditor +and management to review (i) plans for the internal audit program (including scope, +responsibilities, budget and staffing) for the coming year, (ii) the coordination of such +plans with the work of the External Auditor, and (iii) the progress and results of the +internal auditing process. +6.3. +Internal Audit Reports . The Committee shall meet periodically, at its discretion, with +the Internal Auditor to review any significant reports to management prepared by the +internal auditing staff together with management’s response and follow-up to these reports. +The Internal Auditor shall provide a summary of all significant internal audit reports to +the Committee each quarter. +7. +Financial Statements and Disclosure Oversight . +7.1. +SEC Filings and Earnings Releases and Guidance . Prior to the filing by the Company +with the SEC of any annual report on Form 10-K or any quarterly report on +Form 10-Q, the +Committee shall review with management and the External Auditor the financial statements +and the disclosure under “Management’s Discussion and Analysis of Financial Condition and +Results of Operations” contained therein. In addition, the Committee shall periodically, +at its discretion, review with management and the External Auditor the Company’s procedures +(including types of information to be disclosed and the type of presentation to be made) +with respect to press releases that contain information regarding the Company’s historical +or projected financial performance and the provision of any such information, earnings +guidance or other financial information to a financial analyst or rating agency. Such +reviews should include consideration of (i) off-balance sheet transactions, obligations +(including +36 +Table of Contents +contingent obligations) and other relationships with unconsolidated entities or +other persons that may have a current or future effect on the Company’s financial +condition, results of operation, liquidity, capital expenditures or significant components +of revenues or expenses; (ii) pro forma financial information, including any information +required +to reconcile such information with financial information prepared in accordance with GAAP; +(iii) underlying estimates upon which the presented financial information is based; (iv) +the reasonableness of significant judgments made in the preparation of the presented +financial information; (v) whether, notwithstanding proper technical application of the +applicable accounting rules, the presented financial information conforms to the +accounting principles upon which the relevant accounting rules are based; and (vi) +whether, notwithstanding proper technical application of the applicable accounting rules, +the presented financial information misleads investors as to the Company’s underlying +economic condition. +7.2. +Accounting Changes . The Committee shall, before their implementation, review with +management and the External Auditor and approve all significant changes proposed to be made +in the Company’s accounting principles and practices. +7.3. +Adequate Disclosure . The Committee shall periodically, at its discretion, inquire of +management, the External Auditor, the General Counsel and, if the Committee deems it +appropriate, outside legal counsel as to whether the Company’s financial statements comport +with the disclosure requirements of federal securities laws, notwithstanding their +conformity to accounting principles and practices. +7.4. +Criticisms . The Committee shall periodically, at its discretion, inquire of +management, the General Counsel and the External Auditor as to their knowledge of any +criticism of the Company’s financial statements or disclosures by any financial analysts, +rating agencies, media sources or other reliable third-party sources. The Committee shall +establish procedures for (i) the receipt, retention, investigation and resolution of +complaints received by the Company regarding accounting, internal accounting controls or +auditing matters; and (ii) the confidential anonymous submission by the Company’s employees +of concerns regarding questionable accounting or auditing matters. +8. +Internal Controls and Compliance with Laws and Regulations and Code of Business Conduct and +Ethics Oversight . +8.1. +Internal Controls and Compliance Policies . For the purpose of assessing their adequacy +and effectiveness, the Committee (i) shall periodically, at its discretion, review and +assess with management, the Internal Auditor, the General Counsel and the External Auditor +(a) the internal control systems of the Company, including whether such controls are +reasonably designed to ensure that appropriate information comes to the attention of the +Committee in a timely manner, prevent violations of law and corporate policy and permit the +Company to prepare accurate and informative financial reports, (b) the Company’s policies +on compliance with laws and regulations, (c) the Company’s Code of Business Conduct and +Ethics, and (d) the methods and procedures for monitoring compliance with such policies; +and (ii) shall elicit any recommendations for the improvement of the Code of Business +Conduct and Ethics and such controls, policies, methods and procedures. The Committee +shall review with +37 +Table of Contents +management and the External Auditor, prior to its annual filing, the +internal control report (containing the annual assessment of the effectiveness of the +internal control structure and procedures of the Company for ensuring the accuracy of +public disclosures) that is required to be filed by the Company with the SEC on Form 10-K. +8.2. +Information Security . The Committee shall periodically, at its discretion, review and +assess with management and the External Auditor the adequacy of the security for the +Company’s information systems and the Company’s contingency plans in the event of a systems +breakdown or security breach. +8.3. +Code of Business Conduct and Ethics Violations and Waivers . The Committee shall +periodically, at its discretion, inquire of management, the Internal Auditor and the +External Auditor as to their knowledge of (i) any violation of the Code of Business Conduct +and Ethics, (ii) any waiver of compliance with the Code of Business Conduct and Ethics, and +(iii) any investigations undertaken with regard to compliance with the Code of Business +Conduct and Ethics. Any waiver of the Code of Business Conduct and Ethics with respect to +a director or executive officer may only be granted by the Committee. All waivers granted +by the Committee shall be promptly reported to the entire Board and be publicly disclosed +as required by the rules and regulations of the SEC and NYSE. +8.4. +Misconduct Allegations . The Committee shall periodically, at its discretion, inquire +of management and the General Counsel of their knowledge of any allegations of director or +officer misconduct or misconduct by the Company (whether made by employees or third +parties). +8.5. +Disagreements with Legal Counsel . The Committee shall periodically, in its discretion, +inquire of management, the General Counsel and, if appropriate, outside legal counsel of +any disagreements that may have occurred between management and legal counsel regarding any +public disclosures or any other legal compliance issue. +8.6. +Related Persons Transactions Oversight . The Company shall not enter into a related +person transaction unless such transaction is approved by the Committee after a review of +the transaction for potential conflicts of interest. The terms “related person” and +“transaction” shall have the meaning given such terms in Item 404 of Regulation S-K, as +amended from time to time. If such related person transaction occurs and is approved by +the Committee, the Committee shall review the disclosure(s) as required by Item 404. +9. +Risk Management Oversight . +9.1. +Risk Exposure . The Committee shall periodically meet with management and each +Independent Auditor to review and discuss (a) guidelines and policies with respect to risk +assessment and risk management to the extent necessary or appropriate to govern the process +by which the Company’s risk assessment and management is undertaken and handled (although +the Committee is not required to be the sole body responsible for risk assessment and +management) and (b) the Company’s major financial risk exposures and the steps management +has taken to monitor and control such exposures. If the Company manages and assesses its +risk through mechanisms other than the Committee, the mechanisms need not +38 +Table of Contents +be replaced by +the Committee, but the processes in place should be reviewed in a general manner by the +Committee. +9.2. +Insurance . The Committee shall periodically review and assess insurance coverage, +including Directors and Officers Liability, property and casualty loss, +errors and omissions and surety bonds, with management and, at the Committee’s discretion, +General Counsel. +9.3. +Special-Purpose Entities and Off-Balance Sheet Transactions . The Committee shall +periodically meet with management, the Internal Auditor, the General Counsel and the +External Auditor to review and assess all “special-purpose” entities of the Company and all +complex financing transactions involving the Company, including all related off-balance +sheet accounting matters. +9.4. +Consultation with Legal Counsel . The Committee shall periodically, at its discretion, +review with the General Counsel and, if the Committee deems it appropriate, outside legal +counsel legal matters (including material claims, pending legal proceedings, government +investigations and material reports, notices or inquires received from governmental +agencies) that may have a significant impact on the Company’s financial statements or risk +management. +10. +Reports and Assessments . +10.1. +Board Reports . The Chairperson of the Committee shall, periodically, at his or her +discretion, report to the Board on Committee actions and on the fulfillment of the +Committee’s responsibilities under this Charter. Such reports shall include any issues +that arise with respect to the quality or integrity of the Company’s financial statements, +the Company’s compliance with legal or regulatory requirements, the performance and +independence of the Company’s External Auditors and the performance of the Company’s +internal audit function. This report shall be presented and incorporated with and into the +next regularly scheduled Board meeting. +10.2. +Charter Assessment . The Committee shall annually assess the adequacy of this Charter +and advise the Board and the Nominating and Corporate Governance Committee of its +assessment and of its recommendation for any changes to the Charter. The Committee shall, +if requested by management, assist management with the preparation of a certification to be +presented annually to the NYSE affirming that the Committee reviewed and reassessed the +adequacy of this Charter. +10.3. +Committee Self-Assessment . The Committee shall annually make a self-assessment of its +performance and shall report the results of such self-assessment to the Board and the +Nominating and Corporate Governance Committee. +10.4. +Proxy Statement Report . The Committee shall prepare an annual report as required by +the rules and regulations of the SEC and submit it to the Board for inclusion in the +Company’s proxy statement prepared in connection with its annual meeting of stockholders. +39 +Table of Contents +10.5. +Recommend Action . The Committee shall annually make a determination as to whether to +recommend to the Board that the audited financials (certified by the External Auditor) be +included in the Company’s annual report on Form 10-K for filing with the SEC. +10.6. +Board Access to External Auditor . The Committee shall, whenever the Board of +Directors or the Committee deems it appropriate, have the External Auditor +attend a meeting of the Board to discuss specific issues and to answer questions from the +directors. +11. +General . +11.1. +Financial Statement Responsibility . The Company’s management is responsible for the +preparation, presentation and integrity of the Company’s financial statements and +disclosures, and the External Auditor is responsible for auditing year-end financial +statements and reviewing quarterly financial statements and conducting other procedures. +It is not the duty of the Committee to certify the Company’s financial statements, to +guarantee the External Auditor’s report or to plan or conduct audits. Since the primary +function of the Committee is oversight, the Committee shall be entitled to rely on the +expertise, skills and knowledge of management, the Internal Auditor and the External +Auditor and the accuracy of information provided to the Committee by such persons in +carrying out its oversight responsibilities. Nothing in this Charter is intended to change +the responsibilities of management and the External Auditor. +11.2. +Charter Guidelines . While the responsibilities of the Committee set forth in Section +5 through 10 above are contemplated to be the principal recurring activities of the +Committee in carrying out its oversight function, these responsibilities are to serve as a +guide with the understanding that the Committee may diverge from them as it deems +appropriate given the circumstances. +12. +Qualified Legal Compliance Committee Duties . +12.1. +Purpose . The Committee shall fulfill the requirements of a Qualified Legal Compliance +Committee, as defined in Part 205 of Title 17, Chapter II of the Code of Federal +Regulations ( “Part 205” ). +12.2. +Written Procedures . The Committee shall have the authority and responsibility to +establish written procedures to confidentially receive, consider and retain reports of +evidence of a material violation by the Company, its officers, directors, employees or +agents of federal or state securities laws, material breach of fiduciary duty, or a similar +material violation of any federal or state law. +12.3. +Report Submission . The Committee shall have the authority and responsibility to +inform the Company’s chief legal officer, as such term is used in Part 205 ( “CLO” ), and CEO +(or the equivalents thereof) of any report of evidence of a material violation (except in +case of futility). +12.4. +Investigation Determination . The Committee shall determine whether an investigation +is necessary regarding any report of evidence of a material violation by the Company, its +officers, directors, employees or agents. If the Committee determines an investigation is +necessary or appropriate, the +40 +Table of Contents +Committee shall (i) notify the Board of its determination to +investigate, (ii) initiate an investigation, which may be conducted either by the CLO (or +the equivalent thereof) or by outside counsel, and (iii) retain such additional Advisors to +assist in such investigation as the Committee deems necessary or appropriate. +12.5. +Conclusion of Investigation . At the conclusion of any investigation the Committee +shall (i) have the authority and responsibility to recommend, by majority vote, that the +Company implement an appropriate response to evidence +of a material violation, and (ii) inform the Company’s CLO and CEO (or the equivalents +thereof) and the Board of the results of any such investigation and the appropriate +remedial measures to be adopted, if any. +12.6. +Notification of SEC . The Committee shall have the authority to take all other +appropriate action, including the authority to notify the SEC in the event that the Company +fails in any material respect to implement an appropriate response that the Committee has +recommended the Company to take; provided, that the Committee determines, by +majority vote and after consultation with counsel, that such notification would be required +by law or in the best interest of the Company. +General Authority . The Committee shall have the authority to take any other action necessary to +meet the requirements of a Qualified Legal Compliance Committee under Part 205. +41 +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +May 3, 2007 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +2 ê Please detach along perforated line and mail in the envelope provided. ê +n 10030000000000000000 3 +050307 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ELECTION OF THE DIRECTOR AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE +ý +FOR +AGAINST +ABSTAIN +1. +Election of Director: +2. +To ratify the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting firm. +o +o +o +NOMINEE: +o +FOR NOMINEE +John C. Wallace +o +WITHHOLD AUTHORITY +FOR NOMINEE +3. +In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournments thereof. +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” ELECTION OF THE DIRECTOR AND “FOR” PROPOSAL 2. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +To change the address on your account, please check the box +at right and indicate your new address in the address space +above. Please note that changes to the registered name(s) +on the account may not be submitted +via this method. +o +Signature +of Shareholder +Date: +Signature +of Shareholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +n +n +Table of Contents +n +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy Solicited on Behalf of the Board of Directors +of the Company for the Annual Meeting on May 3, 2007 +The undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent and proxy with full power of substitution in each, to represent and to vote, as designated on the reverse, all of the shares of Common Stock of Callon Petroleum Company, held of record by the undersigned on March 19, 2007 at the Annual Meeting of Shareholders to be held at 9:00 a.m. in the St. Louis Room of the Natchez Convention Center, 211 Main Street, Natchez, Mississippi +39120 on May 3, 2007, and at any adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” ELECTION OF THE DIRECTOR AND “FOR” PROPOSAL 2 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE SIDE) but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The Proxies cannot vote your shares unless you sign and return this card. +(Continued and to be signed on the reverse side) +n +14475 n \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-07-001944/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-07-001944/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..900696ae5d1d87c4ad86e368d04fbb8f800faa36 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-07-001944/proxy_rpt.txt @@ -0,0 +1,143 @@ +Related Persons Transactions Oversight . The Company shall not enter into a related +person transaction unless such transaction is approved by the Committee after a review of +the transaction for potential conflicts of interest. The terms “related person” and +“transaction” shall have the meaning given such terms in Item 404 of Regulation S-K, as +amended from time to time. If such related person transaction occurs and is approved by +the Committee, the Committee shall review the disclosure(s) as required by Item 404. +9. +Risk Management Oversight . +9.1. +Risk Exposure . The Committee shall periodically meet with management and each +Independent Auditor to review and discuss (a) guidelines and policies with respect to risk +assessment and risk management to the extent necessary or appropriate to govern the process +by which the Company’s risk assessment and management is undertaken and handled (although +the Committee is not required to be the sole body responsible for risk assessment and +management) and (b) the Company’s major financial risk exposures and the steps management +has taken to monitor and control such exposures. If the Company manages and assesses its +risk through mechanisms other than the Committee, the mechanisms need not +38 +Table of Contents +be replaced by +the Committee, but the processes in place should be reviewed in a general manner by the +Committee. +9.2. +Insurance . The Committee shall periodically review and assess insurance coverage, +including Directors and Officers Liability, property and casualty loss, +errors and omissions and surety bonds, with management and, at the Committee’s discretion, +General Counsel. +9.3. +Special-Purpose Entities and Off-Balance Sheet Transactions . The Committee shall +periodically meet with management, the Internal Auditor, the General Counsel and the +External Auditor to review and assess all “special-purpose” entities of the Company and all +complex financing transactions involving the Company, including all related off-balance +sheet accounting matters. +9.4. +Consultation with Legal Counsel . The Committee shall periodically, at its discretion, +review with the General Counsel and, if the Committee deems it appropriate, outside legal +counsel legal matters (including material claims, pending legal proceedings, government +investigations and material reports, notices or inquires received from governmental +agencies) that may have a significant impact on the Company’s financial statements or risk +management. +10. +Reports and Assessments . +10.1. +Board Reports . The Chairperson of the Committee shall, periodically, at his or her +discretion, report to the Board on Committee actions and on the fulfillment of the +Committee’s responsibilities under this Charter. Such reports shall include any issues +that arise with respect to the quality or integrity of the Company’s financial statements, +the Company’s compliance with legal or regulatory requirements, the performance and +independence of the Company’s External Auditors and the performance of the Company’s +internal audit function. This report shall be presented and incorporated with and into the +next regularly scheduled Board meeting. +10.2. +Charter Assessment . The Committee shall annually assess the adequacy of this Charter +and advise the Board and the Nominating and Corporate Governance Committee of its +assessment and of its recommendation for any changes to the Charter. The Committee shall, +if requested by management, assist management with the preparation of a certification to be +presented annually to the NYSE affirming that the Committee reviewed and reassessed the +adequacy of this Charter. +10.3. +Committee Self-Assessment . The Committee shall annually make a self-assessment of its +performance and shall report the results of such self-assessment to the Board and the +Nominating and Corporate Governance Committee. +10.4. +Proxy Statement Report . The Committee shall prepare an annual report as required by +the rules and regulations of the SEC and submit it to the Board for inclusion in the +Company’s proxy statement prepared in connection with its annual meeting of stockholders. +39 +Table of Contents +10.5. +Recommend Action . The Committee shall annually make a determination as to whether to +recommend to the Board that the audited financials (certified by the External Auditor) be +included in the Company’s annual report on Form 10-K for filing with the SEC. +10.6. +Board Access to External Auditor . The Committee shall, whenever the Board of +Directors or the Committee deems it appropriate, have the External Auditor +attend a meeting of the Board to discuss specific issues and to answer questions from the +directors. +11. +General . +11.1. +Financial Statement Responsibility . The Company’s management is responsible for the +preparation, presentation and integrity of the Company’s financial statements and +disclosures, and the External Auditor is responsible for auditing year-end financial +statements and reviewing quarterly financial statements and conducting other procedures. +It is not the duty of the Committee to certify the Company’s financial statements, to +guarantee the External Auditor’s report or to plan or conduct audits. Since the primary +function of the Committee is oversight, the Committee shall be entitled to rely on the +expertise, skills and knowledge of management, the Internal Auditor and the External +Auditor and the accuracy of information provided to the Committee by such persons in +carrying out its oversight responsibilities. Nothing in this Charter is intended to change +the responsibilities of management and the External Auditor. +11.2. +Charter Guidelines . While the responsibilities of the Committee set forth in Section +5 through 10 above are contemplated to be the principal recurring activities of the +Committee in carrying out its oversight function, these responsibilities are to serve as a +guide with the understanding that the Committee may diverge from them as it deems +appropriate given the circumstances. +12. +Qualified Legal Compliance Committee Duties . +12.1. +Purpose . The Committee shall fulfill the requirements of a Qualified Legal Compliance +Committee, as defined in Part 205 of Title 17, Chapter II of the Code of Federal +Regulations ( “Part 205” ). +12.2. +Written Procedures . The Committee shall have the authority and responsibility to +establish written procedures to confidentially receive, consider and retain reports of +evidence of a material violation by the Company, its officers, directors, employees or +agents of federal or state securities laws, material breach of fiduciary duty, or a similar +material violation of any federal or state law. +12.3. +Report Submission . The Committee shall have the authority and responsibility to +inform the Company’s chief legal officer, as such term is used in Part 205 ( “CLO” ), and CEO +(or the equivalents thereof) of any report of evidence of a material violation (except in +case of futility). +12.4. +Investigation Determination . The Committee shall determine whether an investigation +is necessary regarding any report of evidence of a material violation by the Company, its +officers, directors, employees or agents. If the Committee determines an investigation is +necessary or appropriate, the +40 +Table of Contents +Committee shall (i) notify the Board of its determination to +investigate, (ii) initiate an investigation, which may be conducted either by the CLO (or +the equivalent thereof) or by outside counsel, and (iii) retain such additional Advisors to +assist in such investigation as the Committee deems necessary or appropriate. +12.5. +Conclusion of Investigation . At the conclusion of any investigation the Committee +shall (i) have the authority and responsibility to recommend, by majority vote, that the +Company implement an appropriate response to evidence +of a material violation, and (ii) inform the Company’s CLO and CEO (or the equivalents +thereof) and the Board of the results of any such investigation and the appropriate +remedial measures to be adopted, if any. +12.6. +Notification of SEC . The Committee shall have the authority to take all other +appropriate action, including the authority to notify the SEC in the event that the Company +fails in any material respect to implement an appropriate response that the Committee has +recommended the Company to take; provided, that the Committee determines, by +majority vote and after consultation with counsel, that such notification would be required +by law or in the best interest of the Company. +General Authority . The Committee shall have the authority to take any other action necessary to +meet the requirements of a Qualified Legal Compliance Committee under Part 205. +41 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-08-002208/proxy.txt b/raw/proxies/0000928022/0000950129-08-002208/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7b47d49d08a3ba5e85d2930d3792272472cd2313 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-08-002208/proxy.txt @@ -0,0 +1,2840 @@ +DEF 14A +1 +h55549def14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant +þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +CALLON PETROLEUM Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) +and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its +filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +PROXY STATEMENT +CALLON PETROLEUM COMPANY +ANNUAL MEETING OF SHAREHOLDERS +SOLICITATION AND REVOCABILITY OF PROXIES +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +PROPOSAL I +ELECTION OF DIRECTORS +BENEFICIAL OWNERSHIP OF SECURITIES +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +PROPOSAL II +RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDERS’ PROPOSALS FOR 2009 ANNUAL MEETING +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, MAY 1, 2008 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the Annual Meeting of +Shareholders of the Company which will be held in Natchez, Mississippi, on Thursday, May 1, 2008, +at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, Natchez, +Mississippi 39120, for the following purposes: +1. +To elect one Class I director to hold office until the 2010 Annual Meeting of +Shareholders and elect two Class II directors to hold office until the 2011 Annual +Meeting of Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2008; and +3. +To transact such other business as may properly come before the Annual Meeting +or any adjournment or adjournments thereof. +Specific details of the matters proposed to be put before the Annual Meeting are set forth in +the proxy statement accompanying and forming part of this notice. +Only shareholders of record at the close of business on March 20, 2008 will be entitled to +notice of, and to vote at, the Annual Meeting, or any adjournment or postponements thereof. Each +common share is entitled to one vote per share. Whether or not you plan to attend the Annual +Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed +envelope enclosed. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +April 10, 2008 +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD +AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE +ENVELOPE IS MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE 2008 ANNUAL MEETING MAY +REVOKE THEIR PROXIES AND VOTE IN PERSON. +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, MAY 1, 2008 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on behalf of +the Board of Directors of Callon Petroleum Company, a Delaware corporation, from shareholders of +the Company for use at the Annual Meeting of Shareholders of the Company to be held on Thursday, +May 1, 2008, at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, +Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The purpose of the +meeting is to consider and vote upon the matters described in the accompanying Notice of Annual +Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, +will be voted in accordance with the directions specified on the proxy, and otherwise in accordance +with the judgment of the persons designated therein as proxies. Any proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for the election of the +nominees named herein to the Board of Directors and in favor of the other proposals set forth in +the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the +Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a +later date, or by voting in person at the Annual Meeting. Proxies submitted by mail must be +received on or before April 30, 2008. Submitting your proxy by mail will not affect your right to +vote in person if you decide to attend the 2008 annual meeting. If a shareholder holds shares in a +broker’s account and has given specific voting instructions, the shares will be voted in accordance +with those instructions. If no voting instructions have been given, under rules of The New York +Stock Exchange the broker may decide how to vote with respect to those shares as to the Board +nominee and the ratification of the Company’s independent accounting firm for the 2008 fiscal year. +This proxy statement and the accompanying notice and form of proxy are being mailed to +shareholders on or about April 10, 2008. The Annual Report for the Company’s fiscal year ended +December 31, 2007 is also being mailed to shareholders contemporaneously with this proxy statement, +although the Annual Report does not form a part of the material for the solicitation of proxies. +The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our +common stock. All costs incurred in the solicitation of proxies will be borne by the Company. +Matters to be Considered at the Annual Meeting +Unless otherwise indicated, proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of one Class I director +nominee and two Class II director nominees to the Board of Directors named herein, and (2) the +ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public +accounting firm for the fiscal year ending December 31, 2008. +The Board of Directors is not presently aware of any other proposals that may be brought +before the Annual Meeting. In the event other proposals are brought before the Annual Meeting, the +persons named in the enclosed proxy will vote in accordance with what they consider to be in the +best interests of the Company and our shareholders. +1 +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 20, 2008 as the record date +for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting. A +complete list of all shareholders entitled to vote at the Annual Meeting will be open for +examination by any shareholder during normal business hours for a period of ten days prior to the +Annual Meeting at the offices of the Company, 200 North Canal Street, Natchez, Mississippi 39120. +Such list will also be available at the Annual Meeting and may be inspected by any shareholder who +is present. +On the record date, our outstanding voting securities consisted of 20,941,779 shares of common +stock. Holders of common stock will be entitled to one vote per share held of record on the record +date for each proposal to be presented at the Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on the +record date, whether present in person or represented by proxy, will constitute a quorum for the +transaction of business at the Annual Meeting. For purposes of determining whether a quorum is +present under Delaware law, broker non-votes and abstentions count towards the establishment of a +quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares +of common stock present and voting, in person or by proxy, at the Annual Meeting. Abstentions and +broker non-votes have no effect on determinations of plurality except to the extent that they +affect the total votes received by any particular candidate. +A majority of the votes represented by the shareholders present at the Annual Meeting, in +person or by proxy, is necessary for ratification of the appointment of the Company’s independent +registered public accounting firm. If this appointment is not ratified by holders of our voting +securities, the Audit Committee and the Board may reconsider its appointment and endorsement, +respectively. Even if the selection is ratified, the Audit Committee may direct the appointment of +a different independent registered public accounting firm at any time during the year if it +determines that such a change would be in the best interests of the Company and its shareholders. +Abstaining shares will be considered present at the Annual Meeting for this matter so that the +effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the +shares will not be considered present at the Annual Meeting for this matter so that broker +non-votes will have the practical effect of reducing the number of affirmative votes required to +achieve a majority vote by reducing the total number of shares from which the majority is +calculated. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does +not vote on a particular proposal because the nominee does not have discretionary voting power with +respect to that item and the broker has not received voting instructions from the beneficial owner. +Votes cast at the meeting will be counted by the inspector of election. +2 +Table of Contents +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of +Directors is divided into three classes of nearly equal size, designated as Class I (currently with +two directors), Class II (currently with two directors) and Class III (currently with two +directors). One class of directors is elected at each annual meeting of shareholders to serve for +a three-year term. +The term of the one Class I director, Mr. Larry D. McVay, will expire on the date of the +Annual Meeting. Mr. McVay has been nominated to serve as a Class I director until the 2010 Annual +Meeting, or until his successor has been duly elected and qualified. Mr. McVay was nominated by +the Board of Directors upon the recommendation of the Nominating and Corporate Governance +Committee. +The term of the two Class II directors, Mr. B. F. Weatherly and Mr. Richard O. Wilson, will +expire on the date of the Annual Meeting. Both Mr. Weatherly and Mr. Wilson were nominated to +serve as a Class II directors until the 2011 Annual Meeting, or until his successor has been duly +elected and qualified. Both were nominated by the Board of Directors upon the recommendation of +the Nominating and Corporate Governance Committee. +All shares of common stock represented by the proxies will be voted “FOR” the election of all +director nominees, except where authority to vote in the election of a director has been withheld. +Should either of the nominees become unable or unwilling to serve as a director at the time of the +Annual Meeting, the person or persons exercising the proxies will vote for the election of +substitute nominee designated by the Board of Directors, or the Board of Directors may choose to +reduce the number of members of the Board of Directors to be elected at the Annual Meeting in order +to eliminate the vacancy. Messrs. McVay, Weatherly and Wilson have consented to be nominated and +have expressed his intention to serve if elected. The Board of Directors has no reason to believe +that the nominees will be unable or unwilling to serve if elected. Only the nominees or a +substitute nominee designated by the Board of Directors will be eligible to stand for election as +director at the Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of all the nominees . +3 +Table of Contents +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors +whose terms will continue after the Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Company +Name +Age +Position Since +Present Company Position +Class I Director: +(Term Expires in 2008) +Larry D. McVay +60 +2007 +Director, Nominee +(Term Expires in 2010) +John C. Wallace +69 +1994 +Director +Class II Directors: +(Term Expires in 2008) +B. F. Weatherly +63 +1994 +Director, Nominee, +Executive Vice President +and Chief Financial Officer +Richard O. Wilson +78 +1995 +Director, Nominee +Class III Directors: +(Term Expires in 2009) +Fred L. Callon +58 +1994 +Director, Chairman of the +Board, President, and Chief +Executive Officer +L. Richard Flury +60 +2004 +Director +Other Executive Officers: +Mitzi P. Conn +39 +2007 +Corporate Controller +Robert A. Mayfield +57 +2000 +Corporate Secretary +Thomas E. Schwager +57 +1997 +Vice President +H. Clark Smith +55 +2001 +Chief Information Officer +Rodger W. Smith +58 +1999 +Vice President and Treasurer +Stephen F. Woodcock +56 +1997 +Vice President +The following is a brief description of the background and principal occupation of each +director and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is the nephew of the late John S. Callon, the +Company’s founder. +Mitzi P. Conn is Controller for the Company and Callon Petroleum Operating Company. Prior to +being appointed to that position in May 2007, she had served as assistant controller since May +2004. Mrs. Conn has held various other positions in finance and accounting since she joined the +Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She +received her B. S. degree in accounting from Southeastern Louisiana University in 1990 and is a +member of the American Institute of Certified Public Accountants and the Mississippi Society of +Certified Public Accountants. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger +4 +Table of Contents +with BP in 1998, he served in various executive positions and was Chief Executive for +Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time +of the merger. +Currently, he is a member of the Board of Directors of Questar Corporation, a publicly-traded +oil and gas company, and the Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, +procurement and construction company, and serves as a Trustee of Thunderbird — The Garvin School of +International Management. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in +1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Larry D. McVay was appointed to the Board of Directors in October 2007. Prior to his +retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the +largest oil producing companies in Russia. Mr. McVay is currently a Managing Director of Edgewater +Energy Partners, LLC, an oil and gas consulting company. From 2000 to 2003, he served as +Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led +the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream +operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years +with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions +with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering +degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In +January 2008 he became a member of the Board of Directors of Praxair, Inc., the largest industrial +gases company in North and South America. +Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and +Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering +positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. +Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his +B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is Chief Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager – +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and +Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and Corporate +Controller in 2004. Prior to being appointed Treasurer, he served as Manager of Budget and +Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting +and has been employed by the Company and its predecessors since 1983. Prior to his employment with +the Company, he was employed by International Paper Company as a plant controller. He received his +B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in +Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. For over +twenty-five years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that +he joined in 1968 and which specializes in the business of shipping, renewable energy and property +development. He received his B. Comm degree majoring in Accounting and Economics from McGill +University in 1959. In November 2004 he successfully completed the International Uniform Certified +Public Accountant Qualification Examination (“IQEX”) and has received a CPA Certificate from the +State of Illinois. Mr. Wallace is a director of Fred. Olsen Energy ASA, a publicly-held Norwegian +company engaged in the offshore energy service industry; and Ganger Rolf ASA and Bonheur ASA, Oslo, +both publicly-traded shipping companies. +5 +Table of Contents +B. F. Weatherly is Executive Vice President and Chief Financial Officer for the Company and +Callon Petroleum Operating Company. Prior to joining the Company in November 2006, he was a +principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was +also a general +partner of CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and held that +position since 1997. Mr. Weatherly received a Master of Accountancy degree from the University of +Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and +has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc. +Richard O. Wilson is an Offshore Consultant. In his 50 years of working in offshore drilling +and construction, he spent two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group +Vice President of Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years +he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, +Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice +University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of +Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In +2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s +degree in geophysics from Oregon State University in 1975. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who +is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +The Board of Directors and Governance Matters +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, +our business and affairs are managed under the direction of the Board of Directors. The Board of +Directors generally meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the +Board of Directors may also hold special meetings, execute unanimous written consents, and +participate in telephone conference calls when an important matter requires Board action. +During 2007, the Board of Directors of the Company met formally four times and executed four +unanimous written consents. All of the Company’s directors attended all of the board meetings. In +addition, to promote open discussion, the non-management directors meet in executive (private) +sessions without management following each quarterly board meeting. The chairperson of such +executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, +at the first executive session held in each fiscal year, the independent directors select a +different independent director to serve as the chairperson for all executive sessions held during +that fiscal year. L. Richard Flury, chairman of the Compensation Committee presided over all +executive sessions during 2007. +In order to facilitate the various functions of the Board of Directors, the Board of Directors +has created an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance +Committee. These committees are more fully described in the following pages. +Director Independence. It is the policy of the Board of Directors that a majority of the +members of the Board be independent of the Company’s management. The Company’s Corporate +Governance Principles contain the following guidelines to assist the Board in determining director +independence in accordance with the applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $100,000 per year in direct compensation from the Company, other than fees +received in such director’s +6 +Table of Contents +capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” Compensation +received by an immediate family member for service as a non-executive employee of the +Company need not be considered in determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent;” +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board committee performing equivalent functions, or, in the absence of +such committee, the Board of Directors) shall be considered “independent;” +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold; and +• +An “immediate family member” includes a person’s spouse, parents, children, +siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic employees) who shares such person’s +home. When applying the three-year look-back provisions, it does not +include individuals who are no longer immediate family members as a result of legal +separation or divorce, or those who have died or become incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and +Wilson do not have any material relationships with the Company that may interfere with the exercise +of their independence from management and the Company and are independent directors under +applicable New York Stock Exchange rules, SEC rules and in accordance with our Corporate Governance +Principles. Prior to his appointment as Executive Vice President and Chief Financial Officer in +November 2006, the Board of Directors also affirmatively determined that Mr. B. F. Weatherly met +the criteria and was an independent director. In connection with his employment with the Company, +he no longer qualified as an independent director. Mr. Weatherly resigned from all committees of +the Board, but continues his role as a management member of the Board of Directors. +Corporate Governance Principles . The Company believes that good corporate governance is +important to ensure that Callon Petroleum Company is managed for the short- and long-term benefit +of its shareholders. Available on the Company website, www.callon.com, under the section +“Governance”, are copies of the Company’s: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter; +• +Compensation Committee Charter; +• +Nominating and Corporate Governance Committee Charter; and +• +Members serving on each of the Board of Director’s Committees. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s +website. Copies of these documents are available in print, free of charge, to any shareholder upon +request to the Company’s Corporate Secretary. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and +expectations. The Code, which applies to every director, officer and employee, addresses a number +of topics, including conflicts of interest, relationships with others, corporate payments, +disclosure policy, compliance with laws, corporate opportunities and the protection and proper use +of the Company’s assets. The Code meets the New York Stock Exchange’s requirements for a code of +business conduct and +7 +Table of Contents +ethics as well as the SEC’s definition of a code of ethics applicable to the +Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted +a waiver of the Code. +Communication with the Board of Directors. In order to provide the Company’s shareholders and +other interested parties with a direct and open line of communication to the Board of Directors, +the Board +of Directors has adopted procedures for communications to directors. Callon shareholders and +other interested persons may communicate with the Chairman of the Company’s Audit Committee, or +with the non-management directors of the Company as a group, by written communications addressed in +care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, +Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication: +• +does not relate to the business or affairs of the Company or the functioning or +constitution of the Board of Directors or any of its committees; +• +relates to routine or insignificant matters that do not warrant the attention of +the Board of Directors; +• +is an advertisement or other commercial solicitation or communication; +• +is frivolous or offensive; or +• +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the communication is appropriate. Any such response will be made only in accordance with +applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures from time to time and, if appropriate, recommend changes. As of the record +date, no such communications have been received. +Attendance at Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the Annual Meeting of Shareholders. All then current +directors attended the 2007 Annual Meeting of Shareholders. +Committees of the Board of Directors +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas +of financial reporting and accounting integrity. The Audit Committee reviews the accounting and +auditing procedures and financial reporting practices of the Company and is responsible for the +engagement of and overseeing all audit work conducted by the Company’s independent registered +public accounting firm. The Audit Committee is governed by a charter that has been approved by the +Board of Directors. The Audit Committee meets periodically with the Company’s management, internal +auditor and independent registered public accounting firm to review the Company’s financial +information and systems of internal controls and ensures such parties are properly discharging +their responsibilities. The independent registered public accounting firm reports directly to the +Audit Committee and periodically meets with the Audit Committee without management representatives +present. The Audit Committee has the authority to investigate any matters brought to its attention +and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom +satisfy the independence requirements for audit committee members under Rule 10A-3 of the +Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New +York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the +audit committee of more than two other public companies. The Audit Committee is currently +comprised of Messrs. Wallace (Chairman), Flury, and Wilson. Prior to his resignation from the +Audit Committee in connection with his employment with the Company, Mr. B. F. Weatherly also served +as a member of the committee. Additionally, the Board of Directors has determined that Mr. Wallace +has the accounting or financial +8 +Table of Contents +management expertise to be considered a “financial expert” as +defined and required by the New York Stock Exchange’s rules and by the Securities Exchange Act of +1934. +The Audit Committee held four meetings and did not execute any unanimous written consents +during 2007. Mr. McVay was appointed to the committee on November 14, 2007. All members of the +Audit +Committee attended all the meetings. The Audit Committee’s report on its activities during +2007 appears later in this proxy statement under the caption “Audit Committee Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible +for establishing and maintaining internal controls over financial reporting and for assessing the +effectiveness of those controls. The independent registered public accounting firm is responsible +for performing independent audits of the Company’s consolidated financial statements and internal +controls over financial reporting in accordance with the standards of the Public Company Accounting +Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility +is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public +accounting firm, served as the Company’s independent registered public accounting firm during 2006 +and 2007 and was appointed by the Audit Committee to serve in that capacity for 2008. +Audit Fees Paid to Independent Registered Public Accounting Firm. Fees paid for professional +services rendered related to the year ended December 31, 2006 by Ernst & Young LLP for the annual +audit and quarterly reviews and for registration statements and other regulatory filings (including +the requirements under Section 404 of the Sarbanes-Oxley Act) were $335,892, including +out-of-pocket expenses. Fees paid for professional services rendered related to the year ended +December 31, 2007 by Ernst & Young LLP for the annual audit and quarterly reviews and for +registration statements and other regulatory filings (including the requirements under Section 404 +of the Sarbanes-Oxley Act) were $406,189, including out-of-pocket expenses. The Audit Committee +has concluded that providing the tax-related services mentioned below is compatible with +maintaining the principal registered public accounting firm’s independence. +Audit-related Fees . There were no audit-related fees paid in 2006 or 2007. +Tax Fees. Professional services billed by Ernest & Young LLP for the review of the federal +tax return, and tax planning for 2006 were $8,545. Professional services billed for the review of +the federal tax return, tax advice and tax planning services for 2007 totaled $18,400. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2006 or 2007. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee +pre-approves all audit services and non-audit services (including the fees and terms thereof) to be +performed for the Company by its independent registered public accounting firm, as required by +applicable law or listing standards and subject to the terms of the audit and non-audit services +pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or +more of its members when appropriate, including the authority to grant pre-approvals of audit and +permitted non-audit services, provided that decisions of any such member to grant pre-approvals are +consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its +next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s +audited financial statements at, and for the year ended, December 31, 2007 with management and the +Company’s independent registered public accounting firm and recommended to the Company’s Board of +Directors that the Company’s audited financial statements be included in the Company’s Annual +Report on Form 10-K for the year ended December 31, 2007. This recommendation was based on: +• +the Audit Committee’s review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company’s independent registered public accounting firm, Ernst & +Young LLP, of the matters required to be discussed by auditing standards generally +accepted in the United States of America, including the matters required to be +discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by +Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); +9 +Table of Contents +• +discussions with Ernst & Young LLP regarding its independence from the Company and +its management; +• +Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the +financial position of the Company and its consolidated subsidiaries and the results of +their operations and cash flows +for the periods presented in conformity with accounting principles generally accepted in +the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Richard O. Wilson +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation +program designed to optimize the opportunity for the Company to achieve its operating objectives +and performance goals while properly blending it with the short- and long-term interests of the +Company’s shareholders. The Committee annually reviews market and industry data to assess the +Company’s competitive position with respect to each element of total compensation and to ensure the +attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In +addition to the determination of annual base salaries, the Committee is responsible for determining +and recommending variable annual bonuses in the form of cash and/or equity awards. The Committee +maintains authority over the company’s stock incentive plans from which either stock options, +restricted stock, or performance shares can be awarded as part of the total annual compensation +package. Currently the variable portion of the annual compensation package is based on certain +performance related criteria of the Company for which the Committee is responsible for establishing +and approving. In addition to the above, the Committee has the following duties and +responsibilities: +• +review, recommend, and discuss with management the compensation discussion and +analysis section included in the Company’s annual proxy statement; and +• +prepare an annual report on executive compensation for inclusion in the Company’s +proxy statement for the Annual Meeting of Shareholders. +Consistent with the listing requirements of the New York Stock Exchange, the Compensation +Committee is composed entirely of independent members of our Board of Directors. Each member +meets the independence requirements set by the New York Stock Exchange and applicable federal +securities laws. Effective November 14, 2007, Larry D. McVay was appointed to serve on the +Committee and was deemed to meet the same independence requirements. Current members are Messrs. +Flury (chairman), McVay, Wallace and Wilson. +The Compensation Committee held three meetings and executed two unanimous written consents +during 2007. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. The members of the Company’s +Compensation Committee are Messrs. L. Richard Flury (Chairman), Larry D. McVay, John C. Wallace +and Richard O. Wilson, none of whom are or have been officers or employees of the Company or any of +its subsidiaries or had a relationship requiring disclosure under this caption. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for +election to the Board; +• +recommend to the Board the members and chairperson for each Board committee; +• +periodically review and assess the Company’s Corporate Governance Principles and +the Company’s Code of Business Conduct and Ethics and make recommendations for changes +thereto to the Board; +• +oversee the annual self-evaluation of the performance of the Board and the annual +evaluation of the Company’s management; and +10 +Table of Contents +• +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Pursuant to its stated purpose, the Committee +identified and recommended Larry D. McVay to serve as a director for the Company until the 2008 +Annual Meeting of Shareholders. Based on this recommendation, Larry D. McVay was appointed to +serve as a director and a member of the Committee effective November 14, 2007. Current members are +Messrs. Wilson (Chairman), McVay, Wallace, and Flury. The Nominating and Corporate Governance +Committee held three meetings and did not execute any unanimous written consents during 2007. All +members of the Nominating and Corporate Governance Committee attended all the meetings. Prior to +the formation of this Committee, the entire Board of Directors performed these functions. +Director Identification and Selection. The Nominating and Corporate Governance Committee has +established certain criteria it considers as guidelines in considering nominations to the Company’s +Board of Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, +diversity of background and experience, absence of potential conflicts of interest with +the Company or its operations, and the availability and willingness to devote +sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer +of a publicly held company; +• +experience in the Company’s industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company’s operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the +Board of Directors may consider other qualifications and attributes which they believe are +appropriate in evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of +Directors that brings to the Company a variety of perspectives and skills derived from high quality +business and professional experience. In order to ensure that the Board consists of members with a +variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set +any minimum qualifications and also considers candidates with appropriate non-business backgrounds. +Other than ensuring that at least one member of the Board is a financial expert and a majority of +the Board members meet all applicable independence requirements, the Committee does not have any +specific skills that it believes are necessary for any individual director to possess. Instead, +the Committee evaluates potential nominees based on the contribution such nominee’s background and +skills could have upon the overall functioning of the Board. In accordance with the Company’s +by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery +of written notice to the Company of such nomination, stating the name and address of the nominee +and describing his qualifications. Such notice shall be sent by certified mail or delivered to +the principal office of the Company to the attention of the Board of Directors, with a copy to the +President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. In making its nominations, the Nominating and Corporate Governance Committee identifies +nominees by first evaluating the current members of the Board willing to continue their service. +Current members with qualifications and skills that are consistent with the Committee’s criteria +for Board service are re-nominated. As to new candidates, the committee will generally poll the +Board members and members of management for recommendations. The committee may also review the +composition and qualification of the boards of directors of the Company’s competitors, and may seek +input from industry experts or analysts. The committee reviews the qualifications, experience +and background of the candidates. Final candidates are interviewed by the independent directors +and executive management. In making its determinations, the committee evaluates each individual in +the context of the Board as whole, with the objective of assembling a group that can best represent +shareholder interests through the exercise of sound judgment. After review and deliberation of all +feedback and data, the committee makes its recommendation to the Board of Directors. The committee +may in the future choose to engage third-party search firms in situations where particular +qualifications are required or where existing contacts are not sufficient to identify an +appropriate candidate. +11 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the record date, certain information with respect to the +ownership of shares of common stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the +nominee for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of common stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +record date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. +Name and Address of +Common Stock (a) +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +588,930 +(b) +2.79 +% +L. Richard Flury +30,000 +(c) +* +Larry D. McVay +— +(d) +* +John C. Wallace +121,705 +(e) +* +B. F. Weatherly +92,160 +(f) +* +Richard O. Wilson +143,224 +(g) +* +Named Executive Officers: +* +Stephen F. Woodcock +119,881 +(h) +* +Thomas E. Schwager +— +(i) +* +Rodger W. Smith +49,979 +(j) +* +Directors and Executive Officers: +As a Group (12 persons) +1,260,071 +(k) +5.85 +% +Certain Beneficial Owners: +Donald Smith & Co., Inc. +1,941,183 +(l) +9.27 +% +152 W. 57 th Street, 22 nd Floor +New York, NY 10019 +Morgan Stanley +1,141,083 +(m) +5.46 +% +1585 Broadway +New York, NY 10036 +Dimensional Fund Advisors LP +1,768,345 +(n) +8.44 +% +1299 Ocean Avenue +Santa Monica, CA 90401 +Kennedy Capital Management, Inc. +1,079,605 +(o) +5.16 +% +10829 Olive Blvd. +St. Louis, MO 63141 +* +Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to +have sole voting and dispositive power with respect to such shares. Beneficial ownership +does not include the unvested portion of performance stock awards due to lack of voting and +disposition power. Percentage ownership of a holder or class of holders is calculated by +dividing (i) the number of shares of common stock beneficially owned by such holder or +class of holders plus the total number of shares of common stock underlying options +exercisable within sixty days of March 20, 2008, by (ii) the total number of shares of +common stock outstanding plus the total number of shares of common stock underlying options +exercisable within sixty days of March 20, 2008, but not common stock underlying such +securities held by any other person. +b) +Of the 588,930 shares beneficially owned by Fred L. Callon, 283,470 shares are owned +directly by him; 92,170 shares are held by him as custodian for certain minor Callon family +members; 11,915 shares are owned within the Company’s Employee Savings and Protection Plan; +and 201,375 shares are subject to options under the 1996 Plan, exercisable within 60 days. +Shares +indicated as owned by Mr. Callon do not include 24,904 shares of common stock owned +by his +12 +Table of Contents +wife over whom he disclaims beneficial ownership and 47,200 shares of unvested performance +stock. +c) +Of the 30,000 shares beneficially owned by L. Richard Flury, 20,000 shares are owned +directly by him and 10,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Flury do not include 10,000 shares of +unvested performance stock. +d) +Shares indicated as owned by Mr. McVay do not include 10,000 shares of unvested +performance stock. +e) +Of the 121,705 shares beneficially owned by John C. Wallace, 56,705 shares are owned +directly by him; 15,000 shares are subject to options under the 1994 Plan, exercisable +within 60 days; 40,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 10,000 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Wallace do not include 10,000 shares of +unvested performance stock. +f) +Of the 92,160 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned +within his personal IRA account; 29,412 shares are held in joint tenancy with his wife; 460 +shares are owned within the Company’s Employee Savings and Protection Plan; 15,000 shares +are subject to options under the 1994 Plan, exercisable within 60 days; 40,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated as +owned by Mr. Weatherly do not include 43,750 shares of unvested performance stock. +g) +Of the 143,224 shares beneficially owned by Richard O. Wilson, 71,405 shares are held +in a family limited partnership; 6,819 shares are held in a Trust account; 15,000 shares +are subject to options under the 1994 Plan, exercisable within 60 days; 40,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 10,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days;. Shares indicated as +owned by Mr. Wilson do not include 10,000 shares of unvested performance stock. +h) +Of the 119,881 shares beneficially owned by Stephen F. Woodcock, 21,576 are owned +directly by him; 7,555 shares are owned within the Company’s Employee Savings and +Protection Plan; 69,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 21,750 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Woodcock do not include 31,400 shares of +unvested performance stock. +i) +Thomas E. Schwager does not beneficially own any shares. Shares indicated as owned by +Mr. Schwager do not include 26,100 shares of unvested performance stock. +j) +Of the 49,979 shares beneficially owned by Rodger W. Smith, 9,798 shares are owned +directly by him; 9,498 shares are owned within the Company’s Employee Savings and +Protection Plan; 28,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 2,683 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Smith do not include 18,200 shares of +unvested performance stock. +k) +Includes 59,000 shares subject to options under the 1994 Plan, exercisable within 60 +days; 454,925 shares subject to options under the 1996 Plan, exercisable within 60 days; +68,483 shares subject to options under the 2002 Plan, exercisable within 60 days; and +41,696 shares are owned within the Company’s Employee Savings and Protection Plan. Shares +indicated as owned do not include 242,150 shares of unvested performance stock. +l) +Information is based upon a Schedule 13G filed with the Commission on February 8, 2008 +by Donald Smith & Co., Inc. In this Schedule 13G, Donald Smith represents that it has sole +voting power with respect to 1,572,083 shares and sole dispositive power with respect to +1,941,183 shares of common stock. +m) +Information is based upon a Schedule 13G filed with the Commission on February 14, 2008 +by Morgan Stanley and FrontPoint Partners, LLC (“Morgan Stanley”). In this Schedule 13G, +Morgan Stanley represents that it has sole voting power with respect to 34,783 shares of +common stock, shared voting power with respect to 1,106,300 shares of common stock, and sole +dispositive power with respect to 1,141,083 shares of common stock. +13 +Table of Contents +n) +Information is based upon a Schedule 13G/A filed with the Commission on February 6, +2008 by Dimensional Fund Advisors LP. In this Schedule 13G, Dimensional represents that it +has sole voting power and sole dispositive power with respect to 1,768,345 shares of common +stock. +o) +Information is based upon a Schedule 13G/A filed with the Commission on February 13, +2008 by Kennedy Capital Management, Inc. In this Schedule 13G/A, Kennedy represents that +it has sole voting power with respect to 1,045,375 shares of common stock and sole +dispositive power with respect to 1,079,605 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of +holders acquire investment power for these shares immediately upon a “change of control” as defined +in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission initial reports of +ownership and reports of changes in ownership of common stock and other equity securities of the +Company. Officers, directors and greater than ten percent shareholders are required by the +Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all +Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2007, and written representations from all of the +Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, +directors and greater than ten percent shareholders have complied with all Section 16(a) filing +requirements for the year ended December 31, 2007. +Compensation Discussion and Analysis +of Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee of our Board of Directors oversees our compensation programs. The +primary function of the Committee is to assist our Board of Directors in the discharge of its +fiduciary responsibilities relating to compensation of our Chief Executive Officer and other +executives. From time to time the Committee has retained a compensation consultant to assess the +effectiveness of the Company’s compensation programs. +In 2007, Hewitt Associates LLC, a respected world-wide independent compensation consulting +firm, was hired to evaluate and make recommendations concerning Callon’s compensation practices and +procedures. Hewitt was asked to review the Compensation Committee Charter and the Company’s entire +compensation program, both long-term and short-term incentives, but with particular emphasis on the +higher paid executives. As a result of initial conversations with the Company and independent +research of the company’s current business operations, Hewitt selected a select a group of ten peer +companies as a base of comparison. It was noted that although Callon was a rather unique company, +a group of ten competing companies within the oil and gas industry would provide a reasonable base +for the compensation comparisons. The Company and Hewitt mutually agreed that not only is a strong +and competitive compensation program needed to retain existing key employees; it is essential to +maintaining an edge in the extremely tight and competitive marketplace for new employees. It was +also agreed that a sound compensation policy would align management’s interest with that of the +shareholders and create an atmosphere to motivate and focus management’s efforts on taking actions +needed to grow the Company. While overall policies are needed, they should also be designed to be +flexible enough to reward outstanding efforts of certain individuals in excess of their normal job +responsibilities. +Compensation Program Philosophy and Objectives +Within the oil and gas industry, the challenge for finding additional reserves while +maintaining a respectable profit margin continues to be high. Therefore, we have designed our +business strategy to enhance shareholder value through sustained growth in our development of new +drilling opportunities, reserve base additions, increased +production levels and resulting cash flows from operations. We also continue to explore +opportunities to purchase acreage with existing production. While we are confident in the +capabilities of our existing personnel, we continue to search for additional talented individuals +who can assist us in this growth strategy. Our compensation program is designed to help us +implement our strategy. Our compensation program has four objectives: +14 +Table of Contents +• +To attract, retain and motivate qualified executives whose performance is key to the +successful execution of our business strategy and the achievement of our short- and +long-term corporate goals; +• +To create a “pay for performance” oriented environment that rewards significant +contributions to our short- and long-term strategic goals; +• +To provide an executive compensation structure that is internally equitable based +upon the level of responsibility of our executives; and +• +To align the interests of our executive officers with those of our shareholders. +The Committee also considers various factors such as each executive’s motivation level, +leadership ability, overall knowledge and experience in his particular segment of our business, the +competitive compensation environment for such individual, that person’s unique skills and his or +her expected future contribution to the success of our company. We feel that if these qualities +are rewarded, the executives will be motivated to achieve our corporate goals and successfully +implement our business strategies. +Elements of Compensation +The Committee believes that the compensation environment for qualified technical professionals +in the domestic oil and gas industry is highly competitive, particularly as a result of current +efforts to reduce dependence on foreign oil. It also believes that similar compensation pressure +has resulted from increased financial reporting and corporate governance regulatory issues +implemented within recent years. In order to compete in this environment, our executive officers’ +compensation has the following components: +Component +Purpose +Philosophy Statement +Base Salary +• +Pay for expertise and experience +• +In the aggregate, targeted at an appropriate level against +• +Attract and retain +the peers given relative size +• +Provide stable compensation level +• +Reflective of individual experience and +expertise +Annual Cash +• +Motivate superior operational and financial performance +• +In the aggregate, targeted at an appropriate level against +Reward and +the peers given relative size +Incentive +• +Provide annual recognition of performance +• +Reflective of internal equity considerations +Compensation +• +Goals aligned with annual strategic +objectives of the company +Long-Term +• +Directly align employees with shareholders +• +Ultimate value delivered influenced by the company’s +Equity +• +Create significant retention hook +return to shareholders as compared against Peer +Incentives +• +Match competitive practices to attract and retain +Companies +employees +• +Appropriate opportunities based on a review of multiple reference points: +¾ Industry peer grant values +¾ Historical grant practices +¾ Internal relative positioning +Retirement and +• +Provide financial security +• +Programs generally consistent, regardless of level, across +Health/Welfare +• +Help ensure a welfare safety net +the organization +Benefits +• +Match competitive practices +• +Benefit levels competitive with peer companies +Severance +• +Protect executives in the case of job loss +• +Benefit levels based on the conservative end of peer +Protection +• +Match competitive practices to attract and retain +group practices +employees +• +For CIC protection, help ensure executives consider +all possible transactions to increase shareholder value +Base Salaries . There are two components to how the Compensation Committee determines base +salaries. First, in January of each year, all employee salaries, including salaries of our +executive officers, are automatically increased by a “cost of living” adjustment. The amount of +the actual increase is determined by the Compensation +15 +Table of Contents +Committee and is generally tied to the +Consumer Price Index published by the U. S. Department of Labor for the previous year. Based on +this information, the cost of living adjustment approved by the Committee in January 2006 and 2007 +was 5% and 2.75%, respectively. In addition to the annual cost of living adjustment, the +Committee, with input from the CEO, has the discretion to periodically approve any additional +salary adjustments it feels are warranted based on general compensation changes within the +industry, individual performance or significant changes in duties and responsibilities. +Second, at a regularly scheduled meeting, generally in March, the Committee reviews annual +base salaries of the executive officers, beginning with the Chief Executive Officer. His total +compensation package is compared to the compensation packages of CEOs at other companies the +Committee deems at that time to be similar in operational aspects and in size to us, which we refer +to as “Peer Companies.” Prior to 2007, compensation information with respect to these Peer +Companies was generally obtained from public filings made by these Peer Companies. The Company +hired Hewitt Associates LLC during 2007 to conduct a detailed review and comparison of executive +base salary levels. +The table below indicates the Peer Companies which were used for comparison in 2006 and 2007: +2006 +2007 +ATP Oil and Gas Corp. +ATP Oil and Gas Corp. +Energy Partners, Ltd. +Atwood Oceanics +Petroquest Energy Inc. +Comstock Resources Inc. +Stone Energy Co. +Mariner Energy Inc. +W & T Offshore Inc. +Newfield Exploration Co. +Petroquest Energy Inc. +Plains Exploration & Production Co. +Stone Energy Co. +W & T Offshore Inc. +In November 2006, Mr. Weatherly was hired as the Company’s Executive Vice President and Chief +Financial Officer. His initial annual salary was set by the committee at $350,000. This salary +level was selected based on a comparison of salaries paid for the similar position at the Peer +Companies and targeted the mid to upper range. Mr. Weatherly elected not to receive the annual +cost of living increase in January 2007 and there has been no other increase since that time. +In January 2007, Mr. Callon’s salary was increased from $434,700 in 2006 to $446,654, +representing the 2.75% cost of living adjustment. At its regular meeting in March 2007, after +comparing Mr. Callon’s salary to CEO salaries at the Peer Companies, the Committee determined that +no further adjustment was necessary. +In January 2007, Messrs. Woodcock’s, Schwager’s, and Smith’s salaries were increased from +$225,000, $200,000, and $175,000 to $231,188, $205,500, and $179,813, respectively, representing +the 2.75% cost of living adjustment. In May 2007, salaries were increased to $275,000, $250,000, +and $210,000, respectively. These increases were primarily the result of comparisons to Peer +Companies. Mr. Weatherly’s salary remained at $350,000. +Annual Cash Bonuses . Executive officers, senior management and other non-management technical +personnel have the potential to receive a significant portion of their annual cash compensation as +a cash bonus. Each year, following the Board of Director’s approval of the annual operating budget +and financial forecast for the next year, generally at its regular November meeting, the +Compensation Committee sets performance related cash bonus guidelines for the next year. The +guidelines are generally based on measures such as cash flow per share to common shareholders, +pre-tax net income, finding costs, oil and gas production levels, and oil and gas reserve growth. +The Committee uses the Company’s year-end audited financial statements to calculate a bonus +attainment percentage. However, no specific formula is used in translating the guidelines to a +bonus attainment percentage. +The Chief Executive Officer is eligible for a bonus generally targeted at 100% of his base +salary. The Chief Financial Officer is eligible for a bonus generally targeted at 75% of his base +salary while our other executive officers are eligible for a bonus generally targeted at 50% of +their base salary. The Committee may also consider how unexpected events affecting the Company may +impact the bonus attainment percentage. For example, a large acquisition may substantially change +our budget and forecast prepared prior to the beginning of a year, thereby +16 +Table of Contents +affecting the original +guidelines established for payment of bonuses. In addition, as occurred in 2005, adverse weather +conditions may damage our facilities and reduce our production, cash flows and other measures used +as guidelines to assist in determining the amount of our bonuses. Also, our Committee encourages +our executives to pursue long-term goals, even if these long-term goals may result in a reduction +in our near-term performance. Accordingly, after determining the overall bonus attainment +percentage, the Committee reserves the right to adjust an individual’s bonus amount based on +individual achievements and contributions. +The Compensation Committee approved payment of cash bonuses for fiscal 2006 based upon the +following guidelines: total annual production expressed in billion cubic feet of natural gas +equivalent, cash flow to shareholders, pre-tax net income, reserve additions, and finding costs per +Mcfe. Our actual attainment percentage calculated using audited financial statements for year-end +2006 was approximately 60%. The Compensation Committee awarded cash bonuses on May 15, 2007. That +information was reported on Form 8-K and filed with the SEC on May 17, 2007. +The Compensation Committee also granted a special cash bonus on May 15, 2007 to reward those +individuals within the Company who were instrumental in the successful acquisition of BP +Exploration and Production Company’s 80% working interest in the Entrada Field and the successful +negotiation of a $200 million revolving credit facility which was finalized in April 2007. The +Compensation Committee felt that completion of these two events was a significant milestone in the +Company’s efforts to develop and market one of the largest oil and gas discoveries in the Company’s +history. It also represents the culmination of several years of effort on the part of many +individuals throughout the Company. These bonus amounts awarded are reflected in the “Summary +Compensation Table.” +In early 2007, the Compensation Committee determined the performance goals for awarding cash +bonuses during the first quarter in 2008. The 2007 goals were as follows: +• +Increase the Company’s annual production to 18.9 billion cubic feet of gas +equivalent; +• +Achieve budgeted cash flow of $106 million; +• +Achieve budgeted pre-tax net income of $52 million; +• +Accomplish budgeted reserve additions of 69.1 billion cubic feet of gas equivalent; +• +Obtain a partner for the future development of the Entrada and move the project +forward; and +• +Maintain/Improve liquidity in anticipation of the Entrada development +In April 2008, the Committee measured actual 2007 performance results for items 1- 4 above. +While the Company did not achieve the financial goals, the Committee felt compelled to consider +that shortly after the goals were initially set, the Company’s successfully acquired the remaining +80% working interest in the Entrada Field and secured financing for the purchase price. These two +events required the Company to shift away from the planned exploration program which was designed +to increase production, cash flow, net income, and reserve additions for the year. The remaining +two performance targets required subjective evaluation. By year-end the Company was well on their +way to executing a formal development plan for Entrada. They had completed much of the design +phase, negotiated a Production and Handling Agreement, secured a drilling rig, and was in final +negotiations with a partner to share in the development. The Company’s liquidity was improved with +the sale in December 2007 of certain non-core assets in the amount of $61.5 million. Based on this +evaluation the Committee determined that an overall attainment percentage of 125% for the named +executive officers was appropriate. The bonuses were approved and paid in April 2008. This +information is presented in the “Summary Compensation Table.” +Long-term Compensation . The Compensation Committee administers our incentive plans and +performs functions that include selecting award recipients, determining the timing of grants and +assigning the number of shares awarded, fixing the time and manner in which awards are exercisable, +setting option exercise prices and vesting and expiration dates, and from time to time adopting +rules and regulations for carrying out the purposes of our plans. For compensation decisions +regarding the grant of equity compensation to executive officers, our Compensation Committee will +typically consider the competitive environment associated with longer-term compensation and +recommendations from our Chief Executive Officer. All awards are priced at the fair market value +on the grant date in accordance with SFAS No. 123R. We do not have any program, plan or obligation +that requires us to grant equity compensation on specified dates. However, our Committee does +follow a policy of not granting equity incentives when material non-public information exists that +may affect the short-term price of our stock. In August 2006, the Compensation Committee approved +the award of an aggregate of 500,000 shares of common stock representing 2.4% of the outstanding +common shares on the date of grant. These shares vested 20% on the grant date and will vest 20% on +each anniversary thereafter and are subject to forfeiture in the event of voluntary termination of +employment. The Committee approved specific award amounts to our executive officers while our +Chief Executive Officer allocated the remaining awards among our other employees. Of the total +17 +Table of Contents +awarded, 144,000 shares, or 29%, were awarded to the executive officers named in the Summary +Compensation Table, excluding B. F. Weatherly because he was not a full-time employee of the +Company at that time. +There were no equity awards granted during fiscal 2007. +As a result of recommendations from Hewitt, based on competitive practices, and in order to +further align our executives with shareholders, in April 2008 the Compensation Committee elected to +redesign our long-term incentives for the executive officers in future years. The new long-term +incentive program will consist of awarding time-based restricted shares and performance-based +shares. If awarded, non-officers of the Company will receive time-based restricted shares which +will vest on the third anniversary following the award date, assuming continued employment with the +Company. For officers, 50% of shares awarded will be time-based restricted shares which will vest +on the third anniversary following the award assuming continued employment with the Company. The +remaining 50% of the officer award will be considered performance-based shares and will vest in +accordance with the achievement of a defined performance target related to the Company’s “total +shareholder return.” Total shareholder return is defined as average percentage increase of the +Company’s closing stock price on the date of the award compared to the closing stock price on the +third anniversary date of the award plus dividends. The Company’s total shareholder return will be +ranked with the total shareholder return of the same 10-company peer group used for determining +cash bonuses. Payout of performance-based shares will be based on the following table: +Rank +Payout Percentage +1 or 2 +150% +3 or 4 +125% +5, 6 or 7 +100% +8 or 9 +50% +10 or 11 +0% +All equity awards to our employees, including executive officers, and to our directors have +been granted and are reflected in our consolidated financial statements, based upon the applicable +accounting guidance, at fair market value on the grant date in accordance with SFAS No. 123R. +Information about unvested performance shares and outstanding options held by our named executive +officers and directors is contained in the “Outstanding Equity Awards at December 31, 2007” and +“Director Compensation” tables. +Other Company Provided Benefits . We provide Company benefits that we believe are standard in +the industry to all of our employees. These benefits consist of a group medical and dental +insurance program for employees and their qualified dependents, group life insurance for employees +and their spouses, +accidental death and dismemberment coverage for employees, a Company sponsored cafeteria plan +and a 401-K employee savings and protection plan. The costs of these benefits are paid entirely by +the Company. Employee life insurance amounts surpassing the Internal Revenue Service maximum are +treated as additional compensation to all employees. The company’s 401-K contribution to each +qualified participant, including the named executive officers, is calculated based on 5% of the +employee’s eligible salary, excluding annual cash bonuses, and is paid one-half in cash and +one-half in Company stock, limited to IRS regulations. The Company also matches employee deferral +amounts, including amounts deferred by named executive officers, up to a total of 5% of eligible +compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not +otherwise available to all of our employees. We provide our Chief Executive Officer, Chief +Financial Officer and other executive officers with use of a company automobile. We purchase the +automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to +recognize taxable income using the Internal Revenue Service’s annual lease value method for +personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s +payment of term life insurance policies for which Mr. Callon is the sole beneficiary and which the +Company has no economic interest in the proceeds. The costs associated with these benefits for the +Named Executive Officers are reported as “Other Compensation” in the Summary Compensation Table. +The Committee feels these perquisites are common to the oil and gas industry and the value of such +benefits is considered in determining total compensation of our executives. +Internal Revenue Service Limitations . We have structured our compensation program to comply +with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue +Code, a limitation was placed on tax deductions of any publicly-held corporation for individual +compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, +unless the compensation is performance-based. If an +18 +Table of Contents +executive is entitled to nonqualified deferred +compensation benefits that are subject to Section 409A, and such benefits do not comply with +Section 409A, then the benefits are taxable in the first year they are not subject to a substantial +risk of forfeiture. In such case, the Service Provider is subject to regular federal income tax, +interest and an additional federal income tax of 20% of the benefit includible in income. The +Company has no individuals with non-performance based compensation paid in excess of the Internal +Revenue Code Section 162(m) tax deduction limit. However, we reserve the right to use our judgment +to authorize compensation payments that do not comply with the exemptions in Section 162(m) when we +believe that such payments are appropriate and in the best interest of the stockholders, after +taking into consideration changing business conditions or the executive’s individual performance +and/or changes in specific job duties and responsibilities. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and +members of our Board of Directors are prevented from buying or selling Company stock during an +announced “trading blackout” period. Generally a blackout period is placed in effect by senior +management when material non-public information about the Company exists and may have an influence +on the marketplace. There have been no violations to this policy during 2007 +Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors +adopted a stock ownership policy which applies to the Chief Executive Officer and the other top 5 +Named Executive Officers. The provisions of the policy provide for the investment position, +computed on December 31 of each year, of the Chief Executive Officer to be no less than three times +his or her base salary. For other named officers, the investment position shall be no less than +two times base salary. Investment position is defined as calculated value of shares owned, shares +owned indirectly, equivalent shares invested in the officer’s 401-K plan, and unvested portion of +time-based vesting of Performance or Restricted shares. Value attributable to shares represented +by both vested and unvested stock options and the value of unvested performance-based vesting of +Performance or Restricted shares are excluded. Each officer has a period of five years from the +date of adoption to attain the required investment position. If a named officer becomes subject to +a greater investment position due to a promotion or an increase in salary, he or she will be +expected to attain the increased investment position within three years of the change. The +Compensation reserves the right to approve an alternate stock ownership guideline for named +officers who can demonstrate a severe hardship in meeting the general guidelines. +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2007, we are not aware of any related party transactions with our +executive officers that may cause a conflict of interest with the Company. +Compensation Committee Report +We have reviewed and discussed with management certain Compensation Discussion and Analysis +provisions included in the Company’s 2008 Shareholder Meeting Schedule 14A Proxy Statement, filed +pursuant to Section 14(a) of the Securities Exchange Act of 1934. Based on the reviews and +discussions referred to above, we recommend to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in the Company’s 2008 Proxy Statement. +L. Richard Flury (Chairman) +Larry D. McVay +John C. Wallace +Richard O. Wilson +19 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +The following table sets forth certain information with respect to the Chief Executive Officer +of the Company and the four most highly compensated executive officers of the Company serving in +such positions as of December 31, 2007 and 2006. We sometimes refer to the officers listed below as +the “Named Executive Officers.” +Summary Compensation Table +Name +All Other +and +Stock +Compen- +Principal +Salary +Bonus +Awards +sation +Total +Position +Year +($) +($)(2) +($)(5) +($)(11) +($)(4) +Fred L. Callon +2007 +446,654 +558,319 +(2) +118,852 +(6) +52,140 +1,459,265 +Chairman and Chief +125,000 +(3) +158,300 +(7) +Executive Officer +2006 +434,700 +125,000 +(4) +118,852 +(6) +55,350 +944,969 +211,067 +(7) +B. F. Weatherly +2007 +350,000 +328,125 +(2) +69,100 +(8) +110,894 +1,112,332 +Executive Vice +75,000 +(3) +179,213 +(9) +President and Chief +2006 +35,566 +(1) +50,000 +(4) +69,100 +(8) +44,983 +293,733 +Financial Officer +14,934 +(9) +79,150 +(10) +Stephen F. Woodcock +2007 +258,149 +275,000 +(2) +51,134 +(6) +42,291 +803,214 +Vice President +50,000 +(3) +126,640 +(7) +2006 +217,726 +75,000 +(4) +51,134 +(6) +39,960 +552,673 +168,853 +(7) +Thomas E. Schwager +2007 +232,885 +187,500 +(2) +48,370 +(6) +45,056 +665,123 +Vice President +50,000 +(3) +101,312 +(7) +2006 +196,321 +75,000 +(4) +48,370 +(6) +39,866 +494,640 +135,083 +(7) +Rodger W. Smith +2007 +198,390 +135,000 +(2) +34,550 +(6) +41,495 +514,087 +Vice President and +35,000 +(3) +69,652 +(7) +Treasurer +2006 +167,384 +65,000 +(4) +34,550 +(6) +39,216 +399,019 +92,869 +(7) +(1) +Mr. Weatherly joined the Company as Executive Vice President and Chief Financial +Officer effective November 16, 2006. His annual salary is $350,000 per year. +(2) +In April 2008, the Compensation awarded cash bonuses for services performed during +2007, exclusive of the cash bonus amount described in (3) below. +(3) +In May 2007, the Compensation awarded a special cash bonus attributable to the +successful closing of the Entrada Field acquisition from BP Exploration and Production +Company and the successful closing of a $200 million revolving credit facility. +(4) +As of April 11, 2007, cash bonuses attributable to the Named Executive Officers for +2006 had not been awarded. On May 15, 2007 the Compensation Committee of the Board of +Directors awarded bonuses to individuals. Accordingly, this information was reported on +Form 8-K and filed with the SEC on May 17, 2007. +(5) +Amounts calculated utilizing the provisions of Statement of Financial Accounting +Standards No. 123R, “Share-based Payments.” See Notes to the consolidated financial +statements in the Company’s Annual Report for the year ended December 31, 2007 and 2006 +regarding assumptions underlying valuation of equity awards. +(6) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on July 14, 2004 pursuant to the Company’s 1994 Stock Incentive Plan. The +closing price of the common stock on the New York Stock Exchange on the date of grant was +$13.82 per share. Amortization for the period represents twelve of the sixty-month +vesting period. Does not include an estimated forfeiture rate of 2% in 2007 and 7.5 in +2006. +(7) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on August 21, 2006 pursuant to the Company’s 1996 Stock Incentive Plan. +The closing price of the common stock on the New York Stock Exchange on the date of grant +was $15.83 per share. Amortization for 2007 represents twelve of the sixty month vesting +period and the amortization for 2006 represents vesting of 20% of the original award on +the grant date plus four of the remaining forty-eight month vesting period. Does not +include an estimated forfeiture rate of 7.5%. +(8) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on July 14, 2004 pursuant to the Company’s 1994 Stock Incentive Plan. The +closing price of the common stock on the New +20 +Table of Contents +York Stock Exchange on the date of grant was +$13.82 per share. Amortization for the period represents twelve of the sixty- +month vesting period. Does not include an estimated forfeiture rate of 2% in 2007 and +7.5% in 2006. These shares were granted to Mr. Weatherly while serving as a +non-management member of the Board of Directors. +(9) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on November 16, 2006 pursuant to the Company’s 2006 Stock Incentive Plan. +The closing price of the common stock on the New York Stock Exchange on the date of grant +was $15.93 per share. Amortization for 2007 represents twelve of the fort-eight month +vesting period and the amortization for 2006 represents one of the forty-eight month +vesting period. Does not include an estimated forfeiture rate of 2% in 2007 and 7.5% in +2006. +(10) +Represents current year amortization in accordance with FAS 123R of shares of common +stock awarded on August 21, 2006 pursuant to the Company’s 1996 Stock Incentive Plan. +The closing price of the common stock on the New York Stock Exchange on the date of grant +was $15.83 per share. Shares vesting 100% on the grant date. These shares were granted +to Mr. Weatherly while serving as a non-management member of the Board of Directors. +(11) +See table and related footnotes below: +Table of All Other Compensation +Company +Provided +401- K +401- K +Group Life +Company +Cash +Stock +Insurance +Provided Auto +Other +Total +Name +Year +($) +($) +($) +($)(1) +($) +($) +Fred L. Callon +2007 +16,875 +5,625 +3,264 +14,876 +11,500 +(2) +52,140 +2006 +16,500 +5,500 +3,264 +16,526 +13,560 +(2) +55,350 +B. F. Weatherly +2007 +14,766 +5,625 +3,264 +17,894 +69,345 +(3) +110,894 +2006 +673 +673 +272 +865 +42,500 +(4) +44,983 +Stephen F. Woodcock +2007 +16,875 +5,625 +3,264 +16,527 +42,291 +2006 +16,330 +5,443 +3,264 +14,923 +39,960 +Thomas E. Schwager +2007 +16,875 +5,625 +3,264 +19,292 +45,056 +2006 +14,724 +4,908 +3,264 +16,970 +39,866 +Rodger W. Smith +2007 +14,879 +4,960 +2,940 +18,716 +41,495 +2006 +12,554 +4,185 +2,860 +19,617 +39,216 +(1) +Represents annual depreciation based on a three-year life plus insurance, fuel, +maintenance and repairs. +(2) +Represents premiums paid by the Company on a personal life insurance policy for which +Mr. Callon is the sole beneficiary. +(3) +Represents expenses associated with Mr. Weatherly relocation from Houston, TX to +Natchez, MS. +(4) +Represents $35,000 in retainer fees as a non-management member of the Board of +Directors and $7,500 as chairman of the Compensation Committee which was earned prior to +Mr. Weatherly’s employment with the Company in November 2006. +Grant of Plan-based Awards During 2007 +The following table presents grants of equity awards during the fiscal year ending December +31, 2007: +Estimated Future +Payouts Under +Equity +Incentive Plan +Grant +Awards +Date +Thresh- +Maxi- +Fair +old +Target +mum +Value +Name +Grant Date +(#) +($) +(#) +($) +Fred L. Callon +— +— +— +— +— +B. F. Weatherly +— +— +— +— +— +Stephen F. Woodcock +— +— +— +— +— +Thomas E. Schwager +— +— +— +— +— +Rodger W. Smith +— +— +— +— +— +21 +Table of Contents +Stock-Based Incentive Compensation Plans +The Company currently maintains four common stock-based incentive plans for its directors and +employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved +for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan +terminated effective July 14, 2004, therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. +Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the +exercise of options or for grants of performance shares. On August 20, 1998, the Board of +Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase +the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, +the shareholders of the Company approved an increase in the available number of shares of common +stock reserved for issuance under the 1996 Plan to 2,200,000 shares. The 1996 Plan terminated +effective August 23, 2006. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance +upon the exercise of options or for grants of stock options, stock appreciation rights or units, +restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan +under the provisions of the New York Stock Exchange rules and regulations at the time it was +adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly +based plan, the aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted to all employees +during any three-year period. During 2007, stock options for 15,000 shares of common stock were +issued. To date in 2008, there have been no awards granted. As of March 20, 2008, there were +3,166 shares of common stock available for future grant under the 2002 Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the +2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders in +conjunction with the 2006 Annual Meeting of Shareholders held on May 4, 2006. Pursuant to the 2006 +Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for +grants of stock options, stock appreciation rights or units, restricted stock, or performance +shares or units. During 2007, stock options for 15,000 shares of common stock were issued to a new +employee, 10,000 performance shares were awarded to Larry D. McVay as a new member of the Company’s +Board of Directors, and 2,976 shares were returned to the 2006 Plan as a result of shares being +withheld to pay federal and state income taxes associated with a restricted stock vesting by Mr. +Weatherly. To date in 2008, there have been no awards granted. As of March 20, 2008, there were +432,976 shares of common stock available for future grant under the 2006 Plan. +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors authorized the +implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 +Purchase Plan”), which was approved by the Company’s shareholders on June 19, 1997. The Plan +provided eligible employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock purchase plan. An +aggregate of 250,000 shares of common stock was reserved for issuance over the ten-year term of the +1997 Purchase Plan. The purchase price per share at which common stock could be purchased by the +participant on each purchase date within an offering period was equal to eighty-five percent of the +fair market value per share of common stock. As of March 20, 2008, all reserved shares have been +issued. +Long-Term Incentive Plan Awards +Other than the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan the Company does not +have a long-term incentive plan for its employees. +Outstanding Equity Awards at Fiscal Year-End +The following table contains all equity grants outstanding at December 31, 2007 for the Named +Executive Officers: +22 +Table of Contents +Option Awards +Stock Awards +Number +of +Number of +Securities +Shares or +Market +Underlying +Units of +Value of Shares +Unexercised +Option +Stock that +or Units of Stock +Options +Exercise +Option +have not +that have +(#) +Price +Expiration +Vested +not vested +Name +Exercisable +($) +Date +(#) +($) +Fred L. Callon +60,000 +(1) +9.46875 +08/20/2008 +— +110,000 +(2) +10.50 +03/23/2010 +— +— +18,750 +(3) +4.50 +07/12/2012 +— +— +12,625 +(4) +3.70 +08/23/2012 +— +— +— +— +— +17,200 +(17) +282,940 +(20) +— +— +— +30,000 +(18) +493,500 +(20) +B. F. Weatherly +5,000 +(5) +9.46875 +05/29/2008 +— +— +5,000 +(6) +10.9688 +04/30/2009 +— +— +5,000 +(7) +13.5625 +05/10/2010 +— +— +20,000 +(8) +10.50 +07/25/2010 +— +— +5,000 +(9) +11.61 +05/04/2011 +— +— +5,000 +(10) +6.05 +05/08/2012 +— +— +5,000 +(11) +5.12 +05/02/2013 +— +— +5,000 +(12) +12.40 +05/06/2014 +— +— +5,000 +(13) +13.71 +05/05/2015 +— +— +— +— +— +10,000 +(17) +164,500 +(20) +— +— +— +33,750 +(19) +555,188 +(20) +Stephen F. Woodcock +25,000 +(14) +9.00 +03/05/2009 +— +— +44,000 +(2) +10.50 +03/23/2010 +— +— +13,250 +(3) +4.50 +07/12/2012 +— +— +8,500 +(4) +3.70 +08/23/2012 +— +— +— +— +— +7,400 +(17) +121,730 +(20) +— +— +— +24,000 +(18) +394,800 +(20) +23 +Table of Contents +Option Awards +Stock Awards +Number +of +Number of +Securities +Shares or +Market +Underlying +Units of +Value of Shares +Unexercised +Option +Stock that +or Units of Stock +Options +Exercise +Option +have not +that have +(#) +Price +Expiration +Vested +not vested +Name +Exercisable +($) +Date +(#) +($) +Thomas E. Schwager +— +— +— +7,000 +(17) +115,150 +(20) +— +— +— +19,200 +(18) +315,840 +(20) +Rodger W. Smith +8,000 +(14) +9.00 +03/05/2009 +— +— +20,000 +(2) +10.50 +03/23/2010 +— +— +1,600 +(15) +4.50 +07/12/2012 +— +— +1,083 +(16) +3.70 +08/23/2012 +— +— +— +— +— +5,000 +(17) +82,250 +(20) +— +— +— +13,200 +(18) +217,140 +(20) +(1) +Represents stock options awarded on August 20, 1998 which are 100% vested. +(2) +Represents stock options awarded on March 23, 2000 which are 100% vested. +(3) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(4) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(5) +Represents stock options awarded on May 29, 1998 which are 100% vested. +(6) +Represents stock options awarded on April 30, 1999 which are 100% vested. +(7) +Represents stock options awarded on May 10, 2000 which are 100% vested. +(8) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(9) +Represents stock options awarded on May 4, 2001 which are 100% vested. +(10) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(11) +Represents stock options awarded on May 2, 2003 which are 100% vested. +(12) +Represents stock options awarded on May 6, 2004 which are 100% vested. +(13) +Represents stock options awarded on May 5, 2005 which are 100% vested. +(14) +Represents stock options awarded on March 5, 1999 which are 100% vested. +(15) +Represents 33% of the original award of stock options awarded on July 12, 2002 which are 100% +vested. +(16) +Represents 33% of the original award of stock options awarded on August 23, 2002 which are +100% vested. +(17) +Represents 40% of the original award of the 2004 performance shares awarded July 14, 2004. +Award vests 20% on July 14, 2005 and 20% on each anniversary thereafter. +(18) +Represents 60% of the original award of the 2006 performance shares awarded August 21, 2006. +Award vests 20% on the grant date and 20% on each anniversary thereafter. +(19) +Represents 75% of the original award of 2006 performance shares awarded upon employment on +November 16, 2006. Award vest 25% on November 16, 2007 and 25% on each anniversary +thereafter. +(20) +Amounts calculated based on the December 31, 2007 closing price on the New York Stock +Exchange of $16.45 per share. +24 +Table of Contents +Option Exercises and Stock Vested Table +The following table indicates option exercises and stock vesting during 2007 for the Named +Executive Officers: +Option Awards +Stock Awards +Number of +Shares +Number of +Value +Acquired +Value +Name of +Shares Acquired +Realized On +on +Realized on +Executive +on Exercise +Exercise +Vesting +Vesting +Officer +(#) +($) +(#) +($) +Fred L. Callon +— +— +8,600 +(1) +131,924 +(4) +— +— +10,000 +(2) +118,300 +(5) +B. F. Weatherly +— +— +5,000 +(1) +76,700 +(4) +— +— +11,250 +(3) +178,313 +(6) +Stephen F. Woodcock +— +— +3,700 +(1) +56,758 +(4) +— +— +8,000 +(2) +94,640 +(5) +Thomas E. Schwager +— +— +3,500 +(1) +53,690 +(4) +— +— +6,400 +(2) +75,712 +(5) +Rodger W. Smith +— +— +2,500 +(1) +38,350 +(4) +— +— +4,400 +(2) +52,052 +(5) +(1) +Represents a 20% vesting of performance shares awarded July 14, 2004. +(2) +Represents a 20% vesting of performance shares awarded August 21, 2006. +(3) +Represents a 25% vesting of performance shares awarded November 16, 2006. +(4) +Computed based on the fair market value of the common stock on the date of vesting equal +to $15.34 per share. +(5) +Computed based on the fair market value of the common stock on the date of vesting equal +to $11.83 per share. +(6) +Computed based on the fair market value of the common stock on the date of vesting equal +to $15.85 per share. +25 +Table of Contents +Executive Compensation – Post Employment +The following table shows the estimated gross taxable compensation payable upon a change in +control or termination of employment under several scenarios. The information assumes, in each +case, that the officer’s termination was effective as of December 31, 2007. In presenting this +disclosure, we describe amounts earned through December 31, 2007 and, in those cases where the +actual amounts to be paid out can only be determined at the time of such executive’s separation +from the Company, our estimates of the amounts which would be paid out to the executives upon their +termination. +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Other +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(5)(7) +($) +($) +Fred L. Callon +Change in Control (1) +1,339,963 +830,000 +776,440 +77,595 +— +(8) +3,023,998 +Termination for Good Reason (2) +— +— +282,940 +— +— +282,940 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +776,440 +— +— +776,440 +Voluntary termination +— +— +— +— +— +— +B. F. Weatherly +Change in Control (1) +— +— +719,688 +— +— +719,688 +Termination for Good Reason (2) +— +— +— +— +— +— +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +719,688 +— +— +719,688 +Voluntary termination +— +— +— +— +— +— +Stephen F. Woodcock +Change in Control (1) +— +— +516,530 +— +— +516,530 +Termination for Good Reason (2) +— +— +121,730 +— +— +121,730 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +516,530 +— +— +516.530 +Voluntary termination +— +— +— +— +— +— +Thomas E. Schwager +Change in Control (1) +— +— +430,990 +— +— +430,990 +Termination for Good Reason (2) +— +— +115,150 +— +— +115,150 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +430,990 +— +— +430,990 +Voluntary termination +— +— +— +— +— +— +Rodger W. Smith +Change in Control (1) +— +— +299,390 +— +— +299,390 +26 +Table of Contents +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Other +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(5)(7) +($) +($) +Termination for Good Reason (2) +— +— +82,250 +— +— +82,250 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +299,390 +— +— +299,390 +Voluntary termination +— +— +— +— +— +— +(1) +The award agreements under which performance shares were issued to our named executive +officers provide for accelerated vesting upon a change in control or termination of +employment for good reason or upon death, disability or retirement. In addition, Fred L. +Callon is a party to a Severance Compensation Agreement with the Company that provides for +benefits in the event of a change in control or termination of employment. See Employment +Agreements, Termination of Employment and Change-in-Control Arrangements” and footnote 8 +below. “Change in Control” is generally defined consistent with industry standards. +(2) +“Termination for Good Reason” is generally defined as voluntary termination following +the Company’s failure to maintain and continue the executive’s title or position, +compensation, employee benefits, duties, responsibilities and status with the Company as in +effect at the date the award. The definition also includes the mandatory relocation in +excess of a fifty (50) mile radius of Natchez, MS. +(3) +“Termination for Cause” is generally defined as willful misconduct or intentional and +continual neglect of duties which may continue after the employee has had a reasonable +opportunity to correct the same, commission of fraud or embezzlement, any action intended +to harm the Company, theft or conviction of a felony. +(4) +“Disability” is generally defined as the employee’s inability to carry out the normal +and usual duties of his employment on a full-time basis for an entire period of six (6) +continuous months together with the reasonable likelihood, as determined by the Board of +Directors after consultation of a qualified physician, will be unable to carry out his +normal and usual duties of employment. Retirement is generally defined as the employee’s +attainment of an age which the Board of Directors determines to be consistent with normal +retirement age. +(5) +The amount has been computed based on the provisions contained in Mr. Callon’s +Severance Compensation Agreement. +(6) +The amounts are computed based on unvested stock awards at December 31, 2007 using the +closing price of the Company’s common stock on the New York Stock Exchange, the last +trading day for 2007, at $16.45 per share. +(7) +Benefits consist of thirty-six months of employer provided family medical and dental +insurance, life insurance, dependent life insurance, accidental death coverage and +disability coverage. +(8) +Amount represents an estimated tax gross-up assuming a change in control on +December 31, 2007. Due to Mr. Callon’s annual salary, bonuses, his taxable income from the +vesting of performance shares, and the exercise of options during the last five years +(which is included for purposes of calculating base compensation under Section 280G), we +estimate that there would be no excise taxes imposed on him. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. Effective January 1, 2002, the Company entered into a +Severance Compensation Agreement with Fred L. Callon providing for certain benefits in the event +that a “change of control” occurs. The Agreement provides for a three-year term that automatically +extends for successive one-year periods until either the Company or Mr. Callon notifies the other +party prior to such renewal that it has elected to terminate the Agreement; provided that the term +of the Agreement shall be until the later of two years following the date of a change of control +and the satisfaction of all obligations of the Company under the Agreement. The Agreement +terminates upon the executive’s death, disability termination for cause or voluntary resignation +other than for “good reason.” +Pursuant to the Agreement, if Mr. Callon’s employment with the Company is terminated without +cause by the Company or for good reason by him within two years following a change of control by +the Company (or in certain cases, prior to a change of control), then Mr. Callon is entitled to a +single lump-sum cash payment in an amount equal to three times the sum of (a) his annual base +salary, and (b) the higher of the average bonus earned by him during the three preceding years or +the target bonus that he is eligible to receive during the year of termination. In addition, the +Company must maintain at its expense until 36 months after the date of termination all life, +disability, medical, dental, accident and health insurance coverage. If Mr. Callon’s employment is +terminated as a result of his death or disability, the Company is only required to make such +payments if the termination occurred within six months of a change of control. “Good reason” is +generally defined in the Agreement as a change in compensation, +27 +Table of Contents +benefits, position, +responsibilities, or location. A “change of control” is generally defined in the Agreement as +(i) any person or group of persons acting in concert shall have become the beneficial owner of more +than 50% of the outstanding common stock of the Company; (ii) the stockholders of the Company shall +cause a change in the majority of the members of the Board of Directors within a twelve-month +period; or (iii) the Company or its stockholders shall enter into an agreement to dispose of all or +substantially all of the assets or outstanding capital stock of the Company. +The Agreement also provide that, upon a change of control, all stock options, performance +shares, restricted stock, stock appreciation rights and other similar rights held by Mr. Callon +shall automatically become fully exercisable notwithstanding any vesting or exercisability +provisions. If the Company cannot provide for acceleration of vesting as a result of provisions in +existence prior to a change of control of any plan or agreement, the Company must provide in lieu +thereof a lump-sum cash payment equal to the difference between the total value of the outstanding +stock rights as of the date of termination and the total value of the stock rights in which Mr. +Callon is vested as of the date of termination. +The Agreement incorporates a provision to deal with the impact of the federal excise tax on +excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute +payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and +non-deductibility of such payments by the paying corporation. While the excise tax is seemingly +evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, +against individuals who do not exercise stock options in favor of those who do and against those +who elect to defer compensation in favor of those who do not. For these reasons, we believe that +the provision of the excise tax gross-up in the Agreement is appropriate. If any payment to Mr. +Callon is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as +amended, a “gross-up” payment will be made to place such executive in the same net after-tax +position as would have been the case if no excise tax had been payable. +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an +additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per +year to the chairman of the Compensation Committee and the chairman of the Nominating and Corporate +Governance Committee. Each non-management director is reimbursed for reasonable out-of-pocket +costs incurred to attend Board meetings. In addition to cash compensation the Compensation +Committee may, from time to time, grant performance shares. During 2007, the Compensation +Committee awarded 5,000 shares of stock each to Messrs. Flury, Wallace, and Wilson. These shares +vested immediately upon issuance. Mr. McVay joined the Board of Directors in October 2007 and the +Compensation Committee awarded him 10,000 performance shares which will vest 50% on July 14, 2008 +and 50% on July 14, 2009. The table below indicates the total compensation earned and paid during +2007 for each non-management director: +Non-Management Director Compensation for 2007 +Fees +Earned +or Paid +Stock +Option +All Other +in Cash +Awards +Awards +Compensation +Total +Name +($)(1) +($)(6) +($) +($) +($) +L. Richard Flury +50,000 +(2) +57,950 +(7) +28,450 +(10) +— +136,400 +Larry D. McVay +10,000 +(3) +20,194 +(8) +— +— +30,194 +John C. Wallace +60,000 +(4) +69,100 +(9) +28,450 +(10) +— +157,550 +Richard O. Wilson +50,000 +(5) +69,100 +(9) +28,450 +(10) +— +147,550 +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Compensation Committee. +(3) +Represents that portion of the annual retainer of $40,000 earned and paid for the fourth +quarter of 2007. +28 +Table of Contents +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as +chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as the chairman of +the Nominating and Corporate Governance Committee. +(6) +Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards +No. 123R, “Share-based Payments.” See Note 3 of the consolidated financial statements in the +Company’s Annual Report for the year ended December 31, 2007 regarding assumptions underlying +valuation of equity awards. +(7) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on August 19, 2004. The shares awarded in 2004 had a fair market value of +$11.59 on the date of the award with vesting over a five-year period. Amortization represents +twelve of the sixty-month amortization period. The grant date fair value of the original +award was $289,750. +(8) +Represents current year amortization in accordance with FAS 123R of 10,000 shares of common +stock awarded on October 18, 2007 with a fair market value of $14.54 per share on the date of +the award. The shares will vest 50% on July 14, 2008 and 50% on July 14, 2009. Amortization +represents two of the twenty-four month amortization period. The grant date fair value of the +original award was $145,500. +(9) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on July 14, 2004. The shares awarded in 2004 had a fair market value of $13.82 +on the date of the award with vesting over a five-year period. Amortization represents twelve +of the sixty-month amortization period. The grant date fair value of the original award was +$345,500. +(10) +Represents current year amortization in accordance with FAS 123R of 5,000 stock options +awarded on May 3, 2007. The options vested 100% on November 3, 2007. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any +additional compensation for his services in this capacity and therefore has been omitted from the +table above. Compensation paid to Mr. Weatherly as a director prior to his appointment in November +2006 as Executive Vice President and Chief Financial Officer is disclosed in the Summary +Compensation Table. +Securities Authorized for Issuance under Equity Compensation Plans +The following information represents information concerning our equity compensation plans as +of December 31, 2007: +Number of securities +to be issued upon +Weighted Average +Number of securities remaining +exercise of +exercise price of +available for future issuance under +outstanding options +outstanding options +equity compensation plans +(#) +($) +(excluding securities reflected in +Plan +(a) +(b) +columns (a) +1994 Plan (1) +59,000 +10.48 +— +1996 Plan (1) +553,925 +10.40 +— +2002 Plan (2) +127,300 +7.52 +3,166 +2006 Plan (1) +15,000 +14.17 +432,976 +(1) +Plan approved by the Company’s shareholders. +(2) +Plan was adopted as a “broadly based” plan which did not require shareholder approval. +See “Stock-Based Incentive Compensation Plans – 2002 Plan” for a description of the +material terms of the Plan. +29 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable New York Stock +Exchange rules to be directly responsible for the appointment, compensation and retention of the +Company’s independent registered public accountants. The Audit Committee has appointed Ernst & +Young LLP, independent registered public accounting firm, for the examination of the accounts and +audit of the financial statements of the Company for the year ending December 31, 2008. While +shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of +Directors will present a proposal to the shareholders to approve and ratify as part of good +corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to +ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain +Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may +direct the appointment of a different independent registered public accounting firm at any time +during the year if it determines that such a change would be in the best interest of the Company +and its shareholders. A representative of Ernst & Young LLP will be present at the Annual Meeting +and will have the opportunity to make a statement, if he desires, and to respond to appropriate +questions. +Management recommends that the shareholders approve and ratify the appointment of Ernst & +Young LLP as independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2008. Unless otherwise indicated, all properly executed proxies received by +the Company will be voted “FOR” such ratification at the Annual Meeting. +SHAREHOLDERS’ PROPOSALS +FOR 2009 ANNUAL MEETING +Shareholders who desire to present proposals at the 2009 Annual Meeting of Shareholders and to +have proposals included in the Company’s proxy materials must submit their proposals to the Company +at its principal executive offices not later than December 11, 2008. If the date of the 2009 +Annual Meeting of Shareholders is changed by more than 30 days from the date of the 2008 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before the +Company begins to print and mail its proxy materials for its 2009 Annual Meeting of Shareholders. +The person named in the Company’s form of proxy for the 2008 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by February 24, 2009, unless the Company changes the date of its +2009 Annual Meeting of Shareholders by more than 30 days from the date of the 2008 Annual Meeting +of Shareholders, in which case such persons will be able to exercise discretionary authority if +notice of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2009 Annual Meeting of Shareholders. +If the date of the 2009 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2008 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +30 +Table of Contents +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2007 +Annual Report and the Company’s Report on Form 10-K. Printed copies of the Company’s Annual +Report, the Company’s Annual Report on Form 10-K , Corporate Governance Principles, Code of Business +Conduct and Ethics and Charters of Board Committees are available to shareholders upon written +request to the Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal +Street, Natchez, Mississippi 39120. You may also view the documents on the Company’s website at +www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the Annual Meeting +other than those described above. If other business comes before the Annual Meeting, the persons +named on the proxy will vote the proxy in accordance with what they consider to be in the best +interests of the Company and its shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All +shareholders are urged, regardless of the number of shares owned, to participate in the 2008 Annual +Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +April 10, 2008 +31 +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF CALLON PETROLEUM COMPANY May 1, 2008 Please date, sign and mail +your proxy card in the envelope provided as soon as possible. Please detach along perforated line +and mail in the envelope provided. —— —— 20330000000000000000 9 050108 THE BOARD OF +DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE +AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN +HERE x FOR AGAINST ABSTAIN 1. Election of Directors: 2. To ratify the appointment of Ernst & Young +LLP as the Company’s Independent Registered Public Accounting firm. NOMINEES: FOR ALL NOMINEES O +Larry D. McVay O B. F. Weatherly O Richard O. Wilson 3. In their discretion, the Proxies are +authorized to vote upon such other business WITHHOLD AUTHORITY FOR ALL NOMINEES as may properly +come before the meeting or any adjournments thereof. FOR ALL EXCEPT THIS PROXY WHEN PROPERLY +EXECUTED, WILL BE VOTED IN THE MANNER (See instructions below) DIRECTED HEREIN. IF NO DIRECTION IS +MADE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. PLEASE MARK, +SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE ENCLOSED. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” +and fill in the circle next to each nominee you wish to withhold, as shown here: To change the +address on your account, please check the box at right and indicate your new address in the address +space above. Please note that changes to the registered name(s) on the account may not be +submitted via this method. Signature of Shareholder Date: Signature of Shareholder Date: Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each +holder should sign. When signing as executor, administrator, attorney, trustee or guardian, +please give full title as such. If the signer is a corporation, please sign full corporate name by +duly authorized officer, giving full title as such. If signer is a partnership, please sign in +partnership name by authorized person. +Table of Contents +0 CALLON PETROLEUM COMPANY 200 North Canal Street, Natchez, Mississippi 39120 Proxy Solicited on +Behalf of the Board of Directors of the Company for the Annual Meeting on May 1, 2008 The +undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent and proxy with +full power of substitution in each, to represent and to vote, as designated on the reverse, all of +the shares of Common Stock of Callon Petroleum Company, held of record by the undersigned on March +20, 2008 at the Annual Meeting of Shareholders to be held at 9:00 a.m. in the Grand Ballroom of the +Country Inns & Suites, 111 Broadway Street, Natchez, Mississippi 39120 on May 1, 2008, and at any +adjournments thereof, on all matters coming before said meeting. IF NO DIRECTION AS TO THE MANNER +OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS AND “FOR” +PROPOSAL 2 AS INDICATED ON THE REVERSE SIDE HEREOF. You are encouraged to specify your choices by +marking the appropriate boxes (SEE REVERSE SIDE) but you need not mark any boxes if you wish to +vote in accordance with the Board of Directors’ recommendations. The Proxies cannot vote your +shares unless you sign and return this card. (Continued and to be signed on the reverse side) 14475 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-08-002208/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-08-002208/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f998100e62b483aa804aef934553747e967e0475 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-08-002208/proxy_rpt.txt @@ -0,0 +1,11 @@ +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2007, we are not aware of any related party transactions with our \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-09-001060/proxy.txt b/raw/proxies/0000928022/0000950129-09-001060/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2f30cc7dfdee1af22899ae8f7831314f9aa8c39d --- /dev/null +++ b/raw/proxies/0000928022/0000950129-09-001060/proxy.txt @@ -0,0 +1,5007 @@ +DEF 14A +1 +h66919ddef14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) +and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its +filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +NOTICE OF THE 2009 ANNUAL MEETING OF SHAREHOLDERS +PROXY STATEMENT +VOTING REQUIREMENTS +QUORUM AND OTHER MATTERS +PROPOSAL I +BENEFICIAL OWNERSHIP OF SECURITIES +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +PROPOSAL II +PROPOSAL III +SHAREHOLDERS’ PROPOSALS FOR 2010 ANNUAL MEETING +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +OTHER BUSINESS +Table of Contents +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2009 ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD THURSDAY, APRIL 30, 2009 +To Our Shareholders: +Notice is hereby given and you are cordially invited to attend the 2009 Annual Meeting of +Shareholders of the Company which will be held in Natchez, Mississippi, on Thursday, April 30, +2009, at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, +Natchez, Mississippi 39120, for the following purposes: +1. +To elect two Class III directors to hold office until the 2012 Annual Meeting +of Shareholders; +2. +To ratify the appointment of Ernst & Young LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2009; +3. +To approve and ratify the Callon Petroleum Company 2009 Stock Incentive Plan; +and +4. +To transact such other business as may properly come before the 2009 Annual +Meeting or any adjournment or adjournments thereof. +Specific details of the matters proposed to be put before the 2009 Annual Meeting are set +forth in the proxy statement accompanying and forming part of this notice. +Only shareholders of record at the close of business on March 9, 2009 will be entitled to +notice of, and to vote at, the 2009 Annual Meeting, or any adjournment or postponements thereof. +Each common share is entitled to one vote per share. Whether or not you plan to attend the 2009 +Annual Meeting, we request that you sign, date and promptly mail the enclosed proxy in the +pre-addressed envelope enclosed. +Callon Petroleum Company’s proxy statement is attached. Financial and other information +concerning the Company is contained in the Annual Report to Shareholders for the year ended +December 31, 2008. Pursuant to new rules promulgated by the Securities and Exchange Commission +(SEC), we have elected to provide access to the Company’s proxy materials both by sending you this +full set of proxy materials, including a proxy card, and by notifying you of the availability of +the proxy material on the Internet. This proxy statement, the accompanying proxy card and the +Company’s 2008 Annual Report to Shareholders are available at the Company’s website at +www.callon.com. In accordance with SEC rules, you may access the proxy statement at www.callon.com, +which does not have “cookies” that identify visitors to the site. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Natchez, Mississippi +Robert A. Mayfield +March 30, 2009 +Corporate Secretary +IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD +AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE +ENVELOPE IS MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE 2009 ANNUAL MEETING MAY +REVOKE THEIR PROXIES AND VOTE IN PERSON. +Table of Contents +PROXY STATEMENT +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2009 ANNUAL MEETING OF SHAREHOLDERS +THURSDAY, APRIL 30, 2009 +SOLICITATION AND REVOCABILITY OF PROXIES +This proxy statement is furnished in connection with the solicitation of proxies on behalf of +the Board of Directors of Callon Petroleum Company, a Delaware corporation, from shareholders of +the Company for use at the 2009 Annual Meeting of Shareholders of the Company to be held on +Thursday, April 30, 2009, at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 +Broadway Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The +purpose of the meeting is to consider and vote upon the matters described in the accompanying +Notice of the 2009 Annual Meeting of Shareholders. +A proxy in the form accompanying this proxy statement, when properly executed and returned, +will be voted in accordance with the directions specified on the proxy, and otherwise in accordance +with the judgment of the persons designated therein as proxies. Any proxy which does not withhold +authority to vote or on which no other instructions are given will be voted for the election of the +nominees named herein to the Board of Directors and in favor of the other proposals set forth in +the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the +Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a +later date, or by voting in person at the 2009 Annual Meeting. Proxies submitted by mail must be +received on or before April 30, 2009. Submitting your proxy by mail will not affect your right to +vote in person if you decide to attend the 2009 Annual Meeting. If a shareholder holds shares in a +broker’s account and has given specific voting instructions, the shares will be voted in accordance +with those instructions. If no voting instructions have been given, under rules of the New York +Stock Exchange, the broker may decide how to vote with respect to those shares as to the Board +nominees and the ratification of the Company’s independent registered public accounting firm for +the 2009 fiscal year; without voting instructions, the broker may not decide how to vote with +respect to those shares as to the approval of the Callon Petroleum Company 2009 Stock Incentive +Plan. +This proxy statement and the accompanying notice and form of proxy are being mailed to +shareholders on or about March 30, 2009. The Annual Report for the Company’s fiscal year ended +December 31, 2008 is also being mailed to shareholders contemporaneously with this proxy statement, +although the Annual Report does not form a part of the material for the solicitation of proxies. +The contents of this proxy statement have been approved by our Board of Directors. +Proxies will be solicited primarily by mail, but employees of the Company may also solicit +proxies in person or by telephone. Arrangements may be made with brokerage firms or other +custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our +common stock for which the Company has agreed to pay those costs. In addition, the Company has +retained the services of The Altman Group, Inc. to assist us in our solicitation efforts at an +estimated cost of $5,500. +Matters to be Considered at the 2009 Annual Meeting of Shareholders +Unless otherwise indicated, proxies in the form enclosed that are properly executed, duly +returned, and not revoked will be voted in favor of (1) the election of two Class III director +nominees to the Board of Directors named herein, (2) ratification of the appointment of Ernst & +Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2009, and (3) the ratification and approval of the Callon Petroleum Company 2009 Stock +Incentive Plan. +The Board of Directors is not presently aware of any other proposals that may be brought +before the 2009 Annual Meeting. In the event other proposals are brought before the 2009 Annual +Meeting, the persons named in the enclosed proxy will vote in accordance with what they consider to +be in the best interests of the Company and our shareholders. +1 +Table of Contents +VOTING REQUIREMENTS +The Board of Directors has fixed the close of business on March 9, 2009 as the record date for +the determination of shareholders entitled to notice of, and to vote at, the 2009 Annual Meeting. +A complete list of all shareholders entitled to vote at the 2009 Annual Meeting will be open for +examination by any shareholder during normal business hours for a period of ten days prior to the +2009 Annual Meeting at the offices of the Company, located at 200 North Canal Street, Natchez, +Mississippi 39120. Such list will also be available at the 2009 Annual Meeting and may be +inspected by any valid shareholder who is present. +On the record date, our outstanding voting securities consisted of 21,637,470 shares of common +stock. Holders of common stock will be entitled to one vote per share held of record on the record +date for each proposal presented at the 2009 Annual Meeting. +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of common stock issued and outstanding on the +record date, whether present in person or represented by proxy, will constitute a quorum for the +transaction of business at the 2009 Annual Meeting. For purposes of determining whether a quorum +is present under Delaware law, broker non-votes and abstentions do count towards the establishment +of a quorum. +The election of directors requires the favorable vote of the holders of a plurality of shares +of common stock present and voting, in person or by proxy, at the 2009 Annual Meeting. Abstentions +and broker non-votes have no effect on determinations of plurality except to the extent that they +affect the total votes received by any particular candidate. +A majority of the votes represented by the shareholders present at the 2009 Annual Meeting, in +person or by proxy, is necessary for the ratification of the appointment of the Company’s +independent registered public accounting firm and the approval of the Callon Petroleum Company 2009 +Stock Incentive Plan. If this appointment is not ratified by holders of our voting securities, the +Audit Committee and the Board may reconsider its appointment and endorsement, respectively. Even if +the selection is ratified, the Audit Committee may direct the appointment of a different +independent registered public accounting firm at any time during the year if it determines that +such a change would be in the best interests of the Company and its shareholders. Abstaining +shares will be considered present at the 2009 Annual Meeting so that the effect of abstentions will +be the equivalent of a “no” vote. With respect to broker non-votes, the shares will not be +considered present at the 2009 Annual Meeting so that broker non-votes will have the practical +effect of reducing the number of affirmative votes required to achieve a majority vote by reducing +the total number of shares from which the majority is calculated. A broker “non-vote” occurs when +a nominee holding shares for a beneficial owner does not vote on a particular proposal because the +nominee does not have discretionary voting power with respect to that item and the broker has not +received voting instructions from the beneficial owner. +Votes cast at the meeting will be counted by the inspector of election. +2 +Table of Contents +PROPOSAL I +ELECTION OF DIRECTORS +Nominees +Our Certificate of Incorporation provides for a classified Board of Directors. The Board of +Directors is divided into three classes of equal size, designated as Class I (currently with two +directors), Class II (currently with two directors) and Class III (currently with two directors). +One class of directors is elected at each Annual Meeting of shareholders to serve for a three-year +term. +The term of the two Class III directors, Mr. Fred L. Callon and Mr. L. Richard Flury, will +expire on the date of the 2009 Annual Meeting. Both Mr. Callon and Mr. Flury were nominated to +serve as Class III directors until the 2012 Annual Meeting, or until his successor has been duly +elected and qualified. Both were nominated by the Board of Directors upon the recommendation of +the Nominating and Corporate Governance Committee and both have agreed to serve, if elected. +All shares of common stock represented by the proxies will be voted “FOR” the election of both +director nominees, except where authority to vote in the election of a director has been withheld. +Should either of the nominees become unable or unwilling to serve as a director at the time of the +2009 Annual Meeting, the person or persons exercising the proxies will vote for the election of +substitute nominee designated by the Board of Directors, or the Board of Directors may choose to +reduce the number of members of the Board of Directors to be elected at the 2009 Annual Meeting in +order to eliminate the vacancy. Messrs. Callon and Flury have consented to be nominated and have +expressed their intention to serve if elected. The Board of Directors has no reason to believe +that the nominees will be unable or unwilling to serve if elected. Only the nominees or a +substitute nominee designated by the Board of Directors will be eligible to stand for election as a +director at the 2009 Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of both nominees . +3 +Table of Contents +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors +whose terms will continue after the 2009 Annual Meeting, and the present executive officers of the +Company. Each executive officer has been elected to serve until his or her successor is duly +appointed or elected by the Board of Directors or their earlier removal or resignation from office. +Age +as of +Record +Company +Name +Date +Position Since +Present Company Position +Class I Directors: +(Term Expires in 2010) +Larry D. McVay +61 +2007 +Director +John C. Wallace +70 +1994 +Director +Class II Directors: +(Term Expires in 2011) +B. F. Weatherly +64 +1994 +Director, Executive Vice President and Chief Financial Officer +Richard O. Wilson +79 +1995 +Director +Class III Directors: +(Term Expires in 2009) +Fred L. Callon +59 +1994 +Director, Nominee, Chairman of +the Board, President, and Chief +Executive Officer +L. Richard Flury +61 +2004 +Director, Nominee +Other Executive Officers: +Mitzi P. Conn +40 +2007 +Corporate Controller +Robert A. Mayfield +58 +2000 +Corporate Secretary +Thomas E. Schwager +58 +1997 +Vice President +H. Clark Smith +56 +2001 +Chief Information Officer +Rodger W. Smith +59 +1999 +Vice President and Treasurer +Stephen F. Woodcock +57 +1997 +Vice President +The following is a brief description of the background and principal occupation of each +director and executive officer: +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and +President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since +January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, +positions he had held with the Company or its predecessors since 1984. He has been employed by the +Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and +received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and +until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, +Mitchell & Co., certified public accountants. He is the nephew of the late John S. Callon, the +Company’s founder. +Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in May 2007, she had served as assistant +controller since May 2004. Mrs. Conn has held various other positions in finance and accounting +since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham +Resources, Inc. She received her B. S. degree in accounting from Southeastern Louisiana University +in 1990 and is a member of the American Institute of Certified Public Accountants and the +Mississippi Society of Certified Public Accountants. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years +with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power +and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco’s +merger with BP in 1998, he served +4 +Table of Contents +in various executive positions and was Chief Executive for Worldwide Exploration and +Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, +he is a member of the Board of Directors of Questar Corporation, a publicly-traded oil and gas +company, and the Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement +and construction company. +Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company +and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. +Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and +Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed +by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax +manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in +1972 and is a member of the Society of Corporate Secretaries & Governance Professionals. +Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his +retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the +largest oil producing companies in Russia. Mr. McVay is currently a Managing Director of Edgewater +Energy Partners, LLC, an oil and gas consulting company. From 2000 to 2003, he served as +Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led +the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream +operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years +with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions +with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering +degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In +January 2008 he became a member of the Board of Directors of Praxair, Inc., the largest industrial +gases company in North and South America. In May 2008 Mr. McVay also became a member of the Board +of Directors of Chicago Bridge and Iron, N.V., a publicly-traded engineering, procurement, and +construction company. +Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and +Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering +positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. +Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his +B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered +professional engineer and a member of the Society of Petroleum Engineers. +H. Clark Smith is Chief Information Officer for the Company and Callon Petroleum Operating +Company. Prior to being appointed to that position in March 2001, he had served as Manager – +Information Technology since January 1990 and in other computer related positions with the Company +and its predecessors since 1983. At Mississippi State University, he majored in Industrial +Technology. During his tenure with the Company, he has received extensive technical and management +training from the University of Southern Mississippi, International Business Machines, Microsoft, +Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with +Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi +Computing Consultants. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and +Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and Corporate +Controller in 2004. Prior to being appointed Treasurer, he served as Manager of Budget and +Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting +and has been employed by the Company and its predecessors since 1983. Prior to his employment with +the Company, he was employed by International Paper Company as a plant controller. He received his +B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. +Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, +after which he joined Baring Brothers & Co., Limited in London, England. For over twenty-five +years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in +1968 and which specializes in the business of shipping, renewable energy and property development. +He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. +In November 2004 he successfully completed the International Uniform Certified Public Accountant +Qualification Examination (“IQEX”) and has received a CPA Certificate from the State of Illinois. +Mr. Wallace is a director of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping +companies with interests in offshore energy services and renewable energy. +B. F. Weatherly is the Executive Vice President and Chief Financial Officer for the Company +and Callon Petroleum Operating Company. Prior to joining the Company in November 2006, he was a +principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was +also a general partner of CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and held +that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the +University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur +Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford +International, Inc. +Richard O. Wilson retired in 2004 after working for over 50 years in offshore drilling and +construction which included two years with Zapata Offshore and 21 years with Brown & Root, Inc. +working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the +Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group +Vice President of Brown & Root, Inc. and Senior Vice +5 +Table of Contents +President of Halliburton, Inc. For 18 years he was associated with Fred. Olsen Interests +where he served as Chairman of OGC International PLC, Dolphin A/S and Dolphin Drilling Ltd. He +holds a B.S. degree in Civil Engineering from Rice University. Mr. Wilson is a Fellow in the +American Society of Civil Engineers, a Director of Flotek Industries, Inc. and a Director of the +Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected an Industry Pioneer +by the Offshore Energy Center, Houston, Texas. +Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum +Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had +served as Manager of Geology and Geophysics since his initial employment by the Company and Callon +Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing +Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s +degree in geophysics from Oregon State University in 1975. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who +is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship. +The Board of Directors and Governance Matters +General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, +our business and affairs are managed under the direction of the Board of Directors. The Board of +Directors generally meets on a quarterly basis to review significant developments affecting the +Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the +Board of Directors may also hold special meetings, execute unanimous written consents, and +participate in telephone conference calls when an important matter requires Board action. +During 2008, the Board of Directors of the Company met formally five times and executed six +unanimous written consents. All of the Company’s directors attended all of the board meetings. In +addition, to promote open discussion, the non-management directors meet in executive (private) +sessions without management following each quarterly board meeting. The chairperson of such +executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, +at the first executive session held in each fiscal year, the independent directors select a +different independent director to serve as the chairperson for all executive sessions held during +that fiscal year. L. Richard Flury, chairman of the Compensation Committee presided over all +executive sessions during 2008. +In order to facilitate the various functions of the Board of Directors, the Board of Directors +has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance +Committee, and a Strategic Planning Committee. These committees are more fully described in the +following pages. +Director Independence. It is the policy of the Board of Directors that a majority of the +members of the Board be independent of the Company’s management. The Company’s Corporate +Governance Principles contain the following guidelines to assist the Board in determining director +independence in accordance with the applicable New York Stock Exchange and SEC rules: +• +No director who is an employee or former employee of the Company, or whose immediate +family member is an executive officer or former executive officer of the Company, shall +be considered “independent” until three years after such employment has ended; +• +No director who is receiving, or in the last three years has received, or whose +immediate family member is receiving, or in the last three years has received, more +than $120,000 per year in direct compensation from the Company, other than fees +received in such director’s capacity as a member of the Board or any Board committee +and pension payments or other forms of deferred compensation for prior service +(provided such compensation is not contingent in any way on continued service) shall be +considered “independent.” Compensation received by an immediate family member for +service as a non-executive employee of the Company need not be considered in +determining independence; +• +No director who is, or in the past three years has been, affiliated with or employed +by, or whose immediate family member is, or in the past three years has been, +affiliated with or employed in a professional capacity by, a present or former internal +auditor or independent auditing firm of the Company shall be considered “independent”; +• +No director who is, or in the past three years has been, employed as, or whose +immediate family member is, or in the past three years has been, employed as, an +executive officer by any company for which any executive officer of the Company serves +as a member of its compensation committee (or, in the absence of a compensation +committee, the board +6 +Table of Contents +committee performing equivalent functions, or, in the absence of such committee, the +Board of Directors) shall be considered “independent”; +• +No director who is an executive officer or an employee, or whose immediate family +member is an executive officer, of a company that makes payments to, or receives +payments from, the Company for property or services in an amount which, in any single +fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s +consolidated gross revenue shall be considered “independent” until three years after +such payments fall below such threshold; and +• +An “immediate family member” includes a person’s spouse, parents, children, +siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and +sisters-in-law, and anyone (other than domestic employees) who shares such person’s +home. When applying the three-year look-back provisions, it does not +include individuals who are no longer immediate family members as a result of legal +separation or divorce, or those who have died or become incapacitated. +The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and +Wilson do not have any material relationships with the Company that may interfere with the exercise +of their independence from management and the Company and are independent directors under +applicable New York Stock Exchange rules, SEC rules and in accordance with our Corporate Governance +Principles. Prior to his appointment as Executive Vice President and Chief Financial Officer in +November 2006, the Board of Directors also affirmatively determined that Mr. B. F. Weatherly met +the criteria and was an independent director. Upon his employment with the Company, he no longer +qualified as an independent director. Mr. Weatherly resigned from all committees of the Board, but +continues his role as a management member of the Board of Directors. +Corporate Governance Principles . The Company believes that good corporate governance is +important to ensure that Callon Petroleum Company is managed for the short- and long-term benefit +of its shareholders. Available on the Company website, www.callon.com, under the section +“Governance,” are copies of the Company’s: +• +Corporate Governance Principles; +• +Code of Business Conduct and Ethics; +• +Audit Committee Charter; +• +Compensation Committee Charter; +• +Nominating and Corporate Governance Committee Charter; and +• +Members serving on each of the Board of Directors’ Committees. +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s +website. Copies of these documents are available in print, free of charge, to any shareholder upon +request to the Company’s Corporate Secretary. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and +expectations. The Code, which applies to every director, officer and employee, addresses a number +of topics, including conflicts of interest, relationships with others, corporate payments, +disclosure policy, compliance with laws, corporate opportunities and the protection and proper use +of the Company’s assets. The Code meets the New York Stock Exchange’s requirements for a code of +business conduct and ethics as well as the SEC’s definition of a code of ethics applicable to the +Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted +a waiver of the Code. +Communication with the Board of Directors. In order to provide the Company’s shareholders and +other interested parties with a direct and open line of communication to the Board of Directors, +the Board of Directors has adopted procedures for communications to directors. Callon shareholders +and other interested persons may communicate with the Chairman of the Company’s Audit Committee, or +with the non-management directors of the Company as a group, by written communications addressed in +care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, +Natchez, MS 39120. +All communications received in accordance with these procedures will be reviewed initially by +senior management of the Company. Senior management will relay all such communications to the +appropriate director or directors unless it is determined that the communication: +• +does not relate to the business or affairs of the Company or the functioning or +constitution of the Board of Directors or any of its committees; +7 +Table of Contents +• +relates to routine or insignificant matters that do not warrant the attention of +the Board of Directors; +• +is an advertisement or other commercial solicitation or communication; +• +is frivolous or offensive; or +• +is otherwise not appropriate for delivery to directors. +The director or directors who receive any such communication will have discretion to determine +whether the subject matter of the communication should be brought to the attention of the full +Board of Directors or one or more of its committees and whether any response to the person sending +the communication is appropriate. Any such response will be made only in accordance with +applicable law and regulations relating to the disclosure of information. +The Corporate Secretary will retain copies of all communications received pursuant to these +procedures for a period of at least one year. The Board of Directors will review the effectiveness +of these procedures from time to time and, if appropriate, recommend changes. As of the record +date, no such communications have been received. +Attendance at 2009 Annual Meeting of Shareholders. It is the policy of the Board that, to the +extent possible, all directors attend the 2009 Annual Meeting of Shareholders. All then current +directors attended the 2008 Annual Meeting of Shareholders. +Committees of the Board of Directors +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board of Directors in the areas +of financial reporting and accounting integrity. The Audit Committee reviews the accounting and +auditing procedures and financial reporting practices of the Company and is responsible for the +engagement of and overseeing all audit work conducted by the Company’s independent registered +public accounting firm. The Audit Committee is governed by a charter that has been approved by the +Board of Directors. The Audit Committee meets periodically with the Company’s management, internal +auditor and its independent registered public accounting firm to review the Company’s financial +information and systems of internal controls and ensures such parties are properly discharging +their responsibilities. The independent registered public accounting firm reports directly to the +Audit Committee and annually meets with the Audit Committee without management representatives +present. The Audit Committee has the authority to investigate any matters brought to its attention +and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-management members of the Board, each of whom +satisfy the independence requirements for audit committee members under Rule 10A-3 of the +Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New +York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the +audit committee of more than two other public companies. The Audit Committee is currently +comprised of Messrs. Wallace (Chairman), Flury, McVay and Wilson. Prior to his resignation from +the Audit Committee in connection with his employment with the Company, Mr. B. F. Weatherly also +served as a member of the committee. Additionally, the Board of Directors has determined that Mr. +Wallace has the accounting or financial management expertise to be considered a “financial expert” +as defined and required by the New York Stock Exchange’s rules and by the Securities Exchange Act +of 1934. +The Audit Committee held four meetings and executed one unanimous written consent during 2008. +All members of the Audit Committee attended all the meetings. The Audit Committee’s report on its +activities during 2008 appears later in this proxy statement under the caption “Audit Committee +Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible +for establishing and maintaining internal controls over financial reporting and for assessing the +effectiveness of those controls. The independent registered public accounting firm is responsible +for performing independent audits of the Company’s consolidated financial statements and internal +controls over financial reporting in accordance with the standards of the Public Company Accounting +Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility +is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public +accounting firm, served as the Company’s independent registered public accounting firm during 2007 +and 2008 and was appointed by the Audit Committee to serve in that capacity for 2009. +8 +Table of Contents +Audit Fees Paid to Independent Registered Public Accounting Firm. Fees paid for professional +services rendered related to the year ended December 31, 2007 by Ernst & Young LLP for the annual +audit and quarterly reviews and for registration statements and other regulatory filings (including +the requirements under Section 404 of the Sarbanes-Oxley Act) were $406,189, including +out-of-pocket expenses. Fees paid for professional services rendered related to the year ended +December 31, 2008 by Ernst & Young LLP for the annual audit and quarterly reviews and for +registration statements and other regulatory filings (including the requirements under Section 404 +of the Sarbanes-Oxley Act) were $491,471, including out-of-pocket expenses. The Audit Committee +has concluded that providing the tax-related services mentioned below is compatible with +maintaining the principal registered public accounting firm’s independence. +Audit-related Fees . There were no audit-related fees paid in 2007 or 2008. +Tax Fees. Professional services billed by Ernest & Young LLP for the review of the federal +tax return, tax advise and tax planning for 2007 totaled $18,400. Professional services billed for +the review of the federal tax return, tax advice and tax planning services for 2008 totaled +$36,850. +All Other Fees. There were no other fees paid to the Company’s independent registered public +accounting firm in 2007 or 2008. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee +pre-approves all audit services and non-audit services (including the fees and terms thereof) to be +performed for the Company by its independent registered public accounting firm, as required by +applicable law or listing standards and subject to the terms of the audit and non-audit services +pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or +more of its members when appropriate, including the authority to grant pre-approvals of audit and +permitted non-audit services, provided that decisions of any such member to grant pre-approvals are +consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its +next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s +audited financial statements at, and for the year ended, December 31, 2008 with management and the +Company’s independent registered public accounting firm and recommended to the Company’s Board of +Directors that the Company’s audited financial statements be included in the Company’s Annual +Report on Form 10-K for the year ended December 31, 2008. This recommendation was based on: +• +the Audit Committee’s review of the audited financial statements; +• +discussion of the financial statements with management; +• +discussion with the Company’s independent registered public accounting firm, Ernst & +Young LLP, of the matters required to be discussed by auditing standards generally +accepted in the United States of America, including the communication matters required +to be discussed by SAS 61; +• +receipt from Ernst &Young LLP of the written disclosures and letter required by +Independence Standards Board Standard No. 1 (Independence Discussions with Audit +Committees); +• +discussions with Ernst & Young LLP regarding its independence from the Company and +its management; +• +Ernst & Young LLP’s confirmation that it would issue its opinion that the +consolidated financial statements present fairly, in all material respects, the +financial position of the Company and its consolidated subsidiaries and the results of +their operations and cash flows for the periods presented in conformity with accounting +principles generally accepted in the United States of America; and +• +other matters the Audit Committee deemed relevant and appropriate. +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Richard O. Wilson +9 +Table of Contents +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation +program designed to optimize the opportunity for the Company to achieve its operating objectives +and performance goals while properly blending it with the short- and long-term interests of the +Company’s shareholders. The Committee annually reviews market and industry data to assess the +Company’s competitive position with respect to each element of total compensation and to ensure the +attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In +addition to the determination of annual base salaries, the Committee is responsible for determining +and recommending variable annual bonuses in the form of cash and/or equity awards. The Committee +maintains authority over the company’s stock incentive plans from which either stock options, +restricted stock, or performance shares can be awarded as part of the total annual compensation +package. Currently the variable portion of the annual compensation package is based on certain +performance related criteria of the Company for which the Committee is responsible for establishing +and approving. In addition to the above, the Committee has the following duties and +responsibilities: +• +review, recommend, and discuss with management the compensation discussion and +analysis section included in the Company’s annual proxy statement; and +• +prepare an annual report on executive compensation for inclusion in the Company’s +proxy statement for the 2009 Annual Meeting of Shareholders. +Consistent with the listing requirements of the New York Stock Exchange, the Compensation +Committee is composed entirely of independent members of our Board of Directors. Each member +meets the independence requirements set by the New York Stock Exchange and applicable federal +securities laws. Current members are Messrs. Flury (chairman), McVay, Wallace and Wilson. +The Compensation Committee held four meetings and executed two unanimous written consents +during 2008. All members of the Compensation Committee attended all the meetings. +Compensation Committee Interlocks and Insider Participation. The members of the Company’s +Compensation Committee are Messrs. Flury (Chairman), McVay, Wallace and Wilson, none of whom are +or have been officers or employees of the Company or any of its subsidiaries or had a relationship +requiring disclosure under this caption. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +• +identify and recommend to the Board individuals qualified to be nominated for +election to the Board; +• +recommend to the Board the members and chairperson for each Board committee; +• +periodically review and assess the Company’s Corporate Governance Principles and +the Company’s Code of Business Conduct and Ethics and make recommendations for changes +thereto to the Board; +• +oversee the annual self-evaluation of the performance of the Board and the annual +evaluation of the Company’s management; and +• +recommend to the Board a successor to the CEO when a vacancy occurs. +Each member of the Committee meets the independence requirements of the New York Stock +Exchange and applicable federal securities laws. Current members are Messrs. Wilson (Chairman), +Flury, McVay, and Wallace. The Nominating and Corporate Governance Committee held four meetings +and one unanimous written consent during 2008. All members of the Nominating and Corporate +Governance Committee attended all the meetings. Prior to the formation of this Committee, the +entire Board of Directors performed these functions. +Director Identification and Selection. The Nominating and Corporate Governance Committee has +established certain criteria it considers as guidelines in considering nominations to the Company’s +Board of Directors. The criteria include: +• +personal characteristics, including such matters as integrity, age, education, +diversity of background and experience, absence of potential conflicts of interest with +the Company or +10 +Table of Contents +its operations, and the availability and willingness to devote +sufficient time to the duties of a director of the Company; +• +experience in corporate management, such as serving as an officer or former officer +of a publicly held company; +• +experience in the Company’s industry and with relevant social policy concerns; +• +experience as a board member of another publicly held company; +• +academic expertise in an area of the Company’s operations; and +• +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the +Board of Directors may consider other qualifications and attributes which they believe are +appropriate in evaluating the ability of an individual to serve as a member of the Board of +Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of +Directors that brings to the Company a variety of perspectives and skills derived from high quality +business and professional experience. In order to ensure that the Board consists of members with a +variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set +any minimum qualifications and also considers candidates with appropriate non-business backgrounds. +Other than ensuring that at least one member of the Board is a financial expert and a majority of +the Board members meet all applicable independence requirements, the Committee does not have any +specific skills that it believes are necessary for any individual director to possess. Instead, +the Committee evaluates potential nominees based on the contribution such nominee’s background and +skills could have upon the overall functioning of the Board. In accordance with the Company’s +by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery +of written notice to the Company of such nomination, stating the name and address of the nominee +and describing his qualifications. Such notice shall be sent by certified mail or delivered to +the principal office of the Company to the attention of the Board of Directors, with a copy to the +President and Corporate Secretary of the Company. +The Board of Directors believes that, based on the Nominating and Corporate Governance +Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and +qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is +best equipped to select nominees that will result in a well-qualified and well-rounded board of +directors. In making its nominations, the Nominating and Corporate Governance Committee identifies +nominees by first evaluating the current members of the Board willing to continue their service. +Current members with qualifications and skills that are consistent with the Committee’s criteria +for Board service are re-nominated. As to new candidates, the committee will generally poll the +Board members and members of management for recommendations. The committee may also review the +composition and qualification of the boards of directors of the Company’s competitors, and may seek +input from industry experts or analysts. The committee reviews the qualifications, experience and +background of the candidates. Final candidates are interviewed by the independent directors and +executive management. In making its determinations, the committee evaluates each individual in the +context of the Board as whole, with the objective of assembling a group that can best represent +shareholder interests through the exercise of sound judgment. After review and deliberation of all +feedback and data, the committee makes its recommendation to the Board of Directors. The committee +may in the future choose to engage third-party search firms in situations where particular +qualifications are required or where existing contacts are not sufficient to identify an +appropriate candidate. +11 +Table of Contents +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Shareholders +The following table sets forth, as of the record date, certain information with respect to the +ownership of shares of common stock held by (i) all persons known by the Company to be the +beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the +nominees for director, (iv) each of the executive officers named in the Summary Compensation Table, +and (v) all executive officers and directors of the Company as a group. Information set forth in +the table with respect to beneficial ownership of common stock has been obtained from filings made +by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the +record date or, in the case of executive officers and directors of the Company, has been provided +to the Company by such individuals. +Name and Address of +Common Stock (a) +Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +294,936 +(b) +1.35 +% +L. Richard Flury +41,250 +(c) +* +Larry D. McVay +11,250 +(d) +* +John C. Wallace +— +(e) +* +B. F. Weatherly +69,145 +(f) +* +Richard O. Wilson +118,703 +(g) +* +Named Executive Officers: +* +Stephen F. Woodcock +90,382 +(h) +* +Thomas E. Schwager +7,149 +(i) +* +Rodger W. Smith +53,457 +(j) +* +Directors and Executive Officers: +As a Group (12 persons) +785,501 +(k) +3.53 +% +Certain Beneficial Owners: +Donald Smith & Co., Inc. +1,841,827 +(l) +8.51 +% +152 W. 57 th Street, 22 nd Floor +New York, NY 10019 +Barclays Global Investors, NA +1,670,035 +(m) +7.72 +% +400 Howard Street +San Francisco, CA 94105 +Dimensional Fund Advisors LP +1,714,144 +(n) +7.92 +% +1299 Ocean Avenue +Santa Monica, CA 90401 +* +Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to +have sole voting and dispositive power with respect to such shares. Beneficial ownership +does not include the unvested portion of performance stock awards due to lack of voting and +disposition power. Percentage ownership of a holder or class of holders is calculated by +dividing (i) the number of shares of common stock beneficially owned by such holder or +class of holders plus the total number of shares of common stock underlying options +exercisable within sixty days of March 9, 2009, by (ii) the total number of shares of +common stock outstanding plus the total number of shares of common stock underlying options +exercisable within sixty days of March 9, 2009, but not common stock underlying such +securities held by any other person. +b) +Of the 294,936 shares beneficially owned by Fred L. Callon, 48,360 shares are owned +directly by him; 92,170 shares are held by him as custodian for certain minor Callon family +members; 13,031 shares are owned within the Company’s Employee Savings and Protection Plan; +and 141,375 shares are subject to options under the 1996 Plan, exercisable within 60 days. +Shares indicated as owned by Mr. Callon do not include 24,904 shares of common stock owned +by his wife over whom he disclaims beneficial ownership and 74,600 shares of unvested +performance stock. +12 +Table of Contents +c) +Of the 41,250 shares beneficially owned by L. Richard Flury, 31,250 shares are owned +directly by him; 5,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 5,000 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Flury do not include 5,000 shares of +unvested performance stock. +d) +Of the 11,250 shares beneficially owned by Larry D. McVay, 11,250 shares are owned +directly by him. Shares indicated as owned by Mr. McVay do not include 5,000 shares of +unvested performance stock. +e) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family +Trust in April 2008. The Trust is a discretionary trust in which Mr. Wallace has no +absolute interest and disclaims any beneficial interest. +f) +Of the 69,145 shares beneficially owned by B. F. Weatherly, 2,288 shares are owned +within his personal IRA account; 41,053 shares are held in joint tenancy with his wife; 804 +shares are owned within the Company’s Employee Savings and Protection Plan; 20,000 shares +are subject to options under the 1996 Plan, exercisable within 60 days; and 5,000 shares +are subject to options under the 2002 Plan, exercisable within 60 days. Shares indicated +as owned by Mr. Weatherly do not include 57,500 shares of unvested performance stock. +g) +Of the 118,703 shares beneficially owned by Richard O. Wilson, 51,884 shares are held +in a family limited partnership; 6,819 shares are held in a Trust account; 10,000 shares +are subject to options under the 1994 Plan, exercisable within 60 days; 40,000 shares are +subject to options under the 1996 Plan, exercisable within 60 days; and 10,000 shares are +subject to options under the 2002 Plan, exercisable within 60 days;. Shares indicated as +owned by Mr. Wilson do not include 5,000 shares of unvested performance stock. +h) +Of the 90,382 shares beneficially owned by Stephen F. Woodcock, 16,038 are owned +directly by him; 8,594 shares are owned within the Company’s Employee Savings and +Protection Plan; 44,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days; and 21,750 shares are subject to options under the 2002 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Woodcock do not include 35,700 shares of +unvested performance stock. +i) +Of the 7,149 shares beneficially owned by Thomas E. Schwager, 6,636 are owned directly +by him; and 513 shares are owned within the Company’s Employee Savings and Protection Plan. +Shares indicated as owned by Mr. Schwager do not include 30,300 shares of unvested +performance stock. +j) +Of the 53,457 shares beneficially owned by Rodger W. Smith, 12,474 shares are owned +directly by him; 20,983 shares are owned within the Company’s Employee Savings and +Protection Plan; and 20,000 shares are subject to options under the 1996 Plan, exercisable +within 60 days. Shares indicated as owned by Mr. Smith do not include 23,300 shares of +unvested performance stock. +k) +Includes 10,000 shares subject to options under the 1994 Plan, exercisable within 60 +days; 288,875 shares subject to options under the 1996 Plan, exercisable within 60 days; +55,800 shares subject to options under the 2002 Plan, exercisable within 60 days; and +56,225 shares are owned within the Company’s Employee Savings and Protection Plan. Shares +indicated as owned do not include 282,300 shares of unvested performance stock. +l) +Information is based upon a Schedule 13G filed with the Commission on February 11, 2009 +by Donald Smith & Co., Inc. In this Schedule 13G, Donald Smith represents that it has sole +voting power with respect to 1,674,385 shares and sole dispositive power with respect to +1,841,827 shares of common stock. +m) +Information is based upon a Schedule 13G filed with the Commission on February 5, 2009 +by Barclays Global Investors, NA; Barclays Global Fund Advisors; Barclays Global Investors, +LTD; Barclays Global Investors Japan Limited; Barclays Global Investors Canada Limited; +Barclays Global Investors Australia Limited; and Barclays Global Investors (Deutschland) AG +(“Barclays”). In this Schedule 13G, Barclays represents that it has sole voting power with +respect to 1,592,204 shares of common stock, and sole dispositive power with respect to +1,670,035 shares of common stock. +n) +Information is based upon a Schedule 13G/A filed with the Commission on February 9, +2009 by Dimensional Fund Advisors LP. In this Schedule 13G, Dimensional represents that it +has sole +13 +Table of Contents +voting power with respect to 1,677,658 shares of common stock and sole dispositive power +with respect to 1,714,144 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of +holders acquire investment power for these shares immediately upon a “change of control” as defined +in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s +directors and executive officers, and persons who beneficially own more than ten percent of a +registered class of the Company’s equity securities, to file with the Commission initial reports of +ownership and reports of changes in ownership of common stock and other equity securities of the +Company. Officers, directors and greater than ten percent shareholders are required by the +Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all +Section 16(a) forms they file with the Commission. +Based solely on review of the copies of such reports furnished to the Company during, or with +respect to, the fiscal year ended December 31, 2008, and written representations from all of the +Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, +directors and greater than ten percent shareholders have complied with all Section 16(a) filing +requirements for the year ended December 31, 2008. +Compensation Discussion and Analysis +of Executive Compensation +Oversight of Executive Compensation Program +The Compensation Committee of our Board of Directors oversees our compensation programs. The +primary function of the Committee is to assist our Board of Directors in the discharge of its +fiduciary responsibilities relating to compensation of our Chief Executive Officer and other +executives. From time to time the Committee has retained a compensation consultant to assess the +effectiveness of the Company’s compensation programs. +In 2008, the Compensation Committee again retained Hewitt Associates LLC to evaluate and make +recommendations concerning Callon’s compensation practices and procedures. Specifically, Hewitt +was asked to review the Compensation Committee Charter and the Company’s entire compensation +program, both long-term and short-term incentives, but with particular emphasis on the higher paid +executives. The Compensation Committee considered the advice of the consultant as only one factor +among the other items discussed in this compensation discussion and analysis. +Compensation Program Philosophy and Objectives +Our business strategy is to enhance stockholder value through sustained growth in our reserve +base, production levels and resulting cash flows from operations. Our compensation program is +designed to attract, retain, and motivate employees in order to effectively implement our strategy. +Our compensation program has four objectives: +• +To attract, retain and motivate qualified executives whose performance is key to the +successful execution of our business strategy and the achievement of our short- and +long-term corporate goals; +• +To create a “pay for performance” oriented environment that rewards significant +contributions to our short- and long-term strategic goals; +• +To provide an executive compensation structure that is internally equitable based +upon the level of responsibility of our executives; and +• +To align the interests of our executive officers with those of our shareholders. +Elements of Compensation +The Committee believes that the compensation environment for qualified executives in the +domestic oil and gas industry is highly competitive, particularly as a result of current efforts to +reduce dependence on foreign oil. We also believe that similar compensation pressure has resulted +from increased financial reporting and corporate governance regulatory issues implemented within +recent years. In order to compete in this environment, our executive officers’ compensation has +the following components: +14 +Table of Contents +Component +Purpose +Philosophy Statement +Base Salary +• Pay for expertise and experience +• Attract and retain +• Provide stable compensation level +• In the aggregate, targeted at an appropriate +level against the peers given relative size +• Reflective of individual experience and expertise +Annual Cash +Reward and +Incentive +Compensation +• Motivate superior operational and financial performance +• Provide annual recognition of performance +• In the aggregate, targeted at an appropriate level against the peers given relative size +• Reflective of internal equity considerations +• Goals aligned with annual strategic objectives of the Company +• Modest to no payout for performance below +expectations and potential for significantly +increased payout for exceptional performance +Long-Term +Equity +• Directly align employees with shareholders +• Create significant retention hook +• Ultimate value delivered influenced by the +Company’s return to shareholders as compared +against peer companies +Incentives +• Match competitive practices to attract +and retain employees +• Appropriate opportunities based on a +review of multiple reference points: +— Industry peer grant values +— Historical grant practices +— Internal relative positioning +Retirement and +Health/Welfare +Benefits +• Provide financial security +• Help ensure a financial safety net +• Match competitive practices +• Programs generally consistent, regardless +of level, across the organization +• Benefit levels competitive with peer +companies +Severance +Protection +• Protect executives in the case of job loss +• Match competitive practices to attract +and retain employees +• Benefit levels based on peer group +practices with consideration to shareholder value +• For change in control protection, help +ensure executives consider all possible +transactions to increase shareholder value +How we Determine Each Element of Compensation +Base Salaries . There are two components to how the Compensation Committee determines base +salaries for its executive officers. First, in January of each year, all our executive officers +are considered for an across-the-board adjustment based on the approximate “cost of living” +increase as published by the U. S. Department of Labor for the previous year. Based on their +November 2007 report, the consumer price index for all urban consumers, before seasonal adjustment, +increased 4.3% from the November 2006 level. Therefore, the salary adjustment approved by the +Compensation Committee for 2008 was 4.0%. +Second, at a regularly scheduled meeting, generally in March, the Committee uses information +supplied by Hewitt to compare the current annual base salaries of the executive officers to current +base salaries for similar executive positions at peer companies. Hewitt provides the Compensation +Committee with market data from a group of peer companies in the industry that approximate Callon’s +size and operate in similar locations. The peer group is adjusted each year based on changes in the +industry. The Committee looks at Callon’s size from a revenue standpoint relative to the peer +companies to help frame an appropriate level as a reference point for decision-making. The +Committee also considers various factors such as each executive’s motivation level, leadership +ability, overall knowledge and experience in his particular segment of our business, the +competitive compensation environment for such individual, that person’s unique skills and his or +her expected future contribution to the success of our company. The Committee feels that if these +qualities are rewarded, the executives will be motivated to achieve our corporate goals and +successfully implement our business strategies. Upon review of these various factors, at its March +2008 meeting, the Compensation Committee determined that no additional base salary adjustments were +needed. +The table below indicates the Peer Companies (“Original Peer Companies”) which were used for +base salary comparison in March 2008. +15 +Table of Contents +Original Peer Companies +ATP Oil and Gas Corp. +Atwood Oceanics +Comstock Resources Inc. +Mariner Energy Inc. +Newfield Exploration Co. +Petroquest Energy Inc. +Plains Exploration & Production Co. +Stone Energy Co. +W & T Offshore Inc. +Annual Cash Reward and Incentive Compensation . Executive officers, senior management and +other non-management technical personnel have the potential to receive a significant portion of +their annual cash compensation as a cash bonus. As with base salary, the Committee looks at +Callon’s size from a revenue standpoint relative to the peer companies as a reference point for +determining aggregate bonus amount. Each year, following the Board of Directors’ approval of the +annual operating budget and financial forecast for the next year, generally at its regular November +meeting, the Compensation Committee sets performance related cash bonus guidelines for the next +year. While not material to the overall bonus determination, these guidelines are used as a +reference point and no specific formula or weighting is considered. For 2008, the guidelines were +based on the following three areas: +• +Successfully moving the Entrada project to production within reasonable cost +estimates; +• +Operational and financial performance as measured by production, cash flow from +operations, and income before taxes; and +• +Developing a long-range strategic plan for the Company. +Each year, the Committee also determines the overall bonus attainment percentage applicable to +each eligible employee. For 2008, the Chief Executive Officer was eligible for a bonus generally +targeted at 100% of his base salary. The Chief Financial Officer was eligible for a bonus +generally targeted at 75% of his base salary while our other named executive officers were eligible +for a bonus targeted at 50% of their base salary. +After the end of the performance period, the Committee meets to evaluate the extent to which +the guidelines were met. In addition, the Committee may also consider how unexpected events +affecting the Company may impact the bonus attainment percentage. For example, a large acquisition +may substantially change our budget and forecast prepared prior to the beginning of a year, thereby +affecting the original guidelines established for payment of bonuses. In addition, as occurred in +prior years, adverse weather conditions may damage our facilities and reduce our production, cash +flows and other measures used as guidelines to assist in determining the amount of our bonuses. +Also, our Committee encourages our executives to pursue long-term goals, even if these long-term +goals may result in a reduction in our near-term performance. Accordingly, after determining the +overall bonus attainment percentage, the Committee reserves the right to adjust an individual’s +bonus amount based on individual achievements and contributions to the Company. +At the March 2009 Compensation Committee meeting, the Committee subjectively evaluated the +Company’s performance against the Adjusted Peer Companies (described below) and the guidelines set +for fiscal 2008 noting that: +• +The Entrada project was unexpectedly suspended in November 2008; +• +Operational and financial performance against goals was negatively impacted by +deferred oil and gas production as a result of downtime due to hurricanes; +• +An unexpected and severe drop in commodity prices. Excluding the impact of the +Entrada suspension, deferred production, and price declines, the operational and +financial achievement was slightly above target; and +16 +Table of Contents +• +The Company’s management worked successfully in developing a long-range strategic +plan and provided strong leadership to the Company during the difficult year. +Although the Committee determined that the Company did not fully meet performance expectations +for 2008, they noted that management showed resilience in the face of numerous challenges, and kept +the company moving forward under a new strategy for 2009. Consequently, the Committee approved +2008 bonuses of 25% of target for the named executive officers. +Long-term Equity Incentives . The Compensation Committee administers our long-term incentive +plans and performs functions that include selecting award recipients, determining the timing of +grants and assigning the number of shares awarded, fixing the time and manner in which awards are +exercisable, setting option exercise prices and vesting and expiration dates, and from time to time +adopting rules and regulations for our plans. For the grant of equity compensation to executive +officers, our Compensation Committee will typically consider information provided by Hewitt and our +Chief Executive Officer, related to the overall competitive environment associated with long-term +compensation. All awards are priced at the fair market value on the grant date in accordance with +SFAS No. 123R. We do not have any program, plan or obligation that requires us to grant equity +compensation on specified dates. However, our Committee does follow a policy of not granting +equity incentives when material non-public information exists that may affect the short-term price +of our stock. +As a result of recommendations from Hewitt, based on a review of the long-term incentive +compensation practices of Peer Companies and in order to further align our executives with +shareholders, on April 18, 2008 the Compensation Committee granted long-term equity incentives to +the executive officers consisting of 50% time-based restricted shares and 50% performance-based +shares. The time-based restricted shares will vest on the third anniversary following the award +assuming continued employment with the Company. The performance-based shares will vest on the +third anniversary following the award, assuming continued employment with the Company, in +accordance with the achievement of a defined performance target related to the percentage increase +or decrease in the Company’s “total shareholder return.” The percentage will be appropriately +adjusted, if necessary, for stock splits occurring during the performance period. Callon’s total +shareholder return and that of the peer companies will be calculated as follows: +( EP + CD) - BP += % increase or decrease +BP +Ending price (EP) — equals the average daily closing price on the NYSE during the month +of December 2010. +Beginning price (BP) — equals the NYSE closing price on February 1, 2008. +Cash Dividends (CD) — equals the cash dividends paid from February 1, 2008 thru December +31, 2010. +The resulting percentage for Callon and the peer companies will then be ranked. Based on the +relative ranking, the number of performance-based shares awarded will then be retroactively +adjusted (“Adjusted Performance Shares”) in accordance with the following table: +Rank +Adjustment Percentage +1 or 2 +150% +3 or 4 +125% +5, 6 or 7 +100% +8 or 9 +50% +10 or 11 +0% +The following peer companies (“Adjusted Peer Companies”) are expected to be used to rank the +Company’s performance in accordance with the calculation of total shareholder return above: +Adjusted Peer Companies +ATP Oil and Gas Corp. +McMoRan Exploration Co. +Comstock Resources Inc. +17 +Table of Contents +Mariner Energy Inc. +Swift Energy Co. +Petroquest Energy Inc. +W & T Offshore Inc. +Stone Energy Co. +In the fall of 2008, Hewitt adjusted the Original Peer Group after an updated study of +comparable companies. Atwood Oceanics, Newfield Exploration Co., and Plains Exploration & +Production Co. were removed and replaced by McMoRan Exploration Co. and Swift Energy Co. The +Compensation Committee may revise the list of peer companies based on mergers, acquisitions and +other factors that may affect comparability to Callon. +Information concerning all unvested performance shares and outstanding options held by our +named executive officers is contained in the “Outstanding Equity Awards at December 31, 2008” +table. No stock options were awarded to the named executive officers for 2008. +Retirement and Health/Welfare Benefits . We provide Company certain benefits that we believe +are standard in the industry to all of our employees. These benefits consist of a group medical +and dental insurance program for employees and their qualified dependents, group life insurance for +employees and their spouses, accidental death and dismemberment coverage for employees, long-term +disability, a Company sponsored cafeteria plan and a 401-K employee savings and protection plan. +The costs of these benefits are paid entirely by the Company. Employee life insurance amounts +surpassing the Internal Revenue Service maximum are treated as additional compensation to all +employees. The Company’s 401-K contribution to each qualified participant, including the named +executive officers, is calculated based on 5% of the employee’s eligible salary, excluding overtime +pay and annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, +limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, +including amounts deferred by named executive officers, up to a maximum of 5% of eligible +compensation. The Company pays all administrative costs to maintain the plan. +Our executive officers are entitled to certain benefits, or perquisites, that are not +otherwise available to all of our employees. We provide our Chief Executive Officer, Chief +Financial Officer and other executive officers with use of a company automobile. We purchase the +automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to +recognize taxable income using the Internal Revenue Service’s annual lease value method for +personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s +payment of a term life insurance policy for which Mr. Callon is the sole beneficiary and which the +Company has no economic interest in the proceeds. The costs associated with these benefits for the +named executive officers are reported as “Other Compensation” in the Summary Compensation Table. +The Committee feels these perquisites are common to the oil and gas industry and the value of such +benefits is considered in determining total compensation of our executives. +Severance Protection. Callon has not entered into any employment agreements with our executive +officers. Prior to 2008, the Company entered into an agreement with Fred Callon that provided for +certain payments if his employment is terminated in conjunction with a change-in-control of the +Company. The Committee believes that this agreement helped ensure that Mr. Callon considered all +potential transactions that may increase shareholder value, regardless of whether or not he +continued to be employed by the surviving entity. +In late 2007, Hewitt provided information relative to industry compensation practices under a +variety of termination scenarios. As a result of this analysis and in order to ensure all named +executive officers are motivated to consider any transaction that would increase shareholder value, +in early 2008, Mr. Callon’s previous agreement was terminated and the Compensation Committee +entered into similar change-in-control agreements with all the named executive officers. These +agreements match competitive practices and are similar in structure to Mr. Callon’s previous +agreement except that Mr. Callon’s benefit levels are higher to reflect his position as the CEO of +the Company. Additionally, the Committee also included a non-competition and non-solicitation +provision in all of the change-in-control agreements (including Mr. Callon’s) in order to protect +the Company in the event the benefits are triggered. Despite competitive market practices to the +contrary, the Committee chose not to provide guaranteed severance benefits outside of a +change-in-control. In the event of a termination of employment outside of a change-in-control, the +Committee will consider the circumstances of each case separately. +Internal Revenue Service Limitations . We have structured our compensation program to comply +with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue +Code, a limitation was placed on tax deductions of any publicly-held corporation for individual +compensation to certain executives of such +18 +Table of Contents +corporation exceeding $1,000,000 in any taxable year, unless the compensation is +performance-based. If an executive is entitled to nonqualified deferred compensation benefits that +are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits +are taxable in the first year they are not subject to a substantial risk of forfeiture. In such +case, the Service Provider is subject to regular federal income tax, interest and an additional +federal income tax of 20% of the benefit includible in income. The Company has one individual (Fred +L. Callon) with non-performance based compensation paid in excess of the Internal Revenue Code +Section 162(m) tax deduction limit. However, the Committee reserves the right to use its judgment +to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it +believe that such payments are appropriate and in the best interest of the stockholders, after +taking into consideration changing business conditions or the executive’s individual performance +and/or changes in specific job duties and responsibilities. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and +members of our Board of Directors are prevented from buying or selling Company stock during +periodic “trading blackout” periods. A trading blackout period is placed in effect by senior +management when material non-public information about the Company exists and may have an influence +on the marketplace. There have been no violations to this policy by any named executive officer +during 2008. +Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors +adopted a stock ownership policy which applies to the Chief Executive Officer and the other named +executive officers. The provisions of the policy provide for the investment position, computed on +December 31 of each year, of the Chief Executive Officer to be no less than three times his or her +base salary. For other named executive officers, the investment position shall be no less than two +times base salary. Investment position is defined as calculated value of shares owned, shares +owned indirectly, equivalent shares invested in the officer’s 401-K plan, and unvested portion of +time-based vesting of performance or restricted shares. Value attributable to shares represented +by both vested and unvested stock options and the value of unvested performance-based vesting of +performance or restricted shares are excluded. Each officer has a period of five years from the +date of adoption to attain the required investment position. If a named officer becomes subject to +a greater investment position due to a promotion or an increase in salary, he or she will be +expected to attain the increased investment position within three years of the change. The +Compensation Committee reserves the right to approve an alternate stock ownership guideline for +named officers who can demonstrate a severe hardship in meeting the general guidelines. +Primarily as a result of the economic downturn and its effect on the Company’s year-end stock +price at December 31, 2008, none of the named officers met the minimum investment value position. +The Compensation Committee will closely monitor officer share holdings and future equity related +activity for each individual. +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2008, we are not aware of any related party transactions with our +executive officers that may cause a conflict of interest with the Company. +Compensation Committee Report +We have reviewed and discussed with management certain Compensation Discussion and Analysis +provisions included in the Company’s 2009 Shareholder Meeting Schedule 14A Proxy Statement, filed +pursuant to Section 14(a) of the Securities Exchange Act of 1934. Based on the reviews and +discussions referred to above, we recommend to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in the Company’s 2009 Proxy Statement. +L. Richard Flury (Chairman) +Larry D. McVay +John C. Wallace +Richard O. Wilson +19 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION +The following table sets forth certain information with respect to the Chief Executive Officer +of the Company and the four most highly compensated executive officers of the Company serving in +such positions as of December 31, 2008, 2007, and 2006. We sometimes refer to the officers listed +below as the “named executive officers.” +Summary Compensation Table +Name +All Other +and +Annual +Cash +Stock +Compen- +Principal +Salary +Bonus +Awards +sation +Total +Position +Year +($) +($) +($)(4) +($)(5) +($) +Fred L. Callon +2008 +464,520 +116,125 +485,379 +52,572 +1,118,596 +Chairman +and Chief Executive Officer +2007 +446,654 +558,319 +(2) +277,152 +52,140 +1,459,265 +125,000 +(3) +2006 +434,700 +125,000 +329,919 +55,350 +944,969 +B. F. Weatherly +2008 +364,000 +68,250 +384,113 +43,520 +859,883 +Executive +Vice President and Chief +2007 +350,000 +328,125 +(2) +248,313 +110,894 +1,112,332 +Financial Officer +75,000 +(3) +2006 +35,566 +(1) +50,000 +163,184 +44,983 +293,733 +Stephen F. Woodcock +2008 +286,000 +35,750 +250,201 +43,513 +615,464 +Vice President +2007 +258,149 +275,000 +(2) +177,774 +42,291 +803,214 +50,000 +(3) +2006 +217,726 +75,000 +219,987 +39,960 +552,673 +Thomas E. Schwager +2008 +260,000 +32,500 +213,055 +45,870 +551,425 +Vice President +2007 +232,885 +187,500 +(2) +149,682 +45,056 +665,123 +50,000 +(3) +2006 +196,321 +75,000 +183,453 +39,866 +494,640 +Rodger W. Smith +2008 +218,400 +27,300 +158,522 +46,872 +451,094 +Vice +President and Treasurer +2007 +198,390 +135,000 +(2) +104,202 +41,495 +514,087 +35,000 +(3) +2006 +167,384 +65,000 +127,419 +39,216 +399,019 +(1) +Mr. Weatherly joined the Company as Executive Vice President and Chief Financial +Officer effective November 16, 2006. His annual salary was $350,000 per year. +(2) +In April 2008, the Compensation Committee awarded cash bonuses for services performed +during 2007, exclusive of the cash bonus amount described in (3) below. +(3) +In May 2007, the Compensation Committee awarded a special cash bonus attributable to +the successful closing of the Entrada Field acquisition from BP Exploration and +Production Company and the successful closing of a $200 million revolving credit +facility. +(4) +Amounts calculated utilizing the provisions of Statement of Financial Accounting +Standards No. 123R, “Share-based Payments.” See notes to the consolidated financial +statements in the Company’s Annual Report for the years ended December 31, 2008, 2007 and +2006 regarding assumptions underlying valuation of equity awards. The amount in this +column for 2008 is the amount of compensation cost recognized in 2008 for restricted +stock granted in 2008 and prior years for each executive officer. The calculation of +these amounts disregards the estimate of forfeitures related to time-based vesting +conditions. The grant date fair market value of the restricted stock computed in +accordance with Statement of Financial Accounting Standards No. 123R used to calculate +these amounts is the same as that used for our stock-based compensation disclosure in +Note 3 to our financial statements included in our 2008 Annual Report on Form 10-K filed +with the SEC on March 19, 2009. +(5) +See table and related footnotes below. +20 +Table of Contents +Table of All Other Compensation +Company +Company +Contributed +Company +Contributed +Common +Provided +Company +Company +Cash to +Stock to +Group Life +Provided +paid +401- K +401- K +Insurance +Auto +Other +Total +Name +Year +($) +($)(1) +($) +($)(2) +($) +($) +Fred L. Callon +2008 +17,250 +6,286 +2,465 +15,071 +11,500 +(3) +52,572 +2007 +16,875 +5,625 +3,264 +14,876 +11,500 +(3) +52,140 +2006 +16,500 +5,500 +3,264 +16,526 +13,560 +(3) +55,350 +B. F. Weatherly +2008 +17,250 +5,906 +3,784 +16,580 +— +43,520 +2007 +14,766 +5,625 +3,264 +17,894 +69,345 +(4) +110,894 +2006 +673 +673 +272 +865 +42,500 +(5) +44,983 +Stephen F. Woodcock +2008 +17,250 +5,616 +2,465 +18,182 +— +43,513 +2007 +16,875 +5,625 +3,264 +16,527 +— +42,291 +2006 +16,330 +5,443 +3,264 +14,923 +— +39,960 +Thomas E. Schwager +2008 +17,250 +5,451 +2,465 +20,704 +— +45,870 +2007 +16,875 +5,625 +3,264 +19,292 +— +45,056 +2006 +14,724 +4,908 +3,264 +16,970 +— +39,866 +Rodger W. Smith +2008 +16,920 +5,463 +2,465 +22,024 +— +46,872 +2007 +14,879 +4,960 +2,940 +18,716 +— +41,495 +2006 +12,554 +4,185 +2,860 +19,617 +— +39,216 +(1) +Company contributions to each person’s 401-K account consist of a basic contribution +equal to five percent (5%) of eligible annual salary (funded one-half in cash and +one-half in equivalent-valued common stock) plus a matching amount (limited to five +percent (5%) of eligible annual salary if such employee individually contributed at least +eight percent (8%) of their eligible annual salary). The number of shares contributed is +determined on a monthly basis by dividing one-half of the total basic cash contribution +by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life plus insurance, fuel, +maintenance and repairs. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which +Mr. Callon is the sole beneficiary. +(4) +Represents company paid expenses associated with Mr. Weatherly relocation from +Houston, TX to Natchez, MS. +(5) +Represents $35,000 in retainer fees as a non-management member of the Board of +Directors and $7,500 as chairman of the Compensation Committee which was earned prior to +Mr. Weatherly’s employment with the Company in November 2006. +Grant of Plan-based Awards During 2008 +The following table presents grants of equity awards during the fiscal year ending December +31, 2008: +Estimated Future +Payouts Under +Equity +Incentive +Grant +Plan Awards (1) +Date +Thresh- +Maxi- +All Other Stock Awards: +Fair +Grant +old +Target +mum +Number of Shares of +Value +Name +Date +(#) +(#) +(#) +Stock or Units (2) +($)(3) +Fred L. Callon +04/18/2008 +23,000 +23,000/28,750 +34,500 +23,000 +937,020 +B. F. Weatherly +04/18/2008 +15,000 +15,000/18,750 +22,500 +15,000 +611,100 +Stephen F. Woodcock +04/18/2008 +8,000 +8,000/10,000 +12,000 +8,000 +325,920 +Thomas E. Schwager +04/18/2008 +7,000 +7,000/8,750 +10,500 +7,000 +285,180 +Rodger W. Smith +04/18/2008 +6,000 +6,000/7,500 +9,000 +6,000 +244,440 +21 +Table of Contents +(1) +Amounts in these columns represent performance share grants made under our 2006 Stock +Incentive Plan. Performance shares vest on April 18, 2011, depending on the performance +criteria as described in the CD&A. +(2) +Amounts in this column represent time-vested restricted stock grants made under our +2006 Stock Incentive Plan. +(3) +This column shows the grant date fair value of the time-based restricted stock and +Performance shares granted to the named executive officers on April 18, 2008 computed in +accordance with SFAS 123R. The grant date fair value is computed using the closing market +price on the date of grant and will be expensed in our financial statements over the +vesting schedule. The grant date value per share on April 18, 2008 was $20.37. The +assumptions utilized in the calculation of these amounts are set forth in footnote 3 to the +Company’s consolidated financial statements included in the Annual Report on Form 10-K for +the year ended December 31, 2008 filed with the SEC on March 19, 2009. +Performance Share Formula +As described above in the CD&A, equity incentive awards were granted to the named executive +officers in 2008 in the form of performance-based restricted stock and time-based restricted stock. +The payout or forfeiture of performance-based restricted stock is dependent upon the total +shareholder return of our common stock over a three-year period relative to that of a peer group. +Share price is equitably adjusted for stock splits and other similar corporate actions affecting +stock. The threshold, target and maximum number of shares that may be paid under these awards +granted in 2008 is shown in the “Estimated Future Payouts Under Equity Incentive Awards” column +above. For grants made in 2008, if our common stock’s total return ranks fifth, sixth or seventh +compared to the peer group companies, or third or fourth compared to the peer group companies, the +payout will be at 100% or 125%, respectively, of the target amount. If the total return ranks +first or second compared to the peer companies, the payout will be the maximum amount at 150% of +the target amount. A minimum threshold payout of 50% of the target amount will be made if we rank +eighth or ninth of the peer companies. If the total return ranks tenth or eleventh compared to the +peer group companies, there will be no payout. +The time-vested restricted stock will vest in a single installment three years from the date +of grant. +Stock-Based Incentive Compensation Plans +The Company currently maintains four common stock-based incentive plans for its directors and +employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan. +1994 Plan . The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole +shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved +for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan +terminated effective July 14, 2004, therefore, no awards were made after this date. +1996 Plan . On August 23, 1996, the Board of Directors of the Company approved and adopted the +1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. +Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the +exercise of options or for grants of performance shares. On August 20, 1998, the Board of +Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase +the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, +the shareholders of the Company approved an increase in the available number of shares of common +stock reserved for issuance under the 1996 Plan to 2,200,000 shares. Activity for the period +January 1, 2008 through March 9, 2009 included the expiration of 9,917 unexercised stock options, +forfeiture of 11,800 performance shares, and the return to the plan of 58,409 shares as a result of +stock options exercised during the period. As of March 9, 2009, there were 195,931 shares of +common stock available for future grant under the 1996 Plan. +2002 Plan . On February 14, 2002, the Board of Directors of the Company approved and adopted +the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance +upon the exercise of options or for grants of stock options, stock appreciation rights or units, +restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan +under the provisions of the New York Stock Exchange rules and regulations at the time it was +adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly +based plan, the aggregate number of shares underlying awards granted to officers and directors +cannot exceed 50% of the total number of shares underlying the awards granted to all employees +during any three-year period. Activity for the period January 1, 2008 through March 9, 2009 +included the expiration of 3,000 unexercised stock options and the return to the plan of 10,515 +shares as a result of stock options exercised during the period. As of March 9, 2009, there were +42,466 shares of common stock available for future grant under the 2002 Plan. +2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the +2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders in +22 +Table of Contents +conjunction with the 2006 Annual Meeting of Shareholders held on May 4, 2006. Pursuant to the 2006 +Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for +grants of stock options, stock appreciation rights or units, restricted stock, or performance +shares or units. To date in 2009, there have been no awards granted. Activity for the period +January 1, 2008 through March 9, +2009 included the award of 217,600 performance shares to officers and employees, 25,000 shares +awarded as compensation to our independent members of the Board of Directors, the forfeiture of +2,000 performance shares and the return of 1,648 shares as a result of stock options exercised +during the period. An additional 35,500 shares have been reserved by the 2006 Plan in the event a +certain performance target is reached on April 18, 2011. As of March 9, 2009, there were 191,048 +shares of common stock available for future grant under the 2006 Plan. +1997 Employee Stock Purchase Plan . In 1997, the Board of Directors authorized the +implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 +Purchase Plan”), which was approved by the Company’s shareholders on June 19, 1997. The Plan +provided eligible employees of the Company with the opportunity to acquire a proprietary interest +in the Company through participation in a payroll deduction-based employee stock purchase plan. An +aggregate of 250,000 shares of common stock was reserved for issuance over the ten-year term of the +1997 Purchase Plan. The purchase price per share at which common stock could be purchased by the +participant on each purchase date within an offering period was equal to eighty-five percent of the +fair market value per share of common stock. As of March 9, 2009, all reserved shares have been +issued. +Long-Term Incentive Plan Awards +The Company does not have a long-term incentive plan for its employees other than the +stock-based incentive compensation plans mentioned above and in the CD&A. +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards +at December 31, 2008 for the named executive officers: +Option Awards +Stock Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market or +Awards: +Payout +Number of +Value of +Number +Unearned +Unearned +of +Number of +Market +Shares, +Shares, +Securities +Shares or +Value of Shares +Units or +Units or +Underlying +Units of +or Units of +Other +Other +Unexercised +Option +Stock that +Stock +Rights that +Rights that +Options +Exercise +Option +Have Not +that Have +Have Not +Have Not +(#) +Price +Expiration +Vested +Not vested +Vested +Vested +Name +Exercisable +($) +Date +(#) +($)(11) +(#) +($)(11) +Fred L. Callon +110,000 +(1) +10.50 +03/23/2010 +— +— +— +— +18,750 +(2) +4.50 +07/12/2012 +— +— +— +— +12,625 +(3) +3.70 +08/12/2012 +— +— +— +— +— +— +— +8,600 +(7) +22,360 +— +— +— +— +— +20,000 +(8) +52,000 +— +— +— +— +— +23,000 +(10) +59,800 +23,000 +(10) +59,800 +B. F. Weatherly +15,000 +(4) +10.50 +07/25/2010 +— +— +— +— +5,000 +(5) +6.05 +05/08/2012 +— +— +— +— +5,000 +(6) +5.12 +05/02/2013 +— +— +— +— +— +— +— +5,000 +(7) +13,000 +— +— +— +— +— +22,500 +(9) +58,500 +— +— +— +— +— +15,000 +(10) +39,000 +15,000 +(10) +39,000 +23 +Table of Contents +Option Awards +Stock Awards +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market or +Awards: +Payout +Number of +Value of +Number +Unearned +Unearned +of +Number of +Market +Shares, +Shares, +Securities +Shares or +Value of Shares +Units or +Units or +Underlying +Units of +or Units of +Other +Other +Unexercised +Option +Stock that +Stock +Rights that +Rights that +Options +Exercise +Option +Have Not +that Have +Have Not +Have Not +(#) +Price +Expiration +Vested +Not vested +Vested +Vested +Name +Exercisable +($) +Date +(#) +($)(11) +(#) +($)(11) +Stephen F. Woodcock +44,000 +(1) +10.50 +03/23/2010 +— +— +— +— +13,250 +(2) +4.50 +07/12/2012 +— +— +— +— +8,500 +(3) +3.70 +08/23/2012 +— +— +— +— +— +— +— +3,700 +(7) +9,620 +— +— +— +— +— +16,000 +(8) +41,600 +— +— +— +— +— +8,000 +(10) +20,800 +8,000 +(10) +20,800 +Thomas E. Schwager +— +— +— +3,500 +(7) +9,100 +— +— +— +— +— +12,800 +(8) +33,280 +— +— +— +— +— +7,000 +(10) +18,200 +7,000 +(10) +18,200 +Rodger W. Smith +20,000 +(1) +10.50 +03/23/2010 +— +— +— +— +— +— +— +2,500 +(7) +6,500 +— +— +— +— +— +8,800 +(8) +22,880 +— +— +— +— +— +6,000 +(10) +15,600 +6,000 +(10) +15,600 +(1) +Represents stock options awarded on March 23, 2000 which are 100% vested. +(2) +Represents stock options awarded on July 12, 2002 which are 100% vested. +(3) +Represents stock options awarded on August 23, 2002 which are 100% vested. +(4) +Represents stock options awarded on July 25, 2000 which are 100% vested. +(5) +Represents stock options awarded on May 8, 2002 which are 100% vested. +(6) +Represents stock options awarded on May 2, 2003 which are 100% vested. +(7) +Represents 20% of the original award of the 2004 restricted shares awarded July 14, 2004. +Award vests 20% on July 14, 2005 and 20% on each anniversary thereafter. +(8) +Represents 40% of the original award of the 2006 restricted shares awarded August 21, 2006. +Award vests 20% on the grant date and 20% on each anniversary thereafter. +(9) +Represents 50% of the original award of 2006 restricted shares awarded upon employment on +November 16, 2006. Award vest 25% on November 16, 2007 and 25% on each anniversary +thereafter. +(10) +Represents shares awarded April 18, 2008. Time-vested restricted stock is reported under the +first and second columns under “Stock Awards” and Performance shares for which the performance +period has not run is reported under the third and fourth columns under “Stock Awards.” +Performance shares will vest on April 18, 2011, depending on the satisfaction of performance +criteria as described in the CD&A. +(11) +Amounts calculated based on the December 31, 2008 closing price on the New York Stock +Exchange of $2.60 per share. +24 +Table of Contents +Option Exercises and Stock Vested Table +The following table indicates option exercises and stock vesting during 2008 for the named +executive officers: +Option Awards +Stock Awards +Number of +Shares +Number of +Value +Acquired +Value +Name of +Shares Acquired +Realized On +on +Realized on +Executive +on Exercise +Exercise +Vesting +Vesting +Officer +(#) +($) +(#) +($) +Fred L. Callon +60,000 +1,095,075 +8,600 +(1) +222,654 +(4) +— +— +10,000 +(2) +199,900 +(5) +B. F. Weatherly +5,000 +85,531 +5,000 +(1) +129,450 +(4) +5,000 +78,031 +11,250 +(3) +83,588 +(6) +5,000 +65,063 +— +— +5,000 +80,375 +— +— +5,000 +76,600 +— +— +5,000 +80,550 +— +— +5,000 +70,050 +— +— +Stephen F. Woodcock +25,000 +468,000 +3,700 +(1) +95,793 +(4) +— +— +8,000 +(2) +159,920 +(5) +Thomas E. Schwager +— +— +3,500 +(1) +90,615 +(4) +— +— +6,400 +(2) +127,936 +(5) +Rodger W. Smith +8,000 +149,760 +2,500 +(1) +64,725 +(4) +1,600 +37,152 +4,400 +(2) +87,956 +(5) +1,083 +26,014 +— +— +(1) +Represents a 20% vesting of restricted shares awarded July 14, 2004. +(2) +Represents a 20% vesting of restricted shares awarded August 21, 2006. +(3) +Represents a 25% vesting of restricted shares awarded November 16, 2006. +(4) +Computed based on the fair market value of the common stock on the date of vesting equal +to $25.89 per share. +(5) +Computed based on the fair market value of the common stock on the date of vesting equal +to $19.99 per share. +(6) +Computed based on the fair market value of the common stock on the date of vesting equal +to $7.43 per share. +25 +Table of Contents +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable under several +scenarios. The information assumes, in each case, that the officer’s termination was effective as +of December 31, 2008. In presenting this disclosure, we describe amounts earned through December +31, 2008 and, in those cases where the actual amounts to be paid out can only be determined at the +time of such executive’s separation from the Company, our estimates are of the amounts which would +be paid out to the executives upon their termination. +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Excise Tax +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(7)(8) +($)(9) +($) +Fred L. Callon +Change in Control (1) +1,393,560 +1,393,560 +193,960 +116,005 +619,129 +3,716,214 +Termination for Good +Reason (2) +— +— +22,360 +— +— +22,360 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +193,960 +— +— +193,960 +Voluntary termination +— +— +— +— +— +— +B. F. Weatherly +Change in Control (1) +728,000 +546,000 +149,500 +54,336 +329,325 +1,807,161 +Termination for Good +Reason (2) +— +— +13,000 +— +— +13,000 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +149,500 +— +— +149,500 +Voluntary termination +— +— +— +— +— +— +Stephen F. Woodcock +Change in Control (1) +572,000 +286,000 +92,820 +54,336 +— +1,005,156 +Termination for Good +Reason (2) +— +— +9,620 +— +— +9,620 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +92,820 +— +— +92,820 +Voluntary termination +— +— +— +— +— +— +Thomas E. Schwager +Change in Control (1) +520,000 +260,000 +78,780 +54,336 +— +913,116 +Termination for Good +Reason (2) +— +— +9,100 +— +— +9,100 +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +78,780 +— +— +78,780 +Voluntary termination +— +— +— +— +— +— +Rodger W. Smith +Change in Control (1) +436,800 +218,400 +60,580 +53,822 +— +769,602 +Termination for Good +Reason (2) +— +— +2,500 +— +— +2,500 +26 +Table of Contents +Accelerated +Continued +Base +Cash +Stock Award +Employee +Name and +Salary +Bonus +Vesting +Benefits +Excise Tax +Total +Reason for Termination +($)(5) +($)(5) +($)(6) +($)(7)(8) +($)(9) +($) +Termination for Cause (3) +— +— +— +— +— +— +Death, Disability, or +Retirement (4) +— +— +60,580 +— +— +60,580 +Voluntary termination +— +— +— +— +— +— +(1) +The Company entered into a Severance Compensation Agreement dated April 18, 2008 with +each of the five named executive officers listed in the table above. The agreements were +subsequently amended effective on December 31, 2008 to comply with the final Treasury +Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended. +See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(2) +“Termination for Good Reason” is generally defined as voluntary termination following +the Company’s failure to maintain and continue the executive’s title or position, +compensation, employee benefits, duties, responsibilities and status with the Company as in +effect at the date the award. The definition also includes the mandatory relocation to any +place other than a location within the area of Natchez, MS, subject to limited exceptions. +(3) +“Termination for Cause” is generally defined as willful misconduct or intentional and +continual neglect of duties which may continue after the employee has had a reasonable +opportunity to correct the same, commission of fraud or embezzlement, any action intended +to harm the Company, theft or conviction of a felony. +(4) +“Disability” is generally defined as the employee’s inability to carry out the normal +and usual duties of his employment on a full-time basis for an entire period of six (6) +continuous months together with the reasonable likelihood, as determined by the Board of +Directors after consultation of a qualified physician, he will be unable to carry out his +normal and usual duties of employment. “Retirement” is generally defined as the employee’s +attainment of an age which the Board of Directors determines to be consistent with normal +retirement age. +(5) +In accordance with Mr. Callon’s Severance Compensation Agreement, the computation uses +a three-year multiple with respect to the severance amount relating to salary and bonus +while a two-year multiple is used for the other named executive officers. See “Employment +Agreements, Termination of Employment and Change-in-Control Arrangements.” +(6) +The amounts are computed based on unvested stock awards at December 31, 2008 using the +closing price of the Company’s common stock on the New York Stock Exchange on such date, +the last trading day for 2008, at $2.60 per share. See below for a description of the +payment of performance shares granted in April 2008. +(7) +Benefits consist of thirty-six months of employer provided family medical and dental +insurance, life insurance, dependent life insurance, accidental death coverage and +disability coverage for Mr. Callon and twenty-four months for the other named executive +officers. +(8) +Mr. Callon’s amount includes an additional $34,500 representing premiums on a life +insurance policy for which the Company does not have any beneficial interest. +(9) +This calculation is an estimate for the Proxy Statement disclosure only. Payments on an +actual change in control may differ based on factors such as transaction price, timing of +employment termination and payments, and changes in compensation. In computing the excise +tax gross-up, we valued all payments and benefits in accordance with Code Section 280G. Key +assumptions in the gross-up calculation included that the highest marginal federal, +Mississippi state and Medicare tax rates applied. +Vesting provisions Applicable to Performance Shares Awarded in April 2008 +Upon a change in control or upon the death or termination of employment due to disability of +the employee, the performance period set for the performance shares granted in April 2008 and +described in the CD&A will end on the effective date of the event and all unvested portions of the +performance shares shall vest on such date. Upon retirement on any date after the employee attains +the normal retirement age of 70 years, the performance period will end and all unvested portions of +the performance shares shall vest on such retirement date. If the employee’s employment with the +Company is terminated other than as set forth above, all unvested portions of the performance +shares will be forfeited. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Severance Compensation Agreements. On April 18, 2008, the Company entered into a Severance +Compensation Agreement with each of the named executive officers, which were subsequently amended +effective on December 31, 2008 to comply with the final Treasury Regulations issued under Section +409A of the Internal Revenue Code of 1986, as amended (“Agreements”). The Agreements will +terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of +such time, upon the earliest of (1) December 31, 2008; provided, however, that, commencing on +December 31, 2008 and on each anniversary date thereafter (each such date, an “ Anniversary Date ”), +the expiration date shall automatically be extended for one additional year unless, immediately +prior to such Anniversary Date, either party shall have given written notice that it does not wish +to extend this Agreement, but in no event shall the expiration date be earlier than the second +anniversary of the effective date of a Change of Control; (2) the termination of the Executive’s +employment with Callon based on death, Disability (as defined in Section 3.1 of the Agreement), or +Cause (as defined in Section 3.2 of the Agreement; and (3) the voluntary resignation of the +Executive for any reason other than Good Reason (as defined in Section 3.3 of the Agreement). As +of December 31, 2008, all five Agreements were extended for one additional year. +Pursuant to the Agreement, if the executive incurs a “separation from service” from the +Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and +any other guidance issued thereunder) without cause by the Company or for good reason by him within +two years +27 +Table of Contents +following a Change of Control of the Company (or in certain cases, prior to a change of +control), then the executive is +entitled to a single lump-sum cash payment (payable six months following the triggering event) +in an amount equal to three times the sum of Mr. Callon’s (a) the annual base salary in effect +immediately prior to the Change of Control or, if higher, in effect immediately prior to the +separation from service, and (b) the greater of the average bonus earned with respect to the three +most recently completed full fiscal years or the target bonus for the fiscal year in which the +Change of Control occurs, based on a forecast that has been approved by the Board of the results +for the fiscal year in which the Change of Control occurs. For the remaining named executive +officers, the salary and bonus multiple is two times. In addition, the Company must maintain at +its expense until thirty-six (36) months after a separation from service all life, disability, +medical, dental, accident and health insurance coverage for Mr. Callon. For the remaining named +executive officers, the continued benefit period is twenty-four (24) months. If the executive’s +employment is terminated as a result of his death or disability, the Company is only required to +make such payments if the termination occurred within six months of a Change of Control. “Good +reason” is generally defined in the Agreement as a change in compensation, benefits, position, +responsibilities, or location. A Change of Control is generally defined in the Agreement as (i) +any person or group of persons acting in concert shall have become the beneficial owner of more +than 50% of the outstanding common stock of the Company; (ii) the stockholders of the Company shall +cause a change in the majority of the members of the Board of Directors within a twelve-month +period; or (iii) the Company or its stockholders shall enter into an agreement to dispose of all or +substantially all of the assets or outstanding capital stock of the Company. +The Agreements also provide that, upon a Change of Control, all stock options shall +automatically become fully exercisable and all performance shares, restricted stock, stock +appreciation rights and other similar rights held by the executive shall become fully vested, +provided however, that such acceleration of vesting shall not occur if it would be an impermissible +acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of +vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, +or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the +total value of the outstanding and unvested stock rights as of the date of separation from service. +The Agreements incorporate a provision to provide for the possible impact of the federal +excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess +parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient +and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly +evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, +against individuals who do not exercise stock options in favor of those who do and against those +who elect to defer compensation in favor of those who do not. For these reasons, we believe that +the provision of the excise tax gross-up in the Agreement is appropriate. If any payment is subject +to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, a “gross-up” +payment will be made to place such executive in the same net after-tax position as would have been +the case if no excise tax had been payable. +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an +additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per +year to the chairman of the Compensation Committee and the chairman of the Nominating and Corporate +Governance Committee. Each non-management director is reimbursed for reasonable out-of-pocket +costs incurred to attend Board meetings. In addition to cash compensation the Compensation +Committee may, from time to time, grant performance shares. During 2008, the Compensation +Committee awarded 6,250 shares of stock each to Messrs. Flury, McVay, Wallace, and Wilson. These +shares vested immediately upon issuance. The table below indicates the total compensation earned +and paid during 2008 for each non-management director: +28 +Table of Contents +Non-Management Director Compensation for 2008 +Fees +Earned +or Paid +Stock +Option +All Other +in Cash +Awards +Awards +Compensation +Total +Name +($)(1) +($)(6) +($) +($) +($) +L. Richard Flury +50,000 +(2) +57,950 +(7) +— +— +257,388 +149,438 +(10) +Larry D. McVay +50,000 +(3) +83,086 +(8) +— +— +282,524 +149,438 +(10) +John C. Wallace +60,000 +(4) +69,100 +(9) +— +— +278,538 +149,438 +(10) +Richard O. Wilson +50,000 +(5) +69,100 +(9) +— +— +268,538 +149,438 +(10) +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Compensation Committee. +(3) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the +Strategic Planning Committee. +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as +chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as the chairman of +the Nominating and Corporate Governance Committee. +(6) +Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards +No. 123R, “Share-based Payments.” See Note 3 of the consolidated financial statements in the +Company’s Annual Report for the year ended December 31, 2008 regarding assumptions underlying +valuation of equity awards. +(7) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on August 19, 2004. The shares awarded in 2004 had a fair market value of +$11.59 on the date of the award with vesting over a five-year period. Amortization represents +twelve of the fifty-nine month amortization period. The grant date fair value of the original +award was $289,750. +(8) +Represents current year amortization in accordance with FAS 123R of 10,000 shares of common +stock awarded on October 18, 2007 with a fair market value of $14.54 per share on the date of +the award. The shares vested 50% on July 14, 2008 and will vest 50% on July 14, 2009. +Amortization represents twelve of the twenty-one month amortization period. The grant date +fair value of the original award was $145,400. +(9) +Represents current year amortization in accordance with FAS 123R of 25,000 shares of common +stock awarded on July 14, 2004. The shares awarded in 2004 had a fair market value of $13.82 +on the date of the award with vesting over a five-year period. Amortization represents twelve +of the sixty-month amortization period. The grant date fair value of the original award was +$345,500. +(10) +Represents current year amortization in accordance with FAS 123R of 6,250 shares of common +stock awarded on May 12, 2008 with a fair market value of $23.91 per share on the date of the +award. The shares vested 100% on the date of the award. The grant date fair value of the +original award was $149,438. +Fred L. Callon serves as Chairman of the Board of Directors but does not receive any +additional compensation for his services in this capacity and therefore has been omitted from the +table above. Compensation paid to Mr. Weatherly as a director prior to his appointment in November +2006 as Executive Vice President and Chief Financial Officer is disclosed in the Summary +Compensation Table. +29 +Table of Contents +Securities Authorized for Issuance under Equity Compensation Plans +The following information represents information concerning our equity compensation plans as +of December 31, 2008: +Number of securities +to be issued upon +Weighted Average +Number of securities remaining +exercise of +exercise price of +available for future issuance under +outstanding options +outstanding options +equity compensation plans +(#) +($) +(excluding securities reflected in +Plan +(a) +(b) +columns (a) +1994 Plan (1) +20,000 +11.68 +— +1996 Plan (1) +390,792 +10.66 +195,931 +2002 Plan (2) +90,483 +7.73 +42,466 +2006 Plan (1) +12,000 +14.17 +191,048 +(1) +Plan approved by the Company’s shareholders. +(2) +Plan was adopted as a “broadly based” plan which did not require shareholder approval. +See “Stock-Based Incentive Compensation Plans — 2002 Plan” for a description of the +material terms of the Plan. +30 +Table of Contents +PROPOSAL II +RATIFICATION OF APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable New York Stock +Exchange rules to be directly responsible for the appointment, compensation and retention of the +Company’s independent registered public accountants. The Audit Committee has appointed Ernst & +Young LLP, independent registered public accounting firm, for the examination of the accounts and +audit of the financial statements of the Company for the year ending December 31, 2009. While +shareholder ratification is not required by the Company’s bylaws or otherwise, the Board of +Directors will present a proposal to the shareholders to approve and ratify as part of good +corporate governance principles, the engagement of Ernst & Young LLP. If the shareholders fail to +ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain +Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may +direct the appointment of a different independent registered public accounting firm at any time +during the year if it determines that such a change would be in the best interests of the Company +and its shareholders. A representative of Ernst & Young LLP will be present at the 2009 Annual +Meeting and will have the opportunity to make a statement, if he desires, and to respond to +appropriate questions. +Management recommends that the shareholders approve and ratify the appointment of Ernst & +Young LLP as independent registered public accounting firm of the Company for the fiscal year +ending December 31, 2009. Unless otherwise indicated, all properly executed proxies received by +the Company will be voted “FOR” such ratification at the 2009 Annual Meeting. +PROPOSAL III +APPROVAL OF THE CALLON PETROLEUM COMPANY +2009 STOCK INCENTIVE PLAN +General +At a meeting held on March 5, 2009, the Board of Directors of the Company approved the Callon +Petroleum Company 2009 Stock Incentive Plan (the “2009 Stock Incentive Plan”), subject to the +approval of the shareholders of the Company. At the Meeting, Shareholders will be asked to approve +and ratify the adoption of the 2009 Stock Incentive Plan. The Board of Directors believes that the +approval of the 2009 Stock Incentive Plan is in the best interests of the Company and its +Shareholders. The 2009 Stock Incentive Plan will authorize the Board of Directors to award grants +at any time following the effective date of the 2009 Stock Incentive Plan. Accordingly, Shareholder +approval of the 2009 Stock Incentive Plan will constitute approval of all awards made under the +2009 Stock Incentive Plan without further approval from the shareholders, except as may be required +by the 2009 Stock Incentive Plan. +The 2009 Stock Incentive Plan is in addition to the Company’s existing stock incentive plans. +See “Executive Compensation — Stock-Based Incentive Compensation Plans.” +The purpose of the 2009 Stock Incentive Plan is to foster and promote the long-term financial +success of the Company and to increase shareholder value by attracting, motivating and retaining +key employees and directors and providing such participants in the 2009 Stock Incentive Plan with a +program for obtaining an ownership interest in the Company that links and aligns their personal +interests with those of the Company’s shareholders, thus enabling such participants to share in the +long-term growth and success of the Company. To accomplish these goals, the 2009 Stock Incentive +Plan permits the granting of incentive stock options, non-statutory stock options, stock +appreciation rights, restricted stock, and other stock-based awards, some of which may require the +satisfaction of performance-based criteria in order to be payable to participants. If approved, the +2009 Stock Incentive Plan will be an important component of the total compensation package offered +to employees and directors, reflecting +31 +Table of Contents +the importance that the +Company places on motivating and rewarding superior results with long-term, performance-based +incentives. +Description of the 2009 Stock Incentive Plan +The following is a summary of the principal features of the 2009 Stock Incentive Plan and its +operation. For additional details regarding the 2009 Stock Incentive Plan you should refer to the +full text of the 2009 Stock Incentive Plan, a copy of which is attached to this proxy statement as +Exhibit A. +Administration. The 2009 Stock Incentive Plan is administered by the Compensation Committee +(“Committee”) appointed by the Board of Directors. The Committee is composed of all four directors +who qualify as “outside directors” under Section 162(m) of the Internal Revenue Code and/or as +“non-employee directors” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934. +Subject to the terms of the 2009 Stock Incentive Plan, the Committee has the power to select the +persons eligible to receive awards, the type and amount of incentive awards to be awarded, and the +terms and conditions of such awards. To the extent permitted by applicable law, the Committee may +delegate its authority under the 2009 Stock Incentive Plan described in the preceding sentence to +officers or other employees of the Company. The Committee also has the authority to interpret the +2009 Stock Incentive Plan and establish, amend or waive rules necessary or appropriate for the +administration of the 2009 Stock Incentive Plan. +Eligibility. Any employee or director of the Company who, in the opinion of the Committee, is +in a position to contribute to the growth, development or financial success of the Company is +eligible to participate in the 2009 Stock Incentive Plan. In any calendar year, no covered employee +described in Section 162(m) of the Internal Revenue Code or applicable Treasury Regulations may be +granted (in the case of stock options and stock appreciation rights), or have vested (in the case +of restricted stock or other stock-based awards), awards relating to more than 5% of the common +shares outstanding at the time such awards are granted. +Shares Subject to the 2009 Stock Incentive Plan. The maximum number of the Corporation’s +common shares, without par value, that may be delivered pursuant to awards granted under the 2009 +Stock Incentive Plan is 1,250,000 common shares. Any shares subject to an award under the 2009 +Stock Incentive Plan that are forfeited or terminated, expire unexercised, lapse, or are otherwise +cancelled in a manner such that the common shares covered by such award are not issued may again be +used for awards under the 2009 Stock Incentive Plan. Only the net shares issued upon vesting of +restricted stock and only shares issued as a result of a “cashless” exercise of a stock option or +an incentive stock option shall be considered issued under the 2009 Stock Incentive Plan. A +maximum of 1,250,000 common shares may be issued upon exercise of incentive stock options. The +maximum number of shares deliverable pursuant to awards granted under the 2009 Stock Incentive Plan +is subject to adjustment by the Committee in the event of certain dilutive changes in the number of +outstanding shares. Under the 2009 Stock Incentive Plan, the Company may issue authorized but +unissued shares, treasury shares, or shares purchased by the Company on the open market or +otherwise. The number of common shares available for future awards is reduced by the net number of +shares issued pursuant to an award. +Transferability. Rights under any award may not be transferred except by will or the laws of +descent and distribution or a qualified domestic relations order. However, the Committee may, in +its sole discretion, authorize in the applicable award agreement the transfer, without +consideration, of all or a portion of a non-statutory stock option by a participant in the plan to +family members, and entities owned by or for the benefit of family members. +Amendment of the 2009 Stock Incentive Plan. The Board of Directors has the power and authority +to terminate or amend the 2009 Stock Incentive Plan at any time; provided, however, the Board of +Directors may not, without the approval of shareholders: +• +other than as a result of a dilutive event, increase the maximum +number of shares which may be issued under the 2009 Stock Incentive +Plan; +• +amend the requirements as to the class of employees eligible to +purchase common shares under the 2009 Stock Incentive Plan; +• +extend the term of the Plan; +• +increase the maximum limits on awards to covered employees as set for +compliance with +32 +Table of Contents +Section 162(m) of the Internal Revenue Code or +applicable Treasury Regulations; or +• +decrease the authority granted to the Committee under the Plan in +contravention of Rule 16b-3 under the Exchange Act. +In addition, to the extent that the Committee determines that the listing requirements of any +national securities exchange or quotation system on which the Company’s common shares are then +listed or quoted, or the Internal Revenue Code or regulations promulgated thereunder, require +shareholder approval in order to maintain compliance with such listing requirements or to maintain +any favorable tax advantages or qualifications, then the 2009 Stock Incentive Plan shall not be +amended without approval of the Company’s shareholders. No amendment to the 2009 Stock Incentive +Plan may adversely affect any rights of a holder of an outstanding award under the 2009 Stock +Incentive Plan without such holder’s consent. +Change in Control. Unless provided otherwise in the applicable award agreement, in the +event of a change in control, all outstanding awards shall become 100% vested, free of all +restrictions, immediately and fully exercisable, and deemed earned in full and payable as of the +day immediately preceding the change in control. A “change in control” means the occurrence of any +one or more of the following events: +• +The acquisition by any individual, entity or group of beneficial ownership of 30% or more +of the Company’s common shares or combined voting power; +• +Individuals who constitute the Board of Directors of the Company as of the effective date +of the 2009 Stock Incentive Plan, or successors to such members approved by the Board of +Directors, cease for any reason to constitute at least a majority of the Board of +Directors; +• +the consolidation, merger or the sale or other disposition of all or substantially all of +the assets of the Company; +• +the adoption of any plan or proposal for the liquidation or dissolution of the Company; or +• +the bankruptcy of the Company. +The Board of Directors may determine that any of the events described above will not +constitute a change in control. +Award Agreements and Term. All awards under the 2009 Stock Incentive Plan will be authorized +by the Committee and evidenced by an award agreement setting forth the type of incentive being +granted, the vesting schedule, and other terms and conditions of exercisability. No incentive stock +options may be exercisable for more than ten (10) years from the date of grant, or, in the case of +an incentive stock option granted to an employee who owns or is deemed to own more than ten percent +(10%) of the Company’s common shares, five (5) years from the date of grant. In no event, however, +may incentive stock options be granted after the expiration of ten (10) years from the effective +date of the 2009 Stock Incentive Plan. +Stock Options. A grant of a stock option entitles a participant to purchase from the Company a +specified number of common shares at a specified price per share. In the discretion of the +Committee, stock options may be granted as non-statutory stock options or incentive stock options, +but incentive stock options may only be granted to employees of the Company. The aggregate fair +market value of the common shares with respect to which incentive stock options become first +exercisable by any participant during any calendar year cannot exceed $100,000. +The Committee may fix any price as the purchase price per common share which may be purchased +under a non-statutory stock option. The purchase price per common share which may be purchased +under an incentive stock option must be at least equal to the fair market value of the Company’s +common shares on the date of grant. The exercise price for common shares acquired on exercise of a +stock option must be paid in cash, or, if approved by the Committee, delivery of shares of the +Company’s common shares that have been held by the optionee for at least six months with a fair +market value equal to the exercise price of the stock option, the withholding of shares that would +otherwise be issuable upon exercise, participation in a “cashless exercise” arrangement, or payment +of any other form of consideration acceptable to the Committee. +33 +Table of Contents +Stock Appreciation Rights (SARs). The grant of a SAR provides the holder with the right to +receive a payment in common shares equal to the excess of the fair market value of a specified +number of common shares on the date the SAR is exercised over a SAR price specified in the +applicable award agreement. The SAR price specified in an award agreement must be equal to or +greater than the fair market value of the Company’s common shares on the date of the grant of the +SAR. +Restricted Stock. A grant of restricted stock is an award of common shares subject to +restrictions or limitations set forth in the 2009 Stock Incentive Plan and in the related award +agreement. The award agreement for restricted stock will specify the time or times within which +such award may be subject to forfeiture and any performance goals which must be met in order to +remove any restrictions on such award. Except for the right to vote the shares (unless otherwise +provided in the applicable award agreement) and limitations on transfer or limitation set forth in +the applicable award agreement, holders of restricted stock shall have all of the rights of a +shareholder of the Company, including, if provided in the applicable award agreement, the right to +receive any dividends thereon. +Termination of Employment, Death, Disability and Retirement. Unless otherwise provided in an +award agreement, upon the termination of a participant’s employment the non-vested portions of all +outstanding awards will terminate immediately. Subject to different provisions in an award +agreement, the period during which vested awards may be exercised following a termination of +employment are described below: +(a) +If a participant’s employment is terminated for any reason other than as a +result of death, disability, retirement or for cause, the vested portion of such award +is exercisable for the lesser of the expiration date set forth in the applicable award +agreement or ninety (90) days after the date of termination of employment. +(b) +In the event of the termination of participant’s employment for cause, all +vested awards immediately expire. +(c) +Upon a participant’s retirement, any vested award shall expire on the earlier +of the expiration date set forth in the award agreement for such award or one (1) year +after the date of retirement (three (3) months in the case of incentive stock options). +(d) +Upon the death or disability of a participant, any vested award shall expire on +the earlier of the expiration date set forth in the award agreement or the one (1) year +anniversary date of the participant’s death or disability. +Federal Income Tax Consequences +The following is a general summary as of the date of this proxy statement of the United States +federal income tax consequences associated with the grant of awards under the 2009 Stock Incentive +Plan. This summary does not purport to address all aspects of federal income taxation and does not +describe state, local, or foreign tax consequences. This summary is based upon provisions of the +Internal Revenue Code and the treasury regulations issued thereunder (the “Treasury Regulations”), +and judicial and administrative interpretations under the Internal Revenue Code and Treasury +Regulations, all as in effect as of the date hereof, and all of which are subject to change +(possibly on a retroactive basis). The federal, state and local tax consequences for any +participant will depend upon his or her individual circumstances. Also, this information may not be +applicable to employees of foreign subsidiaries or to participants who are not residents of the +United States. Participants have been and are encouraged to seek the advice of a qualified tax +advisor regarding the tax consequences of participation in the 2009 Stock Incentive Plan. +Non-statutory Stock Options. A participant receiving a non-statutory stock option that has +been issued with an exercise price not less than the fair market value of the Company’s common +shares on the grant date will not recognize income and the Company will not be allowed a deduction +at the time such an option is granted. When a participant exercises a non-statutory stock option, +the difference between the option price and any higher market value of the stock on the date of +exercise will be ordinary income to the participant and will be claimed as a deduction for federal +income tax purposes by the Company. When a participant disposes of shares acquired by the exercise +of the option, any amount received in excess of the fair market value of the shares on the date of +exercise will be treated as short-term or long-term capital gain, depending upon whether the +participant held the shares for more than one year following the exercise of the option. If the +amount received is less than the fair market value of the shares on the date of exercise, the loss +will be treated as short-term or long-term capital loss, depending upon whether the participant +held the shares for more than one year following the exercise of the option. +34 +Table of Contents +Incentive Stock Options. Incentive stock options granted under the 2009 Stock Incentive Plan +are intended to meet the definitional requirements of Section 422 of the Internal Revenue Code for +“incentive stock options.” A participant receiving a grant of incentive stock options will not +recognize income and the Company will not be allowed a deduction at the time such an option is +granted. When a participant exercises an incentive stock option while employed by the Company or +its subsidiary or within the three- +month (one year for disability) period after termination of employment, no ordinary income +will be recognized by the participant at that time (and no deduction will be allowed to the +Company) but the excess of the fair market value of the shares acquired by such exercise over the +option price will be taken into account in determining the participant’s alternative minimum +taxable income for purposes of the federal alternative minimum tax applicable to individuals. If +the shares acquired upon exercise are not disposed of until more than two years after the date of +grant and one year after the date of transfer of the shares to the participant (statutory holding +periods), the excess of the sale proceeds over the aggregate option price of such shares will be +long-term capital gain, and the Company will not be entitled to any federal income tax deduction. +Except in the event of death, if the shares are disposed of prior to the expiration of the +statutory holding periods (a “Disqualifying Disposition”), the excess of the fair market value of +such shares at the time of exercise over the aggregate option price (but not more than the gain on +the disposition if the disposition is a transaction on which a loss, if sustained, would be +recognized) will be ordinary income at the time of such Disqualifying Disposition (and the Company +or its subsidiary will be entitled to a federal tax deduction in a like amount), and the balance of +the gain, if any, will be capital gain (short-term or long-term depending upon whether the +participant held the shares for more than one (1) year following the exercise of the option). To +the extent that the aggregate fair market value of stock (determined on the date of grant) with +respect to which incentive options become exercisable for the first time during any calendar year +exceeds $100,000, such excess options will be treated as non-statutory options. +Payment Using Shares. If a participant pays the exercise price of a non-statutory or +incentive stock option with previously-owned common shares of the Company and the transaction is +not a Disqualifying Disposition, the shares received equal to the number of shares surrendered are +treated as having been received in a tax-free exchange. The shares received in excess of the number +surrendered will not be taxable if an incentive stock option is being exercised, but will be +taxable as ordinary income to the extent of their fair market value if a non-statutory stock option +is being exercised. The participant does not recognize income and the Company receives no deduction +as a result of the tax-free portion of the exchange transaction. If the use of previously acquired +incentive stock option shares to pay the exercise price of another incentive stock option +constitutes a Disqualifying Disposition, the tax results are as described in the preceding +paragraph. The income treatment will apply to the shares disposed of, but will not affect the +favorable tax treatment of the shares received. +Stock Appreciation Rights and Restricted Stock. A participant receiving a grant of SARs or +restricted stock under the 2009 Stock Incentive Plan will not recognize income, and the Company +will not be allowed a deduction at the time such award is granted, unless the participant makes the +election described below with respect to restricted stock. While an award remains unvested or +otherwise subject to a substantial risk of forfeiture, a participant will recognize compensation +income equal to the amount of any dividends received and the Company will be allowed a deduction in +a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of +forfeiture, the excess of the fair market value of the award on the date of vesting or the +cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant +for the award will be ordinary income to the participant and will be claimed as a deduction for +federal income tax purposes by the Company. Upon disposition of the shares received, the gain or +loss recognized by the participant will be treated as capital gain or loss, and the capital gain or +loss will be short-term or long-term depending upon whether the participant held the shares for +more than one year following the vesting or cessation of the substantial risk of forfeiture. +However, by filing a Section 83(b) election with the Internal Revenue Service within thirty +(30) days after the date of grant of restricted stock, a participant’s ordinary income and +commencement of holding period and the deduction will be determined as of the date of grant. In +such a case, the amount of ordinary income recognized by such a participant and deductible by the +Company will be equal to the excess of the fair market value of the award as of the date of grant +over the amount paid, if any, by the participant for the award. If such election is made and a +participant thereafter forfeits his or her award, no refund or deduction will be allowed for the +amount previously included in such participant’s income. +Requirements Regarding “Deferred Compensation.” Certain of the benefits under the 2009 Stock +Incentive Plan may constitute “deferred compensation” within the meaning of Section 409A of the +Internal Revenue Code, a recently enacted provision governing “nonqualified deferred compensation +plans.” Failure to comply with the requirements of the provisions of Section 409A regarding +participant elections and the timing of payment distributions could result in the affected +participants being required +35 +Table of Contents +to recognize ordinary income for federal tax purposes earlier than +expected, and to be subject to substantial penalties. +ERISA. The Company believes that the 2009 Stock Incentive Plan is not subject to any of the +provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The 2009 Stock Incentive +Plan is not qualified under Section 401(a) of the Internal Revenue Code. +Federal Tax Withholding +Any ordinary income realized by a participant upon the exercise of an award under the 2009 +Stock Incentive Plan is subject to withholding of federal, state and local income tax and to +withholding of the participant’s share of tax under the Federal Insurance Contribution Act (“FICA”) +and the Federal Unemployment Tax Act (“FUTA”). +To satisfy federal income tax withholding requirements, the Company will have the right to +require that, as a condition to delivery of any certificate for common shares, the participant +remit to the Company an amount sufficient to satisfy the withholding requirements. Alternatively, +we may withhold a portion of the common shares (valued at fair market value) that otherwise would +be issued to the participant to satisfy all or part of the withholding tax obligations. +Withholding does not represent an increase in the participant’s total income tax obligation, +since it is fully credited toward his or her tax liability for the year. Additionally, withholding +does not affect the participant’s tax basis in the common shares. Compensation income realized and +tax withheld will be reflected on Forms W-2 supplied by the Company to employees by January 31 of +the succeeding year. +Deferred compensation that is subject to Section 409A of the Internal Revenue Code will be +subject to certain federal income tax withholding and reporting requirements. However, pursuant to +IRS Notice 2005-94, the IRS has suspended these withholding and reporting requirements until +further IRS guidance is issued. +Million Dollar Deduction Limit and Other Tax Matters +The Company may not deduct compensation of more than $1,000,000 that is paid to an individual +who, on the last day of the taxable year, is either the Company’s chief executive officer or is +among one of the four other most highly-compensated officers for that taxable year as reported in +the Company’s proxy statement. The limitation on deductions does not apply to certain types of +compensation, including qualified performance-based compensation. The Company intends that +benefits in the form of stock options and restricted stock will be exempt from the $1,000,000 +limitation on deductible compensation either as performance-based compensation or otherwise. +If a individual’s rights under the plan are accelerated as a result of a change in control and +the individual is a “disqualified individual” under Section 280G of the Internal Revenue Code, the +value of any such accelerated rights received by such individual may be included in determining +whether or not such individual has received an “excess parachute payment” under Section 280G of the +Internal Revenue Code, which could result in (i) the imposition of a 20% Federal excise tax (in +addition to Federal income tax) payable by the individual on the value of such accelerated rights, +(ii) the loss by the Company of a compensation deduction on the value of such accelerated rights, +and (iii) the loss by the Company of a compensation deduction. +Awards Granted under the 2009 Stock Incentive Plan +At March 9, 2009, the Company estimates that approximately all officers, employees and +directors were eligible to participate in the 2009 Stock Incentive Plan. Because the Committee has +the discretion to grant awards under the 2009 Stock Incentive Plan, it is not possible as of the +date of this proxy statement to determine future awards that will be received by executive +officers, employees and directors under the 2009 Stock Incentive Plan. On March 9, 2009, the +closing price of the Company’s common shares on the New York Stock Exchange was $0.97 per share. +36 +Table of Contents +Securities Authorized for Issuance under Current Equity Compensation Plans +As of December 31, 2008, the Company had the following outstanding stock option award agreements, +weighted-average option exercise price, unvested performance share awards, and remaining shares +reserved for future issuance under the Company’s existing Stock Incentive Plans: +Weighted +Unvested +Stock Option +Average +Performance +Remaining Shares +Awards +Exercise +Share Awards +Reserved for Future +Plan (a) +Outstanding (b) +Price (c) +Outstanding (d) +Issuance (e) +1994 Plan +20,000 +$ +11.68 +47,374 +— +1996 Plan +390,792 +10.66 +211,826 +195,931 +2002 Plan +90,483 +7.73 +7,000 +42,466 +2006 Plan +12,000 +14.17 +243,100 +191,048 +All Plans +513,275 +10.27 +509,300 +429,445 +(a) +All Plans were approved by the Board of Directors and received shareholder approval +except the 2002 Plan. The 2002 Plan qualified as a “broadly based” plan under the +provisions of the New York Stock Exchange rules and regulations at the time it was adopted +and therefore did not require shareholder approval. +(b) +Represents the gross number of common shares to be issued upon exercise of +outstanding option award agreements. +(c) +Represents the weighted-average exercise price of outstanding vested stock options. +(d) Represents unvested performance shares awarded in prior years. +(e) +Represents the number of remaining shares available for future issuance +(excluding shares reflected in the first and third columns.) +Shareholder Approval +At the Meeting, shareholders will be asked to approve and ratify the adoption of the 2009 +Stock Incentive Plan. Such action requires the affirmative vote of a majority of the votes cast on +the matter, excluding broker non-votes. +The Board of Directors recommends that you vote “FOR” this Proposal. +SHAREHOLDERS’ PROPOSALS +FOR 2010 ANNUAL MEETING +Shareholders who desire to present proposals at the 2010 Annual Meeting of Shareholders and to +have proposals included in the Company’s proxy materials must submit their proposals to the Company +at its principal executive offices not later than November 30, 2009. If the date of the 2010 +Annual Meeting +37 +Table of Contents +of Shareholders is changed by more than 30 days from the date of the 2009 Annual +Meeting of Shareholders, the deadline for submitting proposals is a reasonable time before the +Company begins to print and mail its proxy materials for its 2010 Annual Meeting of Shareholders. +The person named in the Company’s form of proxy for the 2010 Annual Meeting will have +discretionary authority to vote any proxies they hold at such meeting on any matter for which the +Company does not receive notice by February 15, 2010, unless the Company changes the date of its +2010 Annual Meeting of Shareholders by more than 30 days from the date of the 2009 Annual Meeting +of Shareholders, in which case such persons will be able to exercise discretionary authority if +notice of the matter has not been received in a reasonable time before the Company mails its proxy +materials for the 2010 Annual Meeting of Shareholders. +If the date of the 2010 Annual Meeting of Shareholders is advanced or delayed by more than 30 +calendar days from the date of the 2009 Annual Meeting of Shareholders, the Company shall, in a +timely manner, inform shareholders of such change, by including a notice, under Item 5, in its +earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company’s proxy statement and the new date for +determining whether the Company may exercise discretionary voting authority because it has not +received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, +it is suggested that shareholders submit their proposals by certified mail, return receipt +requested, or other means that permit them to prove the date of delivery. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2008 +Annual Report and the Company’s Report on Form 10-K for the fiscal year ended December 31, 2008. +Printed copies of the Company’s Annual Report, the Company’s Annual Report on Form 10-K , Corporate +Governance Principles, Code of Business Conduct and Ethics and Charters of Board Committees are +available to shareholders upon written request to the Robert A. Mayfield, Corporate Secretary, +Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. You may also view +the documents on the Company’s website at www.callon.com. +OTHER BUSINESS +The Board of Directors does not know of any matter to be acted upon at the 2009 Annual Meeting +other than those described above. If other business comes before the 2009 Annual Meeting, the +persons named on the proxy will vote the proxy in accordance with what they consider to be in the +best interests of the Company and its shareholders. +Please sign, date, and return your proxy promptly to avoid unnecessary expense. All +shareholders are urged, regardless of the number of shares owned, to participate in the 2009 Annual +Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +Chairman, President and +Chief Executive Officer +Natchez, Mississippi +March 30, 2009 +38 +Table of Contents +Exhibit A +CALLON PETROLEUM COMPANY +2009 Stock Incentive Plan +(Effective April 30, 2009) +SECTION 1 +General Provisions Relating to +Plan Governance, Coverage and Benefits +1.1 +Background and Purpose +Callon Petroleum Company, a Delaware corporation, (the “Company” ) hereby establishes the +Callon Petroleum Company 2009 Stock Incentive Plan (the “Plan” ) effective as of April 30, +2009 for the benefit of the Company and the participants in the Plan. +The purpose of the Plan is to foster and promote the long-term financial success of the +Company and to increase stockholder value by: (a) encouraging the commitment and retention +of selected key Employees and Outside Directors, (b) motivating superior performance of key +Employees and Outside Directors by means of long-term incentives, (c) encouraging and +providing key Employees and Outside Directors with a program for obtaining ownership +interests in the Company that link and align their personal interests to those of the +Company’s stockholders, (d) maintaining competitive compensation levels, thereby attracting +and retaining key Employees and Outside Directors by providing competitive compensation +opportunities, and (e) enabling key Employees and Outside Directors to share in the +long-term growth and success of the Company. +The Plan will remain in effect, subject to the right of the Board to amend or terminate the +Plan at any time pursuant to Section 6.7 , until the earlier of the date that (a) all +Shares subject to the Plan have been purchased or acquired according to its provisions or +(b) the Plan terminates pursuant to Section 6.18 . However, in no event may an +Incentive Stock Option be granted under the Plan after the expiration of ten (10) years from +the Effective Date. +1.2 +Definitions +The following terms shall have the meanings set forth below: +(a) +Authorized Officer. The Chairman of the Board, the CEO or any other senior +officer of the Company to whom either of them delegate the authority to execute any +Incentive Agreement for and on behalf of the Company. No officer or director shall be +an Authorized Officer with respect to any Incentive Agreement for himself. +(b) +Board. The Board of Directors of the Company. +(c) +Cause. Unless otherwise provided in the applicable Incentive Agreement, when +used in connection with the termination of a Grantee’s Employment, “Cause” shall mean +the termination of the Grantee’s Employment by the Company or any Subsidiary by reason +of: +(i) +the conviction of the Grantee by a court of competent +jurisdiction as to which no further appeal can be taken of a crime involving +moral turpitude or a felony or entering the plea of nolo contendere to such +crime by Grantee; +(ii) +the commission by the Grantee of a material act of fraud upon +the Company or any Parent or Subsidiary; +(iii) +the material misappropriation by the Grantee of any funds or other property +of the Company or any Parent or Subsidiary; +(iv) +the knowing engagement by the Grantee without the written +approval of the Board, in any material activity which directly competes with +the business of the Company or any Parent or Subsidiary, or which would +directly result in a +39 +Table of Contents +material injury to the business or reputation of the Company or any Parent or Subsidiary; or +(v) +with respect to any Grantee who is an Employee (A) a material +breach by Employee during his employment period of any of the restrictive +covenants set out +in his employment agreement with the Company or any Parent or Subsidiary, if +applicable, or (B) the willful, material and repeated nonperformance of +Employee’s duties to the Company or any Parent or Subsidiary (other than by +reason of Employee’s illness or incapacity), but Cause shall not exist under +this clause; or (v)(A) or (v)(B) until after written notice from the Board +has been given to Employee of such material breach or nonperformance (which +notice specifically identifies the manner and sets forth specific facts, +circumstances and examples in which the Board believes that Employee has +breached the agreement or not substantially performed his duties) and +Employee has failed to cure such alleged breach or nonperformance within the +time period set by the Board, but in no event less than thirty (30) business +days after his receipt of such notice; and, for purposes of this clause (v), +no act or failure to act on Employee’s part shall be deemed “willful” unless +it is done or omitted by Employee not in good faith and without his +reasonable belief that such action or omission was in the best interest of +the Company (assuming disclosure of the pertinent facts, any action or +omission by Employee after consultation with, and in accordance with the +advice of, legal counsel reasonably acceptable to the Company shall be +deemed to have been taken in good faith and to not be willful for purposes +of this definition of “Cause”). +(d) +CEO. The Chief Executive Officer of the Company. +(e) +Change in Control. Any of the events described in and subject to +Section 5.8 . +(f) +Code. The Internal Revenue Code of 1986, as amended, and the regulations and +other authority promulgated thereunder. References herein to any provision of the Code +shall refer to any successor provision thereto. +(g) +Committee. A committee appointed by the Board to administer the Plan. The Plan +shall be administered by the Compensation Committee appointed by the Board consisting +of not less than three directors who fulfill the “non-employee director” requirements +of Rule 16b-3 under the Exchange Act and the “outside director” requirements of Code +Section 162(m). The Compensation Committee of the Board may appoint a subcommittee +provided that, in all events, the members of the Committee for purposes of the Plan +satisfy the requirements of the previous provisions of this paragraph. +The Board shall have the power to fill vacancies on the Committee arising by +resignation, death, removal or otherwise. The Board, in its sole discretion, may +divide the powers and duties of the Committee among one or more separate committees, +or retain all powers and duties of the Committee in a single Committee. The members +of the Committee shall serve at the discretion of the Board. +Notwithstanding the preceding paragraphs of this Section 1.2(g) , the term +“Committee” as used in the Plan with respect to any Incentive Award for an Outside +Director shall refer to the entire Board. In the case of an Incentive Award for an +Outside Director, the Board shall have all the powers and responsibilities of the +Committee hereunder as to such Incentive Award, and any actions as to such Incentive +Award may be acted upon only by the Board (unless it otherwise designates in its +discretion). When the Board exercises its authority to act in the capacity as the +Committee hereunder with respect to an Incentive Award for an Outside Director, it +shall so designate with respect to any action that it undertakes in its capacity as +the Committee. +(h) +Common Stock. The common stock of the Company, no par value per share and any +class of common stock into which such common shares may hereafter be converted, +reclassified or recapitalized. +(i) +Company. Callon Petroleum Company and any successor in interest thereto. +40 +Table of Contents +(j) +Covered Employee. A named executive officer who is one of the group of covered +employees, as defined in Code Section 162(m) and Treasury Regulation § 1.162-27(c) (or +its successor), during any period that the Company is a Publicly Held Corporation. +(k) +Disability. Disability means that the Grantee, because of ill health, physical +or mental disability or any other reason beyond his control, is unable to perform his +employment duties for a period of six (6) continuous months, as determined in good +faith by the Committee. With respect to any Incentive Stock Option, however, +“Disability” means +permanent and total disability as defined in Code Section 22(e)(3). A determination +of Disability may be made by a physician selected or approved by the Committee and, +in this respect, the Grantee shall submit to any reasonable examination(s) required +by such physician upon request. Notwithstanding the foregoing provisions of this +paragraph, in the event any Incentive Award is subject to Code Section 409A, then, +in lieu of the foregoing definition and to the extent necessary to comply with the +requirements of Code Section 409A, the definition of “Disability” for purposes of +such Incentive Award shall be the definition of “disability” provided for under Code +Section 409A and the regulations or other guidance issued thereunder. +(l) +Employee. Any employee of the Company within the meaning of Code +Section 3401(c) who, in the opinion of the Committee, is in a position to contribute to +the growth, development or financial success of the Company, including, without +limitation, officers who are members of the Board. +(m) +Employment. Employment means that the individual is employed as an Employee, or +engaged as an Outside Director, by the Company, or by any corporation issuing or +assuming an Incentive Award in any transaction described in Code Section 424(a). In +this regard, neither the transfer of a Grantee from Employment by the Company to +Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment +by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a +termination of Employment of the Grantee. Moreover, the Employment of a Grantee shall +not be deemed to have been terminated because of an approved leave of absence from +active Employment on account of temporary illness, authorized vacation or granted for +reasons of professional advancement, education, or health, or during any period +required to be treated as a leave of absence by virtue of any applicable statute, +Company personnel policy or written agreement. All determinations regarding Employment, +and the termination of Employment hereunder, shall be made by the Committee. +The term “Employment” for all purposes of the Plan shall include (i) active +performance of agreed services by an Employee and (ii) current membership on the +Board by an Outside Director. +Notwithstanding anything in the Plan to the contrary, in the event an Incentive +Award issued under the Plan is subject to Code Section 409A, then, to the extent +necessary to comply with Code Section 409A, no Employee or Outside Director shall be +deemed to have suffered a termination of Employment, unless such termination of +Employment constitutes a “separation from service” as defined under Code Section +409A and the regulations or other guidance issued thereunder. +(n) +Exchange Act. The Securities Exchange Act of 1934, as amended. +(o) +Fair Market Value. While the Company is a Publicly Held Corporation, the Fair +Market Value of one Share of Common Stock on the date in question is deemed to be the +average of the opening and closing prices of a Share on the date as of which Fair +Market Value is to be determined, or if no such sales were made on such date, the +closing sales price on the immediately preceding business day of a Share as reported on +the New York Stock Exchange or other principal securities exchange on which Shares are +then listed or admitted to trading. +If the Company is not a Publicly Held Corporation at the time a determination of the +Fair Market Value of the Common Stock is required to be made hereunder, the +determination of Fair Market Value for purposes of the Plan shall be made by the +Committee in its sole and absolute discretion and using a reasonable valuation +method in accordance with the requirements of Code Section 409A and the regulations +and other guidance issued thereunder. In this respect, the Committee may rely on +such financial data, appraisals, +41 +Table of Contents +valuations, experts, and other sources as, in its +sole and absolute discretion, it deems advisable under the circumstances. +(p) +Grantee. Any Employee or Outside Director who is granted an Incentive Award +under the Plan. +(q) +Immediate Family. With respect to a Grantee, the Grantee’s child, stepchild, +grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, +mother-in-law, father-in- +law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including +adoptive relationships. +(r) +Incentive Agreement. The written agreement entered into between the Company and +the Grantee setting forth the terms and conditions pursuant to which an Incentive Award +is granted under the Plan, as such agreement is further defined in Section 5.1 . +(s) +Incentive Award or Award. A grant of an award under the Plan to a Grantee, +including any Non-statutory Stock Option, Incentive Stock Option, Stock Appreciation +Right (SAR), Restricted Stock Award, or Other Stock-Based Award. +(t) +Incentive Stock Option or ISO. A Stock Option granted by the Committee to an +Employee under Section 2 which is designated by the Committee as an Incentive +Stock Option and is intended to qualify as an Incentive Stock Option under Code +Section 422. +(u) +Insider. If the Company is a Publicly Held Corporation, an individual who is, +on the relevant date, an officer, director or ten percent (10%) beneficial owner of any +class of the Company’s equity securities that is registered pursuant to Section 12 of +the Exchange Act, all as defined under Section 16 of the Exchange Act. +(v) +Non-statutory Stock Option. A Stock Option granted by the Committee to a +Grantee under Section 2 that is not designated by the Committee as an Incentive +Stock Option. +(w) +Option Price. The exercise price at which a Share may be purchased by the +Grantee of a Stock Option. +(x) +Other Stock-Based Award. An award granted by the Committee to a Grantee under +Section 4.1 that is valued in whole or in part by reference to, or is otherwise +based upon, Common Stock. +(y) +Outside Director. A member of the Board who is not at the time of grant of an +Incentive Award, an Employee. +(z) +Parent . Any corporation (whether now or hereafter existing) which constitutes a +“parent” of the Company, as defined in Code Section 424(e). +(aa) +Plan. The Callon Petroleum Company 2009 Stock Incentive Plan, as set forth +herein and as it may be amended from time to time. +(bb) +Publicly Held Corporation. A corporation issuing any class of common equity +securities required to be registered under Section 12 of the Exchange Act. +(cc) +Restricted Stock. Shares of Common Stock issued or transferred to a Grantee +pursuant to Section 3 . +(dd) +Restricted Stock Award. An authorization by the Committee to issue or transfer +Restricted Stock to a Grantee pursuant to Section 3 . +(ee) +Restriction Period. The period of time determined by the Committee and set +forth in the Incentive Agreement during which the transfer of Restricted Stock by the +Grantee is restricted. +(ff) +Retirement. The voluntary termination of Employment from the Company +constituting retirement for age on any date after the Employee attains the normal +retirement age of 70 years. +42 +Table of Contents +(gg) +Share. A share of the Common Stock of the Company. +(hh) +Share Pool. The number of shares authorized for issuance under +Section 1.4 , as adjusted for awards and payouts under Section 1.5 and +as adjusted for changes in corporate capitalization under Section 5.6 . +(ii) +Spread. The difference between the exercise price per Share specified in a SAR +grant and the Fair Market Value of a Share on the date of exercise of the SAR. +(jj) +Stock Appreciation Right or SAR. A Stock Appreciation Right as described in +Section 2.4 . +(kk) +Stock Option or Option. Pursuant to Section 2 , (i) an Incentive Stock +Option granted to an Employee or (ii) a Non-statutory Stock Option granted to an +Employee or Outside Director, which Option provides the Grantee with the right to +purchase Shares of Common Stock upon specified terms. In accordance with Code +Section 422, only an Employee may be granted an Incentive Stock Option. +(ll) +Subsidiary. Any (i) corporation in an unbroken chain of corporations beginning +with the Company, if each of the corporations other than the last corporation in the +unbroken chain owns stock possessing a majority of the total combined voting power of +all classes of stock in one of the other corporations in the chain, (ii) limited +partnership, if the Company or any corporation described in item (i) above owns a +majority of the general partnership interest and a majority of the limited partnership +interests entitled to vote on the removal and replacement of the general partner, and +(iii) partnership or limited liability company, if the partners or members thereof are +composed only of the Company, any corporation listed in item (i) above or any limited +partnership listed in item (ii) above, except that with respect to the issuance of +Incentive Stock Options, the term “Subsidiary” shall have the same meaning as the term +“subsidiary corporation” as defined in Code Section 424(f) as required by Code Section +422. +1.3 +Plan Administration +(a) +Authority of the Committee. Except as may be limited by law and subject to the +provisions herein, the Committee shall have full power to (i) select Grantees who shall +participate in the Plan; (ii) determine the sizes, duration and types of Incentive +Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive +Agreements; (iv) determine whether any Shares subject to Incentive Awards will be +subject to any restrictions on transfer; (v) construe and interpret the Plan and any +Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, +amend, or waive rules for the Plan’s administration. Further, the Committee shall make +all other determinations which may be necessary or advisable for the administration of +the Plan. +(b) +Meetings. The Committee shall designate a chairman from among its members who +shall preside at its meetings, and shall designate a secretary, without regard to +whether that person is a member of the Committee, who shall keep the minutes of the +proceedings and all records, documents, and data pertaining to its administration of +the Plan. Meetings shall be held at such times and places as shall be determined by the +Committee and the Committee may hold telephonic meetings. The Committee may take any +action otherwise proper under the Plan by the affirmative vote, taken with or without a +meeting, of a majority of its members. The Committee may authorize any one or more of +its members or any officer of the Company to execute and deliver documents on behalf of +the Committee. +(c) +Decisions Binding. All determinations and decisions of the Committee shall be +made in its discretion pursuant to the terms and provisions of the Plan, and shall be +final, conclusive and binding on all persons including the Company, its stockholders, +Employees, Grantees, and their estates and beneficiaries. The Committee’s decisions +with respect to any Incentive Award need not be uniform and may be made selectively +among Incentive Awards and Grantees, whether or not such Incentive Awards are similar +or such Grantees are similarly situated. +(d) +Modification of Outstanding Incentive Awards. Subject to the stockholder approval requirements +of Section 6.7 if applicable, upon a Grantee’s death, Disability, Retirement +43 +Table of Contents +or termination of Employment without Cause, or upon a Change in +Control, the Committee may, in its discretion, provide for the extension of the +exercisability of an Incentive Award, accelerate the vesting or exercisability of an +Incentive Award (except for an Incentive Award that is a SAR), eliminate or make less +restrictive any restrictions contained in an Incentive Award, waive any restriction or +other provisions of an Incentive Award, or otherwise amend or modify an Incentive +Award in any manner that is either (i) not adverse to the Grantee to whom such +Incentive Award was granted, or (ii) is consented to by such Grantee. With respect to +an Incentive Award that is an ISO, no adjustment thereto shall be made to the extent +constituting a “modification” within the meaning of Code Section 424(h)(3) unless +otherwise agreed to by the Grantee in writing. Notwithstanding the preceding +provisions of this subsection, (i) no amendment or other modification of an Incentive +Award shall be made to the extent such modification results in any Stock Option with +an exercise price less than 100% of the Fair Market Value per Share on the date of +grant, and (ii) no acceleration of vesting, extension of exercisability or other +modification shall be made that will subject the Grantee to adverse taxation under +Code Section 409A. +(e) +Delegation of Authority. The Committee may delegate to designated officers or +other employees of the Company any of its duties and authority under the Plan pursuant +to such conditions or limitations as the Committee may establish from time to time; +provided, however, the Committee may not delegate to any person the authority to grant +Incentive Awards or (ii) to take any action which would contravene the requirements of +Rule 16b-3 under the Exchange Act, the “performance-based exception” under Code Section +162(m), or the Sarbanes-Oxley Act of 2002. +(f) +Expenses of Committee. The Committee may employ legal counsel, including, +without limitation, independent legal counsel and counsel regularly employed by the +Company, and other agents as the Committee may deem appropriate for the administration +of the Plan. The Committee may rely upon any opinion or computation received from any +such counsel or agent. All expenses incurred by the Committee in interpreting and +administering the Plan, including, without limitation, meeting expenses and +professional fees, shall be paid by the Company. +(g) +[Reserved] +(h) +Indemnification. Each person who is or was a member of the Committee shall be +indemnified by the Company against and from any damage, loss, liability, cost and +expense that may be imposed upon or reasonably incurred by him in connection with or +resulting from any claim, action, suit, or proceeding to which he may be a party or in +which he may be involved by reason of any action taken or failure to act under the +Plan, except for any such act or omission constituting willful misconduct or gross +negligence. Each such person shall be indemnified by the Company for all amounts paid +by him in settlement thereof, with the Company’s approval, or paid by him in +satisfaction of any judgment in any such action, suit, or proceeding against him, +provided he shall give the Company an opportunity, at its own expense, to handle and +defend the same before he undertakes to handle and defend it on his own behalf. The +foregoing right of indemnification shall not be exclusive of any other rights of +indemnification to which such persons may be entitled under the Company’s Articles or +Certificate of Incorporation or Bylaws, pursuant to any separate indemnification or +hold harmless agreement with the Company, as a matter of law, or otherwise, or any +power that the Company may have to indemnify them or hold them harmless. +1.4 +Shares of Common Stock Available for Incentive Awards +Subject to adjustment under Section 5.6 , there shall be available for Incentive +Awards that are granted wholly or partly in Common Stock (including rights or Stock Options +that may be exercised for or settled in Common Stock) 1,250,000 Shares of Common Stock. The +number of Shares of Common Stock that are the subject of Incentive Awards under this Plan, +which are forfeited or terminated, expire unexercised, lapse, are surrendered in payment of +the exercise price of a Stock Option, are surrendered in payment of applicable employment +taxes and/or other withholding obligations in connection with the vesting of an Incentive +Award, or are settled in cash in lieu of Common Stock or in another manner such that all or +some of the Shares covered +by the Incentive Award are either not issued to a Grantee or are exchanged for Incentive +Awards that do not involve Common Stock, shall again, in each case, immediately become +available for +44 +Table of Contents +Incentive Awards to be granted under the Plan. The aggregate number of Shares +of Common Stock which may be issued upon exercise of ISOs shall be 1,250,000 of the Shares +reserved pursuant to the first sentence of this paragraph. For purposes of counting Shares +against the ISO maximum, only the net number of Shares issued pursuant to the exercise of an +ISO shall be counted. The Committee may from time to time adopt and observe such procedures +concerning the counting of Shares against the Plan maximum as it may deem appropriate. +During any period that the Company is a Publicly Held Corporation, then unless and until the +Committee determines that a particular Incentive Award granted to a Covered Employee is not +intended to comply with the “performance-based exception” under Code Section 162(m), the +following rules shall apply to grants of Incentive Awards to Covered Employees: +(a) +Subject to adjustment as provided in Section 5.6 , the maximum aggregate +number of Shares of Common Stock attributable to Incentive Awards (including Stock +Options, SARs, and Restricted Stock) that may be granted (in the case of Stock Options +and SARs) or that may vest (in the case of Restricted Stock), as applicable, in any +calendar year pursuant to any Incentive Award held by any individual Covered Employee +shall be two hundred thousand (200,000) Shares. +(b) +Subject to the limitation of paragraph (a) above, the maximum aggregate number +of Shares issuable to any one person pursuant to Incentive Awards shall be five percent +(5%) of the number of Shares of Common Stock outstanding at the time of the grant of an +Incentive Award. +(c) +[Reserved] +1.5 +Share Pool Adjustments for Awards and Payouts +The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis, +the number of Shares authorized for issuance under the Share Pool: +(a) +Stock Option; +(b) +SAR; +(c) +Restricted Stock Award; and +(d) +A payout of an Other Stock-Based Award in Shares. +The following transactions shall restore, on a one Share for one Share basis, the number of +Shares authorized for issuance under the Share Pool: +(a) +A cancellation, termination, expiration, forfeiture, or lapse for any reason of +any Shares subject to an Incentive Award; +(b) +Payment of an Option Price by withholding Shares which otherwise would be +acquired on exercise (i.e., the Share Pool shall be increased by the number of Shares +withheld in payment of the Option Price); and +(c) +Payment of any applicable employment taxes and/or other withholding obligations +by withholding Shares which otherwise would be acquired on exercise or vesting of the +Incentive Award (i.e., the Share Pool shall be increased by the number of Shares +withheld in payment of the applicable employment taxes and/or other withholding +obligations). +Notwithstanding any provisions of the Plan to the contrary, only shares forfeited back to +the Company, shares canceled on account of termination, expiration or lapse of an Incentive +Award, shares surrendered in payment of the exercise price of an Option or shares withheld +for payment of applicable employment taxes and/or withholding obligations resulting from the +exercise of an Option or vesting of another Incentive Award shall again be available for +grant of Incentive Stock Options under the Plan, but shall not increase the maximum number +of shares described in +Section 1.4 above as the maximum number of Shares that may be delivered pursuant to +Incentive Stock Options. +45 +Table of Contents +1.6 +Common Stock Available +The Common Stock available for issuance or transfer under the Plan shall be made available +from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but +unissued shares, or (c) shares to be purchased or acquired by the Company. No fractional +shares shall be issued under the Plan; payment for fractional shares shall be made in cash. +1.7 +Participation +(a) +Eligibility. The Committee shall from time to time designate those Employees +and/or Outside Directors to be granted Incentive Awards under the Plan, the type of +Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the +case may be, which shall be granted to each such person, and any other terms or +conditions relating to the Incentive Awards as it may deem appropriate to the extent +consistent with the provisions of the Plan. A Grantee, who has been granted an +Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at +any time. +No Insider shall be eligible to be granted an Incentive Award that is subject to +Rule 16a-3 under the Exchange Act unless and until such Insider has granted a +limited power of attorney to those officers of the Company who have been designated +by the Committee for purposes of future required filings under the Exchange Act. +(b) +Incentive Stock Option Eligibility. No individual shall be eligible for the +grant of any Incentive Stock Option except an Employee. However, no Employee shall be +eligible for the grant of any ISO who owns or would own immediately before the grant of +such ISO, directly or indirectly, stock possessing more than ten percent (10%) of the +combined voting power of all classes of stock of the Company, or any Parent or +Subsidiary. This restriction does not apply if, at the time such ISO is granted, the +ISO exercise price is at least one hundred and ten percent (110%) of the Fair Market +Value on the date of grant and the ISO by its terms is not exercisable after the +expiration of five (5) years from the date of grant. For the purpose of the immediately +preceding sentence, the attribution rules of Code Section 424(d) shall apply from the +purpose of determining an Employee’s percentage ownership in the Company or any Parent +or Subsidiary. This paragraph shall be construed consistent with the requirements of +Code Section 422. +1.8 +Types of Incentive Awards +The types of Incentive Awards under the Plan are Stock Options, Stock Appreciation Rights, +Restricted Stock and Other Stock-Based Awards (as described in Section 4 ), or any +combination of the foregoing. +SECTION 2 +Stock Options and Stock Appreciation Rights +2.1 +Grant of Stock Options +The Committee is authorized to grant (a) Non-statutory Stock Options to Employees and +Outside Directors and (b) Incentive Stock Options to Employees only in accordance with the +terms and conditions of the Plan, and with such additional terms and conditions, not +inconsistent with the Plan, as the Committee shall determine in its discretion. Successive +grants may be made to the same Grantee regardless of whether any Stock Option previously +granted to such person remains unexercised. +2.2 +Stock Option Terms +(a) +Written Agreement. Each grant of a Stock Option shall be evidenced by a written +Incentive Agreement. Among its other provisions, each Incentive Agreement shall set +forth the extent to which the Grantee shall have the right to exercise the Stock Option +following termination of the Grantee’s Employment. Such provisions shall be determined +in the discretion of the Committee, shall be included in the Grantee’s Incentive +Agreement, and need not be uniform among all Stock Options issued pursuant to the +Plan. +46 +Table of Contents +(b) +Number of Shares. Each Stock Option shall specify the number of Shares of +Common Stock to which it pertains. +(c) +Exercise Price. The exercise price per Share of Common Stock under each Stock +Option shall be determined by the Committee; provided however, that such exercise price +shall not be less than 100% of the Fair Market Value per Share on the date the Stock +Option is granted. Each Stock Option shall specify the method of exercise which shall +be consistent with the requirements of Section 2.3(a) . +(d) +Term. In the Incentive Agreement, the Committee shall fix the term of each +Stock Option, not to exceed ten (10) years from the date of grant for ISO grants or +five (5) years for ISO grants to 10% or greater stockholders pursuant to +Section 1.7(b) . In the event no term is fixed, such term shall be ten +(10) years from the date of grant. +(e) +Exercise. The Committee shall determine the time or times at which a Stock +Option may be exercised, in whole or in part. Each Stock Option may specify the +required period of continuous Employment before the Stock Option or portion thereof +will become exercisable. All such terms and conditions shall be set forth in the +Incentive Agreement. +(f) +$100,000 Annual Limit on Incentive Stock Options. Notwithstanding any contrary +provision in the Plan, to the extent that the aggregate Fair Market Value (determined +as of the time the Incentive Stock Option is granted) of the Shares of Common Stock +with respect to which ISOs are exercisable for the first time by any Grantee during any +single calendar year (under the Plan and any other stock option plans of the Company +and its Subsidiaries or Parent) exceeds the sum of $100,000, such ISO shall +automatically be deemed to be a Non-statutory Stock Option but only to the extent in +excess of the $100,000 limit, and not an ISO. In such event, all other terms and +provisions of such Stock Option grant shall remain unchanged. This paragraph shall be +applied by taking ISOs into account in the order in which they were granted and shall +be construed in accordance with Code Section 422(d). +2.3 +Stock Option Exercises +(a) +Method of Exercise and Payment. Stock Options shall be exercised by the +delivery of a signed written notice of exercise to the Company as of a date set by the +Company in advance of the effective date of the proposed exercise. The notice shall set +forth the number of Shares with respect to which the Option is to be exercised, +accompanied by full payment for the Shares. +The Option Price upon exercise of any Stock Option shall be payable to the Company +in full either: (i) in cash or its equivalent; or (ii) subject to prior approval by +the Committee in its discretion, by tendering previously acquired Shares having an +aggregate Fair Market Value at the time of exercise equal to the Option Price +(provided that the Shares which are tendered must have been held by the Grantee for +at least six (6) months prior to their tender to satisfy the Option Price); or +(iii) subject to prior approval by the Committee in its discretion, by withholding +Shares which otherwise would be acquired on exercise having an aggregate Fair Market +Value at the time of exercise equal to the total Option Price; or (iv) subject to +prior approval by the Committee in its discretion, by a combination of (i), (ii), +and (iii) above. +Any payment in Shares shall be effected by the surrender of such Shares to the +Company in good form for transfer and shall be valued at their Fair Market Value on +the date when the Stock Option is exercised. Unless otherwise permitted by the +Committee in its discretion, the Grantee shall not surrender, or attest to the +ownership of, Shares in payment of the Option Price if such action would cause the +Company to recognize compensation expense (or additional compensation expense) with +respect to the Stock Option for financial accounting reporting purposes. +The Committee, in its discretion, also may allow the Option Price to be paid with +such other consideration as shall constitute lawful consideration for the issuance +of Shares (including, without limitation, effecting a “cashless exercise” with a +broker of the +Option), subject to applicable securities law restrictions and tax withholdings, or +by any other means which the Committee determines to be consistent with the Plan’s +purpose and applicable law. At the direction of the Grantee, the broker will either +(i) sell all of +47 +Table of Contents +the Shares received when the Option is exercised and pay the Grantee +the proceeds of the sale (minus the Option Price, withholding taxes and any fees due +to the broker); or (ii) sell enough of the Shares received upon exercise of the +Option to cover the Option Price, withholding taxes and any fees due the broker and +deliver to the Grantee (either directly or through the Company) a stock certificate +for the remaining Shares. Dispositions to a broker affecting a cashless exercise are +not exempt under Section 16 of the Exchange Act if the Company is a Publicly Held +Corporation. Moreover, in no event will the Committee allow the Option Price to be +paid with a form of consideration; including a loan or a “cashless exercise,” if +such form of consideration would violate the Sarbanes-Oxley Act of 2002, as +determined by the Committee in its sole discretion. +As soon as practicable after receipt of a written notification of exercise and full +payment, the Company shall deliver, or cause to be delivered, to or on behalf of the +Grantee, in the name of the Grantee or other appropriate recipient, evidence of +ownership for the number of Shares purchased under the Stock Option. +Subject to Section 5.4 , during the lifetime of a Grantee, each Option +granted to him shall be exercisable only by the Grantee (or his legal guardian in +the event of his Disability) or by a broker-dealer acting on his behalf pursuant to +a cashless exercise under the foregoing provisions of this Section 2.3(a) . +(b) +Restrictions on Share Transferability. The Committee may impose such +restrictions on any grant of Stock Options or on any Shares acquired pursuant to the +exercise of a Stock Option as it may deem advisable, including, without limitation, +restrictions under (i) any stockholders’ agreement, buy/sell agreement, right of first +refusal, non-competition, and any other agreement between the Company and any of its +securities holders or employees; (ii) any applicable federal securities laws; (iii) the +requirements of any stock exchange or market upon which such Shares are then listed +and/or traded; or (iv) any blue sky or state securities law applicable to such Shares. +Any certificate issued to evidence Shares issued upon the exercise of an Incentive +Award may bear such legends and statements as the Committee shall deem advisable to +assure compliance with federal and state laws and regulations. +Any Grantee or other person exercising an Incentive Award shall be required, if +requested by the Committee, to give a written representation that the Incentive +Award and the Shares subject to the Incentive Award will be acquired for investment +and not with a view to public distribution; provided, however, that the Committee, +in its discretion, may release any person receiving an Incentive Award from any such +representations either prior to or subsequent to the exercise of the Incentive +Award. +(c) +Notification of Disqualifying Disposition of Shares from Incentive Stock +Options. Notwithstanding any other provision of the Plan, a Grantee who disposes of +Shares of Common Stock acquired upon the exercise of an Incentive Stock Option by a +sale or exchange either (i) within two (2) years after the date of the grant of the +Incentive Stock Option under which the Shares were acquired or (ii) within one (1) year +after the transfer of such Shares to him pursuant to exercise, shall promptly notify +the Company of such disposition, the amount realized and his adjusted basis in such +Shares. +(d) +Proceeds of Option Exercise. The proceeds received by the Company from the sale +of Shares pursuant to Stock Options exercised under the Plan shall be used for general +corporate purposes. +2.4 +Stock Appreciation Rights +(a) +Grant. The Committee may grant Stock Appreciation Rights that are independent +of Non-statutory Stock Options (“SARs”) , but only with respect to Shares that are +traded on an established securities exchange. All SARs granted under the Plan are +intended to satisfy the requirements for stock appreciation rights to be exempt from +the requirements of Code Section 409A, and therefore not provide for any deferral of +compensation subject to Code Section 409A. +(b) +General Provisions. The terms and conditions of each SAR shall be evidenced by +an Incentive Agreement. The exercise price per Share shall never be less than one +hundred percent (100%) of the Fair Market Value of a Share on the grant date of the +SAR. The +48 +Table of Contents +term of the SAR shall be determined by the Committee. The Committee cannot +include any feature for the deferral of compensation other than the deferral of +recognition of income until exercise of the SAR. +(c) +Exercise. SARs shall be exercisable subject to such terms and conditions as the +Committee shall specify in the Incentive Agreement for the SAR grant, provided that +such terms and conditions are not inconsistent with the Plan. No SAR granted to an +Insider may be exercised prior to six (6) months from the date of grant, except in the +event of his death or Disability which occurs prior to the expiration of such six-month +period if so permitted under the Incentive Agreement. +(d) +Settlement. Upon exercise of the SAR, the Grantee shall receive an amount equal +to the Spread. The Spread, less applicable withholdings, shall be payable only in +Shares within 30 calendar days of the exercise date. In no event shall any SAR be +settled in any manner other than by delivery of Shares that are traded on an +established securities market. In addition, the Incentive Agreement under which such +SARs are awarded, or any other agreements or arrangements, shall not provide that the +Company will purchase any Shares delivered to the Grantee as a result of the exercise +or vesting of a SAR. +SECTION 3 +Restricted Stock +3.1 +Award of Restricted Stock +(a) +Grant. With respect to a Grantee who is an Employee or Outside Director, Shares +of Restricted Stock may be awarded by the Committee with such restrictions during the +Restriction Period as the Committee shall designate in its discretion. Any such +restrictions may differ with respect to a particular Grantee. Restricted Stock shall be +awarded for no additional consideration or such additional consideration as the +Committee may determine, which consideration may be less than, equal to, or more than +the Fair Market Value of the shares of Restricted Stock on the grant date. Subject to +Section 3.2(c) , the terms and conditions of each grant of Restricted Stock +shall be evidenced by an Incentive Agreement and, during the Restriction Period, such +Shares of Restricted Stock must remain subject to a “substantial risk of forfeiture” +within the meaning given to such term under Code Section 83. +(b) +Immediate Transfer Without Immediate Delivery of Restricted Stock. Unless +otherwise specified in the Grantee’s Incentive Agreement, each Restricted Stock Award +shall not constitute an immediate transfer of the record and beneficial ownership of +the Shares of Restricted Stock to the Grantee in consideration of the performance of +services as an Employee or Outside Director, as applicable, and shall not entitle such +Grantee to any voting and other ownership rights in such Shares until the date the +Restriction Period ends. +As specified in the Incentive Agreement, a Restricted Stock Award may limit the +Grantee’s dividend rights during the Restriction Period in which the shares of +Restricted Stock are subject to a “substantial risk of forfeiture” (within the +meaning given to such term under Code Section 83) and restrictions on transfer. In +the Incentive Agreement, the Committee may apply any restrictions to the dividends +that the Committee deems appropriate. In the event that any dividend constitutes a +derivative security or an equity security pursuant to the rules under Section 16 of +the Exchange Act, if applicable, such dividend shall be subject to a vesting period +equal to the remaining vesting period of the Shares of Restricted Stock with respect +to which the dividend is paid. +Shares awarded pursuant to a grant of Restricted Stock may be issued in the name of +the Grantee and held, together with a stock power endorsed in blank, by the +Committee or Company (or their delegates) or in trust or in escrow pursuant to an +agreement satisfactory to the Committee, as determined by the Committee, until such +time as the restrictions on transfer have expired. All such terms and conditions +shall be set forth in the particular Grantee’s Incentive Agreement. The Company or +Committee (or their +delegates) shall issue to the Grantee a receipt evidencing the certificates held by +it which are registered in the name of the Grantee. +49 +Table of Contents +3.2 +Restrictions +(a) +Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee may be +subject to the following restrictions until the expiration of the Restriction Period: +(i) a restriction that constitutes a “substantial risk of forfeiture” (as defined in +Code Section 83), or a restriction on transferability; (ii) unless otherwise specified +by the Committee in the Incentive Agreement, the Restricted Stock that is subject to +restrictions which are not satisfied shall be forfeited and all rights of the Grantee +to such Shares shall terminate; and (iii) any other restrictions that the Committee +determines in advance are appropriate, including, without limitation, rights of +repurchase or first refusal in the Company or provisions subjecting the Restricted +Stock to a continuing substantial risk of forfeiture in the hands of any transferee. +Any such restrictions shall be set forth in the particular Grantee’s Incentive +Agreement. +(b) +Issuance of Certificates. Reasonably promptly after the date of grant with +respect to Shares of Restricted Stock, the Company shall cause to be issued a stock +certificate, registered in the name of the Grantee to whom such Shares of Restricted +Stock were granted, evidencing such Shares; provided, however, that the Company shall +not cause to be issued such a stock certificate unless it has received a stock power +duly endorsed in blank with respect to such Shares. Each such stock certificate shall +bear the following legend or any other legend approved by the Company: +The transferability of this certificate and the shares of stock +represented hereby are subject to restrictions, terms and conditions +(including forfeiture and restrictions against transfer) contained +in the Callon Petroleum Company 2009 Stock Incentive Plan and an +Incentive Agreement entered into between the registered owner of +such shares and Callon Petroleum Company. A copy of the Plan and +Incentive Agreement are on file in the main corporate office of +Callon Petroleum Company. +Such legend shall not be removed from the certificate evidencing such Shares of +Restricted Stock unless and until such Shares vest pursuant to the terms of the +Incentive Agreement. +(c) +Removal of Restrictions. The Committee, in its discretion, shall have the +authority to remove any or all of the restrictions on the Restricted Stock if it +determines that, by reason of a change in applicable law or another change in +circumstance arising after the grant date of the Restricted Stock, such action is +necessary or appropriate; provided, however, that the Committee may only accelerate the +vesting of Restricted Stock upon a Grantee’s death, Disability, Retirement, or +termination of Employment without Cause, or upon a Change in Control. Except as +otherwise provided by Section 1.3(d) , notwithstanding anything to the contrary +herein, in no event shall the Restriction Period for a grant of Restricted Stock expire +earlier than (i) one year from the date of grant for Restricted Stock for which the +Restriction Period expires upon the attainment of Performance Goals (as described in +Section 3.4 ) or (ii) ratably over three years from the date of grant for +Restricted Stock for which the Restriction Period expires upon the performance of +services over time. +3.3 +Delivery of Shares of Common Stock. Subject to withholding taxes under Section 6.3 +and to the terms of the Incentive Agreement, a stock certificate evidencing the Shares of +Restricted Stock with respect to which the restrictions in the Incentive Agreement have been +satisfied shall be delivered to the Grantee or other appropriate recipient free of +restrictions. +3.4 +Performance Goals. Awards of Restricted Stock and Other Stock-Based Awards under the Plan +may be made subject to the attainment of any of the goals described in this Section +3.4 (“ Performance Goals ”) relating to one or more business criteria which, where +applicable, shall be within the meaning of Code Section 162(m) and consist of one or more or +any combination of the following criteria: cash flow; cost; revenues; sales; ratio of debt to +debt plus equity; net borrowing, credit quality or debt ratings; profit before tax; economic +profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and +amortization; gross margin; +earnings per share (whether on a pre-tax, after-tax, operational or other basis); operating +earnings; capital expenditures; expenses or expense levels; economic value added; ratio of +operating earnings to capital spending or any other operating ratios; free cash flow; net +profit; +50 +Table of Contents +net sales; net asset value per share; the accomplishment of mergers, acquisitions, +dispositions, public offerings or similar extraordinary business transactions; sales growth; +price of the Company’s Common Stock; return on assets, equity or stockholders’ equity; +market share; inventory levels, inventory turn or shrinkage; or total return to stockholders +(“ Performance Criteria ”). Any Performance Criteria may be used to measure the performance +of the Company as a whole or any business unit of the Company and may be measured relative +to a peer group or index. Any Performance Criteria may include or exclude (i) +extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on +the disposition of a business, (iii) changes in tax or accounting regulations or laws, or +(iv) the effect of a merger or acquisition, as identified in the Company’s quarterly and +annual earnings releases. In all other respects, Performance Criteria shall be calculated +in accordance with the Company’s financial statements, under generally accepted accounting +principles, or under a methodology established by the Committee prior to the issuance of an +Award which is consistently applied and identified in the audited financial statements, +including footnotes, or the Management Discussion and Analysis section of the Company’s +annual report. However, to the extent Code Section 162(m) is applicable, the Committee may +not in any event increase the amount of compensation payable to an individual upon the +attainment of a Performance Goal. +SECTION 4 +Other Stock-Based Awards +4.1 +Grant of Other Stock-Based Awards +Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are +payable in Shares or in cash, as determined in the discretion of the Committee to be +consistent with the goals of the Company. Other types of Stock-Based Awards that are payable +in Shares include, without limitation, purchase rights, Shares of Common Stock awarded that +are not subject to any restrictions or conditions, convertible or exchangeable debentures, +and other rights convertible into Shares. As is the case with other types of Incentive +Awards, Other Stock-Based Awards may be awarded either alone or in addition to or in +conjunction with any other Incentive Awards. Other Stock-Based Awards that are payable in +Shares are not intended to be deferred compensation that is subject to Code Section 409A +unless otherwise determined and provided by the Committee. +4.2 +Other Stock-Based Award Terms +(a) +Written Agreement. The terms and conditions of each grant of an Other +Stock-Based Award shall be evidenced by an Incentive Agreement. +(b) +Purchase Price. Except to the extent that an Other Stock-Based Award is granted +in substitution for an outstanding Incentive Award or is delivered upon exercise of a +Stock Option, the amount of consideration required to be received by the Company shall +be either (i) no consideration other than services actually rendered (in the case of +authorized and unissued shares) or to be rendered, or (ii) as otherwise specified in +the Incentive Agreement. +(c) +Other Terms. All terms and conditions of Other Stock-Based Awards shall be +determined by the Committee and set forth in the Incentive Agreement, provided that +such terms and conditions are consistent with the Plan. Except as otherwise provided +by Section 1.3(d) , notwithstanding anything to the contrary herein, in no event +shall a grant of an Other Stock-Based Award vest earlier than (i) one year from the +date of grant for an Other Stock-Based Award which is subject to the attainment of +Performance Goals (as described in Section 3.4 ) or (ii) ratably over three +years from the date of grant for an Other Stock-Based Award which vests upon the +performance of services over time. +(d) +Payment. Other Stock-Based Awards shall be paid in Shares, in a single payment +or in installments on such dates as determined by the Committee; all as specified in +the Incentive Agreement. +51 +Table of Contents +SECTION 5 +Provisions Relating to Plan Participation +5.1 +Incentive Agreement +Each Grantee to whom an Incentive Award is granted shall be required to enter into an +Incentive Agreement with the Company, in such a form as is provided by the Committee. The +Incentive Agreement shall contain specific terms as determined by the Committee, in its +discretion, with respect to the Grantee’s particular Incentive Award. Such terms need not be +uniform among all Grantees or any similarly situated Grantees. The Incentive Agreement may +include, without limitation, vesting, forfeiture and other provisions particular to the +particular Grantee’s Incentive Award, as well as, for example, provisions to the effect that +the Grantee (a) shall not disclose any confidential information acquired during Employment +with the Company, (b) shall abide by all the terms and conditions of the Plan and such other +terms and conditions as may be imposed by the Committee, (c) shall not interfere with the +employment or other service of any employee, (d) shall not compete with the Company or +become involved in a conflict of interest with the interests of the Company, (e) shall +forfeit an Incentive Award if terminated for cause, (f) shall not be permitted to make an +election under Code Section 83(b) when applicable, and (g) shall be subject to any other +agreement between the Grantee and the Company regarding Shares that may be acquired under an +Incentive Award including, without limitation, a stockholders’ agreement, buy-sell +agreement, or other agreement restricting the transferability of Shares by Grantee. An +Incentive Agreement shall include such terms and conditions as are determined by the +Committee, in its discretion, to be appropriate with respect to any individual Grantee. The +Incentive Agreement shall be signed by the Grantee to whom the Incentive Award is made and +by an Authorized Officer. +5.2 +No Right to Employment +Nothing in the Plan or any instrument executed pursuant to the Plan shall create any +Employment rights (including without limitation, rights to continued Employment) in any +Grantee or affect the right of the Company to terminate the Employment of any Grantee at any +time without regard to the existence of the Plan. +5.3 +Securities Requirements +The Company shall be under no obligation to affect the registration pursuant to the +Securities Act of 1933 of any Shares to be issued hereunder or to effect similar compliance +under any state laws. Notwithstanding anything herein to the contrary, the Company shall not +be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant +to the Plan unless and until the Company is advised by its counsel that the issuance and +delivery of such certificates is in compliance with all applicable laws, regulations of +governmental authorities, and the requirements of any securities exchange on which Shares +are traded. The Committee may require, as a condition of the issuance and delivery of +certificates evidencing Shares pursuant to the terms hereof, that the recipient of such +Shares make such covenants, agreements and representations, and that such certificates bear +such legends, as the Committee, in its discretion, deems necessary or desirable. +The Committee may, in its discretion, defer the effectiveness of any exercise of an +Incentive Award in order to allow the issuance of Shares to be made pursuant to registration +or an exemption from registration or other methods for compliance available under federal or +state securities laws. The Committee shall inform the Grantee in writing of its decision to +defer the effectiveness of the exercise of an Incentive Award. During the period that the +effectiveness of the exercise of an Incentive Award has been deferred, the Grantee may, by +written notice to the Committee, withdraw such exercise and obtain the refund of any amount +paid with respect thereto. +If the Shares issuable on exercise of an Incentive Award are not registered under the +Securities Act of 1933, the Company may imprint on the certificate for such Shares the +following legend or any other legend which counsel for the Company considers necessary or +advisable to comply with the Securities Act of 1933: +THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED +UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS +OF ANY STATE. THE +52 +Table of Contents +SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE +REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS +OR PURSUANT TO ANY APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS +OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL +REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT +REQUIRED. +5.4 +Transferability +Incentive Awards granted under the Plan shall not be transferable or assignable other than: +(a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic +relations order (as defined under Code Section 414(p)); provided, however, only with respect +to Incentive Awards consisting of Non-statutory Stock Options, the Committee may, in its +discretion, authorize all or a portion of the Non-statutory Stock Options to be granted on +terms which permit transfer by the Grantee to (i) the members of the Grantee’s Immediate +Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family members, +(iii) a partnership in which such Immediate Family members are the only partners, or +(iv) any other entity owned solely by Immediate Family members; provided that (A) there may +be no consideration for any such transfer, (B) the Incentive Agreement pursuant to which +such Non-statutory Stock Options are granted must be approved by the Committee, and must +expressly provide for transferability in a manner consistent with this Section 5.4 , +(C) subsequent transfers of transferred Non-statutory Stock Options shall be prohibited +except in accordance with clauses (a) and (b) (above) of this sentence, and (D) there may be +no transfer of any Incentive Award in a listed transaction as described in IRS Notice +2003-47. Following any permitted transfer, the Non-statutory Stock Option shall continue to +be subject to the same terms and conditions as were applicable immediately prior to +transfer, provided that the term “Grantee” shall be deemed to refer to the transferee. The +events of termination of employment, as set out in Section 5.7 and in the Incentive +Agreement, shall continue to be applied with respect to the original Grantee, and the +Incentive Award shall be exercisable by the transferee only to the extent, and for the +periods, specified in the Incentive Agreement. +Except as may otherwise be permitted under the Code, in the event of a permitted transfer of +a Non-statutory Stock Option hereunder, the original Grantee shall remain subject to +withholding taxes upon exercise. In addition, the Company and the Committee shall have no +obligation to provide any notices to any Grantee or transferee thereof, including, for +example, notice of the expiration of an Incentive Award following the original Grantee’s +termination of employment. +The designation by a Grantee of a beneficiary of an Incentive Award shall not constitute +transfer of the Incentive Award. No transfer by will or by the laws of descent and +distribution shall be effective to bind the Company unless the Committee has been furnished +with a copy of the deceased Grantee’s enforceable will or such other evidence as the +Committee deems necessary to establish the validity of the transfer. Any attempted transfer +in violation of this Section 5.4 shall be void and ineffective. All determinations +under this Section 5.4 shall be made by the Committee in its discretion. +5.5 +Rights as a Stockholder +(a) +No Stockholder Rights. Except as otherwise provided in Section 3.1(b) +for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted +transferee of such Grantee) shall have no rights as a stockholder with respect to any +Shares of Common Stock until the issuance of a stock certificate or other record of +ownership for such Shares. +(b) +Representation of Ownership. In the case of the exercise of an Incentive Award +by a person or estate acquiring the right to exercise such Incentive Award by reason of +the death or Disability of a Grantee, the Committee may require reasonable evidence as +to the ownership of such Incentive Award or the authority of such person. The Committee +may also require such consents and releases of taxing authorities as it deems +advisable. +5.6 +Change in Stock and Adjustments +(a) +Changes in Law or Circumstances. Subject to Section 5.8 (which only +applies in the event of a Change in Control), in the event of any change in applicable +law or any +53 +Table of Contents +change in circumstances which results in or would result in any dilution of the +rights granted under the Plan, or which otherwise warrants an equitable adjustment +because it interferes with the intended operation of the Plan, then, if the Board or +Committee should so determine, in its absolute discretion, that such change +equitably requires an adjustment in the number or kind of shares of stock or other +securities or property theretofore subject, or which may become subject, to issuance +or transfer under the Plan or in the terms and conditions of outstanding Incentive +Awards, such adjustment shall be made in accordance with such determination. Such +adjustments may include changes with respect to (i) the aggregate number of Shares +that may be issued under the Plan, (ii) the number of Shares subject to Incentive +Awards, and (iii) the Option Price or other price per Share for outstanding +Incentive Awards, but shall not result in the grant of any Stock Option with an +exercise price less than 100% of the Fair Market Value per Share on the date of +grant. The Board or Committee shall give notice to each applicable Grantee of such +adjustment which shall be effective and binding. +(b) +Exercise of Corporate Powers. The existence of the Plan or outstanding +Incentive Awards hereunder shall not affect in any way the right or power of the +Company or its stockholders to make or authorize any or all adjustments, +recapitalization, reorganization or other changes in the Company’s capital structure +or its business or any merger or consolidation of the Company, or any issue of bonds, +debentures, preferred or prior preference stocks ahead of or affecting the Common +Stock or the rights thereof, or the dissolution or liquidation of the Company, or any +sale or transfer of all or any part of its assets or business, or any other corporate +act or proceeding whether of a similar character or otherwise. +(c) +Recapitalization of the Company. Subject to Section 5.8 (which only +applies in the event of a Change in Control), if while there are Incentive Awards +outstanding, the Company shall effect any subdivision or consolidation of Shares of +Common Stock or other capital readjustment, the payment of a stock dividend, stock +split, combination of Shares, recapitalization or other increase or reduction in the +number of Shares outstanding, without receiving compensation therefore in money, +services or property, then the number of Shares available under the Plan and the +number of Incentive Awards which may thereafter be exercised shall (i) in the event of +an increase in the number of Shares outstanding, be proportionately increased and the +Option Price or Fair Market Value of the Incentive Awards awarded shall be +proportionately reduced; and (ii) in the event of a reduction in the number of Shares +outstanding, be proportionately reduced, and the Option Price or Fair Market Value of +the Incentive Awards awarded shall be proportionately increased. The Board or +Committee shall take such action and whatever other action it deems appropriate, in +its discretion, so that the value of each outstanding Incentive Award to the Grantee +shall not be adversely affected by a corporate event described in this +Section 5.6(c) . +(d) +Issue of Common Stock by the Company. Except as hereinabove expressly provided +in this Section 5.6 and subject to Section 5.8 in the event of a Change +in Control, the issue by the Company of shares of stock of any class, or securities +convertible into shares of stock of any class, for cash or property, or for labor or +services, either upon direct sale or upon the exercise of rights or warrants to +subscribe therefore, or upon any conversion of shares or obligations of the Company +convertible into such shares or other securities, shall not affect, and no adjustment +by reason thereof shall be made with respect to, the number of, or Option Price or Fair +Market Value of, any Incentive Awards then outstanding under previously granted +Incentive Awards; provided, however, in such event, outstanding Shares of Restricted +Stock shall be treated the same as outstanding unrestricted Shares of Common Stock. +(e) +Assumption under the Plan of Outstanding Stock Options. Notwithstanding any +other provision of the Plan, the Board or Committee, in its discretion, may authorize +the assumption and continuation under the Plan of outstanding and unexercised stock +options or other types of stock-based incentive awards that were granted under a stock +option plan (or other type of stock incentive plan or agreement) that is or was +maintained by a corporation or other entity that was merged into, consolidated with, or +whose stock or assets were acquired by, the Company as the surviving corporation. Any +such action shall be upon such terms and conditions as the Board or Committee, in its +discretion, may deem appropriate, including provisions to preserve the holder’s rights +under the previously granted and unexercised stock option or other stock-based +incentive award; +54 +Table of Contents +such as, for example, retaining an existing exercise price under an outstanding +stock option. Any such assumption and continuation of any such previously granted +and unexercised incentive award shall be treated as an outstanding Incentive Award +under the Plan and shall thus count against the number of Shares reserved for +issuance pursuant to Section 1.4 . In addition, any Shares issued by the +Company through the assumption or substitution of outstanding grants from an +acquired company shall reduce the Shares available for grants under +Section 1.4 . +(f) +Assumption of Incentive Awards by a Successor. Subject to the accelerated +vesting and other provisions of Section 6.8 that apply in the event of a Change +in Control, in the event of a Corporate Event (defined below), each Grantee shall be +entitled to receive, in lieu of the number of Shares subject to Incentive Awards, such +shares of capital stock or other securities or property as may be issuable or payable +with respect to or in exchange for the number of Shares which Grantee would have +received had he exercised the Incentive Award immediately prior to such Corporate +Event, together with any adjustments (including, without limitation, adjustments to the +Option Price and the number of Shares issuable on exercise of outstanding Stock +Options). For this purpose, Shares of Restricted Stock shall be treated the same as +unrestricted outstanding Shares of Common Stock. A “Corporate Event” means any of the +following: (i) a dissolution or liquidation of the Company, (ii) a sale of all or +substantially all of the Company’s assets, or (iii) a merger, consolidation or +combination involving the Company (other than a merger, consolidation or combination +(A) in which the Company is the continuing or surviving corporation and (B) which does +not result in the outstanding Shares being converted into or exchanged for different +securities, cash or other property, or any combination thereof). The Board or Committee +shall take whatever other action it deems appropriate to preserve the rights of +Grantees holding outstanding Incentive Awards. +Notwithstanding the previous paragraph of this Section 5.6(f) , but subject +to the accelerated vesting and other provisions of Section 5.8 that apply in +the event of a Change in Control, in the event of a Corporate Event (described in +the previous paragraph), the Board or Committee, in its discretion, shall have the +right and power to: +(i) +cancel, effective immediately prior to the occurrence of the +Corporate Event, each outstanding Incentive Award (whether or not then +exercisable) and, in full consideration of such cancellation, pay to the +Grantee an amount in cash equal to the excess of (A) the value, as determined +by the Board or Committee, of the property (including cash) received by the +holders of Common Stock as a result of such Corporate Event over (B) the +exercise price of such Incentive Award, if any; provided, however, this +subsection (i) shall be inapplicable to an Incentive Award granted within six +(6) months before the occurrence of the Corporate Event if the Grantee is an +Insider and such disposition is not exempt under Rule 16b-3 (or other rules +preventing liability of the Insider under Section 16(b) of the Exchange Act) +and, in that event, the provisions hereof shall be applicable to such Incentive +Award after the expiration of six (6) months from the date of grant; or +(ii) +provide for the exchange or substitution of each Incentive +Award outstanding immediately prior to such Corporate Event (whether or not +then exercisable) for another award with respect to the Common Stock or other +property for which such Incentive Award is exchangeable and, incident thereto, +make an equitable adjustment as determined by the Board or Committee, in its +discretion, in the Option Price or exercise price of the Incentive Award, if +any, or in the number of Shares or amount of property (including cash) subject +to the Incentive Award; or +(iii) +provide for assumption of the Plan and such outstanding Incentive Awards by +the surviving entity or its parent. +The Board or Committee, in its discretion, shall have the authority to take whatever +action it deems to be necessary or appropriate to effectuate the provisions of this +Section 5.6(f) . +55 +Table of Contents +5.7 +Termination of Employment, Death, Disability and Retirement +(a) +Termination of Employment. Unless otherwise expressly provided in the Grantee’s +Incentive Agreement or the Plan, if the Grantee’s Employment is terminated for any +reason other than due to his death, Disability, Retirement or for Cause, any non-vested +portion of any Stock Option or other Incentive Award at the time of such termination +shall automatically expire and terminate and no further vesting shall occur after the +termination date. In such event, except as otherwise expressly provided in his +Incentive Agreement, the Grantee shall be entitled to exercise his rights only with +respect to the portion of the Incentive Award that was vested as of his termination of +Employment date for a period that shall end on the earlier of (i) the expiration date +set forth in the Incentive Agreement or (ii) ninety (90) days after the date of his +termination of Employment. +(b) +Termination of Employment for Cause. Unless otherwise expressly provided in the +Grantee’s Incentive Agreement or the Plan, in the event of the termination of a +Grantee’s Employment for Cause, all vested and non-vested Stock Options and other +Incentive Awards granted to such Grantee shall immediately expire, and shall not be +exercisable to any extent, as of 12:01 a.m. (CST) on the date of such termination of +Employment. +(c) +Retirement. Unless otherwise expressly provided in the Grantee’s Incentive +Agreement or the Plan, upon the termination of Employment due to the Grantee’s +Retirement: +(i) +any non-vested portion of any outstanding Option or other +Incentive Award shall immediately terminate and no further vesting shall +occur; and +(ii) +any vested Option or other Incentive Award shall expire on the +earlier of (A) the expiration date set forth in the Incentive Agreement for +such Incentive Award; or (B) the expiration of (1) one year after the date of +his termination of Employment due to Retirement in the case of any Incentive +Award other than an Incentive Stock Option or (2) three months after his +termination date in the case of an Incentive Stock Option. +(d) +Disability or Death. Unless otherwise expressly provided in the Grantee’s +Incentive Agreement or the Plan, upon termination of Employment as a result of the +Grantee’s Disability or death: +(i) +any non-vested portion of any outstanding Option or other +Incentive Award shall immediately terminate upon termination of Employment and +no further vesting shall occur; and +(ii) +any vested Incentive Award shall expire on the earlier of +either (A) the expiration date set forth in the Incentive Agreement or (B) the +one year anniversary date of the Grantee’s termination of Employment date. +In the case of any vested Incentive Stock Option held by an Employee following +termination of Employment, notwithstanding the definition of “Disability” in +Section 1.2 , whether the Employee has incurred a “Disability” for purposes +of determining the length of the Option exercise period following termination of +Employment under this Section 5.7(d) shall be determined by reference to +Code Section 22(e)(3) to the extent required by Code Section 422(c)(6). The +Committee shall determine whether a Disability for purposes of this +Section 5.7(d) has occurred. +(e) +Continuation. Subject to the conditions and limitations of the Plan and +applicable law and regulation in the event that a Grantee ceases to be an Employee or +Outside Director, as applicable, for whatever reason, the Committee and Grantee may +mutually agree with respect to any outstanding Option or other Incentive Award then +held by the Grantee (i) for an acceleration or other adjustment in any vesting schedule +applicable to the Incentive Award; (ii) for a continuation of the exercise period +following termination for a longer period than is otherwise provided under such +Incentive Award; or (iii) to any other change in the terms and conditions of the +Incentive Award. In the event of any such change to an outstanding Incentive Award, a +written amendment to the Grantee’s Incentive Agreement shall be required. +Notwithstanding the foregoing, no amendment to a Grantee’s Incentive Award shall be +made to the extent compensation payable pursuant +56 +Table of Contents +thereto as a result of such amendment would be considered deferred compensation +subject to Code Section 409A, unless otherwise determined and provided by the +Committee. +5.8 +Change in Control +Notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as +defined below), the following actions shall automatically occur as of the day immediately +preceding the Change in Control date unless expressly provided otherwise in the individual +Grantee’s Incentive Agreement: +(a) +all of the Stock Options and Stock Appreciation Rights then outstanding shall +become 100% vested and immediately and fully exercisable; +(b) +all of the restrictions and conditions of any Restricted Stock and any Other +Stock-Based Awards then outstanding shall be deemed satisfied, and the Restriction +Period with respect thereto shall be deemed to have expired, and thus each such +Incentive Award shall become free of all restrictions and fully vested; and +(c) +all of the Performance-Based Stock-Based Awards and any Other Stock-Based +Awards shall become fully vested, deemed earned in full, and promptly paid within +thirty (30) days to the affected Grantees without regard to payment schedules and +notwithstanding that the applicable performance cycle, retention cycle or other +restrictions and conditions have not been completed or satisfied. +For all purposes of this Plan, a “Change in Control” of the Company occurs upon a change in +the Company’s ownership, its effective control or the ownership of a substantial portion of +its assets, as follows: +(a) +Change in Ownership. A change in ownership of the Company occurs on the date +that any “Person” (as defined in below), other than (1) the Company or any of its +subsidiaries, (2) a trustee or other fiduciary holding securities under an employee +benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily +holding stock pursuant to an offering of such stock, or (4) a corporation owned, +directly or indirectly, by the shareholders of the Company in substantially the same +proportions as their ownership of the Company’s stock, acquires ownership of the +Company’s stock that, together with stock held by such Person, constitutes more than +50% of the total fair market value or total voting power of the Company’s stock. +However, if any Person is considered to own already more than 50% of the total fair +market value or total voting power of the Company’s stock, the acquisition of +additional stock by the same Person is not considered to be a Change of Control. In +addition, if any Person has effective control of the Company through ownership of 30% +or more of the total voting power of the Company’s stock, as discussed in paragraph (b) +below, the acquisition of additional control of the Company by the same Person is not +considered to cause a Change in Control pursuant to this paragraph (a); or +(b) +Change in Effective Control. Even though the Company may not have undergone a +change in ownership under paragraph (a) above, a change in the effective control of the +Company occurs on either of the following dates: +(1) +the date that any Person acquires (or has acquired during the 12-month period +ending on the date of the most recent acquisition by such Person) ownership of the +Company’s stock possessing 30 percent or more of the total voting power of the +Company’s stock. However, if any Person owns 30% or more of the total voting power +of the Company’s stock, the acquisition of additional control of the Company by the +same Person is not considered to cause a Change in Control pursuant to this +subparagraph (b)(1); or +(2) +the date during any 12-month period when a majority of members of the Board is +replaced by directors whose appointment or election is not endorsed by a majority of +the Board before the date of the appointment or election; provided, however, that +any such director shall not be considered to be endorsed by the Board if his or her +initial assumption of office occurs as a result of an actual or threatened +solicitation of proxies or consents by or on behalf of a Person other than the +Board; or +57 +Table of Contents +(c) +Change in Ownership of Substantial Portion of Assets. A change in the +ownership of a substantial portion of the Company’s assets occurs on the date that a +Person acquires (or has acquired during the 12-month period ending on the date of the +most recent acquisition by such Person) assets of the Company, that have a total gross +fair market value equal to at least 40% of the total gross fair market value of all of +the Company’s assets immediately before such acquisition or acquisitions. However, +there is no Change in Control when there is such a transfer to an entity that is +controlled by the shareholders of the Company immediately after the transfer, through a +transfer to (i) a shareholder of the Company (immediately before the asset transfer) in +exchange for or with respect to the Company’s stock; (ii) an entity, at least 50% of +the total value or voting power of the stock of which is owned, directly or indirectly, +by the Company; (iii) a Person that owns directly or indirectly, at least 50% of the +total value or voting power of the Company’s outstanding stock; or (iv) an entity, at +least 50% of the total value or voting power of the stock of which is owned by a Person +that owns, directly or indirectly, at least 50% of the total value or voting power of +the Company’s outstanding stock. +For purposes of the foregoing definition, +(a) +“ Person ” shall have the meaning given in Code Section 7701(a)(1). Person shall +include more than one Person acting as a group as defined by the Final Treasury +Regulations issued under Code Section 409A. +(b) +“ Affiliate ” shall have the meaning set forth in Rule 12b-2 promulgated under +Section 12 of the Securities Exchange Act of 1934, as amended. +The provisions of this Section 5.8 shall be interpreted in accordance with the +requirements of the Final Treasury Regulations under Code Section 409A, it being the intent +of the parties that this Section 5.8 shall be in compliance with the requirements of +said Code Section and said Regulations. +Notwithstanding the occurrence of any of the foregoing events set out in this +Section 5.8 which would otherwise result in a Change in Control, the Board may +determine in its discretion, if it deems it to be in the best interest of the Company, that +an event or events otherwise constituting or reasonably leading to a Change in Control shall +not be deemed a Change in Control hereunder. Such determination shall be effective only if +it is made by the Board (a) prior to the occurrence of an event that otherwise would be, or +reasonably lead to, a Change in Control, or (b) after such event only if made by the Board a +majority of which is composed of directors who were members of the Board immediately prior +to the event that otherwise would be, or reasonably lead to, a Change in Control. +5.9 +Financing +Subject to the requirements of the Sarbanes-Oxley Act of 2002, the Company may extend and +maintain, or arrange for and guarantee, the extension and maintenance of financing to any +Grantee to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are +approved by the Committee in its discretion. +SECTION 6 +General +6.1 +Effective Date and Grant Period +This Plan is adopted by the Board effective as of the Effective Date, subject to the +approval of the stockholders of the Company within one year from the Effective Date. +Incentive Awards may be granted under the Plan at any time prior to receipt of such +stockholder approval; provided, however, if the requisite stockholder approval is not +obtained then any Incentive Awards granted hereunder shall automatically become null and +void and of no force or effect. Notwithstanding the foregoing, any Incentive Award that is +intended to satisfy the “performance-based exception” under Code Section 162(m) shall not be +granted until the terms of the Plan are disclosed to, and approved by, the stockholders of +the Company in accordance with the requirements of the “performance-based +exception” under Code +Section 162(m). +58 +Table of Contents +6.2 +Funding and Liability of Company +No provision of the Plan shall require the Company, for the purpose of satisfying any +obligations under the Plan, to purchase assets or place any assets in a trust or other +entity to which contributions are made, or otherwise to segregate any assets. In addition, +the Company shall not be required to maintain separate bank accounts, books, records or +other evidence of the existence of a segregated or separately maintained or administered +fund for purposes of the Plan. Although bookkeeping accounts may be established with respect +to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any +such accounts shall be used merely as a bookkeeping convenience. The Company shall not be +required to segregate any assets that may at any time be represented by cash, Common Stock +or rights thereto. The Plan shall not be construed as providing for such segregation, nor +shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common +Stock or rights thereto. Any liability or obligation of the Company to any Grantee with +respect to an Incentive Award shall be based solely upon any contractual obligations that +may be created by this Plan and any Incentive Agreement, and no such liability or obligation +of the Company shall be deemed to be secured by any pledge or other encumbrance on any +property of the Company. The Company, the Board or the Committee shall be required to give +any security or bond for the performance of any obligation that may be created by the Plan. +6.3 +Withholding Taxes +(a) +Tax Withholding. The Company shall have the power and the right to deduct or +withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy +federal, state, and local taxes, domestic or foreign, required by law or regulation to +be withheld with respect to any taxable event arising as a result of the Plan or an +Incentive Award hereunder. Upon the lapse of restrictions on Restricted Stock, the +Committee, in its discretion, may elect to satisfy the tax withholding requirement, in +whole or in part, by having the Company withhold Shares having a Fair Market Value on +the date the tax is to be determined equal to the minimum withholding taxes which could +be imposed on the transaction as determined by the Committee. +(b) +Share Withholding. With respect to tax withholding required upon the exercise +of Stock Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon +any other taxable event arising as a result of any Incentive Awards, Grantees may +elect, subject to the approval of the Committee in its discretion, to satisfy the +withholding requirement, in whole or in part, by having the Company withhold Shares +having a Fair Market Value on the date the tax is to be determined equal to the minimum +withholding taxes which could be imposed on the transaction as determined by the +Committee. All such elections shall be made in writing, signed by the Grantee, and +shall be subject to any restrictions or limitations that the Committee, in its +discretion, deems appropriate. +(c) +Incentive Stock Options. With respect to Shares received by a Grantee pursuant +to the exercise of an Incentive Stock Option, if such Grantee disposes of any such +Shares within (i) two years from the date of grant of such Option or (ii) one year +after the transfer of such shares to the Grantee, the Company shall have the right to +withhold from any salary, wages or other compensation payable by the Company to the +Grantee an amount sufficient to satisfy the minimum withholding taxes which could be +imposed with respect to such disqualifying disposition. +(d) +Loans. To the extent permitted by the Sarbanes-Oxley Act of 2002 or other +applicable law, the Committee may provide for loans, on either a short term or demand +basis, from the Company to a Grantee who is an Employee to permit the payment of taxes +required by law. +6.4 +No Guarantee of Tax Consequences +Neither the Company nor the Committee makes any commitment or guarantee that any federal, +state or local tax treatment will apply or be available to any person participating or +eligible to participate hereunder. +59 +Table of Contents +6.5 +Designation of Beneficiary by Participant +Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named +contingently or successively) to whom any benefit under the Plan is to be paid in case of +his death before he receives any or all of such benefit. Each such designation shall revoke +all prior designations by the same Grantee, shall be in a form prescribed by the Committee, +and will be effective only when filed by the Grantee in writing with the Committee during +the Grantee’s lifetime. In the absence of any such designation, benefits remaining unpaid at +the Grantee’s death shall be paid to the Grantee’s estate. +6.6 +Deferrals +The Committee shall not permit a Grantee to defer such Grantee’s receipt of the payment of +cash or the delivery of Shares that would, otherwise be due to such Grantee by virtue of the +lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any +requirements or goals with respect to Performance-Based Stock-Based Awards or Other +Stock-Based Awards. +6.7 +Amendment and Termination +The Board shall have the power and authority to terminate or amend the Plan at any time; +provided, however, the Board shall not, without the approval of the stockholders of the +Company within the time period required by applicable law: +(a) +except as provided in Section 5.6 , increase the maximum number of +Shares which may be issued under the Plan pursuant to Section 1.4 ; +(b) +amend the requirements as to the class of Employees eligible to purchase Common +Stock under the Plan; +(c) +extend the term of the Plan; or, +(d) +if the Company is a Publicly Held Corporation (i) increase the maximum limits +on Incentive Awards to Covered Employees as set for compliance with the +“performance-based exception” under Code Section 162(m) or (ii) decrease the authority +granted to the Committee under the Plan in contravention of Rule 16b-3 under the +Exchange Act. +No termination, amendment, or modification of the Plan shall adversely affect in any +material way any outstanding Incentive Award previously granted to a Grantee under the Plan, +without the written consent of such Grantee or other designated holder of such Incentive +Award. +In addition, to the extent that the Committee determines that (a) the listing for +qualification requirements of any national securities exchange or quotation system on which +the Company’s Common Stock is then listed or quoted, if applicable, or (b) the Code (or +regulations promulgated thereunder), require stockholder approval in order to maintain +compliance with such listing requirements or to maintain any favorable tax advantages or +qualifications, then the Plan shall not be amended in such respect without approval of the +Company’s stockholders. +6.8 +Requirements of Law +(a) +Governmental Entities and Securities Exchanges. The granting of Incentive +Awards and the issuance of Shares under the Plan shall be subject to all applicable +laws, rules, and regulations, and to such approvals by any governmental agencies or +national securities exchanges as may be required. Certificates evidencing shares of +Common Stock delivered under this Plan (to the extent that such shares are so +evidenced) may be subject to such stop transfer orders and other restrictions as the +Committee may deem advisable under the rules and regulations of the Securities and +Exchange Commission, any securities exchange or transaction reporting system upon which +the Common Stock is then listed or to which it is admitted for quotation, and any +applicable federal or state securities law, if applicable. The Committee may cause a +legend or legends to be placed upon such certificates (if any) to make appropriate +reference to such restrictions. +(b) +Securities Act Rule 701. If no class of the Company’s securities is registered +under Section 12 of the Exchange Act, then unless otherwise determined by the +Committee, grants of Incentive Awards to “Rule 701 Grantees” (as defined below) and +issuances of +60 +Table of Contents +the underlying shares of Common Stock, if any, on the exercise or conversion of such +Incentive Awards are intended to comply with all applicable conditions of Securities +Act Rule 701 (“Rule 701”), including, without limitation, the restrictions as to the +amount of securities that may be offered and sold in reliance on Rule 701, so as to +qualify for an exemption from the registration requirements of the Securities Act. +Any ambiguities or inconsistencies in the construction of an Incentive Award or the +Plan shall be interpreted to give effect to such intention. In accordance with +Rule 701, each Grantee shall receive a copy of the Plan on or before the date an +Incentive Award is granted to him, as well as the additional disclosure required by +Rule 701(e) if the aggregate sales price or amount of securities sold during any +consecutive 12-month period exceeds $5,000,000 as determined under Rule 701(e). If +Rule 701 (or any successor provision) is amended to eliminate or otherwise modify +any of the requirements specified in Rule 701, then the provisions of this +Section 6.8(b) shall be interpreted and construed in accordance with +Rule 701 as so amended. For purposes of this Section 6.8(b) , as determined +in accordance with Rule 701, “Rule 701 Grantees” shall mean any Grantee other than a +director of the Company, the Company’s chairman, CEO, president, chief financial +officer, controller and any vice president of the Company, and any other key +employee of the Company who generally has access to financial and other business +related information and possesses sufficient sophistication to understand and +evaluate such information. +6.9 +Rule 16b-3 Securities Law Compliance for Insiders +If the Company is a Publicly Held Corporation, transactions under the Plan with respect to +Insiders are intended to comply with all applicable conditions of Rule 16b-3 under the +Exchange Act. Any ambiguities or inconsistencies in the construction of an Incentive Award +or the Plan shall be interpreted to give effect to such intention, and to the extent any +provision of the Plan or action by the Committee fails to so comply, it shall be deemed null +and void to the extent permitted by law and deemed advisable by the Committee in its +discretion. +6.10 +Compliance with Code Section 162(m) for Publicly Held Corporation +If the Company is a Publicly Held Corporation, unless otherwise determined by the Committee +with respect to any particular Incentive Award, it is intended that the Plan shall comply +fully with the applicable requirements so that any Incentive Awards subject to +Section 162(m) that are granted to Covered Employees shall qualify for the +“performance-based exception” under Code Section 162(m), except for grants of Non-statutory +Stock Options with an Option Price set at less than the Fair Market Value of a Share on the +date of grant. If any provision of the Plan or an Incentive Agreement would disqualify the +Plan or would not otherwise permit the Plan or Incentive Award to comply with the +“performance-based exception” under Code Section 162(m) as so intended, such provision shall +be construed or deemed to be amended to conform to the requirements of the +“performance-based exception” under Code Section 162(m) to the extent permitted by +applicable law and deemed advisable by the Committee; provided, however, no such +construction or amendment shall have an adverse effect on the prior grant of an Incentive +Award or the economic value to a Grantee of any outstanding Incentive Award. +6.11 +Notices +(a) +Notice From Insiders to Secretary of Change in Beneficial Ownership. Within two +business days after the date of a change in beneficial ownership of the Common Stock +issued or delivered pursuant to this Plan, an Insider should report to the Secretary of +the Company any such change to the beneficial ownership of Common Stock that is +required to be reported with respect to such Insider under Rule 16(a)-3 promulgated +pursuant to the Exchange Act. Whenever reasonably feasible, Insiders will provide the +Committee with advance notification of such change in beneficial ownership. +(b) +Notice to Insiders and Securities and Exchange Commission. The Company shall +provide notice to any Insider, as well as to the Securities and Exchange Commission, of +any “blackout period,” as defined in Section 306(a)(4) of the Sarbanes-Oxley Act of +2002, in any case in which Insider is subject to the requirements of Section 304 of +said Act in connection with such “blackout period.” +61 +Table of Contents +6.12 +Pre-Clearance Agreement with Brokers +Notwithstanding anything in the Plan to the contrary, no shares of Common Stock issued +pursuant to this Plan will be delivered to a broker or dealer that receives such shares for +the account of an Insider unless and until the broker or dealer enters into a written +agreement with the Company whereby such broker or dealer agrees to report immediately to the +Secretary of the Company (or other designated person) a change in the beneficial ownership +of such shares. +6.13 +Successors to Company +All obligations of the Company under the Plan with respect to Incentive Awards granted +hereunder shall be binding on any successor to the Company, whether the existence of such +successor is the result of a direct or indirect purchase, merger, consolidation, or +otherwise, of all or substantially all of the business and/or assets of the Company. +6.14 +Miscellaneous Provisions +(a) +No Employee, Outside Director, or other person shall have any claim or right to +be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken +hereunder, shall be construed as giving any Employee or Outside Director any right to +be retained in the Employment or other service of the Company or any Parent or +Subsidiary. +(b) +The expenses of the Plan shall be borne by the Company. +(c) +By accepting any Incentive Award, each Grantee and each person claiming by or +through him shall be deemed to have indicated his acceptance of the Plan. +6.15 +Severability +In the event that any provision of this Plan shall be held illegal, invalid or unenforceable +for any reason, such provision shall be fully severable, but shall not affect the remaining +provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, +invalid, or unenforceable provision was not included herein. +6.16 +Gender, Tense and Headings +Whenever the context so requires, words of the masculine gender used herein shall include +the feminine and neuter, and words used in the singular shall include the plural. Section +headings as used herein are inserted solely for convenience and reference and constitute no +part of the interpretation or construction of the Plan. +6.17 +Governing Law +The Plan shall be interpreted, construed and constructed in accordance with the laws of the +State of Delaware without regard to its conflicts of law provisions, except as may be +superseded by applicable laws of the United States. +6.18 +Term of the Plan +Unless terminated earlier pursuant to Section 6.7 hereof, the Plan shall terminate +as of the close of business on May 3, 2016, and no Incentive Award may be granted under the +Plan thereafter, but such termination shall not affect any Incentive Award issued or granted +on or prior to such termination date. +6.19 +Section 409A Compliance +To the extent that the Plan provides for the payment of amounts that constitute +“nonqualified deferred compensation” under Code Section 409A, the Plan is intended to comply +with the provisions of Code Section 409A so as to prevent the inclusion of gross income of +any amounts deferred hereunder in a taxable year that is prior to the taxable year or years +in which such amounts would otherwise be actually distributed and made available to Grantees +or beneficiaries. +62 +Table of Contents +IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed in its name and on its +behalf by its duly authorized officer, effective as of April 30, 2009. +CALLON PETROLEUM COMPANY +By: +Name: +Fred L. Callon +Title: +President & Chief Executive Officer +63 +Table of Contents +ANNUAL MEETING OF SHAREHOLDERS OF +CALLON PETROLEUM COMPANY +April 30, 2009 +NOTICE OF INTERNET AVAILABILITY +OF PROXY MATERIAL: +The Notice of Meeting, proxy statement and proxy card +are available at http://www.callon.com +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach along perforated line and mail in +the envelope provided. â +n 20230300000000000000 4 +043009 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSALS 2 AND 3. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE +ý +1. Election of Directors: +FOR +AGAINST +ABSTAIN +2. +To ratify the appointment of Ernst & Young +LLP as the Company’s Independent Registered Public Accounting firm. +o +o +o +NOMINEES: +o +o +FOR ALL NOMINEES +WITHHOLD AUTHORITY +FOR ALL NOMINEES +¡ +¡ +Fred L. Callon +L. Richard Flury +3. +To approve and ratify the Callon Petroleum Company 2009 Stock Incentive Plan. +o +o +o +o +FOR ALL EXCEPT +(See +instructions below) +4. +In their discretion, the Proxies are authorized +to vote upon such other business as may properly come before the meeting or +any adjournments thereof. +INSTRUCTIONS: To withhold authority to vote for any individual +nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to +each nominee you wish to withhold, as shown here: += +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED +IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE +VOTED “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSALS 2 AND 3. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE +ENCLOSED. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes +to the registered name(s) on the account may not be submitted via this method. +o +Signature of +Shareholder +Date: +Signature of Shareholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, +administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly +authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +n +n +Table of Contents +o +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy Solicited on Behalf of the Board of Directors +of the Company for the Annual Meeting of Shareholders on April 30, 2009 +The undersigned hereby constitutes and appoints Fred L. Callon his true +and lawful agent and proxy with full power of substitution in each, to +represent and to vote, as designated on the reverse, all of the shares of +Common Stock of Callon Petroleum Company, held of record by the +undersigned on March 9, 2009 at the Annual Meeting of Shareholders to be +held at 9:00 a.m. in the Grand Ballroom of the Country Inns & Suites, 111 +Broadway Street, Natchez, Mississippi 39120 on April 30, 2009, and at any +adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS +PROXY WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS AND “FOR” +PROPOSALS 2 AND 3 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choices by marking the +appropriate boxes (SEE REVERSE SIDE) but you need not mark any +boxes if you wish to vote in accordance with the Board of Directors’ +recommendations. The Proxies cannot vote your shares unless you +sign and return this card. +(Continued and to +be signed on the reverse side) +14475 \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950129-09-001060/proxy_rpt.txt b/raw/proxies/0000928022/0000950129-09-001060/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..cbfbaf920f9a4314351d5f40b9ce546795d1d7e3 --- /dev/null +++ b/raw/proxies/0000928022/0000950129-09-001060/proxy_rpt.txt @@ -0,0 +1,11 @@ +Certain Relationships and Related Party Transactions . Our Audit Committee charter provides +that the Company shall not enter into a related party transaction unless such transaction is +approved by the Audit Committee after a review of the transaction by the Audit Committee for +potential conflicts of interest. A transaction will be considered a “related party transaction” if +the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, +our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of +interest with the Company may only be waived if the Nominating and Governance Committee approves +the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority +to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or +to delegate responsibilities to executive officers of the Company in connection with discharging +their duties. As of December 31, 2008, we are not aware of any related party transactions with our \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950134-03-016995/proxy.txt b/raw/proxies/0000928022/0000950134-03-016995/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0457682d8411f9fa1e8c5bcd55322d76323366a3 --- /dev/null +++ b/raw/proxies/0000928022/0000950134-03-016995/proxy.txt @@ -0,0 +1,578 @@ +DEF 14A +1 +d11228d1def14a.txt +DEFINITIVE PROXY STATEMENT - SPECIAL MEETING +OMB APPROVAL +-------------------------- +OMB Number: 3235-0059 +Expires: February 28, 2006 +Estimated average burden +hours per response...12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY +RULE 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-12 +Callon Petroleum Company +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) Title of each class of securities to which transaction applies: +-------------------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +-------------------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +-------------------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +-------------------------------------------------------------------------------- +5) Total fee paid: +-------------------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +-------------------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +-------------------------------------------------------------------------------- +3) Filing Party: +-------------------------------------------------------------------------------- +4) Date Filed: +-------------------------------------------------------------------------------- +PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION +CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A +CURRENTLY VALID OMB CONTROL NUMBER. +SEC 1913 (02-02) +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF SPECIAL MEETING OF STOCKHOLDERS +TO BE HELD FRIDAY, JANUARY 23, 2004 +To the Stockholders of +Callon Petroleum Company: +Notice is hereby given that a Special Meeting of Stockholders (the +"SPECIAL MEETING") of Callon Petroleum Company, a Delaware corporation +("COMPANY"), will be held in Natchez, Mississippi, on Friday, January 23, 2004, +at 9:00 a.m., at the Company's executive offices located at 200 North Canal +Street, Natchez, Mississippi 39120. +The sole purpose of the Special Meeting is to approve an amendment to +Article Four of the Company's Certificate of Incorporation increasing the +Company's number of authorized shares of common stock from 20,000,000 shares to +30,000,000 shares. +Stockholders of record at the close of business on December 22, 2003 +will be entitled to notice of, and to vote at, the Special Meeting, or any +adjournment or adjournments thereof. The Special Meeting may be postponed or +adjourned from time to time to obtain a quorum, solicit additional votes in +favor of the proposal or for other purposes. +Stockholders are cordially invited to attend the Special Meeting in +person. Those individuals who will not attend and who wish for their shares to +be voted are requested to sign, date and mail promptly the enclosed proxy card +for which a postage-prepaid return envelope is provided. +By Order of the Board of Directors +/s/ Robert A. Mayfield +Robert A. Mayfield +Corporate Secretary +Natchez, Mississippi +December 23, 2003 +YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU +CANNOT ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT +PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF +THE ENVELOPE IS MAILED IN THE UNITED STATES. +PROXY STATEMENT +---------- +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +(601) 442-1601 +---------- +SPECIAL MEETING OF STOCKHOLDERS +FRIDAY, JANUARY 23, 2004 +---------- +SOLICITATION AND REVOCABILITY OF PROXIES +This Proxy Statement is furnished in connection with the solicitation +of proxies on behalf of the Board of Directors of Callon Petroleum Company, a +Delaware corporation (the "COMPANY"), from holders ("STOCKHOLDERS") of the +common stock, $.01 par value per share ("COMMON STOCK"), of the Company for use +at the Special Meeting of Stockholders of the Company to be held on Friday, +January 23, 2004, at 9:00 a.m., at the Company's executive offices located at +200 North Canal Street, Natchez, Mississippi 39120, and at any adjournment or +adjournments thereof (such meeting or adjournment thereof is referred to herein +as the "SPECIAL MEETING"), for the purpose of considering and voting upon the +matters set forth in the accompanying Notice of Special Meeting of Stockholders +("NOTICE"). +A proxy in the form accompanying this Proxy Statement (each a "PROXY"), +when properly executed and returned, will be voted in accordance with the +directions specified on the Proxy, and otherwise in accordance with the judgment +of the persons designated therein as proxies. Any Proxy which does not withhold +authority to vote or on which no other instructions are given will be voted in +favor of the amendment to Article Four of the Company's Certificate of +Incorporation, as amended ("CERTIFICATE"), increasing the Company's number of +authorized shares of Common Stock from 20,000,000 shares to 30,000,000 shares. +Any Proxy may be revoked at any time before it is exercised by delivering, to +the Secretary of the Company, written notice of revocation or a duly executed +Proxy bearing a later date, or by voting in person at the Special Meeting. +This Proxy Statement and the accompanying Notice and form of Proxy are +being mailed to Stockholders on or about December 23, 2003. +Proxies will be solicited primarily by mail, but employees of the +Company may also solicit Proxies in person or by telephone. Arrangements may be +made with brokerage firms or other custodians, nominees, and fiduciaries to send +proxy materials to the beneficial owners of the Common Stock of the Company. All +costs incurred in the solicitation of Proxies will be borne by the Company. +The Board of Directors has fixed the close of business on December 22, +2003 as the record date (the "RECORD DATE") for the determination of +Stockholders entitled to notice of, and to vote at, the Special Meeting. A +complete list of all Stockholders entitled to vote at the Special Meeting will +be open for examination by any Stockholder during normal business hours for a +period of ten days prior to the Special Meeting at the offices of the Company, +200 North Canal Street, Natchez, Mississippi 39120. Such list will also be +available at the Special Meeting and may be inspected by any Stockholder who is +present. On the Record Date, the Company's outstanding voting securities +consisted of 13,935,311 shares of Common Stock. Holders of Common Stock will be +entitled to one vote per share of Common Stock held of record on the Record Date +for the proposal to be presented at the Special Meeting. +No business other than the consideration of the amendment to the +Certificate will be considered or acted upon at the Special Meeting. +No Stockholder of the Company, whether voting for, against or +abstaining with respect to the amendment to the Company's Certificate, will be +entitled to appraisal rights or the right to receive cash for shares under the +Delaware General Corporation Law or the Company's Certificate or Bylaws. +PROPOSAL +AMENDMENT TO ARTICLE FOUR OF THE COMPANY'S CERTIFICATE +TO INCREASE THE COMPANY'S NUMBER OF AUTHORIZED SHARES +OF COMMON STOCK FROM 20,000,000 SHARES TO 30,000,000 SHARES +GENERAL INFORMATION +The Company's Board of Directors has unanimously adopted a resolution +approving, and recommending to our Stockholders for their approval, a proposal +to amend Article Four of the Company's Certificate to increase the Company's +number of authorized shares of Common Stock from 20,000,000 shares to 30,000,000 +shares. The form of the proposed amendment is follows: +The Certificate is hereby amended by amending and restating the first +sentence of Article Four to be and read as follows: +"The Corporation shall have authority to issue two classes of +stock, and the total number authorized shall be 30,000,000 shares of +Common Stock, par value $.01 per share, and 2,500,000 shares of +Preferred Stock, par value $.01 per share." +REASONS FOR INCREASING THE AUTHORIZED SHARES OF COMMON STOCK +Currently, the Company's outstanding capital stock consists of +20,000,000 shares of Common Stock and 2,500,000 shares of preferred stock. As of +the Record Date, there were 13,935,311 shares of Common Stock issued and +outstanding, 1,365,593 shares of Common Stock issuable upon conversion of +outstanding Preferred Stock, 1,924,210 shares of Common Stock issuable upon +exercise of outstanding warrants, 2,450,867 shares of Common Stock issuable upon +exercise of outstanding options, 197,158 shares of Common Stock authorized for +issuance, but not yet subject to grants, pursuant to the Company's stock +incentive plans and 93,784 shares of Common Stock authorized for issuance +pursuant to the Company's Employee Stock Purchase Plan. In addition, the Company +is required to contribute approximately 15,000 shares of Common Stock to the +Company's Employee Savings and Protection (401K) Plan in January 2004 to satisfy +its employer contribution and matching obligations. Consequently, the Company +has approximately 18,077 shares of Common Stock available for general corporate +purposes. +As a general matter, the Board of Directors does not believe the +Company has an adequate number of shares available for issuance in connection +with possible future equity and equity-based financings, future acquisitions and +other corporate purposes. The Board of Directors has proposed the increase in +authorized shares of Common Stock as a means of providing it with the +flexibility to act with respect to the issuance of Common Stock or securities +exercisable for, or convertible into, Common Stock in circumstances which it +believes will advance the interests of the Company and its Stockholders without +the delay of seeking an amendment to the Company's Certificate at that time such +securities are to be issued. +The Board of Directors has no current specific plans to authorize the +issuance of additional shares of Common Stock. As previously discussed in the +Company's 2002 Annual Report, the Company has a financing plan which +contemplates the possibility of various financing alternatives, including +potential capital market transactions. In connection with the Company's overall +financing plan, from time to time, the Board of Directors has considered the +issuance of Common Stock or securities convertible into Common Stock. If +Stockholders approve the amendment to the Certificate, then the Board of +Directors would have more flexibility to pursue opportunities to engage in +possible future capital markets transactions involving Common Stock or +securities convertible into Common Stock. However, at this time, no decision to +proceed with any such transaction has been made and no determination as to the +type or amount of securities that might be offered has been made, should a +possible future transaction be pursued. +ABILITY OF BOARD TO ISSUES SHARES; CERTAIN ISSUANCES REQUIRING STOCKHOLDER +APPROVAL +If the amendment is approved by Stockholders, the additional shares of +Common Stock authorized by the amendment may be issued from time to time upon +authorization by the Board of Directors, without further approval by +Stockholders unless required by applicable law or the rules of the New York +Stock Exchange. Shares of Common Stock may be issued for such consideration as +the Board of Directors may determine and as may be permitted by applicable law. +The rules of the New York Stock Exchange generally require the approval +of shares representing a majority of the votes cast for the issuance of shares +of Common Stock, or securities convertible into or exercisable for Common Stock, +prior to the issuance of such Common Stock. Issuances of Common Stock, +2 +or securities convertible into or exercisable for Common Stock, that require +Stockholder approval under the New York Stock Exchange's rules include the +following: +o issuances in connection with a transaction that will result in a +change of control of the Company; +o issuances of shares representing more than one percent of the voting +power or number of shares of Common Stock outstanding before such +issuance to an officer, director or certain substantial Stockholders; +o issuances of shares pursuant to most equity-compensation plans; and +o issuances of shares representing 20 percent or more of the voting +power or number of shares of Common Stock outstanding before such +issuance. +Stockholder approval is not required under the New York Stock +Exchange's rules for an issuance representing 20 percent or more of the voting +power or outstanding shares of the Company if such issuances involves a public +offering for cash or a bona fide private financing for cash at a price at least +as great as each of the book and market value of the Common Stock. +CERTAIN EFFECTS OF THE AMENDMENT +The increase in authorized shares of Common Stock is not being proposed +as a means of preventing or dissuading a change in control or takeover of the +Company. However, use of these shares of Common Stock for such a purpose is +possible. Shares of authorized but unissued or unreserved Common Stock and +preferred stock, for example, could be issued in an effort to dilute the stock +ownership and voting power of persons seeking to obtain control of the Company +or could be issued to purchasers who would support the Board of Directors in +opposing a takeover proposal. In addition, the increase in authorized shares of +Common Stock, if approved, may have the effect of discouraging a challenge for +control or make it less likely that such a challenge, if attempted, would be +successful. The Board of Directors and executive officers of the Company have no +knowledge of any current effort to obtain control of the Company or to +accumulate large amounts of Common Stock. +The holders of Common Stock are not entitled to preemptive rights with +respect to the issuance of additional shares of Common Stock or securities +convertible into or exercisable for Common Stock. Accordingly, the issuance of +additional shares of Common Stock or such other securities might dilute the +ownership and voting rights of Stockholders. +The proposed amendment to the Certificate does not change the terms of +the Common Stock. The additional shares of Common Stock for which authorization +is sought will have the same voting rights, the same rights to dividends and +distributions and will be identical in all other respects to the shares of +Common Stock now authorized. +If approved by Stockholders, it is anticipated that the amendment to +the Certificate will become effective as soon as practicable after the Special +Meeting. +RECOMMENDATION +The Board of Directors unanimously recommends a vote "FOR" the +amendment to the Certificate to increase Company's number of authorized shares +of Common Stock from 20,000,000 shares to 30,000,000 shares. +3 +BENEFICIAL OWNERSHIP OF SECURITIES +MANAGEMENT AND PRINCIPAL SHAREHOLDERS +The following table sets forth, as of the Record Date, certain +information with respect to the ownership of shares of Common Stock and the +Company's $2.125 Convertible Exchangeable Preferred Stock ("PREFERRED STOCK") as +to (i) each director, (ii) the "named executive officers" consisting of the +Company's chief executive officer and four most highly compensated executive +officers, (iii) all executive officers and directors of the Company as a group, +and (iv) all persons known by the Company to be the beneficial owners of 5% or +more of the outstanding Common Stock. Information set forth in the table with +respect to beneficial ownership of Common Stock and Preferred Stock has been +obtained from filings made by the named beneficial owners with the Securities +and Exchange Commission ("COMMISSION") as of the Record Date or, in the case of +executive officers and directors of the Company, has been provided to the +Company by such individuals. Holders of Preferred Stock are not entitled to vote +at the Special Meeting. +COMMON STOCK +---------------------------- +BENEFICIAL +NAME AND ADDRESS OF OWNERSHIP +BENEFICIAL OWNER (a) PERCENT +---------------------------------------------------- ------------ ------- +Directors: +John S. Callon ................................ 240,850(b) 1.71% +Fred L. Callon ................................ 791,081(c) 5.54% +200 North Canal Street +Natchez, Mississippi 39120 +Dennis W. Christian ........................... 366,821(d) 2.58% +Leif Dons ..................................... 50,250(e) * +Robert A. Stanger ............................. 102,856(f) * +John C. Wallace ............................... 1,979,167(g) 14.11% +72 Chelsea Gate Apartments +93 Ebury Bridge Road +London, SW1W 8RB, United Kingdom +B. F. Weatherly ............................... 101,288(h) * +Richard O. Wilson ............................. 150,146(i) 1.07% +Named Executive Officers: +John S. Weatherly ............................. 330,985(j) 2.33% +Stephen F. Woodcock ........................... 135,127(k) * +Kathy G. Tilley ............................... 247,481(l) 1.75% +Directors and Executive Officers: +as a Group (15 persons) ....................... 4,821,454(m) 30.24% +Certain Beneficial Owners: +Ganger Rolf ASA ............................... 1,839,386(n) 13.20% +Fred. Olsensgate 2 +0152 Oslo, Norway +Bonheur ASA ................................... 1,839,386(n) 13.20% +Fred. Olsensgate 2 +0152 Oslo, Norway +State Street Research & Management Company .... 894,400(o) 6.42% +One Financial Center, Thirtieth Floor +Boston, Massachusetts 02111-2690 +Dimensional Fund Advisors Inc. ................ 946,700(p) 6.80% +1299 Ocean Avenue, 11th Floor +Santa Monica, CA 90401 +Robert L. Gipson .............................. 765,910(q) 5.39% +C/O Ingalls & Snyder LLC +61 Broadway +New York, NY 10006 +Franklin Resources, Inc. ...................... 1,500,000(r) 9.72% +1 Franklin Parkway, +San Mateo, CA 94403 +---------- +* Less than 1% +4 +(a) Unless otherwise indicated, each of the persons listed in the following +table may be deemed to have sole voting and dispositive power with respect +to such shares. +(b) Of the 240,850 shares beneficially owned by John S. Callon, 104,437 are +owned directly by him; 11,413 shares are owned within the Company's +Employee Savings and Protection Plan; 90,000 shares are subject to options +under the Company's 1994 Stock Incentive Plan ("1994 PLAN") exercisable +within 60 days; 30,000 shares are subject to options under the Company's +1996 Stock Incentive Plan ("1996 PLAN") exercisable within 60 days; and +5,000 shares are subject to options under the Company's 2002 Stock +Incentive Plan ("2002 PLAN") exercisable within 60 days . Shares indicated +as owned by John S. Callon do not include 53,501 shares of Common Stock +owned by his wife over which he disclaims beneficial ownership. +(c) Of the 791,081 shares beneficially owned by Fred L. Callon, 261,799 shares +are owned directly by him; 184,378 shares are held by him as custodian for +certain minor Callon family members; 9,446 shares are owned within the +Company's Employee Savings and Protection Plan; 80,000 shares are subject +to options under the 1994 Plan exercisable within 60 days; and 255,458 +shares are subject to options under the 1996 Plan exercisable within 60 +days. Shares indicated as owned by Fred L. Callon do not include 24,939 +shares of Common Stock owned by his wife over which he disclaims beneficial +ownership. +(d) Of the 366,821 shares beneficially owned by Dennis W. Christian, 63,486 are +owned directly by him; 8,718 shares are owned within the Company's Employee +Savings and Protection Plan; 60,000 shares are subject to options under the +1994 Plan exercisable within 60 days; and 234,617 shares are subject to +options under the 1996 Plan exercisable within 60 days. +(e) Of the 50,250 shares beneficially owned by Leif Dons, 5,250 are owned +directly by him; 5,000 shares are subject to options under the 1994 Plan +exercisable within 60 days; 35,000 shares are subject to options under the +1996 Plan exercisable within 60 days; and 5,000 shares are subject to +options under the 2002 Plan exercisable within 60 days. +(f) Of the 102,856 shares beneficially owned by Robert A. Stanger, 12,856 are +owned directly by him; 25,000 shares are subject to options under the 1994 +Plan exercisable within 60 days; 60,000 shares are subject to options under +the 1996 Plan exercisable within 60 days; and 5,000 shares are subject to +options under the 2002 Plan exercisable within 60 days. +(g) Of the 1,979,167 shares beneficially owned by John C. Wallace, 49,781 +shares are owned directly by him; 25,000 shares are subject to options +under the 1994 Plan exercisable within 60 days; 60,000 shares are subject +to options under the 1996 Plan exercisable within 60 days; 5,000 shares are +subject to options under the 2002 Plan exercisable within 60 days; and +1,839,386 shares are owned by Ganger Rolf ASA ("GANGER ROLF") and Bonheur +ASA ("BONHEUR"). See note (n). +(h) Of the 101,288 shares beneficially owned by B. F. Weatherly, 11,288 shares +are owned directly by him; 25,000 shares are subject to options under the +1994 Plan exercisable within 60 days; 60,000 shares are subject to options +under the 1996 Plan exercisable within 60 days; and 5,000 shares are +subject to options under the 2002 Plan exercisable within 60 days. +(i) Of the 150,146 shares beneficially owned by Richard O. Wilson, 25,000 +shares are subject to options under the 1994 Plan exercisable within 60 +days; 60,000 shares are subject to options under the 1996 Plan exercisable +within 60 days; 5,000 shares are subject to options under the 2002 Plan +exercisable within 60 days; 49,464 shares are held in a family limited +partnership; and 10,682 shares are issuable upon conversion of 4,700 shares +of Preferred Stock held in the family limited partnership. +(j) Of the 330,985 shares beneficially owned by John S. Weatherly, 55,605 are +owned directly by him; 109 shares are held as custodian for his minor +children; 7,938 shares are owned within the Company's Employee Savings and +Protection Plan; 60,000 shares are subject to options under the 1994 Plan +exercisable within 60 days; and 207,333 shares are subject to options under +the 1996 Plan exercisable within 60 days. +(k) Of the 135,127 shares beneficially owned by Stephen F. Woodcock, 18,194 are +owned directly by him; 5,683 shares are owned within the Company's Employee +Savings and Protection Plan; 104,000 shares are subject to options under +the 1996 Plan exercisable within 60 days; and 7,250 shares are subject to +options under the 2002 Plan exercisable within 60 days. +5 +(l) Of the 247,481 shares beneficially owned by Kathy G. Tilley, 45,676 are +owned directly by her; 6,305 shares are owned within the Company's Employee +Savings and Protection Plan; 30,000 shares are subject to options under the +1994 Plan exercisable within 60 days; 158,000 shares are subject to options +under the 1996 Plan exercisable within 60 days; and 7,500 shares are +subject to options under the 2002 Plan exercisable within 60 days. +(m) Includes 489,000 shares subject to options under the 1994 Plan exercisable +within 60 days; 1,453,833 shares subject to options under the 1996 Plan +exercisable within 60 days; 55,449 shares are subject to options under the +2002 Plan exercisable within 60 days and 10,682 shares issuable upon +conversion of 4,700 shares of Preferred Stock. +(n) As disclosed on a Schedule 13D/A, filed with the Commission on March 6, +2002, by Ganger Rolf, Bonheur, AS Quatro ("QUATRO"), and Invento AS +("INVENTO"). On August 28, 2000, Ganger Rolf and Bonheur jointly purchased +from Fred. Olsen Energy ASA ("F.O. ENERGY") an aggregate of 1,839,386 +shares of Common Stock. Ganger Rolf and Bonheur are currently registered as +the joint record owner of, and both possess shared voting and dispositive +power with respect to, all of the 1,839,386 shares of Common Stock formerly +owned by F.O. Energy. F.O. Energy no longer owns any Common Stock. Quatro +is the owner of 21.3% of the outstanding capital stock of Bonheur, and +Invento is the owner of 20.8% of the outstanding capital stock of Bonheur. +Quatro and Invento disclaim beneficial ownership of the shares of Common +Stock owned by Ganger Rolf and Bonheur. John C. Wallace, one of our +directors, is a director of Ganger Rolf and Bonheur, as well as other +companies associated with Ganger Rolf and Bonheur, and as a result, may be +deemed to share the power to vote and dispose of, and, therefore, be a +beneficial owner of, the shares of Common Stock owned by Ganger Rolf and +Bonheur. The principal business address and principal executive offices of +Quatro and Invento are located at Fred. Olsensgate 2, 0152 Oslo, Norway. +(o) Information is based upon a Schedule 13G provided to the Company dated +February 14, 2003, by State Street Research & Management Company ("STATE +STREET"). In this Schedule 13G, State Street represents that it has sole +voting power with respect to 859,400 shares of Common Stock and sole +dispositive power with respect to 894,400 shares of Common Stock. +(p) Information is based upon a Schedule 13G/A, filed with the Commission on +February 13, 2003, by Dimensional Fund Advisors Inc. ("DIMENSIONAL"). In +this Schedule 13G, Dimensional represents that it has sole voting power and +sole dispositive power with respect to 946,700 shares of Common Stock. +(q) Information is based upon a Schedule 13G, filed with the Commission on +November 7, 2003, by Robert L. Gipson ("GIPSON"). In this Schedule 13G, +Gipson represents that he has shared voting power with respect to 265,210 +shares of Common Stock issuable upon exercise of warrants exercisable +within 60 days and shared dispositive power with respect to 765,910 shares +of Common Stock. +(r) Consists of warrants to purchase an aggregate of 1,500,000 shares of Common +Stock that are beneficially owned by Franklin Custodian Funds-Income +Series, FTVIPT-Income Securities Fund, and FTIF Income Fund, which are +advised by direct and indirect investment advisory subsidiaries of Franklin +Resources, Inc. +6 +QUORUM AND OTHER MATTERS +The holders of a majority of the total shares of Common Stock issued +and outstanding on the Record Date, whether present in person or represented by +Proxy, will constitute a quorum for the transaction of business at the Special +Meeting. The affirmative vote of a majority of the outstanding Common Stock is +necessary to approve the amendment to the Certificate increasing the number of +authorized shares of Common Stock to 30,000,000 shares. +Holders of Common Stock may mark "abstain" on their proxy card for the +matter being submitted to a vote at the Special Meeting. For purposes of +determining whether a quorum is present under Delaware law, abstentions count +towards the establishment of a quorum. Abstentions will be the equivalent of a +"no" vote because approval of such proposal is based on the total number of +shares outstanding. +Many of the Company's shares of Common Stock are held in "street name" +which means that a depository, broker-dealer or other institution holds shares +in its name which are beneficially owned by another person. Generally, a street +name holder must receive the direction from the beneficial owner of the shares +to vote on issues other than routine stockholder matters such as the election of +directors and ratification of auditors. A "broker non-vote" refers to a proxy +which votes on one matter, but indicates that the holder does not have the +authority to vote on other matters. For purposes of determining whether a quorum +is present under Delaware law, a broker non-vote counts towards the +establishment of a quorum. Broker non-votes have the effect of a "no" vote with +respect to the amendment to the Company's Certificate increasing the number of +authorized shares of Common Stock to 30,000,000 shares because the approval of +such proposal is based on the total number of shares outstanding. +STOCKHOLDERS' PROPOSALS +FOR 2004 ANNUAL MEETING +Stockholders who desire to present proposals at the 2004 Annual Meeting +of Stockholders and to have proposals included in the Company's proxy materials +must have submitted their proposals to the Company at its principal executive +offices not later than December 16, 2003. If the date of the 2004 Annual Meeting +of Stockholders is changed by more than 30 days from the date of the 2003 Annual +Meeting of Stockholders, which was held on May 2, 2003, the deadline for +submitting proposals is a reasonable time before the Company begins to print and +mail its proxy materials for its 2004 Annual Meeting of Stockholders. +The persons named in the Company's form of proxy for the 2004 Annual +Meeting will have discretionary authority to vote any proxies they hold at such +meeting on any matter for which the Company does not receive notice by February +29, 2004, unless the Company changes the date of its 2004 Annual Meeting of +Stockholders by more than 30 days from the date of the 2003 Annual Meeting of +Stockholders, in which case such persons will be able to exercise discretionary +authority if notice of the matter has not been received in a reasonable time +before the Company mails its proxy materials for the 2004 Annual Meeting of +Stockholders. +If the date of the 2004 Annual Meeting of Stockholders is advanced or +delayed by more than 30 calendar days from the date of the 2003 Annual Meeting +of Stockholders, the Company shall, in a timely manner, inform Stockholders of +such change, by including a notice, under Item 5, in its earliest possible +quarterly report on Form 10-Q. The notice will include the new deadline for +submitting proposals to be included in the Company's proxy statement and the new +date for determining whether the Company may exercise discretionary voting +authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company +receives any such proposal, it is suggested that Stockholders submit their +proposals by certified mail, return receipt requested, or other means that +permit them to prove the date of delivery. +By order of the Board of Directors +/s/ Fred L. Callon +Fred L. Callon +President and Chief Executive Officer +Natchez, Mississippi +December 23, 2003 +7 +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120 +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +OF THE COMPANY FOR THE SPECIAL MEETING ON JANUARY 23, 2004 +The undersigned hereby constitutes and appoints John S. Callon and Fred L. +Callon and each of them, his true and lawful agents and proxies with full power +of substitution in each, to represent and to vote, as designated on the reverse, +all of the shares of Common Stock of Callon Petroleum Company, held of record by +the undersigned on December 22, 2003, at the Special Meeting of Stockholders to +be held in the Company's executive offices located at 200 North Canal Street, +Natchez, Mississippi 39120 on January 23, 2004, and at any adjournments thereof, +on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY +WILL BE VOTED "FOR" PROPOSAL 1 AS INDICATED ON THE REVERSE SIDE HEREOF. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES +(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN +ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) +SPECIAL MEETING OF STOCKHOLDERS OF +CALLON PETROLEUM COMPANY +JANUARY 23, 2004 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +-- Please detach along perforated line and mail in the envelope provided. -- +-------------------------------------------------------------------------------- +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X] +1. To amend and restate the first sentence of Article FOR AGAINST ABSTAIN +Four of Callon Petroleum Company's Certificate of [ ] [ ] [ ] +Incorporation, as amended, to be read as follows: +"The Corporation shall have authority to issue two classes of stock, and the +total number authorized shall be 30,000,000 shares of Common Stock, par +value $.01 per share, and 2,500,000 shares of Preferred Stock, par value +$.01 per Share." +2. In their discretion, the Proxies are authorized to vote upon such other +business as may properly come before the meeting or any adjournments thereof. +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. +IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED, +PRE-ADDRESSED ENVELOPE ENCLOSED. +To change the address on your account, please check the box at right and +indicate your new address in the address space above. Please note that [ ] +changes to the registered name(s) on the account may not be submitted +via this method. +Signature of Stockholder Date: +------------------------------ -------------- +Signature of Stockholder Date: +------------------------------ -------------- +Note: Please sign exactly as your name or names appear on this Proxy. When +shares are held jointly, each holder should sign. When signing as +executor, administrator, attorney, trustee or guardian, please give full +title as such. If the signer is a corporation, please sign full corporate +name by duly authorized officer, giving full title as such. If signer is a +partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0000928022/0000950134-03-016995/proxy_rpt.txt b/raw/proxies/0000928022/0000950134-03-016995/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0001354488-13-001760/proxy.txt b/raw/proxies/0000928022/0001354488-13-001760/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..dbdcd4bd1b690efa9add20adeb46f99477f0d7b7 --- /dev/null +++ b/raw/proxies/0000928022/0001354488-13-001760/proxy.txt @@ -0,0 +1,1843 @@ +DEF 14A +1 +cpe_def14a.htm +SCHEDULE 14A +cpe_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, For Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material under Rule 14a-12 +CALLON PETROLEUM COMPANY +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ No fee required +o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2013 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD THURSDAY, MAY 16, 2013 +To Our Stockholders: +Notice is hereby given and you are cordially invited to attend the 2013 Annual Meeting of Stockholders of Callon Petroleum Company (“Callon” or the “Company”) which will be held in Natchez, Mississippi, on Thursday, May 16, 2013, at 9:00 a.m. CST, in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, for the following purposes: +1. +To elect two (2) Class I Directors for a three-year term; +2. +To hold an advisory vote to approve the Company’s executive compensation; +3. +To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year 2013; and +4. +To transact such other business as may properly come before the Annual Meeting or any adjournment(s) thereof. +Stockholders of record at the close of business on the Record Date may attend and vote at the Annual Meeting, or any adjournment or postponements thereof. A stockholders’ list will be available at the Company’s office at 200 North Canal St., Natchez, MS 39120 during normal business hours for a period of ten days prior to the meeting. If you wish to attend the Annual Meeting in person, you must present valid government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting, in order to be admitted you must present proof of your beneficial ownership of the Company’s Common Stock, such as a bank or brokerage account statement indicating that you owned shares of the Company’s Common Stock at the close of business on the Record Date. For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting. +Whether or not you plan to attend the meeting, please vote electronically via the Internet or by telephone, or, if you requested paper copies of the proxy materials, please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope. See “How do I cast my vote?” in the proxy statement for more details. +We look forward to seeing you at the meeting. +By Order of the Board of Directors +Natchez, Mississippi +B. F. Weatherly +April 4, 2013 +Executive Vice President, Chief Financial +Officer (“CFO”) and Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials +for the Stockholder Meeting to be Held on May 16, 2013: +The Proxy Statement and Annual Report for 2012 are available at +www.iproxydirect.com/CPE +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2013 ANNUAL MEETING OF STOCKHOLDERS +THURSDAY, MAY 16, 2013 +INFORMATION CONCERNING SOLICITATION AND VOTING +The Company’s Board of Directors (“Board”) is soliciting proxies for the 2013 Annual Meeting of Stockholders to be held on Thursday, May 16, 2013 at 9:00 a.m. CST in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, and at any adjournments or postponements of the meeting. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully. +Callon will pay the costs of soliciting proxies from stockholders. The Company’s directors, officers and regular employees may solicit proxies on behalf of Callon, without additional compensation, personally or by telephone. +QUESTIONS AND ANSWERS +Q: +Who can vote at the meeting? +A: +The Board set March 22, 2013 as the record date (“Record Date”) for the meeting. You can attend and vote at the meeting if you were a stockholder at the close of business on the Record Date. On that date, there were 39,872,214 shares outstanding and entitled to vote at the meeting. +Q: +What proposals will be voted on at the meeting? +A: +Three proposals are scheduled to be voted upon at the meeting: +● +The election of directors; +● +Advisory approval of the Company’s executive compensation; and +● +The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. +Q: +Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? +A: +Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we have elected to provide access to the Company’s proxy materials over the Internet. The Company’s Board has made these proxy materials available to you on the Internet on or about April 4, 2013 at https://www.iproxydirect.com/CPE , which is the cookies-free website described in the Notice of Internet Availability of Proxy Materials (the “Notice”), mailed to stockholders of record and beneficial holders. Doing so allows us to further the Company’s environmental objectives and the prudent use of resources by limiting waste generated from the Annual Meeting. Accordingly, we are sending the Notice to our stockholders of record and beneficial owners of our stock, and filing the Notice with the SEC, on or about April 4, 2013. In addition to the Company’s proxy materials being available for review at https://www.iproxydirect.com/CPE , the site contains instructions on how to access the proxy materials on a website or to request a printed copy, free of charge. Stockholders may request proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by contacting the Company’s Corporate Secretary at our principal executive offices in Natchez, Mississippi. We will also provide stockholders upon request and free of charge with a copy of the Company’s Form 10-K for the year ended December 31, 2012 as filed with the SEC. +Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of the Company’s common stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of a third-party proxy solicitation firm, AST Phoenix Advisors, to assist us in the Company’s solicitation efforts. +2 +Q: +Can I vote my shares by filling out and returning the Notice? +A: +No. The Notice identifies the items to be voted on at the meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to vote via the Internet, by telephone or by requesting and returning a paper proxy card, or by submitting a ballot in person at the meeting. +Q: +How can I get electronic access to the proxy materials? +A: +The Notice will provide you with instructions regarding how to: +● +View the Company’s proxy materials for the meeting on the Internet; and +● +Instruct us to send future proxy materials to you electronically by email. +Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy-voting site. Your election to receive proxy materials by email will remain in effect until you terminate it. +Q: +How do I cast my vote? +A: +There are three convenient methods for registered stockholders to direct their vote by proxy without attending the Annual Meeting: +● +Vote by Internet . You can vote via the Internet. The website address for Internet voting is provided on your Notice or proxy card. You will need to use the control and request ID appearing on your Notice or proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. CST on May 15, 2013. Internet voting is available 24 hours a day. If you vote via the Internet, you do NOT need to vote by telephone or return a proxy card. +● +Vote by Telephone . You can also vote by telephone by calling the toll-free telephone number provided on the Internet link on your Notice or on your proxy card. You will need to use the control and request ID appearing on your Notice or proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. CST on May 15, 2013. Telephone voting is available 24 hours a day. If you vote by telephone, you do NOT need to vote over the Internet or return a proxy card. +● +Vote by Mail . If you received a printed copy of the proxy card, you can vote by marking, dating and signing it, and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting. +3 +In the event that you return a signed proxy card on which no directions are specified, your shares will be voted as recommended by the Company’s Board on all matters, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any postponement or adjournment of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Annual Meeting. +If your shares are registered in the name of a broker, bank or other nominee (typically referred to as being held in “street name”), you will receive instructions from your broker, bank or other nominee that must be followed in order for your broker, bank or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If Internet or telephone voting is unavailable from your broker, bank or other nominee, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided. +In the event you do not provide instructions on how to vote, your broker may have authority to vote your shares. Under the rules that govern brokers who are voting with respect to shares that are held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the ratification of the appointment of independent auditors, but not the election of directors or the advisory proposal on executive compensation. +Your vote is especially important . If your shares are held by a broker, your broker cannot vote your shares for the election of directors and the advisory proposal on executive compensation unless you provide voting instructions. Therefore, please instruct your broker regarding how to vote your shares on these matters promptly . See “Vote Required” following each proposal for further information. +If you hold shares through a broker, bank or other nominee and wish to be able to vote in person at the meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot at the meeting. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the 2013 Annual Meeting. The inspector of election will count votes cast at the meeting. +Q: +Can I revoke or change my proxy? +A: +Yes. You may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the Internet or by telephone, or by delivering written notice of revocation of your proxy to the Company’s Corporate Secretary at our principal executive offices before the beginning of the meeting. You may also revoke your proxy by attending the meeting and voting in person, although attendance at the meeting will not in and of itself revoke a valid proxy that was previously delivered. If you hold shares through a broker, bank or other nominee, you must contact that nominee to revoke any prior voting instructions. You also may revoke any prior voting instructions by voting in person at the meeting if you obtain a legal proxy as described above. +Q: +How does the Board recommend I vote on the proposals? +A: +The Board recommends you vote: +● +“ FOR ” each of the nominees to the Company’s Board of Directors; +● +“ FOR ” the approval, on an advisory basis, of the Company’s executive compensation; and +● +“ FOR ” the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. +Q: +Who will count the vote? +A: +The inspector of election will count the vote. Callon’s Corporate Secretary will act as the inspector of election. +Q: +What is a “quorum?” +A: +A quorum is the number of shares that must be present to hold the meeting. The quorum requirement for the meeting is a majority of the outstanding shares as of the Record Date, present in person or represented by proxy. Your shares will be counted for purposes of determining if there is a quorum if you are present and vote in person at the meeting; or have voted on the Internet, by telephone or by properly submitting a proxy card or voting instruction card by mail. Abstentions and broker non-votes also count toward the quorum. An abstention will have the same practical effect as a vote against the ratification of the appointment of the Company’s independent registered public accounting firm and the advisory proposal on executive compensation. “Broker non-votes” occur when brokers, banks or other nominees that hold shares on behalf of beneficial owners do not receive voting instructions from the beneficial owners prior to the meeting and do not have discretionary voting authority to vote those shares. +4 +Q: +What vote is required to approve each item? +A: +The following table sets forth the voting requirement with respect to each of the proposals: +Proposal 1: Election of directors. +The two nominees for election as directors at the annual meeting who receive the greatest number of “FOR” votes cast by the stockholders, a plurality, will be elected as the Company’s directors. +Proposal 2: Ratification of appointment of independent registered public accounting firm. +To be approved by stockholders, this proposal must receive the affirmative “FOR” vote of the holders of a majority of the shares represented at the meeting, in person or by proxy, and entitled to vote. +Proposal 3: Advisory approval of the Company’s executive compensation. +To be approved by stockholders, this proposal must receive the affirmative “FOR” vote of the holders of a majority of the shares represented at the meeting, in person or by proxy, and entitled to vote. +Q: +What does it mean if I get more than one Notice? +A: +Your shares are probably registered in more than one account. Please provide voting instructions for all Notices, proxy and voting instruction cards you receive. +Q: +How many votes can I cast? +A: +On all matters you are entitled to one vote per share. +Q: +Where can I find the voting results of the meeting? +A: +The preliminary voting results will be announced at the meeting. The final results will be published in a current report on Form 8-K to be filed with the SEC within four business days of the meeting. +5 +PROPOSAL 1 +ELECTION OF DIRECTORS +Nominees +The Company’s Certificate of Incorporation provides for a classified Board. The Board is divided into three classes of equal size, designated as Class I (currently with two directors), Class II (currently with two directors) and Class III (currently with two directors). One class of directors is elected at each Annual Meeting of Stockholders to serve for a three-year term. +The term of the two Class I directors, Mr. Larry D. McVay and Mr. John C. Wallace, will expire on the date of the 2013 Annual Meeting. The nominees of the Board for Class I directors of the Company to serve until the 2016 Annual Meeting, or until their successors have been duly elected and qualified, are Mr. Larry D. McVay and Mr. John C. Wallace. The Nominating and Corporate Governance Committee, which consists solely of directors that are independent as defined in the listing standards of the NYSE, recommended the two directors to the Company’s Board. Based on that recommendation, the Board nominated such directors for election at the meeting. We believe that all of the nominees possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each nominee in the individual biographies below. Each of the nominees has consented to serve as a director if elected. Mr. McVay and Mr. Wallace have served continuously as a director of the Company since the date of their first election or appointment to the Board. +All shares of common stock represented by the proxies will be voted “FOR” the election of the director nominees, except where authority to vote in the election of directors has been withheld. Should the nominees become unable or unwilling to serve as a director at the time of the 2013 Annual Meeting, the person or persons exercising the proxies will vote for the election of substitute nominees designated by the Board, or the Board may choose to reduce the number of members of the Board to be elected at the 2013 Annual Meeting in order to eliminate the vacancy. The Board has no reason to believe that the nominees will be unable or unwilling to serve if elected. Only the nominees or a substitute nominee designated by the Board will be eligible to stand for election as a director at the 2013 Annual Meeting. +The Board of Directors recommends that you vote “FOR” the election of the director nominees . +6 +Directors and Executive Officers of Callon Petroleum Company +The following table provides information with respect to the nominees, all current directors whose terms will continue after the 2013 Annual Meeting, and the present executive officers of the Company. Each executive officer has been elected to serve until his or her successor is duly appointed or elected by the Board or their earlier removal or resignation from office. +Name +Age +as of +Record +Date +Company Position Since +Present Company Position +Class I Directors: +( Term Expires in 2013 ) +Larry D. McVay +65 +2007 +Director, Nominee +John C. Wallace +74 +1994 +Director, Nominee +Class II Directors: +( Term Expires in 2014 ) +B. F. Weatherly +68 +1994 +Director, Executive Vice President, CFO and Corporate Secretary +Anthony J. Nocchiero +61 +2011 +Director +Class III Directors: +( Term Expires in 2015 ) +Fred L. Callon +63 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer (“CEO”) +L. Richard Flury +65 +2004 +Director +Other Executive Officers : +Gary A. Newberry +58 +2010 +Senior Vice President, Operations +Joseph C. Gatto, Jr. +42 +2012 +Senior Vice President, Corporate Finance(1) +Rodger W. Smith +63 +1999 +Vice President and Treasurer +Vince Borrello +61 +2011 +Vice-President and General Manager, Permian Basin(2) +H. Clark Smith +60 +2001 +Chief Information Officer +Mitzi P. Conn +44 +2007 +Corporate Controller +(1) +Mr. Gatto was employed effective on April 5, 2012 as Senior Vice President, Corporate Finance. +(2) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +The following is a brief description of the background and principal occupation of each director and executive officer: +Vince Borrello joined the Company in April 2011 as Vice President/General Manager - Permian Basin. For the period August 2008 through April 2011, he worked as an independent consultant for various companies, including the Company from July 2009 until February 2011. Prior to that, from February 2006 until August 2008, he served as President and Chief Operating Officer for Lothian Oil, Inc., which has been active in the Wolfberry trend in the Midland Basin for many years. During his 38 years of experience in the oil and gas industry, he also held technical and leadership positions with Texas Oil & Gas Corporation and Marathon Oil Company. Mr. Borrello is an active member of the Society of Petroleum Engineers and a member of the Permian Basin Petroleum Club. He is a graduate of Louisiana State University in 1974 with a B.S. degree in Petroleum Engineering and received a master’s degree in geophysics from Oregon State University in 1975. He is a Registered Professional Engineer in the States of Texas and Oklahoma. Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +7 +Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, positions he had held with the Company or its predecessors since 1984. He has been employed by the Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is son of the late Sim C. Callon, one of the Company’s co-founders, and the nephew of the late John S. Callon, the other co-founder. +Mr. Callon has been involved in the oil and gas industry most of his life and has developed a wide network of personal and business relationships within the oil and gas industry. We believe that his strong financial background combined with his many years of operational experience throughout changing conditions in the market and industry provide him with the ability to successfully lead the Company. +Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in May 2007, she had served as assistant controller since May 2004. Mrs. Conn has held various other positions in finance and accounting since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She received her B.S. degree in accounting from Southeastern Louisiana University in 1990 and is a member of the American Institute of Certified Public Accountants and the Mississippi Society of Certified Public Accountants. +L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power and Renewables, on December 31, 2001, a position he had held since June of 1999. Prior to Amoco's merger with BP in 1998, he served in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, he is a non-executive member of the Board of Directors of QEP Resources, a publicly traded oil and gas company, and the non-executive Chairman of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company. +Mr. Flury has many years of prior experience with a major oil and gas company. Mr. Flury continues his involvement in the industry through his other directorship positions. We believe his executive-level perspective and decision-making abilities will continue to prove beneficial to the Company. +Joseph C. Gatto, Jr. joined the Company in April 2012 as Senior Vice President, Corporate Finance with responsibility for the Company’s capital markets and strategic planning functions, in addition to investor relations activities. Mr. Gatto graduated from Cornell University with a BS degree in 1992 and The Wharton School of the University of Pennsylvania with an MBA in 1997. Prior to joining Callon, Mr. Gatto was a Managing Director in the energy investment banking groups of Merrill Lynch & Co. and Barclays Capital from July 1997 until February 2009, with involvement in all phases of M&A and capital raising transactions for his clients. In February 2009, he founded MarchWire Capital, LLC, a financial advisory and strategic consulting firm, and subsequently served as Head of Structuring and Execution with Merrill Lynch Commodities, Inc. from January 2010 until November 2011. +Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. Since 2007, Mr. McVay has been a Managing Director of Edgewater Energy, LLC, an oil and gas investment company. From 2000 to 2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In January 2008, he became a member of the board of directors of Praxair, Inc., the largest industrial gases company in North and South America. In May 2008, Mr. McVay also became a member of the board of directors of Chicago Bridge and Iron, N.V., a publicly traded engineering, procurement, and construction company. +Mr. McVay has been directly involved in nearly all aspects of the oil and gas industry, including drilling, production, finance, environmental risk, and safety. Outside of his involvement with Callon, Mr. McVay is active in other industry assignments, which keep him fully abreast of trends and current activity in the operational areas in which Callon is pursuing development. +8 +Gary A. Newberry joined the Company in April 2010 as Vice President – Production and Development. In September 2010, Mr. Newberry was promoted to Senior Vice President – Operations. Mr. Newberry graduated from Marietta College in 1977 with a B.S. degree in Petroleum Engineering. After graduation he joined Marathon Oil Company as a Production and Drilling Engineer working in Alaska, the Gulf of Mexico, and the Rockies. He held various supervisory and management roles of increasing responsibility over production and drilling operations in the mid-continent, Alaska and the Permian Basin. As a Business Unit Leader, Mr. Newberry was responsible for all upstream business activity in Oklahoma, Alaska, and the Rockies and served as Marathon’s Worldwide Operations Manager. Mr. Newberry retired from Marathon Oil Company after 33 years of service. +Anthony J. Nocchiero was nominated to the Board of Directors in March 2011. From April 2007 until September 2010, Mr. Nocchiero held the position of senior vice president and Chief Financial Officer for CF Industries, Inc. From July 2005 until March 2007, he was the vice president and Chief Financial Officer for Merisant Worldwide, Inc. From January 2002 to July 2005, Mr. Nocchiero was self-employed as an advisor and private consultant. From January 1999 until December 2001, Mr. Nocchiero served as vice president and Chief Financial Officer of BP Chemicals, the global petrochemical business of BP p.l.c. Prior to that, he spent twenty-four years with Amoco Corporation in various financial and management positions, including service as Amoco’s vice president and controller from April 1998 to January 1999. Mr. Nocchiero holds a B.S. degree in chemical engineering from Washington University in St. Louis and an M.B.A. degree from the Kellogg Graduate School of Management at Northwestern University. +Mr. Nocchiero has previous experience serving as a member of the board of directors of various public and private companies including Terra Nitrogen LP, Keytrade AG, Vysis Corporation and the Chicago Chamber of Commerce. He brings to the Company a broad knowledge of the oil and gas industry, as well as extensive experience with finance and M&A related transactions. +H. Clark Smith is the Chief Information Officer for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in March 2001, he had served as Manager – Information Technology since January 1990 and in other computer related positions with the Company and its predecessors since 1983. At Mississippi State University, he majored in Industrial Technology. During his tenure with the Company, he has received extensive technical and management training from the University of Southern Mississippi, International Business Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi Computing Consultants, both located in Natchez, MS. +Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and served as Corporate Controller from 2004 to May 2007. Prior to being appointed Treasurer, he served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed by the Company and its predecessors since 1983. Prior to his employment with the Company, he was employed by International Paper Company as a plant controller. He received his B.S. degree in accounting from the University of Southern Mississippi in 1973. +John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. Prior to his retirement in December 2010, he served for over twenty-five years as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. In November 2004, he successfully completed the International Uniform Certified Public Accountant Qualification Examination and has received a CPA Certificate from the State of Illinois. Mr. Wallace is also retired from the board of directors of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy. In May 2012, Mr. Wallace was appointed as a non-executive director to the Board of Directors of Siem Offshore Inc., a publically traded shipping company in Norway with a fleet of vessels active in the offshore energy sector, and where he is a member of the Audit Committee. +As a result of his association with Fred Olsen, Ltd. and various associated or related companies, Mr. Wallace has extensive financial and accounting experience in not only the oil and gas industry, but in a number of other related industries. He held senior management positions and was a member of Fred Olsen’s board of directors for many years. We believe that Mr. Wallace’s unique perspective of the risks and rewards in the oil and gas industry is an asset to the Company’s Board of Directors. +9 +B. F. Weatherly is an Executive Vice President and also serves as the Chief Financial Officer and Corporate Secretary for the Company and Callon Petroleum Operating Company. He has been a member of the Board of Directors since 1994. Prior to joining the Company in his current position in November 2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was also a general partner of CapSource Fund, L.P., a Jackson, Mississippi investment fund, and held that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc. +Mr. Weatherly has many years of executive management and financial management positions in energy related companies with emphasis on structuring and completion of many types of financial transactions. Additionally, serving as managing director of two investment funds provides insight into seeking financing alternatives for Callon. +All officers and directors of the Company are United States citizens, except Mr. Wallace, who is a citizen of Canada. Mr. Flury holds both U.S. and Canadian citizenship. +Board of Director Structure and Responsibilities +General. In accordance with the Company’s by-laws and the laws of Delaware, the state of incorporation, the business and affairs are managed under the direction of the Board. The Board generally meets on a quarterly basis to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board may also hold special meetings, execute unanimous written consents, and participate in telephone conference calls when an important matter requires Board action. During 2012, the Board of the Company met formally four times and executed two unanimous written consents. All of the Company’s directors attended each of the board meetings either in person or by telephone. In addition, to promote open discussion, the non-employee directors meet in executive session without management following each quarterly board meeting. The chairperson of such executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, at the first executive session held in each fiscal year, the independent directors select a different independent director to serve as the chairperson for all executive sessions held during that fiscal year. L. Richard Flury, Chairman of the Compensation Committee, presided over all executive sessions during 2012. It is the policy of the Board that, to the extent possible, all directors attend the 2013 Annual Meeting of Stockholders. All then current directors attended the 2012 Annual Meeting of Stockholders. +Director Independence. It is the policy of the Board that a majority of the non-employee members of the Board be independent of the Company’s management. The Board has affirmatively determined that all of the Company’s non-employee directors are independent under all applicable rules and regulations, including listing requirements of the NYSE and the Company’s Corporate Governance Principles, and have no direct or indirect material relationship with the Company that could impair the director’s independence. The criteria applied by the Company’s Board in determining independence are available on the Company’s website at www.callon.com. The Board will evaluate independence on an ongoing basis. +10 +Chairman of the Board. The Company’s Board believes that Fred L. Callon, the current President and CEO, is uniquely qualified to serve as Chairman of the Board. Mr. Callon is the son of one of the founders of the Company, and has been involved in the oil and gas industry virtually his entire professional career. He is the director most familiar with the Company’s day-to-day operations, technical and financial strengths, and the overall ability to execute the business strategy adopted by the board. His experience and knowledge of the oil and gas industry promote the opportunity for a successful blend of the Company’s independent directors’ perspectives and oversight responsibilities. In his capacity as Chairman, Mr. Callon has the following responsibilities: +● +schedules all meetings of the Board; +● +establishes Board meeting agendas; +● +chairs meetings of the Board and the Annual Meeting of Stockholders; +● +ensures that the flow of information provided to the Board is timely, complete, and accurate; +● +communicates with all directors on key issues and concerns outside of Board meetings; +● +represents the Company to and interacts with external stockholders; and +● +assists the Board and executive officers in assuring compliance with and implementation of the Company’s governance principles. +The Board believes that having Mr. Callon serve as both the CEO and the Chairman of the Board is a unique benefit to the overall success and growth of the Company. The Board does not have an independent lead director. +Communication with Directors. Stockholders may communicate with the full Board, non-employee directors as a group, or individual directors, by sending a letter in care of the Corporate Secretary at Callon Petroleum Company, 200 North Canal Street, Natchez, MS 39120 . The Company’s Corporate Secretary has the authority to discard any solicitations, advertisements, or other inappropriate communications, but will forward any other mail to the named director or group of directors. Any mail that is directed to the full Board will be directed to Mr. Callon as Chairman of the Board and, if appropriate, forwarded to the full Board. +Board Risk Oversight. The Company is exposed to a number of risks and undertakes enterprise risk management reviews to identify and evaluate these risks and to develop plans to mitigate them effectively. The Company’s executive officers are directly responsible for the Company’s enterprise risk management function and assisting the Board in carrying out its oversight responsibilities. Members of the Company’s senior management report to the Board and its committees on areas of risk to the Company, and the Board committees consider specific areas of risk inherent in their respective areas of oversight and report to the full Board regarding their activities. The information flow and communication between the Company’s Board and senior management regarding long-term strategic planning and short-term operational reporting includes matters of material risk inherent in the Company’s business of exploring for and producing oil and natural gas. +For example, the Company’s Audit Committee, among other duties, is charged with overseeing material financial risk exposures and the steps management takes to monitor, control and report such exposures, and has compliance oversight responsibilities. In addition, the Company’s Audit Committee considers practices regarding risk assessment and risk management relating to contingent liabilities and major legislative and regulatory developments that could affect the Company. The Audit Committee also oversees the Company’s Code of Business Conduct and Ethics, and responses to any alleged violations of the Company’s policies made by whistleblowers. The Compensation Committee reviews and attempts to mitigate risks which may result from the Company’s compensation policies, including working directly with senior management to determine whether such programs improperly encourage management to take undue risks relating to the business and/or whether risks arising from the Company’s compensation programs are likely to have a material adverse effect on the Company. The Company’s Nominating and Corporate Governance Committee focuses on issues relating to Board and Board committee composition and corporate governance matters. The Strategic Planning Committee organizes and oversees the Board’s participation in the risk assessment and management process as it relates to the development and implementation of the Company’s strategic plan and the integrity of the oil and natural gas reserve estimation reporting process and disclosure. +The Board plays a key role in the oversight of the Company’s enterprise risk management function. Using their collective skills and experience, the Board considers information provided by management and provide feedback and makes recommendations, if needed, to help minimize risk to the Company’s current and future value. The Board also believes that its risk management oversight role is facilitated by the Company’s leadership structure. By combining the positions of Chairman of the Board and CEO, the Board gains a valuable perspective that combines the operational expertise of a member of management with the oversight focus of a member of the Board. The Company’s Board believes that this division of risk management related roles among the Company’s independent directors fosters an atmosphere of significant involvement in the oversight of risk and that this shared oversight is appropriate for the Company. +11 +Committees of the Board of Directors +In order to facilitate the various functions of the Board, the Board has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Strategic Planning Committee, each of which are each comprised solely of independent directors. These committees are more fully described below: +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board in the areas of financial reporting and accounting integrity. The Audit Committee reviews the accounting and auditing procedures and financial reporting practices of the Company, and is responsible for the engagement of and oversight of all audit work conducted by the Company’s independent registered public accounting firm. The Audit Committee is governed by a charter that was approved by the Board. The Audit Committee meets periodically, generally quarterly, with the Company’s management, internal auditor and its independent registered public accounting firm to review the Company’s financial information and systems of internal controls, and the Committee ensures such parties are properly discharging their responsibilities. The independent registered public accounting firm reports directly to the Audit Committee and at least annually meets with the Audit Committee in executive session without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is composed entirely of non-employee members of the Board, and t he Board has determined that all members meet the independence requirements of the SEC and NYSE rules, including the financial literacy requirements of the NYSE. Members of the Audit Committee may not simultaneously serve on the audit committee of more than three other public companies. The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and Nocchiero. The Board has determined that Mr. Wallace and Mr. Nocchiero have the accounting or financial management expertise to be considered a “financial expert” as defined and required by the NYSE rules and the Exchange Act. +During 2012, the Audit Committee held five meetings and did not execute any unanimous written consents during 2012. All members of the Audit Committee attended each meeting. The Audit Committee’s report on its activities during 2012 appears later in this proxy statement under the caption “Audit Committee Report.” +Relationship with Independent Registered Public Accounting Firm. Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public accounting firm, served as the Company’s independent registered public accounting firm during 2011 and 2012 and was appointed by the Audit Committee to serve in that capacity for 2013. +Audit Fees. Fees billed for professional services rendered by Ernst & Young LLP for the annual audit and quarterly reviews and for registration statements and other regulatory filings (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $535,660 and $496,154, including out-of-pocket expenses, for the years ended December 31, 2011 and 2012, respectively. +Audit-related Fees . There were no audit-related fees paid in 2011 or 2012. +Tax Fees. Fees billed for professional services rendered by Ernst & Young LLP for the review of the federal tax return, tax advice and tax planning for 2011 and 2012 totaled $13,600 and $18,250, respectively. +12 +All Other Fees. There were no other fees paid to the Company’s independent registered public accounting firm in 2011 or 2012. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee pre-approves all audit services and non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy in accordance with the Audit Committee charter. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of any such member to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s audited financial statements for the year ended, December 31, 2012, with management and the Company’s independent registered public accounting firm, and recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. This recommendation was based on: +● +the Audit Committee’s review of the audited financial statements; +● +discussion of the financial statements with management; +● +discussion with the Company’s independent registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by SAS 61; +● +receipt from Ernst &Young LLP of the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); +● +discussions with Ernst & Young LLP regarding its independence from the Company and its management; +● +Ernst & Young LLP’s confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries and the results of their operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America; and +● +other matters the Audit Committee deemed relevant and appropriate. +AUDIT COMMITTEE +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Anthony J. Nocchiero +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to develop and administer an overall compensation program designed to optimize the opportunity for the Company to achieve its operating objectives and performance goals while properly blending the program with the short-term and long-term interests of the Company’s stockholders. The Compensation Committee is governed by a charter that was approved by the Board. The Company’s executive officers and other employees are provided with an annual base salary to compensate them for services rendered during the year. The Company’s goal is to set base salaries for the executive officers at levels that are competitive with comparable companies for the skills and requirements of similar positions. In addition to the determination of annual base salaries, the Committee is responsible for determining and recommending variable annual cash bonuses, phantom unit awards payable in the form of cash, and equity awards, which may include stock options, restricted stock, restricted stock units, or performance shares. Currently, a portion of the annual compensation package is based on certain performance related criteria of the Company for which the Committee is responsible for establishing and approving. +13 +The Committee has utilized the services of Meridian Compensation Partners LLC, an independent compensation consulting firm, to assist in the annual review of market and industry data to assess the Company’s competitive position with respect to each element of total compensation and to ensure the attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In addition to the above, the Committee has the following duties and responsibilities: +● +review, recommend, and discuss with management the compensation discussion and analysis section included in the Company’s annual proxy statement; and +● +prepare an annual report on executive compensation for inclusion in the Company’s proxy statement for each Annual Meeting of Stockholders. +Consistent with the listing requirements of the NYSE, the Compensation Committee is composed entirely of independent members of the Company’s Board. Each member meets the independence requirements set by the NYSE and applicable federal securities laws. The Compensation Committee is currently comprised of Messrs. Flury (Chairman), McVay, Wallace and Nocchiero. During 2012, the Compensation Committee held four meetings and executed two unanimous written consents. All members of the Compensation Committee attended each meeting. +Compensation Committee Interlocks and Insider Participation. None of the members of the Company’s Compensation Committee are or have been officers or employees of the Company or any of its subsidiaries. None of the Company’s executive officers served as a member of the Board or Compensation Committee (or other Board committee performing similar functions or, in the absence of any such committee, the entire board of directors) of any other entity that has one or more of its executive officers serving on the Company’s Compensation Committee. +Nominating and Corporate Governance Committee Functions and Responsibilities +The purpose of the Nominating and Corporate Governance Committee is to: +● +identify and recommend to the Board individuals qualified to be nominated for election to the Board; +● +recommend to the Board the members and chairperson for each Board committee; +● +periodically review and assess the Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics, and the various Board committee charters, and make recommendations for changes thereto to the Board; +● +oversee the annual self-evaluation of the performance of the Board and its committees and the annual evaluation of the Company’s management; and +● +recommend to the Board a successor to the CEO when a vacancy occurs. +In November 2012, the Committee adopted revised and updated charters for each of the Board committees, which are accessible on the Company website. The Nominating and Corporate Governance Committee is governed by a charter that was approved by the Board. Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws. The Nominating and Corporate Governance Committee is currently comprised of Messrs. Nocchiero (Chairman), Flury, McVay, and Wallace. The Nominating and Corporate Governance Committee held two meetings during 2012. +Director Identification and Selection. The Nominating and Corporate Governance Committee has established certain criteria it considers as guidelines in considering nominations to the Company’s Board. The key criteria include: +● +personal characteristics, including such matters as integrity, age, education, diversity of background and experience, absence of potential conflicts of interest with the Company or its operations, and the availability and willingness to devote sufficient time to the duties of a director of the Company; +14 +● +experience in corporate management, such as serving as an officer or former officer of a publicly held company; +● +experience in the Company’s industry and with relevant social policy concerns; +● +experience as a board member of another publicly held company; +● +academic expertise in an area of the Company’s operations; and +● +practical and mature business judgment. +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the Board may consider other qualifications and attributes that they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board. The Nominating and Corporate Governance Committee’s goal is to assemble a Board that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. In order to ensure that the Board consists of members with a variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set any minimum qualifications, and also considers candidates with appropriate unconventional backgrounds. Other than ensuring that at least one member of the Board is a financial expert and a majority of the Board members meet all applicable independence requirements, the Committee has no specific skills that it believes are necessary for any individual director to possess. Instead, the Committee evaluates potential nominees based on the contribution such nominee’s background and skills could have upon the overall functioning of the Board. In considering individual director candidates, the Committee also takes into account diversity in professional experience, skills and background, and race and gender. +In accordance with the Company’s by-laws, any stockholder may nominate a person for election to the Board upon delivery of written notice to the Company of such nomination, stating the name and address of the nominee and describing his qualifications. Such notice shall be sent by certified mail or delivered to the principal office of the Company to the attention of the Board, with a copy to the President and Corporate Secretary of the Company. +The Board believes that, based on the Nominating and Corporate Governance Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is best equipped to select nominees that will result in a well-qualified and well-rounded Board. In making its nominations, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue their service. Current members with qualifications and skills that are consistent with the Committee’s criteria for Board service are re-nominated. As to new candidates, the committee will generally poll the Board members and members of management for recommendations. The committee may also review the composition and qualification of the boards of directors of the Company’s competitors, and may seek input from industry experts or analysts. The committee reviews the qualifications, experience and background of the candidates. Final candidates are interviewed by the independent directors and executive management. In making its determinations, the committee evaluates each individual in the context of the Board as whole, with the objective of assembling a group that can best represent stockholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the committee makes its recommendation to the Board. The committee may in the future choose to engage third-party search firms in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate. Any search firm retained to assist the Committee in seeking candidates for the Board will affirmatively be instructed to seek to include diverse candidates from traditional and nontraditional candidate groups. +Strategic Planning Committee Functions and Responsibilities +The Strategic Planning Committee was created to oversee the responsibilities of the Board relating to planning and finance, including: +● +organizing and overseeing the Board’s participation in the development of a strategic plan and the risk assessment and management process; +● +following the progress in the implementation of the strategic plan and advising the Board if additional Board action appears to be needed to assure successful implementation of the plan or if a need exists to revise the plan in the face of changing conditions or other factors; +15 +● +assuring that management is addressing the personnel requirements for the successful implementation of the strategic plan; and +● +assisting management and the Board with its oversight of the integrity of the determination of the Company’s oil, natural gas and natural gas liquids reserves and the work of the Company’s independent petroleum reservoir and reserve engineering firm. +The Strategic Planning Committee is governed by a charter that was approved by the Board. This committee meets periodically during the year, generally prior to the scheduled quarterly board of director meetings, to review the progress of the Company’s capital expenditure budget and to evaluate recent trends in the oil and gas industry that may have an impact on the Company’s current business strategy for the remainder of the year. The committee shall consist of no fewer than three members of the Board. The Chair and a majority of the committee members shall meet the independence requirements of the NYSE and such other rules and regulations as may be applicable. The Strategic Planning Committee is currently comprised of Messrs. McVay (Chairman), Flury, Wallace, and Nocchiero. The Strategic Planning Committee held two meetings during 2012. +Corporate Governance Matters +Corporate Governance Principles . The Company believes that good corporate governance is important to ensure that Callon is managed for the short-term and long-term benefit of its stockholders. Available on the Company website, www.callon.com, under the “Investors – Corporate Governance” caption, are copies of the Company’s: +● +Corporate Governance Principles; +● +Code of Business Conduct and Ethics; +● +Audit Committee Charter; +● +Compensation Committee Charter; +● +Nominating and Corporate Governance Committee Charter; and the +● +Strategic Planning Committee Charter +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s website. Copies of these documents are available in print, free of charge, to any stockholder upon written request to the Company’s Corporate Secretary. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth the policies and expectations. The Code, which applies to every director, officer and employee, addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Code meets the NYSE’s requirements for a code of business conduct and ethics, as well as the SEC’s definition of a code of ethics applicable to the Company’s senior officers. Neither the Board nor any Board committee has ever granted a waiver of the Code. +16 +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Stockholders +The following table sets forth, as of the March 22, 2013, certain information with respect to the ownership of shares of common stock held by: (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding common stock; (ii) each director; (iii) the nominees for director; (iv) each of the executive officers named in the Summary Compensation Table; and (v) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of common stock has been obtained from filings made by the named beneficial owners with the SEC as of the Record Date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +324,768 (b) +* +L. Richard Flury +116,551 (c) +* +Larry D. McVay +86,551 (d) +* +Anthony J. Nocchiero +38,402 (e) +* +John C. Wallace +--(f) +* +B. F. Weatherly +239,634 (g) +* +Named Officers: +* +Vincent Borrello +27,657 (h) +* +Gary A. Newberry +130,443 (i) +* +Joseph C. Gatto, Jr. +720 (j) +* +Directors and Executive Officers: +As a Group (9 persons) +964,726(k) +2.42% +Certain Beneficial Owners: +Franklin Resources, Inc. +5,228,065 (l) +13.80% +One Franklin Parkway +San Mateo, CA 94403 +BlackRock, Inc. +2,212,695(m) +5.56% +40 East 52nd Street +New York, NY 10022 +RR Advisors, LLC +2,481,363(n) +6.20% +3953 Maple Avenue, Suite 180 +Dallas, TX 75219 +________________ +* Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power, unless such award will vest within sixty days of March 22, 2013. Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of common stock beneficially owned by such holder or class of holders plus the total number of shares of common stock underlying options exercisable or stock awards vesting within sixty days of March 22, 2013, by (ii) the total number of shares of common stock outstanding plus the total number of shares of common stock underlying options exercisable and stock awards vesting within sixty days of March 22, 2013, but not common stock underlying such securities held by any other person. +17 +b) +Of the 324,768 shares beneficially owned by Fred L. Callon, 155,427 shares are owned directly by him; 25,215 shares are held by him as custodian for certain minor Callon family members; 106,250 shares represent unvested restricted stock units which will vest within sixty days of March 22, 2013; and 37,876 shares are owned within the Company’s Employee Savings and Protection Plan; Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of common stock owned by his wife over whom he disclaims beneficial ownership, 244,746 restricted stock units payable in stock, 61,940 restricted stock units payable in cash, and 295,436 phantom units payable in cash. +c) +Of the 116,551 shares beneficially owned by L. Richard Flury, 62,572 shares are owned directly by him; 30,000 shares are held in joint tenancy with his wife; 5,000 shares are subject to options under the 1996 Plan, exercisable within 60 days; 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days; and 13,979 shares of unvested restricted stock which will vest within sixty days of March 22, 2013. +d) +Of the 86,551 shares beneficially owned by Larry D. McVay, 72,572 shares are owned directly by him and 13,979 shares of unvested restricted stock that will vest within sixty days of March 22, 2013. +e) +Of the 38,402 shares beneficially owned by Anthony J. Nocchiero, 24,423 shares are owned directly by him and 13,979 shares of unvested restricted stock that will vest within sixty days of March 22, 2013. +f) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust, with the exception of the 18,968 restricted stock units awarded in May 2011 and 22,768 restricted stock units awarded in May 2012 and payable in cash upon his separation of service as a director. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +g) +Of the 239,634 shares beneficially owned by B. F. Weatherly, 40,872 shares are owned directly by him; 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; 85,000 shares represent unvested restricted stock units which will vest within sixty days of March 22, 2013; 5,000 shares are subject to options under the 2002 Plan, exercisable within 60 days; and 39,948 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weatherly do not include 128,030 restricted stock units payable in stock, 37,593 restricted stock units payable in cash, and 163,123 phantom units payable in cash. +h) +Of the 27,657 shares beneficially owned by Vince Borrello, 11,032 shares are owned directly by him and, 1,625 shares are owned within the Company’s Employee Savings and Protection Plan; and 15,000 shares represent unvested restricted stock units that will vest within sixty days of March 22, 2013. Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +i) +Of the 130,443 shares beneficially owned by Gary A. Newberry, 36,027 shares are owned directly by him and 9,416 shares are owned within the Company’s Employee Savings and Protection Plan; and 85,000 shares represent unvested restricted stock units that will vest within sixty days of March 22, 2013. Shares indicated as beneficially owned by Mr. Newberry do not include 84,092 restricted stock units payable in stock, 29,840 restricted stock units payable in cash, and 73,932 phantom units payable in cash. +j) +Of the 720 shares beneficially owned by Joseph C. Gatto, Jr., all are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Gatto do not include 500 shares of common stock owned by his wife over whom he disclaims beneficial ownership, 117,850 restricted stock units payable in stock, 3,150 restricted stock units payable in cash, and 10,500 phantom units payable in cash. +k) +Includes 10,000 shares subject to options under the 1996 Plan, exercisable within 60 days; 20,000 shares subject to options under the 2002 Plan, exercisable within 60 days; 381,736 shares of unvested restricted stock which will vest within sixty days of March 22, 2013; and 214,103 shares are owned within the Company’s Employee Savings and Protection Plan. +l) +Information is based upon a Schedule 13G/A filed with the SEC on November 10, 2011 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G/A, Franklin represents that it has sole voting power with respect to 5,228,065 shares of common stock and sole dispositive power with respect to 5,336,818 shares of common stock. +18 +m) +Information is based upon a Schedule 13G/A filed with the SEC on February 8, 2013 by BlackRock, Inc. In this Schedule 13G/A, BlackRock, Inc. represents that it has sole voting power with respect to 2,212,695 shares of common stock and sole dispositive power with respect to 2,212,695 shares of common stock. +n) +Information is based upon a Schedule 13G filed with the SEC on February 4, 2013 by Robert J. Raymond, RR Advisors, LLC, RCH Energy Opportunity Fund II GP, L.P., and RCH Energy Opportunity Fund II, L.P. In this Schedule 13G, Robert J. Raymond and RR Advisors, LLC represent that they have shared voting power and shared dispositive power with respect to 2,481,363 shares of common stock and RCH Energy Opportunity Fund II GP, L.P. and RCH Energy Opportunity Fund II, L.P. represent that they have shared voting power and shared dispositive power with respect to 2,379,822 shares of common stock +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control”, as defined in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by the SEC’s regulations to furnish the Company and the NYSE copies of all Section 16(a) forms they file. +Based solely on review of the copies of such reports furnished to the Company during, or with respect to, the fiscal year ended December 31, 2012, and written representations from all of the Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, directors and greater than ten percent stockholders have complied with all Section 16(a) filing requirements for the year ended December 31, 2012. +19 +COMPENSATION DISCUSSION AND ANALYSIS OF EXECUTIVE COMPENSATION +Oversight of Executive Compensation Program +The Compensation Committee (“the Committee”) is appointed by the Company’s Board to assist the Board in performing its fiduciary responsibilities relating to compensation of the Company’s CEO and other executive officers. The Committee is directly responsible for the incentive compensation programs, which include programs that are designed specifically for the Company’s executive management team, including the Company’s executive officers (collectively the “Named Officers”) included in the “Summary Compensation Table”. The following Compensation Discussion and Analysis describes the material elements of compensation for the Company’s Named Officers. +Executive Summary +During 2012, the Company continued to progress with the transition of its asset base from an offshore presence to an onshore platform. In addition to building upon its existing portfolio of unconventional drilling opportunities with a crude oil focus, the Company continued to advance its expertise as an onshore operator in the Permian Basin and maintain a strong financial position to facilitate future growth. The Company made significant progress advancing the Company’s oil shale resource play in the Permian Basin, including the following accomplishments during 2012: +● +Increased Permian Basin production by 68% to 591 Mboe; +● +Increased Permian Basin proved reserves by 25% to 9.5 MMboe; +● +Increased Permian Basin leasehold position by 250% to 33,477 net acres; +● +Accelerated offshore cash flows for onshore redeployment with the sale of its interest in the Habanero field for $42 million; +● +Expanded its lending bank group to five institutions and increased it revolving credit facility size by 100%; and +● +Achieved an OSHA Recordable Incident Rate (“ORIR”) of 0.895, which is within the target of less than 1.0 set for the year. +These achievements represent meaningful steps for furthering the Company’s onshore growth initiatives for the coming years. +2012 Advisory Vote +The Committee considered the results of the 2012 advisory, non-binding “say-on-pay” proposal in connection with the discharge of its responsibilities regarding compensation policies and decisions. In 2011 and 2012, the first two years of say-on-pay, 95% and 95.6% respectively of the Company’s stockholders voting on the say-on-pay proposal approved the compensation of the Named Officers described in the Company’s proxy statement for the Company’s Annual Meeting of Stockholders. Because the vote on say-on-pay remains overwhelmingly affirmative, we plan to continue with the Company’s compensation policies in the current year. +Compensation and Risk Taking +The Committee believes that the design and governance of the Company’s executive compensation program is consistent with the highest standards of risk management. Rather than determining incentive compensation awards based on a single metric, the Committee considers a balanced set of performance measures that it believes collectively best indicate successful management of the Company’s assets and strategy. In addition to measurable targets, the Committee applies its informed judgment to compensation decisions, taking into account factors such as quality and sustainability of earnings, successful implementation of strategic initiatives, and adherence to core values. The use of equity awards aligns the Company’s Named Officers interests with the interests of the Company’s stockholders. Together, the features of the Company’s executive compensation program are intended to ensure that the Company’s compensation opportunities do not encourage excessive risk taking and focus the Company’s executives on managing the Company toward long-term sustainable value for the Company’s stockholders. The Committee, with assistance of the Consultant (defined below), extensively reviewed the elements of executive compensation during 2012 to determine whether any portion of executive compensation encouraged excessive risk taking. The Company’s management conducted a similar risk assessment with respect to other employees. Upon evaluation of those assessments, management and the Committee do not believe that the Company’s compensation policies and practices for the Named Officers and other employees present risks that are reasonably likely to have a material adverse effect on the Company. +20 +Role of Independent Consultant +From time to time the Committee utilizes the expertise and objectivity of an outside independent compensation consultant. The Committee has sole authority to retain and terminate any such consultant, including sole authority to approve the consultant’s fees and other retention terms. During 2012, the Committee retained the services of Meridian Compensation Partners, LLC (“Consultant” or “Meridian”) as its independent compensation consultant to help ensure that the Company’s executive compensation programs are competitive and consistent with the Company’s compensation philosophy. In general, the role of an outside compensation consultant is to assist the Committee with the analysis of executive pay packages or contracts and to understand the Company’s financial measures relating to compensation, but the Committee is under no obligation to follow the advice or recommendations of any compensation consultant. In the decision to retain Meridian, the Committee considered: +● +the Consultant's performance in supporting the Committee with respect to 2011 compensation matters: +● +its extensive experience and familiarity with the Company’s executive compensation program and the compensation programs of the Company’s peer companies and sector; +● +the range of compensation services offered by the Consultant; +● +the absence of any business or personal relationship between the Consultant and any member of the Committee or management; and +● +the Consultant's policies and procedures designed to avoid potential conflicts of interest arising out of the provision of services with respect to the Company. +Pursuant to SEC and NYSE rules, the Committee assessed the Consultant’s independence and determined that it is independent. The Consultant attended all Committee meetings, including executive sessions as needed. The Committee determined the scope of the engagement, which included: +● +providing data on executive and outside director compensation for the Committee to use in its decision-making process; +● +providing input into plan design discussions and individual compensation actions, as needed; +● +periodically reviewing and recommending plan design updates and revisions; +● +reviewing and providing feedback on the compensation-related disclosures in the Company’s proxy statement; and +● +informing the Committee about recent trends, best practices and other developments affecting executive compensation. +The Committee considered the advice of the Consultant as only one factor among the other items discussed in this Compensation Discussion and Analysis. Actual compensation decisions for individual officers are the result of the Committee’s subjective analysis of a number of factors, including the individual officer’s performance, experience, skills and tenure with the Company, changes to the individual’s position, and trends in compensation practices within the Company’s peer group or industry. The Committee also uses its discretion to adjust any of the components of compensation to achieve the Company’s goal of recruiting, developing, motivating, and retaining individuals with the skills necessary to execute the Company’s business strategy and develop and grow the business. +The Committee established procedures that it considers adequate to ensure that the Consultant’s advice to the Committee remains objective and is not influenced by the Company’s management. The Consultant may, from time to time, contact the Company’s executive officers for information necessary to complete its assignments and may make reports and presentations to and on behalf of the Committee that the executive officers may also receive. While the Consultant interacts with the Company’s executive officers in order to complete its assignments and prepare its reports, the Consultant reports directly to the Committee. Meridian has not provided any services to the Company other than advice and recommendations with respect to the determination of the amount and form of executive and director compensation at the request of the Committee. +Compensation Assessment Tools +In order to attract, motivate and retain talented executive officers, the Committee must ensure that the Company’s executive compensation program remains competitive with the types and ranges of compensation paid by the Company’s peer companies who compete for the same executive talent. On an annual basis, the Committee reviews and discusses compensation data for the Company’s CEO and other Named Officers as compared to compensation data for similarly situated executive officers at peer companies selected by the Committee +21 +In order to assist in the determination of compensation, Meridian provides the Committee with market data from a group of peer companies in the oil and gas exploration and production industry that are similar in size and operations to Callon. While we generally try to keep the peer group fairly consistent year to year, with the 2012 peer group remaining the same as 2011’s peer group, the peer group is reviewed each year and is adjusted, as required, based on changes in the peer companies’ and Callon’s operations in order to constantly improve the relevance of the data. The Committee looks at Callon’s size from an asset standpoint, along with relevant operating and financial metrics relative to the peer companies, to help frame appropriate levels of compensation as a reference point for decision-making. Management and the Committee use the information regarding peer companies to confirm their compensation decisions for reasonableness. We do not target a specific percentile of the Company’s peer group, as the market data is just one factor considered by the Committee in determining compensation. +For 2012 compensation decisions, the Committee used market data from the following peer companies to make informed compensation decisions: +2012 Peer Companies +ATP Oil and Gas Corp. +Brigham Exploration Company +Carrizo Oil & Gas, Inc. +Comstock Resources, Inc. +Endeavour International Corporation +Goodrich Petroleum Corporation +McMoran Exploration Company +Petroquest Energy Inc. +Stone Energy Corp. +Swift Energy Company +During 2012, in preparation for 2013 decisions, the Committee re-evaluated the peer group and made adjustments to more appropriately reflect Callon’s current size and operational focus, as follows: +2013 Peer Companies +Comstock Resources, Inc. +Crimson Exploration, Inc. +Endeavour International Corporation +Gastar Exploration Ltd. +Goodrich Petroleum Corporation +PDC Energy, Inc. +Penn Virginia Corporation +Petroquest Energy, Inc. +Resolute Energy Corporation +Rex Energy Corporation +Stone Energy Corp. +Swift Energy Company +Additionally, in 2012 the Company participated in two third-party surveys: Meridian’s 2012 Oil & Gas Exploration and Production Survey (“Meridian Survey”), and survey data provided by Effective Compensation, Inc. ("ECI"). The Meridian Survey outlines data from similarly sized E&P companies to Callon (companies with under $3 billion in assets). ECI's Annual Oil & Gas E&P Industry Compensation Survey (“ECI Survey”) provides data for over 300 jobs found in exploration and production firms in the United States. While participation varies from year to year, the data collected from the ECI Survey is intended to reflect pay rates for positions in the market that have responsibilities similar to those for the Company’s Named Officers and other executives. We believe the Meridian Survey and the ECI Survey sources provides management with additional market reference points that supplements the data from the Company’s peer companies as compensation decisions are made for key personnel. This information is available to the Committee for their review. +22 +The Committee and management understand the inherent limitations in using any peer group or data set. For example, there are fluctuations in survey participation from year to year and competition for executive talent involves companies potentially much larger than we are. However, we believe we have established a sound review process that seeks to mitigate these limitations. The Committee does not consider data collected from any of these sources to be prescriptive. Rather, the Committee relies upon the information provided by the Consultant and the data collected regarding the peer companies and others as reference points around which to make well-informed and reasoned decisions about the appropriate level and form of compensation for each Named Officer. Other considerations, in addition to pay data, are individual experience, tenure in position, scope of responsibilities, performance, and any other factors the Committee deems relevant in setting compensation. +Compensation Philosophy and Elements of Compensation +The Company’s executive compensation program is designed to attract and retain a highly qualified and motivated management team and appropriately reward individual executive officers for their contributions to the achievement of Callon’s key short-term and long-term goals. We offer the Company’s executives industry-competitive compensation opportunities that directly correlate pay with the performance of the Company and the executive team, considering short-term performance against Company goals, long-term performance relative to the Company’s peers, and total shareholder return. A significant portion of each executive's compensation is variable and based on these performance parameters. +The Company’s pay-for-performance philosophy is demonstrated in the mix of compensation that we provide for the Company’s Named Officers. We strive to offer base compensation that is competitive relative to the market, while any additional executive pay in the form of annual cash incentive and long-term equity incentive is at risk and tied to Company performance. Long-term incentives deliver value to the executives to the extent that Callon's stock price performs well, both on an absolute basis and relative to peer companies, and helps to ensure that managements’ attention remains focused on the Company’s and the stockholders interests. The Committee believes a mix of long-term incentives payable in cash and stock, a portion of which has time-based vesting and a portion of which vests based on performance, achieves the Company’s goals of incentivizing the executive officers and aligning their interests with those of the Company’s stockholders. +While we have no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term compensation, we have designed the components of the Company’s compensation programs so that, as an executive’s responsibility increases, the compensation mix is generally weighted more heavily toward performance-based and at-risk compensation and less heavily toward base salary, while being mindful that the overall mix remains competitive. The Committee believes that the compensation environment for qualified executives in the oil and gas industry is highly competitive, and in order to compete in this environment, the Company’s executive officers’ compensation should have the following components: +Component +Purpose +Philosophy Statement +Base Salary +● +To pay for expertise and experience +● +In the aggregate, compared against peers given relative size +● +Attract and retain talent +● +Reflective of individual skills, experience and expertise necessary to execute the Company’s business strategy +● +Provide stable compensation level +Annual Cash Reward +● +Motivate superior operational and financial performance +● +In the aggregate, bonus opportunities compared against peers given relative size for reasonableness +and Incentive +● +Provide annual recognition of performance based on achievement of individual and corporate objectives +Compensation +● +Reflective of internal equity considerations +● +Promote and encourage pay-for-performance +● +Goals aligned with annual strategic objectives of the Company +● +Modest or no reward for performance below expectations and potential for significantly increased reward for exceptional performance +● +Provide balance in compensation programs and avoid encouraging undue risk-taking +Long-Term Equity +● +Directly align employees with stockholders +● +Ultimate value delivered influenced by the Company’s return to stockholders as compared against peer companies +Incentives +● +Create significant retention hook +● +Match competitive practices to attract and retain employees +● +Appropriate opportunities based on a review of multiple reference points: +● +Provide balance in compensation programs and avoid encouraging undue risk-taking +— Industry peer grant values +— Historical grant practices +— Internal relative positioning +Retirement and Health +● +Provide financial security for employees and their families +● +Programs generally consistent, regardless of level, across the organization +Benefits +● +Ensure a financial safety net +● +Benefit levels competitive with peer companies +● +Match competitive practices +Severance Protection +● +Match competitive practices to attract and retain employees +● +Benefit levels based on peer group practices with consideration to shareholder value +● +Ensure executives consider all possible transactions to increase shareholder value related to changes in control of the Company +23 +How We Determine Each Element of Compensation. +Base Salaries . At a regularly scheduled meeting, generally in March of each year, the Committee reviews the base salary for the CEO and other Named Officers. Actual individual salary amounts are not objectively determined, but instead reflect the Committee’s subjective analysis of a number of factors, including the individual officer’s experience, skills and tenure with the Company, changes to the individual’s position within the Company, trends in compensation practices within the Company’s peer group or industry, and his or her expected future contribution to the success of the Company. In addition, the Committee also carefully considers the input and recommendations of the CEO when evaluating factors relative to the other executive officers, or, in the case of the CEO, the Committee considers the input and recommendations of the chairman of the Committee. Upon review of these various factors and taking into consideration the Company’s philosophy of emphasizing incentive compensation, for 2012 the Committee increased the CEO’s base salary from $464,250 to $525,000, which was his first increase in three years. No other Named Officers received an increase in their base salaries. Joseph C. Gatto, Jr. joined the Company in April 2012 as the Senior Vice President, Corporate Finance. His base salary of $300,000 per year was determined by negotiation and was approved by the Committee. +Annual Cash Reward and Incentive Compensation . Named Officers, senior management and certain other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a cash bonus. For 2012, the Committee set the initial bonus percentage targets for the CEO, the CFO, and the Senior Vice President, Operations, at 100%, 90%, and 90% of base salary, respectively. The other Named Officers were eligible for a bonus targeted at 50% to 70% of base salary. Bonus percentage of base salary targets for other senior management and non-management technical personnel were not specifically set. As with base salary, the Committee views Callon from an asset size and other operating metrics standpoint relative to the peer group as a reference point for determining the reasonableness of targeted bonus opportunities. Actual bonus payouts are determined for individuals, including executive officers, based upon a combination of Company and individual performance factors. Regardless of the performance as compared to any of the objectives, the Board has the authority and flexibility to suspend or eliminate payment of plan bonuses for any year if it determines that, in its sole discretion, business conditions or other factors indicate such a decision is in the best interests of the Company. +Early each year, following Board approval of the annual operating budget and financial forecast for the upcoming year, the Committee sets performance targets to be used in determining cash bonus awards for that year. These targets are used as a reference point and no specific formula or weighting is applied. After the end of the performance period, the Committee meets to evaluate and develop a consensus as to the Company’s actual performance relative to these pre-determined cash bonus guidelines. The Committee reserves the right to make their final decision based on unexpected events outside the control of the Company, which may have positively or negatively impacted the guideline attainment. Cash bonus amounts for each Named Officer are calculated based on the Committee’s assessment of performance relative to expectations and the individual’s bonus target, and adjusted, if necessary, for superior individual performance beyond the original corporate performance guidelines. +24 +The Committee desired to set reasonable guidelines and performance expectations for 2012 bonus consideration, which reflect strategic business focus points and encourage management to promote growth of the Company and foster added shareholder value. The agreed focus points and results for the year 2012 were as follows: +Focus Point +Achievements +Conduct operations in a safe manner +The Company achieved an ORIR rate of 0.895, which is better than the target of less than 1.0. +Continue development of Permian Basin properties +In 2012, the Company drilled 17 vertical wells in the Wolfberry formation on the Company’s acreage in the Midland basin. The average well cost was approximately 15% over estimated well costs, due to higher service costs; directional drilling necessitated by the location of wells near residential areas; taking wells to deeper formations; and the application of larger fracture stimulations. +The Company drilled four horizontal wells in the Wolfcamp shale, Cline shale, and Mississippian lime formations on the Company’s acreage in the Midland basin. Drilling and completion costs for these four evaluation wells were over initially estimated well costs, due to the costs to move rigs to different well sites in three different counties, increasing service costs, and the costs of water hauling prior to establishing permanent infrastructure. +Actual well costs incurred in 2012 were within the range of our peers, and recent wells drilled have seen a continued reduction in costs. +Increase acreage position in the Permian Basin +During the year 2012, the Company added 23,196 net acres in the Permian Basin. The average acquisition costs for this new acreage was at the low end of the range of prices disclosed by other companies operating in the Permian Basin. +Meet operational and financial targets +Production was below the target range by less than 10%, primarily due to unanticipated downtime associated with the Company’s offshore Gulf of Mexico properties, including offshore pipeline downtime and the Hurricane Isaac forced shut-in, in addition to completion delays in the Permian Basin associated with the Company’s decision to change service providers to reduce capital costs and other infrastructure delays. Cash flow from operations was below targeted cash flows due to the lower production previously mentioned. Reserve additions from drilling operations in the Permian were approximately 3.0 MMBOE in 2012, slightly below targeted reserve additions, primarily due to the timing of planned completions in the Permian Basin, as discussed above. +Achieve financing objectives +In 2012, the Company executed a new Senior Secured Credit Facility, increasing its bank group from one to five energy banks. The new facility’s maturity was extended to March, 2016, the interest rate on the facility was reduced, and the Borrowing Base was increased from $45 million to $80 million. The Company monetized its working interest in the deepwater Gulf of Mexico Habanero Field for $42 million. The sales price metrics were at the top of reported Gulf of Mexico transactions in 2012 and facilitated the repayment of almost all of the secured credit facility as of year-end 2012. +Attain expense management targets +For 2012, the Company’s lease operating expense per Boe for the Permian Basin was within the targeted goals and overall general and administrative expense was slightly over target. +Committee discretionary assessment +In addition to pre-set focus points, the Committee took into account the achievements set forth under “Executive Summary,” as well as the Company’s performance in: +● +increasing reserves through drilling operations; +● +maintaining production despite unanticipated Gulf of Mexico downtime and the delays due to building a more substantial infrastructure for future Permian growth; +● +continuing to increase the Company’s reserve life; and +● +continued progress in building a strong technical team. +25 +At the March 2013 Compensation Committee meeting, the Committee evaluated the Company’s overall performance against the focus points and performance expectations set for 2012. In the Committee’s discretionary assessment, it noted that Company performance was above expectations in items such as safety and the financial restructuring, but below expectations on production and new acreage development, with some mitigating external factors. Consequently, the Committee approved bonuses that are below the targets set for the Named Officers. Consistent with, and in recognition of, these achievements, the Committee awarded the CEO, Mr. Fred L. Callon, a cash bonus of $446,250. In recognition of his responsibilities as Chairman of the Board and his leadership in achieving the goals set forth above, Mr. Callon has a long-term proven record of accomplishment of leadership, providing vision for the Company’s long-term growth strategy. He continued to seek and implement meaningful ways to increase the Company’s oil and natural gas reserves, promote safe environmental operations, and improve the Company’s financial stability, all of which contribute to increased shareholder value. Using his experience in the oil and gas industry, Mr. Callon has continued to successfully guide the Company’s transition from primarily an offshore oil producing company to a more balanced production ratio by expanding the Company’s onshore operations in the Permian Basin. Recognizing their individual contributions to the achievement of the goals discussed above, the Committee awarded the other Named Officers the following cash bonuses: Mr. Weatherly - $278,460; Mr. Newberry - $267,750; Mr. Gatto - $178,500; and Mr. Borrello - $127,500. +Long-term Equity Incentives . The Committee administers the Company’s long-term incentive plans and performs functions that include approving award recipients, determining the total number of shares to be awarded, timing of grants, fixing the time and manner in which awards are exercisable, and from time to time adopting rules and regulations for the Company’s plans. For the grant of equity compensation to executive officers, the Committee will typically consider information provided by the Consultant related to the overall competitive environment associated with long-term compensation. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. However, the Committee follows a policy of not granting equity incentives when material non-public information exists that may affect the short-term price of the Company’s stock. +In its consideration of whether or not to make equity grants to the Company’s executive officers and, if such grants are made, the size of the grants, the Committee considers factors such as the total compensation for each of the Named Officers, company-level performance, the applicable executive officer's performance, share ownership of comparable executives of peer companies, the amount of equity previously awarded to the applicable executive officer, the vesting of such awards, and the recommendations of management. There is no formal weighting of these elements. For 2012 grants, the Committee approved a mix for the Company’s Named Officers of time-based awards and performance-based awards tied to relative shareholder return, with a portion of the time-based awards paid in cash. +26 +Name +Restricted Stock Units Payable in Common Stock +Phantom Stock Units Payable in Cash (3) +Performance-based Phantom Units Payable in Cash (4) +Fred L. Callon +151,246 +(1) +26,690 +177,936 +B. F. Weatherly +64,280 +(1) +11,343 +75,623 +Gary A. Newberry +41,592 +(1) +7,340 +48,932 +Vince Borrello(5) +22,687 +(1) +4,004 +26,690 +Stephen F. Woodcock(6) +0 +0 +0 +Joseph C. Gatto, Jr. +17,850 +(1) +3,150 +10,500 +100,000 +(2) +(1) +Amount represents restricted stock units vesting on May 10, 2015 and payable in Company common stock on the vesting date. +(2) +Mr. Gatto was employed on April 5, 2012 and his employment offer included 100,000 restricted stock units ratably vesting one-third on each July 1 beginning in 2013. +(3) +Amount represents phantom stock units vesting on May 10, 2015 and payable in cash based on the average of the opening and closing NYSE market price of the Common Stock on the date of vesting. +(4) +Amount represents performance-based phantom units payable in cash and which will vest between 0% and 200% based on the Company’s total shareholder return when compared to the specified peer group. The adjusted performance-based phantom units will vest on December 31, 2014. +(5) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. All unvested awards on the effective date of Mr. Borrello’s retirement shall forfeit and not vest. +(6) +Mr. Woodcock retired from the Company effective September 7, 2012 and therefore did not receive an award in 2012. +The performance-based phantom units granted in 2012 are subject to an adjustment based on the Company’s total shareholder return measured against the 2013 peer group as follows: +Callon’s Total Shareholder Return Rank versus Peers +Phantom Units Vesting as a Percentage of Target +1 - 2 +200% +3 - 4 +150% +5 - 8 +100% +9 - 10 +50% +11- 13 +0% +At the end of the vesting period, the earned awards will be provided to the participant without any additional holding period. Information concerning all unvested performance shares and outstanding options held by the Company’s Named Officers is contained in the "Outstanding Equity Awards at December 31, 2012" table. +Perquisites and Other Benefits . Benefits represent a relatively small part of the Company’s overall compensation package. However, these benefits help attract and retain senior level executives and are reviewed periodically to ensure that they are competitive with industry norms. We provide benefits that are common in the oil and gas exploration industry to all of the Company’s employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents, group life insurance for employees and their spouses, accidental death and dismemberment coverage for employees, long-term disability, a Company sponsored cafeteria plan and a 401(k) employee savings and protection plan. The Company pays the full costs of these benefits. Employee life insurance amounts surpassing the Internal Revenue Service maximum are treated as additional compensation to all employees. The Company’s 401(k) contribution to each qualified participant, including the Named Officers, is calculated based on 5% of the employee’s IRS eligible salary, excluding annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, including amounts deferred by Named Officers, up to a maximum of 5% of IRS eligible compensation. The Company pays all administrative costs to maintain the plan. +27 +The Company’s executive officers are entitled to certain benefits, or perquisites, that are not otherwise available to all of the Company’s employees. We provide the Company’s CEO, CFO and other executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service’s annual lease value method for personal use of the vehicle. Another benefit offered only to the CEO is the Company’s payment of annual premiums for a term life insurance policy for which he/she is the sole beneficiary and which the Company has no economic interest in the proceeds. The costs associated with these benefits for the Named Officers are reported as “Other Compensation” in the Summary Compensation Table. The Committee feels these perquisites are common to the oil and gas industry and the value of such benefits is considered in determining total compensation of the Company’s executives. +Severance Protection. The Company has entered into no employment agreements with its executive officers. We believe, however, that providing consistent, competitive levels of severance protection to senior executives helps minimize distraction during times of uncertainty and helps to retain key employees. To align with market practices, facilitate the Company’s ability to attract and retain executives, and ensure all Named Officers are motivated to consider any transaction that would increase shareholder value, we have entered into change-in-control severance compensation agreements with the Company’s executive officers, which include continued salary, benefits and accelerated vesting of equity awards. We believe that these provisions create important retention tools for us, such as providing for accelerated vesting of equity awards upon a termination of employment in connection with a change in control, which provides employees with value in the event of a termination of employment that was beyond management’s control. In addition, we believe that it is important to provide the Named Officers with a sense of stability, both in the midst of transactions that may create uncertainty regarding their future employment and post-termination as they seek future employment. We believe post-termination payments allow management to focus their attention and energy on making the best objective business decisions that are in the interest of the Company without allowing personal considerations to cloud the decision-making process. +Further, we believe that such protections maximize shareholder value by encouraging the Named Officers to review objectively any proposed transaction in determining whether such proposal or termination is in the best interest of the Company’s stockholders, whether or not the executive will continue to be employed. These agreements match competitive practices and are all similar in structure, except that CEO benefit levels are higher to reflect his position as the CEO of the Company. These agreements include non-competition, non-solicitation, and non-disclosure provisions. In addition, the agreements contain a “claw back” provision that will apply in the event the executive violates any of these provisions in order to protect the Company in the event the benefits are triggered, and none of the agreements includes an excise tax gross-up. Despite competitive market practices to the contrary, the Committee chose not to provide guaranteed severance benefits outside of a change-in-control. In the event of a termination of employment outside of a change-in-control, the Committee will consider the circumstances of each case separately. +Internal Revenue Service Limitations . When establishing the Company’s compensation programs, we consider all relevant tax laws. The Company’s programs are designed to comply with Section 409A of the tax code, which applies to nonqualified deferred compensation, in order to prevent negative tax consequences for the Company’s executives. Under Section 162(m) of the Internal Revenue Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. However, the Committee, after taking into consideration changing business conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities, reserves the right to use its judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate and in the best interest of the stockholders. +Insider Trading Policy. We have an Insider Trading Policy for which all employees and members of the Company’s Board are prevented from buying or selling Company stock during periodic “trading blackout” periods. When material non-public information about the Company may exist and may have an influence on the marketplace, a trading blackout period is placed in effect by management. +Stock Ownership Policy. In March 2008, the Committee of the Board adopted a stock ownership policy, which applies to the CEO and the other Named Officers. The provisions of the policy provide for the investment position, computed on December 31 of each year, of the CEO to be no less than six times his or her base salary. For other Named Officers, the investment position shall be no less than two times base salary. Investment position is defined as calculated value of shares owned, shares owned indirectly, equivalent shares invested in the officer’s 401(k) plan, and unvested portion of time-based vesting of performance shares or restricted shares. Value attributable to shares represented by both vested and unvested stock options and the value of unvested performance-based shares or restricted shares are excluded. Each Named Officer has a period of five years from the date of adoption to attain the required investment position. If a Named Officer becomes subject to a greater investment position due to a promotion or an increase in salary, the Named Officer will be expected to attain the increased investment position within three years of the change. The Committee reserves the right to approve an alternate stock ownership guideline for Named Officers who can demonstrate a severe hardship in meeting the general guidelines. +28 +Certain Relationships and Related Party Transactions . The Company’s Audit Committee charter provides that the Company shall not enter into a related party transaction unless, after a review of the transaction by the Audit Committee for potential conflicts of interest, such transaction is approved by the Audit Committee. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, the Company’s Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of interest with the Company may only be waived if the Nominating and Governance Committee approves the waiver and the full Board ratifies the waiver. Each Board Committees has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging their duties. As of December 31, 2012, we are not aware of any related party transactions with the Company’s executive officers that may cause a conflict of interest with the Company. +Recoupment Policy. We currently have no recovery policy applicable to annual incentive bonuses or equity awards other than those required under Sarbanes-Oxley legislation. The Committee will continue to evaluate the need to adopt such a policy in light of pending legislation. +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. Based on such review and discussions, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the proxy statement relating to the 2013 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE +L. Richard Flury, Chairman +Larry D. McVay +Anthony J. Nocchiero +John C. Wallace +29 +The following table sets forth certain information with respect to the CEO and CFO of the Company and the three most highly compensated Named Officers of the Company serving in such positions as of December 31, 2012. +Summary Compensation Table +Name and Principal Position +Year +Annual +Salary +($) +Cash +Bonus +($) +Stock +Awards +($) +All Other +Compen- +sation +($)(11) +Total +($) +Fred L. Callon +2012 +509,880 +446,250 +(3) +1,811,388 +(7) +51,280 +2,818,798 +Chairman, President and +2011 +464,520 +464,520 +1,156,650 +(5) +48,563 +2,134,253 +Chief Executive Officer +2010 +464,520 +575,000 +944,063 +(6) +47,557 +2,031,140 +B. F. Weatherly +2012 +364,000 +278,460 +(3) +769,842 +(7) +36,177 +1,448,479 +Executive Vice President, Chief Financial +2011 +364,000 +327,600 +788,625 +(5) +28,952 +1,509,177 +Officer and Corporate Secretary +2010 +364,000 +420,000 +755,250 +(6) +27,020 +1,566,270 +Gary A. Newberry +2012 +350,000 +267,750 +(3) +498,128 +(7) +32,945 +1,148,823 +Senior Vice President - Operations +2011 +350,000 +315,000 +525,750 +(5) +30,930 +1,221,680 +2010 +250,077 +(1) +100,000 +(4) +273,000 +(8) +27,323 +1,325,400 +300,000 +375,000 +(9) +Stephen F. Woodcock +2012 +198,000 +(12) +-- +-- +14,238 +212,238 +Vice President, Exploration +2011 +286,000 +171,600 +420,600 +(5) +27,787 +905,987 +2010 +286,000 +171,600 +566,438 +(6) +37,412 +1,061,450 +Vince Borrello +2012 +250,000 +127,500 +(3) +271,709 +(7) +26,939 +676,148 +Vice President and General Manager – +2011 +187,500 +(2) +150,000 +140,200 +(5) +18,606 +847,756 +Permian Basin Operations (15) +351,450 +(10) +Joseph C. Gatto, Jr. +2012 +225,000 +(13) +178,500 +(3) +160,336 +(7) +27,600 +1,184,436 +Senior Vice President, Corporate Finance +593,000 +(14) +(1) +Mr. Newberry’s employment date was April 1, 2010 and initial annual salary was $320,000. Upon his promotion in September 2010, his annual salary was increased to $350,000. +(2) +Mr. Borrello’s employment date was April 4, 2011 and his annual salary was $250,000. +(3) +Cash bonus awarded in March 2013 in recognition of 2012 performances. +30 +(4) +Represents a sign-on bonus paid in April 2010 as an additional incentive for employment. +(5) +Represents the grant date fair value of the restricted stock units and performance-based phantom units granted to the Named Officers on May 12, 2011 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +(6) +Represents the grant date fair value of the restricted stock units and performance-based phantom units granted to the Named Officers on May 7, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(7) +Represents the grant date fair value of the restricted stock units and performance-based phantom units granted to the Named Officers on May 10, 2012 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 8 and 9 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013. +(8) +Represents the grant date fair value of the restricted stock units granted to the Named Officer on April 1, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(9) +Represents the grant date fair value of the restricted stock units granted to the Named Officer on September 22, 2010 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. +(10) +Represents the grant date fair value of the restricted stock units granted to the Named Officer on April 4, 2011 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +(11) +See the Table of All Other Compensation and related footnotes below for reconciliation of All Other Compensation. +(12) +Mr. Woodcock retired from the Company effective September 7, 2012 and thus did not receive his full annual salary. +(13) +Mr. Gatto’s employment date was April 5, 2012 and his annual salary was $300,000. +(14) +Represents the grant date fair value of the restricted stock units granted to the Named Officer on April 5, 2012 as an additional incentive for employment, computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 8 and 9 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013. +(15) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +Table of All Other Compensation +Name +Year +Company +Contributed Cash to +401(k) +($) +Company +Contributed Common Stock to 401(k) +($)(1) +Company Provided Auto +($)(2) +Company +Paid +Other +($) +Total +($) +Fred L. Callon +2012 +18,500 +6,250 +11,625 +14,905 +(3) +51,280 +2011 +18,375 +6,125 +9,374 +14,689 +(3) +48,563 +2010 +18,375 +6,125 +8,368 +14,689 +(3) +47,557 +B. F. Weatherly +2012 +18,500 +6,250 +11,427 +-- +36,177 +2011 +18,375 +6,125 +4,452 +-- +28,952 +2010 +18,375 +6,125 +2,520 +-- +27,020 +Gary A. Newberry +2012 +18,500 +6,250 +8,195 +-- +32,945 +2011 +18,375 +6,125 +6,430 +-- +30,930 +2010 +18,375 +6,125 +2,823 +-- +27,323 +Stephen F. Woodcock (5) +2012 +5,940 +4,950 +3,348 +-- +14,238 +2011 +18,375 +6,125 +3,287 +-- +27,787 +2010 +18,375 +6,125 +3,333 +9,579 +(4) +37,412 +Vince Borrello(6) +2012 +18,500 +6,250 +2,189 +-- +26,939 +2011 +12,981 +4,327 +1,298 +-- +18,606 +Joseph C. Gatto, Jr. +2012 +16,875 +5,625 +5,100 +-- +27,600 +31 +(1) +Subject to IRS limits, Company contributions to each person’s 401(k) account consist of a basic contribution equal to five percent (5%) of eligible annual base salary (funded one-half in cash and one-half in equivalent-valued common stock) plus a matching amount (limited to five percent (5%) of eligible annual base salary if such employee individually contributed at least eight percent (8%) of their eligible annual base salary). The number of shares contributed is determined on a monthly basis by dividing one-half of the total basic cash contribution by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life, plus insurance, fuel, maintenance and repairs, pursuant to IRS Reg §1.61-21, Taxation of Fringe Benefits. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which Mr. Callon is the sole beneficiary. +(4) +Represents taxable income associated with the purchase of a Company automobile at book value, an amount less than the estimated fair market value. +(5) +Mr. Woodcock retired from the Company effective September 7, 2012. +(6) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +Grant of Plan-Based Awards During 2012 +The following table presents grants of equity awards during the fiscal year ending December 31, 2012: +Estimated Future Payouts Under Equity Incentive Plan Awards (1) +All Other Stock Awards: Number of +Name +Grant +Date +Thresh-old +(#) +Target +(#) +Maxi mum +(#) +Shares of +Stock or Units +Grant Date Fair Value +($)(5) +Fred L. Callon +05/10/12 +-- +-- +-- +151,246 +(2) +769,842 +05/10/12 +-- +-- +-- +26,690 +(3) +135,852 +05/10/12 +-- +177,936 +355,872 +-- +905,694 +B. F. Weatherly +05/10/12 +-- +-- +-- +64,280 +(2) +327,185 +05/10/12 +-- +-- +-- +11,343 +(3) +57,736 +05/10/12 +-- +75,623 +151,246 +-- +384,921 +Gary A. Newberry +05/10/12 +-- +-- +-- +41,592 +(2) +211,703 +05/10/12 +-- +-- +-- +7,340 +(3) +37,361 +05/10/12 +-- +48,932 +97,864 +-- +249,064 +Stephen F. Woodcock (6) +05/10/12 +-- +-- +-- +-- +-- +05/10/12 +-- +-- +-- +-- +-- +05/10/12 +-- +-- +-- +-- +-- +Vince Borrello(7) +05/10/12 +-- +-- +-- +22,687 +(2) +115,477 +05/10/12 +-- +-- +-- +4,004 +(3) +20,380 +05/10/12 +-- +26,690 +53,380 +-- +135,852 +Joseph C. Gatto, Jr. +04/05/12 +-- +-- +-- +100,000 +(4) +593,000 +05/10/12 +-- +-- +-- +17,850 +90,857 +05/10/12 +-- +-- +-- +3,150 +16,034 +05/10/12 +-- +10,500 +21,000 +-- +53,445 +32 +(1) +Amount represents performance-based phantom units payable in cash on the vesting date and which will be adjusted between 0% and 200% based on certain performance metrics when compared to the Company specified peer group. The adjusted performance-based phantom units will vest on December 31, 2014. +(2) +Amount represents restricted stock units vesting on May 10, 2015 and will be settled in Company common stock. +(3) +Amount represents restricted stock units vesting on May 10, 2015 and will be settled in cash based on the average of the opening and closing NYSE market price of the Common Stock on the vesting date. +(4) +Amount represents restricted stock units awarded as an inducement for employment. These units will ratably vest one-third on each July 1 beginning 2013. +(5) +This column shows the grant date fair value of the awards granted to the Named Officers on the date indicated computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 8 and 9 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013. +(6) +Mr. Woodcock retired from the Company effective September 7, 2012. +(7) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. All unvested awards on the effective date of Mr. Borrello’s retirement shall forfeit and not vest. +Stock-Based Incentive Compensation Plans +The 2011 Omnibus Incentive Plan (the “2011 Omnibus Plan”) was approved by stockholders on May 12, 2011. Prior to that date, the Company maintained five common stock-based incentive plans for its officers, directors and employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, the 2006 Plan, and the 2009 Plan (collectively, the “Prior Plans”). These Prior Plans expired and any shares not reserved for future awards under the Prior Plans on the adoption date of the 2011 Omnibus Plan were transferred to and available under the 2011 Omnibus Plan. Any and all shares that may have become available as a result of future stock option exercises or share award vesting under the Prior Plans were also transferred to and available under the 2011 Omnibus Plan. No future grants will be made under the Prior Plans. +2011 Omnibus Plan. The 2011 Omnibus Plan was approved by the stockholders on May 12, 2011. Pursuant to the 2011 Omnibus Plan, the total number of shares available for awards shall be equal to the sum of: (a) 2,300,000 shares; (b) any and all Shares that are available for awards under the Prior Plans as of the approval date that are not reserved for outstanding awards that were granted under the Prior Plans on the approval date; and (c) any and all shares that may become available for awards under the Prior Plans on or after the approval date that were reserved for outstanding awards that were granted under the Prior Plans before the approval date, as provided in Section 4.2(b). Awards available under the 2011 Omnibus Plan include grants of stock options, stock appreciation rights or units, restricted stock, restricted stock units, or performance shares or units. As of March 22, 2013, 1,669,132 shares remain unissued within the 2011 Omnibus Plan. +Long-Term Incentive Plan Awards +The Company does not have a long-term incentive plan for its employees other than the stock-based incentive compensation plans mentioned above and in the Compensation Discussion and Analysis. +33 +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards at December 31, 2012 for the Named Officers: +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or Units of Stock that Have Not Vested +(#) +Market +Value of Shares +or Units of Stock +that Have +Not vested +($)(14) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)(14) +Fred L. Callon +-- +-- +-- +106,250 +(2) +499,375 +18,750 +(5) +88,125 +-- +-- +-- +93,500 +(3) +439,450 +16,500 +(6) +77,550 +55,000 +(7) +-- +-- +-- +-- +-- +258,500 +26,690 +(8) +-- +-- +151,246 +(4) +710,856 +-- +125,443 +177,936 +(9) +-- +-- +-- +-- +-- +836,299 +B. F. Weatherly +5,000 +(1) +5.12 +05/02/2013 +85,000 +(2) +399,500 +15,000 +(5) +70,500 +-- +-- +-- +63,750 +(3) +299,625 +11,250 +(6) +52,875 +37,500 +(7) +-- +-- +-- +-- +-- +176,250 +11,343 +(8) +-- +-- +64,280 +(4) +302,116 +-- +53,312 +75,623 +(9) +-- +-- +-- +-- +-- +355,428 +Gary A. Newberry +-- +-- +-- +85,000 +(10) +399,500 +15,000 +(14) +70,500 +-- +-- +-- +42,500 +(3) +199,750 +7,500 +(6) +35,250 +25,000 +(7 ) +-- +-- +-- +-- +-- +117,500 +7,340 +(8) +41,592 +(4) +195,482 +-- +34,498 +48,932 +(9) +-- +229,980 +Vince Borrello(15) +-- +-- +-- +30,000 +(11) +141,000 +-- +-- +-- +-- +-- +17,000 +(3) +79,900 +3,000 +(6) +14,100 +4,004 +(8) +22,687 +(4) +106,629 +-- +18,819 +26,690 +(9) +-- +125,443 +Joseph C. Gatto, Jr. +-- +-- +-- +100,000 +(12) +470,000 +-- +-- +3,150 +(8) +17,850 +(4) +83,895 +-- +14,805 +10,500 +(9) +-- +49,350 +(1) +Represents vested stock options awarded on May 8, 2002. +(2) +Represents restricted stock units awarded May 7, 2010 and are settleable in stock on the May 7, 2013 vesting date. +34 +(3) +Represents restricted stock units awarded May 12, 2011 and are settleable in stock on the May 12, 2014 vesting date. +(4) +Represents restricted stock units awarded May 10, 2012 and are settleable in cash on the May 10, 2015 vesting date. +(5) +Represents restricted stock units awarded May 7, 2010 and are settleable in cash on the May 7, 2013 vesting date. +(6) +Represents phantom stock units awarded May 12, 2011 and are settleable in cash on the May 12, 2014 vesting date. +(7) +Amount represents performance-based phantom units settleable in cash on the vesting date and which will be adjusted between 0% and 150% based on the Company’s total shareholders return when compared to the Company specified peer group. The adjusted performance-based phantom units will vest on December 31, 2013. +(8) +Represents phantom shares awarded May 10, 2012 and are settleable in cash on the May 12, 2015 vesting date. +(9) +Amount represents performance-based phantom units settleable in cash on the vesting date and which will be adjusted between 0% and 200% based on the Company’s total shareholders return compared to the Company specified peer group. The adjusted performance-based phantom units will vest on December 31, 2014. +(10) +Represents restricted stock units awarded September 22, 2010 and are settleable in stock on the May 7, 2013 vesting date. +(11) +Represents restricted stock units awarded April 4, 2011 and are settleable in stock. Units vest one-third on each subsequent anniversary date following the award date. +(12) +Represents restricted stock units awarded April 5, 2012 and are settleable in stock. Units ratably vest one-third on each July 1 beginning 2013. +(13) +Represents restricted stock units awarded September 22, 2010 and are settleable in cash on the May 7, 2013 vesting date. +(14) +Amounts calculated based on the December 31, 2012 the Company’s common stock closing price as quoted on the NYSE of $4.70 per share. +(15) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. All unvested awards on the effective date of Mr. Borrello’s retirement shall forfeit and not vest. +Option Exercises and Stock Vested +The following table provides information about the value realized by the Named Officers on option exercises, vesting of restricted stock units and performance-based phantom unit award payouts during 2012: +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#)(1) +Value +Realized On +Exercise +($)(2) +Number of +Shares Acquired +on +Vesting +(#)(3) +Value +Realized on +Vesting +($)(4) +Fred L. Callon +12,625 +453,417 +200,000 +1,038,000 +B. F. Weatherly +-- +344,250 +127,500 +272,475 +Gary A. Newberry +-- +-- +-- +-- +Stephen F. Woodcock(5) +8,500 +552,030 +(6) +143,000 +(6) +860,280 +(6) +Vince Borrello(7) +-- +-- +-- +-- +Joseph C. Gatto, Jr. +-- +-- +-- +-- +35 +(1) +Represents stock options awarded August 23, 2002 and exercised on August 21, 2012. +(2) +Includes the value of the: 1) exercise of stock options; and/or (2) vesting of performance-based phantom units on December 31, 2012 and settled in cash. The value realized reflects the taxable value to the Named Officer as of the date of the option exercise or vesting of performance-based phantom unit awards. +(3) +Represents restricted stock awarded August 14, 2009 and vested August 14, 2012. +(4) +Represents the aggregate dollar amount realized on the date of the vesting of the restricted stock based on the market price of a share of Company stock on the NYSE on August 14, 2012. +(5) +Mr. Woodcock retired from the Company effective September 7, 2012. +(6) +Mr. Woodcock’s value includes the accelerated vesting of awards pursuant to his retirement agreement. +(7) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable upon termination following a change in control or upon death, disability or retirement. No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2012. In presenting this disclosure, we describe amounts earned through December 31, 2012 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company, the estimates are of the amounts which would be paid out to the executives upon their termination. +Name and Reason for Termination +Base +Salary +($)(3) +Cash +Bonus +($)(3) +Accelerated +Stock Award +Vesting +($)(4) +Continued +Employee +Benefits +($)(5)(6) +Total +($) +Fred L. Callon +Change in Control (1) +1,529,640 +1,529,640 +3,035,598 +134,306 +6,229,184 +Death, Disability, or Retirement (2) +-- +-- +3,035,598 +-- +3,035,598 +B. F. Weatherly +Change in Control (1) +728,000 +655,200 +1,709,606 +60,189 +3,152,995 +Death, Disability, or Retirement (2) +-- +-- +1,709,606 +-- +1,709,606 +Gary A. Newberry +Change in Control (1) +700,000 +630,000 +1,282,461 +60,189 +2,672,650 +Death, Disability, or Retirement (2) +-- +-- +1,282,461 +-- +1,282,461 +Vince Borrello (7) +Change in Control (1) +500,000 +300,000 +485,891 +60,189 +1,346,080 +Death, Disability, or Retirement (2) +-- +-- +485,891 +-- +485,891 +Joseph C. Gatto, Jr. +600,000 +420,000 +618,050 +60,189 +1,698,239 +Change in Control (1) +618,050 +618,050 +Death, Disability, or Retirement (2) +-- +-- +36 +(1) +The Company entered into a Severance Compensation Agreement with each of the Named Officers listed in the table above. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(2) +“Disability” is generally defined as the employee’s inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six (6) continuous months together with the reasonable likelihood, as determined by the Board after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee’s attainment of an age which the Board determines to be consistent with normal retirement age. +(3) +In accordance with Mr. Callon’s Severance Compensation Agreement, the computation uses a three-year multiple with respect to the severance amount relating to salary and target bonus while a two-year multiple is used for the other Named Officers. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(4) +The amounts are computed based on unvested stock awards at December 31, 2012 using the closing price of the Company’s common stock on the NYSE on the last trading day of 2012, at $4.70 per share. +(5) +Benefits consist of thirty-six (36) months of employer provided family medical and dental insurance, life insurance, dependent life insurance, accidental death coverage and disability coverage for Mr. Callon and twenty-four (24) months for the other Named Officers in the table. +(6) +Mr. Callon’s amount includes an additional allotment for each of the three years representing premiums paid on a life insurance policy for which the Company does not have any beneficial interest. +(7) +Mr. Borrello has submitted his resignation to the Company effective April 15, 2013. +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Employment Agreements. The Company has no employment agreements with any executive officer. +Severance Compensation Agreements. The Company entered into Severance Compensation Agreements (“SCA”) with each of the Named Officers. The SCA will terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the earliest of: (1) December 31, 2013, provided, however, that, on each anniversary date thereafter (each such date, an “Anniversary Date”), the expiration date shall automatically be extended for one additional year unless, immediately prior to such Anniversary Date, either party shall have given written notice that it does not wish to extend this SCA, but in no event shall the expiration date be earlier than the second anniversary of the effective date of a change of control; (2) the termination of the Named Officer’s employment with Callon based on death, Disability (as defined in Section 3.1 of the SCA), or Cause (as defined in Section 3.2 of the SCA; and (3) the voluntary resignation of the Named Officer for any reason other than Good Reason (as defined in Section 3.3 of the SCA). +Pursuant to the SCA, if the executive incurs a “separation from service” from the Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and other authoritative guidance issued there under) without cause by the Company or for good reason by him within two years following a change of control of the Company (or in certain cases, prior to a change of control), then the executive is entitled to a single lump-sum cash payment (payable on the date that is six months following the triggering event) in an amount equal to three times the sum (with respect to Mr. Callon) of: (a) the annual base salary in effect immediately prior to the change of control or, if higher, in effect immediately prior to the separation from service, and (b) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the change of control occurs, based on a forecast that has been approved by the Board of the results for the fiscal year in which the change of control occurs. For the remaining Named Officers, the salary and bonus multiple is two times. In addition, the Company must maintain at its expense until thirty-six (36) months after a separation from service all life, disability, medical, dental, accident, and health insurance coverage for Mr. Callon. For the remaining Named Officers, the continued benefit period is twenty-four (24) months. If the executive’s employment is terminated because of his death or Disability, the Company is only required to make such payments if the termination occurred within six months after a change of control. “Good reason” is generally defined in the SCA as a change in compensation, benefits, position, responsibilities, or location. A change of control is generally defined in the SCA as: (i) any person or group of persons acting in concert shall have become the beneficial owner of more than 50% of the outstanding common stock of the Company; (ii) the stockholders of the Company shall cause a change in the majority of the members of the Board within a twelve-month period; or (iii) the Company or its stockholders shall enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company. +The SCA’s also provide that, upon a change of control, all stock options shall automatically become fully exercisable and all performance shares, restricted stock, stock appreciation rights and other similar rights held by the executive shall become fully vested, provided, however, that such acceleration of vesting shall not occur if it would be an impermissible acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the total value of the outstanding and unvested stock rights as of the date of separation from service. +37 +The SCA’s incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the “net-best” provision included in the SCA is appropriate. If any payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. +Compensation of Non-Management Directors +Each non-management director receives an annual retainer of $40,000 per year with an additional $20,000 per year for the chairman of the Audit Committee, an additional $15,000 per year to the chairman of the Compensation Committee, an additional $10,000 per year to the chairman of the Nominating and Corporate Governance Committee, and an additional $10,000 to the chairman of the Strategic Planning Committee. Each non-management director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In addition to cash compensation, the Compensation Committee may, from time to time, grant performance shares. During 2012, the Compensation Committee awarded shares of restricted stock with equivalent value equal to $125,000 each to Messrs. Flury, McVay, Wallace and Nocchiero. The restricted stock shall vest on the earlier of: (a) the first anniversary of the Grant Date, provided that Grantee continues to be a member of the Board (or is otherwise providing services to the Company as an employee) through such date; or (b) the date Grantee ceases to provide any services to the Company as an employee or director, other than for Cause, after reaching age sixty (60). The Compensation Committee may determine in its sole discretion that the restricted stock shall vest on a “qualified separation from service.” For purposes hereof, a “qualified separation from service” is defined as a Separation from Service, other than for Cause, following a minimum of five (5) years of tenure on the Board and occurring within five (5) years prior to Grantee attaining the age sixty (60). The table below indicates the total compensation earned and paid during 2012 for each non-management director: +Non-Management Director Compensation for 2012 +Name +Fees +Earned +or Paid +in Cash +($)(1) +Stock +Awards +($)(6) +Option +Awards +($) +All Other +Compensation +($) +Total +($) +L. Richard Flury +55,000 +(2) +125,000 +-- +-- +180,000 +Larry D. McVay +50,000 +(3) +125,000 +-- +-- +175,000 +John C. Wallace +60,000 +(4) +125,000 +(7) +-- +-- +60,000 +Anthony J. Nocchiero +50,000 +(5) +125,000 +-- +-- +175,000 +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $15,000 for acting as chairman of the Compensation Committee. +38 +(3) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Strategic Planning Committee. +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Nominating and Corporate Governance Committee. +(6) +Amounts calculated utilizing the provisions of FASB ASC Topic 718. See notes 9 and 10 of the consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2012 regarding assumptions underlying valuation of equity awards. +(7) +Mr. Wallace elected to have his restricted stock award deferred pursuant to the terms of a Deferred Compensation Plan for non-employee directors, under which participants may elect to defer the receipt of the proceeds in cash until separation of service as a director. +Fred L. Callon serves as Chairman of the Board, but does not receive any additional compensation for his services in this capacity and therefore has been omitted from the table above. Mr. Weatherly also serves as a member of the Board and does not receive any additional compensation associated with those services. +The Company has established ownership requirements for its outside directors. Each director is required to achieve a minimum value of common stock equal to at least 5 times the annual retainer within the next five years. +39 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE +NAMED EXECUTIVE OFFICER COMPENSATION +Callon is required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated under Section 14A of the Exchange Act, to seek a non-binding advisory vote from its stockholders to approve the compensation paid to its Named Officers (sometimes referred to as “say on pay”) as disclosed in this proxy statement. We encourage stockholders to read the “Compensation Discussion and Analysis” and “Executive Compensation and Other Related Information” sections of this proxy statement for a more detailed discussion of the Company’s compensation programs and policies, the compensation and governance-related actions taken in 2012, and the compensation awarded to the Company’s Named Officers. In determining whether to approve this proposal, we believe that stockholders should consider the following: +● Independent Compensation Committee. Executive compensation is reviewed and established by a Compensation Committee of the Board consisting solely of independent directors. The Compensation Committee meets in executive session, without executive officers present, in determining annual compensation. The Compensation Committee receives data, analysis and input from an independent compensation consultant that is not permitted to perform any additional services for Callon management. +● Performance-Based Incentive Compensation. Elements of performance-based, incentive compensation are largely aligned with financial and operational objectives established in the Board-approved annual operating plan. +● Elimination of Tax Gross-ups. Started in 2011, executive officers are not eligible for a tax related gross-up on any element of current and future compensation. +● “Double Trigger” Severance Agreements with Fixed Term . Callon’s change in control severance agreements with executive officers require an actual or constructive termination of employment before benefits are paid following any change in control. +● Equity Plans. The Company’s equity plans generally include three-year minimum vesting periods for time-based awards, prohibit repricing or exchange of outstanding option awards, and require options be granted with exercise prices at fair market value on the date of grant. +● Stock Ownership Guidelines. The Company’s Named Officers are subject to stock ownership guidelines described in “Compensation Discussion and Analysis.” +For these reasons, the Board recommends that stockholders vote in favor of the following resolution: +“RESOLVED, that the compensation paid to Callon’s Named Officers, as disclosed in Callon’s 2013 proxy statement (including the Compensation Discussion and Analysis, the compensation tables and related footnotes and narrative disclosures under the heading “Executive Compensation and Other Related Information”) is hereby approved.” +Although this vote is advisory and is not binding on the Board, the Compensation Committee of the Board values the input and views of Callon stockholders. The Board and the Compensation Committee will review the results of the vote and take them into consideration when considering future executive compensation policies and decisions. +The Board of Directors unanimously recommends that you vote “FOR” the advisory vote on executive compensation. +40 +PROPOSAL 3 +RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP, FOR FISCAL 2013 +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors is required by law and applicable NYSE rules to be directly responsible for the appointment, compensation and retention of the Company’s independent registered public accountants. The Audit Committee has selected Ernst & Young LLP, independent registered public accounting firm, for the examination of the accounts and audit of the financial statements of the Company for the year ending December 31, 2013. Ernst & Young has served as the Company’s independent registered public accounting firm and audited the Company’s consolidated financial statements beginning with the fiscal year ended December 31, 2002 . We are advised that no member of Ernst & Young LLP has any direct or material indirect financial interest in Callon or, during the past three years, has had any connection with us in the capacity of promoter, underwriter, voting trustee, director, officer or employee. While stockholder ratification is not legally required, the Board of Directors believes that such submission is consistent with best practices in corporate governance and is an opportunity for stockholders to provide direct feedback to the Board of Directors on an important issue of corporate governance. If the stockholders do not ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. A representative of Ernst & Young LLP will be present at the 2013 Annual Meeting and will have the opportunity to make a statement, if he desires, and to respond to appropriate questions from stockholders. +The Board of Directors unanimously recommends that the stockholders approve and ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for the fiscal 2013. Unless otherwise indicated, all properly executed proxies received by the Company will be voted “FOR” such ratification at the 2013 Annual Meeting. +41 +STOCKHOLDERS’ PROPOSALS +FOR 2014 ANNUAL MEETING +Stockholders who desire to present proposals at the 2014 Annual Meeting of Stockholders and to have proposals included in the Company’s proxy materials must submit their proposals to the Company at its principal executive offices not later than December 28, 2013. If the date of the 2014 Annual Meeting of Stockholders is changed by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2014 Annual Meeting of Stockholders. +The person named in the Company’s form of proxy for the 2014 Annual Meeting will have discretionary authority to vote any proxies they hold at such meeting on any matter for which the Company does not receive notice by February 18, 2014, unless the Company changes the date of its 2014 Annual Meeting of Stockholders by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, in which case such persons will be able to exercise discretionary authority if notice of the matter has not been received in a reasonable time before the Company mails its proxy materials for the 2014 Annual Meeting of Stockholders. +If the date of the 2014 Annual Meeting of Stockholders is advanced or delayed by more than 30 calendar days from the date of the 2013 Annual Meeting of Stockholders, the Company shall, in a timely manner, inform stockholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company’s proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, it is suggested that stockholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above or other applicable requirements. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2012 Annual Report to Stockholders and the Company’s Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 14, 2013. The Company’s Annual Report, the Company’s Annual Report on Form 10-K, Corporate Governance Principles, Code of Business Conduct and Ethics, and Charters of Board Committees may be accessed by stockholders on the Company’s website at www.callon.com or printed copies are available upon written request to the B. F. Weatherly, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. +OTHER BUSINESS +The Board does not know of any matter to be acted upon at the 2013 Annual Meeting other than those described above. If other business comes before the 2013 Annual Meeting, the persons named on the proxy will vote the proxy in accordance with what they consider to be in the best interests of the Company and its stockholders. Please sign, date, and return your proxy promptly to avoid unnecessary expense. All stockholders are urged, regardless of the number of shares owned, to participate in the 2013 Annual Meeting by returning their proxy in the enclosed business reply envelope. +By Order of the Board of Directors +Natchez, Mississippi +Fred L. Callon +Chairman, President and +April 4, 2013 +Chief Executive Officer +42 +Callon Petroleum Company +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +ANNUAL MEETING OF STOCKHOLDERS – MAY 16TH, 2013 AT 9AM +CONTROL ID: +PROXY ID: +CALLON PETROLEUM COMPANY +200 North Canal Street, Natchez, Mississippi 39120 +Proxy Solicited on Behalf of the Board of Directors +of the Company for the Annual Meeting of Shareholders on May 16, 2013 +The undersigned hereby constitutes and appoints Fred L. Callon his true and lawful agent and proxy with full power of substitution in each, to represent and to vote, as designated on the reverse, all of the shares of Common Stock of Callon Petroleum Company, held of record by the undersigned on March 22, 2013 at the Annual Meeting of Shareholders to be held at 9:00a.m. in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120 on May 16, 2013, and at any adjournments thereof, on all matters coming before said meeting. +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” EACH OF THE DIRECTOR NOMINEES IN PROPOSAL 1, “FOR” PROPOSAL 2, AND "FOR"PROPOSAL 3 AS INDICATED ON THE REVERSE SIDE HEREOF. You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE SIDE), but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The Proxies cannot vote your shares unless you sign and return this card. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +VOTING INSTRUCTIONS +If you vote by phone, fax or internet, please DO NOT mail your proxy card. +MAIL: +Please mark, sign, date, and return this Proxy Card promptly using the enclosed envelope. +INTERNET: +https://www.iproxydirect.com/CPE +PHONE: +1-866-752-VOTE(8683) +ANNUAL MEETING OF THE STOCKHOLDERS OF +Callon Petroleum Company +PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE: ý +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +Proposal 1 +à +FOR +ALL +AGAINST +ALL +FOR ALL +EXCEPT +Election Of Directors +¨ +¨ +Larry D. McVay +¨ +CONTROL ID: +John C. Wallace +¨ +REQUEST ID: +Proposal 2 +à +FOR +AGAINST +ABSTAIN +To approve, in an advisory (non-binding) vote, the Company's +executive compensation. +¨ +¨ +¨ +Proposal 3 +à +FOR +AGAINST +ABSTAIN +To ratify the appointment of Ernst & Young LLP as the +Company's independent registered public accounting firm. +¨ +¨ +¨ +MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING: ¨ +THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER +DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED +“FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES IN PROPOSAL +1, “FOR” PROPOSAL 2, AND "FOR" PROPOSAL 3. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Proxy Statement and Annual Report for 2012 are available at www.iproxydirect.com/CPE +MARK HERE FOR ADDRESS CHANGE ¨ New Address (if applicable): +____________________________ +____________________________ +____________________________ +IMPORTANT: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +Dated: ________________________, 2013 +(Print Name of Stockholder and/or Joint Tenant) +(Signature of Stockholder) +(Second Signature if held jointly) \ No newline at end of file diff --git a/raw/proxies/0000928022/0001354488-13-001760/proxy_rpt.txt b/raw/proxies/0000928022/0001354488-13-001760/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0001354488-13-006830/proxy.txt b/raw/proxies/0000928022/0001354488-13-006830/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6eefc8b2cb3578716525969152f1734b79842728 --- /dev/null +++ b/raw/proxies/0000928022/0001354488-13-006830/proxy.txt @@ -0,0 +1,398 @@ +DEF 14A +1 +cpe_def14a.htm +SCHEDULE 14A +cpe_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Rule 14a-101 +Schedule 14A Information +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Callon Petroleum Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS +TO BE HELD JANUARY 15, 2014 +To Our Stockholders: +Notice is hereby given and you are cordially invited to attend a Special Meeting of Stockholders of Callon Petroleum Company (“Company” or “Callon”) to be held on January 15, 2014 at 9:00 CST at the Company’s Corporate Headquarters located at 200 North Canal Street, Natchez, MS 39120 (“Special Meeting”), for the following purposes. +1. +To approve an amendment to Article Four of the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock of the Company (“Common Stock”) from 60 million shares to 110 million shares; and +2. +To transact such other business as may properly come before the meeting and any adjournment thereof. +Stockholders of record at the close of business on the December 12, 2013 (the “Record Date”) may attend and vote at the Special Meeting, and any adjournments or postponements thereof. A list of stockholders entitled to vote at the Special Meeting will be available at the Company’s office at 200 North Canal St., Natchez, MS 39120 during normal business hours for a period of ten days prior to the meeting. If you wish to attend the Special Meeting in person, you must present valid government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Special Meeting, in order to be admitted you must present proof of your beneficial ownership of the Common Stock, such as a bank or brokerage account statement indicating that you owned shares of the Common Stock at the close of business on the Record Date. For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting. +Whether or not you plan to attend the meeting, please vote electronically via the Internet or by telephone, or complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope. See “How do I cast my vote?” in the proxy statement for more details. +By Order of the Board of Directors, +/s/ B.F. Weatherly +Natchez, MS +B. F. Weatherly +December 12, 2013 +Executive Vice President, Chief Financial Officer (“CFO”) and Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be Held on January 15, 2014: The Proxy Statement is available at www.iproxydirect.com/CPE. +If you have any questions or need assistance voting, please call our proxy solicitor: +Morrow & Co., LLC +470 West Avenue – 3 rd Floor +Stamford, CT 06902 +Banks and Brokerage Firms, please call (203) 658-9400. Stockholders, please call toll free (800) 414-4313. +2 +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +SPECIAL MEETING OF STOCKHOLDERS +JANUARY 15, 2014 +INFORMATION CONCERNING SOLICITATION AND VOTING +The Company’s Board of Directors (“Board”) is soliciting proxies for a Special Meeting of Stockholders of Callon Petroleum to be held on January 15, 2014 at 9:00 CST at the Company’s Corporate Headquarters located at 200 North Canal Street, Natchez, MS 39120, and at any adjournments or postponements of the meeting. This proxy statement contains important information for you to consider when deciding how to vote on the matter brought before the meeting. Please read it carefully. This proxy statement and the accompanying proxy card are first being mailed to stockholders on or about December 16, 2013. +The Company will pay for the costs associated with printing and filing this proxy statement and soliciting proxies for the special meeting. Some of the Company’s officers and employees may solicit proxies by telephone or in person, although they will not be paid for soliciting proxies. The Company also will request that persons and entities holding shares in their names, or in the names of their nominees, that are beneficially owned by others, send proxy materials to and obtain voting instructions from those beneficial owners, and will reimburse those holders for their reasonable expenses in performing those services. The Company has retained Morrow & Co., LLC, a proxy solicitation firm, to assist in the solicitation of proxies, at an anticipated cost of $15,000, plus reimbursement of out-of-pocket expenses. +QUESTIONS AND ANSWERS +Q: +Who can vote at the meeting? +A: +You can attend and vote at the meeting if you were a stockholder at the close of business on the Record Date. The Board set December 12, 2013 as the Record Date for the meeting. On that date, there were 40,444,973 shares outstanding and entitled to vote at the meeting . +Q: +What proposals will be voted on at the meeting? +A: +One proposal is scheduled to be voted upon at the meeting: +● +Approval of an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60 million to 110 million. +Q: +Why did I receive a full set of proxy materials? +A: +Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to the Company’s proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of the proxy material on the Internet. The Company’s Board has made these proxy materials available to you on the Internet on or about December 16, 2013 at https://www.iproxydirect.com/CPE, which is the cookies-free website. +Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of the Common Stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of Morrow & Co., LLC to assist us in the Company’s solicitation efforts. +3 +Q: +How do I cast my vote? +A: +There are three convenient methods for registered stockholders to direct their vote by proxy without attending the Special Meeting: +● Vote by Internet. You can vote via the Internet. The website address for Internet voting is provided on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. CST on January 14, 2014. Internet voting is available 24 hours a day. +● Vote by Telephone. You can also vote by telephone by calling the toll-free telephone number provided on the Internet link on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. CST on January 14, 2014. +● Vote by Mail. You can vote by marking, dating and signing the printed copy of the proxy card and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Special Meeting. +In the event that you return a signed proxy card on which no directions are specified, your shares will be voted as recommended by the Company’s Board on the proposal, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any adjournments or postponements of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Special Meeting. +If your shares are registered in the name of a broker, bank or other nominee (typically referred to as being held in “street name”), you will receive instructions from your broker, bank or other nominee that must be followed in order for your broker, bank or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If Internet or telephone voting is unavailable from your broker, bank or other nominee, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided. +In the event you do not provide instructions on how to vote, your broker may have authority to vote your shares. Under the rules that govern brokers who are voting with respect to shares that are held in street name, brokers may have the discretion to vote such shares on routine matters, including the proposal to approve the amendment to our Certificate of Incorporation to increase the number of authorized shares, but not on non-routine matters. +Your vote is especially important . Therefore, please instruct your broker regarding how to vote your shares on these matters promptly . See “Vote Required” following the proposal for further information. +If you hold shares through a broker, bank or other nominee and wish to be able to vote in person at the meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot at the meeting. If you need assistance in obtaining a legal proxy, please call Morrow & Co., LLC toll-free at (800) 414-4313. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the Special Meeting. The inspector of election will count votes cast at the meeting. +Q: +Can I revoke or change my proxy? +A: +Yes. You may revoke or change a previously delivered proxy at any time before the meeting by delivering another signed proxy with a later date, by voting again via the Internet or by telephone, or by delivering written notice of revocation of your proxy to the Company’s Corporate Secretary at our principal executive offices before the beginning of the meeting. You may also revoke your proxy by attending the meeting and voting in person, although attendance at the meeting will not in and of itself revoke a valid proxy that was previously delivered. If you hold shares through a broker, bank or other nominee, you must contact that nominee to revoke any prior voting instructions. You also may revoke any prior voting instructions by voting in person at the meeting if you obtain a legal proxy as described above. +Q: +How does the Board recommend I vote on the proposal? +A: +The Board recommends you vote “ FOR ” the amendment to the Certificate of Incorporation increasing the number of authorized shares of Common Stock from 60 million shares to 110 million shares. +4 +Q: +Who will count the vote? +A: +The inspector of election will count the vote. An independent party will act as the inspector of election. +Q: +What is a “ quorum”? +A: +A quorum is the number of shares that must be present to hold the meeting. The quorum requirement for the meeting is a majority of the outstanding shares as of the Record Date, present in person or represented by proxy. Your shares will be counted for purposes of determining if there is a quorum if you are present and vote in person at the meeting, or have voted on the Internet, by telephone or by properly submitting a proxy card or voting instruction card by mail. Abstentions and broker non-votes also count toward the quorum. An abstention will have the same practical effect as a vote against the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock. “Broker non-votes” occur when brokers, banks or other nominees that hold shares on behalf of beneficial owners do not receive voting instructions from the beneficial owners prior to the meeting and do not have discretionary voting authority to vote those shares. +Q: +What vote is required to approve the amendment to the Certificate of Incorporation? +A: +The affirmative vote of a majority of the outstanding shares of Common Stock is required to approve the proposed amendment to the Company’s Certificate of Incorporation. +Q: +What does it mean if I get more than one proxy card? +A: +Your shares are likely registered in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. +Q: +How many votes can I cast? +A: +On all matters, you are entitled to one vote per share. +Q: +Where can I find the voting results of the meeting? +A: +The preliminary voting results will be announced at the meeting. The final results will be published in a current report on Form 8-K to be filed with the SEC within four business days of the meeting. +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This proxy statement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this proxy statement are forward-looking statements. The Company can give no assurances that the assumptions upon which such forward-looking statements are based will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for our most recent fiscal year, elsewhere in this proxy statement and from time to time in other filings made by us with the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified by the Cautionary Statements. Except as required by law, the Company does not update any forward looking statements. +5 +PROPOSAL +AMENDMENT TO ARTICLE FOUR OF THE COMPANY’S CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM 60 MILLION SHARES TO 110 MILLION SHARES +Proposed Amendment to Certificate of Incorporation +The Board has adopted a resolution approving and recommending to the stockholders for their approval a proposal to amend Article Four of the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60 million shares to 110 million shares (the “Article Four Amendment”). +The form of the Article Four Amendment is as follows: +The first sentence of Article Four is hereby amended and restated to be read in its entirety as follows: +“The Corporation shall have authority to issue two classes of stock, and the total number authorized shall be 110,000,000 shares of Common Stock, par value $.01 per share, and 2,500,000 shares of Preferred Stock, par value $.01 per share.” +Background and Reasons for Increasing the Authorized Shares of Common Stock +The Company has significantly grown its onshore asset base over the past four years and is seeking the approval of additional authorized shares of Common Stock in order to provide flexibility to meet the demands of future growth and other corporate obligations. As the current capitalization table below indicates, there are only 460,690 shares currently available for issuance in conducting business and to accommodate possible equity demands in the future. The Company feels that this is a small operating margin, and it is prudent and good business practice to have an adequate amount of Common Stock available in order to be in a position to take advantage of potential growth opportunities that might arise. +The Board concurs with this assessment, and believes that the recommended increase in the number of authorized shares of Common Stock is warranted and will give the Company the financial flexibility to timely meet the future equity capital requirements of its business. If the Certificate of Incorporation is amended, the additional shares would be available for possible acquisitions requiring equity as consideration, equity issuance in capital markets transactions, stock incentive plans, the reservation related to the Series A Preferred Stock (as described below), and for any other proper general corporate purpose. The Company has no present plans, agreements or understandings for the issuance of any of the additional shares to be authorized by the proposed amendment. There will be no increase to the number of authorized preferred stock. +Capitalization Tables +The Company has outstanding 1,578,948 shares of a Series A Cumulative Preferred Stock (“Series A Preferred Stock”) with a total liquidation value of $79 million. The Series A Preferred Stock provides that upon a change of control, generally defined as the acquisition of 50% of the Company’s Common Stock by a Person or group of persons ( provided that , following the acquisition, neither the Company nor the surviving entity has a class of common securities listed on a national securities exchange) (“Change of Control”), the Company may make a cash offer to purchase the Series A Preferred Stock within 120 days following the Change of Control for the liquidation value plus accrued dividends. The Series A Preferred Stock further provides that if Callon does not elect (or is unable) to purchase the Series A Preferred Stock for cash, the holders of the Series A Preferred Stock may convert the liquidation value of their holdings into shares of Common Stock as alternate consideration pursuant to the Limited Conversion Rights provision. The number of shares subject to such a conversion would be equal to (i) the total liquidation value of the Series A Preferred ($79 million) divided by (ii) the market price of the Common Stock at the time of the Change of Control. For example, if the closing Common Stock price of $6.65 on November 29, 2013 is assumed to be the acquisition price per share in a Change of Control transaction, Callon would be required to issue approximately 11.9 million shares to satisfy a potential conversion of the Series A Preferred Stock into Common Stock (if the Series A Preferred Stock is not redeemed for cash). +6 +Currently, the Series A Preferred Stock further provides that in no circumstance would the price of the Common Stock issued in exchange for the Series A Preferred Stock be less than $4.70 per share. Using this floor price, the theoretical maximum number of shares that could be issued if the Company elects not to redeem the Series A Preferred Stock for cash would be 16,800,007 shares (“Share Cap”). Similar to other precedent cumulative preferred transactions completed for companies across a variety of industries, the Share Cap is reserved against the Company’s authorized share count. Under the terms of the Series A Preferred Stock offering, Callon agreed that if it were to amend the Company’s certificate of incorporation to increase its number of authorized shares, Callon would increase the Share Cap to 42,331,046 shares (implying an effective floor price for the Common Stock of $1.87 per share). +The ability to issue Common Stock rather than cash in a Change of Control transaction provides the Company with flexibility in the event it were unable to finance a cash offer for the liquidation value of the Series A Preferred Stock. If the amendment to the Company’s certificate of incorporation is approved and the authorized share count is increased, the Board will reserve the increased number of common shares as the new Share Cap. While the Series A Preferred Stock is outstanding, these reserved shares will not be available for any other purpose. +Currently, the Company’s authorized capital stock consists of 60,000,000 shares of Common Stock and 2,500,000 shares of Preferred Stock. As of December 12, 2013, the Company had 40,444,973 shares of Common Stock outstanding and an additional 19,094,337 shares reserved for issuance upon vesting or exercise of restricted stock, stock options and the Limited Conversion Rights of the Series A Preferred Stock . +The following table depicts the authorized capital stock of the Company as of the Record Date prior to the amendment of the Certificate of Incorporation and assuming the proposed amendment to the Certificate of Incorporation is adopted by the stockholders: +Current +Total authorized +60,000,000 +Total shares outstanding +40,444,973 +Reserved for issuance upon exercise of outstanding stock options +52,000 +Reserved for issuance upon vesting of outstanding equity awards & 401(k) Plan +2,242,330 +Reserved for issuance for limited conversion feature of Series A Preferred Stock +(current Share Cap) +16,800,007 +Total outstanding and reserved +59,539,310 +Total available +460,690 +Post Amendment +Total authorized +110,000,000 +Total shares outstanding +40,444,973 +Reserved for issuance upon exercise of outstanding stock options +52,000 +Reserved for issuance upon vesting of outstanding equity awards & 401(k) Plan +2,242,330 +Reserved for issuance for limited conversion feature of Series A Preferred Stock +(new Share Cap) +42,331,046 +Total outstanding and reserved +85,070,349 +Total available +24,929,651 +If the stockholders approve the amendment to the Company’s Certificate of Incorporation to increase the Company’s authorized Common Stock, the Company will have 24,929,651 shares of authorized Common Stock available for future issuance. The additional shares of Common Stock authorized by the amendment that are not reserved for other purposes may be issued periodically on authorization by the Board, without further approval by the stockholders, unless such authorization is required by applicable law or the rules of the NYSE. Shares of Common Stock may be issued for such consideration as the Board may determine, and as may be permitted by applicable law. +7 +The proposed amendment to the Certificate of Incorporation does not change the terms of the Common Stock. The additional shares of Common Stock to be authorized by adoption of the amendment would have rights identical to the currently outstanding Common Stock of the Company. Any future issuance of additional shares of Common Stock would not affect the rights of the holders of currently outstanding Common Stock of the Company, except for effects incidental to increasing the number of shares of the Company’s Common Stock outstanding, such as a dilutive effect on the Company’s earnings per share. If our stockholders do not approve the proposal, the Company will have only 460,690 shares of authorized Common Stock for general corporate purposes and, as a result, may not be able to access the capital markets, complete acquisition transactions or partnerships, attract, retain and motivate employees, or pursue other business opportunities integral to its growth and success. However, non-approval will not have any impact on the existing terms and conditions of the Series A Preferred Stock, including the current Share Cap. +The existence of certain provisions contained in the Company’s Certificate of Incorporation and By-laws may be to render more difficult the accomplishment of any attempted merger, takeover or other change in control affecting the Company and/or the removal of the Company’s incumbent Board and management. However, this proposal is not in response to any effort of which the Company is aware to accumulate its stock or to obtain control of the Company and it is not part of a plan by management to recommend a series of similar amendments to the Board and the stockholders. +Effective Date +If approved by the stockholders, it is anticipated that the amendment to the Certificate of Incorporation will become effective as soon as practicable after the Special Meeting. Upon approval of this proposal at the Special Meeting, the Company will file the Article Four Amendment with the Secretary of State of the State of Delaware, and the number of authorized shares of Common Stock will be increased from 60 million shares to 110 million shares (without affecting par value). +If stockholders do not approve this proposal at the Special Meeting, then the Company may seek to obtain stockholder approval of an increase in authorized shares at future stockholder meetings. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE INCREASE IN AUTHORIZED SHARES OF COMMON STOCK FROM 60 MILLION SHARES TO 110 MILLION SHARES. +8 +PRINCIPAL STOCKHOLDERS +Management and Principal Stockholders +The following table sets forth, as of the Record Date, certain information with respect to the ownership of shares of Common Stock held by: (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding Common Stock; (ii) each director; (iii) each executive officer; and (iv) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of Common Stock has been obtained from filings made by the named beneficial owners with the SEC as of the Record Date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals. +Common Stock (a) +Name and Address of +Certain Beneficial Owners +Beneficial Ownership +Percent +Directors: +Fred L. Callon +306,016 +(b) +* +L. Richard Flury +106,484 +(c) +* +Larry D. McVay +86,484 +(d) +* +Anthony J. Nocchiero +38,334 +(e) +* +John C. Wallace +— +(f) +* +B. F. Weatherly +219,065 +(g) +* +Executive Officers: +John Weihe +107,186 +(h) +* +Gary A. Newberry +146,570 +(i) +* +Joseph C. Gatto, Jr. +31,485 +(j) +* +Directors and Executive Officers: +As a Group (9 persons) +1,041,624 +(k) +2.58 +% +Certain Beneficial Owners: +Franklin Resources, Inc. +One Franklin Parkway +San Mateo, CA 94403 +5,228,065 +(l) +12.92 +% +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +2,212,695 +(m) +5.47 +% +RR Advisors, LLC +3953 Maple Avenue, Suite 180 +Dallas, TX 75219 +2,481,363 +(n) +6.13 +% +Jeffery E. Eberwein +Lone Star Value Management, LLC +53 Forest Avenue, 1 st Floor +Old Greenwich, CT 06870 +2,305,000 +(o) +5.70 +% +* +Less than 1% +(a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power, unless such award will vest within sixty days of December 12, 2013. Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of Common Stock beneficially owned by such holder or class of holders plus the total number of shares of Common Stock underlying options exercisable or stock awards vesting within sixty days of December 12, 2013, by (ii) the total number of shares of Common Stock outstanding plus the total number of shares of Common Stock underlying options exercisable and stock awards vesting within sixty days of December 12, 2013, but not Common Stock underlying such securities held by any other person. +(b) +Of the 306,016 shares beneficially owned by Fred L. Callon, 227,304 shares are held directly by him; 25,215 shares are held by him as custodian for certain minor Callon family members; and 53,497 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of Common Stock owned by his wife over which he disclaims beneficial ownership, 405,124 and 71,492 restricted stock units payable in stock and cash, respectively, and 504,027 phantom units payable in cash. +9 +(c) +Of the 106,484 shares beneficially owned by L. Richard Flury, 76,484 shares are owned directly by him; 30,000 shares are held in joint tenancy with his wife; Shares indicated as beneficially owned by Mr. Flury do not include 5,000 and 5,000 shares subject to options under the 1996 and 2002 Plans, respectively. +(d) +Of the 86,484 shares beneficially owned by Larry D. McVay, all are owned directly by him. Shares indicated as beneficially owned by Mr. McVay do not include 35,014 restricted stock units awarded in May 2013 and payable in cash upon his separation of service as a director +(e) +Of the 38,334 shares beneficially owned by Anthony J. Nocchiero, all shares are held directly by him +(f) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust, with the exception of the 5,000, 5,000, and 5,000 shares subject to options under the 1994, 1996, and 2002 Plans, respectively; and the 18,969, 22,768, and 35,014 restricted stock units awarded in May 2011, 2012 and 2013, respectively, and payable in cash upon his separation of service as a director. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +(g) +Of the 219,065 shares beneficially owned by B. F. Weatherly, 98,374 shares are owned directly by him; 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; and 51,877 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weatherly do not include 250 shares of Series A Preferred Stock held directly by him; 196,191 and 34,621 restricted stock units payable in stock and cash, respectively, and 228,337 phantom units payable in cash. +(h) +Of the 107,186 shares beneficially owned by John Weihe, 25,633 shares are owned directly by him and 81,553 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weihe do not include 55,038 and 2,830 restricted stock units payable in stock and cash, respectively, and 47,609 phantom units payable in cash. +(i) +Of the 146,570 shares beneficially owned by Gary A. Newberry, 125,079 shares are owned directly by him and 21,491 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Newberry do not include 124,187 and 21,915 restricted stock units payable in stock and cash, respectively, and 141,705 phantom units payable in cash. +(j) +Of the 31,485 shares beneficially owned by Joseph C. Gatto, Jr., 24,216 are owned directly by him and 7,269 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Gatto do not include 1,500 shares of Series A Preferred Stock owned directly by him, 124,612 and 10,225 restricted stock units payable in stock and cash, respectively, and 78,273 phantom units payable in cash +(k) +Includes 215,687 shares owned within the Company’s Employee Savings and Protection Plan. +(l) +Information is based upon a Schedule 13G/A filed with the SEC on November 10, 2011 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G/A, Franklin represents that it has sole voting power with respect to 5,228,065 shares of Common Stock and sole dispositive power with respect to 5,336,818 shares of Common Stock. +(m) +Information is based upon a Schedule 13G/A filed with the SEC on February 8, 2013 by BlackRock, Inc. In this Schedule 13G/A, BlackRock, Inc. represents that it has sole voting power with respect to 2,212,695 shares of Common Stock and sole dispositive power with respect to 2,212,695 shares of Common Stock. +(n) +Information is based upon a Schedule 13G filed with the SEC on February 4, 2013 by Robert J. Raymond, RR Advisors, LLC, RCH Energy Opportunity Fund II GP, L.P., and RCH Energy Opportunity Fund II, L.P. In this Schedule 13G, Robert J. Raymond and RR Advisors, LLC represent that they have shared voting power and shared dispositive power with respect to 2,481,363 shares of Common Stock and RCH Energy Opportunity Fund II GP, L.P. and RCH Energy Opportunity Fund II, L.P. represent that they have shared voting power and shared dispositive power with respect to 2,379,822 shares of Common Stock. +(n) +Information is based upon a Schedule 13D filed with the SEC on October 17, 2013 by Lone Star Value Investors, LP, Lone Star Value Co-Invest I, LP, Lone Star Value Investors GP, LLC, Lone Star Value Management, LLC and Jeffery E. Eberwein (collectively “Lone Star”). In this Schedule 13D, Lone Star represents that it has sole voting power with respect to 2,305,000 shares of Common Stock and sole dispositive power with respect to 2,305,000 shares of Common Stock. +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control”, as defined in the applicable plan. +10 +STOCKHOLDERS’ PROPOSALS FOR 2014 ANNUAL MEETING +Our by-laws require that any person desiring to nominate directors at our annual meeting provide us with notice of such intent at least 120 days prior to the annual meeting. We currently plan to hold our 2014 Annual Meeting of Stockholders on May 15, 2014, so any stockholder desiring to nominate a person at the 2014 Annual Meeting should provide us notification no later than January 15, 2014. +Stockholders who desire to present proposals at the 2014 Annual Meeting of Stockholders and to have proposals included in the Company’s proxy materials must submit their proposals to the Company at its principal executive offices not later than December 28, 2013. If the date of the 2014 Annual Meeting of Stockholders is changed by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2014 Annual Meeting of Stockholders. +The person named in the Company’s form of proxy for the 2014 Annual Meeting will have discretionary authority to vote any proxies they hold at such meeting on any matter for which the Company does not receive notice by February 18, 2014, unless the Company changes the date of its 2014 Annual Meeting of Stockholders by more than 30 days from the date of the 2013 Annual Meeting of Stockholders, in which case such persons will be able to exercise discretionary authority if notice of the matter has not been received in a reasonable time before the Company mails its proxy materials for the 2014 Annual Meeting of Stockholders. +If the date of the 2014 Annual Meeting of Stockholders is advanced or delayed by more than 30 calendar days from the date of the 2013 Annual Meeting of Stockholders, the Company shall, in a timely manner, inform stockholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company’s proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, it is suggested that stockholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. The Company reserves the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above or other applicable requirements. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2012 Annual Report to Stockholders and the Company’s Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 14, 2013. Documents filed with the SEC, including t he Company’s Annual Report, the Company’s Annual Report on Form 10-K, Proxy Statement for the 2013 Annual Meeting, and Quarterley Reports on Form 10-Q, and other corporate documents, including the Corporate Governance Principles, Code of Business Conduct and Ethics, and Charters of Board Committees, may be accessed by stockholders on the Company’s website at www.callon.com or printed copies are available upon written request to the B. F. Weatherly, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. +By Order of the Board of Directors, +/s/ B.F. Weatherly +Natchez, MS +B.F. Weatherly +December 12, 2013 +Executive Vice President, Chief Financial Officer and Corporate Secretary +11 +CALLON PETROLEUM COMPANY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +SPECIAL MEETING OF STOCKHOLDERS JANUARY 15, 2014 AT 9:00 CST +CONTROL ID: +REQUEST ID: +The undersigned hereby appoints Fred L. Callon and B.F. Weatherly and each of them, as proxies of the undersigned, each with full power to act without the other and with full power of substitution and re-substitution, to vote all the shares of Common Stock of Callon Petroleum Company that the undersigned is entitled to vote at the Special Meeting of Stockholders to be held on January 15, 2014 at the Company’s executive offices located at 200 North Canal Street, Natchez, MS 39120, and at any adjournments or postponements thereof, with all the powers the undersigned would have if personally present as follows: +IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSAL 1 AS INDICATED ON THE REVERSE SIDE HEREOF. +You are encouraged to specify your choice by marking the appropriate box (SEE REVERSE SIDE), but you need not mark any box if you wish to vote in favor. +(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) +VOTING INSTRUCTIONS +If you vote by phone, fax or internet, please DO NOT mail your proxy card. +MAIL: +Please mark, sign, date, and return this Proxy Card promptly using the enclosed envelope. +INTERNET: +https://www.iproxydirect.com/CPE +PHONE: +Call toll free 1-866-752-VOTE (8683) +12 +SPECIAL MEETING OF STOCKHOLDERS OF +CALLON PETROLEUM COMPANY +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL +The notice of the meeting, proxy statement and proxy card +are available at www.iproxydirect.com/CPE +PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. +PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE: ý +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +Proposal 1 +à +FOR +AGAINST +ABSTAIN +Proposal to amend Article Four of the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock of the Company from 60 million shares to 110 million shares. +¨ +¨ +¨ +CONTROL ID: +REQUEST ID: +MARK HERE FOR ADDRESS CHANGE o +The Board recommends you vote “ FOR ” the amendment to the Certificate of Incorporation increasing the number of authorized shares of Common Stock from 60 million shares to 110 million shares. +In the event that you return a signed proxy card on which no directions are specified, your shares will be voted as recommended by the Company’s Board on the proposal, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any adjournments or postponements of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Special Meeting. +New Address (if applicable): +________________________ +________________________ +________________________ +IMPORTANT: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +Dated: ________________________ +MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING: ¨ +(Signature of Stockholder) +(Second Signature if held jointly) +(Title) +13 \ No newline at end of file diff --git a/raw/proxies/0000928022/0001354488-13-006830/proxy_rpt.txt b/raw/proxies/0000928022/0001354488-13-006830/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000928022/0001354488-14-001575/proxy.txt b/raw/proxies/0000928022/0001354488-14-001575/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c52c4ac03b13121e2a0d3c7daa34148586574b8c --- /dev/null +++ b/raw/proxies/0000928022/0001354488-14-001575/proxy.txt @@ -0,0 +1,1849 @@ +DEF 14A +1 +cpe_def14a.htm +DEF14A +cpe_def14a.htm +CALLON PETROLEUM COMPANY +200 NORTH CANAL STREET +NATCHEZ, MISSISSIPPI 39120 +NOTICE OF THE 2014 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD THURSDAY, MAY 15, 2014 +To Our Stockholders: +Notice is hereby given and you are cordially invited to attend the 2014 Annual Meeting of Stockholders of Callon Petroleum Company (“Callon” or the “Company”), a Delaware corporation, which will be held in Natchez, Mississippi, on Thursday, May 15, 2014, at 9:00 a.m. CST (the “Annual Meeting”), in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120, to consider the following proposals: +1. +The election of three Class II Directors, Anthony J. Nocchiero, Matthew R. Bob and James M. Trimble, for a three-year term; +2. +The approval, by advisory vote, of the Company’s named executive officer compensation; +3. +The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014; and +4. +The transaction of such other business as may properly come before the Annual Meeting or any adjournment(s) thereof. +If you are a record holder of our common stock at the close of business on March 31, 2014, the record date, then you are entitled to notice of and to vote at the Annual Meeting. Only stockholders of record at the close of business on March 31, 2014 may attend and vote at the Annual Meeting. A stockholders’ list will be available at the Company’s office at 200 North Canal St., Natchez, MS 39120 during normal business hours for a period of ten days prior to the meeting. +Whether or not you plan to attend the meeting, please vote electronically via the Internet or by telephone, or please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope. See “How do I cast my vote?” in the proxy statement for more details. +We look forward to seeing you at the meeting. +By Order of the Board of Directors +/s/ B. F. Weatherly +B. F. Weatherly +Natchez, Mississippi +Executive Vice President, Corporate Secretary +April 4, 2014 +and Chief Administrative Officer +YOUR VOTE IS IMPORTANT! +Important Notice Regarding the Availability of Proxy Materials for the +Annual Meeting of Stockholders to be Held on May 15, 2014: +This Proxy Statement and our 2013 Annual Report on Form 10-K are available at www.iproxydirect.com/CPE and www.callon.com +If you have any questions or need assistance voting your shares, please call our proxy solicitor: +MORROW & CO., LLC +470 West Avenue – 3 rd Floor +Stamford, CT 06902 +Banks and Brokerage Firms, please call (203) 658-9400. +Stockholders, please call toll free (800) 414-4313. +PROXY STATEMENT +_____________________ +CALLON PETROLEUM COMPANY +200 North Canal Street +Natchez, Mississippi 39120 +(601) 442-1601 +2014 ANNUAL MEETING OF STOCKHOLDERS +THURSDAY, MAY 15, 2014 +INFORMATION CONCERNING SOLICITATION AND VOTING +We are providing you this proxy statement in connection with the solicitation of proxies by our board of directors (the “Board” or individually “Director” and collectively “Directors”) to be voted at the 2014 annual meeting (the “Annual Meeting”) of stockholders of Callon Petroleum Company (“Callon,” the “Company,” us, we, our or like terms). The Annual Meeting will be held on Thursday, May 15, 2014 at 9:00 a.m. CST in the Grand Ballroom of the Natchez Grand Hotel, 111 Broadway Street, Natchez, Mississippi 39120. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully. +The solicitation of proxies by the Board will be conducted primarily by mail. Callon will bear all costs incurred in the solicitation of proxies, including the preparation, printing and mailing of these proxy materials. In addition to solicitation by mail, our Directors, officers and employees may solicit proxies personally or by telephone, email, facsimile or other means, without additional compensation. We may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of shares of common stock held by such persons, and we may reimburse those brokerage houses and other custodians, nominees and fiduciaries for reasonable expenses incurred in connection therewith. In addition, the Company has retained the services of Morrow & Co., LLC to assist us in the Company’s solicitation efforts for a fee of approximately $7,500, plus out-of-pocket expenses. +QUESTIONS AND ANSWERS +Q: +Who may vote? +A: +You may vote if you are the record holder of Callon common stock as of the close of business on March 31, 2014, the “Record Date” for the meeting. On that date, there were 40,465,227 shares outstanding and entitled to vote at the meeting. Each outstanding share is entitled to one vote. +Q: +Who can attend the meeting? +A: +If you are entitled to vote at our Annual Meeting, you may attend the Annual Meeting. If you wish to attend the Annual Meeting in person, you must present valid, government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting, in order to be admitted you must present proof of your beneficial ownership of the common stock, such as a bank or brokerage account statement, indicating that you owned shares of our common stock at the close of business on the Record Date. For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting. +Q: +What am I voting on? +A: +Three proposals are scheduled to be voted upon at the meeting: +● +The election of directors; +● +Advisory approval of the Company’s executive compensation; and +● +The ratification of the appointment of Ernst & Young LLP. +2 +Q: +Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? +A: +Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we have elected to provide access to the Company’s proxy materials over the Internet. The Company’s Board has made these proxy materials available to you on the Internet on or about April 4, 2014 at https://www.iproxydirect.com/CPE , which is the cookies-free website described in the Notice of Internet Availability of Proxy Materials (the “Notice”), mailed to stockholders of record and beneficial holders. Doing so allows us to further the Company’s environmental objectives and the prudent use of resources by limiting waste generated from the Annual Meeting. Accordingly, we are sending the Notice to our stockholders of record and beneficial owners of our stock, and filing the Notice with the SEC, on or about April 4, 2014. In addition to the Company’s proxy materials being available for review at https://www.iproxydirect.com/CPE , the site contains instructions on how to access the proxy materials on a website or to request a printed copy, free of charge. Stockholders may request proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by contacting the Company’s Corporate Secretary at our principal executive offices in Natchez, Mississippi. We will also provide stockholders upon request and free of charge with a copy of the Company’s Form 10-K for the year ended December 31, 2013 as filed with the SEC. +Q: +Can I vote my shares by filling out and returning the Notice? +A: +No. The Notice identifies the items to be voted on at the meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to vote via the Internet, by telephone or by requesting and returning a paper proxy card, or by submitting a ballot in person at the meeting. +Q: +How can I get electronic access to the proxy materials? +A: +The Notice will provide you with instructions regarding how to: +● +View the Company’s proxy materials for the meeting on the Internet; and +● +Instruct us to send future proxy materials to you electronically by email. +Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you, and will reduce the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy-voting site. Your election to receive proxy materials by email will remain in effect until you terminate it. +Q: +How do I cast my vote? +A: +There are three methods for registered stockholders to vote by proxy without attending the Annual Meeting: +● +Vote by Internet . You can vote via the Internet. The website address for Internet voting is provided on your Notice or proxy card. You will need to use the control and request ID appearing on your proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. CST on May 14, 2014. If you vote via the Internet, you do NOT need to vote by telephone or return a proxy card. Internet voting is available 24 hours a day. +● +Vote by Telephone . You can also vote by telephone by calling the toll-free telephone number provided on the Internet link on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. CST on May 14, 2014. Voting by telephone is available 24 hours a day. +● +Vote by Mail . If you received a printed copy of the proxy card, you can vote by marking, dating and signing it, and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting. +If you send us a signed proxy card on which no directions are specified, your shares will be voted as recommended by the Company’s Board on the proposals, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any postponement or adjournment of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Annual Meeting. +3 +If your shares are registered in the name of a broker, bank or other nominee (typically referred to as being held in “street name”), you will receive instructions from your broker, bank or other nominee that must be followed in order for your broker, bank or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If Internet or telephone voting is unavailable from your broker, bank or other nominee, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided. +In the event you do not provide instructions on how to vote, your broker may have authority to vote your shares. Under the rules that govern brokers who are voting with respect to shares that are held in street name, but they are not permitted to vote (a “broker non-vote”) on non-discretionary items absent instructions from the beneficial owner. With respect to the Annual Meeting, Rule 452 prohibits such brokers from exercising discretionary authority in the election of the Company’s Class II directors and the non-binding advisory vote to approve the compensation of the Company’s Named Officers, but such brokers may exercise discretionary authority with respect to the ratification of the appointment of the Company’s independent registered public accounting firm. +Your vote is especially important . Therefore, please instruct your broker regarding how to vote your shares on these matters promptly . +If you hold shares through a broker, bank or other nominee and wish to be able to vote in person at the meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot at the meeting. If you need assistance in obtaining a legal proxy, please call Morrow & Co., LLC toll-free at (800) 414-4313. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the Annual Meeting. +Q: +Can I revoke or change my proxy? +A: +Yes. You may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the Internet or by telephone, or by delivering written notice of revocation of your proxy to the Company’s Corporate Secretary at our principal executive offices before the beginning of the meeting. You may also revoke your proxy by attending the meeting and voting in person, although attendance at the meeting will not in and of itself revoke a valid proxy that was previously delivered. If you hold shares through a broker, bank or other nominee, you must contact that nominee to revoke any prior voting instructions. You also may revoke any prior voting instructions by voting in person at the meeting if you obtain a legal proxy as described above. +Q: +How does the Board recommend I vote on the proposals? +A: +The Board unanimously recommends you vote: +● +“ FOR ” each of the nominees named in this Proxy to the Company’s Board of Directors; +● +“ FOR ” the approval, on an advisory basis, of the Company’s executive compensation; and +● +“ FOR ” the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. +Q: +Who will count the vote? +A: +Issuer Direct will serve as the inspector of election and will tabulate and certify the vote. +Q: +What is a “quorum?” +A: +A quorum is the number of shares that must be present to hold the meeting. The quorum requirement for the meeting is a majority of the outstanding shares as of the Record Date, present in person or represented by proxy. Your shares will be counted for purposes of determining if there is a quorum if you are present and vote in person at the meeting; or have voted on the Internet, by telephone or by properly submitting a proxy card or voting instruction card by mail. Abstentions and broker non-votes also count toward the quorum. An abstention will have the same practical effect as a vote against the ratification of the appointment of the Company’s independent registered public accounting firm and the advisory proposal on executive compensation. +4 +Q: +What vote is required to approve each item? +A: +The following table sets forth the voting requirement with respect to each of the proposals: +Proposal 1: Election of directors. +The three nominees for election as directors at the annual meeting who receive the greatest number of “FOR” votes cast by the stockholders, a plurality, will be elected as the Company’s directors. For this purpose, abstentions and broker non-votes are not counted as a vote for the election of directors. +Proposal 2: Advisory approval of the Company’s executive compensation. +Our executive compensation will be approved by our stockholders in an advisory manner upon the affirmation vote “FOR” by a majority of the shares entitled to vote and present in person or by proxy at the Annual Meeting. For this purpose, votes for, against and abstain are counted as shares entitled to vote and broker non-votes are not counted as shares entitled to vote. Abstentions have the same effect as a vote against. +Proposal 3: Ratification of appointment of independent registered public accounting firm +To be approved by stockholders, this proposal must receive the affirmative “FOR” vote of the holders of a majority of the shares represented at the meeting, in person or by proxy, and entitled to vote. Abstentions will have the same effect as a vote against the proposal. +The advisory vote on executive compensation will not be binding on Callon or the Board, nor will it create any change in the fiduciary duties of our Company or the Board. However, the Compensation Committee will take into account the outcome of the advisory vote on executive compensation when considering future executive compensation decisions. +Q: +What does it mean if I get more than one Notice and/or Proxy Statement? +A: +Your shares are probably registered in more than one account. Please provide voting instructions for all Notices, proxy and voting instruction cards you receive. +Q: +How many votes can I cast? +A: +On all matters you are entitled to one vote per share. +Q: +Where can I find the voting results of the meeting? +A: +The preliminary voting results will be announced at the meeting. The final results will be published in a current report on Form 8-K to be filed with the SEC within four business days of the meeting. +5 +PROPOSAL 1 +ELECTION OF DIRECTORS +The Board currently consists of eight Directors and the Company’s Certificate of Incorporation provides for a classified Board. The current Board is divided into three classes designated as Class I, Class II and Class III, with staggered, three-year terms. Following the Annual Meeting, our Board will have seven members, two Directors each in Classes I and III and three Directors in Class II. The following table provides information with respect to the nominees and all current Directors whose terms will continue after the 2014 Annual Meeting until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal. +Name +Age +as of +Record +Date +Company Position Since +Present Company Position +Class I Directors: +(Term Expires in 2016) +Larry D. McVay +66 +2007 +Director +John C. Wallace +75 +1994 +Director +Class II Directors: +(Term Expires in 2014) +Anthony J. Nocchiero +62 +2011 +Director, Nominee +Matthew Regis Bob +56 +2014 +Director, Nominee +James M. Trimble +65 +2014 +Director, Nominee +Class III Directors: +(Term Expires in 2015) +Fred L. Callon +64 +1994 +Director, Chairman of the Board, President, and Chief Executive Officer (“CEO”) +L. Richard Flury +66 +2004 +Director +The term of the two current Class II Directors, Mr. Anthony J. Nocchiero and Mr. B. F. Weatherly, will expire on the date of the 2014 Annual Meeting. Mr. Weatherly will not stand for reelection to our Board, and thus his term as a Director will expire at the Annual Meeting, however, he will continue to serve as Executive Vice President, Corporate Secretary and Chief Administrative Officer of the Company. The Board has nominated Messrs. Nocchiero, Bob and Trimble for election as Directors. Upon election, Messrs. Nocchiero, Bob and Trimble will serve for terms expiring at the 2017 annual meeting of stockholders or, in each case, until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal. +Nominees +Mr. Anthony J. Nocchiero , 62, was first elected to the Board in March 2011. Since 2010, Mr. Nocchiero has been retired. From April 2007 until September 2010, Mr. Nocchiero held the position of senior vice president and Chief Financial Officer for CF Industries, Inc. From July 2005 until March 2007, he was the vice president and Chief Financial Officer for Merisant Worldwide, Inc. From January 2002 to July 2005, Mr. Nocchiero was self-employed as an advisor and private consultant. From January 1999 until December 2001, Mr. Nocchiero served as vice president and Chief Financial Officer of BP Chemicals, the global petrochemical business of BP p.l.c. Prior to that, he spent twenty-four years with Amoco Corporation in various financial and management positions, including service as Amoco’s vice president and controller from April 1998 to January 1999. Mr. Nocchiero holds a B.S. degree in chemical engineering from Washington University in St. Louis and an M.B.A. degree from the Kellogg Graduate School of Management at Northwestern University. Mr. Nocchiero has previous experience serving as a member of the board of directors of various public and private companies, including Terra Nitrogen LP, Keytrade AG, Vysis Corporation and the Chicago Chamber of Commerce. He brings to the Company a broad knowledge of the oil and gas industry, as well as extensive experience with finance and M&A related transactions, which we believe benefits the Board. In addition, Mr. Nocchiero has the accounting or financial management expertise to be considered a “financial expert” as defined and required by the NYSE rules and the Exchange Act. +6 +Mr. Matthew Regis Bob , 57, has been the founder and Managing Member of MB Exploration and affiliated companies since 1994. MB Exploration is engaged in the oil and gas exploration, development and consulting business. Mr. Bob also served as President of Hall Phoenix Energy LLC, a privately held oil and gas company, from 2009 to 2011. Prior to forming MB Exploration in 1994, Mr. Bob was Chief Geophysicist at Pitts Oil Company. He began his career at Union Oil Company of California where he held various geological positions. He is a member of the American Association of Petroleum Geologists, the Society of Exploration Geophysicists and the Dallas Petroleum Club, and is a registered Geoscientist in the States of Texas, Mississippi and Louisiana. He holds a B.A. in Geology from St. Louis University, an M.S. in Geology from Memphis University, and is a graduate of Harvard University's Executive Management Program. We believe Mr. Bob’s extensive experience in the oil and gas business and his technical expertise will be a benefit to the Board of Directors. +Mr. James M. Trimble , 65, has been Chief Executive Officer and President of PDC Energy, Inc. since 2011, and served on the board of PDC since 2009. Mr. Trimble was an officer of PDC in September 2013 when twelve partnerships for which the Company was the managing general partner each filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. From 2005 until 2010, Mr. Trimble was Managing Director of Grand Gulf Energy, Limited, a public company traded on the Australian Securities Exchange, and President and Chief Executive Officer of Grand Gulf’s U.S. subsidiary Grand Gulf Energy Company LLC, an exploration and development company focused primarily on drilling in mature basins in Texas, Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble was Chief Executive Officer of Elysium Energy and then TexCal Energy LLC, both of which were privately held oil and gas companies that he managed through workouts. Prior to this, he was Senior Vice President of Exploration and Production for Cabot Oil and Gas, a publicly traded independent energy company. Mr. Trimble was hired in July 2002 as CEO of TexCal (formerly Tri-Union Development) to manage a distressed oil and gas company through bankruptcy, and that company filed for Chapter 11 reorganization within 45 days after the date that Mr. Trimble accepted such employment. He successfully managed the company through its exit from bankruptcy in 2004. From November 2002 until May 2006 he also served as a director of Blue Dolphin Energy, an independent oil and gas company with operations in the Gulf of Mexico. Mr. Trimble currently serves on the Board of Directors of Seisgen Exploration LLC, a small private exploration and production company operating in southern Texas. In determining Mr. Trimble’s qualifications to serve on our Board, the Board considered, among other things, that Mr. Trimble is a Registered Professional Engineer who brings many years of oil and gas industry executive management experience to the Board, including experience as a chief executive officer, and knowledge of current developments and best practices in the industry. +To be elected as a Director, each Director nominee must receive a plurality of the votes cast by the stockholders entitled to vote for the election of Directors. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but will have no effect upon the outcome of the vote. All shares of common stock represented by the proxies will be voted “FOR” the election of the above Director nominees, except where authority to vote in the election of Directors has been withheld. Should the nominees become unable or unwilling to serve as a Director at the time of the 2014 Annual Meeting, the person or persons exercising the proxies will vote for the election of substitute nominees designated by the Board, or the Board may choose to reduce the number of members of the Board to be elected at the 2014 Annual Meeting in order to eliminate the vacancy. The Board has no reason to believe that the nominees will be unable or unwilling to serve if elected. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “ FOR ” EACH OF THE DIRECTOR NOMINEES NOMINATED HEREIN. +7 +Directors Continuing in Office +Biographical information for our Directors who are continuing in office is provided below. +Mr. Fred L. Callon has been Chairman of the Board of the Company since May 2004 and President and Chief Executive Officer of the Company since January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, positions he had held with the Company or its predecessors since 1984. He has been employed by the Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is son of the late Sim C. Callon, one of the Company’s co-founders, and the nephew of the late John S. Callon, the other co-founder. We believe that his strong financial background, combined with his many years of operational experience throughout changing conditions in the market and industry, provide him with the ability to successfully lead the Company. +Mr. L. Richard Flury was appointed to the Board in 2004. Mr. Flury has been retired since 2001. Prior to 2001, he spent over 30 years with Amoco Corporation, and later, BP plc, most recently as Chief Executive, Gas and Power and Renewables. Prior to Amoco's merger with BP in 1998, he served in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, Mr. Flury is a member of the Board of QEP Resources, a publicly traded oil and gas company, where he serves on the Audit Committee and Compensation Committee, and is also a director and the non-executive Chairman of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company. He is a graduate of the University of Victoria (Canada). Mr. Flury has many years of prior experience with a major oil and gas company, as well as continued involvement in the industry through his other directorship positions. We believe his executive-level perspective and strategy-making abilities will continue to prove beneficial to the Company. +Mr. Larry D. McVay was appointed to the Board in October 2007. Mr. McVay has been a Managing Director of Edgewater Energy, LLC, a privately held oil and gas investment company since 2007. From 2003 until 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. From 2000 to 2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream operations. Mr. McVay earned a mechanical engineering degree from Texas Tech University, where he was recognized as a Distinguished Engineer in 1995. In January 2008, Mr. McVay became a member of the board of directors of Praxair, Inc., an industrial gases company in North and South America, where he serves on the Audit Committee and is chairman of the Finance & Pension Committee. Mr. McVay is also a member of the board of directors of Chicago Bridge and Iron, N.V., a publicly traded engineering, procurement, and construction company, where he serves on the Audit Committee, the Strategic Initiatives Committee and is the chairman of the Corporate Governance Committee. Mr. McVay has been directly involved in nearly all aspects of the oil and gas industry, including drilling, production, finance, environmental risk, and safety. We believe that this experience and his knowledge of the E & P industry, particularly the Permian Basin, provides invaluable insight in the development of the Company’s long-term strategies. +Mr. John C. Wallace has been a member of the Board of the Company since 1994. Mr. Wallace has been retired since 2010. Mr. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. Prior to his retirement in December 2010, Mr. Wallace served for over twenty-five years as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. In November 2004, he successfully completed the International Uniform Certified Public Accountant Qualification Examination and has received a CPA Certificate from the State of Illinois. Mr. Wallace is also retired from the board of directors of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy. In May 2012, Mr. Wallace was appointed as a non-executive director to the board of directors of Siem Offshore Inc., a publically traded shipping company in Norway with a fleet of vessels active in the offshore energy sector, and where he is a member of the Audit Committee. As a result of his association with Fred Olsen, Ltd. and various associated or related companies, Mr. Wallace has extensive financial and accounting experience in not only the oil and gas industry, but in a number of other related industries. We believe that this experience and his unique perspective of the risks and rewards in the oil and gas industry will continue to be beneficial to the Company. +All Directors of the Company are United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr. Flury, who holds both U.S. and Canadian citizenship. +8 +CORPORATE GOVERNANCE +Agreement with Lone Star Value Management +On March 9, 2014, Callon entered into an agreement (the “Agreement”) with Lone Star Value Investors, L.P., Lone Star Value Co-Invest I, L.P., Lone Star Value Investors GP, LLC, Lone Star Value Management, LLC, Jeffery E. Eberwein and Matthew R. Bob (collectively, the “Lone Star Value Stockholders”). Pursuant to the Agreement, Callon increased its Board from six members to eight members and appointed, effective on March 14, 2014, Matthew R. Bob and James M. Trimble to the Board. Pursuant to the Agreement, each of Mr. Bob and Mr. Trimble were appointed to the Strategic Planning Committee, Mr. Bob was appointed to the Nominating and Corporate Governance Committee, and Mr. Trimble was appointed to the Compensation Committee. Also pursuant to the Agreement, we agreed to nominate Mr. Bob, Mr. Trimble and Anthony J. Nocchiero for election to the Board at the Annual Meeting. The Lone Star Value Stockholders have agreed to vote in favor of these three nominees at the Annual Meeting and agreed to irrevocably withdraw the nomination letter submitted to Callon in December 2013. Lone Star Value Stockholder further agreed, among other things, to vote its shares on the proposal to approve Callon’s executive compensation in accordance with the recommendation of Institutional Shareholder Services, and for the proposal to approve Ernst & Young LLP as our independent auditors. Each Lone Star Value Stockholder agreed not to nominate or recommend any person for election to our Board at the Annual Meeting or submit any proposal for consideration at the Annual Meeting. +Board of Director Structure and Responsibilities +General. Our Board is responsible for managing our business affairs. The Board generally fulfills its responsibilities through regular quarterly meetings to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board may also hold special meetings, execute unanimous written consents, and participate in telephone conference calls when an important matter requires Board action. During 2013, the Board of the Company met formally four times and executed two unanimous written consents. All of the Company’s Directors attended each of the Board meetings either in person or by telephone. In addition, to promote open discussion, the non-employee Directors meet in executive session without management following each quarterly board meeting. The chairperson of such executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, at the first executive session held in each fiscal year, the independent Directors select a different independent Director to serve as the chairperson for all executive sessions held during that fiscal year. L. Richard Flury, Chairman of the Compensation Committee, presided over all executive sessions during 2013. It is the policy of the Board that, to the extent possible, all Directors attend the Annual Meeting of Stockholders. All then current Directors attended the 2013 annual meeting of stockholders. +Director Independence. It is the policy of the Board that a majority of the non-employee members of the Board be independent. The Board reviewed the independence of our Directors and considered whether any Director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. In making its determination, the Board applied the listing requirements of the NYSE and the rules and regulations promulgated by the SEC, as well as the Company’s Corporate Governance Principles. After this review, the Board affirmatively determined that all of the Company’s Directors and nominees (other than Mr. Callon) are independent. The criteria applied by the Company’s Board in determining independence are available on the Company’s website at www.callon.com. The Board will evaluate the independence of each non-employee Director on an ongoing basis. +Board Leadership Structure. Mr. Fred L. Callon serves as the Chairman, President and Chief Executive Officer of the Company. The Board believes that the most effective Board leadership structure is for the CEO to also serve as Chairman of the Board, a leadership structure that has served the Company well since inception, and is efficient and cost effective for the size of our company. Since the Company’s performance is an integral part of Board deliberations, the Board believes that the CEO is the Director best qualified to act as Chairman of the Board. The CEO has the most insight into the Company’s performance, opportunities and challenges and is most capable of effectively identifying and executing the business strategy adopted by our Board. The Board believes that combining the Chairman and CEO roles fosters accountability, effective decision-making and alignment on the execution of the long-term corporate strategy. +9 +Independent directors and management generally have different perspectives and roles in strategy development. Our independent Directors bring experience, oversight and expertise from outside Callon and the oil and gas industry, while the CEO brings a Callon-specific historical perspective, experience and expertise. As the Director having primary responsibility for managing the Company’s day-to-day operations, and most capable of effectively identifying strategic priorities, the CEO is best positioned to lead the Board through reviews of key business and strategy decisions. This effectively promotes the opportunity for a successful blend of the Company’s independent Directors’ perspectives and oversight responsibilities and facilitates information flow and communication between senior management and the Board, which are both essential to effective governance. Further, the Company has four standing committees, each of which is comprised entirely of independent Directors, including the Compensation Committee, which both objectively and subjectively evaluates Mr. Callon’s performance and determines his compensation. The Board believes that each of these measures counterbalances any risk that may exist in having Mr. Callon serve as the Chairman, President and CEO. The Board does not have an independent lead director. +The role of our Chairman is to oversee and ensure Board effectiveness, and in his capacity as Chairman, Mr. Callon has the following responsibilities: +● +schedules all meetings of the Board; +● +establishes Board meeting agendas; +● +chairs meetings of the Board and the Annual Meeting of Stockholders; +● +ensures that the flow of information provided to the Board is timely, complete, and accurate; +● +communicates with all Directors on key issues and concerns outside of Board meetings; +● +represents the Company to and interacts with external stockholders; and +● +assists the Board and executive officers in assuring compliance with and implementation of the Company’s governance principles. +Standing Committees of the Board of Directors +In order to facilitate the various functions of the Board, the Board currently has four standing committees: Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Strategic Planning Committee, each of which are each comprised solely of independent Directors. Each committee has a written charter that has been approved by the Board, which sets forth guidance on the role of the chairman of such committee and the roles and responsibilities of the committee as a whole. These committees are more fully described below: +Audit Committee Functions and Responsibilities +The principal function of the Audit Committee is to assist the Board in overseeing the areas of financial reporting and accounting integrity. The Board has determined that all members meet the independence requirements of the SEC and NYSE rules and the financial literacy requirements of the NYSE. Members of the Audit Committee may not simultaneously serve on the audit committee of more than three other public companies. The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and Nocchiero. The Board has determined that Mr. Wallace and Mr. Nocchiero have the accounting or financial management expertise to be considered a “financial expert,” as defined and required by the NYSE rules and the Exchange Act. Pursuant to its charter, our Audit Committee functions in an oversight role and has the following purposes: +● +overseeing the quality, integrity and reliability of the financial statements and other financial information we provide to any governmental body or the public; +● +overseeing our compliance with legal and regulatory requirements; +● +overseeing the qualifications, independence and performance of the independent auditor; +● +overseeing the effectiveness and performance of our internal audit function; +● +overseeing our systems of internal controls regarding finance, accounting, legal compliance and ethics; +10 +● +overseeing our procedures for monitoring compliance with our Code of Business Conduct and Ethics; +● +establishing and overseeing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or audit matters, including the confidential, anonymous submission of concerns regarding such matters; +● +producing the Audit Committee Report for inclusion in our annual proxy statement; and +● +performing such other functions our Board may assign to the Audit Committee from time to time. +The Audit Committee oversees the accounting and auditing procedures and financial reporting practices of the Company, and is responsible for the engagement of and oversight of all audit work conducted by the Company’s independent registered public accounting firm. The Audit Committee meets periodically, generally quarterly, with the Company’s management, internal auditor and its independent registered public accounting firm to review the Company’s financial information and systems of internal controls. The independent registered public accounting firm reports directly to the Audit Committee and, if requested, meets with the Audit Committee in executive session without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary. +The Audit Committee is required to pre-approve all audit, audit-related and non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The Audit Committee approved all of the fees described below in Proposal 3. +During 2013, the Audit Committee held five meetings and did not execute any unanimous written consents. All members of the Audit Committee attended each meeting. +Relationship with Independent Registered Public Accounting Firm. Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) (United States) and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public accounting firm, served as the Company’s independent registered public accounting firm during 2012 and 2013 and was appointed by the Audit Committee to serve in that capacity for 2014. +Compensation Committee Functions and Responsibilities +The purpose of the Compensation Committee is to establish the Company’s compensation policies and oversee the administration of our compensation program. The Compensation Committee is currently comprised of Messrs. Flury (Chairman), McVay, Wallace Nocchiero and Trimble. Consistent with the listing requirements of the NYSE, the Compensation Committee is composed entirely of independent members of the Company’s Board - each member meets the independence requirements set by the NYSE and applicable federal securities laws. Pursuant to its charter, our Compensation Committee’s duties include the responsibility to: +● +review, evaluate, and approve our agreements, plans, policies, and programs to compensate our CEO; +● +review with the CEO the compensation of our executive offices; +● +review incentive compensation arrangements to confirm that executive compensation does not encourage unnecessary risk taking; +● +review matters relating to management succession; +● +administer our long-term incentive plans; +● +review and discuss with the Company’s management, the Compensation Discussion and Analysis (“CD&A”); +● +produce an annual report of the Compensation Committee; +● +review and recommend to the Board compensation for non-employee Directors; +11 +● +retain and oversee compensation consultants, including the independence of the consultants; +● +otherwise discharge our Board’s responsibilities relating to compensation of our officers and Directors; and +● +perform such other functions as our Board may assign to the Compensation Committee from time to time. +The Committee retained the services of Meridian Compensation Partners LLC, an independent compensation consulting firm, to assist in the annual review of market and industry data to assess the Company’s competitive position with respect to each element of total compensation and to ensure the attraction, retention and appropriate reward to the Company’s CEO and other executive officers. During 2013, the Compensation Committee held four meetings and executed two unanimous written consents. All members of the Compensation Committee attended each meeting. +Compensation Committee Interlocks and Insider Participation. None of the Company’s executive officers served as a member of the Board or Compensation Committee (or other Board committee performing similar functions or, in the absence of any such committee, the entire Board) of any other entity that has one or more of its executive officers serving on the Company’s Compensation Committee. +Nominating and Corporate Governance Committee Functions and Responsibilities +The Nominating and Corporate Governance Committee is currently comprised of Messrs. Nocchiero (Chairman), Flury, McVay, Wallace and Bob. Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws. Pursuant to its charter, the Nominating and Corporate Governance Committee’s duties include the responsibility to assist the Board in: +● +identifying individuals qualified to be nominated for election to the Board and to recommend to the Board a slate of Director nominees for election at the annual meetings; +● +recommending to the Board the members and chairperson for each Board committee; +● +periodically reviewing and assessing the Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics, and the various Board committee charters, and making recommendations for changes thereto to the Board; +● +overseeing the annual self-evaluation of the performance of the Board and its committees; +● +overseeing and approving plans for management continuity and succession; +● +recommending to the Board a successor to the CEO when a vacancy occurs; and +● +performing other such functions as the Board may assign to the Nominating and Corporate Governance Committee from time to time. +The Nominating and Corporate Governance Committee held two meetings during 2013. All members of the Committee attended each meeting. +Director Identification and Selection. The Nominating and Corporate Governance Committee has established criteria it considers as guidelines in considering nominations to the Company’s Board and evaluates potential nominees based on the contribution such nominee’s background and skills could have upon the overall functioning and chemistry of the Board.. The key criteria include: +● +experience in the Company’s industry, with relevant social policy concerns, and an understanding and general acceptance of our current corporate strategy; +● +personal characteristics, including such matters as integrity, education, diversity of experience, absence of potential conflicts of interest with the Company or its operations, and the availability and willingness to devote sufficient time to the duties of a Director of the Company; +● +experience in corporate management, such as serving as an officer or former officer of a publicly held company; +● +experience as a board member of another publicly held company; +● +academic expertise in an area of the Company’s operations; and +● +practical and mature business judgment. +12 +The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the Board may consider other qualifications and attributes that they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board. The Committee’s goal is to assemble a Board that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. Although the Committee does not have a formal diversity policy, the Committee considers a number of factors regarding diversity of personal and professional backgrounds, competencies, specialized skills and business acumen, and breadth of experience in the oil and natural gas E&P industry, finance, accounting or law, and race and gender. +In accordance with the Company’s Certificate of Incorporation, any stockholder may nominate a person for election to the Board upon delivery of written notice to the Company of such nomination. Such notice must be sent as provided in our Certificate on or before the deadline set forth in our Certificate, and must otherwise comply with the procedures set forth in our Certificate of Incorporation. For nominations at the 2015 Annual Meeting, the Board will consider individuals identified by stockholders on the same basis as nominees identified from other sources. +In making its nominations, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue their service. Current members with proven service and a record of quality contribution to the Board and the qualifications and skills that are consistent with the Committee’s criteria for Board service are re-nominated. As to vacancies, the Committee will generally poll the Board members and members of management for recommendations. The Committee may also review the composition and qualification of the boards of directors of the Company’s competitors, and may seek input from industry experts or analysts. The Committee may in the future choose to engage third-party search firms in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate for membership in the Board. +Strategic Planning Committee Functions and Responsibilities +The Strategic Planning Committee is currently comprised of Messrs. McVay (Chairman), Flury, Wallace, Nocchiero, Bob and Trimble. This Committee meets periodically during the year, generally prior to the scheduled quarterly Board meetings, to review the progress of the Company’s capital expenditure budget and to evaluate recent trends in the independent oil and gas industry that may have an impact on the Company’s current business strategy for the remainder of the year. The Committee shall consist of no fewer than three members of the Board. The Strategic Planning Committee was created to oversee the responsibilities of the Board relating to strategic planning, including: +● +organizing and overseeing the Board’s participation in the development of a strategic plan, including the risk assessment and management process; +● +monitoring the implementation progress of the strategic plan, and advising the Board if additional Board action appears to be needed to assure successful implementation of the plan or if a need exists to revise the plan in the face of changing conditions or other factors; +● +assuring that management is addressing the personnel requirements for the successful implementation of the strategic plan; and +● +assisting management and the Board with its oversight of the integrity of the determination of the Company’s oil, natural gas and natural gas liquids reserves and the work of the Company’s independent petroleum reservoir and reserve engineering firm. +The Strategic Planning Committee held two meetings during 2013. All members of the Strategic Planning Committee attended both meetings during 2013. +Corporate Governance Matters +Corporate Governance Principles . The Company believes that good corporate governance is important to ensure that Callon is managed for the short-term and long-term benefit of its stockholders. Available on the Company website, www.callon.com, under the “About Callon – Governance” caption, are copies of the Company’s: +● +Corporate Governance Guidelines; +● +Code of Business Conduct and Ethics; +● +Audit Committee Charter; +● +Compensation Committee Charter; +13 +● +Nominating and Corporate Governance Committee Charter; and the +● +Strategic Planning Committee Charter +Any amendments to or waivers of the foregoing documents will also be posted on the Company’s website. Copies of these documents are available in print, free of charge, to any stockholder upon written request to the Company’s Corporate Secretary. +Ethics. The Company’s Code of Business Conduct and Ethics sets forth the policies and expectations applicable to every Director, officer and employee. The Code addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Code meets the NYSE’s requirements for a code of business conduct and ethics, as well as the SEC’s definition of a code of ethics applicable to the Company’s senior officers. Neither the Board nor any Board committee has ever granted a waiver of the Code. +Board Risk Oversight. As an independent E&P company, we face a number of risks, including risks associated with exploring for, developing, producing and delivering oil and natural gas, supply of and demand for oil and natural gas, volatility of oil and natural gas prices, declining production, environmental and other government regulations and taxes, and overall economic environment. Assessing and managing risk is the responsibility of the management of the Company, while our Board, as a whole and through its committees, has responsibility for the oversight of risk management and undertakes risk management reviews to identify and evaluate these risks and to develop plans to mitigate them effectively. The Board routinely receives reports on specific areas of risk inherent in their respective areas of oversight, including, but not limited to, our financial results, the status of our operations, our derivatives strategy, our safety performance, and other aspects of implementation of our business strategy . +The Board oversees the interests of our stockholders in our long-term viability, financial strength and success. Additionally, each of the Board committees considers the risks within its areas of responsibilities. The Company’s Audit Committee, among other duties, is charged with overseeing material financial risk exposures in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. The Audit Committee also oversees responses to any alleged violations of the Company’s policies made by whistleblowers. The Compensation Committee reviews and attempts to mitigate risks that may result from the Company’s compensation policies. The Company’s Nominating and Corporate Governance Committee focuses on issues relating to Board and Board committee composition and assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our Directors and executive officers, and corporate governance matters. The Strategic Planning Committee organizes and oversees the Board’s participation in the risk assessment and management process as it relates to the development and implementation of the Company’s strategic plan and the integrity of the oil and natural gas reserve estimation reporting process and disclosure. +The Board also believes that its risk management oversight role is facilitated by the Company’s leadership structure. By combining the positions of Chairman of the Board and CEO, the Board gains a valuable perspective that combines the operational expertise of a member of management, with the oversight focus of a member of the Board. +Communication with Directors. Stockholders may communicate with the full Board, independent Directors as a group, or individual Directors, by sending a letter in care of the Corporate Secretary at Callon Petroleum Company, P. O. Box 1287, Natchez, MS 39121. The Company’s Corporate Secretary has the authority to discard any solicitations, advertisements, or other inappropriate communications, but will forward any other mail to the named Director or group of Directors. Any mail that is directed to the full Board will be directed to Mr. Callon as Chairman of the Board and, if appropriate, forwarded to the full Board. +14 +Executive Officers +In March 2014, we announced several changes to our executive officers. Mr. B.F. Weatherly resigned as our Chief Financial Officer, but continues as our Executive Vice President, Corporate Secretary and Chief Administrative Officer. Mr. Joseph C. Gatto, Jr. was appointed our Senior Vice President, Chief Financial Officer and Treasurer. Roger W. Smith, Vice President, Treasurer and Principal Accounting Officer, retired in March 2014. Mitzi P. Conn continued as our Corporate Controller and has been designated as our Principal Accounting Officer to replace Mr. Smith. Mr. H. Clark Smith, Chief Information Officer, also retired in March 2014. The following table sets forth the names, ages and positions of our current executive officers: +Name +Age +Positions Held With Us +Fred L. Callon +64 +Director, Chairman of the Board, President and Chief Executive Officer +B. F. Weatherly +69 +Executive Vice President, Corporate Secretary and Chief Administrative Officer +Gary A. Newberry +59 +Senior Vice President, Operations +Joseph C. Gatto, Jr. +43 +Senior Vice President, Chief Financial Officer and Treasurer +John G. Weihe +61 +Vice President, Exploration +Jerry Weant +55 +Vice President, Land +Mitzi P. Conn +44 +Corporate Controller and Principal Accounting Officer +The following is a brief description of the background and principal occupation of each executive officer: +Fred L. Callon , Chairman of the Board of Directors, President and Chief Executive Officer. Please see above for the biography of Mr. Callon. +B. F. Weatherly is the Executive Vice President, Corporate Secretary and Chief Administrative Officer for the Company. He has been a member of the Board since 1994 and Executive Vice President and CFO of the Company since 2006. Effective March, 2014, Mr. Weatherly stepped down as CFO of the Company, but will continue as Corporate Secretary and Chief Administrative Officer. Mr. Weatherly will resign from the Board effective as of the Annual Meeting. Prior to joining the management of the Company in November 2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. Mr. Weatherly received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc. +Mitzi P. Conn has been our Corporate Controller since May 2007, and effective March 31, 2014, Mrs. Conn was also appointed Principal Accounting Officer of the Company. Prior to May 2007, she served as Assistant Controller since May 2004. Mrs. Conn has held various other positions in finance and accounting since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She received her B.S. degree in accounting from Southeastern Louisiana University in 1990 and is a member of the American Institute of Certified Public Accountants and the Mississippi Society of Certified Public Accountants. +Joseph C. Gatto, Jr. joined the Company in April 2012 as Senior Vice President, Corporate Finance, with responsibility for our capital markets and strategic planning functions, in addition to investor relations activities. Effective March 31, 2014, Mr. Gatto was appointed Chief Financial Officer and Treasurer of the Company. Prior to joining Callon, Mr. Gatto was a Managing Director in the energy investment banking groups of Merrill Lynch & Co. and Barclays Capital from July 1997 until February 2009, with involvement in all phases of M&A and capital raising transactions for his clients. In February 2009, he founded MarchWire Capital, LLC, a financial advisory and strategic consulting firm, and subsequently served as Head of Structuring and Execution with Merrill Lynch Commodities, Inc. from January 2010 until November 2011. Mr. Gatto graduated from Cornell University with a BS degree in 1992 and The Wharton School of the University of Pennsylvania with an MBA in 1997. +Gary A. Newberry joined the Company in April 2010 as Vice President – Production and Development. In September 2010, Mr. Newberry was promoted to Senior Vice President – Operations. After graduation he joined Marathon Oil Company as a Production and Drilling Engineer working in Alaska, the Gulf of Mexico, and the Rockies. He held various supervisory and management roles of increasing responsibility over production and drilling operations in the mid-continent, Alaska and the Permian Basin. As a Business Unit Leader, Mr. Newberry was responsible for all upstream business activity in Oklahoma, Alaska, and the Rockies and served as Marathon’s Worldwide Operations Manager. Mr. Newberry retired from Marathon Oil Company after 33 years of service. Mr. Newberry graduated from Marietta College in 1977 with a B.S. degree in Petroleum Engineering. +Jerry Weant joined the Company in September, 2013, as Vice President, Land. Mr. Weant joined Callon from Pioneer Natural Resources, an independent oil and gas company, where he was focused on Midland Basin operations, acting as a liaison with Permian Basin asset teams and coordinating internal efforts for the assessment of horizontal drilling programs. Mr. Weant spent the first 27 years of his career working as a landman in Midland, Texas, including working for Texaco, Inc. Pogo Producing, Inc., as well as other independents. He holds a Bachelor of Business Administration/Petroleum Land Management from the University of Texas and is a Certified Professional Landman and a member of the American Association of Professional Landmen and the Permian Basin Landmen's Association. +John G. Weihe is Vice President of Exploration. Prior to being appointed to this position in August 2012, Mr. Weihe had served as Manager of Exploration for the Company since 2000. Prior thereto, he held senior exploration and development positions for ENI, British-Borneo Exploration Incorporated, and Unocal Corporation. Mr. Weihe received a Bachelor of Science degree in Geophysical Engineering from the Colorado School of Mines in 1983, and a MBA from the University of Houston C.T. Bauer School of Business in 1996. +15 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE +NAMED EXECUTIVE OFFICER COMPENSATION +The Company seeks a non-binding advisory vote from its stockholders to approve the compensation of its Named Officers as described in this Proxy Statement. The Board recognizes that executive compensation is an important matter for our stockholders. As described in detail in the “Executive Compensation” section and elsewhere in this Proxy Statement, the Compensation Committee is tasked with the implementation of our executive compensation philosophy. The core of that philosophy has been, and continues to be, to pay our executive officers based on our performance and tying a significant portion of executive pay to the achievement of long-term value for stockholders. +As described in the CD&A, we believe our compensation program is effective, appropriate and strongly aligned with the long-term interests of our stockholders and that the total compensation package provided to the Named Officers are reasonable and not excessive. As you consider this Proposal 2, we urge you to read the CD&A section of this Proxy Statement for additional details on executive compensation. Further, in determining whether to approve this proposal, we believe that stockholders should also consider the following: +● +Independent Compensation Committee. Executive compensation is reviewed and established by a Compensation Committee of the Board consisting solely of independent Directors. The Compensation Committee meets in executive session, without executive officers present, in determining annual compensation. The Compensation Committee receives data, analysis and input from an independent compensation consultant that is not permitted to perform any additional services for Callon management. +● +Performance-Based Incentive Compensation. Elements of performance-based incentive compensation are largely aligned with financial and operational objectives established in the Board-approved annual operating plan. +● +Elimination of Tax Gross-ups. Started in 2011, executive officers are not eligible for a tax related gross-up on any element of current and future compensation. +● +“Double Trigger” Severance Agreements with Fixed Term . Callon’s change in control severance agreements with executive officers require an actual or constructive termination of employment before benefits are paid following any change in control. +● +Long-Term Incentive Plans. Our long-term incentive plans generally include three-year minimum vesting periods for time-based awards, and prohibit repricing or exchange of outstanding option awards. +● +Stock Ownership Guidelines. The Company’s Named Officers are subject to stock ownership guidelines described in CD&A. +Our Board of Directors unanimously recommends that stockholders vote “FOR” the following resolution: +“RESOLVED, that the compensation paid to Callon’s Named Officers, as disclosed in Callon’s 2014 Proxy Statement (including the Compensation Discussion and Analysis, the compensation tables and related footnotes and narrative disclosures under the heading “Executive Compensation and Other Related Information”), is hereby approved.” +Although this vote is advisory and is not binding on the Board, the Compensation Committee of the Board values the input and views of Callon stockholders. The Board and the Compensation Committee will review the results of the vote and consider them when considering future executive compensation policies and decisions. For a review of the results of the previous three years vote, which reflect overwhelming validation from our stockholders of our pay philosophy and approach, please see the Role of Stockholder Say-on-Pay Advisory Vote summary in the CD&A section. +The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required to approve this resolution on a non-binding basis. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions will have the effect as a vote cast against the proposal. Broker non-votes will be counted as present for purposes of determining the presence of a quorum, but will have no effect upon the outcome of the vote. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “ FOR ” APPROVAL OF THIS RESOLUTION. +16 +PROPOSAL 3 +RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP, FOR 2014 +The Audit Committee has appointed Ernst & Young LLP, independent registered public accounting firm, to audit the financial statements of the Company for the year ending December 31, 2014. We are asking stockholders to ratify this appointment. Ernst & Young has served as the Company’s independent registered public accounting firm and audited the Company’s consolidated financial statements beginning with the fiscal year ended December 31, 2002. +Fees +The following table sets forth the fees, net of expenses, incurred by us in fiscal years 2012 and 2013 for services performed by Ernst & Young LLP: +2012 +2013 +Audit Fees (1) +$ +515,022 +$ +487,500 +Audit Related Fees (2) +— +— +Tax Fees (3) +18,250 +17,700 +All Other Fees (4) +121,600 +Total Fees +$ +533,272 +$ +626,800 +(1) +Audit fees are fees paid to Ernst & Young LLP for professional services related to the audit and quarterly reviews of our financial statements and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. +(2) +Audit related fees are fees paid to Ernst & Young LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported above under “Audit Fees.” +(3) +Tax fees are fees paid for tax compliance (including filing state and federal tax returns), tax advice and tax planning. Tax fees do not include fees for services rendered in connection with the audit. +(4) +Other fees for professional services during the fiscal year included services for the preferred offering, S-8 filing, and the SEC Rule 3-05 audit associated with the sale of the offshore properties. +Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee pre-approves all audit services and non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy in accordance with the Audit Committee charter. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of any such member to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its next scheduled meeting. +Audit Committee Report +Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s audited financial statements for the year ended, December 31, 2013, with management and the Company’s independent registered public accounting firm, and recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. This recommendation was based on: +● +the Audit Committee’s review of the audited financial statements; +● +discussion of the financial statements with management; +● +discussion with the Company’s independent registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, issued by the Public Company Accounting Oversight Board; +17 +● +receipt from Ernst &Young LLP of the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); +● +discussions with Ernst & Young LLP regarding its independence from the Company and its management; +● +Ernst & Young LLP’s confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries and the results of their operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America; and +● +other matters the Audit Committee deemed relevant and appropriate. +Management is responsible for the preparation and presentation of the Company’s audited financial statements, the establishment and maintenance of our disclosure controls and procedures, and the establishment, maintenance and evaluation of the effectiveness of our internal controls over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of our financial statements and internal control over financial reporting according to the standards of the PCAOB and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. +Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by management and the Company’s independent registered public accounting firm. The Audit Committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements and internal control over financial reporting have been carried out according to the standards of the PCAOB, that the financial statements are presented according to GAAP standards, or that Ernst & Young LLP is in fact independent. +Respectfully submitted by the Audit Committee of the Board of Directors, +John C. Wallace, Chairman +L. Richard Flury +Larry D. McVay +Anthony J. Nocchiero +If the stockholders do not ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014, the Audit Committee may, but is not required to, reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. A representative of Ernst & Young LLP will be present at the 2014 Annual Meeting and will have the opportunity to make a statement, if they desire, and to respond to appropriate questions from stockholders. +The affirmative vote of the holders of a majority of the shares of the Company’s common stock represented in person or by proxy at the Annual Meeting entitled to vote on such proposal is required for the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2014. Abstentions will have the effect as a vote cast against the proposal. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “ FOR ” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2014. +18 +BENEFICIAL OWNERSHIP OF SECURITIES +Management and Principal Stockholders +The following table sets forth, as of the March 31, 2014, certain information with respect to the ownership of shares of common stock held by: (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding common stock; (ii) each Director; (iii) the nominees for Director; (iv) each of the executive officers named in the Summary Compensation Table; and (v) all executive officers and Directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of common stock has been obtained from filings made by the named beneficial owners with the SEC as of the Record Date or, in the case of executive officers and Directors of the Company, has been provided to the Company by such individuals. +Common Stock +Name and Address of Beneficial Owner +Beneficial Ownership +Percent +Directors: +Fred L. Callon +399,132 +(a)(b) +* +L. Richard Flury +142,066 +(a)(c) +* +Larry D. McVay +100,462 +(a)(d) +* +Anthony J. Nocchiero +63,916 +(a)(e) +* +John C. Wallace +-- +(a)(f) +* +Matthew R. Bob +0 +(a) +* +James M. Trimble +0 +(a) +* +B. F. Weatherly +282,846 +(a)(g) +* +Named Officers: +Gary A. Newberry +189,596 +(a)(h) +* +Joseph C. Gatto, Jr. +33,054 +(a)(i) +* +John G. Weihe +125,409 +(a)(j) +* +Directors and Executive Officers: +As a Group (11 persons) +1,336,481 +(k) +3.30 +% +Certain Beneficial Owners: +BlackRock, Inc +3,378,393 +(l) +8.40 +% +40 East 52 nd Street +New York, NY 10022 +Franklin Resources, Inc. +2,900,000 +(m) +7.20 +% +One Franklin Parkway +San Mateo, CA 94403 +Wellington Management Company, LLP +2,902,223 +(n) +7.19 +% +280 Congress St. +Boston, MA 02210 +Jeffery E. Eberwein +2,480,000 +(o) +6.10 +% +Lone Star Value Management, LLC +53 Forest Avenue, 1 st Floor +Old Greenwich, CT 06870 +_______________ +* Less than 1% +a) +Unless otherwise indicated, each of the persons listed in the table may be deemed to have sole voting and dispositive power with respect to such shares. Beneficial ownership does not include the unvested portion of stock awards due to lack of voting and disposition power, unless such award will vest within sixty days of March 31, 2014. Percentage ownership of a holder or class of holders is calculated by dividing (i) the number of shares of common stock beneficially owned by such holder or class of holders plus the total number of shares of common stock underlying options exercisable or stock awards vesting within sixty days of March 31, 2014, by (ii) the total number of shares of common stock outstanding plus the total number of shares of common stock underlying options exercisable and stock awards vesting within sixty days of March 31, 2014, but not common stock underlying such securities held by any other person. +19 +b) +Of the 399,132 shares beneficially owned by Fred L. Callon, 227,304 shares are owned directly by him; 25,215 shares are held by him as custodian for certain minor Callon family members; 93,500 shares represent unvested restricted stock units which will vest within sixty days of March 31, 2014; and 53,113 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Callon do not include 24,904 shares of common stock owned by his wife over which he disclaims beneficial ownership, 311,624 unvested restricted stock units payable in stock, 71,492 unvested restricted stock units payable in cash, and 449,027 unvested phantom units payable in cash. +c) +Of the 142,066 shares beneficially owned by L. Richard Flury, 76,484 shares are owned directly by him; 30,000 shares are held in joint tenancy with his wife; 10,000 stock options, of which 5,000 shares are subject to the 1996 Plan and 5,000 shares are subject to the 2002 Plan, exercisable within 60 days; and 25,582 shares of unvested restricted stock, which will vest within sixty days of March 31, 2014. +d) +Of the 100,462 shares beneficially owned by Larry D. McVay, 86,551 shares are owned directly by him and 13,911 shares of unvested restricted stock that will vest within sixty days of March 31, 2014, with the exception of 35,014 restricted stock units awarded in May 2012 pursuant to his election under the Deferred Compensation Plan for Outside Directors, payable in cash upon his separation of service as a Director. +e) +Of the 63,916 shares beneficially owned by Anthony J. Nocchiero, 38,335 shares are owned directly by him and 25,582 shares of unvested restricted stock that will vest within sixty days of March 31, 2014. +f) +John C. Wallace transferred his equity ownership in the Company to The Wallace Family Trust in April 2008. All equity ownership in the Company acquired by Mr. Wallace since April 2008 has also been transferred to the Wallace Family Trust, with the exception of the 18,968 restricted stock units awarded in May 2011, 22,968 restricted stock units awarded in May 2012 and 35,014 restricted stock units awarded in May 2013, pursuant to his election under the Deferred Compensation Plan for Outside Directors, all of which are payable in cash upon his separation of service as a Director, and 15,000 stock options, of which 5,000 shares are subject the 1994 Plan, 5,000 shares are subject to the 1996 Plan and 5,000 shares are subject to the 2002 Plan, exercisable within 60 days. Mr. Wallace has no voting and dispositive power over the shares owned by the Trust. +g) +Mr. Weatherly is resigning from the Board effective as of the Annual Meeting, but will continue as Corporate Secretary and Chief Administrative Officer. Of the 282,846 shares beneficially owned by B. F. Weatherly, 98,374 shares are owned directly by him; 2,288 shares are owned within his personal IRA account; 66,526 shares are held in joint tenancy with his wife; 63,750 shares represent unvested restricted stock units which will vest within sixty days of March 31, 2014; 250 shares are Series A Preferred Stock; and 51,658 shares are owned within the Company’s Employee Savings and Protection Plan. Shares indicated as beneficially owned by Mr. Weatherly do not include 132,441 unvested restricted stock units payable in stock, 34,621 unvested restricted stock units payable in cash, and 190,837 unvested phantom units payable in cash. +h) +Of the 189,596 shares beneficially owned by Gary A. Newberry, 125,079 shares are owned directly by him; 22,017 shares are owned within the Company’s Employee Savings and Protection Plan; and 42,500 shares represent unvested restricted stock units that will vest within sixty days of March 31, 2014. Shares indicated as beneficially owned by Mr. Newberry do not include 81,687 unvested restricted stock units payable in stock, 21,915 unvested restricted stock units payable in cash, and 116,705 unvested phantom units payable in cash. +i) +Of the 33,054 shares beneficially owned by Joseph C. Gatto, Jr., 24,216 shares are owned directly by him; 7,338 shares are owned within the Company’s Employee Savings and Protection Plan; and 1,500 shares are Series A Preferred Stock. Shares indicated as beneficially owned by Mr. Gatto do not include 1,610 shares of common stock owned by his mother over which he disclaims beneficial ownership, 124,612 unvested restricted stock units payable in stock, 10,225 unvested restricted stock units payable in cash, and 78,273 unvested phantom units payable in cash. +j) +Of the 125,409 shares beneficially owned by John G. Weihe, 25,633 shares are owned directly by him; 81,776 shares are owned within the Company’s Employee Savings and Protection Plan; and 18,000 shares represent unvested restricted stock units that will vest within sixty days of March 31, 2014. Shares indicated as beneficially owned by Mr. Weihe do not include 37,038 unvested restricted stock units payable in stock, 2,830 unvested restricted stock units payable in cash, and 37,609 unvested phantom units payable in cash. +20 +k) +Includes 25,000 stock options, exercisable within 60 days; 282,825 shares of unvested restricted stock which will vest within sixty days of March 31, 2014; and 215,902 shares are owned within the Company’s Employee Savings and Protection Plan. +l) +Information is based upon a Schedule 13G/A filed with the SEC on December 31, 2013 by BlackRock, Inc. In this Schedule 13G/A, BlackRock, Inc. represents that it has sole voting power with respect to 3,299,873 shares of common stock and sole dispositive power with respect to 3,378,393 shares of common stock. +m) +Information is based upon a Schedule 13G/A filed with the SEC on December 31, 2013 by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively “Franklin”). In this Schedule 13G/A, Franklin represents that it has sole voting power with respect to 2,800,000 shares of common stock and sole dispositive power with respect to 2,900,000 shares of common stock. +n) +Information is based upon a Schedule 13G filed with the SEC on December 31, 2013 by Wellington Management Company, LLP (“Wellington”). In this Schedule 13G, Wellington represents that it has sole voting power with respect to 2,499,848 shares of common stock and sole dispositive power with respect to 2,902,223 shares of common stock. +o) +Information is based upon a Schedule 13D filed with the SEC on March 9, 2014 by by Jeffrey E. Eberwein, Lone Star Value Investors, LP, Lone Star Value Co-Invest I, LP, Lone Star Value Investors GP, LLC, and Lone Star Value Management, LLC (collectively “Lone Star”). In this Schedule 13D, Lone Star represents that it is the beneficial owner of 2,480,000 shares of common stock. +With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control,” as defined in the applicable plan. +Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Exchange Act of 1934 requires our officers and Directors and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership with the SEC. Based on our review of the copies of such reports, we believe that all such reports required by Section 16(a) of the Exchange Act were in compliance with such filing requirements during the fiscal year ended December 31, 2013. +21 +COMPENSATION DISCUSSION AND ANALYSIS +Oversight of Executive Compensation Program +The Compensation Committee (“the Committee”) is appointed by the Company’s Board to assist the Board in performing its fiduciary responsibilities relating to compensation of our CEO and other executive officers. The Committee is responsible for the incentive compensation programs, which include programs that are designed for our executive management team, including our “Named Officers,” defined below. The following CD&A describes the material elements of compensation for the Company’s Named Officers. +Named Officers +We refer to the following individuals as our Named Officers during 2013: +● +Fred L. Callon, Chairman of the Board, Chief Executive Officer and President; +● +B. F. Weatherly, Executive Vice President, Corporate Secretary and Chief Administrative Officer; +● +Gary A. Newberry, Senior Vice President, Operations; +● +Joseph C. Gatto, Jr., Senior Vice President, Chief Financial Officer and Treasurer; and +● +John G. Weihe, Vice President, Exploration. +Executive Summary and 2013 Highlights +Our executive management team led the Company through significant strategic achievements during 2013. Specifically, the Company: +1. +Completed full transition from an offshore to an onshore operator: +● +Consummated the sale of the Medusa field and Gulf of Mexico shelf assets for $88 million net, the final element in the Company’s overall strategic plan to exit offshore Gulf of Mexico operations. +2. +Demonstrated operational and technical expertise: +● +Executed an aggressive horizontal drilling program, drilling 19 wells, advancing the de-risking of three zones of the horizontal Wolfcamp and delineating Sprayberry and Cline formation potential; +● +Demonstrated an average horizontal well cost of $6.7 million for average lateral lengths of 7,170’, among the lowest cost operators in the Permian Basin; +● +Increased Permian Basin production “exit rate” by 129% compared with 2012 resulting in an “exit rate” of 3,611 Boepd, exceeding previous “exit rate” guidance for 2013 of 3,500 Boepd; +● +Ended 2013 with estimated net proved reserves of 14.9 million barrels of oil equivalent (“MMBoe”), representing a 58% increase over comparable Permian Basin reserves at year-end 2012 of 9.4 MMBoe and replacing approximately 709% of 2013 Permian production; +● +Increased the Permian Basin leasehold position from 8,800 net acres in 2009 to 31,829 net acres at the end of 2013, including the acquisition of a new core development field in 2013. +3. +Further strengthened the balance sheet to provide capital for planned drilling operations and additional acquisitions: +● +Completed an underwritten public offering of 10% Series A Cumulative Preferred Stock for net proceeds of $70 million; +● +Reduced the Company’s unsecured senior notes due in 2016 by $48.5 million, which improved credit metrics and continued to reduce the Company’s cost of capital; +● +Increased the borrowing base of the Company’s secured bank facility. +4. +Operated in a safe and environmentally friendly manner: +● +Achieved an OSHA Recordable Incident Rate (“ORIR”) in the field of 0.703, which is within the range of reported ORIR of other Permian Basin operators. +22 +● +Received the prestigious 2013 Bruno Hanson Environmental Excellence Award in Midland, Texas. +As a result of these operational and financial achievements, our stock price increased by almost 27% in 2013, outperforming the SIG Oil Exploration & Production Index, as well as the S&P 500. The Committee believes that these achievements represent meaningful steps in executing the Company’s onshore growth initiatives. +The Committee took the following key compensation actions in 2013: +● +As a result of the achievements listed above, the Committee awarded bonuses above target for our Named Officers for 2013 performance. +● +In May 2013, the Committee granted long-term incentives to our Named Officers, 60% of which were tied to total stockholder return, or TSR. +● +The Committee certified the results of the 2011 grants of TSR phantom units, which measured Callon’s TSR against its peers for the 2011-2013 time periods. Callon ranked 5th out of 11 peers resulting in 100% of the targeted number of phantom units vesting. +● +Based on a review of market data, the Committee did not increase base salaries for our Named Officers. +Role of Stockholder Say-on-Pay Advisory Vote +The Committee considered the results of the 2013 non-binding advisory vote of stockholders to approve the compensation of our Named Officers, commonly referred to as “say-on-pay.” In 2011, 2012 and 2013, the first three years of say-on-pay, approximately 95%, 95.6% and 94.8% respectively of the shares voting voted for approval of our executive compensation. The Committee considered these results as evidence of broad-based stockholder support for our compensation design and philosophy, and accordingly has maintained our general approach to executive compensation described below. +Role of Independent Compensation Consultant +From time to time the Committee utilizes the expertise and objectivity of an outside, independent compensation consultant. The Committee has sole authority to retain and terminate any such consultant, including sole authority to approve the consultant’s fees and other retention terms. During 2013, the Committee retained the services of Meridian Compensation Partners, LLC (“Consultant” or “Meridian”) as its independent compensation consultant to help ensure that the Company’s executive compensation programs are competitive and consistent with the Company’s compensation philosophy. In general, the role of an outside compensation consultant is to assist the Committee with the analysis of executive pay packages or contracts and to understand the Company’s financial measures relating to compensation. The Committee is under no obligation to follow the advice or recommendations of any compensation consultant. In the decision to retain Meridian, the Committee considered: +● +the Consultant's services to the Committee with respect to 2012 compensation matters; +● +its extensive experience and familiarity with the Company’s executive compensation program and the compensation programs of the Company’s peer companies and sector; +● +the range of compensation services offered by the Consultant; +● +the absence of any business or personal relationship between the Consultant and any member of the Committee or management; and +● +the Consultant's policies and procedures designed to avoid potential conflicts of interest arising out of the provision of services with respect to Callon. +The Committee considered the independence of the Consultant in light of new SEC rules and NYSE listing standards. The Consultant provided the Committee a summary of how they fair against those standards, including the following factors: +● +other services provided to the Company by Meridian; +● +fees paid by the Company as a percentage of Meridian’s total revenue; +● +policies or procedures maintained by Meridian that are designed to prevent a conflict of interest; +23 +● +any business or personal relationships between the individual consultants involved in the engagement and members of the Committee; +● +any business or personal relationships between the Company’s executive officers and Meridian or the individual consultants involved in the engagement; and +● +any Callon equity securities owned by the individual consultants involved in the engagement. +The Committee concluded that the work of Meridian did not raise any conflict of interest. +The Consultant attended all Committee meetings, including executive sessions as needed. The Committee determined the scope of the engagement, which included: +● +providing data on executive and outside Director compensation for the Committee to use in its decision-making process; +● +providing input into plan design discussions and individual compensation actions, as needed; +● +periodically reviewing and recommending plan design updates and revisions; +● +reviewing and providing feedback on the compensation-related disclosures in this proxy statement; and +● +informing the Committee about recent trends, best practices and other developments affecting executive compensation. +The Committee considered the advice of the Consultant as only one factor in setting compensation of our Named Officers. Actual compensation decisions for Named Officers are the result of the Committee’s subjective analysis of a number of factors, including the Company’s performance, the individual officer’s performance, experience, skills and tenure with the Company, changes to the individual’s position, and trends in compensation practices within the Company’s Peer Group and industry generally. The Committee also uses its discretion to adjust any of the components of compensation to achieve the Company’s goal of recruiting, developing, motivating, and retaining individuals with the skills necessary to execute the Company’s business strategy. +The Committee established procedures that it considers adequate to ensure that the Consultant’s advice to the Committee remains objective and is not influenced by the Company’s management. The Consultant may, from time to time, contact the Company’s executive officers for information necessary to complete its assignments and may make reports and presentations to the Committee that the executive officers may also receive. While the Consultant interacts with the Company’s executive officers in order to complete its assignments and prepare its reports, the Consultant reports directly to the Committee. Meridian has not provided any services to the Company other than associated with its engagement by the Committee. +Compensation Assessment +In order to attract, motivate and retain talented executive officers, the Committee must ensure that the Company’s executive compensation program remains competitive with the types and ranges of compensation paid by our peer companies who compete for the same executive talent. On an annual basis, the Committee reviews and discusses compensation data for the Company’s CEO and other Named Officers as compared with compensation data for similarly situated executive officers at peer companies selected by the Consultant and approved by the Committee. +Each November, Meridian provides the Committee with market data from a group of peer companies (“Peer Group”) in the independent oil and gas E&P industry that are similar to Callon in terms of size (primarily assets, enterprise value, market cap, and revenue) and region of operations. The Committee uses the Peer Group market data to confirm their compensation decisions for reasonableness. The Committee does not target a specific percentile of the Peer Group, as the market data is just one factor considered by the Committee in determining compensation. The Peer Group is reviewed annually and is adjusted, as required, based on changes in the Peer Group companies’ and our assets and operations in order to ensure the continued relevance of the market data. For 2013 decisions, the Committee used market data provided by Meridian in November of 2012 from the following Peer Group: +24 +2013 Peer Group +Comstock Resources, Inc. +Crimson Exploration, Inc. +Endeavour International Corporation +Gastar Exploration Ltd. +Goodrich Petroleum Corporation +PDC Energy, Inc. +Penn Virginia Corporation +Petroquest Energy, Inc. +Resolute Energy Corporation +Rex Energy Corporation +Stone Energy Corp. +Swift Energy Company +Additionally, in 2013 the Company participated in two third-party surveys: Meridian’s 2013 Oil & Gas E&P Survey (“Meridian Survey”), and survey data provided by Effective Compensation, Inc. ("ECI"). The Meridian Survey outlines data from similarly sized E&P companies with under $3 billion in assets. ECI's Annual Oil & Gas E&P Industry Compensation Survey (“ECI Survey”) provides data for over 300 jobs found in E&P firms in the United States. The Committee references data from these surveys for our Named Officers’ positions as additional E&P industry data points to confirm the reasonableness of compensation. +The Committee understands the inherent limitations in using any peer group or data set. For example, there are fluctuations in survey participation from year to year and competition for executive talent involves companies potentially much larger than we are. The Committee does not consider data collected from any of these sources to be prescriptive. Rather, the Committee relies upon data regarding the Peer Group as reference points around which to make informed decisions about the appropriate level and form of compensation for each Named Officer. +Compensation Philosophy and Elements of Compensation +The Company’s executive compensation program is designed to attract and retain a highly qualified and motivated management team and appropriately reward individual executive officers for their contributions to the achievement of Callon’s key short-term and long-term goals. The Compensation Committee strives to align the compensation of our executive officers with the long-term interests of our shareholders by linking compensation to what the Committee views as superior company and individual performance on an annual and long-term basis. We seek to offer our executives industry-competitive compensation opportunities that directly correlate pay with the performance of the Company and the executive team, considering short-term performance against Company goals and long-term TSR relative to our Peer Group. A significant portion of each executive's compensation is variable and based on these performance parameters. While the Committee has no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term compensation, we have designed the components of the Company’s compensation programs, so that as an executive’s responsibility increases, the compensation mix is generally weighted more heavily toward performance-based and at-risk compensation and less heavily toward base salary, while being mindful that the overall mix remains competitive. +The Committee believes that a mix of long-term incentives payable in cash and stock, a portion of which has time-based vesting and a portion of which vests based on TSR, achieves the Company’s goals of incentivizing our executive officers, and aligns their interests with those of our stockholders. The compensation environment for qualified executives in the oil and gas industry is highly competitive, and in order to compete in this environment, the Committee believes that our executive officers’ compensation should have the following components: +25 +Component +Purpose +Philosophy Statement +Base Salary +● Pay for expertise and experience +● Attract and retain talented executives +● Provide stable compensation level +● Compete with comparable companies +● Reflective of individual skills, experience and expertise necessary to execute Callon’s business strategy +● Competitive relative to similarly-sized peers +Annual Incentive Compensation +● Motivate superior operational and financial performance +● Provide annual recognition of performance based on achievement of individual and corporate strategic objectives +● Promote and encourage pay-for-performance +● Reflective of internal equity considerations +● Goals aligned with our annual performance targets +● Modest or no reward for performance below expectations and potential for significantly increased reward for exceptional performance +● Provide balance in compensation programs and avoid encouraging undue risk-taking +● Competitive relative to similarly-sized peers +Long-Term Incentives +(restricted stock and phantom stock awards) +● Link executives’ pay to performance and align their long-term interests with those of our stockholders +● Create a significant retention hook +● Match competitive practices to attract and retain employees +● Provide a mix of equity awards that focuses executives on the long-term value and avoid encouraging undue risk-taking +● Rewards long-term performance, directly aligned with the stockholder +● Recognizes and rewards share performance relative to industry peers +● Provides a strong performance-based equity component +● Aligns compensation with sustained long-term value creation +● Allows executives to acquire a meaningful and sustained ownership stake in the Company +● Competitive relative to similarly-sized peers +Retirement and Health Benefits +● Provide financial security for employees and their families +● Ensure a financial safety net +● Provide competitive level of benefits +● Helps attract and retain executive talent and remain competitive in our industry by offering a comprehensive employee benefits package +● Provides health and welfare benefits comparable to those provided to all other employees +● Provides financial security in the event of various individual risks and maximizes the efficiency of tax-advantaged compensation vehicles +Severance Protection +● Match competitive practices to attract and retain employees +● Ensure executives consider all possible transactions to increase stockholder value related to changes in control of the Company +● Benefit levels based on peer group practices with consideration to stockholder value +● Attracts and retains executives in a competitive and changing industry, ensures executives act in the best interests of stockholders in a change in control, and settles up front any potential dispute regarding an executive’s termination. +Determination of Each Element of Compensation +Base Salaries . We provide all of our employees, including our Named Officers, with an annual base salary to compensate them for their services during the year. Our Compensation Committee recognizes that a substantial amount of competition exists in the oil and gas industry for attracting and retaining qualified management teams, particularly in the Permian Basin. We utilize salary information from other companies in our industry to compare the Company’s salary structure with those companies that compete with us for executives. +At a regularly scheduled meeting, generally in March of each year, the Committee reviews the base salary of our CEO and other Named Officers. Actual individual salary amounts reflect the Committee’s subjective analysis of a number of factors, including the individual officer’s experience, skills, contributions and tenure with Callon, changes to the individual’s position within the Company, trends in compensation practices within the our Peer Group and industry, and his or her roles and responsibilities and expected future contribution to our success. In addition, the Committee also considers the input and recommendations of Meridian regarding base salaries, as well as the input of the CEO when evaluating base salary for the other executive officers. Upon review of these various factors and noting that the base salary of our Named Officers were generally in line with our Peer Group, no increases in base salaries for any of the Named Officers were made in 2013. +26 +Annual Cash Bonus . Named Officers, senior management and other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a cash bonus. Target bonus opportunities are established each year based on the Committee’s subjective review of factors, including market data, individual contribution and experience, and historical bonus opportunities. The Committee determines actual bonus payouts for Named Officers based upon a combination of Company and individual performance factors. For 2013, the Committee made no changes to the target bonus opportunities, which are provided in the table below. +Named Officer +Target Bonus Opportunity as a Percent of Base Salary +CEO +100% +CFO and SVP Operations +90% +Other Named Officers +50-70% +Early each year, following Board approval of the annual operating budget and financial forecast for the upcoming year, the Committee sets performance expectations to be used in determining cash bonus awards for that year. While there is no formal weighting of these elements, the Committee considers each in its analysis. After the end of the performance period, the Committee meets to evaluate and develop a consensus as to the Company’s actual performance relative to these targets. To provide the Committee the flexibility to adjust for and react to unexpected events, such as changes in commodity prices or volatile capital markets, we prefer not to rely solely on a formulaic approach that result in automatic payouts. Rather, the Committee retains discretion to adjust actual awards as it views appropriate given circumstances at the time of the award. Cash bonus amounts for each of our Named Officers are determined based on the Committee’s assessment of performance relative to targets and the individual’s bonus target, and adjusted, if necessary, for superior individual performance beyond the original corporate performance guidelines. +The Committee desired to set reasonable focus points and performance expectations for 2013 bonus consideration. The Committee believes that these performance expectations , taken together, are objective indicators of overall successful performance. The Committee designed goals for each performance category for 2013 to be challenging, while recognizing uncertainties inherent to the oil and gas E&P industry. At regular meetings, the Committee periodically reviews the Company’s progress toward meeting the bonus goals for the year. In addition, the Committee also considers achievements during each year that were not initially set as specific targets. The agreed focus points, targets, and results and achievements for the year were as follows: +Focus Point +Targets and Achievements +Operate in a Safe and Environmentally Friendly Manner +The Company’s performance operating in a safe and environmentally friendly manner is a measure in our annual incentive plan because maintaining a healthy workforce is critical to ensuring execution of our business plan. Safety is a very important component of Callon’s culture and we have built a dedicated and focused HES (Health, Environmental & Safety) team committed to promoting and ensuring safe operations. There is also a strong correlation between positive long-term business performance and solid safety performance. +● Safety is measured based on an OSHA Recordable Incident Rate (“ORIR”) in the field. The Committee set a safety target of 0.5 ORIR for 2013. We achieved an ORIR rate of 0.703. The actual rate, which while slightly above the target, was within the rate range reported by other similar sized operators in the Permian Basin. +● The Committee noted that the Company was awarded the 2013 Bruno Hanson Environmental Excellence Award in Midland, Texas. +Increase Daily Production in the Permian Basin +We continue to build a track record as an excellent onshore operator . The resulting drilling opportunity portfolio, especially horizontal locations, was coupled with a focusing of the Company on the Permian Basin, concentrating on areas where management believed the Company had a competitive advantage. We are reaping the rewards of early program development efforts and have established an inventory of de-risked horizontal locations, which will maximize the value from our Permian acreage position and ensure greater production growth in years to come. +27 +● The Committee set a Permian Basin daily production “exit rate” target of 3,500 Boepd. The Company exited 2013 with net daily production rate of 3,611 Boepd (80%+ oil). On an annual basis, Permian production was 129% more than 2012 production. +● In 2013, the Company drilled seven vertical wells in the Wolfberry formation on the Company’s acreage in the Midland basin. With the addition of a second horizontal rig in 2013, the Company drilled 19 horizontal development wells in the Wolfcamp shale formation, and one exploratory vertical well in the Mississippian chat formation on the Company’s acreage in Borden county in the Northern Midland Basin. +● With the addition of a Vice President of Land with extensive experience in the Permian Basin, the Company continued to execute on our strategy of expanding our acreage position through leasing and strategic acquisitions. +Increase Proved Reserves in Core Permian Basin Acreage +Growing reserves is a critical component of a healthy E&P business. Increased reserves translate into increased future revenues and, therefore, increased value for the stockholder. +● The Committee set a proved reserves additions target of 6.8 MMboe. The Company added 9.7 MMboe of net reserves in 2013 and ended 2013 with estimated net proved reserves of 14.9 million barrels of oil equivalent (“MMBoe”), representing a 58% increase over comparable Permian Basin reserves at year-end 2012 of 9.4 MMBoe, thereby exceeding the target. +● Callon’s estimated total proved reserves were 80% oil and 50% proved developed. Using SEC prescribed commodity prices, 2013 resulted in a present value of pre-tax future net cash flows discounted at 10% (“PV-10 Value”) of $301 million for the Company’s proved reserves, compared to $250 million at year-end 2012. +Increase Financial Efficiency +We have positioned the company with the financial flexibility to accommodate existing and emerging growth initiatives. The Company: +● Successfully completed an underwritten public offering of a 10% Series A Cumulative Preferred Stock and used the net proceeds to accelerate our drilling program and repaid borrowings. +● Monetized our interest in the Medusa Field and other Gulf of Mexico shelf assets for $88 million net, facilitating the repayment of $48.4 million or 50% of the Company’s 13% Senior Unsecured notes. +● Expanded our secured bank borrowing capacity and lending group, which created the opportunity for meaningful debt capacity. At year-end 2013, we had a pro-forma Debt-to Cap of 15% and have positioned the Company with near-term liquidity and the capacity for incremental long-term debt in conjunction with Senior Unsecured Notes refinancing. +Continue to Improve Operating Efficiency +We continue to achieve significant reductions in lease operating expenses (“LOE”) and enhance our horizontal drilling expertise. +● Total operational capital (including facilities and equipment, excluding acquisitions and capitalized expenses) in the Permian Basin totaled $160 million in 2013, resulting in a finding and development cost of $15.32 per barrel of oil equivalent (“Boe”). +● Established the infrastructure and water sourcing capabilities required to support multiple-well pad development at its key producing fields to improve capital efficiency. With the implementation of pad drilling, we have greatly reduced mobilization costs and enhanced the efficiency of executing our horizontal drilling program. +● Continued to develop our operational expertise, particularly in horizontal drilling, achieving significant cost reductions, with actual well costs incurred in 2013 at the low end of the range of our peers. +28 +● The Committee targeted a $13.00 LOE per Boe (before workovers); actual LOE per Boe of $11.55 LOE per Boe for the Permian Basin. +Committee Discretionary Assessment +In addition to pre-set focus points, the Committee took into account the following achievements in setting bonus compensation: +● Completion of our transition to an onshore Permian producer; +● Absolute and relative performance of our stock; +● The increase in our net asset value; +● Continued progress in building a strong technical team; +● Improving the liquids-to-gas reserves ratio; +● Formulating and executing a hedging program; and +● Managing overall risk. +At the March 2014 Compensation Committee meeting, the Committee evaluated performance against the 2013 focus points described above and determined that the management team overall met or exceeded expectations on both the financial and operational metrics, along with the achievement of other strategic goals. The Committee recognized that the Company exceeded the daily production, reserves, financial, and operating targets, and achieved a safety record well within that reported by much larger peer companies in the Permian basin, in addition to the positive discretionary assessment of other non-target achievements during the year. As a result, after reviewing the 2013 results, the Committee determined actual bonus amounts paid for 2013 performance as follows: +NAMED EXECUTIVE OFFICER +2013 ANNUAL +BONUS $ +Fred L. Callon +656,250 +B. F. Weatherly +410,000 +Gary A. Newberry +394,000 +Joseph C. Gatto, Jr. +375,000 +John G. Weihe +150,000 +Long-term Equity Incentives . The Committee administers the Company’s long-term incentive plans, including approving award recipients, determining the total number of awards, vesting of awards and performance criteria, including TSR. For the grant of equity compensation to executive officers, the Committee will typically consider information provided by the Consultant related to the overall competitive environment associated with long-term compensation. We have no program, plan or obligation that requires us to grant equity compensation on specified dates. However, the Committee follows a policy of not granting equity incentives when material non-public information exists that may affect the short-term price of the Company’s stock. +In its consideration of whether or not to make equity grants to the Company’s executive officers and, if such grants are made, the size of the grants, the Committee considers factors such as the total compensation for each of the Named Officers, company-level performance, the applicable executive officer's performance, long term compensation to executives of peer companies, the amount of equity previously awarded to the applicable executive officer, the vesting of such awards, and the recommendations of management. There is no formal weighting of these elements. For 2013 grants, the Committee approved a mix for the Company’s Named Officers of time-based awards and performance-based awards tied to relative TSR, with a portion of the time-based awards paid in cash. The following table sets forth the number of restricted stock units, phantom units and TSR phantom units awarded to the Named Officers in 2013: +29 +Name +Restricted Stock Units Payable in Common Stock (1) +Phantom Units Payable in Cash (2) +TSR Phantom Units Payable in Cash (3) +Fred L. Callon +160,378 +28,302 +271,091 +B. F. Weatherly +68,161 +12,028 +115,214 +Gary A. Newberry +40,094 +7,075 +67,773 +Joseph C. Gatto, Jr. +40,094 +7,075 +67,773 +John G. Weihe +16,038 +2,830 +27,109 +(1) +Amount represents restricted stock units vesting on May 15, 2016 and payable in Company common stock on the vesting date. +(2) +Amount represents phantom stock units vesting on May 15, 2016 and payable in cash based on closing NYSE market price of the Common Stock on the date of vesting. +(3) +Amount represents performance-based phantom units payable in cash and which will vest between 0% and 200% based on the Company’s TSR when compared to the specified peer group. The adjusted performance-based phantom units will vest on December 31, 2015. +TSR Phantom Units – Results for Performance Period Ending December 31, 2013. In May 2011, our Compensation Committee granted TSR phantom units to the Named Officers, which vested on December 31, 2013. Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance compared with the TSR of the peer group specified in the award grant, which was different than the peer group for the 2013 TSR phantom unit awards. Callon ranked 5 th out of 11 peer companies for the May 2011 performance awards that vested December 31, 2013. As a result, the target number of shares were paid. +Description of TSR Phantom Shares . On the grant date, an employee is awarded a number of “TSR phantom shares.” The TSR phantom shares vest if the employee continues to be employed until the vesting date specified in the TSR phantom share award. When the TSR phantom shares vest, the executive is entitled to a cash payment equal to the fair market value of the “adjusted” TSR phantom shares. TSR is the change in the stock price plus dividends using a 20-day average at the beginning and end of the performance period. The number of adjusted TSR phantom shares is calculated by comparing Callon’s TSR to the TSR of a peer group specified in the award agreement, according to the following schedule: +Callon’s TSR Rank versus Peers +Phantom Units Vesting as a Percentage of Target +1 - 2 +200 % +3 - 4 +150 % +5 - 8 +100 % +9 - 10 +50 % +11- 13 +0 % +Perquisites and Other Benefits . Benefits represent a relatively small part of the Company’s overall compensation package. However, these benefits help attract and retain senior level executives and are reviewed annually to ensure that they are competitive with industry norms. We provide benefits that are common in the oil and gas exploration industry to all of the Company’s employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents, group life insurance for employees and their spouses, accidental death and dismemberment coverage for employees, long-term disability, a Company sponsored cafeteria plan and a 401(k) employee savings and protection plan. The Company pays the full costs of these benefits. Employee life insurance amounts surpassing the Internal Revenue Service maximum are treated as additional compensation to all employees. The Company’s 401(k) contribution to each qualified participant, including the Named Officers, is calculated based on 5% of the employee’s IRS eligible salary, excluding annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, including amounts deferred by Named Officers, up to a maximum of 5% of IRS eligible compensation. The Company pays all administrative costs to maintain the plan. +The Company’s executive officers are entitled to certain benefits, or perquisites, that are not otherwise available to all of the Company’s employees. We provide the Company’s CEO, CFO and other executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service’s annual lease value method for personal use of the vehicle. We also pay the annual premium for our CEO’s term life insurance policy, for which he is the sole beneficiary and which the Company has no economic interest in the proceeds. The costs associated with these benefits for the Named Officers are reported as “Other Compensation” in the Summary Compensation Table. The Committee feels these perquisites are common to the oil and gas industry and considers the value of such benefits in determining total compensation of the Company’s executives. +30 +Severance Protection. The Company does not have any employment agreements with its executive officers. We believe, however, that providing consistent, competitive levels of severance protection to senior executives helps minimize distraction during times of uncertainty and helps to retain key employees. To align with market practices, facilitate the Company’s ability to attract and retain executives, and ensure all Named Officers are motivated to consider transactions that could increase stockholder value, we have entered into change-in-control severance compensation agreements with the Company’s executive officers, which include continued salary, benefits and accelerated vesting of equity awards. We believe that these provisions create important retention tools for us, such as providing for accelerated vesting of equity awards upon a termination of employment in connection with a change in control, which provides employees with value in the event of a termination of employment that was beyond management’s control. In addition, we believe that it is important to provide the Named Officers with a sense of stability, both in the midst of transactions that may create uncertainty regarding their future employment and post-termination as they seek future employment. We believe post-termination payments allow management to focus their attention and energy on making the best objective business decisions that are in the best interest of the Company without allowing personal considerations to cloud the decision-making process. +These agreements include non-competition, non-solicitation, and non-disclosure provisions. In addition, the agreements contain a “claw back” provision that will apply in the event the executive violates any of these provisions in order to protect the Company if the benefits are triggered. None of the agreements includes an excise tax gross-up provision. The Committee chose not to provide guaranteed severance benefits outside of a change-in-control. +Risk Assessment Related to our Compensation Structure +The Compensation Committee believes our compensation plans are appropriately structured to encourage long-term value creation and are not reasonably likely to have a material adverse effect on the Company. The Committee, with assistance of the Consultant, reviewed the elements of executive compensation during 2013 to determine whether any portion of executive compensation encouraged excessive risk taking. The Company’s management conducted a similar risk assessment with respect to other employees. Upon evaluation of those assessments, the Committee and management concluded that the Company’s compensation policies and practices for the Named Officers and other employees do not present risks that are reasonably likely to have a material adverse effect on the Company. Risk mitigating features of our executive compensation program identified in the risk review included: +● +A balance of multiple performance measures rather than a single measure; +● +A balanced pay mix, with significant weighting on long-term stockholder value in our long-term incentives; +● +Performance targets measured at the corporate level, rather than at the individual or business unit level; +● +The use by the Committee of its discretion to assess annual performance in the bonus plan; +● +Capped incentive awards; +● +Reasonable change-in-control severance protections; and +● +Strong executive stock ownership requirements. +Together, the features of the Company’s executive compensation program are intended to ensure that the Company’s compensation opportunities do not encourage excessive risk taking and focus the Company’s executives on managing the Company toward long-term sustainable value for the Company’s stockholders. +Internal Revenue Service Limitations . When establishing the Company’s compensation programs, the Committee considers the effects of relevant tax laws. The Company’s programs are designed to comply with Section 409A of the tax code, which applies to nonqualified deferred compensation, in order to prevent negative tax consequences for the Company’s executives. Under Section 162(m) of the Internal Revenue Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain “covered employees” of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. However, the Committee, after taking into consideration changing business conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities, reserves the right to use its judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate. +31 +Insider Trading Policy. We have an Insider Trading Policy under which all employees, including our Named Officers and members of our Board, are prohibited from engaging in short-term or speculative transactions in the Company’s securities, including short sales, options and other derivatives, and from holding Company securities in a margin account or pledging securities as collateral for a loan during periodic “trading blackout” periods. When material non-public information about the Company may exist and may have an influence on the marketplace, a trading blackout period is placed in effect by management. +Stock Ownership Policy. The Committee believes that meaningful stock ownership by our officers and Directors is critical in aligning management’s interests with the interests of our stockholders. In March 2008, the Committee adopted a stock ownership policy, which applies to the CEO and the other Named Officers. The provisions of the policy provide for the investment position, computed on December 31 of each year, of the CEO to be no less than six times his or her base salary. For other Named Officers, the investment position shall be no less than two times base salary. Investment position is defined as calculated value of shares owned, shares owned indirectly, equivalent shares invested in the officer’s 401(k) plan, and unvested portion of time-based vesting of performance shares or restricted shares. Value attributable to shares represented by both vested and unvested stock options and the value of unvested performance-based shares or restricted shares are excluded. Each Named Officer has a period of five years from the date of adoption to attain the required investment position. If a Named Officer becomes subject to a greater investment position due to a promotion or an increase in salary, the Named Officer will be expected to attain the increased investment position within three years of the change. The Committee reserves the right to approve an alternate stock ownership guideline for Named Officers who can demonstrate a severe hardship in meeting the general guidelines. +Certain Relationships and Related Party Transactions . The Company’s Audit Committee charter provides that the Committee shall review and approve all related party transactions. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, the Company’s Code of Business Conduct and Ethics provides that an officer’s or a Director’s conflict of interest with the Company may only be waived if the Nominating and Corporate Governance Committee approves the waiver and the full Board ratifies the waiver. As of December 31, 2013, we are not aware of any related party transactions with the Company’s executive officers that may cause a conflict of interest with the Company. +Recoupment Policy. We currently have no recoupment policy applicable to annual incentive bonuses or equity awards other than those required under Sarbanes-Oxley legislation. The Committee will continue to evaluate the need to adopt such a policy. +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the CD&A required by Item 402(b) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. Based on such review and discussions, the Committee has recommended to the Board that the CD&A be included in the proxy statement relating to the 2014 Annual Meeting of Stockholders. +Respectfully submitted by the Compensation Committee of the Board, +L. Richard Flury, Chairman +Larry D. McVay +Anthony J. Nocchiero +John C. Wallace +James M. Trimble +32 +EXECUTIVE COMPENSATION +The following table set forth certain information about the compensation of our Named Officers.. +Summary Compensation Table +Name and Principal Position +Year +Annual +Salary +($) +Cash +Bonus +($) +Stock +Awards +($) +All Other +Compen sation +($)(7) +Total +($) +Fred L. Callon +2013 +525,000 +656,250 +(2) +1,641,382 +(3) +52,769 +2,875,401 +Chairman, President and +2012 +509,880 +446,250 +1,811,388 +(4) +51,280 +2,818,798 +Chief Executive Officer +2011 +464,520 +464,520 +1,156,650 +(5) +48,563 +2,134,253 +B. F. Weatherly +2013 +364,000 +410,000 +(2) +697,589 +(3) +42,217 +1,513,806 +Executive Vice President, Corporate Secretary +2012 +364,000 +278,460 +769,842 +(4) +36,177 +1,448,479 +and Chief Administrative Officer +2011 +364,000 +327,600 +788,625 +(5) +28,952 +1,509,177 +Gary A. Newberry +2013 +350,000 +394,000 +(2) +410,347 +(3) +35,448 +1,189,795 +Senior Vice President, Operations +2012 +350,000 +267,750 +498,128 +(4) +32,945 +1,148,823 +2011 +350,000 +315,000 +525,750 +(5) +30,930 +1,221,680 +Joseph C. Gatto, Jr. +2013 +300,000 +375,000 +(2) +410,347 +(3) +33,779 +1,119,126 +Senior Vice President, Chief +2012 +225,000 +(1) +178,500 +669,335 +(4)(6) +27,599 +1,100,434 +Financial Officer and Treasurer +John G. Weihe +2013 +234,406 +150,000 +(2) +164,138 +(3) +28,061 +576,605 +Vice President, Exploration +2012 +234,406 +130,000 +160,335 +(4) +28,422 +553,163 +2011 +234,406 +100,000 +196,000 +(5) +27,617 +558,023 +(1) +Mr. Gatto’s employment date was April 5, 2012 and his annual salary was $300,000. +(2) +Cash bonus awarded in March 2014 in recognition of 2013 performances. +(3) +Represents the grant date fair value of the restricted stock units and TSR phantom units granted to the Named Officers on May 15, 2013 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 7 and 8 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 12, 2014. +(4) +Represents the grant date fair value of the restricted stock units and TSR phantom units granted to the Named Officers on May 10, 2012 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 7 and 8 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013. +(5) +Represents the grant date fair value of the restricted stock units and TSR phantom units granted to the Named Officers on May 12, 2011 computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 14, 2012. +(6) +Includes the grant date fair value of the restricted stock units granted to the Named Officer on April 5, 2012 as an additional incentive for employment, computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of this amount is set forth in footnotes 9 and 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013. +(7) +See the Table of All Other Compensation and related footnotes below for reconciliation of All Other Compensation. +33 +Table of All Other Compensation +Name +Year +Company +Contributed Cash to +401(k) +($) +Company +Contributed Common Stock to 401(k) +($)(1) +Company Provided Auto +($)(2) +Company +Paid +Other +($) +Total +($) +Fred L. Callon +2013 +19,125 +6,375 +12,580 +14,689 +(3) +52,769 +2012 +18,500 +6,250 +11,625 +14,905 +(3) +51,280 +2011 +18,375 +6,125 +9,374 +14,689 +(3) +48,563 +B. F. Weatherly +2013 +19,125 +6,375 +16,717 +-- +42,217 +2012 +18,500 +6,250 +11,427 +-- +36,177 +2011 +18,375 +6,125 +4,452 +-- +28,952 +Gary A. Newberry +2013 +19,125 +6,375 +9,948 +-- +35,448 +2012 +18,500 +6,250 +8,195 +-- +32,945 +2011 +18,375 +6,125 +6,430 +-- +30,930 +Joseph C. Gatto, Jr. +2013 +19,125 +6,375 +8,279 +-- +33,779 +2012 +16,875 +5,625 +5,100 +-- +27,600 +John G. Weihe +2013 +11,720 +5,860 +10,481 +-- +28,061 +2012 +11,604 +5,802 +11,016 +-- +28,422 +2011 +11,202 +5,601 +10,814 +-- +27,617 +(1) +Subject to IRS limits, Company contributions to each person’s 401(k) account consist of a basic contribution equal to five percent (5%) of eligible annual base salary (funded one-half in cash and one-half in equivalent-valued common stock) plus a matching amount (limited to five percent (5%) of eligible annual base salary if such employee individually contributed at least eight percent (8%) of their eligible annual base salary). The number of shares contributed is determined on a monthly basis by dividing one-half of the total basic cash contribution by the closing market price on the last trading day of the month. +(2) +Represents annual depreciation based on a three-year life, plus insurance, fuel, maintenance and repairs, pursuant to IRS Reg §1.61-21, Taxation of Fringe Benefits. +(3) +Represents premiums paid by the Company on a personal life insurance policy for which Mr. Callon is the sole beneficiary. +34 +Grant of Plan-Based Awards During 2013 +The following table presents grants of equity awards during the fiscal year ending December 31, 2013: +Estimated Future Payouts Under Equity Incentive Plan Awards (1) +Name +Grant +Date +Thresh-old +(#) +Target +(#) +Maxi- +mum +(#) +All Other Stock Awards: Number of Shares of +Stock or Units +Grant Date +Fair Value +($)(4) +Fred L. Callon +05/15/13 +-- +-- +-- +160,378 +(2) +572,549 +05/15/13 +-- +-- +-- +28,302 +(3) +101,038 +05/15/13 +-- +271,091 +542,182 +-- +967,795 +B. F. Weatherly +05/15/13 +-- +-- +-- +68,161 +(2) +243,335 +05/15/13 +-- +-- +-- +12,028 +(3) +42,940 +05/15/13 +-- +115,214 +230,428 +-- +411,314 +Gary A. Newberry +05/15/13 +-- +-- +-- +40,095 +(2) +143,139 +05/15/13 +-- +-- +-- +7,075 +(3) +25,258 +05/15/13 +-- +67,773 +135,546 +-- +241,950 +Joseph C. Gatto, Jr. +05/15/13 +-- +-- +-- +40,095 +143,139 +05/15/13 +-- +-- +-- +7,075 +25,258 +05/15/13 +-- +67,773 +135,546 +-- +241,950 +John G. Weihe +05/15/13 +-- +-- +-- +16,038 +57,256 +05/15/13 +-- +-- +-- +2,830 +10,103 +05/15/13 +-- +27,109 +54,218 +-- +96,779 +(1) +Amount represents TSR phantom units payable in cash on the vesting date and which will be adjusted between 0% and 200% based on our TSR compared with the TSR of our Peer Group. The adjusted performance-based phantom units will vest on December 31, 2015. +(2) +Amount represents restricted stock units vesting on May 15, 2016 and will be settled in common stock. +(3) +Amount represents phantom units vesting on May 15, 2016 and will be settled in cash based on the closing NYSE market price of the Common Stock on the vesting date. +(4) +This column shows the grant date fair value of the awards granted to the Named Officers on the date indicated computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 8 and 9 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 12, 2014. The value ultimately realized by the executive upon the actual vesting of the awards may be more or less than the grant date fair value. +Stock-Based Incentive Compensation Plans +The 2011 Omnibus Incentive Plan (the “2011 Omnibus Plan”) was approved by stockholders on May 12, 2011. Awards available under the 2011 Omnibus Plan include grants of stock options, stock appreciation rights or units, restricted stock, restricted stock units, phantom stock or performance shares or units. As of March 31, 2014, 1,195,705 shares remain unissued within the 2011 Omnibus Plan. +35 +Outstanding Equity Awards at Fiscal Year-End +The following table contains information concerning all unexercised and unvested stock awards at December 31, 2013 for the Named Officers: +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or Units of Stock that Have Not Vested +(#) +Market +Value of Shares +or Units of Stock +that Have +Not vested +($)(7) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)(7) +Fred L. Callon +-- +-- +-- +93,500 +(3) +610,555 +16,500 +(8) +107,745 +-- +-- +-- +151,246 +(4) +987,636 +26,690 +(9) +174,286 +-- +-- +-- +160,378 +(5) +1,047,268 +28,302 +(10) +184,812 +177,936 +(1) +-- +-- +-- +-- +-- +1,161,922 +271,091 +(2) +-- +-- +-- +-- +-- +1,770,224 +B. F. Weatherly +-- +-- +-- +63,750 +(3) +416,288 +11,250 +(8) +73,463 +-- +-- +-- +64,280 +(4) +419,748 +11,343 +(9) +74,070 +-- +-- +-- +68,161 +(5) +445,091 +12,028 +(10) +78,543 +75,623 +(1) +-- +-- +-- +-- +-- +493,818 +115,214 +(2) +-- +-- +-- +-- +-- +752,347 +Gary A. Newberry +-- +-- +-- +42,500 +(3) +277,525 +7,500 +(8) +48,975 +-- +-- +-- +41,592 +(4) +271,596 +7,340 +(9) +47,930 +-- +-- +-- +40,095 +(5) +261,820 +7,075 +(10) +46,200 +48,932 +(1) +-- +-- +-- +-- +-- +319,526 +67,773 +(2) +-- +-- +-- +-- +-- +442,558 +Joseph C. Gatto, Jr. +-- +-- +-- +66,667 +(6) +435,336 +-- +-- +-- +-- +-- +17,850 +(4) +116,561 +3,150 +(9) +20,570 +-- +-- +-- +40,095 +(5) +261,820 +7,075 +(10) +46,200 +10,500 +(1) +-- +-- +-- +-- +-- +68,565 +67,773 +(2) +-- +-- +-- +-- +-- +442,558 +John G. Weihe +-- +-- +-- +18,000 +(3) +117,540 +-- +-- +-- +-- +-- +21,000 +(4) +137,130 +-- +-- +-- +-- +-- +16,038 +(5) +104,728 +2,830 +(10) +18,840 +10,500 +(1) +-- +-- +-- +-- +-- +68,565 +27,109 +(2) +-- +-- +-- +-- +-- +177,022 +(1) +Amount represents performance-based phantom units settleable in cash on the vesting date and which will be adjusted between 0% and 200% based on the Company’s TSR compared to the Company specified peer group. The adjusted performance-based phantom units will vest on December 31, 2014. +(2) +Amount represents performance-based phantom units settleable in cash on the vesting date and which will be adjusted between 0% and 200% based on the Company’s TSR compared to the Company specified peer group. The adjusted performance-based phantom units will vest on December 31, 2015. +(3) +Represents restricted stock units awarded May 12, 2011 and are settleable in stock on the May 12, 2014 vesting date. +(4) +Represents restricted stock units awarded May 10, 2010 and are settleable in cash on the May 10, 2015 vesting date. +(5) +Represents restricted stock units awarded May 15, 2013 and are settleable in cash on the May 15, 2016 vesting date. +(6) +Represents restricted stock units awarded April 5, 2012 and are settleable in stock. Units ratably vest one-third on each July 1 beginning 2013. +(7) +Amounts calculated based on the December 31, 2013 the Company’s common stock closing price as quoted on the NYSE of $6.53 per share. +(8) +Represents phantom stock units awarded May 12, 2011 and are settleable in cash on the May 12, 2014 vesting date. +(9) +Represents phantom stock units awarded May 10, 2012 and are settleable in cash on the May 10, 2015 vesting date. +(10) +Represents phantom stock units awarded May 15, 2013 and are settleable in cash on the May 15, 2016 vesting date. +36 +Option Exercises and Stock Vested +The following table provides information about the value realized by the Named Officers on option exercises, vesting of restricted stock units, phantom units, and TSR phantom unit award payouts during 2013: +Number of +Shares Acquired +on Exercise +(#)(1) +Value +Realized On +Exercise +($) +Number of +Shares Acquired +on +Vesting +(#) +Value +Realized on +Vesting +($)(8) +Fred L. Callon +-- +359,150 +(2) +106,250 +(5) +387,812 +68,719 +(3) +B. F. Weatherly +-- +244,875 +(2) +85,000 +(5) +310,250 +54,975 +(3) +Gary A. Newberry +-- +163,250 +(2) +85,000 +(6) +310,250 +54,975 +(4) +Joseph C. Gatto, Jr. +-- +-- +33,333 +(7) +114,999 +John G. Weihe +-- +65,300 +(2) +22,500 +(5) +82,125 +(1) +There were no options exercised by any Named Officer in 2013. +(2) +Includes the value of the vesting of performance-based phantom units on December 31, 2013 and settled in cash. The value realized reflects the taxable value to the Named Officer as of the date of the vesting of performance-based phantom unit awards. +(3) +Represents restricted stock units awarded May 7, 2010 and were settleable in cash on the May 7, 2013 vesting date. +(4) +Represents restricted stock units awarded September 22, 2010 and were settleable in cash on the May 7, 2013 vesting date +(5) +Represents restricted stock awarded May 7, 2010 and were settleable in stock on the May 7, 2013 vesting date. +(6) +Represents restricted stock units awarded September 22, 2010 and were settleable in stock on the May 7, 2013 vesting date. +(7) +Represents 100,000 restricted stock units awarded April 4, 2011 and are settleable in stock. Units vest one-third on each subsequent July 1 st anniversary date following the award date. +(8) +Represents the aggregate dollar amount realized on the date of the vesting of the restricted stock based on the market price of a share of Company stock on the NYSE on the vesting date. +37 +Potential Payments Upon Termination or Change-in-Control +The following table shows the estimated gross taxable compensation payable upon termination following a change in control or upon death, disability or retirement. No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2013. In presenting this disclosure, we describe amounts earned through December 31, 2013 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company, the estimates are of the amounts which would be paid out to the executives upon their termination. +Name and Reason for Termination +Base +Salary +($)(3) +Cash +Bonus +($)(3) +Accelerated +Stock Award +Vesting +($)(4) +Continued +Employee +Benefits +($)(5)(6) +Total +($) +Fred L. Callon +Change in Control (1) +1,529,640 +1,529,640 +6,044,449 +128,036 +9,231,765 +Death, Disability, or Retirement (2) +-- +-- +6,044,449 +-- +6,044,449 +B. F. Weatherly +Change in Control (1) +728,000 +655,200 +2,753,368 +54,558 +4,191,126 +Death, Disability, or Retirement (2) +-- +-- +2,753,368 +-- +2,753,368 +Gary A. Newberry +Change in Control (1) +700,000 +630,000 +1,716,130 +55,986 +3,102,116 +Death, Disability, or Retirement (2) +-- +-- +1,716,130 +-- +1,716,130 +Joseph C. Gatto, Jr. +Change in Control (1) +600,000 +420,000 +1,391,608 +55,986 +2,467,595 +Death, Disability, or Retirement (2) +-- +-- +1,391,608 +1,391,608 +John G. Weihe +Change in Control (1) +468,812 +281,287 +623,465 +55,986 +1,429,550 +Death, Disability, or Retirement (2) +-- +-- +623,465 +-- +623,465 +(1) +The Company entered into a Severance Compensation Agreement with each of the Named Officers listed in the table above. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(2) +“Disability” is generally defined as the employee’s inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six continuous months together with the reasonable likelihood, as determined by the Board after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee’s attainment of an age which the Board determines to be consistent with normal retirement age. +(3) +In accordance with Mr. Callon’s Severance Compensation Agreement, the computation uses a three-year multiple with respect to the severance amount relating to salary and target bonus, while a two-year multiple is used for the other Named Officers. See “Employment Agreements, Termination of Employment and Change-in-Control Arrangements.” +(4) +The amounts are computed based on unvested stock awards at December 31, 2013 using the closing price of the Company’s common stock on the NYSE on the last trading day of 2013, at $6.53 per share. +(5) +Benefits consist of thirty-six months of employer provided family medical and dental insurance, life insurance, dependent life insurance, accidental death coverage and disability coverage for Mr. Callon and twenty-four months for the other Named Officers in the table. +(6) +Mr. Callon’s amount includes an additional allotment for each of the three years representing premiums paid on a life insurance policy for which the Company does not have any beneficial interest. +38 +Employment Agreements, Termination of Employment and Change-in-Control Arrangements +Employment Agreements. We do not have employment agreements with any of our executive officers. +Severance Compensation Agreements. The Company entered into Severance Compensation Agreements (“SCA”) with each of our Named Officers. The SCA will terminate, except to the extent that any obligation of the Company thereunder remains unpaid as of such time, upon the earliest of: (1) December 31, 2014, provided, however, that, on each anniversary date thereafter, the expiration date shall automatically be extended for one additional year unless, immediately prior to such anniversary date, either party shall have given written notice that it does not wish to extend this SCA, but in no event shall the expiration date be earlier than the second anniversary of the effective date of a change of control; (2) the termination of the Named Officer’s employment with Callon based on death, disability (as defined in the SCA), or cause (as defined in the SCA); and (3) the voluntary resignation of the Named Officer for any reason other than good reason (as defined in the SCA). +Pursuant to the SCA, if the executive incurs a “separation from service” from the Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and other authoritative guidance issued thereunder) without cause by the Company or for good reason by him within two years following a change of control of the Company (or in certain cases, prior to a change of control), then the executive is entitled to a single lump-sum cash payment (payable on the date that is six months following the triggering event) in an amount equal to three times the sum (with respect to Mr. Callon) of: (a) the annual base salary in effect immediately prior to the change of control or, if higher, in effect immediately prior to the separation from service, and (b) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the change of control occurs, based on a forecast that has been approved by the Board of the results for the fiscal year in which the change of control occurs. For the other Named Officers, the salary and bonus multiple is two times. In addition, the Company must maintain at its expense until thirty-six months after a separation from service all life, disability, medical, dental, accident, and health insurance coverage for Mr. Callon. For the other Named Officers, the continued benefit period is twenty-four months. If the executive’s employment is terminated because of his death or disability, the Company is only required to make such payments if the termination occurred within six months after a change of control. “Good reason” is generally defined in the SCA as a change in the executive’s compensation, benefits, position, responsibilities, or location. A change of control is generally defined in the SCA as: (i) any person or group of persons acting in concert shall have become the beneficial owner of more than 50% of the outstanding common stock of the Company; (ii) the stockholders of the Company shall cause a change in the majority of the members of the Board within a twelve-month period; or (iii) the Company or its stockholders shall enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company. +The SCAs also provide that, upon a change of control, all stock options shall automatically become fully exercisable and all performance shares, restricted stock, stock appreciation rights and other similar rights held by the executive shall become fully vested, provided, however, that such acceleration of vesting shall not occur if it would be an impermissible acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of vesting as a result of provisions in existence prior to a change of control, any plan or agreement, or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the total value of the outstanding and unvested stock rights as of the date of separation from service. +The SCAs incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the “net-best” provision included in the SCA is appropriate. If any payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. +Compensation of Non-Management Directors +Each non-management Director receives compensation consisting of only an annual retainer of $40,000 per year, with an additional $20,000 per year for the chairman of the Audit Committee, an additional $15,000 per year to the chairman of the Compensation Committee, an additional $10,000 per year to the chairman of the Nominating and Corporate Governance Committee, and an additional $10,000 to the chairman of the Strategic Planning Committee. Each non-management Director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In addition to cash compensation, the Compensation Committee may, from time to time, grant awards under our long-term incentive plans. During 2013, the Compensation Committee awarded shares of restricted stock with equivalent value equal to $125,000 each to Messrs. Flury, McVay, Wallace and Nocchiero. The restricted stock will vest on the earlier of: (a) the first anniversary of the grant date, provided that grantee continues to be a member of the Board (or is otherwise providing services to the Company as an employee) through such date; or (b) the date grantee ceases to provide any services to the Company as an employee or Director, other than for cause, after reaching age 60. The Compensation Committee may determine in its sole discretion that the restricted stock shall vest on a “qualified separation from service.” For purposes hereof, a “qualified separation from service” is defined as a separation from service, other than for cause, following a minimum of five years of tenure on the Board and occurring within five years prior to Grantee attaining the age 60. The table below indicates the total compensation earned and paid during 2013 for each non-management Director: +39 +Non-Management Director Compensation for 2013 +Name +Fees Earned or Paid in Cash +($)(1) +Stock +Awards +($)(6) +Option +Awards +($) +All Other +Compensation +($) +Total +($) +L. Richard Flury +55,000 +(2) +125,000 +-- +-- +180,000 +Larry D. McVay +50,000 +(3) +125,000 +-- +-- +175,000 +John C. Wallace +60,000 +(4) +125,000 +(7) +-- +-- +60,000 +Anthony J. Nocchiero +50,000 +(5) +125,000 +-- +-- +175,000 +(1) +Does not include reimbursement of expenses associated with attending the Board meetings. +(2) +Represents annual retainer of $40,000 and an additional $15,000 for acting as chairman of the Compensation Committee. +(3) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Strategic Planning Committee. +(4) +Represents annual retainer of $40,000 and an additional $20,000 per year for acting as chairman of the Audit Committee. +(5) +Represents annual retainer of $40,000 and an additional $10,000 for acting as chairman of the Nominating and Corporate Governance Committee. +(6) +Amounts calculated utilizing the provisions of FASB ASC Topic 718. See notes 7 and 8 of the consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2013 regarding assumptions underlying valuation of equity awards. +(7) +Mr. Wallace elected to have his restricted stock award deferred pursuant to the terms of a Deferred Compensation Plan for non-employee Directors, under which participants may elect to defer the receipt of the proceeds in cash until separation of service as a Director. +Fred L. Callon serves as Chairman of the Board, but does not receive any additional compensation for his services in this capacity and therefore has been omitted from the table above. Mr. Weatherly also served as a member of the Board during 2013 and did not receive any additional compensation associated with those services. Mr. Bob and Mr. Trimble were appointed to our Board in 2014 and so received no compensation from us during 2013. +Director Stock Ownership Guidelines +The Compensation Committee believes that meaningful stock ownership by our Directors is important in aligning a Director’s interests more closely with those of the Company’s stockholders. In 2012, our Compensation Committee established ownership requirements for our outside Directors. Each outside Director is required to achieve a minimum value of common stock equal to at least five times the annual retainer within next five years following adoption of the policy or election as a Director. +40 +STOCKHOLDERS’ PROPOSALS AND DIRECTOR NOMINATIONS +FOR THE 2015 ANNUAL MEETING +Stockholders who desire to present proposals at the 2015 Annual Meeting of Stockholders and to have such proposals included in the Company’s proxy materials, must submit their proposals to the Company at its principal executive offices not later than December 27, 2014. If the date of the 2015 Annual Meeting of Stockholders is changed by more than 30 days from the date of the 2014 Annual Meeting of Stockholders, the deadline for submitting proposals is a reasonable time before the Company begins to print and mail its proxy materials for its 2015 Annual Meeting of Stockholders. +If the date of the 2015 Annual Meeting of Stockholders is advanced or delayed by more than 30 calendar days from the date of the 2014 Annual Meeting of Stockholders, the Company shall, in a timely manner, inform stockholders of such change, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q. The notice will include the new deadline for submitting proposals to be included in the Company’s proxy statement and the new date for determining whether the Company may exercise discretionary voting authority because it has not received timely notice of a matter. +In order to avoid controversy as to the date on which the Company receives any such proposal, we suggest that stockholders submit their proposals by certified mail, return receipt requested, or other means that permit them to prove the date of delivery. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above or other applicable requirements. +Our Certificate of Incorporation requires that any person intending to nominate a person to serve as a Director of the Company must provide notice to the Company of the intent to nominate at least 120 days prior to the scheduled date of the 2015 annual meeting. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our Annual Report and Proxy Statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our Annual Report and Proxy Statement in the future, you should contact your bank, broker or other nominee record holder. +FINANCIAL STATEMENTS AND OTHER AVAILABLE DOCUMENTS +Financial statements of the Company for its most recent fiscal year are contained in the 2013 Annual Report to Stockholders and the Company’s Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 12, 2014. The Company’s Annual Report, the Company’s Annual Report on Form 10-K, Corporate Governance Principles, Code of Business Conduct and Ethics, and Charters of Board Committees may be accessed by stockholders on the Company’s website at www.callon.com or printed copies are available upon written request to the B. F. Weatherly, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120. +OTHER BUSINESS +The Board does not know of any matter to be acted upon at the 2014 Annual Meeting other than those described above. If other business comes before the 2014 Annual Meeting, the persons named on the proxy will vote the proxy in accordance with what they consider to be in the best interests of the Company and its stockholders. Please sign, date, and return your proxy promptly to avoid unnecessary expense. All stockholders are urged, regardless of the number of shares owned, to participate in the 2014 Annual Meeting by voting their shares. +41 +By Order of the Board of Directors +Fred L. Callon +Natchez, Mississippi +Chairman, President and +April 4, 2014 +Chief Executive Officer +42 \ No newline at end of file diff --git a/raw/proxies/0000928022/0001354488-14-001575/proxy_rpt.txt b/raw/proxies/0000928022/0001354488-14-001575/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391